914 - TerreStar Networks Inc., et al.
914 - TerreStar Networks Inc., et al.
914 - TerreStar Networks Inc., et al.
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10-15446-shl Doc <strong>914</strong> Filed 02/08/12 Entered 02/08/12 22:35:42 Main Document<br />
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Hearing Date: February 14, 2012 at 11:30 a.m. (ET)<br />
AKIN GUMP STRAUSS HAUER & FELD LLP<br />
One Bryant Park<br />
New York, New York 10036<br />
(212) 872-1000 (Telephone)<br />
(212) 872-1002 (Facsimile)<br />
Ira S. Dizengoff<br />
Arik Preis<br />
Ashleigh L. Blaylock<br />
Counsel to the Debtors and Debtors in Possession<br />
UNITED STATES BANKRUPTCY COURT<br />
SOUTHERN DISTRICT OF NEW YORK<br />
)<br />
In re: ) Chapter 11<br />
)<br />
TERRESTAR NETWORKS INC., <strong>et</strong> <strong>al</strong>., 1 ) Case No. 10-15446 (SHL)<br />
)<br />
Debtors. ) Jointly Administered<br />
)<br />
DEBTORS’ MEMORANDUM OF LAW IN SUPPORT OF CONFIRMATION OF THE<br />
JOINT CHAPTER 11 PLAN OF TERRESTAR NETWORKS INC., ET AL.<br />
1<br />
The Debtors in these chapter 11 cases, <strong>al</strong>ong with the last four digits of each Debtor‘s feder<strong>al</strong> taxpayeridentification<br />
number, are: <strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> <strong>Inc</strong>. (3931); <strong>TerreStar</strong> License <strong>Inc</strong>. (6537); <strong>TerreStar</strong><br />
Nation<strong>al</strong> Services <strong>Inc</strong>. (6319); <strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> Holdings (Canada) <strong>Inc</strong>. (1337); <strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong><br />
(Canada) <strong>Inc</strong>. (8766); and 0887729 B.C. Ltd. (1345).
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TABLE OF CONTENTS<br />
i<br />
Page(s)<br />
PRELIMINARY STATEMENT .......................................................................................................1<br />
BACKGROUND AND PLAN OVERVIEW ..................................................................................3<br />
A. The Prior Plan ..............................................................................................3<br />
B. The S<strong>al</strong>e Transaction and Subsequent Repayments of Debt ........................4<br />
i. The S<strong>al</strong>e Transaction ........................................................................4<br />
ii. The Funding Date and First Paydown .............................................5<br />
iii. The Second Paydown .......................................................................6<br />
C. The Glob<strong>al</strong> S<strong>et</strong>tlement .................................................................................7<br />
D. The Current Plan ..........................................................................................8<br />
i. Overview and Summary of the Plan ................................................8<br />
ii. Voting Status ..................................................................................10<br />
iii. Inform<strong>al</strong> Plan Objections ............................................................... 11<br />
ARGUMENT .................................................................................................................................12<br />
I. The Plan Satisfies Each Requirement for Confirmation ........................................12<br />
A. The Plan Complies with the Applicable Provisions of the<br />
Bankruptcy Code (11 U.S.C. § 1129(a)(1)) ...............................................12<br />
i. The Plan Satisfies the Classification Requirements of 11<br />
U.S.C. § 1122 .................................................................................13<br />
ii.<br />
iii.<br />
The Plan Satisfies the Seven Mandatory Plan Requirements<br />
of 11 U.S.C. §§ 1123 (a)(1)-(a)(7) .................................................15<br />
The Plan Provides for Sever<strong>al</strong> of the Discr<strong>et</strong>ionary<br />
Provisions S<strong>et</strong> Forth in 11 U.S.C. §§ 1123(b) ................................18<br />
B. The Debtors, as Plan Proponents, Have Complied with the<br />
Applicable Provisions of the Bankruptcy Code (11 U.S.C.<br />
§ 1129(a)(2)) ..............................................................................................18<br />
i. The Debtors Have Complied with the Disclosure Statement<br />
and Solicitation Requirements of 11 U.S.C. § 1125 ......................19<br />
ii.<br />
The Debtors Have Complied with the Plan Acceptance<br />
Requirements of 11 U.S.C. § 1126 ................................................20<br />
C. The Plan Has Been Proposed in Good Faith and Not by any Means<br />
Forbidden by Law (11 U.S.C. § 1129(a)(3)) ..............................................21
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D. The Plan Provides for Bankruptcy Court Approv<strong>al</strong> of Certain<br />
Administrative Payments (11 U.S.C. § 1129(a)(4)) ...................................22<br />
E. All Necessary Information Regarding the Directors and Officers of<br />
the Debtors Under the Plan Has Been Disclosed (11 U.S.C.<br />
§ 1129(a)(5)) ..............................................................................................23<br />
F. The Plan Does Not Contain Rate Changes Subject to the<br />
Jurisdiction of Any Government<strong>al</strong> Regulatory Commission (11<br />
U.S.C. § 1129(a)(6)) ..................................................................................25<br />
G. The Plan Is in the Best Interests of Creditors and Interest Holders<br />
(11 U.S.C. § 1129(a)(7)) ............................................................................25<br />
H. Acceptance by All Impaired Classes (11 U.S.C. § 1129(a)(8)) .................27<br />
I. The Plan Provides for Payment of Priority Claims (11 U.S.C.<br />
§ 1129(a)(9)) ..............................................................................................28<br />
J. The Plan Has Been Accepted by at Least One Impaired Class<br />
Entitled to Vote (11 U.S.C. § 1129(a)(10)) ................................................29<br />
K. The Plan Is Not Likely to Be Followed by Liquidation or the Need<br />
for Further Financi<strong>al</strong> Reorganization (11 U.S.C. § 1129(a)(11)) ...............30<br />
L. The Plan Provides for Full Payment of All Statutory Fees (11<br />
U.S.C. § 1129(a)(12)) ................................................................................33<br />
M. The Plan Does Not Violate the Requirement that Appropriate<br />
Treatment of R<strong>et</strong>iree Benefits Be Provided (11 U.S.C.<br />
§ 1129(a)(13)) ............................................................................................33<br />
N. The Requirements Related to Domestic Support Obligations,<br />
Unsecured Claims Against Individu<strong>al</strong> Debtors and Transfers by<br />
Nonprofit Organizations Do Not Apply to the Plan (11 U.S.C.<br />
§ 1129(a)(14), (15) and (16)) .....................................................................33<br />
O. The Plan Satisfies the ―Cram-Down‖ Requirements of 11 U.S.C.<br />
§ 1129(b) ....................................................................................................34<br />
i. The Plan Does Not Discriminate Unfairly with Respect to<br />
the Rejecting Classes .....................................................................35<br />
ii.<br />
iii.<br />
The Plan is Fair and Equitable with Respect to the<br />
Rejecting Classes ...........................................................................36<br />
The Requirement that the Bankruptcy Court May only<br />
Approve One Plan Has Been M<strong>et</strong> (11 U.S.C. § 1129(c)) ..............37<br />
ii
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P. The Princip<strong>al</strong> Purpose of the Plan is Not Avoidance of Taxes (11<br />
U.S.C. § 1129(d)) .......................................................................................37<br />
II.<br />
III.<br />
The Plan S<strong>et</strong>tlement of Claims and Controversies Is Fair and Equitable<br />
and Should Be Approved .......................................................................................37<br />
The Limited Release, Exculpation, and Injunction Provisions of the Plan<br />
Should Be Approved ..............................................................................................39<br />
A. The Debtor Release Should Be Approved .................................................40<br />
B. The Third-Party Release Should Be Approved ..........................................42<br />
C. The Injunction Should Be Approved .........................................................45<br />
D. The Exculpation Should be Approved .......................................................46<br />
IV. The Modifications to the Plan are not Materi<strong>al</strong> .....................................................49<br />
V. Request for a Waiver of Bankruptcy Rule 3020(e), 6004(h) and/or 7062 .............51<br />
CONCLUSION ..............................................................................................................................53<br />
iii
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TABLE OF AUTHORITIES<br />
CASES<br />
Page(s)<br />
A<strong>et</strong>na Cas. and Sur. Co. v. Clerk U.S. Bankr. Ct., N.Y. (In re Chateaugay Corp.),<br />
89 F.3d 942 (2d Cir. 1996).......................................................................................................14<br />
Bank of Am. Nat’l Trust & Sav. Ass’n v. 203 N. LaS<strong>al</strong>le St. P’ship,<br />
526 U.S. 434 (1999) ...........................................................................................................25, 36<br />
Bos. Post Rd. Ltd. P’ship v. FDIC (In re Bos. Post Rd. Ltd. P’ship),<br />
21 F.3d 477 (2d Cir. 1994).................................................................................................13, 34<br />
Captran Creditors’ Trust v. McConnell (In re Captran Creditors’ Trust),<br />
128 B.R. 469 (M.D. Fla. 1991) ................................................................................................47<br />
Citicorp Acceptance Co., <strong>Inc</strong>. v. Ruti-Swe<strong>et</strong>water (In re Swe<strong>et</strong>water),<br />
57 B.R. 354 (D. Utah 1985) .....................................................................................................50<br />
Deutsche Bank AG, London Branch v. M<strong>et</strong>romedia Fiber N<strong>et</strong>work, <strong>Inc</strong>. (In re<br />
M<strong>et</strong>romedia Fiber N<strong>et</strong>work, <strong>Inc</strong>.), 416 F.3d 136 (2d Cir. 2005) .......................................42, 43<br />
Enron Corp. v. New Power Co. (In re New Power Co.),<br />
438 F.3d 1113 (11th Cir. 2006) ...............................................................................................51<br />
Frito-Lay, <strong>Inc</strong>., v. LTV Steel Co., <strong>Inc</strong>. (In re Chateaugay Corp.),<br />
10 F.3d 944 (2d Cir. 1993).......................................................................................................13<br />
Heartland Fed. Sav. & Loan Ass’n v. Briscoe Enters., Ltd. II (In re Briscoe Enters., Ltd.<br />
II), 994 F.2d 1160 (5th Cir. 1993) .....................................................................................12, 31<br />
In re 203 N. LaS<strong>al</strong>le St. Ltd. P’ship,<br />
190 B.R. 567 (Bankr. N.D. Ill. 1995), aff’d, Bank of Am., Ill. V. LaS<strong>al</strong>le St. P’ship,<br />
195 B.R. 692 (N.D. Ill. 1996), aff’d 126 F.3d 955 (7th Cir. 1997), rev’d on other<br />
grounds, Bank of Am. Nat’l Trust and Sav. Ass’n v. 203 N. LaS<strong>al</strong>le St. P’ship, 523<br />
U.S. 1106 (1998) ......................................................................................................................35<br />
In re 266 Washington Assocs.,<br />
141 B.R. 275 (Bankr. E.D.N.Y. 1992) .....................................................................................30<br />
In re 500 Fifth Ave. Assocs.,<br />
148 B.R. 1010 (Bankr. S.D.N.Y. 1993 ....................................................................................13<br />
In re Adelphia Commc’ns. Corp.,<br />
368 B.R. 140 (Bankr. S.D.N.Y. 2007), aff’d, 544 F.3d 420 (2d Cir. 2008) ..........14, 25, 41, 43<br />
iv
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In re AG Consultants Grain Div., <strong>Inc</strong>.,<br />
77 B.R. 665 (Bankr. N.D. Ind. 1987) .......................................................................................24<br />
In re Am. Solar King Corp.,<br />
90 B.R. 808 (Bankr. W.D. Tex. 1988) ...............................................................................24, 51<br />
In re Aztec Co.,<br />
107 B.R. 585 (Bankr. M.D. Tenn. 1989) .................................................................................35<br />
In re B<strong>al</strong>ly Tot<strong>al</strong> Fitness of Greater N.Y., <strong>Inc</strong>.,<br />
No. 07-12395, 2007 WL 2779438 (Bankr. S.D.N.Y. Sept. 17, 2007) ............................. passim<br />
In re Buttonwood Partners, Ltd.,<br />
111 B.R. 57 (Bankr. S.D.N.Y. 1990) .......................................................................................35<br />
In re C<strong>al</strong>pine Corp.,<br />
No. 05-60200, 2007 WL 4565223 (Bankr. S.D.N.Y. Dec. 19, 2007),<br />
aff’d, 354 Fed. Appx. 479 (2d Cir. 2009) .............................................................41, 45, 48, 49<br />
In re Cellular Info. Sys., <strong>Inc</strong>.,<br />
171 B.R. 926 (Bankr. S.D.N.Y. 1994) .....................................................................................21<br />
In re Coram He<strong>al</strong>thcare Corp.,<br />
315 B.R. 321 (Bankr. D. Del. 2004) ........................................................................................14<br />
In re Drexel Burnham Lambert Grp., <strong>Inc</strong>.,<br />
138 B.R. 723 (Bankr. S.D.N.Y. 1992) ...............................................................................12, 13<br />
In re Eagle Bus Mfg., <strong>Inc</strong>.,<br />
134 B.R. 584 (Bankr. S.D. Tex. 1991), aff’d, 158 B.R. 42 (S.D. Tex. 1993)..........................24<br />
In re Enron Corp., No. 01-16034<br />
(Bankr. S.D.N.Y. July 15, 2004) [Dock<strong>et</strong> No. 19758] ............................................................30<br />
In re Eddington Thread Mfg. Co.,<br />
181 B.R. 826 (Bankr. E.D. Pa. 1995) ......................................................................................31<br />
In re FF Holdings Corp.,<br />
No. 98-37, 1998 U.S. Dist. LEXIS 10741 (D. Del. Feb. 17, 1998) ........................................14<br />
In re Freymiller Trucking, <strong>Inc</strong>.,<br />
190 B.R. 913 (Bankr. W.D. Okla. 1996) .................................................................................35<br />
In re Granite Broad. Corp.,<br />
369 B.R. 120 (Bankr. S.D.N.Y. 2007) .....................................................................................36<br />
In re Greate Bay Hotel & Casino, <strong>Inc</strong>.,<br />
251 B.R. 213 (Bankr. D.N.J. 2000) .........................................................................................14<br />
v
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In re Heritage Org., LLC,<br />
375 B.R. 230, 299 n.86 (Bankr. N.D. Tex. 2007) ...................................................................13<br />
In re Homestead Partners, Ltd.,<br />
197 B.R. 706 (Bankr. N.D. Ga. 1996) .......................................................................................8<br />
In re Ionosphere Clubs, <strong>Inc</strong>.,<br />
98 B.R. 174 (Bankr. S.D.N.Y. 1989) .......................................................................................13<br />
In re Jartran, <strong>Inc</strong>.,<br />
44 B.R. 331 (Bankr. N.D. Ill. 1984) ........................................................................................48<br />
In re Johns-Manville Corp.,<br />
68 B.R. 618 (Bankr. S.D.N.Y. 1986),<br />
aff’d in part, rev’d in part on other grounds, 78 B.R. 407 (S.D.N.Y. 1987),<br />
aff’d, Kane v. Johns-Manville Corp. (In re Johns-Manville Corp.),<br />
843 F.2d 636 (2d Cir. 1988)...............................................................................................18, 35<br />
In re Kaiser Aluminum Corp.,<br />
No. 02-10429, 2006 WL 616243 (Bankr. D. Del. Feb. 6, 2006),<br />
aff’d, 343 B.R. 88 (D. Del. 2006) ............................................................................................13<br />
In re Leslie Fay Cos.,<br />
207 B.R. 764 (Bankr. S.D.N.Y. 1997) .....................................................................................31<br />
In re Mount Vernon Plaza Cmty. Urban Redevelopment Corp. I,<br />
79 B.R. 305 (Bankr. S.D. Ohio 1987) ......................................................................................51<br />
In re Oneida Ltd.,<br />
351 B.R. 79 (Bankr. S.D.N.Y. 2006) .................................................................................41, 49<br />
In re One Times Square Assocs. Ltd. P’ship,<br />
159 B.R. 695, 703 (Bankr. S.D.N.Y. 1993) ............................................................................14<br />
In re Prudenti<strong>al</strong> Energy,<br />
58 B.R. 857 (Bankr. S.D.N.Y. 1986) .......................................................................................31<br />
In re Pub. Serv. Co. of N.H.,<br />
88 B.R. 521 (Bankr. D.N.H. 1988) ..........................................................................................48<br />
In re PWS Holding Corp.,<br />
228 F.3d 224 (3d Cir. 2000)...............................................................................................47, 48<br />
In re Repurchase Corp.,<br />
332 B.R. 336 (Bankr. N.D. Ill. 2005), aff’d, No. 04-32933 (DHC),<br />
2008 WL 4379035 (N.D. Ill. 2008) .........................................................................................31<br />
vi
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In re Sherwood Square Assocs.,<br />
107 B.R. 872 (Bankr. D. Md. 1989) ........................................................................................43<br />
In re Simplot,<br />
No. 06-00002, 2007 WL 2479664 (Bankr. D. Idaho Aug. 28, 2007) ......................................12<br />
In re Source Enters., <strong>Inc</strong>.,<br />
No. 06-11707, 2007 WL 2903954 (Bankr. S.D.N.Y. Oct. 1, 2007) ........................................49<br />
In re SGPA, <strong>Inc</strong>.,<br />
No. 01-02609, 2001 WL 34750646 (Bankr. M.D. Pa. Sept. 28, 2001) ..................................30<br />
In re Spiegel, <strong>Inc</strong>.,<br />
No. 03-11540, 2005 WL 1278094 (Bankr. S.D.N.Y. May 25, 2005) ...............................38, 41<br />
In re Texaco, <strong>Inc</strong>.,<br />
84 B.R. 893 (Bankr. S.D.N.Y. 1988) ...........................................................................21, 24, 31<br />
In re Tower Auto., <strong>Inc</strong>.,<br />
No. 05-10578 (Bankr. S.D.N.Y. July 12, 2007) ......................................................................41<br />
In re Toy & Sports Warehouse, <strong>Inc</strong>.,<br />
37 B.R. 141 (Bankr. S.D.N.Y. 1984) .......................................................................................18<br />
In re Trans World Airlines, <strong>Inc</strong>.,<br />
185 B.R. 302 (Bankr. E.D. Mo. 1995) .....................................................................................24<br />
In re W.E. Parks Lumber Co.,<br />
19 B.R. 285 (Bankr. W.D. La. 1982) .......................................................................................24<br />
In re Winn-Dixie Stores, <strong>Inc</strong>.,<br />
356 B.R. 239 (Bankr. M.D. Fla. 2006) ....................................................................................48<br />
In re WorldCom, <strong>Inc</strong>.,<br />
No. 02-13533, 2003 WL 23861928 (Bankr. S.D.N.Y. Oct. 31, 2003) ........................31, 35, 48<br />
In re Zenith Elecs. Corp.,<br />
241 B.R. 92 (Bankr. D. Del. 1999) ....................................................................................34, 48<br />
Iridium Operating LLC v. Offici<strong>al</strong> Comm. of Unsecured Creditors (In re Iridium<br />
Operating LLC), 478 F.3d 452, 462, 465 (2d Cir. 2007) .........................................................39<br />
John Hancock Mut. Life Ins. Co. v. Route 37 Bus. Park Assocs.,<br />
987 F.2d 154 (3d Cir. 1993).....................................................................................................34<br />
JPMorgan Chase Bank, N.A. v. Charter Commc’ns Operating, LLC (In re Charter<br />
Commc’ns), 419 B.R. 221 (Bankr. S.D.N.Y. 2009) ..........................................................24, 30<br />
vii
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Kane v. Johns-Manville Corp. (In re Johns-Manville Corp.),<br />
843 F.2d 636 (2d Cir. 1988).........................................................................................12, 21, 31<br />
Liberty Nat’l Enters. v. Ambanc La Mesa Ltd. P’ship (In re Ambanc La Mesa Ltd.<br />
P’ship), 115 F.3d 650 (9th Cir. 1997) ......................................................................................34<br />
Momentum Mfg. Corp. v. Employee Creditors Comm. (In re Momentum Mfg. Corp.),<br />
25 F.3d 1132 (2d Cir. 1994).....................................................................................................19<br />
Rosenberg v. XO Commc’ns, <strong>Inc</strong>. (In re XO Commc’ns, <strong>Inc</strong>.),<br />
330 B.R. 394 (Bankr. S.D.N.Y. 2005) .....................................................................................43<br />
SEC v. Drexel Burnham Lambert Grp., <strong>Inc</strong>. (In re Drexel Burnham Lambert Grp.), <strong>Inc</strong>.,<br />
960 F.2d 285 (2d Cir. 1992)...............................................................................................28, 41<br />
Teamsters Nat’l Freight Indus. Negotiating Comm. v. U.S. Truck Co., <strong>Inc</strong>. (In re U.S.<br />
Truck Co., <strong>Inc</strong>.), 800 F.2d 581 (6th Cir. 1986) ........................................................................31<br />
Upstream Energy Servs. v. Enron Corp. (In re Enron Corp.),<br />
326 B.R. 497 (S.D.N.Y. 2005) ...........................................................................................47, 48<br />
STATUTES<br />
11 U.S.C.<br />
§ 363.........................................................................................................................................37<br />
§ 507(a) ....................................................................................................................................28<br />
§ 1122...........................................................................................................................12, 13, 51<br />
§ 1123) ...............................................................................................................................12, 51<br />
§ 1123(a) ............................................................................................................................15, 17<br />
§ 1123(a)(1) .............................................................................................................................15<br />
§ 1123(a)(2) .............................................................................................................................15<br />
§ 1123(a)(3) .............................................................................................................................15<br />
§ 1123(a)(4) .............................................................................................................................15<br />
§ 1123(a)(5) .............................................................................................................................15<br />
§ 1123(a)(6) .............................................................................................................................17<br />
§ 1123(a)(7) .............................................................................................................................17<br />
§ 1123(b) ..................................................................................................................................18<br />
§ 1123(b)(3)(A) ........................................................................................................................41<br />
§ 1125...........................................................................................................................12, 18, 19<br />
§ 1125(b) ..................................................................................................................................19<br />
§ 1126...........................................................................................................................12, 18, 20<br />
§ 1126(c) ............................................................................................................................20, 27<br />
§ 1126(d) ............................................................................................................................20, 27<br />
§ 1126(f).............................................................................................................................20, 28<br />
§ 1126(g) ..................................................................................................................................28<br />
§ 1127.......................................................................................................................................51<br />
§ 1127(a) ............................................................................................................................21, 50<br />
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§ 1127(d) ..................................................................................................................................50<br />
§ 1129.......................................................................................................................................12<br />
§ 1129(a)(1) .............................................................................................................................12<br />
§ 1129(a)(2) .............................................................................................................................18<br />
§ 1129(a)(3) .......................................................................................................................22, 47<br />
§ 1129(a)(4) .............................................................................................................................22<br />
§ 1129(a)(5) .................................................................................................................23, 24, 25<br />
§ 1129(a)(6) .............................................................................................................................25<br />
§ 1129(a)(7) .................................................................................................................25, 26, 27<br />
§ 1129(a)(7)(A)(i) ....................................................................................................................26<br />
§ 1129(a)(7)(A)(ii) ...................................................................................................................26<br />
§ 1129(a)(8) .................................................................................................................27, 28, 34<br />
§ 1129(a)(9) .......................................................................................................................28, 29<br />
§ 1129(a)(10) ...........................................................................................................................30<br />
§ 1129(a)(11) .....................................................................................................................31, 32<br />
§ 1129(a)(12) ...........................................................................................................................33<br />
§ 1129(a)(13) ...........................................................................................................................33<br />
§ 1129(a)(14) ...........................................................................................................................34<br />
§ 1129(a)(15) ...........................................................................................................................34<br />
§ 1129(a)(16) ...........................................................................................................................34<br />
§ 1129(b) ............................................................................................................................28, 34<br />
§ 1129(b)(2)(B)(ii) ...................................................................................................................36<br />
§ 1129(b)(2)(C)(ii) ...................................................................................................................36<br />
§ 1129(c) ..................................................................................................................................37<br />
§ 1129(d) ..................................................................................................................................37<br />
28 U.S.C.<br />
§ 1930(a)(6) .............................................................................................................................33<br />
31 U.S.C.<br />
§ 3717.......................................................................................................................................33<br />
OTHER AUTHORITIES<br />
Fed. R. Bank. P.<br />
3017..........................................................................................................................................18<br />
3018..........................................................................................................................................18<br />
3019(a) ....................................................................................................................................50<br />
3020 .........................................................................................................................................51<br />
6004(h) ....................................................................................................................................51<br />
7062 .........................................................................................................................................51<br />
9019..........................................................................................................................................41<br />
9019(a) ....................................................................................................................................37<br />
H.R. Rep. No. 95-595 (1977) ...................................................................................................12, 18<br />
S. Rep. No. 95-989 (1978) .................................................................................................12, 18, 28<br />
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The above-captioned debtors and debtors in possession (each, a ―Debtor‖ and,<br />
collectively, the ―Debtors‖) submit this memorandum of law (the ―Memorandum‖) in support of<br />
entry of an order, substanti<strong>al</strong>ly in the form attached her<strong>et</strong>o as Exhibit A, confirming the Joint<br />
Chapter 11 Plan of <strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> <strong>Inc</strong>., <strong>et</strong> <strong>al</strong>., dated as of December 27, 2012<br />
[Dock<strong>et</strong> No. 873] (as amended from time to time, the ―Plan‖) 2 pursuant to section 1129 of title<br />
11 of the United States Code (the ―Bankruptcy Code‖). In support of this Memorandum, the<br />
Debtors respectfully state as follows:<br />
PRELIMINARY STATEMENT<br />
1. The Debtors, tog<strong>et</strong>her with their key stakeholders, have made tremendous<br />
progress since the commencement of these cases. In a dramatic change from the posture of the<br />
first five months of their Chapter 11 Cases, over the past year, the Debtors were able to formulate<br />
a successful s<strong>al</strong>e process that maximized the v<strong>al</strong>ue of these estates and to facilitate a consensu<strong>al</strong><br />
resolution of numerous substanti<strong>al</strong> contested issues that stood as obstacles to a chapter 11 plan<br />
and the Debtors‘ emergence from chapter 11. Indeed, having <strong>al</strong>ready resolved the major issues in<br />
the Chapter 11 Cases by virtue of the S<strong>et</strong>tlement, and having paid off <strong>al</strong>l of their prep<strong>et</strong>ition<br />
issued secured debt obligations and postp<strong>et</strong>ition DIP financing obligations, the Debtors stand<br />
before the Bankruptcy Court with the support of <strong>al</strong>l remaining major constituents, including the<br />
support of the overwhelming majority of creditors entitled to vote on the Plan, seeking<br />
confirmation of the Plan – a Plan that will implement the S<strong>et</strong>tlement and the distribution of the<br />
remaining s<strong>al</strong>e proceeds, and properly wind down these estates.<br />
2<br />
Capit<strong>al</strong>ized terms used but not otherwise defined herein sh<strong>al</strong>l have the meanings ascribed to such terms in<br />
the Plan or the Disclosure Statement for the Joint Chapter 11 Plan of <strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> <strong>Inc</strong>., <strong>et</strong> <strong>al</strong>.<br />
[Dock<strong>et</strong> No. 874] (as may be amended from time to time, the ―Disclosure Statement‖), as applicable.<br />
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2. As this Bankruptcy Court and <strong>al</strong>l parties in interest are aware, the Debtors have<br />
facilitated contentious negotiations among various parties with widely disparate interests over<br />
the past sixteen months. Over time, those facilitated discussions bore fruit and maximized the<br />
v<strong>al</strong>ue available for distribution to <strong>al</strong>l of the Debtors‘ creditors. Moreover, those negotiations<br />
(which culminated in sever<strong>al</strong> s<strong>et</strong>tlements, including the S<strong>et</strong>tlement, approved by this Bankruptcy<br />
Court) paved the way for a consensu<strong>al</strong> plan, which the Debtors now offer for the Bankruptcy<br />
Court‘s confirmation. As further s<strong>et</strong> forth herein, the Debtors respectfully submit that the Plan<br />
complies with <strong>al</strong>l requirements s<strong>et</strong> forth in the Bankruptcy Code, and that no objection stands in<br />
the way of confirmation of the Plan.<br />
3. As discussed more fully below, the solicitation conducted by the Debtors and the<br />
Voting Agent complies with <strong>al</strong>l applicable nonbankruptcy law requirements governing the<br />
solicitation of a chapter 11 plan, as well as <strong>al</strong>l applicable requirements of the Bankruptcy Code,<br />
the Bankruptcy Rules and the Loc<strong>al</strong> Bankruptcy Rules of the Southern District of New York (the<br />
―Loc<strong>al</strong> Rules‖). In addition, as <strong>al</strong>ready noted, the Plan is supported by <strong>al</strong>l of the Debtors‘ major<br />
creditors and, as s<strong>et</strong> forth below, holders of gener<strong>al</strong> unsecured claims in Class 3, who are the only<br />
creditors entitled to vote on the Plan, have <strong>al</strong>most unanimously voted to accept the Plan.<br />
Moreover, notwithstanding the deemed rejection of the Plan by Class 4 and the extensive<br />
noticing of the hearing on confirmation of the Plan, no objections to confirmation have been<br />
received. Fin<strong>al</strong>ly, as further s<strong>et</strong> forth below, the Debtors me<strong>et</strong> the ―cram-down‖ requirements of<br />
the Bankruptcy Code with respect to Class 4.<br />
4. Based on, among other things, the s<strong>et</strong>tlement underlying the Plan and the<br />
overwhelming support for the Plan among the Debtors‘ creditors, the Debtors respectfully assert<br />
that the Plan is in the best interests of the Debtors‘ estates and <strong>al</strong>l parties in interest. In addition,<br />
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as s<strong>et</strong> forth herein, the Debtors submit that <strong>al</strong>l of the requirements for confirmation of the Plan<br />
under Bankruptcy Code section 1129 have been satisfied and, thus, the Plan should be confirmed.<br />
A. The Prior Plan<br />
BACKGROUND AND PLAN OVERVIEW 3<br />
5. On November 5, 2010, the Debtors filed with the Bankruptcy Court, among other<br />
things, the Prior Plan and the accompanying disclosure statement. 4<br />
On December 22, 2010, the<br />
Bankruptcy Court entered orders approving, inter <strong>al</strong>ia, the adequacy of the disclosure statement<br />
[Dock<strong>et</strong> No. 312] and the solicitation procedures proposed in connection therewith [Dock<strong>et</strong> No.<br />
314].<br />
6. The only creditor that the Debtors were certain supported the Prior Plan was<br />
EchoStar, in its capacity as plan sponsor and as holder of approximately one-h<strong>al</strong>f of the Senior<br />
Secured Notes, approximately one-third of the Senior Exchangeable Notes, and approximately<br />
one-h<strong>al</strong>f of the outstanding PMCA debt. In light of the Debtors‘ concern that the Plan would<br />
lack the requisite support for confirmation, and despite the fact that EchoStar had agreed to<br />
backstop a $125 million rights offering to purchase preferred stock in connection with the Prior<br />
Plan that would have provided the Debtors with the financing necessary to emerge from chapter<br />
11, the Debtors withdrew the Prior Plan on February 16, 2011. See Dock<strong>et</strong> No. 424.<br />
3<br />
4<br />
The factu<strong>al</strong> background concerning the Debtors‘ business operations, capit<strong>al</strong> structure and prep<strong>et</strong>ition<br />
indebtedness and the events leading up to the commencement of these Chapter 11 Cases is s<strong>et</strong> forth in<br />
d<strong>et</strong>ail in the Declaration of Jeffrey W. Epstein Pursuant to Loc<strong>al</strong> Bankruptcy Rule 1007-2 in Support of<br />
First Day Pleadings (the ―First Day Declaration‖) [Dock<strong>et</strong> No. 3] and the Disclosure Statement. The<br />
factu<strong>al</strong> background contained in the First Day Declaration and the Disclosure Statement is hereby expressly<br />
incorporated by reference as if s<strong>et</strong> forth fully herein.<br />
On December 2, 8 and 28, 2010, the Debtors filed amended versions of the Prior Plan [Dock<strong>et</strong> Nos. 222,<br />
250 and 330, respectively] and accompanying disclosure statement [Dock<strong>et</strong> Nos. 223, 251 and 331,<br />
respectively].<br />
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B. The S<strong>al</strong>e Transaction and Subsequent Repayments of Debt<br />
7. B<strong>et</strong>ween February 16, 2011 and mid-April 2011, the Debtors embarked on du<strong>al</strong><br />
paths. First, the Debtors continued to run an ―inform<strong>al</strong>‖ auction process for the s<strong>al</strong>e of their<br />
ass<strong>et</strong>s. In that regard, the Debtors engaged in extensive negotiations with a potenti<strong>al</strong> st<strong>al</strong>king<br />
horse regarding the contours of a potenti<strong>al</strong> bid. Second, the Debtors engaged in restructuring<br />
negotiations with the Ad Hoc Group, the Creditors‘ Committee, Sprint and Harbinger regarding<br />
the terms of a potenti<strong>al</strong> restructuring. Despite the best efforts of <strong>al</strong>l parties in both paths, the<br />
Debtors ultimately decided to engage in a ―naked‖ auction (i.e., an auction process with no<br />
―st<strong>al</strong>king horse‖), while preserving the option<strong>al</strong>ity of continuing either of the pending du<strong>al</strong> paths<br />
to the extent that such path would provide increased v<strong>al</strong>ue for the Debtors‘ estates.<br />
i. The S<strong>al</strong>e Transaction<br />
8. On April 15, 2011, the Debtors filed a motion with the Bankruptcy Court seeking<br />
approv<strong>al</strong> of bid and auction procedures for a s<strong>al</strong>e of substanti<strong>al</strong>ly <strong>al</strong>l of the Debtors‘ ass<strong>et</strong>s<br />
[Dock<strong>et</strong> No. 533] (the ―S<strong>al</strong>e Motion‖). Pursuant to the S<strong>al</strong>e Motion, the Debtors requested that<br />
the Bankruptcy Court (a) approve the Debtors‘ proposed bid procedures (the ―Bid Procedures‖)<br />
and (b) s<strong>et</strong> a date for (i) an auction (the ―Auction‖) for the s<strong>al</strong>e of substanti<strong>al</strong>ly <strong>al</strong>l of the ass<strong>et</strong>s<br />
(the ―Ass<strong>et</strong>s‖) of the Debtors‘ estates and (ii) a hearing (the ―S<strong>al</strong>e Hearing‖) for approv<strong>al</strong> of any<br />
successful bidder (any such bidder, the ―Successful Bidder‖) at the Auction, <strong>al</strong>l as more fully s<strong>et</strong><br />
forth in the S<strong>al</strong>e Motion.<br />
9. On May 4, 2011, the Bankruptcy Court entered the revised Bid Procedures Order,<br />
which provided, among other things, that the Debtors, with the reasonable consent of the<br />
Creditors‘ Committee, could seek approv<strong>al</strong> of entry into a st<strong>al</strong>king horse agreement at any time<br />
before the Bid Deadline. In the subsequent weeks, the Debtors‘ discussions with interested<br />
parties produced a highly attractive offer with numerous benefits for the estate, and the Debtors<br />
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sought and received permission to enter into a purchase agreement (the ―Purchase Agreement‖)<br />
with the interested party that produced the highest and best offer (the ―St<strong>al</strong>king Horse Bidder‖).<br />
See [Dock<strong>et</strong> Nos. 617 and 645].<br />
10. Ultimately, the Debtors received no further bids in the Auction, and the S<strong>al</strong>e to the<br />
St<strong>al</strong>king Horse Bidder (the ―Purchaser‖) was approved. See Dock<strong>et</strong> No. 668. Pursuant to the<br />
Purchase Agreement, the Purchaser agreed to purchase substanti<strong>al</strong>ly <strong>al</strong>l of the Debtors‘ ass<strong>et</strong>s for<br />
$1.375 billion. Furthermore, and in an unprecedented move for a transaction of this size, the<br />
Purchaser agreed to pay $1.345 billion on the Funding Date after entry of the order approving the<br />
S<strong>al</strong>e – and before actu<strong>al</strong>ly receiving the ass<strong>et</strong>s it is purchasing – subject only to receipt of<br />
comp<strong>et</strong>ition and antitrust regulatory approv<strong>al</strong>s and other customary conditions s<strong>et</strong> forth in the<br />
Purchase Agreement. 5<br />
ii.<br />
The Funding Date and First Paydown<br />
11. On July 6, 2011, the Debtors filed a motion [Dock<strong>et</strong> No. 662] (the ―First<br />
Paydown Motion‖) with the Bankruptcy Court seeking to use the proceeds of the S<strong>al</strong>e to repay<br />
their outstanding secured debt obligations to decrease <strong>al</strong>l, or in the <strong>al</strong>ternative, a portion of, their<br />
secured obligations, thereby stopping (or reducing) the postp<strong>et</strong>ition interest accru<strong>al</strong> being<br />
incurred by the estates. The purpose of the First Paydown Motion was to preserve as much of<br />
the s<strong>al</strong>e proceeds as possible for the benefit of the Debtors‘ unsecured creditors. Various<br />
creditors voiced concerns with regard to the relief requested in the First Paydown Motion,<br />
however. Specific<strong>al</strong>ly, they were concerned that, inter <strong>al</strong>ia, paying in full <strong>al</strong>l of the Senior<br />
Secured Notes obligations would harm any recoveries available from the pending Lien Litigation.<br />
Therefore, on August 3, 2011, the Bankruptcy Court entered an order agreed upon by the Debtors‘<br />
5<br />
The remaining $30 million of the Purchase Price will be paid pursuant to the terms of the Purchase<br />
Agreement.<br />
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major stakeholders approving the repayment of approximately $975 million of the Debtors‘<br />
secured debt obligations [Dock<strong>et</strong> No. 730] (the ―First Paydown Order‖).<br />
The amount<br />
contemplated to be paid pursuant to the First Paydown Order was an amount that unsecured<br />
creditors agreed would not impact their recoveries in the event the Lien Litigation were<br />
successful.<br />
12. On August 11, 2011, after having fulfilled <strong>al</strong>l conditions precedent to the Funding,<br />
the Debtors received $1.345 billion in proceeds from the Purchaser (the ―Funding Date<br />
Payment‖). On that same date, and within hours of receiving the Funding Date Payment, the<br />
Debtors repaid approximately $975 million of the obligations under the (i) DIP facility<br />
(approximately $85 million), (ii) Purchase Money Credit Agreement 6 (approximately $90 million)<br />
and (iii) Senior Secured Notes Indenture ($800 million) (cumulatively, the ―First Paydown‖),<br />
thereby curbing the postp<strong>et</strong>ition interest accru<strong>al</strong> on their secured obligations and helping to<br />
maximize unsecured creditor recoveries.<br />
iii.<br />
The Second Paydown<br />
13. On September 13, 2011, the Debtors filed a second ―paydown‖ motion, seeking<br />
entry of an order authorizing the Debtors to repay certain amounts due and owing under the<br />
Senior Secured Notes Indenture (the ―Second Paydown Motion‖) [Dock<strong>et</strong> No. 768].<br />
The<br />
Second Paydown Motion was not opposed by any party, and was form<strong>al</strong>ly supported by EchoStar,<br />
the Creditors‘ Committee and Harbinger. Pursuant to the Second Paydown Motion, the Debtors<br />
sought to repay $143,959,275.00 (the ―October 5 Payment‖) due and owing under the Senior<br />
Secured Notes Indenture, which amount was approximately equiv<strong>al</strong>ent to the then outstanding<br />
6<br />
As s<strong>et</strong> forth in the Disclosure Statement, on October 12, 2011, this Court approved the PMCA 9019 Motion<br />
[Dock<strong>et</strong> No. 800] (the ―PMCA Order‖), granting the Debtors authority to repay the then outstanding<br />
amounts under the PMCA. Pursuant to the PMCA Order, on October 13, 2011, the Debtors repaid the<br />
PMCA in full.<br />
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princip<strong>al</strong> obligations under the Senior Secured Notes Indenture.<br />
On October 4, 2011, the<br />
Bankruptcy Court approved the Second Paydown Motion, and on October 5, 2011, the Debtors<br />
made the October 5 Payment to the holders of the Senior Secured Notes.<br />
C. The Glob<strong>al</strong> S<strong>et</strong>tlement<br />
14. On November 14, 2011, after sever<strong>al</strong> months of good-faith and arms‘-length<br />
negotiations with their major constituents, the Debtors filed a motion (the ―Glob<strong>al</strong> S<strong>et</strong>tlement<br />
Motion‖) seeking approv<strong>al</strong> of a stipulation and order (the ―Glob<strong>al</strong> S<strong>et</strong>tlement Order‖)<br />
authorizing the Debtors‘ entry into a consensu<strong>al</strong> glob<strong>al</strong> s<strong>et</strong>tlement (the ―Glob<strong>al</strong> S<strong>et</strong>tlement‖) by<br />
and among the Debtors and the S<strong>et</strong>tlement Parties. 7<br />
Significantly, the Glob<strong>al</strong> S<strong>et</strong>tlement<br />
resolved and s<strong>et</strong>tled <strong>al</strong>l of the outstanding pending and potenti<strong>al</strong>, form<strong>al</strong> and inform<strong>al</strong>, disputes in<br />
their Chapter 11 Cases as of the date of the Glob<strong>al</strong> S<strong>et</strong>tlement Motion, which included, among<br />
others: (a) the adversary proceeding filed by Sprint against the Indenture Trustee for the Debtors‘<br />
15% Notes (the ―Lien Litigation‖); (b) the Debtors‘ objection to proofs of claim filed by Sprint;<br />
(c) the Creditors‘ Committee‘s T2 Litigation; (d) the dispute as to wh<strong>et</strong>her the holders of the 15%<br />
Notes are due a ―make-whole‖ premium under the indenture governing the 15% Notes, and<br />
wh<strong>et</strong>her they are entitled to compound and/or default interest; (e) the motion filed by the<br />
Creditors‘ Committee to re-characterize certain prep<strong>et</strong>ition loans made by TSC to TSN as an<br />
equity contribution; (f) certain claims filed by LightSquared <strong>Inc</strong>. and LightSquared LP; and (g)<br />
various parties‘ divergent viewpoints with regard to the v<strong>al</strong>uation of the Debtors‘ ass<strong>et</strong>s, and the<br />
7<br />
The ―S<strong>et</strong>tlement Parties‖ consist of the following: (a) the statutory committee of unsecured creditors<br />
appointed in these chapter 11 cases (the ―Creditors’ Committee‖), (b) EchoStar Corporation, in its capacity<br />
as largest holder of the 15% Notes (as defined below) and as a holder of the 6.5% Notes (as defined below)<br />
(―EchoStar‖), (c) the ad hoc group of certain holders of the 15% Notes (the ―Ad Hoc Group‖), (d)<br />
Harbinger Capit<strong>al</strong> Partners Master Fund I, Ltd. and Credit Distressed Blue Line Master Fund, Ltd.<br />
(collectively, ―Harbinger‖), (e) LightSquared <strong>Inc</strong>. and LightSquared LP (collectively, ―LightSquared‖), (f)<br />
Sprint Nextel Corporation (―Sprint‖), (g) Solus Alternative Ass<strong>et</strong> Management LP (―Solus‖), and (h) U.S.<br />
Bank Nation<strong>al</strong> Association, as indenture trustee and collater<strong>al</strong> agent for the 15% Notes (the ―15% Notes<br />
Trustee‖ and, collectively with the Debtors, the Creditors‘ Committee, EchoStar, the Ad Hoc Group,<br />
LightSquared, Harbinger, Sprint, and Solus, the ―S<strong>et</strong>tlement Parties‖).<br />
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appropriate <strong>al</strong>location of expenses against such entity‘s v<strong>al</strong>uations (<strong>al</strong>l as more fully s<strong>et</strong> forth in<br />
the Glob<strong>al</strong> S<strong>et</strong>tlement Motion).<br />
15. In exchange for the above resolution of pending and impending disputes, the<br />
S<strong>et</strong>tlement Parties agreed to resolve certain claims and for the Debtors to make certain payments<br />
on account of their secured obligations and certain costs attendant therewith, including, inter <strong>al</strong>ia,<br />
the full and fin<strong>al</strong> satisfaction of the then outstanding obligations related to the 15% Notes<br />
(collectively, and as s<strong>et</strong> forth more fully in the Glob<strong>al</strong> S<strong>et</strong>tlement Order, the ―S<strong>et</strong>tlement<br />
Payments‖).<br />
16. On December 14, 2011, the Bankruptcy Court approved the Glob<strong>al</strong> S<strong>et</strong>tlement<br />
Motion and entered the Glob<strong>al</strong> S<strong>et</strong>tlement Order, as amended, and on December 16, 2011 (the<br />
―Payment Date‖), the Debtors made the S<strong>et</strong>tlement Payments.<br />
Upon entry of the Glob<strong>al</strong><br />
S<strong>et</strong>tlement Order, as noted above, <strong>al</strong>l form<strong>al</strong> and inform<strong>al</strong> disputes as of the date of the Glob<strong>al</strong><br />
S<strong>et</strong>tlement Motion, including pending adversary proceedings, motions, applications and appe<strong>al</strong>s,<br />
were released and deemed withdrawn with prejudice.<br />
D. The Current Plan<br />
i. Overview and Summary of the Plan<br />
17. On November 18, 2011, the Debtors filed with the Bankruptcy Court, among<br />
other things, the Plan and Disclosure Statement. On December 6, 2011 and December 19, 2011,<br />
the Debtors filed amended versions of the Plan [Dock<strong>et</strong> Nos. 850 and 862] and Disclosure<br />
Statement [Dock<strong>et</strong> Nos. 851 and 863]. On December 21, 2011, the Bankruptcy Court entered an<br />
order approving, inter <strong>al</strong>ia, the adequacy of the disclosure statement and the solicitation<br />
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procedures proposed in connection therewith [Dock<strong>et</strong> No. 868]. 8<br />
On December 27, 2011, the<br />
Debtors filed solicitation versions of the Plan and Disclosure Statement [Dock<strong>et</strong> Nos. 873 and<br />
874, respectively].<br />
18. The Plan, among other things, s<strong>et</strong>s forth the Debtors‘ post-Effective Date<br />
corporate structure, establishes a Liquidating Trust and provides for the treatment of Classes of<br />
Claims against and Interests in the Debtors. Specific<strong>al</strong>ly, among other things:<br />
(a)<br />
(b)<br />
(c)<br />
(d)<br />
Holders of Other Priority Claims will receive Cash in the full amount of<br />
such Allowed Other Priority Claim on the Initi<strong>al</strong> Distribution Date;<br />
On the Initi<strong>al</strong> Distribution Date, except to the extent that a holder of an<br />
Allowed Other Secured Claim agrees to a less favorable treatment, at the<br />
option of the Debtors or the Reorganized Debtors (i) each Allowed Other<br />
Secured Claim sh<strong>al</strong>l be reinstated and Unimpaired in accordance with<br />
section 1124(2) of the Bankruptcy Code, or (ii) each holder of an Allowed<br />
Other Secured Claim sh<strong>al</strong>l receive, in full satisfaction, s<strong>et</strong>tlement, release,<br />
and discharge of, and in exchange for, such Other Secured Claim, either<br />
(w) Cash in the full amount of such Allowed Other Secured Claim,<br />
including any postp<strong>et</strong>ition interest, (x) the proceeds of the s<strong>al</strong>e or<br />
disposition of the collater<strong>al</strong> securing such Allowed Other Secured Claim<br />
to the extent of the v<strong>al</strong>ue of the holder‘s secured interest in such collater<strong>al</strong>,<br />
(y) the collater<strong>al</strong> securing such Allowed Other Secured Claim and any<br />
interest on such Allowed Other Secured Claim, or (z) such other<br />
distribution as necessary to satisfy the requirements of section 1129 of the<br />
Bankruptcy Code;<br />
Each holder of an Allowed Unsecured Claim sh<strong>al</strong>l receive, in full and fin<strong>al</strong><br />
satisfaction of its Claim, its Pro Rata share (c<strong>al</strong>culated with reference to <strong>al</strong>l<br />
Allowed and Disputed Class 3 Claims against the applicable Debtor) of<br />
Liquidating Trust Interests applicable to such Debtor based on each such<br />
Debtor‘s Allocated V<strong>al</strong>ue; provided, however, that if, pursuant to Article<br />
V.G. of the Plan, the provisions of Exhibit 3 to the Plan are triggered, the<br />
treatment of holders of Allowed Claims in Class 3 sh<strong>al</strong>l be as provided in<br />
Exhibit 3 to the Plan; and<br />
On the Effective Date, <strong>al</strong>l Equity Interests sh<strong>al</strong>l be deemed cancelled and<br />
sh<strong>al</strong>l be of no further force and effect, wh<strong>et</strong>her surrendered for<br />
8<br />
On December 27, 2011, the Debtors filed the fin<strong>al</strong>ized solicitation versions of the Plan and Disclosure<br />
Statement reflecting certain non-materi<strong>al</strong> modifications to the version of the Plan that was filed with the<br />
version of the Disclosure Statement approved as having adequate information [Dock<strong>et</strong> Nos. 873 and 874].<br />
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cancellation or otherwise, and there sh<strong>al</strong>l be no distribution to the holders<br />
of Equity Interests.<br />
ii.<br />
Voting Status<br />
19. On December 29, 2011, the Debtors commenced the solicitation of votes to accept<br />
or reject the Plan (―Solicitation‖) from holders of Claims in Class 3 (the ―Voting Class‖). In<br />
connection therewith, the Debtors‘ voting agent, The Garden City Group, <strong>Inc</strong>. (the ―Voting Agent‖<br />
or ―GCG‖), distributed to holders of Claims in the Voting Class a solicitation package (the<br />
―Solicitation Package‖) containing, among other things, (i) the Plan, (ii) the Disclosure<br />
Statement, (iii) the appropriate form of b<strong>al</strong>lots (the ―B<strong>al</strong>lots‖) for each holder of a Claim in the<br />
Voting Class to vote to accept or reject the Plan, (iv) the Cover L<strong>et</strong>ter, (v) the Confirmation<br />
Hearing Notice and (vi) the Disclosure Statement Order (without exhibits). The Disclosure<br />
Statement Order established February 1, 2012 at 5:00 p.m. (ET) (the ―Voting Deadline‖) as the<br />
deadline for r<strong>et</strong>urning B<strong>al</strong>lots to the Voting Agent.<br />
20. After the Voting Deadline, the Voting Agent tabulated the votes to accept or reject<br />
the Plan reflected in the B<strong>al</strong>lots received on or before the Voting Deadline. Thereafter, the<br />
Voting Agent filed a declaration certifying the results and m<strong>et</strong>hodology for the tabulation of<br />
B<strong>al</strong>lots accepting or rejecting the Plan [Dock<strong>et</strong> No. 910] (the ―GCG Declaration‖). As s<strong>et</strong> forth<br />
in the GCG Declaration and in the table below, Class 3 voted to accept the Plan.<br />
Accepting<br />
Rejecting<br />
B<strong>al</strong>lot<br />
Count<br />
% B<strong>al</strong>lot<br />
Count<br />
Dollar Amount<br />
% Dollar<br />
Amount<br />
B<strong>al</strong>lot<br />
Count<br />
% B<strong>al</strong>lot<br />
Count<br />
Dollar<br />
Amount<br />
% Dollar<br />
Amount<br />
0887729 B.C. Ltd.<br />
1 100.00% $945.00 100.00% 0 0.00% $0.00 0.00%<br />
<strong>TerreStar</strong> License <strong>Inc</strong>.<br />
5 100.00% $176,640,840.31 100.00% 0 0.00% $0.00 0.00%<br />
10
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<strong>TerreStar</strong> Nation<strong>al</strong> Services <strong>Inc</strong>.<br />
6 100.00% $176,651,862.31 100.00% 0 0.00% $0.00 0.00%<br />
<strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> (Canada) <strong>Inc</strong>.<br />
1 100.00% $594,402.64 100.00% 0 0.00% $0.00 0.00%<br />
<strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> Holdings (Canada) <strong>Inc</strong>.<br />
0 0.00% $0.00 0.00% 0 0.00% $0.00 0.00%<br />
<strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> <strong>Inc</strong>.<br />
18 94.74% $456,733,736.55 99.999993% 1 5.26% $3,394.80 0.000007%<br />
iii.<br />
Inform<strong>al</strong> Plan Objections<br />
21. In January of 2012, the Texas Comptroller of Public Accounts (the ―Texas<br />
Comptroller‖) asserted an inform<strong>al</strong> objection that it was owed unremitted s<strong>al</strong>es and use taxes<br />
arising from the inst<strong>al</strong>lation of equipment and facilities in Texas in the approximate amount of<br />
$200,000 (including interest and pen<strong>al</strong>ties), the prep<strong>et</strong>ition portion of which the Texas<br />
Comptroller asserted was entitled to priority treatment and the postp<strong>et</strong>ition portion of which<br />
administrative treatment. Although the government<strong>al</strong> bar date had passed at that time, the Texas<br />
Comptroller argued that it had grounds for relief from the government<strong>al</strong> bar date and, on<br />
January 3, 2012, filed priority and administrative claims (Claim Nos. 143 and 144, the ―Texas<br />
Comptroller Claims‖) in the amounts of $158,520.31 and $47,881.82, respectively. As further<br />
discussed herein, the Debtors were able to reach a consensu<strong>al</strong> resolution of the Texas<br />
Comptroller Claims with the Texas Comptroller, which is s<strong>et</strong> forth in the Confirmation Order.<br />
11
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ARGUMENT<br />
I. The Plan Satisfies Each Requirement for Confirmation<br />
22. To confirm the Plan, the Bankruptcy Court must find that the Debtors have<br />
satisfied the provisions of Bankruptcy Code section 1129 by a preponderance of the evidence. 9<br />
The Debtors respectfully submit that the Plan complies with <strong>al</strong>l relevant sections of the<br />
Bankruptcy Code, including sections 1122, 1123, 1125, 1126 and 1129, the Bankruptcy Rules<br />
and applicable non-bankruptcy law. This memorandum addresses each requirement individu<strong>al</strong>ly.<br />
A. The Plan Complies with the Applicable Provisions of the Bankruptcy Code<br />
(11 U.S.C. § 1129(a)(1))<br />
23. Bankruptcy Code section 1129(a)(1) requires that a chapter 11 plan comply with<br />
the applicable provisions of the Bankruptcy Code, including, princip<strong>al</strong>ly, rules governing<br />
classification of claims and interests and the contents of a plan of reorganization. 10<br />
Accordingly,<br />
d<strong>et</strong>ermining wh<strong>et</strong>her the Plan complies with Bankruptcy Code section 1129(a)(1) requires<br />
applying sections 1122 and 1123. As explained below, the Plan complies with Bankruptcy Code<br />
sections 1122 and 1123 in <strong>al</strong>l respects.<br />
9<br />
10<br />
See In re B<strong>al</strong>ly Tot<strong>al</strong> Fitness of Greater N.Y., <strong>Inc</strong>., No. 07-12395, 2007 WL 2779438, at *3 (Bankr.<br />
S.D.N.Y. Sept. 17, 2007) (―The Debtors, as proponents of the plan, have the burden of proving the<br />
satisfaction of the elements of Sections 1129(a) and (b) of the Bankruptcy Code by a preponderance of the<br />
evidence.‖); see <strong>al</strong>so Heartland Fed. Sav. & Loan Ass’n v. Briscoe Enters., Ltd. II (In re Briscoe Enters.,<br />
Ltd. II), 994 F.2d 1160, 1165 (5th Cir. 1993) (―[t]he combination of legislative silence, Supreme Court<br />
holdings, and the structure of the [Bankruptcy] Code leads this Court to conclude that preponderance of the<br />
evidence is the debtor‘s appropriate standard of proof both under § 1129(a) and in a cramdown‖) (footnote<br />
omitted).<br />
See Kane v. Johns-Manville Corp. (In re Johns-Manville Corp.), 843 F.2d 636, 648-49 (2d Cir. 1988)<br />
(suggesting that Congress intended the phrase ―‗applicable provisions‘ in [section 1129(a)(1)] to mean<br />
provisions of Chapter 11 . . . such as section 1122 . . . .‖); In re Drexel Burnham Lambert Grp., <strong>Inc</strong>., 138<br />
B.R. 723, 757 (Bankr. S.D.N.Y. 1992) (noting that ―[t]he legislative history of § 1129(a)(1) explains that<br />
this provision embodies the requirements of §§ 1122 and 1123, respectively, governing classification of<br />
claims and the contents of the Plan‖) (citations omitted); see <strong>al</strong>so In re Simplot, No. 06-00002, 2007 WL<br />
2479664, at *14 (Bankr. D. Idaho Aug. 28, 2007) (noting that the objective of 1129(a)(1) is to assure<br />
compliance with the sections of the Bankruptcy Code governing classification and the contents of a plan<br />
reorganization); S. Rep. No. 95-989, at 126 (1978); H.R. Rep. No. 95-595, at 412 (1977).<br />
12
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i. The Plan Satisfies the Classification Requirements of 11 U.S.C. § 1122<br />
24. The classification requirements of Bankruptcy Code section 1122 provide:<br />
(a)<br />
(b)<br />
Except as provided in subsection (b) of this section, a plan may place a<br />
claim or an interest in a particular class only if such claim or interest is<br />
substanti<strong>al</strong>ly similar to the other claims or interests of such class.<br />
A plan may designate a separate class of claims consisting only of every<br />
unsecured claim that is less than or reduced to an amount that the court<br />
approves as reasonable and necessary for administrative convenience.<br />
25. The Second Circuit has recognized that, under Bankruptcy Code section 1122,<br />
plan proponents have significant flexibility to place similar claims into different classes,<br />
provided there is a ration<strong>al</strong> basis to do so. 11<br />
Courts have identified grounds justifying separate<br />
classification, including: (a) where members of a class possess different leg<strong>al</strong> rights 12 and<br />
11<br />
12<br />
See Bos. Post Rd. Ltd. P’ship v. FDIC (In re Bos. Post Rd. Ltd. P’ship), 21 F.3d 477, 482-83 (2d Cir. 1994)<br />
(finding that courts cannot prohibit separate classification of substanti<strong>al</strong>ly similar claims); Frito-Lay, <strong>Inc</strong>., v.<br />
LTV Steel Co., <strong>Inc</strong>. (In re Chateaugay Corp.), 10 F.3d 944, 956-57 (2d Cir. 1993) (finding separate<br />
classification appropriate because classification scheme had a ration<strong>al</strong> basis; separate classification based<br />
on bankruptcy court-approved s<strong>et</strong>tlement); In re 500 Fifth Ave. Assocs., 148 B.R. 1010, 1018 (Bankr.<br />
S.D.N.Y. 1993), aff’d, No. 93 Civ. 844, 1993 WL 316183 (S.D.N.Y. May 21, 1993) (<strong>al</strong>though discr<strong>et</strong>ion is<br />
not unlimited, ―the proponent of a plan of reorganization has considerable discr<strong>et</strong>ion to classify claims and<br />
interests according to the facts and circumstances of the case . . . .‖); Drexel, 138 B.R. at 757 (―Courts have<br />
found that the Bankruptcy Code only prohibits the identic<strong>al</strong> classification of dissimilar claims. It does not<br />
require that similar classes be grouped tog<strong>et</strong>her . . . .‖) (citation omitted); In re Ionosphere Clubs, <strong>Inc</strong>., 98<br />
B.R. 174, 177-78 (Bankr. S.D.N.Y. 1989) (―[A] debtor may place claimants of the same rank in different<br />
classes and thereby provide different treatment for each respective class.‖).<br />
See Drexel, 138 B.R. at 757; see <strong>al</strong>so In re Heritage Org., LLC, 375 B.R. 230, 299 n.86 (Bankr. N.D. Tex.<br />
2007) finding that if equitable subordination of one creditor in a class was appropriate, separate<br />
classification of that creditor would be necessary); In re Kaiser Aluminum Corp., No. 02-10429, 2006 WL<br />
616243, at *5 (Bankr. D. Del. Feb. 6, 2006), aff’d, 343 B.R. 88 (D. Del. 2006) (permitting classification<br />
scheme after consideration of creditors‘ leg<strong>al</strong> rights).<br />
13
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(b) where there are good business reasons for separate classification. 13<br />
26. Article III of the Plan provides for separate classification of Claims and Interests<br />
into four different Classes based upon differences in the leg<strong>al</strong> or factu<strong>al</strong> nature of those Claims<br />
and Interests or based on other relevant and objective criteria. As such, v<strong>al</strong>id business, factu<strong>al</strong><br />
and leg<strong>al</strong> reasons exist for the Plan‘s classification scheme, which ―does not offend one‘s<br />
sensibility of due process and fair play.‖ 14<br />
Administrative Claims, DIP Claims, U.S. Trustee Fees<br />
and Priority Tax Claims are not classified and are separately treated in Article II of the Plan. The<br />
Classes of Claims and Interests are as follows:<br />
Class 1<br />
Class 2<br />
Class 3<br />
Class 4<br />
Other Priority Claims<br />
Other Secured Claims<br />
Unsecured Claims<br />
Equity Interests<br />
27. Addition<strong>al</strong>ly, each of the Claims or Interests in a particular Class under the Plan is<br />
substanti<strong>al</strong>ly similar to the other Claims or Interests in such Class, and the classification structure<br />
is necessary to implement certain aspects of the Plan. Accordingly, the Debtors submit that the<br />
Plan fully complies with and satisfies the requirements of Bankruptcy Code section 1122.<br />
13<br />
14<br />
See A<strong>et</strong>na Cas. and Sur. Co. v. Clerk U.S. Bankr. Ct., N.Y. (In re Chateaugay Corp.), 89 F.3d 942, 949 (2d<br />
Cir. 1996) (finding that debtor must have a legitimate business reason supported by credible proof to justify<br />
separate classification of unsecured claims); B<strong>al</strong>ly Tot<strong>al</strong> Fitness, 2007 WL 2779438, at *3 (same). Courts<br />
have found a legitimate business reason exists where, among other things, a debtor‘s business would be<br />
adversely affected if the debtor was precluded from separately classifying creditors for purposes of treating<br />
certain groups essenti<strong>al</strong> to a reorganized debtor‘s ongoing business differently than those that are not. See,<br />
e.g., In re Coram He<strong>al</strong>thcare Corp., 315 B.R. 321, 349 (Bankr. D. Del. 2004) (―Numerous courts have held<br />
that separate classification and treatment of trade claims is acceptable if the separate classification is<br />
justified because they are essenti<strong>al</strong> to a reorganized debtor‘s ongoing business.‖) (citing In re FF Holdings<br />
Corp., No. 98-37, 1998 U.S. Dist. LEXIS 10741, at *16 (D. Del. Feb. 17, 1998)); see <strong>al</strong>so Chateaugay, 89<br />
F.3d at 949-50 (―Congress gave reorganizing debtors considerable flexibility in their treatment of gener<strong>al</strong><br />
unsecured creditors to position themselves for future economic viability.‖) (citations omitted); In re Greate<br />
Bay Hotel & Casino, <strong>Inc</strong>., 251 B.R. 213, 224 (Bankr. D.N.J. 2000) (permitting separate classification of<br />
similar claims when classification ―promotes the rehabilitative go<strong>al</strong>s of Chapter 11.‖).<br />
In re Adelphia Commc’ns. Corp., 368 B.R. 140, 246-47 (Bankr. S.D.N.Y. 2007) (quoting In re One Times<br />
Square Assocs. Ltd. P’ship, 159 B.R. 695, 703 (Bankr. S.D.N.Y. 1993), aff’d, 544 F.3d 420 (2d Cir. 2008).<br />
14
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ii.<br />
The Plan Satisfies the Seven Mandatory Plan Requirements of 11 U.S.C.<br />
§§ 1123 (a)(1)-(a)(7)<br />
28. The Plan me<strong>et</strong>s the seven mandatory requirements of Bankruptcy Code section<br />
1123(a), which requires that a plan:<br />
(a)<br />
(b)<br />
(c)<br />
(d)<br />
(e)<br />
(f)<br />
(g)<br />
designate classes of claims and interests;<br />
specify unimpaired classes of claims and interests;<br />
specify treatment of impaired classes of claims and interests;<br />
provide the same treatment for each claim or interest of a particular class,<br />
unless the holder of a particular claim agrees to less favorable treatment of<br />
such claim or interest;<br />
provide adequate means for the plan‘s implementation;<br />
provide for the prohibition of nonvoting equity securities and provide an<br />
appropriate distribution of voting power among the classes of securities;<br />
and<br />
contain only provisions that are consistent with the interests of the<br />
creditors and equity security holders and with public policy with respect to<br />
the manner of selection of the reorganized company‘s officers and<br />
directors.<br />
29. The Plan satisfies the first three requirements of Bankruptcy Code section 1123(a):<br />
designating Classes of Claims and Interests, as required by section 1123(a)(1); specifying the<br />
Classes of Claims and Interests that are Unimpaired under the Plan, as required by section<br />
1123(a)(2); and specifying the treatment of each Class of Claims and Interests that is Impaired,<br />
as required by section 1123(a)(3). 15<br />
The Plan <strong>al</strong>so satisfies Bankruptcy Code section 1123(a)(4)<br />
because the treatment of each Allowed Claim or Interest within a Class is the same as the<br />
15<br />
Plan, Article III.<br />
15
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treatment of each other Allowed Claim or Interest in that Class, 16 unless the holder of a Claim or<br />
Interest consents to less favorable treatment on account of its Claim or Interest.<br />
30. Various provisions of the Plan provide adequate means for the Plan‘s<br />
implementation, thus satisfying the fifth requirement of Bankruptcy Code section 1123(a)(5). 17<br />
Specific<strong>al</strong>ly, Article V of the Plan provides, among other things, for:<br />
(a)<br />
(b)<br />
(c)<br />
(d)<br />
(e)<br />
(f)<br />
(g)<br />
(h)<br />
(i)<br />
establishment of the Liquidating Trust to make Distributions pursuant to<br />
the Plan;<br />
a mechanism to establish an Interim TSN Trust in the event that the<br />
Closing Date does not occur on or before the Effective Date;<br />
the gener<strong>al</strong> s<strong>et</strong>tlement of Claims and Interests and other specific Plan<br />
s<strong>et</strong>tlements;<br />
issuance of the New Common Stock;<br />
the cancellation of certain securities and agreements;<br />
exemptions from registration laws for the Liquidating Trust Interests, as<br />
well as for the Interim TSN Trust Interests and Interim TSN Trust<br />
Warrants (in each case, if any);<br />
the continuation of each Debtor‘s corporate existence as a Reorganized<br />
Debtor and the vesting of ass<strong>et</strong>s in each respective Debtor;<br />
the filing of the New Certificates of <strong>Inc</strong>orporation and the New By-Laws<br />
for each of the other Reorganized Debtors;<br />
the appointment of officers and directors of the Reorganized Debtors;<br />
16<br />
17<br />
Importantly, in Class 3, <strong>al</strong>l holders of Claims are receiving the same treatment – i.e., a pro rata recovery of<br />
the Debtors‘ <strong>al</strong>located v<strong>al</strong>ue from the S<strong>al</strong>e Proceeds – even though such treatment may result in varying<br />
percentage recoveries. Certain Class 3 Claimants at TSNSI and 088 are receiving no recovery, but to be<br />
clear, <strong>al</strong>l holders of Claims in Class 3 were treated in the same manner. Importantly, no holder of a Claim<br />
in Class 3 who is not receiving a distribution voted to reject the Plan.<br />
Section 1123(a)(5) specifies that adequate means for implementation of a plan may include: r<strong>et</strong>ention by<br />
the debtor of <strong>al</strong>l or part of its property; the transfer of property of the estate to one or more entities;<br />
cancellation or modification of any indenture; curing or waiving of any default; amendment of the debtor‘s<br />
charter; or issuance of securities for cash, for property, for existing securities, in exchange for claims or<br />
interests or for any other appropriate purpose. 11 U.S.C. § 1123(a)(5).<br />
16
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(j)<br />
(k)<br />
(l)<br />
(m)<br />
the authorization of the Reorganized Debtors to undertake certain<br />
restructuring transactions, including those contemplated by or necessary to<br />
effectuate the Plan;<br />
the authorization of the Reorganized Debtors to take corporate action;<br />
the authorization of the Reorganized Debtors to enter into agreements and<br />
to take any necessary action to implement and further the Plan and any<br />
securities issued pursuant to the Plan; and<br />
the maintenance of Causes of Action and the preservation of <strong>al</strong>l Causes of<br />
Action not expressly s<strong>et</strong>tled or released.<br />
31. Bankruptcy Code section 1123(a)(6), which requires that a plan prohibit the<br />
issuance of nonvoting equity securities, is <strong>al</strong>so satisfied. Pursuant to the terms of the New<br />
Certificates of <strong>Inc</strong>orporation for the Reorganized Debtors, the issuance of nonvoting equity<br />
securities is prohibited. 18<br />
32. Fin<strong>al</strong>ly, the Plan satisfies Bankruptcy Code section 1123(a)(7), which requires<br />
that the Plan ―contain only provisions that are consistent with the interests of creditors and equity<br />
security holders and with public policy with respect to the manner of selection of any officer,<br />
director, or trustee under the plan . . . .‖ 19<br />
The Debtors have disclosed in the Plan Supplement the<br />
identities of the members of the New Boards for Reorganized Debtors. 20<br />
Moreover, the Plan<br />
Supplement adequately discloses the manner by which the individu<strong>al</strong>s proposed to serve as the<br />
officers and directors of the Reorganized Debtors will be elected. 21<br />
The officers and directors of<br />
the Reorganized Debtors will be appointed or elected in a manner that is consistent with<br />
Delaware corporate law or applicable Canadian corporate law and the Bankruptcy Code, and is<br />
consistent with the interests of holders of Claims and Interests and with public policy.<br />
18<br />
19<br />
20<br />
21<br />
Plan Supplement [Dock<strong>et</strong> No. 909], Exhibit C (the ―New Certificate of <strong>Inc</strong>orporation‖) § 4.1.<br />
11 U.S.C. § 1123(a)(7).<br />
Plan Supplement [Dock<strong>et</strong> No. 909], Exhibit E (the ―Identity of New Boards‖); Plan Supplement, Exhibit F<br />
(the ―New By-Laws‖).<br />
New By-Laws § 2.1.<br />
17
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33. For these reasons, the Debtors submit that the Plan satisfies the mandatory plan<br />
requirements s<strong>et</strong> forth in Bankruptcy Code section 1123(a).<br />
iii.<br />
The Plan Provides for Sever<strong>al</strong> of the Discr<strong>et</strong>ionary Provisions S<strong>et</strong> Forth<br />
in 11 U.S.C. §§ 1123(b)<br />
34. The Plan contains various provisions that may be construed as discr<strong>et</strong>ionary, but<br />
are not required for Confirmation under the Bankruptcy Code. Specific<strong>al</strong>ly, the Plan provides for<br />
treatment of executory contracts and for certain s<strong>et</strong>tlements, releases, exculpation and injunction<br />
provisions, both for the Debtors and for third parties. Such discr<strong>et</strong>ionary provisions comply with<br />
Bankruptcy Code section 1123(b) and are not inconsistent with the applicable provisions of the<br />
Bankruptcy Code (as further s<strong>et</strong> forth herein).<br />
Thus, the Debtors respectfully submit that<br />
Bankruptcy Code section 1123(b) is satisfied.<br />
B. The Debtors, as Plan Proponents, Have Complied with the Applicable<br />
Provisions of the Bankruptcy Code (11 U.S.C. § 1129(a)(2))<br />
35. As explained in more d<strong>et</strong>ail below, the Debtors have satisfied Bankruptcy Code<br />
section 1129(a)(2), which requires that the proponent of a plan of reorganization comply with the<br />
applicable provisions of the Bankruptcy Code. The legislative history to Bankruptcy Code<br />
section 1129(a)(2) indicates that this provision is intended to require compliance with the<br />
disclosure and solicitation requirements s<strong>et</strong> forth in Bankruptcy Code section 1125 and the plan<br />
acceptance requirements s<strong>et</strong> forth in section 1126. 22<br />
The Debtors have complied with these<br />
22<br />
In re Johns-Manville Corp., 68 B.R. 618, 630 (Bankr. S.D.N.Y. 1986), aff’d in part, rev’d in part on other<br />
grounds, 78 B.R. 407 (S.D.N.Y. 1987), aff’d, Kane v. Johns-Manville Corp. (In re Johns-Manville Corp.),<br />
843 F.2d 636 (2d Cir. 1988) (―Objections to confirmation raised under § 1129(a)(2) gener<strong>al</strong>ly involve the<br />
<strong>al</strong>leged failure of the plan proponent to comply with § 1125 and § 1126 of the [Bankruptcy] Code.‖)<br />
(citations omitted); In re Toy & Sports Warehouse, <strong>Inc</strong>., 37 B.R. 141, 149 (Bankr. S.D.N.Y. 1984) (stating<br />
that to comply with section 1129(a)(2), ―[t]he proponent must comply with the ban on post-p<strong>et</strong>ition<br />
solicitation of the plan unaccompanied by a written disclosure statement approved by the court in<br />
accordance with [Bankruptcy] Code §§ 1125 and 1126.‖) (citation omitted); see <strong>al</strong>so H.R. Rep. No. 95-595,<br />
at 412 (1977); S. Rep. No. 95-989, at 126 (1978) (―Paragraph (2) [of section 1129(a)] requires that the<br />
proponent of the plan comply with the applicable provisions of chapter 11, such as section 1125 regarding<br />
disclosure.‖).<br />
18
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provisions, including sections 1125 and 1126, as well as Bankruptcy Rules 3017 and 3018, by<br />
distributing the Disclosure Statement and soliciting acceptances of the Plan through their Voting<br />
Agent pursuant to the Disclosure Statement and Solicitation and Voting Procedures Order.<br />
i. The Debtors Have Complied with the Disclosure Statement and<br />
Solicitation Requirements of 11 U.S.C. § 1125<br />
36. Bankruptcy Code section 1125 prohibits the solicitation of votes on a plan of<br />
reorganization ―unless, at the time of or before such solicitation, there is transmitted to such<br />
holder the plan or a summary of the plan, and a written disclosure statement approved, after<br />
notice and a hearing, by the court as containing adequate information.‖ 23<br />
The purpose of section<br />
1125 is to ensure that parties in interest are fully informed regarding the financi<strong>al</strong> condition of<br />
the debtor, the means for implementation of the plan and related transactions, and the treatment<br />
of <strong>al</strong>l classes of claims and interests, so that they may make an informed decision wh<strong>et</strong>her to<br />
approve or reject the plan. 24<br />
37. The Debtors have satisfied Bankruptcy Code section 1125. Before the Debtors<br />
began their solicitation of votes on the Plan, the Bankruptcy Court approved the Disclosure<br />
Statement as containing adequate information and approved the procedures for soliciting and<br />
tabulating the votes on, and for objecting to, the Plan. 25<br />
The Disclosure Statement and<br />
Solicitation and Voting Procedures Order specifies in great d<strong>et</strong>ail the content of the various<br />
Solicitation Packages that the Debtors provided to holders of Claims and Interests and the timing<br />
23<br />
24<br />
25<br />
11 U.S.C. § 1125(b).<br />
See Momentum Mfg. Corp. v. Emp. Creditors Comm. (In re Momentum Mfg. Corp.), 25 F.3d 1132, 1136<br />
(2d Cir. 1994) (finding that section 1125 of the Bankruptcy Code obliges a debtor to engage in full and fair<br />
disclosure that would enable a hypoth<strong>et</strong>ic<strong>al</strong> reasonable investor to make an informed judgment about the<br />
plan).<br />
Disclosure Statement and Solicitation Procedures Order at 2.<br />
19
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and m<strong>et</strong>hod of delivery of the Solicitation Packages. 26<br />
As will be further d<strong>et</strong>ailed in the GCG<br />
Declaration, through their Voting Agent, the Debtors complied in <strong>al</strong>l respects with the content<br />
and delivery requirements of the Disclosure Statement and Solicitation and Voting Procedures<br />
Order.<br />
ii.<br />
The Debtors Have Complied with the Plan Acceptance Requirements of<br />
11 U.S.C. § 1126<br />
38. Bankruptcy Code section 1126 provides that only holders of <strong>al</strong>lowed claims and<br />
equity interests in impaired classes that will receive or r<strong>et</strong>ain property under a plan on account of<br />
such claims or equity interests may vote to accept or reject a plan. 27<br />
Section 1126(c) specifies<br />
the requirements for acceptance of a plan by a class of claims as follows:<br />
A class of claims has accepted a plan if such plan has been accepted by<br />
creditors, other than any entity designated under subsection (e) of [section<br />
1126], that hold at least two-thirds in amount and more than one-h<strong>al</strong>f in<br />
number of the <strong>al</strong>lowed claims of such class held by creditors, other than any<br />
entity designated under subsection (e) of [section 1126], that have accepted<br />
or rejected such plan. 28<br />
39. Classes 1 and 2 are Unimpaired under the Plan. Pursuant to Bankruptcy Code<br />
section 1126(f), holders of Claims in the Unimpaired Classes are not entitled to vote on the Plan<br />
and are conclusively deemed to have accepted the Plan. Class 3 (the Voting Class) is impaired<br />
and entitled to vote under the Plan and, as such, the Debtors solicited acceptances and rejections<br />
of the Plan from this Voting Class.<br />
40. As required by Bankruptcy Code section 1126(c), the Plan was accepted by the<br />
Voting Class because creditors representing two-thirds in amount and more than one-h<strong>al</strong>f in<br />
26<br />
27<br />
28<br />
Disclosure Statement and Solicitation Procedures Order at 3-6.<br />
11 U.S.C. § 1126.<br />
11 U.S.C. § 1126(c). Because there are no impaired classes of interests that will receive property under the<br />
Plan, 11 U.S.C. § 1126(d) (the corollary for impaired classes of interests) is irrelevant here.<br />
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number of holders of Claims voting in the Voting Class voted to accept the Plan – indeed, the<br />
Plan was <strong>al</strong>most unanimously approved. 29<br />
C. The Plan Has Been Proposed in Good Faith and Not by any Means<br />
Forbidden by Law (11 U.S.C. § 1129(a)(3))<br />
41. Bankruptcy Code section 1129(a) compels a bankruptcy court to reject a plan if it<br />
is not proposed in ―good faith‖ or if it is proposed by any means ―forbidden by law.‖ 30<br />
The<br />
Second Circuit has construed the good-faith standard as requiring a showing that ―the plan was<br />
proposed with honesty and good intentions and with a basis for expecting that the reorganization<br />
can be effected.‖ 31<br />
Addition<strong>al</strong>ly, ―good faith‖ should be ev<strong>al</strong>uated in light of the tot<strong>al</strong>ity of the<br />
circumstances surrounding confirmation. 32<br />
42. The Debtors have proposed the Plan with honesty, good intentions and a desire to<br />
effectuate a full and feasible consummation of their s<strong>al</strong>e (and any necessary reorganization)<br />
while maximizing v<strong>al</strong>ue for the benefit of <strong>al</strong>l stakeholders. The Plan is the product of extensive<br />
arm‘s-length negotiations among the Debtors and <strong>al</strong>l major parties in interest, which negotiations<br />
were difficult and contentious. Thus, the Plan contains a series of compromises that represent a<br />
good faith effort to provide the highest available recovery to each of the Debtors‘ creditor<br />
constituencies under the tot<strong>al</strong>ity of the circumstances. The distributions under the Plan are based<br />
upon the <strong>al</strong>location of proceeds from the S<strong>al</strong>e, which <strong>al</strong>location was agreed to by <strong>al</strong>l of the<br />
Debtors‘ major stakeholders as part of the S<strong>et</strong>tlement. Pursuant to the Plan, proceeds from the<br />
29<br />
30<br />
31<br />
32<br />
Class 3 Claimants at TSNSI and 088 are not receiving any property under the Plan, and Class 3 for TSN<br />
Holdings (Canada) is vacant. Notwithstanding the foregoing, and consistent with Second Circuit caselaw<br />
(as s<strong>et</strong> forth herein), the Plan still me<strong>et</strong>s <strong>al</strong>l requisite requirements for confirmation.<br />
11 U.S.C. § 1126(c).<br />
Johns-Manville, 843 F.2d at 649 (intern<strong>al</strong> quotations and citation omitted); In re Texaco, <strong>Inc</strong>., 84 B.R. 893,<br />
907 (Bankr. S.D.N.Y. 1988) (―[I]n the context of a [Chapter 11] reorganization . . . a plan is considered<br />
proposed in good faith if there is a likelihood that the plan will achieve a result consistent with the<br />
standards prescribed under the Code.‖) (intern<strong>al</strong> quotations and citations omitted).<br />
In re Cellular Info. Sys., <strong>Inc</strong>., 171 B.R. 926, 945 (Bankr. S.D.N.Y. 1994) (intern<strong>al</strong> citations omitted).<br />
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S<strong>al</strong>e will be used by the Liquidating Trust to satisfy Claims, as provided in the Plan and in<br />
accordance with the S<strong>et</strong>tlement. Consistent with the overriding purpose of chapter 11 of the<br />
Bankruptcy Code, the Chapter 11 Cases were filed, and the Plan was proposed, with the<br />
legitimate purpose of maximizing the v<strong>al</strong>ue of their estates to satisfy their obligations to creditors.<br />
Accordingly, the Debtors submit that Bankruptcy Code section 1129(a)(3) is satisfied.<br />
D. The Plan Provides for Bankruptcy Court Approv<strong>al</strong> of Certain<br />
Administrative Payments (11 U.S.C. § 1129(a)(4))<br />
43. Bankruptcy Code section 1129(a)(4) requires that certain profession<strong>al</strong> fees and<br />
expenses paid by the plan proponent, by the debtor or by a person issuing securities or acquiring<br />
property under the Plan 33 be subject to approv<strong>al</strong> of the Bankruptcy Court as reasonable. 34<br />
Here,<br />
the Plan mandates that <strong>al</strong>l payments made or to be made by the Debtors for services or for costs<br />
or expenses incurred by Profession<strong>al</strong>s in connection with these Chapter 11 Cases before the<br />
Effective Date, including <strong>al</strong>l Accrued Profession<strong>al</strong> Compensation Claims, have been approved by,<br />
or are subject to the approv<strong>al</strong> of, the Bankruptcy Court as reasonable.<br />
44. Pursuant to the Plan, Profession<strong>al</strong>s asserting a Claim for Accrued Profession<strong>al</strong><br />
Compensation for services rendered before the Effective Date must file and serve on the Debtors<br />
and such other Entities that are designated by the Bankruptcy Rules, the Confirmation Order, the<br />
Interim Compensation Order or other order of the Bankruptcy Court, an application for fin<strong>al</strong><br />
<strong>al</strong>lowance of such Claim for Accrued Profession<strong>al</strong> Compensation no later than 45 days after the<br />
Effective Date.<br />
Addition<strong>al</strong>ly, the Plan provides that the Reorganized Debtors may pay<br />
33<br />
34<br />
As s<strong>et</strong> forth in the Purchase Agreement, the Purchaser has the obligation to ―provide funding to Sellers in<br />
order to operate the Business, administer the Chapter 11 Cases (if any), and comply with their obligations<br />
under this Agreement after December 31, 2011 in amounts to be reflected in a budg<strong>et</strong> to be mutu<strong>al</strong>ly agreed<br />
upon by Purchaser, on the one hand, and Sellers, on the other hand, on or prior to December 31, 2011.‖ See<br />
Purchase Agreement, section 9.11. Therefore, unsecured creditor recoveries are not reduced by the accru<strong>al</strong><br />
of such costs, fees, or expenses.<br />
11 U.S.C. § 1129(a)(4).<br />
22
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Profession<strong>al</strong>s or other Entities in the ordinary course of business after the Effective Date without<br />
the need to file a fin<strong>al</strong> fee application and without any further notice to any party, or any action,<br />
order or approv<strong>al</strong> of the Bankruptcy Court, provided that the Purchaser be provided invoices<br />
documenting the reasonable fees and expenses. 35<br />
Moreover, the Plan makes clear that, to the<br />
extent the Bankruptcy Court or any higher court denies or reduces by a Fin<strong>al</strong> Order any amount<br />
of a Profession<strong>al</strong>‘s fees or expenses, then ―those reduced or denied amounts sh<strong>al</strong>l no longer<br />
constitute Accrued Profession<strong>al</strong> Compensation.‖ 36<br />
45. For these reasons, the Plan thus complies with the requirements of Bankruptcy<br />
Code section 1129(a)(4).<br />
E. All Necessary Information Regarding the Directors and Officers of the<br />
Debtors Under the Plan Has Been Disclosed (11 U.S.C. § 1129(a)(5))<br />
46. Bankruptcy Code section 1129(a)(5) provides that a plan of reorganization may be<br />
confirmed if the proponent discloses (a) the identity of those individu<strong>al</strong>s who will serve as<br />
management of the reorganized debtor and shown that such appointment is consistent with the<br />
interests of creditors, equity security holders and public policy and (b) the identity of any insider<br />
to be employed or r<strong>et</strong>ained by the reorganized debtor, and the compensation to be paid to any<br />
such insider. 37<br />
In cases where the post-confirmation officers or directors have not been selected<br />
and identified pre-confirmation, courts have found that disclosure of the identities of known<br />
35<br />
36<br />
37<br />
Plan, Article II.A.2(c).<br />
Plan, Article I.A.3.<br />
11 U.S.C. § 1129(a)(5).<br />
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officers and directors and the manner in which addition<strong>al</strong> officers and directors will be selected<br />
may be sufficient to satisfy the requirements of section 1129(a)(5). 38<br />
47. In d<strong>et</strong>ermining wh<strong>et</strong>her the post-effective date management of a debtor is<br />
consistent with the interests of creditors, equity security holders and public policy, a court must<br />
consider proposed management‘s comp<strong>et</strong>ence, discr<strong>et</strong>ion, experience and affiliation with entities<br />
having interests adverse to the debtor. 39<br />
In gener<strong>al</strong>, however, ―[t]he [d]ebtor should have first<br />
choice of its management, unless compelling cause to the contrary exists.‖ 40<br />
The case law is <strong>al</strong>so<br />
clear that a plan may contemplate the r<strong>et</strong>ention of the debtor‘s existing directors and officers. 41<br />
48. In accordance with Articles V.L and V.M of the Plan, the Debtors filed a list of the<br />
initi<strong>al</strong> members of the boards of directors and the initi<strong>al</strong> officers of the Reorganized Debtors<br />
listed therein with the Bankruptcy Court as part of the Plan Supplement on February 3, 2012<br />
[Dock<strong>et</strong> No. 909]. The initi<strong>al</strong> members of the boards of directors and the initi<strong>al</strong> officers of the<br />
Reorganized Debtors consist of the current directors and officers of the Debtors and, as such,<br />
38<br />
39<br />
40<br />
41<br />
See, e.g., JPMorgan Chase Bank, N.A. v. Charter Commc’ns Operating, LLC (In re Charter Commc’ns),<br />
419 B.R. 221, 260 n.30 (Bankr. S.D.N.Y. 2009) (―To the extent the Plan‘s satisfaction of 11 U.S.C.<br />
§ 1129(a)(5) remains at issue, the Court concludes that this confirmation standard is satisfied. It is<br />
undisputed that two out of the eleven seats on the Debtors‘ board of directors remain vacant. Although<br />
section 1129(a)(5) requires the plan to identify <strong>al</strong>l directors of the reorganized entity, that provision is<br />
satisfied by the Debtors‘ disclosure at this time of the identities of the known directors.‖) (emphasis in<br />
origin<strong>al</strong>) (citing In re Am. Solar King Corp., 90 B.R. 808, 815 (Bankr. W.D. Tex. 1988) (―The debtor‘s<br />
inability to specific<strong>al</strong>ly identify future board members does not mean that the debtor has f<strong>al</strong>len short of the<br />
requirement imposed [in subsection (a)(5)(A)(i)] . . . .‖)); In re AG Consultants Grain Div., <strong>Inc</strong>., 77 B.R.<br />
665, 669 (Bankr. N.D. Ind. 1987) (holding that the debtor complied with section 1129(a)(5) despite the fact<br />
that it did not specific<strong>al</strong>ly reve<strong>al</strong> identity and affiliation of any individu<strong>al</strong>s who would serve after<br />
confirmation); In re Eagle Bus Mfg., <strong>Inc</strong>., 134 B.R. 584, 599 (Bankr. S.D. Tex. 1991) (finding sufficient<br />
disclosure of officer and director identities ―to the extent known as of the Hearing.‖), aff’d, 158 B.R. 421<br />
(S.D. Tex. 1993).<br />
See In re Sherwood Square Assocs., 107 B.R. 872, 878 (Bankr. D. Md. 1989); see <strong>al</strong>so In re W.E. Parks<br />
Lumber Co., <strong>Inc</strong>., 19 B.R. 285, 292 (Bankr. W.D. La. 1982) (a court should consider wh<strong>et</strong>her ―the initi<strong>al</strong><br />
management and board of directors of the reorganized corporation will be sufficiently independent and free<br />
from conflicts and the potenti<strong>al</strong> of post-reorganization litigation so as to serve <strong>al</strong>l creditors and interested<br />
parties on an even and loy<strong>al</strong> basis‖).<br />
Sherwood Square Assocs., 107 B.R. at 878.<br />
See, e.g., Texaco <strong>Inc</strong>., 84 B.R. at 908 (d<strong>et</strong>ermining that section 1129(a)(5) was satisfied where plan<br />
disclosed debtor‘s existing directors and officers who would continue to serve in office after plan<br />
confirmation); see <strong>al</strong>so In re Trans World Airlines, <strong>Inc</strong>., 185 B.R. 302, 314 (Bankr. E.D. Mo. 1995).<br />
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have significant knowledge of the Debtors‘ businesses, and are very experienced in financi<strong>al</strong> and<br />
management matters.<br />
Based on the standard s<strong>et</strong> forth above, the Debtors submit that the<br />
appointment of each of the proposed initi<strong>al</strong> directors and officers of the Reorganized Debtors is<br />
consistent with the interests of the Debtors‘ creditors, equity security holders and public policy.<br />
In addition, while the directors of the Reorganized Debtors will include certain insiders of the<br />
Debtors, no insider will receive compensation after the Effective Date for his service on the<br />
board of the Reorganized Debtors.<br />
1129(a)(5).<br />
49. For these reasons, the Plan satisfies the requirements of Bankruptcy Code section<br />
F. The Plan Does Not Contain Rate Changes Subject to the Jurisdiction of Any<br />
Government<strong>al</strong> Regulatory Commission (11 U.S.C. § 1129(a)(6))<br />
50. Bankruptcy Code section 1129(a)(6) requires that any regulatory commission<br />
having jurisdiction over the rates charged by a reorganized debtor in the operation of its business<br />
approve any rate change provided for in a plan of reorganization. 42<br />
This section is inapplicable<br />
to the Plan, however, because the Plan does not provide for a change in any rates that are subject<br />
to regulatory approv<strong>al</strong>.<br />
G. The Plan Is in the Best Interests of Creditors and Interest Holders (11 U.S.C.<br />
§ 1129(a)(7))<br />
51. Bankruptcy Code section 1129(a)(7) requires that a plan be in the best interests of<br />
creditors and stockholders. The ―best interests‖ test focuses on individu<strong>al</strong> dissenting creditors<br />
rather than classes of claims, 43 and requires that for a plan to be approved, the court must find<br />
that each holder of a claim or interest has either accepted the plan or will receive or r<strong>et</strong>ain v<strong>al</strong>ue<br />
42<br />
43<br />
See 11 U.S.C. § 1129(a)(6).<br />
Bank of Am. Nat’l Trust & Sav. Ass’n v. 203 N. LaS<strong>al</strong>le St. P’ship, 526 U.S. 434, 442 n.13 (1999) (―The<br />
‗best interests‘ test applies to individu<strong>al</strong> creditors holding impaired claims, even if the class as a whole<br />
votes to accept the plan.‖).<br />
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that is not less than the amount it would receive if the debtor were liquidated in a hypoth<strong>et</strong>ic<strong>al</strong><br />
proceeding under chapter 7 of the Bankruptcy Code. 44<br />
52. By its express terms, section 1129(a)(7) applies only to holders of impaired claims<br />
or equity interests. 45<br />
To the extent a holder of an impaired claim or interest votes to accept the<br />
Plan, the best interests test is satisfied. 46<br />
Moreover, to the extent a holder of an impaired claim or<br />
interest would receive at least as great as a distribution pursuant to the proposed chapter 11 plan<br />
as it would in a chapter 7 liquidation, the best interests test is satisfied. 47<br />
The best interests test is<br />
therefore clearly satisfied with respect to <strong>al</strong>l holders in Class 3 who voted to accept the Plan. The<br />
Debtors respectfully submit that the best interest test is <strong>al</strong>so satisfied with respect to the sole<br />
creditor in Class 3 who voted to reject the Plan and <strong>al</strong>l holders in Class 4 because such holders<br />
would receive no greater distribution in a chapter 7 liquidation than they are receiving under the<br />
Plan.<br />
53. In this case, it is clear that there would be less v<strong>al</strong>ue distributable to holders in<br />
Class 3, and no v<strong>al</strong>ue distributable to holders in Class 4 in a chapter 7 liquidation. As s<strong>et</strong> forth in<br />
the liquidation an<strong>al</strong>ysis attached as Exhibit D to the Disclosure Statement (the ―Liquidation<br />
An<strong>al</strong>ysis‖), which is discussed in greater d<strong>et</strong>ail in the Declaration of C.J. Brown in Support of<br />
Confirmation of the Joint Chapter 11 Plan of <strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> <strong>Inc</strong>., <strong>et</strong> <strong>al</strong>., filed<br />
contemporaneously herewith, recoveries to holders in Class 3 would diminish on account of the<br />
increased costs of administering these cases under chapter 7 (as well as a loss in v<strong>al</strong>ue due to the<br />
delay in receiving their distributions). This diminishment of Class 3 recoveries would therefore<br />
44<br />
45<br />
46<br />
47<br />
11 U.S.C. §1129(a)(7)(A)(ii); see <strong>al</strong>so In re Adelphia Commc’ns Corp., 368 B.R. 140, 251 (Bankr.<br />
S.D.N.Y. 2007).<br />
11 U.S.C. § 1129(a)(7).<br />
11 U.S.C. § 1129(a)(7)(A)(i).<br />
11 U.S.C. § 1129(a)(7)(A)(ii).<br />
26
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remove holders in Class 4 even further from any v<strong>al</strong>ue available from the Debtors‘ estates.<br />
Because the Liquidation An<strong>al</strong>ysis demonstrates that holders in Class 3 would receive less v<strong>al</strong>ue<br />
in a liquidation than under the Plan, and holders in Class 4 would not receive any distribution in<br />
a hypoth<strong>et</strong>ic<strong>al</strong> liquidation under chapter 7 of the Bankruptcy Code (and because that is the same<br />
treatment holders in Class 4 will receive under the Plan), <strong>al</strong>l stakeholders‘ treatment under the<br />
Plan is no worse than in a chapter 7 liquidation.<br />
54. Because the Plan was accepted by Class 3 and provides for at least as great a<br />
recovery for holders of Claims in Class 3 and Equity Interests in Class 4 as such holders would<br />
receive in a hypoth<strong>et</strong>ic<strong>al</strong> chapter 7 liquidation, the Plan satisfies the requirements of Bankruptcy<br />
Code section 1129(a)(7).<br />
H. Acceptance by All Impaired Classes (11 U.S.C. § 1129(a)(8))<br />
55. Bankruptcy Code section 1129(a)(8) requires that each class of claims or interests<br />
must either accept the plan or be unimpaired thereby. 48<br />
Pursuant to Bankruptcy Code section<br />
1126(c), a class of claims accepts a plan if the holders of <strong>al</strong>lowed claims holding at least twothirds<br />
in amount and at least one-h<strong>al</strong>f in number that vote accept the plan. 49<br />
Pursuant to<br />
Bankruptcy Code section 1126(d), a class of interests accepts a plan if holders of at least twothirds<br />
in amount of the <strong>al</strong>lowed interests in that class vote to accept the plan. 50<br />
A class that is not<br />
impaired under a plan, and each holder of a claim or interest in such a class, is conclusively<br />
presumed to have accepted the plan. 51<br />
On the other hand, a class is deemed to have rejected a<br />
48<br />
49<br />
50<br />
51<br />
11 U.S.C. § 1129(a)(8).<br />
11 U.S.C. § 1126(c).<br />
11 U.S.C. § 1126(d).<br />
11 U.S.C. § 1126(f); see SEC v. Drexel Burnham Lambert Grp., <strong>Inc</strong>. (In re Drexel Burnham Lambert Grp.),<br />
<strong>Inc</strong>., 960 F.2d 285, 290 (2d Cir. 1992) (noting that an unimpaired class is presumed to have accepted the<br />
plan); see <strong>al</strong>so S. Rep. No. 95-989, at 123 (1978) (section 1126(f) of the Bankruptcy Code ―provides that<br />
no acceptances are required from any class whose claims or interests are unimpaired under the Plan or in<br />
the order confirming the Plan‖).<br />
27
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plan if the plan provides that the claims or interests of that class do not receive or r<strong>et</strong>ain any<br />
property under the plan on account of such claims or interests. 52<br />
56. As demonstrated by the GCG Declaration, the single Voting Class voted to accept<br />
the Plan. 53<br />
Although the fact that Class 4 is deemed to reject appears to preclude satisfaction of<br />
Bankruptcy Code section 1129(a)(8), the Bankruptcy Code provides for an <strong>al</strong>ternate means of<br />
compliance in section 1129(b), with which the Debtors comply. 54<br />
I. The Plan Provides for Payment of Priority Claims (11 U.S.C. § 1129(a)(9))<br />
57. Bankruptcy Code section 1129(a)(9) requires that persons holding <strong>al</strong>lowed claims<br />
entitled to priority under section 507(a) receive specified cash payments under a plan equiv<strong>al</strong>ent<br />
to such <strong>al</strong>lowed claims. Unless the holder of a particular claim agrees to a different treatment<br />
with respect to such claim, section 1129(a)(9) requires a plan to provide as follows:<br />
(i)<br />
(ii)<br />
with respect to a claim of a kind specified in section 507(a)(2) or 507(a)(3)<br />
of [the Bankruptcy Code], on the effective date of the plan, the holder of<br />
such claim will receive on account of such claim cash equ<strong>al</strong> to the <strong>al</strong>lowed<br />
amount of such claim;<br />
with respect to a class of claims of a kind specified in section 507(a)(1),<br />
507(a)(4), 507(a)(5), 507(a)(6) or 507(a)(7) of [the Bankruptcy Code],<br />
each holder of a claim of such class will receive -<br />
a) if such class has accepted the plan, deferred cash payments of a v<strong>al</strong>ue, as<br />
of the effective date of the plan, equ<strong>al</strong> to the <strong>al</strong>lowed amount of such claim;<br />
or<br />
b) if such class has not accepted the plan, cash on the effective date of the<br />
plan equ<strong>al</strong> to the <strong>al</strong>lowed amount of such claim;<br />
(iii)<br />
with respect to a claim of a kind specified in section 507(a)(8) of [the<br />
Bankruptcy Code], the holder of such claim will receive on account of<br />
such claim regular inst<strong>al</strong>lment payments in cash -<br />
52<br />
53<br />
54<br />
11 U.S.C. § 1126(g).<br />
As noted above, Class 3 Claimants at TSNSI and 088 are not receiving any property under the Plan, and<br />
Class 3 for TSN Holdings (Canada) is vacant. Notwithstanding the foregoing, and consistent with Second<br />
Circuit caselaw (as s<strong>et</strong> forth herein), the Plan still me<strong>et</strong>s <strong>al</strong>l requisite requirements for confirmation.<br />
See infra I.N.<br />
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a) of a tot<strong>al</strong> v<strong>al</strong>ue, as of the effective date of the plan, equ<strong>al</strong> to the <strong>al</strong>lowed<br />
amount of such claim;<br />
b) over a period ending not later than 5 years after the date of the order for<br />
relief under section 301, 302, or 303; and<br />
c) in a manner not less favorable than the most favored nonpriority<br />
unsecured claim provided for by the plan (other than cash payments made<br />
to a class of creditors under section 1122(b)); and<br />
(iv)<br />
with respect to a secured claim which would otherwise me<strong>et</strong> the<br />
description of an unsecured claim of a government<strong>al</strong> unit under section<br />
507(a)(8), but for the secured status of that claim, the holder of that claim<br />
will receive on account of that claim, cash payments, in the same manner<br />
and over the same period, as prescribed in subparagraph (C). 55<br />
58. In accordance with Bankruptcy Code sections 1129(a)(9)(A), (B) and (C), Articles<br />
II and III.C.1 of the Plan provide that Administrative Claims, U.S. Trustee Fee, Priority Tax<br />
Claims, and Other Priority Claims sh<strong>al</strong>l be paid in full, in cash, on the Initi<strong>al</strong> Distribution Date<br />
(or such other later date upon which such Claim arises or is Allowed). Thus, the Plan satisfies<br />
the requirements of sections 1129(a)(9)(A), (B) and (C).<br />
J. The Plan Has Been Accepted by at Least One Impaired Class Entitled to<br />
Vote (11 U.S.C. § 1129(a)(10))<br />
59. Bankruptcy Code section 1129(a)(10) requires that at least one impaired class<br />
entitled to vote must accept the plan. 56<br />
Section 1129(a)(10) provides that, ―if a class of claims is<br />
impaired under a plan, at least one class of claims that is impaired under the Plan [must] accept [ ]<br />
the plan, d<strong>et</strong>ermined without including any acceptance of the Plan by any insider.‖ 57<br />
60. The requirement s<strong>et</strong> forth in Bankruptcy Code section 1129(a)(10) is a per plan<br />
requirement, not a per debtor requirement. See In re Charter Commc’ns, 419 B.R. at 266 (―[I]t is<br />
55<br />
56<br />
57<br />
11 U.S.C. § 1129(a)(9).<br />
See In re 266 Washington Assocs., 141 B.R. 275, 287 (Bankr. E.D.N.Y. 1992), aff’d, 147 B.R. 827<br />
(E.D.N.Y.1992) (―Section 1129(a)(10) operates as a statutory gatekeeper barring access to cram down<br />
where there is absent even one impaired class accepting the plan.‖).<br />
11 U.S.C. § 1129(a)(10).<br />
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appropriate to test compliance with section 1129(a)(10) on a per-plan basis, not, as [objecting<br />
parties] argue, on a per-debtor basis.‖); In re Enron Corp., No. 01-16034 (ALG) (Bankr. S.D.N.Y.<br />
July 15, 2004) [Dock<strong>et</strong> No. 19758] (order confirming joint chapter 11 plan where each debtor did<br />
not have an impaired accepting class); In re SGPA, <strong>Inc</strong>., No. 01-02609, 2001 WL 347506 (Bankr.<br />
M.D. Pa. Sept. 28, 2001) (joint chapter 11 plan of reorganization complied with section<br />
1129(a)(10) because at least one class of impaired creditors accepted the plan, notwithstanding<br />
the fact that each debtor entity did not have an accepting impaired class). As s<strong>et</strong> forth above and<br />
evidenced by the GCG Declaration, the holders of Claims in Class 3 entitled to vote on the Plan<br />
(the only Impaired Class of Claims entitled to vote on the Plan) have overwhelmingly (nearly<br />
100% in number and amount) voted to accept the Plan – indeed, the Debtors received only one<br />
vote to reject the Plan, from a holder of a Claim in the amount of $3,394.80. Thus, the Plan<br />
satisfies Bankruptcy Code section 1129(a)(10).<br />
K. The Plan Is Not Likely to Be Followed by Liquidation or the Need for<br />
Further Financi<strong>al</strong> Reorganization (11 U.S.C. § 1129(a)(11))<br />
61. Bankruptcy Code section 1129(a)(11) requires that, as a condition precedent to<br />
confirmation, the Bankruptcy Court d<strong>et</strong>ermine that the Plan is feasible.<br />
Specific<strong>al</strong>ly, the<br />
Bankruptcy Court must d<strong>et</strong>ermine that:<br />
Confirmation of the plan is not likely to be followed by the liquidation, or<br />
the need for further financi<strong>al</strong> reorganization, of the debtor or any successor<br />
to the debtor under the plan, unless such liquidation or reorganization is<br />
proposed in the plan. 58<br />
58<br />
11 U.S.C. § 1129(a)(11).<br />
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62. To demonstrate that a plan is feasible, it is not necessary that success be<br />
guaranteed; the standard is rather that a debtor must demonstrate a reasonable assurance that<br />
consummation of the plan will not likely be followed by a further need for financi<strong>al</strong><br />
reorganization. 59<br />
In ev<strong>al</strong>uating feasibility, courts have identified the following probative<br />
factors: 60 (a) the prospective earnings of the business or its earning power;<br />
(b)<br />
(c)<br />
(d)<br />
(e)<br />
(f)<br />
(g)<br />
the soundness and adequacy of the capit<strong>al</strong> structure and working capit<strong>al</strong><br />
for the business that the debtor will engage in post-confirmation;<br />
the prospective availability of credit;<br />
wh<strong>et</strong>her the debtor will have the ability to me<strong>et</strong> its requirements for capit<strong>al</strong><br />
expenditures;<br />
economic and mark<strong>et</strong> conditions;<br />
the capability of management, and the likelihood that the same<br />
management will continue; and<br />
any other related matter which d<strong>et</strong>ermines the prospects of a sufficiently<br />
successful operation to enable performance of the provisions of the plan.<br />
63. The Plan contemplates the possibility that the Debtors may ―reorganize‖ for a<br />
short period of time in the event that the Closing Date does not occur on or before the Effective<br />
Date. In that case, the Debtors would simply operate their business until consummation of the<br />
S<strong>al</strong>e to the Purchaser (and the costs associated with the operation of the business will be paid<br />
59<br />
60<br />
See Kane v. Johns-Manville Corp. (In re Johns-Manville Corp.), 843 F.2d 636, 649 (2d Cir. 1988) (―[T]he<br />
feasibility standard is wh<strong>et</strong>her the plan offers a reasonable assurance of success. Success need not be<br />
guaranteed.‖); see <strong>al</strong>so Heartland Fed. Sav. & Loan Ass’n v. Briscoe Enters., Ltd. II (In re Briscoe Enters.,<br />
Ltd. II), 994 F.2d 1160, 1166 (5th Cir. 1993) (―Only a reasonable assurance of commerci<strong>al</strong> viability is<br />
required.‖) (intern<strong>al</strong> citation omitted); In re Eddington Thread Mfg. Co., 181 B.R. 826, 832-33 (Bankr. E.D.<br />
Pa. 1995) (finding that a plan is feasible ―so long as there is a reasonable prospect for success and a<br />
reasonable assurance that the proponents can comply with the terms of the plan.‖).<br />
See, e.g., In re WorldCom, <strong>Inc</strong>., No. 02-13533 (ALG), 2003 WL 23861928, at *58 (Bankr. S.D.N.Y. Oct.<br />
31, 2003); In re Leslie Fay Cos., 207 B.R. 764, 789 (Bankr. S.D.N.Y. 1997); In re Texaco <strong>Inc</strong>., 84 B.R. 893,<br />
910 (Bankr. S.D.N.Y. 1988); In re Prudenti<strong>al</strong> Energy, 58 B.R. 857, 862-63 (Bankr. S.D.N.Y. 1986); see<br />
<strong>al</strong>so Teamsters Nat’l Freight Indus. Negotiating Comm. v. U.S. Truck Co., <strong>Inc</strong>. (In re U.S. Truck Co., <strong>Inc</strong>.),<br />
800 F.2d 581, 589 (6th Cir. 1986); In re Repurchase Corp., 332 B.R. 336, 342 (Bankr. N.D. Ill. 2005), aff’d,<br />
No. 04-32933 (DHC), 2008 WL 4379035 (N.D. Ill. 2008).<br />
31
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pursuant to the Purchase Agreement). 61<br />
Upon consummation of the S<strong>al</strong>e, the Reorganized<br />
Debtors will transfer their ass<strong>et</strong>s to the Purchaser and wind up their estates pursuant to the Plan.<br />
Should the Closing occur before the Effective Date, the Plan provides for the liquidation and<br />
distribution of the Debtors‘ ass<strong>et</strong>s. In <strong>al</strong>l events, the Plan, at its core, contemplates the winding<br />
up of the Debtors‘ estates, and the liquidation and distribution of the Debtors‘ ass<strong>et</strong>s (with <strong>al</strong>l<br />
costs associated with either event being paid pursuant to the terms of the Purchase Agreement).<br />
Bankruptcy Code section 1123(b)(4) permits liquidation plans that ―provide for the s<strong>al</strong>e of <strong>al</strong>l or<br />
substanti<strong>al</strong>ly <strong>al</strong>l of the property of the estate, and the Distribution of the proceeds of such s<strong>al</strong>e<br />
among holders of claims or interests‖ in chapter 11 proceedings and, thus, such a plan does not<br />
violate the requirements of section 1129(a). 62<br />
Moreover, when a plan of liquidation is tested<br />
against Bankruptcy Code section 1129(a)(11), the feasibility standard is greatly simplified. In<br />
the context of a liquidating plan, feasibility is established by demonstrating the debtor‘s ability to<br />
satisfy the conditions precedent to the effective date and otherwise have sufficient funds to me<strong>et</strong><br />
its post-confirmation date obligations to pay for the costs of administering and fully<br />
consummating the plan and closing the chapter 11 cases. The Debtors believe that <strong>al</strong>l Plan<br />
obligations will be satisfied without the need for further reorganization of the Debtors.<br />
64. Accordingly, the Debtors submit that the Plan satisfies the feasibility requirement<br />
of Bankruptcy Code section 1129(a)(11).<br />
61<br />
62<br />
To the extent that the Effective Date occurs before the Closing, the Reorganized Debtors‘ operating costs<br />
will be paid by the Purchaser from the Effective Date until Closing. To the extent, therefore, that the<br />
feasibility of the Plan in such scenario relies in any way on the creditworthiness of the Purchaser, the<br />
Debtors respectfully request that the Bankruptcy Court take judici<strong>al</strong> notice of the creditworthiness of the<br />
Purchaser by virtue of its status as a wholly owned subsidiary of DISH, and judici<strong>al</strong> notice of the<br />
creditworthiness of DISH by virtue of DISH‘s most recent 10-Q SEC filing, which was filed on<br />
November 7, 2011 and is available upon request to counsel for the Debtors.<br />
11 U.S.C. § 1123(b)(4).<br />
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L. The Plan Provides for Full Payment of All Statutory Fees (11 U.S.C.<br />
§ 1129(a)(12))<br />
65. Bankruptcy Code section 1129(a)(12) requires the payment of <strong>al</strong>l fees owed<br />
pursuant to 28 U.S.C. § 1930. 63<br />
The Plan provides that the Debtors sh<strong>al</strong>l pay <strong>al</strong>l fees due and<br />
owing to the U.S. Trustee, including quarterly fees payable under 28 U.S.C. § 1930(a)(6), plus<br />
interest due and payable under 31 U.S.C. § 3717 (if any) on <strong>al</strong>l disbursements, including Plan<br />
payments and disbursements in and outside the ordinary course of the Debtors‘ business as of the<br />
Effective Date. 64<br />
The Plan thus complies with the requirements of Bankruptcy Code section<br />
1129(a)(12).<br />
M. The Plan Does Not Violate the Requirement that Appropriate Treatment of<br />
R<strong>et</strong>iree Benefits Be Provided (11 U.S.C. § 1129(a)(13))<br />
66. Bankruptcy Code section 1129(a)(13) requires that a plan of reorganization<br />
provide for the continuation, after the plan‘s effective date, of <strong>al</strong>l r<strong>et</strong>iree benefits at the level<br />
established by agreement or by court order pursuant to Bankruptcy Code section 1114 at any<br />
time before confirmation of the plan, for the duration of the period that the debtor has obligated<br />
itself to provide such benefits. The Debtors do not have any liabilities arising under any<br />
agreement struck pursuant to Bankruptcy Code section 1114, and thus this section is not<br />
applicable to the Plan.<br />
N. The Requirements Related to Domestic Support Obligations, Unsecured<br />
Claims Against Individu<strong>al</strong> Debtors and Transfers by Nonprofit<br />
Organizations Do Not Apply to the Plan (11 U.S.C. § 1129(a)(14), (15) and<br />
(16))<br />
67. None of the Debtors has any domestic support obligations, is an individu<strong>al</strong> or is a<br />
nonprofit organizations. Therefore, sections 1129(a)(14), (15), and (16) of the Bankruptcy Code<br />
63<br />
64<br />
11 U.S.C. § 1129(a)(12).<br />
Plan, Article II.B.<br />
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do not apply to the Plan.<br />
O. The Plan Satisfies the “Cram-Down” Requirements of 11 U.S.C. § 1129(b)<br />
68. Bankruptcy Code section 1129(b) provides that if a chapter 11 plan satisfies <strong>al</strong>l<br />
applicable requirements of section 1129(a) other than section 1129(a)(8)‘s requirement that <strong>al</strong>l<br />
impaired classes accept the plan, the plan may be confirmed so long as it does not discriminate<br />
unfairly and it is fair and equitable with respect to each class of claims and interests that is<br />
impaired and has not accepted the plan. 65<br />
69. As discussed above, the sole Voting Class voted to accept the Plan. As discussed<br />
above, however, because Class 4 is deemed to reject the Plan, the Debtors cannot satisfy section<br />
1129(a)(8) with respect to such Class and thus must satisfy the cram-down requirements of<br />
section 1129(b).<br />
65<br />
11 U.S.C. § 1129(b)(1). See <strong>al</strong>so Boston Post Rd. Ltd. P’ship v. FDIC (In re Boston Post Rd. Ltd. P’ship),<br />
21 F.3d 477, 480 (2d Cir. 1994) (―[i]f the debtor chooses to utilize the cramdown procedure (having failed<br />
to secure the vote of <strong>al</strong>l the impaired classes), the plan must me<strong>et</strong> <strong>al</strong>l of the statutory requirements<br />
enumerated in § 1129(b) (essenti<strong>al</strong>ly that the plan is fair and equitable and does not discriminate unfairly<br />
against any impaired claims)‖); In re Zenith Elecs. Corp., 241 B.R. 93, 105 (Bankr. D. Del. 1999)<br />
(explaining that ―[w]here a class of creditors or shareholders has not accepted a plan of reorganization, the<br />
court sh<strong>al</strong>l non<strong>et</strong>heless confirm the plan if it ‗does not discriminate unfairly and is fair and equitable‘‖<br />
(quoting 11 U.S.C. § 1129 (b)(1))); see <strong>al</strong>so Liberty Nat’l Enters. v. Ambanc La Mesa Ltd. P’ship (In re<br />
Ambanc La Mesa Ltd. P’ship), 115 F.3d 650, 653 (9th Cir. 1997) (―the [p]lan [must satisfy] the ‗cramdown‘<br />
<strong>al</strong>ternative . . . in 11 U.S.C. § 1129(b), which requires that the [p]lan ‗does not discriminate unfairly‘<br />
against and ‗is fair and equitable‘ towards each impaired class that has not accepted the [p]lan.‖); John<br />
Hancock Mut. Life Ins. Co. v. Route 37 Bus. Park Assocs., 987 F.2d 154, 157 n.5 (3d Cir. 1993) (the plan<br />
―must not ‗discriminate unfairly‘ against and must be ‗fair and equitable‘ with respect to <strong>al</strong>l impaired<br />
classes that do not approve the plan‖ (quoting 11 U.S.C. § 1129(b))).<br />
34
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i. The Plan Does Not Discriminate Unfairly with Respect to the Rejecting<br />
Classes<br />
70. The Bankruptcy Code does not s<strong>et</strong> forth any one standard for d<strong>et</strong>ermining if a<br />
plan discriminates unfairly against impaired, rejecting classes. 66<br />
Rather, courts typic<strong>al</strong>ly<br />
examine the facts and circumstances of the particular case to d<strong>et</strong>ermine wh<strong>et</strong>her ―unfair<br />
discrimination‖ exists. 67<br />
At a minimum, however, the unfair discrimination standard prevents<br />
creditors and interest holders with similar leg<strong>al</strong> rights from receiving materi<strong>al</strong>ly different<br />
treatment under a proposed plan without compelling justifications for doing so. 68<br />
Courts in the<br />
Second Circuit have ruled that ―[u]nder section 1129(b) of the Bankruptcy Code, a plan unfairly<br />
discriminates where similarly situated classes are treated differently without a reasonable basis<br />
for the disparate treatment.‖ 69<br />
71. Put simply, the Plan‘s treatment of the Impaired rejecting Class (Class 4) is proper<br />
because no member of Class 4 is similarly situated to any holder of a Claim to any other Claims<br />
– indeed, holders of Claims in Class 3 are by definition senior to and different from holders of<br />
66<br />
67<br />
68<br />
69<br />
See In re Johns-Manville Corp., 68 B.R. 618, 636 (Bankr. S.D.N.Y. 1986), aff’d, 78 B.R. 407 (S.D.N.Y.<br />
1987), aff’d, 843 F.2d 636 (2d Cir. 1988) (―The language and legislative history of the statute provides little<br />
guidance in applying the ‗unfair discrimination‘ standard . . . .‖); In re 203 N. LaS<strong>al</strong>le St. Ltd. P’ship, 190<br />
B.R. 567, 585 (Bankr. N.D. Ill. 1995) (noting ―the lack of any clear standard for d<strong>et</strong>ermining the fairness of<br />
a discrimination in the treatment of classes under a Chapter 11 plan‖ and that ―the limits of fairness in this<br />
context have not been established.‖), aff’d, Bank of Am., Ill. v. LaS<strong>al</strong>le St. P’ship, 195 B.R. 692 (N.D. Ill.<br />
1996), aff’d, 126 F.3d 955 (7th Cir. 1997), rev’d on other grounds, Bank of Am. Nat’l Trust and Sav. Ass’n<br />
v. 203 N. LaS<strong>al</strong>le St. P’ship, 526 U.S. 434 (1999).<br />
See In re Freymiller Trucking, <strong>Inc</strong>., 190 B.R. 913, 916 (Bankr. W.D. Okla. 1996) (holding that a<br />
d<strong>et</strong>ermination of unfair discrimination requires a court to ―consider <strong>al</strong>l aspects of the case and the tot<strong>al</strong>ity of<br />
<strong>al</strong>l the circumstances.‖); In re Aztec Co., 107 B.R. 585, 589 (Bankr. M.D. Tenn. 1989) (noting that courts<br />
―have recognized the need to consider the facts and circumstances of each case to give meaning to the<br />
proscription against unfair discrimination‖).<br />
See In re WorldCom, No. 02-13533 (ALG), 2003 WL 23861928, at *59 (Bankr. S.D.N.Y. Oct. 31, 2003)<br />
(requiring a reasonable basis to justify disparate treatment).<br />
Id; see <strong>al</strong>so In re Buttonwood Partners, Ltd., 111 B.R. 57, 63 (Bankr. S.D.N.Y. 1990) (courts assess<br />
wh<strong>et</strong>her ―(i) there is a reasonable basis for discriminating, (ii) the debtor cannot consummate the plan<br />
without discrimination, (iii) the discrimination is proposed in good faith, and (iv) the degree of<br />
discrimination is in direct proportion to its ration<strong>al</strong>e,‖ but <strong>al</strong>so noting that the second prong, assessing<br />
wh<strong>et</strong>her the debtor cannot consummate the plan without discrimination, is not dispositive of the question of<br />
unfair discrimination).<br />
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Interests in Class 4 – and each member of Class 4 will equ<strong>al</strong>ly receive no distribution under the<br />
Plan (i.e., no holder of an Equity Interest in Class 4 will receive any treatment that is different<br />
than any other holder for Equity Interests in Class 4). Therefore, the Plan necessarily does not<br />
unfairly discriminate with respect to Class 4.<br />
ii.<br />
The Plan is Fair and Equitable with Respect to the Rejecting Classes<br />
72. Bankruptcy Code sections 1129(b)(2)(B)(ii) and 1129(b)(2)(C)(ii) s<strong>et</strong> forth the soc<strong>al</strong>led<br />
―absolute priority rule.‖ This centr<strong>al</strong> ten<strong>et</strong> of bankruptcy law requires that if the holders of<br />
claims or interests in a particular class receive less than full v<strong>al</strong>ue for their claims or interests, no<br />
holders of claims or interests in a junior class may receive any property under the plan. 70<br />
The<br />
corollary of the absolute priority rule is that if the holders of claims or interests in a particular<br />
class receive less than full v<strong>al</strong>ue for their claims or interests, then senior classes cannot receive<br />
more than a 100% recovery for their claims or interests. 71<br />
73. The Plan‘s treatment of the Impaired rejecting Class complies with the absolute<br />
priority rule because no holder of any junior Claim or Interest will receive any recovery under<br />
the Plan (indeed, there is no class junior to Class 4), and no senior Class is receiving more than<br />
full recovery on account of its Claims (including Claims for interest and other contractu<strong>al</strong> rights).<br />
Thus, the Plan satisfies the requirements of Bankruptcy Code section 1129(b) as to the Impaired<br />
rejecting Classes.<br />
70<br />
71<br />
11 U.S.C. § 1129(b)(2)(B)(ii), (C)(ii); see <strong>al</strong>so Bank of Am. Nat’l Trust and Sav. Ass’n v. 203 N. LaS<strong>al</strong>le St.<br />
P’ship, 526 U.S. 434, 441-42 (1999).<br />
See In re Granite Broad. Corp., 369 B.R. 120, 140 (Bankr. S.D.N.Y. 2007) (―There is no dispute that a<br />
class of creditors cannot receive more than full consideration for its claims, and that excess v<strong>al</strong>ue must be<br />
<strong>al</strong>located to junior classes of debt or equity, as the case may be.‖).<br />
36
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iii.<br />
The Requirement that the Bankruptcy Court May only Approve One<br />
Plan Has Been M<strong>et</strong> (11 U.S.C. § 1129(c))<br />
74. Other than the Plan (including previous versions thereof), one other plan<br />
(including previous versions thereof) had been filed in the Chapter 11 Cases; however, such Prior<br />
Plan was withdrawn on February 16, 2011. Accordingly, the requirements of section 1129(c) of<br />
the Bankruptcy Code have been satisfied.<br />
P. The Princip<strong>al</strong> Purpose of the Plan is Not Avoidance of Taxes (11 U.S.C.<br />
§ 1129(d))<br />
75. Bankruptcy Code section 1129(d) states ―the court may not confirm a plan if the<br />
princip<strong>al</strong> purpose of the plan is the avoidance of taxes or the avoidance of the application of<br />
section 5 of the Securities Act of 1933.‖ 72<br />
The Plan satisfies this provision. Notably, no<br />
government<strong>al</strong> or any other entity has raised any objection to the Plan on these grounds; indeed,<br />
<strong>al</strong>l tax Claims will be paid in full pursuant to the Plan. The Debtors therefore submit that the<br />
Plan satisfies the requirements of Bankruptcy Code section 1129(d).<br />
II.<br />
The Plan S<strong>et</strong>tlement of Claims and Controversies Is Fair and Equitable and Should<br />
Be Approved<br />
76. The Plan constitutes a good faith compromise and s<strong>et</strong>tlement pursuant to<br />
Bankruptcy Code section 363 and Bankruptcy Rule 9019(a) of <strong>al</strong>l Claims, Interests and<br />
controversies relating to the contractu<strong>al</strong>, leg<strong>al</strong> and subordination rights that a holder of a Claim<br />
or Interest may have with respect to any Allowed Claim or Interest, or any distribution to made<br />
on account thereof. 73<br />
Such s<strong>et</strong>tlement, as reflected in the relative distributions and recoveries<br />
under the Plan, (i) will save the Debtors and their estates the costs and expenses of prosecuting<br />
disputes, the outcome of which is likely to consume substanti<strong>al</strong> resources of the Debtors‘ estates<br />
72<br />
73<br />
11 U.S.C. § 1129(d).<br />
Plan, Article IX.A. In addition to the over<strong>al</strong>l S<strong>et</strong>tlement, the proposed Confirmation Order s<strong>et</strong>tles the<br />
claims of the Texas Comptroller of Public Accounts regarding its claim to recover taxes in the amount of<br />
less than $200,000.<br />
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and require substanti<strong>al</strong> time to adjudicate and (ii) has facilitated the creation and implementation<br />
of the Plan and benefits the Debtors‘ estates, stakeholders and <strong>al</strong>l parties in interest. 74<br />
77. Moreover, in response and in order to resolve an inform<strong>al</strong> objection to the Plan<br />
related to the Texas Comptroller Claims, the Debtors have included a provision in the proposed<br />
Confirmation Order acceptable to the Texas Comptroller providing the following: in full and<br />
fin<strong>al</strong> satisfaction of the Texas Comptroller Claims, the Texas Comptroller is entitled to an<br />
Allowed Priority Tax Claim in the amount of $147,004.66 (the ―Texas Priority Tax Claim‖) in<br />
respect of tax liabilities incurred during the period from October 1, 2007 through<br />
October 19, 2010, and an Allowed Administrative Claim in the amount of $42,701.82 (the<br />
―Texas Administrative Claim‖) in respect of tax liabilities incurred during the period from<br />
October 20, 2010 through September 30, 2011, which Texas Priority Tax Claim and Texas<br />
Administrative Claim will be paid pursuant to the Plan; provided that if the Effective Date has<br />
not occurred as of June 30, 2012, the Texas Comptroller sh<strong>al</strong>l be entitled to assert an addition<strong>al</strong><br />
Administrative Claim for postp<strong>et</strong>ition interest, which interest will be c<strong>al</strong>culated at 4.25% per<br />
annum on the amount of the Texas Administrative Claim, and which interest will begin accruing<br />
on July 1, 2012. 75<br />
This s<strong>et</strong>tlement was negotiated in good faith, at arm‘s length, and represents a<br />
fair and reasonable s<strong>et</strong>tlement of the Texas Comptroller‘s Claims, in light of the various risks and<br />
74<br />
75<br />
In re Spiegel, <strong>Inc</strong>., No. 03-11540 (BRL), 2005 WL 1278094, at *10 (Bankr. S.D.N.Y. May 25, 2005)<br />
(finding a s<strong>et</strong>tlement that m<strong>et</strong> this standard constituted a ―good faith compromise‖ in compliance with<br />
Bankruptcy Rule 9019(a)).<br />
For the avoidance of doubt, even if the Effective Date has not occurred by June 30, 2012, the Texas<br />
Comptroller sh<strong>al</strong>l not be entitled to any Claim for postp<strong>et</strong>ition interest (other than any amounts on account<br />
of interest <strong>al</strong>ready included in the Texas Administrative Claim) that may otherwise have accrued from the<br />
P<strong>et</strong>ition Date through and including June 30, 2012.<br />
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costs of fully litigating wh<strong>et</strong>her the Texas Comptroller would be entitled to addition<strong>al</strong> interest<br />
and pen<strong>al</strong>ties with respect to its Claims. 76<br />
III.<br />
The Limited Release, Exculpation, and Injunction Provisions of the Plan Should Be<br />
Approved<br />
78. The Plan provides for (i) the release of certain causes of action of the Debtors and<br />
their estates, (ii) the release of certain causes of action by certain holders of Claims and Interests,<br />
(iii) the exculpation from claims for certain parties, and (iv) a permanent injunction enjoining the<br />
prosecution of certain claims. The release, exculpation and injunction provisions contained in<br />
the Plan are proper because, among other things, such provisions are the product of arm‘s-length<br />
negotiations and have been critic<strong>al</strong> to the formulation of the Plan (indeed, parties have voted<br />
overwhelmingly to support such provisions). The Debtors submit, therefore, that as explained<br />
below, such provisions me<strong>et</strong> the requirements in this Circuit.<br />
76<br />
To the extent that the foregoing constitutes a s<strong>et</strong>tlement of not only a Plan objection but <strong>al</strong>so of the Texas<br />
Comptroller‘s Claims, the Debtors submit that such s<strong>et</strong>tlement me<strong>et</strong>s the standards for approv<strong>al</strong> in this<br />
Circuit. To ev<strong>al</strong>uate wh<strong>et</strong>her a s<strong>et</strong>tlement is fair and equitable, courts in the Second Circuit consider factors<br />
including:<br />
<br />
<br />
<br />
<br />
<br />
<br />
the b<strong>al</strong>ance b<strong>et</strong>ween any litigation‘s possibility of success and the s<strong>et</strong>tlement‘s future benefits;<br />
the likelihood of complex and protracted litigation, with its attendant expense, inconvenience,<br />
and delay;<br />
the paramount interests of the creditors, including each affected class‘s relative benefits and<br />
the degree to which creditors either do not object to or affirmatively support the proposed<br />
s<strong>et</strong>tlement;<br />
wh<strong>et</strong>her other parties in interest support the s<strong>et</strong>tlement;<br />
the comp<strong>et</strong>ency and experience of counsel supporting the s<strong>et</strong>tlement; and<br />
the extent to which the s<strong>et</strong>tlement is the product of arm‘s-length bargaining.<br />
See Iridium Operating LLC v. Offici<strong>al</strong> Comm. of Unsecured Creditors (In re Iridium Operating LLC), 478<br />
F.3d 452, 462, 465 (2d Cir. 2007) (intern<strong>al</strong> citations omitted). The Debtors believe that <strong>al</strong>l factors weigh in<br />
favor of approv<strong>al</strong> of the compromise with the Texas Comptroller in light of the Debtors‘ ev<strong>al</strong>uation of the<br />
cost of litigating the Texas Comptroller‘s Claims and the impact of such costs on creditors‘ recoveries<br />
under the Plan, the likelihood of the Debtors‘ success in such litigation and the arms‘-length nature of the<br />
negotiations leading up to the compromise.<br />
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A. The Debtor Release Should Be Approved<br />
79. Article IX.B of the Plan (the ―Debtor Release‖) contains a release of the Released<br />
Parties 77 from <strong>al</strong>l claims and causes of action that the Debtors, the Reorganized Debtors and the<br />
estates and their Affiliates would have been entitled to assert based on or relating to, among other<br />
things, (i) the Debtors, (ii) the Chapter 11 Cases, (iii) the purchase, s<strong>al</strong>e or rescission of the<br />
purchase or s<strong>al</strong>e of any security of the Debtors or the Reorganized Debtors, (iv) the subject<br />
matter of, or the transactions or events giving rise to, any Claim or Interest that is treated in the<br />
Plan, (v) the business or contractu<strong>al</strong> arrangements b<strong>et</strong>ween any Debtor and any Released Party,<br />
(vi) the restructuring of Claims and Interests before or during the Chapter 11 Cases, (vii) the<br />
negotiation, formulation or preparation of the Plan and Disclosure Statement, or related<br />
agreements, instruments or other documents, or (viii) other acts, omissions, transactions,<br />
agreements or events taking place on or before the Effective Date. The Debtor Release does not<br />
absolve any Released Party from liability with respect to any act or omission that constitutes<br />
gross negligence, willful misconduct, crimin<strong>al</strong> acts or fraud (the ―Release Carve Out‖). Further,<br />
77<br />
―Released Party‖ means each of (in each case solely in their respective capacities): (a) the Debtors; (b) the<br />
current and former directors and officers of the Debtors who were directors or officers of the Debtors as of<br />
or after the P<strong>et</strong>ition Date; (c) EchoStar; (d) the DIP Agent; (e) the Purchase Money Agent; (f) the Creditors‘<br />
Committee and the current and former members thereof; (g) Deloitte & Touche <strong>Inc</strong>., in its capacity as<br />
Information Officer; (h) the Indenture Trustees; (i) the members of the New Boards; (j) the members of the<br />
Interim TSN Trust Board (in the event that the provisions of Exhibit 3 are triggered pursuant to Article V.G.<br />
of the Plan); (k) the Liquidating Trust Trustee; (l) the members of the Liquidating Trust Board; (m) the<br />
Reorganized Debtors; (n) Harbinger, LightSquared <strong>Inc</strong>. and LightSquared LP; (o) Sprint; (p) the Ad Hoc<br />
Group, the members thereof as of the date of the Glob<strong>al</strong> S<strong>et</strong>tlement Order and the former members who, as<br />
of the date of entry of the Confirmation Order, have not objected to the Plan and, as of the Effective Date,<br />
have not sought (in any manner, wh<strong>et</strong>her by filing a motion or otherwise) the reimbursement or other<br />
payment of any fees or expenses, (including, without limitation, the fees and expenses of any advisors) in<br />
connection with the Chapter 11 Cases, in their capacity as such; (q) Solus; and (r) with respect to each of<br />
the foregoing Entities in clauses (a) through (q), such Entities‘ subsidiaries, Affiliates, members, officers,<br />
directors, agents, financi<strong>al</strong> advisors, accountants, investment bankers, consultants, attorneys, employees,<br />
partners, and representatives, in each case, only in their capacity as such; provided, however, that for the<br />
avoidance of doubt, nothing in this Plan sh<strong>al</strong>l be deemed to release the Purchaser or any of its Affiliates<br />
from their obligations under the Purchase Agreement; provided, further, that Articles IX.B and IX.C of the<br />
Plan sh<strong>al</strong>l not apply to DISH, which was released as and to the extent provided pursuant to the Purchase<br />
Agreement (including Exhibit A ther<strong>et</strong>o).<br />
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in light of the releases granted pursuant to the Purchase Agreement and the S<strong>al</strong>e Order, the<br />
Debtor Release does not apply to the Purchaser or, solely to the extent it is a party to the<br />
Purchase Agreement for the purposes of Section 6.19 thereof, DISH with respect to any claims,<br />
obligations, rights, suits, damages, Causes of Action, remedies and liabilities arising under the<br />
Purchase Agreement.<br />
80. Bankruptcy Code section 1123(b)(3)(A) specific<strong>al</strong>ly provides that a chapter 11<br />
plan may provide for ―the s<strong>et</strong>tlement or adjustment of any claim or interest belonging to the<br />
debtor or to the estate.‖ 78<br />
Although a release may not qu<strong>al</strong>ify as a s<strong>et</strong>tlement under Bankruptcy<br />
Rule 9019, the rules governing the approv<strong>al</strong> of a s<strong>et</strong>tlement are useful in ev<strong>al</strong>uating plan releases.<br />
In reviewing releases in a debtor‘s plan, courts frequently use the ―best interests of the estate‖<br />
benchmark for approv<strong>al</strong> of a s<strong>et</strong>tlement under Bankruptcy Rule 9019. 79<br />
81. The Debtor Release is limited to Claims that belong to the Debtors. It is well<br />
s<strong>et</strong>tled that debtors are authorized to s<strong>et</strong>tle or release their claims in a chapter 11 plan. 80<br />
Indeed,<br />
courts in this district have approved similar debtor-release provisions in other chapter 11 cases. 81<br />
In this case, the Debtors do not believe that there are any v<strong>al</strong>uable Claims against the Released<br />
Parties. In addition, the Debtors‘ release of Claims is a key component of their consensu<strong>al</strong> Plan<br />
process and the S<strong>et</strong>tlement that resolved <strong>al</strong>l major issues in these cases. Accordingly, the<br />
78<br />
79<br />
80<br />
81<br />
11 U.S.C. § 1123(b)(3)(A).<br />
See gener<strong>al</strong>ly In re B<strong>al</strong>ly Tot<strong>al</strong> Fitness of Greater NY, No. 07-12395, 2007 WL 2779438 (BRL), at *12<br />
(Bankr. S.D.N.Y. Sept. 17, 2007) (―To the extent that a release or other provision in the Plan constitutes a<br />
compromise of a controversy, this Confirmation Order sh<strong>al</strong>l constitute an order under Bankruptcy Rule<br />
9019 approving such compromise.‖); Spiegel, 2005 WL 1278094, at *11 (approving releases pursuant to<br />
section 1123(b)(3) of the Bankruptcy Code and Bankruptcy Rule 9019(a)).<br />
See In re Adelphia Commc’ns., 368 B.R. 140, 263 n. 289 (Bankr. S.D.N.Y. 2007), aff’d, 544 F.3d 420 (2d<br />
Cir. 2008) (holding that a debtor may release its own claims); In re Oneida Ltd., 351 B.R. 79, 94, n.1<br />
(Bankr. S.D.N.Y. 2006) (noting that a debtor‘s release of its own claims is permissible).<br />
See, e.g., In re C<strong>al</strong>pine Corp., No. 05-60200 (BRL), 2007 WL 4565223, at *9 (Bankr. S.D.N.Y. Dec. 19,<br />
2007), aff’d, 354 Fed. Appx. 479 (2d Cir. 2009); In re Tower Auto., <strong>Inc</strong>., No. 05-10578 (ALG) (Bankr.<br />
S.D.N.Y. July 12, 2007) [Dock<strong>et</strong> No. 2932].<br />
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Debtors submit that the Debtor Release is consistent with applicable law, represents a v<strong>al</strong>id<br />
s<strong>et</strong>tlement of whatever Claims the Debtors may have against the Released Parties pursuant to<br />
Bankruptcy Code section 1123(b)(3)(A), represents a v<strong>al</strong>id exercise of the Debtors‘ business<br />
judgment, and should be approved.<br />
B. The Third-Party Release Should Be Approved<br />
82. In addition to the Debtor Release, the Plan <strong>al</strong>so provides for the release and<br />
discharge of the Released Parties from <strong>al</strong>l claims that holders of Claims or Interests would have<br />
been entitled to assert individu<strong>al</strong>ly or collectively, except for claims or liabilities arising out of<br />
willful misconduct, fraud or gross negligence (the ―Third-Party Releases‖). 82<br />
As s<strong>et</strong> forth in<br />
further d<strong>et</strong>ail herein, the Third-Party Releases constitute a good-faith s<strong>et</strong>tlement and compromise<br />
of claims released by the holders of Claims and Interests, given in exchange for good and<br />
v<strong>al</strong>uable consideration. The Third-Party Releases are fair, equitable and reasonable and in the<br />
best interests of the Debtors and <strong>al</strong>l holders of Claims.<br />
83. In the Second Circuit, a third-party release is permissible where ―unusu<strong>al</strong><br />
circumstances render the release terms important to success of the plan.‖ 83<br />
When reviewing such<br />
releases, courts focus on the following factors, which examine wh<strong>et</strong>her:<br />
<br />
<br />
<br />
<br />
the estate received substanti<strong>al</strong> consideration;<br />
the enjoined claims were ―channeled‖ to a s<strong>et</strong>tlement fund rather than<br />
extinguished;<br />
the enjoined claims would indirectly impact the reorganization ―by way of<br />
indemnity or contribution‖;<br />
the plan otherwise provided for the full payment of the enjoined claims; or<br />
82<br />
83<br />
Plan, Article IX.C.<br />
Deutsche Bank AG, London Branch v. M<strong>et</strong>romedia Fiber N<strong>et</strong>work, <strong>Inc</strong>. (In re M<strong>et</strong>romedia Fiber N<strong>et</strong>work,<br />
<strong>Inc</strong>.), 416 F.3d 136, 143 (2d Cir. 2005).<br />
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the affected creditors consent. 84<br />
84. With respect to the first factor, substanti<strong>al</strong> consideration is being exchanged in<br />
r<strong>et</strong>urn for the Third-Party Releases.<br />
The Released Parties played an integr<strong>al</strong> role in the<br />
formulation of the S<strong>et</strong>tlement, which formed the basis for the Plan, and have expended<br />
significant time and resources an<strong>al</strong>yzing and negotiating the issues presented by the Debtors‘<br />
prep<strong>et</strong>ition capit<strong>al</strong> structure and postp<strong>et</strong>ition s<strong>et</strong>tlement propos<strong>al</strong>s. As such, the Released Parties<br />
have contributed much to the estates by converting the Chapter 11 Cases from ones with many<br />
hotly contested issues to ones where <strong>al</strong>l major constituents support the Plan, thereby facilitating<br />
the expeditious reorganization of the Debtors and the implementation of the restructuring<br />
contemplated by the Plan. In so doing, the Released Parties have compromised aspects of their<br />
asserted Claims or other leg<strong>al</strong> and/or equitable rights to reach the consensu<strong>al</strong> resolution that<br />
<strong>al</strong>lowed for the maximization and preservation of v<strong>al</strong>ue for <strong>al</strong>l of the Debtors‘ creditors.<br />
85. In addition, certain of the Released Parties – the Debtors‘ directors and officers –<br />
share an identity of interest with the Debtors. Consistent with responsible business practices, the<br />
Debtors maintain insurance policies for their current and past directors and officers. Accordingly,<br />
any lawsuits filed by third parties against these individu<strong>al</strong>s would essenti<strong>al</strong>ly constitute actions<br />
against the Debtors‘ estates, and adverse judgments could depl<strong>et</strong>e estate ass<strong>et</strong>s if they exceed the<br />
applicable policy limits. Although the Debtors do not believe any materi<strong>al</strong> liabilities exist<br />
against current or former directors or officers, the Debtors seek approv<strong>al</strong> of the proposed Third-<br />
84<br />
In re Adelphia Commc’ns., 368 B.R. at 267 (citing M<strong>et</strong>romedia Fiber N<strong>et</strong>work, 416 F.3d at 142-43); SEC v.<br />
Drexel Burnham Lambert Grp., <strong>Inc</strong>. (In re Lambert Grp., <strong>Inc</strong>.), 960 F.2d 285, 293 (2d Cir. 1992) (―In<br />
bankruptcy cases, a court may enjoin a creditor from suing a third party, provided the injunction plays an<br />
important part in the debtor‘s reorganization plan.‖); see <strong>al</strong>so Rosenberg v. XO Commc’ns, <strong>Inc</strong>. (In re XO<br />
Commc’ns, <strong>Inc</strong>.), 330 B.R. 394, 440 (Bankr. S.D.N.Y. 2005) (finding that non-consensu<strong>al</strong> third party<br />
releases satisfied M<strong>et</strong>romedia standard where substanti<strong>al</strong> consideration was provided for the releases, there<br />
was an identity of interest b<strong>et</strong>ween the debtor and releasees ―as a result of indemnification/contribution<br />
exposure of the Debtor,‖ and the release was necessary to the Plan process).<br />
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Party Releases for the same reasons the Debtors maintain D&O Liability Insurance Policies – as<br />
prophylactic protection against unknown liabilities or frivolous lawsuits. As a result, including<br />
the Debtors‘ directors and officers among the Released Parties covered by the Third-Party<br />
Releases limits the Reorganized Debtors‘ post-emergence obligations, thereby benefitting the<br />
Debtors‘ unsecured creditors whose recovery is limited to any proceeds remaining from the S<strong>al</strong>e<br />
Transaction.<br />
86. Third, certain of the entities and individu<strong>al</strong>s granted a release under the Plan<br />
would have a potenti<strong>al</strong> claim for indemnification and contribution against the Debtors for any<br />
liabilities incurred on such claims, as well as any expenses incurred to defend against such<br />
claims. If the Debtors had to satisfy indemnification and contribution claims by any of the<br />
Released Parties, such claims would reduce the recoveries to the Debtors‘ unsecured creditors.<br />
The Debtors‘ estates therefore would be directly and adversely impacted if the released claims<br />
were pursued. Fourth, the Debtors expect a nearly (if not compl<strong>et</strong>ely) consensu<strong>al</strong> Plan and<br />
confirmation process. Therefore, the Third-Party Releases are proper with respect to these<br />
holders of Claims because such holders‘ votes in favor of the Plan (or lack of objection ther<strong>et</strong>o,<br />
as applicable) indicate their consent to the Third-Party Releases.<br />
87. Fin<strong>al</strong>ly, because the Third-Party Releases are the product of arm‘s-length<br />
negotiations, they are fair and equitable. Moreover, the Third-Party Releases are reasonable and<br />
consistent with public policy because they protect the Plan – with appropriate carveouts for<br />
willful misconduct, fraud and gross negligence – and insulate the Debtors from indirect<br />
liability. 85<br />
Indeed, the Third-Party Releases do not release parties from crimin<strong>al</strong> or similar<br />
85<br />
Plan, Article IX.C.<br />
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liability, and government<strong>al</strong> entities tasked with enforcement are best suited to bring any such<br />
actions, if any exist.<br />
C. The Injunction Should Be Approved<br />
88. Pursuant to its terms, the Plan permanently enjoins <strong>al</strong>l Entities from bringing any<br />
action that is released pursuant to the Plan or Confirmation Order (the ―Injunction‖). 86<br />
Addition<strong>al</strong>ly, the Releasing Parties 87 are permanently enjoined from bringing any actions against<br />
the Released Parties or Exculpated Parties (defined below) on account of any Claim that is<br />
released.<br />
The Injunction is necessary to effectuate the Plan‘s releases and to protect<br />
the Reorganized Debtors from potenti<strong>al</strong> litigation from prep<strong>et</strong>ition creditors as they<br />
implement the provisions of the Plan after the Effective Date. Such litigation would hinder the<br />
efforts of the Reorganized Debtors to effectively fulfill their responsibilities as contemplated in<br />
the Plan and maximize v<strong>al</strong>ue for <strong>al</strong>l holders of Claims and Interests. The Injunction is narrowly<br />
tailored to achieve its purpose, and similar injunctions have been approved by courts in<br />
other chapter 11 cases; the Injunction should therefore be approved. 88<br />
86<br />
87<br />
88<br />
Plan, Article IX.F.<br />
―Releasing Parties‖ means <strong>al</strong>l Entities who have held, hold or may hold Claims or Interests that have been<br />
released pursuant to Article IX. B or Article IX. C of the Plan, discharged pursuant to Article IX. E of the<br />
Plan or are subject to exculpation pursuant to Article IX.D of the Plan.<br />
See, e.g., In re C<strong>al</strong>pine Corp., No. 05-60200 (BRL), 2007 WL 4565223, at *10 (Bankr. S.D.N.Y. Dec. 19,<br />
2007), aff’d, 354 Fed. Appx. 479 (2d Cir. 2009); In re B<strong>al</strong>ly Tot<strong>al</strong> Fitness of Greater NY, No. 07-12395,<br />
2007 WL 2779438, at *8 (Bankr. S.D.N.Y. Sept. 17, 2007) (finding that the exculpation, release, and<br />
injunction provisions were appropriate because they were fair and equitable, necessary to successful<br />
reorganization and integr<strong>al</strong> to the plan).<br />
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D. The Exculpation Should be Approved<br />
89. Pursuant to the terms of the Plan, the Exculpated Parties 89 are protected from<br />
liability for actions taken or omitted pre- or postp<strong>et</strong>ition in connection with or related to the<br />
Debtors‘ restructuring efforts, the Chapter 11 Cases, the Canadian Proceedings, the Purchase<br />
Agreement, the Paydown Orders, the S<strong>et</strong>tlement, the Plan S<strong>et</strong>tlement, the formulation,<br />
preparation, dissemination, negotiation or filing of the Disclosure Statement or the Plan or any<br />
contract, instrument, release or other agreement or document created or entered into in<br />
connection with the Disclosure Statement or the Plan, the S<strong>et</strong>tlement, the Plan S<strong>et</strong>tlement, the<br />
filing of the Chapter 11 Cases, the Canadian Proceedings, the pursuit of Confirmation and<br />
implementation of the Plan, including the issuance of Plan securities or the distribution of<br />
property under the Plan (collectively, the ―Exculpation Provision‖). 90<br />
The scope of the<br />
Exculpation Provision is appropriately limited to the Exculpated Parties‘ participation in these<br />
Chapter 11 Cases, has no effect on liability that results from gross negligence, willful misconduct<br />
or fraud and does not apply to any acts or omissions expressly s<strong>et</strong> forth in and preserved by the<br />
Plan.<br />
89<br />
90<br />
―Exculpated Party‖ means each of: (a) the Debtors, and the Reorganized Debtors; (b) the Creditors‘<br />
Committee and the current and former members thereof, in their capacity as such; (c) EchoStar; (d) the<br />
Indenture Trustees; (e) the Purchase Money Agent; (f) Deloitte & Touche <strong>Inc</strong>., in its capacity as<br />
information officer in the Canadian Proceedings; (g) the New Boards of the Reorganized Debtors and the<br />
members of the Interim TSN Trust Board (in the event that the provisions of Exhibit 3 are triggered<br />
pursuant to Article V.G. of the Plan), in connection with the Chapter 11 Cases, including, but not limited to,<br />
any action taken in furtherance of this Plan, the Purchase Agreement and the S<strong>al</strong>e Order; (h) Harbinger,<br />
LightSquared <strong>Inc</strong>. and LightSquared LP; (i) Sprint; (j) the Ad Hoc Group, the members thereof as of the<br />
date of the Glob<strong>al</strong> S<strong>et</strong>tlement Order and the former members that, as of the date of entry of the<br />
Confirmation Order, have not objected to the Plan and, as of the Effective Date, have not sought (in any<br />
manner, wh<strong>et</strong>her by filing a motion or otherwise) the reimbursement or other payment of any fees or<br />
expenses, including, without limitation, the fees and expenses of any advisors) in connection with the<br />
Chapter 11 Cases, in their capacity as such; (k) Solus; and (l) with respect to each of the foregoing Entities<br />
in clauses (a) through (k), such Entities‘ subsidiaries, affiliates, members, officers, directors, agents,<br />
financi<strong>al</strong> advisors, accountants, investment bankers, consultants, attorneys, employees, partners, and<br />
representatives, in each case solely in their capacity as such.<br />
Plan, Article IX.D.<br />
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90. Policy considerations, including the protection of statutory committees and their<br />
members, weigh strongly in favor of exculpatory clauses such as the Exculpation Provision.<br />
Notably, courts have ruled that exculpation provisions do not affect the liabilities of third parties,<br />
but merely s<strong>et</strong> forth the appropriate standard of liability for the exculpated parties. 91<br />
Courts have<br />
found exculpation provisions appropriate where, as here, they do not extend to gross negligence,<br />
willful misconduct or fraud. 92<br />
Courts ev<strong>al</strong>uate the appropriateness of exculpation provisions<br />
based upon a number of factors, including wh<strong>et</strong>her the Plan was proposed in good faith, wh<strong>et</strong>her<br />
liability is limited and wh<strong>et</strong>her the exculpation provision was necessary for plan negotiations. 93<br />
91. As discussed above, to confirm the Plan, the Bankruptcy Court must find, among<br />
other things, that the Plan has been proposed in good faith and not by any means forbidden by<br />
law. 94<br />
Such a finding would extend to the parties involved in the formulation of the Plan — i.e.<br />
the Debtors and the Creditors‘ Committee. Thus, if the Bankruptcy Court confirms the Plan,<br />
cause exists to approve the Exculpation Provision. Moreover, it is well established that the<br />
liability of statutory committees and their profession<strong>al</strong>s r<strong>et</strong>ained under Bankruptcy Code section<br />
91<br />
92<br />
93<br />
94<br />
In re PWS Holding Corp., 228 F.3d 224, 245 (3d Cir. 2000) (the exculpation provision, ―which is<br />
apparently a commonplace provision in Chapter 11 plans, does not affect the liability of [third] parties, but<br />
rather states the standard of liability under the Code . . . .‖).<br />
See Upstream Energy Servs. v. Enron Corp. (In re Enron Corp.), 326 B.R. 497, 501 (S.D.N.Y. 2005)<br />
(finding that the exculpation provision was appropriate where such provision excluded gross negligence<br />
and willful misconduct).<br />
See, e.g., Captran Creditors’ Trust v. McConnell (In re Captran Creditors’ Trust), 128 B.R. 469, 476 (M.D.<br />
Fla. 1991), aff’d, 979 F.2d 212 (11th Cir. 1992) (the factors used to ev<strong>al</strong>uate the language of an exculpation<br />
provision ―include, but are not limited to: how the exculpatory clause limits liability, intent of the parties,<br />
and the manner in which the exculpatory clause was made a part of the agreement‖).<br />
11 U.S.C. § 1129(a)(3).<br />
47
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1103 is limited to acts of gross negligence and willful misconduct. 95 Fin<strong>al</strong>ly, exculpation for<br />
participating in the plan process is appropriate where plan negotiations could not have occurred<br />
without protection from liability. 96<br />
The Plan would not have materi<strong>al</strong>ized if the negotiating<br />
parties had known they would not be protected from liability, other than for willful misconduct<br />
or gross negligence, in connection therewith.<br />
92. The Exculpated Parties should be exculpated for acts in connection with the<br />
Chapter 11 Cases, other than those acts involving willful misconduct or gross negligence, as a<br />
matter of public policy. Indeed, failing to include an exculpation clause such as the Exculpation<br />
Provision in a plan of reorganization would chill the critic<strong>al</strong> participation of the management and<br />
the advisors to debtors in possession, as well as essenti<strong>al</strong> creditor groups, in the process of trying<br />
to formulate and negotiate consensu<strong>al</strong> chapter 11 plans. In light of the bankruptcy policy in<br />
favor of consensu<strong>al</strong> chapter 11 plans and the negotiations that create them, it stands to reason that<br />
exculpation provisions are essenti<strong>al</strong> to the process and should be approved. 97<br />
95<br />
96<br />
97<br />
See In re C<strong>al</strong>pine Corp., No. 05-60200 (BRL), 2007 WL 4565223, at *10 (Bankr. S.D.N.Y. Dec. 19, 2007) ,<br />
aff’d, 354 Fed. Appx. 479 (2d Cir. 2009) (finding that exculpation provisions that do not relieve any party<br />
of liability for gross negligence or willful misconduct finding to be appropriate); Enron Corp., 326 B.R. at<br />
501 (noting that the bankruptcy court had addressed the exculpation provision, finding it appropriate<br />
because it excluded gross negligence and willful misconduct); PWS Holding, 228 F.3d at 246-47 (holding<br />
that the appropriate standard of liability under section 1103 of the Bankruptcy Code is ―willful misconduct<br />
or ultra vires acts,‖ and approving an exculpation of the creditors‘ committee and its profession<strong>al</strong>s subject<br />
only to liability for willful misconduct or gross negligence).<br />
See Enron Corp., 326 B.R. at 503 (excising similar exculpation provisions would ―tend to unravel the<br />
entire fabric of the Plan, and would be inequitable to <strong>al</strong>l those who participated in good faith to bring it into<br />
fruition‖); see <strong>al</strong>so In re Winn-Dixie Stores, <strong>Inc</strong>., 356 B.R. 239, 261 (Bankr. M.D. Fla. 2006) (holding<br />
exculpation provision was appropriate where beneficiaries expected such provision to be included in<br />
chapter 11 plan in exchange for participation in the chapter 11 cases); In re WorldCom, No. 02-12533<br />
(ALG), 2003 WL 23861928, at *28 (Bankr. S.D.N.Y. Oct. 31, 2003) (finding that the exculpation provision<br />
was appropriate when its inclusion in the plan was vit<strong>al</strong> to the successful negotiation of the plan).<br />
See In re Jartran, <strong>Inc</strong>., 44 B.R. 331, 363 (Bankr. N.D. Ill. 1984) (―the spirit of Chapter 11 [is] to promote<br />
consensu<strong>al</strong> plans . . . .‖); see <strong>al</strong>so In re Zenith Elecs. Corp., 241 B.R. 92, 105 (Bankr. D. Del. 1999) (stating<br />
that the Bankruptcy Code has an over<strong>al</strong>l policy of fostering consensu<strong>al</strong> plans of reorganization); In re<br />
Homestead Partners, Ltd., 197 B.R. 706, 710 (Bankr. N.D. Ga. 1996) (―the development of consensu<strong>al</strong><br />
reorganizations lies at the heart of Chapter 11 policy . . . .‖); In re Pub. Serv. Co. of N.H., 88 B.R. 521, 539-<br />
40 (Bankr. D.N.H. 1988) (―it is a ‗strong policy‘ underlying chapter 11 of the Bankruptcy Code to foster<br />
consensu<strong>al</strong> plans . . . .‖).<br />
48
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93. The Exculpated Parties played a critic<strong>al</strong> role in the formulation of the S<strong>et</strong>tlement<br />
and the Plan and the expectation of an eventu<strong>al</strong> exculpation similar to the one contained in the<br />
Exculpation Provision played a role in bringing these parties to the table. Moreover, the scope of<br />
the Exculpation Provision itself and the composition of the Exculpated Parties are entirely<br />
consistent with established practice in this and other jurisdictions. 98<br />
Accordingly, the<br />
Exculpation Provision should be approved.<br />
IV.<br />
The Modifications to the Plan are not Materi<strong>al</strong><br />
94. Since Solicitation, the Debtors made certain modifications (the ―Modifications‖)<br />
to the Plan and Disclosure Statement and filed the Plan and Disclosure Statement, as modified,<br />
with the Bankruptcy Court on February 8, 2012. Specific<strong>al</strong>ly, the Modifications include (i) a<br />
provision that, to the extent that the Debtors waive the condition precedent to the Effective Date<br />
that the Closing Date Payment sh<strong>al</strong>l have been received, the Debtors‘ will notify the Creditors‘<br />
Committee and the Purchaser of such waiver two weeks before the contemplated Effective Date<br />
and such parties sh<strong>al</strong>l maintain <strong>al</strong>l rights with respect ther<strong>et</strong>o, (ii) the identification and address<br />
of the Liquidating Trustee and (iii) certain other ministeri<strong>al</strong> changes unrelated to the treatment of<br />
Claims under the Plan. The Modifications do not materi<strong>al</strong>ly or adversely affect the way any<br />
Claim or Interest is treated under the version of the Plan distributed to holders of Claims in the<br />
Voting Class in connection with the prep<strong>et</strong>ition solicitation of votes on the Plan.<br />
98<br />
See, e.g., In re C<strong>al</strong>pine Corp., 2007 WL 456223, at *10; In re Source Enters., <strong>Inc</strong>., No. 06-11707 (ALG),<br />
2007 WL 2903954, at *13 (Bankr. S.D.N.Y. Oct. 1, 2007) (approving exculpation provision because<br />
provision was in the best interests of the debtors‘ estates and the creditors); In re B<strong>al</strong>ly Tot<strong>al</strong> Fitness of<br />
Greater NY, No. 07-12395, 2007 WL 2779438, at *8 (Bankr. S.D.N.Y. Sept. 17, 2007) (finding that the<br />
exculpation, release, and injunction provisions appropriate because they were fair and equitable, necessary<br />
to successful reorganization, and integr<strong>al</strong> to the plan); In re Oneida Ltd., 351 B.R. 79, 94 n.22 (Bankr.<br />
S.D.N.Y. 2006) (in overruling objection to exculpation clause, noting that exculpation language that<br />
―gener<strong>al</strong>ly follows the text that has become standard in this district, is sufficiently narrow to be<br />
unexceptionable‖).<br />
49
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95. Bankruptcy Code section 1127 provides, in relevant part:<br />
The proponent of a plan may modify such plan at any time before<br />
confirmation, but may not modify such plan so that such plan as modified<br />
fails to me<strong>et</strong> the requirements of section 1122 and 1123 of the [Bankruptcy<br />
Code]. After the proponent of a plan files a modification of such plan with<br />
the court, the plan as modified becomes the plan . . . .<br />
Any holder of a claim or interest that has accepted or rejected a plan is<br />
deemed to have accepted or rejected, as the case may be, such plan as<br />
modified, unless, within the time fixed by the court, such holder changes<br />
such holder‘s previous acceptance or rejection. 99<br />
96. Bankruptcy Rule 3019, designed to implement Bankruptcy Code section 1127, in<br />
turn provides, in relevant part:<br />
In a . . . chapter 11 case, after a plan has been accepted and before its<br />
confirmation, the proponent may file a modification of the plan. If the court<br />
finds after hearing on notice of the trustee, any committee appointed under<br />
the [Bankruptcy] Code, and any other entity designated by the court that the<br />
proposed modification does not adversely change the treatment of the claim<br />
of any creditor or the interest of any equity security holder who has not<br />
accepted in writing the modification, it sh<strong>al</strong>l be deemed accepted by <strong>al</strong>l<br />
creditors and equity security holders who have previously accepted the<br />
plan. 100<br />
97. Here, the requirements of Bankruptcy Code section 1127(d) have been m<strong>et</strong><br />
because <strong>al</strong>l holders of Claims and Interests in these Chapter 11 Cases have received notice of the<br />
hearing on confirmation of the Plan and will have an opportunity to object to the Modifications<br />
at that time. 101<br />
Moreover, the Debtors submit that sever<strong>al</strong> of their major creditors, or their<br />
representatives – including the Creditors‘ Committee, reviewed the Modifications and have not<br />
objected to any such Modifications.<br />
99<br />
100<br />
101<br />
11 U.S.C. §§ 1127(a), (d).<br />
Fed. R. Bankr. P. 3019(a).<br />
See Affidavit of Service of Eamon Mason – Notice of Rescheduled Confirmation Hearing Time, ECF No.<br />
894 (Jan. 11, 2012); see <strong>al</strong>so Citicorp Acceptance Co., <strong>Inc</strong>. v. Ruti-Swe<strong>et</strong>water (In re Swe<strong>et</strong>water), 57 B.R.<br />
354, 358-59 (D. Utah 1985) (creditors who had knowledge of pending confirmation hearing had sufficient<br />
opportunity to raise objections to modifications of the plan).<br />
50
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98. Bankruptcy Code section 1127 provides a plan proponent with the right to modify<br />
a plan ―at any time‖ before confirmation. 102<br />
This right would be meaningless if the promulgation<br />
of <strong>al</strong>l plan modifications, ministeri<strong>al</strong> or substantive, adverse to certain claimants or not,<br />
necessitated the resolicitation of votes. Indeed, courts have typic<strong>al</strong>ly <strong>al</strong>lowed a plan proponent to<br />
make non-materi<strong>al</strong> changes to a plan without any speci<strong>al</strong> procedure or resolicitation. 103<br />
Accordingly, because the Modifications are non-materi<strong>al</strong> and do not materi<strong>al</strong>ly adversely affect<br />
the treatment of any creditor that has previously accepted the Plan, and the Plan continues to<br />
comply with the requirements of Bankruptcy Code section 1122 and 1123, the Debtors believe<br />
that resolicitation is not required.<br />
V. Request for a Waiver of Bankruptcy Rule 3020(e), 6004(h) and/or 7062<br />
99. The Debtors respectfully request that the Bankruptcy Court direct that the order<br />
confirming the Plan become effective immediately upon its entry notwithstanding the 14-day<br />
stay imposed by Bankruptcy Rule 3020(e), 6004(h) and/or 7062.<br />
Under the unique<br />
circumstances of the Chapter 11 Cases, including, but not limited to, the fact that the Debtors and<br />
the Purchaser are seeking regulatory approv<strong>al</strong> of their FCC transfer of control application as soon<br />
as possible (thereby triggering the payment by the Purchaser of the remaining $30 million that<br />
will be made available for Distribution to creditors under the Plan and in accordance with terms<br />
of the Purchase Agreement), and given the near unanimous support of the Plan by affected<br />
102<br />
103<br />
11 U.S.C. § 1127.<br />
See, e.g., In re Am. Solar King Corp., 90 B.R. 808, 826 (Bankr. W.D. Tex. 1988) (stating that ―[I]f a<br />
modification does not ‗materi<strong>al</strong>ly‘ impact a claimant‘s treatment, the change is not adverse and the court<br />
may deem that prior acceptances apply to the amended plan as well.‖) (citation omitted); see <strong>al</strong>so Enron<br />
Corp. v. New Power Co. (In re New Power Co.), 438 F.3d 1113, 1117-18 (11th Cir. 2006) (―[T]he<br />
bankruptcy court may deem a claim or interest holder‘s vote for or against a plan as a corresponding vote in<br />
relation to a modified plan unless the modification materi<strong>al</strong>ly and adversely changes the way that claim or<br />
interest holder is treated.‖); In re Mount Vernon Plaza Cmty. Urban Redevelopment Corp. I, 79 B.R. 305,<br />
306 (Bankr. S.D. Ohio 1987) (<strong>al</strong>l creditors were deemed to have accepted plan as modified because ―[n]one<br />
of the changes negatively affects the repayment of creditors, the length of the [p]lan, or the protected<br />
property interests of parties in interest.‖).<br />
51
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creditors and the fact that no objections to Confirmation of the Plan have been filed, the request<br />
for waiver of the stay is reasonable.<br />
52
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CONCLUSION<br />
For the reasons s<strong>et</strong> forth herein, the Debtors submit that the Plan complies with and<br />
satisfies <strong>al</strong>l applicable requirements of the Bankruptcy Code.<br />
Accordingly, the Debtors<br />
respectfully request that the Bankruptcy Court (i) confirm the Plan and (ii) grant the Debtors<br />
such other and further relief as is just and proper.<br />
New York, New York<br />
Dated: February 8, 2012<br />
/s/ Ira S. Dizengoff<br />
AKIN GUMP STRAUSS HAUER & FELD LLP<br />
One Bryant Park<br />
New York, New York 10036<br />
Telephone: (212) 872-1000<br />
Facsimile: (212) 872-1002<br />
Ira S. Dizengoff<br />
Arik Preis<br />
Ashleigh L. Blaylock<br />
Counsel to the Debtors and Debtors in Possession<br />
53
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EXHIBIT A<br />
Proposed Form of Confirmation Order
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UNITED STATES BANKRUPTCY COURT<br />
SOUTHERN DISTRICT OF NEW YORK<br />
)<br />
In re: ) Chapter 11<br />
)<br />
TERRESTAR NETWORKS INC., <strong>et</strong> <strong>al</strong>., 1 ) Case No. 10-15446 (SHL)<br />
)<br />
Debtors. ) Jointly Administered<br />
)<br />
FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER CONFIRMING<br />
THE JOINT CHAPTER 11 PLAN OF TERRESTAR NETWORKS INC., ET. AL.<br />
The above-captioned debtors and debtors in possession (each, a “Debtor” and,<br />
collectively, the “Debtors”) having:<br />
a. commenced, on October 19, 2010 (the “P<strong>et</strong>ition Date”), these chapter 11 cases<br />
(collectively, the “Chapter 11 Cases”) by filing voluntary p<strong>et</strong>itions for relief under<br />
chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”);<br />
b. continued to operate their businesses and manage their properties as debtors in possession<br />
pursuant to Bankruptcy Code sections 1107(a) and 1108;<br />
c. filed, on November 18, 2011, the Joint Chapter 11 Plan of <strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> <strong>Inc</strong>., <strong>et</strong> <strong>al</strong>.<br />
[Dock<strong>et</strong> No. 842] (as amended, the “Plan”) 2 ;<br />
d. filed, on November 18, 2011, the Disclosure Statement for the Joint Chapter 11 Plan of<br />
<strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> <strong>Inc</strong>., <strong>et</strong> <strong>al</strong>. [Dock<strong>et</strong> No. 843] (the “Disclosure Statement”);<br />
e. filed, on November 18, 2011, the Motion for Entry of an Order (A) Approving the<br />
Disclosure Statement for the Debtors' Joint Chapter 11 Plan and (B) Establishing<br />
Solicitation and Voting Procedures with Respect to the Debtors' Joint Chapter 11 Plan<br />
[Dock<strong>et</strong> No. 844];<br />
f. filed, on December 6, 2011, the First Revised Joint Chapter 11 Plan of <strong>TerreStar</strong><br />
<strong>N<strong>et</strong>works</strong> <strong>Inc</strong>., <strong>et</strong> <strong>al</strong>. [Dock<strong>et</strong> No. 850];<br />
1<br />
2<br />
The Debtors in these chapter 11 cases, <strong>al</strong>ong with the last four digits of each Debtor’s feder<strong>al</strong> taxpayeridentification<br />
number, are: <strong>TerreStar</strong> License <strong>Inc</strong>. [6537]; <strong>TerreStar</strong> Nation<strong>al</strong> Services <strong>Inc</strong>. [6319];<br />
<strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> <strong>Inc</strong>. [3931]; 0887729 B.C. Ltd. [1345]; <strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> (Canada) <strong>Inc</strong>. [8766]; and<br />
<strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> Holdings (Canada) <strong>Inc</strong>. [1337].<br />
Capit<strong>al</strong>ized terms used herein but otherwise not defined sh<strong>al</strong>l have the meanings ascribed to them in the<br />
Plan, the Disclosure Statement or the Plan Confirmation Brief, as applicable.
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g. filed, on December 6, 2011, the First Revised Disclosure Statement for the Joint Chapter<br />
11 Plan of <strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> <strong>Inc</strong>., <strong>et</strong> <strong>al</strong>. [Dock<strong>et</strong> No. 851];<br />
h. filed, on December 19, 2011, the Second Revised Joint Chapter 11 Plan of <strong>TerreStar</strong><br />
<strong>N<strong>et</strong>works</strong> <strong>Inc</strong>., <strong>et</strong> <strong>al</strong>. [Dock<strong>et</strong> No. 862];<br />
i. filed, on December 19, 2011, the Second Revised Disclosure Statement for the Joint<br />
Chapter 11 Plan of <strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> <strong>Inc</strong>., <strong>et</strong> <strong>al</strong>. [Dock<strong>et</strong> No. 863];<br />
j. filed, on December 27, 2011, the solicitation version of the Joint Chapter 11 Plan of<br />
<strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> <strong>Inc</strong>., <strong>et</strong> <strong>al</strong>. [Dock<strong>et</strong> No. 873];<br />
k. filed, on December 27, 2011, the solicitation version of the Disclosure Statement for the<br />
Joint Chapter 11 Plan of <strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> <strong>Inc</strong>., <strong>et</strong> <strong>al</strong>. [Dock<strong>et</strong> No. 874];<br />
l. distributed solicitation materi<strong>al</strong>s beginning on or about December 29, 2011, consistent<br />
with the Bankruptcy Code, the Feder<strong>al</strong> Rules of Bankruptcy Procedure (the “Bankruptcy<br />
Rules”) and the Order (A) Approving the Disclosure Statement for the Joint Chapter 11<br />
Plan of the Debtors and (B) Establishing Solicitation and Voting Procedures with<br />
Respect to the Joint Chapter 11 Plan of the Debtors [Dock<strong>et</strong> No. 868] (the “Disclosure<br />
Statement and Solicitation Procedures Order”), which Disclosure Statement and<br />
Solicitation Procedures Order <strong>al</strong>so approved, among other things, solicitation procedures<br />
(the “Solicitation Procedures”) and related notices, forms and b<strong>al</strong>lots (collectively, the<br />
“Solicitation Packages”) as evidenced by the Affidavit of Service of Jeffrey S. Stein -<br />
Solicitation Mailing [Dock<strong>et</strong> No. 880] (the “GCG Affidavit”);<br />
m. published, on January 5, 2012 and January 11, 2012, respectively, notice of the<br />
Confirmation Hearing (the “Confirmation Hearing Notice”) in The W<strong>al</strong>l Stre<strong>et</strong> Journ<strong>al</strong><br />
(Nation<strong>al</strong> Edition), USA Today (Nation<strong>al</strong> Edition) and The Glob<strong>al</strong> and Mail (Nation<strong>al</strong><br />
Edition) consistent with the Disclosure Statement and Solicitation Procedures Order, as<br />
evidenced by the Notice of Certification of Publication - Notice of Hearing to Consider<br />
Confirmation of the Chapter 11 Plan Filed by the Debtors and Related Voting and<br />
Objection Deadlines [Dock<strong>et</strong> No. 897] and the Affidavit of Service of Eamon Mason -<br />
Notice of Rescheduled Confirmation Hearing [Dock<strong>et</strong> No. 893] (collectively, the<br />
“Publication Affidavits”);<br />
n. filed, on February 3, 2012, the Plan Supplement to the Joint Chapter 11 Plan of<br />
<strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> <strong>Inc</strong>., <strong>et</strong> <strong>al</strong>. [Dock<strong>et</strong> No. 909] (the “Plan Supplement”);<br />
o. filed, on February 6, 2012, the Declaration of Jeffrey S. Stein of the Garden City Group,<br />
<strong>Inc</strong>. Certifying the M<strong>et</strong>hodology for the Tabulation of Votes on and Results of Voting with<br />
Respect to the Joint Chapter 11 Plan of <strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> <strong>Inc</strong>., <strong>et</strong> <strong>al</strong>., with Respect to<br />
Claims in Class 3 [Dock<strong>et</strong> No. 910] (the “Voting Certification”) d<strong>et</strong>ailing the results of<br />
the Plan voting process;<br />
p. filed, on February 8, 2012, the Debtors’ Memorandum of Law in Support of Confirmation<br />
of the Joint Chapter 11 Plan of <strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> <strong>Inc</strong>., <strong>et</strong> <strong>al</strong>. [Dock<strong>et</strong> No.___] (the<br />
“Plan Confirmation Brief”);<br />
2
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q. filed, on February 8, 2012, the Declaration of Jeffrey W. Epstein in Support of<br />
Confirmation of the Joint Chapter 11 Plan of <strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> <strong>Inc</strong>. <strong>et</strong> <strong>al</strong>. [Dock<strong>et</strong><br />
No.___];<br />
r. filed, on February 8, 2012, the Declaration of C.J. Brown in Support of Confirmation of<br />
the Joint Chapter 11 Plan of <strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> <strong>Inc</strong>. <strong>et</strong> <strong>al</strong>. [Dock<strong>et</strong> No. ___]; and<br />
s. filed, on February 8, 2012, a revised version of the Plan to reflect certain non-materi<strong>al</strong><br />
and technic<strong>al</strong> modifications to the terms thereof [Dock<strong>et</strong> No. 913].<br />
This Bankruptcy Court having:<br />
a. entered, on July 7, 2011, the Order (A) Approving Ass<strong>et</strong> Purchase Agreement And<br />
Authorizing The S<strong>al</strong>e Of Ass<strong>et</strong>s Of Debtor Outside The Ordinary Course Of Business; (B)<br />
Authorizing The S<strong>al</strong>e Of Ass<strong>et</strong>s Free And Clear Of All Liens, Claims, Interests And<br />
Encumbrances; (C) Authorizing The Assumption And S<strong>al</strong>e And Assignment Of Certain<br />
Executory Contracts And Unexpired Leases; And (D) Granting Related Relief [Dock<strong>et</strong><br />
No. 668] (the “S<strong>al</strong>e Order”);<br />
b. entered, on December 15, 2011, the Stipulation and Agreed Order Approving the<br />
Debtors’ Motion for an Order Pursuant to Bankruptcy Code Section 363(b) and Feder<strong>al</strong><br />
Rule of Bankruptcy Procedure 9019 Approving the Stipulation Among the Debtors, the<br />
Creditors’ Committee, EchoStar, the Ad Hoc Group, Harbinger, Lightsquared, Sprint,<br />
Solus, and the 15% Notes Trustee [Dock<strong>et</strong> No. 857] (the “Glob<strong>al</strong> S<strong>et</strong>tlement Order”).<br />
c. entered, on December 21, 2011, the Disclosure Statement and Solicitation Procedures<br />
Order [Dock<strong>et</strong> No. 868];<br />
d. s<strong>et</strong> February 14, 2012, at 11:30 a.m., prevailing Eastern Time, as the date and time for the<br />
commencement of the Confirmation Hearing pursuant to Bankruptcy Rules 3017 and<br />
3018 and Bankruptcy Code sections 1126, 1128 and 1129;<br />
e. reviewed the Plan, the Disclosure Statement, the Plan Confirmation Brief, and <strong>al</strong>l<br />
pleadings, exhibits, statements, responses and comments regarding Confirmation;<br />
f. heard the statements, arguments and objections (if any) made by counsel in respect of<br />
Confirmation;<br />
g. considered <strong>al</strong>l or<strong>al</strong> representations, testimony, documents, filings and other evidence<br />
regarding Confirmation; and<br />
h. taken judici<strong>al</strong> notice of <strong>al</strong>l papers and pleadings filed in the Chapter 11 Cases.<br />
NOW, THEREFORE, after due deliberation and based upon the record s<strong>et</strong> forth above, it<br />
appearing to the Bankruptcy Court that notice of the Confirmation Hearing, the Plan and <strong>al</strong>l<br />
modifications ther<strong>et</strong>o have been adequate and appropriate as to <strong>al</strong>l parties affected or to be<br />
3
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affected by the Plan and the transactions contemplated thereby and that any party in interest so<br />
affected has had the opportunity to object to Confirmation; and, after due deliberation and based<br />
upon the record described above, it appearing to the Bankruptcy Court that the leg<strong>al</strong> and factu<strong>al</strong><br />
bases s<strong>et</strong> forth in the documents filed in support of Confirmation and presented at the<br />
Confirmation Hearing establish just cause for the relief granted herein; the Bankruptcy Court<br />
hereby makes and issues the following Findings of Fact, Conclusions of Law and Order: 3<br />
I. FINDINGS OF FACT AND CONCLUSIONS OF LAW<br />
IT IS HEREBY DETERMINED, FOUND, ADJUDGED, DECREED AND ORDERED<br />
THAT:<br />
A. Jurisdiction and Venue<br />
1. On the P<strong>et</strong>ition Date, the Debtors commenced the Chapter 11 Cases in this<br />
Bankruptcy Court. Venue in this Bankruptcy Court was proper as of the P<strong>et</strong>ition Date with<br />
respect to the Debtors pursuant to 28 U.S.C. §§ 1408 and 1409. Confirmation of the Plan is a<br />
core proceeding under 28 U.S.C. § 157(b)(2).<br />
The Bankruptcy Court has subject matter<br />
jurisdiction over this matter pursuant to 28 U.S.C. § 1334. The Bankruptcy Court has exclusive<br />
jurisdiction to d<strong>et</strong>ermine wh<strong>et</strong>her the Plan complies with the applicable provisions of the<br />
Bankruptcy Code and should be confirmed.<br />
B. Eligibility for Relief<br />
2. The Debtors were and are entities eligible for relief under Bankruptcy Code<br />
section 109.<br />
3<br />
The findings of fact and the conclusions of law s<strong>et</strong> forth herein sh<strong>al</strong>l constitute the Bankruptcy Court’s<br />
findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052, made applicable to this<br />
proceeding pursuant to Bankruptcy Rule 9014. To the extent that any of the following findings of fact<br />
constitute conclusions of law, they are adopted as such. To the extent that any of the following conclusions<br />
of law constitute findings of fact, they are adopted as such.<br />
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C. Commencement and Joint Administration of the Chapter 11 Cases<br />
3. On the P<strong>et</strong>ition Date, the Debtors commenced the Chapter 11 Cases by filing<br />
voluntary p<strong>et</strong>itions for relief under chapter 11 of the Bankruptcy Code in this Court. By prior<br />
order of the Bankruptcy Court, the Chapter 11 Cases have been consolidated for procedur<strong>al</strong><br />
purposes only and are being jointly administered pursuant to Bankruptcy Rule 1015 [Dock<strong>et</strong><br />
Nos. 32, 445]. The Debtors have operated their businesses and managed their properties as<br />
debtors in possession since the P<strong>et</strong>ition Date pursuant to Bankruptcy Code sections 1107(a) and<br />
1108. No trustee or examiner has been appointed in the Chapter 11 Cases.<br />
D. Plan Supplement<br />
4. On February 3, 2012, the Debtors filed the Plan Supplement [Dock<strong>et</strong> No. 909]<br />
consisting of the following: (a) the Liquidating Trust Agreement; (b) the Interim TSN Trust<br />
Agreement; (c) the New Corporate Governance Documents; (d) to the extent known, the identity<br />
of the members of the New Boards (the “Boards of Directors”) and the nature and compensation<br />
for any Director who is an “insider” under the Bankruptcy Code; (e) to the extent known, the<br />
identity of the officers of the Reorganized Debtors (the “Officers”); (f) the Assumed Executory<br />
Contract and Unexpired Lease List; (g) the Rejected Executory Contract and Unexpired Lease<br />
List; (h) the Schedule of R<strong>et</strong>ained Causes of Action; (i) the New Employment Agreements; (j) a<br />
Schedule of the Insurance Policies; (k) the Summary of Terms and Conditions of Tail Insurance;<br />
and (l) the Interim TSN Warrant Agreement.<br />
5. All materi<strong>al</strong>s included in the Plan Supplement are integr<strong>al</strong> to, part of and<br />
incorporated by reference into the Plan. The Plan Supplement complies with the terms of the<br />
Plan, and the filing and notice of such documents was good and proper in accordance with the<br />
Bankruptcy Code, the Bankruptcy Rules and the Disclosure Statement and Solicitation<br />
Procedures Order, and no other or further notice is or sh<strong>al</strong>l be required.<br />
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E. Modifications to the Plan<br />
6. Subsequent to the Voting Deadline, the Debtors made certain modifications to the<br />
Plan. Any and <strong>al</strong>l modifications to the Plan since the entry of the Disclosure Statement and<br />
Solicitation Procedures Order are consistent with <strong>al</strong>l of the provisions of the Bankruptcy Code,<br />
including Bankruptcy Code sections 1122, 1123, 1125 and 1127. None of the modifications<br />
made since the entry of the Disclosure Statement and Solicitation Procedures Order effects a<br />
materi<strong>al</strong>ly adverse change in the treatment of any holder of a Claim or Interest under the Plan.<br />
Accordingly, pursuant to Bankruptcy Code section 1127(a) and Bankruptcy Rule 3019, these<br />
modifications do not require addition<strong>al</strong> disclosure under Bankruptcy Code section 1125 or the<br />
resolicitation of votes under Bankruptcy Code section 1126, nor do they require that the holders<br />
of Claims or Interests be afforded an opportunity to change previously cast acceptances or<br />
rejections of the Plan. The Plan as modified and attached her<strong>et</strong>o as Exhibit A sh<strong>al</strong>l constitute the<br />
Plan submitted for Confirmation.<br />
F. Judici<strong>al</strong> Notice<br />
7. The Bankruptcy Court takes judici<strong>al</strong> notice of the dock<strong>et</strong> of the Chapter 11 Cases<br />
and <strong>al</strong>l related adversary proceedings and other documents filed and orders entered thereon,<br />
maintained by the clerk of the applicable court or its duly appointed agent, including <strong>al</strong>l<br />
pleadings and other documents on file, <strong>al</strong>l orders entered, <strong>al</strong>l hearing transcripts, and <strong>al</strong>l evidence<br />
and arguments made, proffered or adduced at the hearings held before the applicable court<br />
during the pendency of the Chapter 11 Cases.<br />
Any resolutions of inform<strong>al</strong> objections to<br />
Confirmation explained on the record at the Confirmation Hearing are hereby incorporated by<br />
reference.<br />
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G. Disclosure Statement and Solicitation Procedures Order<br />
8. On December 21, 2011, the Bankruptcy Court entered the Disclosure Statement<br />
and Solicitation Procedures Order, which, among other things: (a) approved the Disclosure<br />
Statement in the form attached to the Disclosure Statement and Solicitation Procedures Order as<br />
containing adequate information within the meaning of Bankruptcy Code section 1125 and<br />
Bankruptcy Rule 3017; (b) fixed December 21, 2011, as the Voting Record Date; (c) fixed<br />
February 1, 2012, at 5:00 p.m. prevailing Eastern Time as the deadline for voting to accept or<br />
reject the Plan (the “Voting Deadline”); (d) fixed February 1, 2012, at 5:00 p.m. prevailing<br />
Eastern Time as the deadline for objecting to the Plan; (e) fixed February 13, 2012, at 10:00<br />
a.m. 4 prevailing Eastern Time as the date and time for the commencement of the Confirmation<br />
Hearing; (f) approved the Solicitation Procedures and the form of the Solicitation Packages; and<br />
(g) approved the form and m<strong>et</strong>hod of notice of the Confirmation Hearing Notice s<strong>et</strong> forth therein.<br />
H. Transmitt<strong>al</strong> and Mailing of Materi<strong>al</strong>s, Notice<br />
9. As evidenced by the GCG Affidavit and the Publication Affidavits, due, adequate<br />
and sufficient notice of the Disclosure Statement, the Plan, the Plan Supplement and the<br />
Confirmation Hearing, tog<strong>et</strong>her with <strong>al</strong>l deadlines for voting on or objecting to the Plan and with<br />
respect to Confirmation, has been given to: (a) <strong>al</strong>l known holders of Claims and Interests; (b) <strong>al</strong>l<br />
parties that requested notice in accordance with Bankruptcy Rule 2002; and (c) <strong>al</strong>l counterparties<br />
to Executory Contracts and Unexpired Leases with the Debtors, in substanti<strong>al</strong> compliance with<br />
the Disclosure Statement and Solicitation Procedures Order and Bankruptcy Rules 2002(b), 3017<br />
and 3020(b), and no other or further notice is or sh<strong>al</strong>l be required. Adequate and sufficient<br />
notice of the Confirmation Hearing, and any applicable dates, deadlines and hearings described<br />
4<br />
The Bankruptcy Court subsequently rescheduled the Confirmation Hearing to February 14, 2012, at 11:30<br />
a.m. prevailing Eastern Time. The Debtors provided notice of the rescheduled Confirmation Hearing date<br />
on January 10, 2012. See Dock<strong>et</strong> No. 889.<br />
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in the Disclosure Statement and Solicitation Procedures Order was given in compliance with the<br />
Bankruptcy Rules, the Disclosure Statement and Solicitation Procedures Order, as evidenced by<br />
the GCG Affidavit and the Publication Affidavits, and no other or further notice is or sh<strong>al</strong>l be<br />
required.<br />
10. The Debtors published the Confirmation Hearing Notice once each in The W<strong>al</strong>l<br />
Stre<strong>et</strong> Journ<strong>al</strong> (Nation<strong>al</strong> Edition), USA Today (Nation<strong>al</strong> Edition) and The Globe and Mail<br />
(Nation<strong>al</strong> Edition) in substanti<strong>al</strong> compliance with the Disclosure Statement and Solicitation<br />
Procedures Order and Bankruptcy Rule 2002(l), as evidenced by the Publication Affidavits, and<br />
no other or further notice is or sh<strong>al</strong>l be required.<br />
I. Solicitation<br />
11. Votes for acceptance and rejection of the Plan were solicited in good faith and in<br />
compliance with Bankruptcy Code sections 1125 and 1126, Bankruptcy Rules 3017 and 3018,<br />
the Disclosure Statement, the Disclosure Statement and Solicitation Procedures Order, <strong>al</strong>l other<br />
applicable provisions of the Bankruptcy Code, and <strong>al</strong>l other applicable rules, laws and<br />
regulations.<br />
12. Specific<strong>al</strong>ly, the Solicitation Packages approved by the Bankruptcy Court in the<br />
Disclosure Statement and Solicitation Procedures Order (including the Disclosure Statement, the<br />
Plan, the form of b<strong>al</strong>lots and related notices approved thereby) were transmitted to and served on<br />
<strong>al</strong>l holders of Claims or Interests in Classes that were entitled to vote to accept or reject the Plan,<br />
and relevant portions of the Solicitation Packages and other notices approved by the Disclosure<br />
Statement were transmitted to and served on other parties in interest in the Chapter 11 Cases, <strong>al</strong>l<br />
in compliance with Bankruptcy Code section 1125, the Disclosure Statement and Solicitation<br />
Procedures Order, the Solicitation Procedures and the Bankruptcy Rules.<br />
Transmitt<strong>al</strong> and<br />
service were adequate and sufficient, and no further notice is or sh<strong>al</strong>l be required.<br />
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J. Voting Certifications<br />
13. The Debtors filed the Voting Certifications before the commencement of the<br />
Confirmation Hearing, consistent with the Disclosure Statement and Solicitation Procedures<br />
Order. All procedures used to tabulate b<strong>al</strong>lots received in connection with Confirmation were<br />
fair and conducted in accordance with the Disclosure Statement and Solicitation Procedures<br />
Order, as evidenced by the GCG Affidavit.<br />
14. As s<strong>et</strong> forth in the Plan and Disclosure Statement, holders of Claims in Class 3<br />
(the “Voting Class”) were eligible to vote on the Plan pursuant to the Solicitation Procedures. 5<br />
In addition, holders of Claims in Classes 1 and 2 (tog<strong>et</strong>her, the “Deemed Accepting Classes”) are<br />
deemed to accept the Plan and, therefore, are not entitled to vote to accept or reject the Plan.<br />
Fin<strong>al</strong>ly, holders of Claims in Class 4 (the “Deemed Rejecting Class”) are deemed to reject the<br />
Plan and, therefore, are not entitled to vote to accept or reject the Plan.<br />
15. As further evidenced by the Voting Certifications, the Voting Class voted to<br />
accept the Plan (the “Impaired Accepting Class”).<br />
K. Bankruptcy Rule 3016<br />
16. The Plan is dated and identifies the Entities submitting it, thereby satisfying<br />
Bankruptcy Rule 3016(a).<br />
The filing of the Disclosure Statement with the clerk of the<br />
Bankruptcy Court satisfied Bankruptcy Rule 3016(b).<br />
L. Burden of Proof<br />
17. The Debtors, as proponents of the Plan, have m<strong>et</strong> their burden of proving the<br />
elements of Bankruptcy Code sections 1129(a) and 1129(b) by a preponderance of the evidence,<br />
which is the applicable evidentiary standard for Confirmation.<br />
5<br />
Although Class 4 is Impaired under the Plan, holders of Equity Interests are not receiving any Distribution<br />
under the Plan and, therefore, are conclusively presumed to have rejected the Plan pursuant to Bankruptcy Code<br />
section 1126(g).<br />
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M. Compliance with the Requirements of Bankruptcy Code Section 1129<br />
18. The Plan complies with <strong>al</strong>l applicable provisions of Bankruptcy Code section<br />
1129 as follows:<br />
i. Section 1129(a)(1)—Compliance of the Plan with Applicable Provisions of<br />
the Bankruptcy Code<br />
19. The Plan complies with <strong>al</strong>l applicable provisions of the Bankruptcy Code as<br />
required by Bankruptcy Code section 1129(a)(1), including sections 1122 and 1123.<br />
a. Sections 1122 and 1123(a)(1)—Proper Classification<br />
20. The classification of Claims and Interests under the Plan is proper under the<br />
Bankruptcy Code. Pursuant to Bankruptcy Code sections 1122(a) and 1123(a)(1), Article III of<br />
the Plan provides for the separate classification of Claims and Interests into four (4) Classes,<br />
based on differences in the leg<strong>al</strong> nature or priority of such Claims and Interests (other than<br />
Administrative Claims, Priority Tax Claims and statutory fees owed to the U.S. Trustee<br />
(“Statutory Fees”), which are addressed in Article II of the Plan and which are not required to be<br />
designated as separate Classes pursuant to Bankruptcy Code section 1123(a)(1)). V<strong>al</strong>id business,<br />
factu<strong>al</strong> and leg<strong>al</strong> reasons exist for the separate classification of the various Classes of Claims and<br />
Interests created under the Plan and the classifications were not done for any improper purpose.<br />
In addition, the creation of such Classes does not unfairly discriminate b<strong>et</strong>ween or among<br />
holders of Claims or Interests.<br />
21. As required by Bankruptcy Code section 1122(a), each Class of Claims and<br />
Interests contains only Claims or Interests that are substanti<strong>al</strong>ly similar to the other Claims or<br />
Interests within that Class. Accordingly, the requirements of Bankruptcy Code sections 1122(a)<br />
and 1123(a)(1) have been satisfied.<br />
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b. Section 1123(a)(2)—Specification of Unimpaired Classes<br />
22. Article III of the Plan specifies that Claims in Classes 1 and 2 are Unimpaired<br />
under the Plan. Addition<strong>al</strong>ly, Article II of the Plan specifies that Administrative Claims, Priority<br />
Tax Claims and Statutory Fees are Unimpaired, <strong>al</strong>though these Claims are not classified under<br />
the Plan. Accordingly, the requirements of Bankruptcy Code section 1123(a)(2) have been<br />
satisfied.<br />
c. Section 1123(a)(3)—Specification of Treatment of Impaired Classes<br />
23. Article III of the Plan specifies the treatment of each Impaired Class under the<br />
Plan, including Classes 3 and 4. Accordingly, the requirements of Bankruptcy Code section<br />
1123(a)(3) have been satisfied.<br />
d. Section 1123(a)(4)—No Discrimination<br />
24. Pursuant to Bankruptcy Code section 1123(a)(4), Article III of the Plan uniformly<br />
provides for the same treatment of each Claim or Interest in a particular Class, as the case may<br />
be, unless the holder of a particular Claim has agreed to a less favorable treatment with respect to<br />
such Claim. In particular, <strong>al</strong>l holders of Claims in Class 3 (the only Voting Class) have received<br />
the same treatment—i.e., their Pro Rata <strong>al</strong>location of the applicable Debtors’ Allocated V<strong>al</strong>ue—<br />
even though such treatment may result in varying percentage recoveries. Accordingly, the<br />
requirements of Bankruptcy Code section 1123(a)(4) have been satisfied.<br />
e. Section 1123(a)(5)—Adequate Means for Plan Implementation<br />
25. Pursuant to Bankruptcy Code section 1123(a)(5), Article V and various other<br />
provisions of the Plan specific<strong>al</strong>ly provide in d<strong>et</strong>ail adequate and proper means for the Plan’s<br />
implementation, including, but not limited to: (a) the gener<strong>al</strong> s<strong>et</strong>tlement of Claims and Interests;<br />
(b) sources of consideration for Plan Distributions; (c) the authorization and Distribution of the<br />
Liquidating Trust Interests and the execution of related documents; (d) the description of<br />
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operations of the Debtors b<strong>et</strong>ween the Confirmation Date and Effective Date (and, if different)<br />
the Closing Date; (e) modifications to the Plan in the event that the Closing Date does not occur<br />
on or before the Effective Date; (f) the cancellation of securities and agreements; (g) the<br />
authorization of the New Certificates of <strong>Inc</strong>orporation and New By-Laws; (h) the selection of the<br />
initi<strong>al</strong> Reorganized Debtors’ Boards of Directors; (i) the selection of the initi<strong>al</strong> Officers of the<br />
Reorganized Debtors; (j) the treatment of employee benefits; (k) the vesting of R<strong>et</strong>ained Ass<strong>et</strong>s<br />
in the Reorganized Debtors; (l) the proposed restructuring transactions under the Plan;<br />
(m) authorization for post-Confirmation corporate action by the Reorganized Debtors; (n) the<br />
treatment of Intercompany Claims under the Plan; (o) the application of Bankruptcy Code<br />
section 1146; (p) the authorization to enter into or continue the D&O Liability Insurance<br />
Policies; (q) the preservation of certain specified rights of action; (r) the payment of fees and<br />
expenses of the Indenture Trustees; (s) the single satisfaction of Claims under the terms of the<br />
Plan; and (t) the Reorganized Debtors’ entry into the Interim TSN Trust Agreement and the<br />
execution of related documents and the issuance or Distribution of the Interim TSN Trust<br />
Interests and Interim TSN Trust Warrants (but authorization to effectuate these agreements and<br />
make Distributions thereunder, solely in the event that the provisions of Exhibit 3 to the Plan are<br />
triggered pursuant to Article V.G. thereof, and subject to the requirements of Article X.C. of the<br />
Plan).<br />
26. Moreover, the Reorganized Debtors will have, immediately upon the Effective<br />
Date, sufficient Cash, Liquidating Trust Interests and, if necessary, Interim TSN Trust Interests<br />
and Interim TSN Warrants (but solely in the event that the provisions of Exhibit 3 to the Plan are<br />
triggered pursuant to Article V.G. thereof) to make <strong>al</strong>l payments required to be made on the<br />
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Effective Date pursuant to the terms of the Plan. Accordingly, the requirements of Bankruptcy<br />
Code section 1123(a)(5) have been satisfied.<br />
f. Section 1123(a)(6)—Voting Power of Equity Securities<br />
27. The New Certificates of <strong>Inc</strong>orporation of Reorganized Debtors, attached as<br />
Exhibit C to the Plan Supplement, (and any other documents which purport to issue securities<br />
under the Plan) prohibits the issuance of nonvoting equity securities to the extent prohibited by<br />
Bankruptcy Code section 1123(a)(6), thereby satisfying Bankruptcy Code section 1123(a)(6).<br />
g. Section 1123(a)(7)—Selection of Officers and Directors<br />
28. The identities and affiliations of the members of the New Board of each of the<br />
Reorganized Debtors as of the Effective Date are listed in Exhibit E to the Plan Supplement, the<br />
identities of the initi<strong>al</strong> Officers of the Reorganized Debtors are listed in Exhibit F to the Plan<br />
Supplement, and the New Employment Agreements are included in Exhibit J to the Plan<br />
Supplement. The New Corporate Governance Documents describe the manner of the selection<br />
of addition<strong>al</strong> members of the Board of Directors of the Reorganized Debtors following the<br />
Effective Date. The selection of the initi<strong>al</strong> Directors and Officers of each Reorganized Debtor<br />
was, is and will be consistent with the interests of holders of Claims and Interests and public<br />
policy.<br />
Accordingly, the requirements of Bankruptcy Code section 1123(a)(7) have been<br />
satisfied.<br />
h. Section 1123(b)—Discr<strong>et</strong>ionary Contents of the Plan<br />
29. The Plan contains various provisions that may be construed as discr<strong>et</strong>ionary, but<br />
are not required for Confirmation under the Bankruptcy Code.<br />
As s<strong>et</strong> forth below, such<br />
discr<strong>et</strong>ionary provisions comply with Bankruptcy Code section 1123(b) and are not inconsistent<br />
with the applicable provisions of the Bankruptcy Code. Thus, Bankruptcy Code section 1123(b)<br />
is satisfied.<br />
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(i)<br />
Section 1123(b)(1)-(2)—Claims and Executory<br />
Contracts<br />
30. Pursuant to Bankruptcy Code sections 1123(b)(1) and 1123(b)(2), Article III of<br />
the Plan impairs or leaves unimpaired, as the case may be, each Class of Claims and Interests,<br />
and Article VI of the Plan provides for the assumption, assumption and assignment, or rejection<br />
of the Executory Contracts and Unexpired Leases of the Debtors not previously assumed,<br />
assumed and assigned, or rejected pursuant to Bankruptcy Code section 365 and appropriate<br />
authorizing orders of the Bankruptcy Court; provided, however, that subject to the limitations s<strong>et</strong><br />
forth in the Plan, the Debtors sh<strong>al</strong>l be authorized, after consultation with the Creditors’<br />
Committee or the Liquidating Trustee, as applicable, to <strong>al</strong>ter, amend or supplement the list of the<br />
“Rejected Executory Contracts and Unexpired Leases” in the Plan Supplement until and<br />
including the Effective Date.<br />
(ii)<br />
Section 1123(b)(3)—S<strong>et</strong>tlement, Releases, Exculpation,<br />
Injunction, and Preservation of Claims and Causes of<br />
Action<br />
(A)<br />
S<strong>et</strong>tlements Under the Plan<br />
31. The Plan s<strong>et</strong>tles or implements the previously approved Glob<strong>al</strong> S<strong>et</strong>tlement,<br />
(defined below) as s<strong>et</strong> forth in the Glob<strong>al</strong> S<strong>et</strong>tlement Order, 6 of numerous issues in the Chapter<br />
11 Cases pursuant to Bankruptcy Rule 9019 and Bankruptcy Code sections 363 and 1123. These<br />
6<br />
The Plan is premised on a glob<strong>al</strong> s<strong>et</strong>tlement approved by the Bankruptcy Court [Dock<strong>et</strong> No. 857]<br />
(the “Glob<strong>al</strong> S<strong>et</strong>tlement Order”) among the Debtors, the Creditors’ Committee, Harbinger Capit<strong>al</strong> Partners<br />
LLC and certain of its managed and affiliated funds (“Harbinger”), LightSquared <strong>Inc</strong>. and LightSquared<br />
LP, Sprint Nextel Corporation (“Sprint”), Solus Alternative Ass<strong>et</strong> Management LP (“Solus”), EchoStar<br />
Corporation (“EchoStar”), the ad hoc group of certain holders of Senior Secured Notes (the “Ad Hoc<br />
Group”) and the Senior Secured Note Indenture Trustee (collectively, the “S<strong>et</strong>tling Parties”), which<br />
facilitated the implementation of the Debtors’ primary v<strong>al</strong>ue maximization go<strong>al</strong>s and includes the<br />
s<strong>et</strong>tlement of the following: (a) the Lien Litigation; (b) the TSC Intercompany Claim Recharacterization<br />
Litigation; (c) the T-2 Litigation; (d) the Sprint Claims Objection; (e) the Make-Whole Premium Objection;<br />
(f) disputes regarding <strong>al</strong>location of expenses; (g) disputes regarding the v<strong>al</strong>uation of Debtor-entity 0887729<br />
B.C. Ltd.; (h) disputes regarding the v<strong>al</strong>uation of various entities; and (i) the recovery percentages for<br />
holders of Unsecured Claims, which remain static irrespective if the Bankruptcy Court modifies but still<br />
confirms the Plan (collectively, the “Glob<strong>al</strong> S<strong>et</strong>tlement”). A more thorough discussion of the Glob<strong>al</strong><br />
S<strong>et</strong>tlement is contained in the Disclosure Statement, Article B(v).<br />
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s<strong>et</strong>tlements are in consideration for the distributions made pursuant to the Glob<strong>al</strong> S<strong>et</strong>tlement<br />
Order and the Distributions and other benefits provided under the Plan. Any other compromise<br />
and s<strong>et</strong>tlement provisions of the Plan and the Plan itself constitute a compromise of <strong>al</strong>l Claims,<br />
Interests or Causes of Action relating to the contractu<strong>al</strong>, leg<strong>al</strong> and subordination rights that a<br />
holder of a Claim or Interest may have with respect to any Allowed Claim or Interest or any<br />
distribution to be made on account of such an Allowed Claim or Interest. The s<strong>et</strong>tlements<br />
contained in the Plan, including the Plan S<strong>et</strong>tlement, are the product of extensive arm’s-length<br />
negotiations. Therefore, the s<strong>et</strong>tlements, including the Plan S<strong>et</strong>tlement, are fair and equitable<br />
and in the best interest of the Debtors’ Estates and are approved pursuant to Bankruptcy Rule<br />
9019, to the extent that such s<strong>et</strong>tlement have not <strong>al</strong>ready been approved by the Bankruptcy<br />
Court.<br />
(B)<br />
Debtors’ Releases, Third-Party Releases,<br />
Exculpation, Plan Injunction and R<strong>et</strong>ained<br />
Causes of Action<br />
32. Releases by the Debtors. The releases and discharges of Claims and Causes of<br />
Action given by the Debtors described in Article IX.B of the Plan (the “Debtor Releases”) are a<br />
necessary and important aspect of the Plan. The Debtor Releases are based on sound business<br />
judgment and are reasonable and acceptable pursuant to the standards that courts in this district<br />
gener<strong>al</strong>ly apply.<br />
33. Exculpation. The Exculpation provision described in Article IX.D of the Plan is<br />
appropriate under applicable law because it is part of a Plan proposed in good faith, was vit<strong>al</strong> to<br />
the Plan formulation process and is appropriately limited in scope. The Exculpation Provision,<br />
including its carve-out for gross negligence and willful misconduct, is entirely consistent with<br />
established practice in this jurisdiction and others.<br />
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34. Injunction. The injunction provisions s<strong>et</strong> forth in Article IX.F of the Plan (the<br />
“Plan Injunctions”) are essenti<strong>al</strong> to the Plan and are necessary to preserve and enforce the<br />
Debtor Releases and the Plan, and are narrowly tailored to achieve that purpose.<br />
35. Third-Party Releases by Holders of Claims and Interests. The releases of<br />
Claims and Causes of Action by Holders of Claims and Interests described in Article IX.C of the<br />
Plan (the “Third-Party Releases”) are an important aspect of the Plan. They are designed to<br />
provide fin<strong>al</strong>ity for the Released Parties regarding the Parties’ respective obligations under the<br />
Plan. The B<strong>al</strong>lots and Notice of Non-Voting Status clearly direct <strong>al</strong>l applicable holders of<br />
Claims and Interests to Article IX of the Plan for further information about the release<br />
provisions. Thus, those holders of Claims and Interests were given due and adequate notice that<br />
Third-Party Releases would be provided under the Plan and the votes in favor of the Plan (or<br />
lack of objection ther<strong>et</strong>o, as applicable) indicate such holders’ consent to the Third-Party<br />
Releases. The Released Parties played an integr<strong>al</strong> role in the formulation of the de<strong>al</strong> underlying<br />
the Glob<strong>al</strong> S<strong>et</strong>tlement Order, which formed the basis for the Plan, and have expended significant<br />
time and resources an<strong>al</strong>yzing and negotiating the issues presented by the Debtors’ prep<strong>et</strong>ition<br />
capit<strong>al</strong> structure, Chapter 11 Cases, and postp<strong>et</strong>ition s<strong>et</strong>tlement propos<strong>al</strong>s. The Released Parties<br />
have compromised aspects of their asserted Claims or other leg<strong>al</strong> and/or equitable rights to reach<br />
the consensu<strong>al</strong> resolution that <strong>al</strong>lowed for the maximization and preservation of v<strong>al</strong>ue for <strong>al</strong>l of<br />
the Debtors’ creditors. Thus, the Third-Party Releases are appropriate, important to the success<br />
of the Plan and consistent with controlling Second Circuit precedent.<br />
36. Thus, each of the Release, Exculpation, Third-Party Release and Plan Injunctions<br />
provisions s<strong>et</strong> forth in the Plan: (a) is within the jurisdiction of the Bankruptcy Court under 28<br />
U.S.C. §§ 1334(a), 1334(b) and 1334(d); (b) is an essenti<strong>al</strong> means of implementing the Plan<br />
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pursuant to Bankruptcy Code section 1123(a)(6); (c) is an integr<strong>al</strong> element of the transactions<br />
incorporated into the Plan; (d) confers materi<strong>al</strong> benefits on, and is in the best interests of, the<br />
Debtors, the Estates and <strong>al</strong>l stakeholders in the Chapter 11 Cases; (e) is important to the over<strong>al</strong>l<br />
objectives of the Plan to fin<strong>al</strong>ly resolve <strong>al</strong>l Claims among or against the parties-in-interest in the<br />
Chapter 11 Cases with respect to the Debtors; and (f) is consistent with Bankruptcy Code<br />
sections 105, 1123 and 1129, other applicable provisions of the Bankruptcy Code and other<br />
applicable law. The record of the Confirmation Hearing and the Chapter 11 Cases is sufficient to<br />
support the Release, Exculpation, Third-Party Releases and Plan Injunctions provisions<br />
contained in Article IX of the Plan.<br />
37. Preservation of Claims and Causes of Action. Article V.X of the Plan<br />
appropriately provides for the preservation by the Debtors of the Causes of Action in accordance<br />
with Bankruptcy Code section 1123(b)(3)(B).<br />
A list of the R<strong>et</strong>ained Causes of Action is<br />
provided in the Plan Supplement and such actions are r<strong>et</strong>ained pursuant to the Plan. The<br />
provisions regarding the R<strong>et</strong>ained Causes of Action in the Plan are appropriate and are in the best<br />
interests of the Debtors, the Estates and <strong>al</strong>l holders of Claims and Interests.<br />
i. Section 1123(d)—Cure of Defaults<br />
38. Article VI.B of the Plan provides for the satisfaction of any mon<strong>et</strong>ary defaults<br />
under each Executory Contract and Unexpired Lease to be assumed pursuant to the Plan in<br />
accordance with Bankruptcy Code section 365 by payment of any “cure amount” pursuant to the<br />
terms thereof.<br />
The Debtors, in accordance with the Plan, distributed notices of proposed<br />
assumption and proposed cure amounts to the applicable counterparties, which notices included<br />
procedures for objecting to and resolving proposed assumptions of Executory Contracts and<br />
Unexpired Leases and any cure amounts paid in connection therewith.<br />
Accordingly, the<br />
requirements of Bankruptcy Code section 1123(d) are satisfied.<br />
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ii. Section 1129(a)(2)—Compliance of the Debtors and Others With the<br />
Applicable Provisions of the Bankruptcy Code<br />
39. The Debtors, as proponents of the Plan, have complied with <strong>al</strong>l applicable<br />
provisions of the Bankruptcy Code as required by Bankruptcy Code section 1129(a)(2),<br />
including Bankruptcy Code sections 1122, 1123, 1124, 1125, 1126 and 1128 and Bankruptcy<br />
Rules 3017, 3018 and 3019.<br />
40. Votes to accept or reject the Plan were solicited by the Debtors and their<br />
respective present and former members, partners, representatives, officers, directors, employees,<br />
advisors, attorneys and agents after the Bankruptcy Court approved the adequacy of the<br />
Disclosure Statement pursuant to Bankruptcy Code section 1125(a).<br />
41. The Debtors and their respective present and former members, partners,<br />
representatives, officers, directors, employees, advisors, attorneys and agents have solicited and<br />
tabulated votes on the Plan and have participated in the activities described in Bankruptcy Code<br />
section 1125 fairly, in good faith within the meaning of Bankruptcy Code section 1125(e) and in<br />
a manner consistent with the applicable provisions of the Disclosure Statement and Solicitation<br />
Procedures Order, the Disclosure Statement, the Bankruptcy Code, the Bankruptcy Rules and <strong>al</strong>l<br />
other applicable rules, laws and regulations, and have participated in good faith and in<br />
compliance with the applicable provisions of the Disclosure Statement and Solicitation<br />
Procedures Order, the Disclosure Statement, the Bankruptcy Code, the Bankruptcy Rules and <strong>al</strong>l<br />
other applicable rules, laws and regulations in the issuance and distribution of the Liquidating<br />
Trust Interests, and, if applicable, the Interim TSN Trust Interests and the Interim TSN Warrants,<br />
and are therefore entitled to the protections afforded by Bankruptcy Code section 1125(e) and the<br />
Release, Exculpation, Third-Party Release and Plan Injunctions provisions s<strong>et</strong> forth in Article IX<br />
of the Plan.<br />
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42. The Debtors and their respective present and former members, officers, directors,<br />
employees, advisors, attorneys and agents have participated in good faith and in compliance with<br />
the applicable provisions of the Bankruptcy Code with regard to the offering, issuance and<br />
distribution of recoveries under the Plan and, therefore, are not, and on account of such<br />
Distributions will not be, liable at any time for the violation of any applicable law, rule or<br />
regulation governing the solicitation of acceptances or rejections of the Plan or Distributions<br />
made pursuant to the Plan, so long as such Distributions are made consistent with and pursuant<br />
to the Plan. Accordingly, the requirements of Bankruptcy Code section 1129(a)(2) are satisfied.<br />
iii.<br />
Section 1129(a)(3)—Propos<strong>al</strong> of Plan in Good Faith<br />
43. The Debtors have proposed the Plan in good faith and not by any means forbidden<br />
by law. In d<strong>et</strong>ermining that the Plan has been proposed in good faith, the Bankruptcy Court has<br />
examined the tot<strong>al</strong>ity of the circumstances surrounding the filing of the Chapter 11 Cases, the<br />
Plan itself and the process leading to its formulation. The good faith of each of the entities who<br />
negotiated the Plan is evident from the facts and records of the Chapter 11 Cases, the Disclosure<br />
Statement and the hearing thereon and the record of the Confirmation Hearing and other<br />
proceedings held in the Chapter 11 Cases. The Plan is the product of arm’s-length negotiations<br />
b<strong>et</strong>ween and among the S<strong>et</strong>tlement Parties. The Plan itself, and the process leading to its<br />
formulation, provide independent evidence of the good faith of the Entities who negotiated the<br />
Plan, serve the public interest and assure fair treatment of holders of Claims and Interests. The<br />
S<strong>et</strong>tlement Parties negotiated the Plan (following agreement on the terms of the Glob<strong>al</strong><br />
S<strong>et</strong>tlement) for the legitimate and honest purpose of maximizing the v<strong>al</strong>ue of the Debtors’<br />
Estates for the benefit of <strong>al</strong>l creditors. Consistent with the overriding purpose of chapter 11 of<br />
the Bankruptcy Code, the Chapter 11 Cases were filed by the Debtors, and the Plan was<br />
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proposed by the Debtors, with the legitimate purpose of maximizing the v<strong>al</strong>ue of the Debtors’<br />
Estates to satisfy their obligations to creditors.<br />
iv.<br />
Section 1129(a)(4)—Bankruptcy Court Approv<strong>al</strong> of Certain Payments as<br />
Reasonable<br />
44. The procedures s<strong>et</strong> forth in the Plan for the Bankruptcy Court’s review and<br />
ultimate d<strong>et</strong>ermination of the fees and expenses to be paid by the Debtors (or the Purchaser<br />
pursuant to the terms of the Purchase Agreement) in connection with the Chapter 11 Cases, or in<br />
connection with the Plan and incident to the Chapter 11 Cases, satisfy the objectives of, and are<br />
in compliance with, Bankruptcy Code section 1129(a)(4). Accordingly, the requirements of<br />
Bankruptcy Code section 1129(a)(4) are satisfied.<br />
v. Section 1129(a)(5)—Disclosure of Identity of Proposed Management,<br />
Compensation of Insiders and Consistency of Management Propos<strong>al</strong>s with<br />
the Interests of Creditors and Public Policy<br />
45. The Plan complies with the requirements of Bankruptcy Code section 1129(a)(5)<br />
because, in the Disclosure Statement, the Plan and/or the Plan Supplement, the Debtors have<br />
disclosed the following: (a) the identity of each proposed Director, each proposed Officer and the<br />
manner in which addition<strong>al</strong> Officers and Directors of the Reorganized Debtors will be chosen<br />
following Confirmation; and (b) the identity of and nature of any compensation for any insider<br />
who will be employed or r<strong>et</strong>ained by the Reorganized Debtors. The m<strong>et</strong>hod of appointment of<br />
Directors and Officers of the Debtors was, is and will be consistent with the interests of holders<br />
of Claims and Interests and public policy. Accordingly, the requirements of Bankruptcy Code<br />
section 1129(a)(5) are satisfied.<br />
vi.<br />
Section 1129(a)(6)—Approv<strong>al</strong> of Rate Changes<br />
46. The Plan does not contain any rate changes subject to the jurisdiction of any<br />
government<strong>al</strong> regulatory commission and therefore will not require government<strong>al</strong> regulatory<br />
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approv<strong>al</strong>. Therefore, Bankruptcy Code section 1129(a)(6) is inapplicable to the Chapter 11<br />
Cases.<br />
vii.<br />
Section 1129(a)(7)—Best Interests of Holders of Claims and Interests<br />
47. The liquidation an<strong>al</strong>ysis attached as Exhibit D to the Disclosure Statement (as<br />
amended and restated, the “Liquidation An<strong>al</strong>ysis”) and the other evidence related ther<strong>et</strong>o in<br />
support of the Plan that was proffered or adduced at or prior to, or in affidavits in connection<br />
with, the Confirmation Hearing: (a) are reasonable, persuasive, credible and accurate as of the<br />
dates such an<strong>al</strong>ysis or evidence was prepared, presented or proffered; (b) utilize reasonable and<br />
appropriate m<strong>et</strong>hodologies and assumptions; (c) have not been controverted by other evidence;<br />
and (d) establish that, with respect to each Impaired Class, each holder of an Allowed Claim or<br />
Interest in such Class has voted to accept the Plan or will receive under the Plan on account of<br />
such Claim or Interest property of a v<strong>al</strong>ue, as of the Effective Date, that is not less than the<br />
amount such holder would receive if the Debtors were liquidated on the Effective Date under<br />
chapter 7 of the Bankruptcy Code. Accordingly, the requirements of Bankruptcy Code section<br />
1129(a)(7) are satisfied.<br />
viii.<br />
Section 1129(a)(8)—Conclusive Presumption of Acceptance by Unimpaired<br />
Classes; Acceptance of the Plan by Each Impaired Class<br />
48. Classes 1 and 2 are each of the Classes of Unimpaired Claims or Interests that are<br />
conclusively presumed to have accepted the Plan under Bankruptcy Code section 1126(f).<br />
49. Class 3 is the Class of Impaired Claims and has voted to accept the Plan.<br />
50. Class 4 is Impaired and is receiving no property under the Plan and as such, is<br />
presumptively deemed to reject the Plan. Accordingly, with respect to Class 4, the Debtors<br />
sought Confirmation under Bankruptcy Code section 1129(b) rather than Bankruptcy Code<br />
section 1129(a)(8). Thus, <strong>al</strong>though Bankruptcy Code section 1129(a)(8) has not been satisfied<br />
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with respect to the Rejecting Class, based upon the record before the Bankruptcy Court, the Plan<br />
is confirmable because the Plan does not discriminate unfairly and is fair and equitable with<br />
respect to the Rejecting Class and thus satisfies Bankruptcy Code section 1129(b) with respect to<br />
such Class.<br />
ix.<br />
Section 1129(a)(9)—Treatment of Claims Entitled to Priority Pursuant to<br />
Bankruptcy Code Section 507(a)<br />
51. The treatment of Administrative Claims, Priority Tax Claims and Statutory Fees<br />
under Article II of the Plan and the treatment of Allowed Other Priority Claims under Article III<br />
of the Plan satisfy the requirements of, and comply in <strong>al</strong>l respects with, Bankruptcy Code section<br />
1129(a)(9). Accordingly, the requirements of Bankruptcy Code section 1129(a)(9) are satisfied.<br />
x. Section 1129(a)(10)—Acceptance by at Least One Impaired Class<br />
52. As s<strong>et</strong> forth in the Voting Certifications, the Impaired Accepting Class has voted<br />
to accept the Plan. Specific<strong>al</strong>ly, holders of Claims in Class 3 voted to accept the Plan. As such,<br />
there is at least one Class of Claims that is Impaired under the Plan and has accepted the Plan,<br />
d<strong>et</strong>ermined without including any acceptance of the Plan by any insider (as defined by the<br />
Bankruptcy Code). Accordingly, the requirements of Bankruptcy Code section 1129(a)(10) have<br />
been satisfied.<br />
xi.<br />
Section 1129(a)(11)—Feasibility of the Plan<br />
53. The Plan satisfies Bankruptcy Code section 1129(a)(11). The evidence<br />
supporting the Plan proffered or adduced by the Debtors at, or prior to, or in affidavits filed in<br />
connection with, the Confirmation Hearing: (a) is reasonable, persuasive, credible and accurate<br />
as of the dates such an<strong>al</strong>ysis or evidence was prepared, presented or proffered; (b) utilizes<br />
reasonable and appropriate m<strong>et</strong>hodologies and assumptions; (c) has not been controverted by<br />
other evidence; (d) establishes that the Plan is feasible and Confirmation of the Plan is not likely<br />
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to be followed by the need for further financi<strong>al</strong> reorganization; and (e) establishes that the<br />
Reorganized Debtors and/or the Liquidating Trust will have sufficient funds available to me<strong>et</strong><br />
their obligations under the Plan.<br />
Accordingly, the requirements of Bankruptcy Code<br />
section 1129(a)(11) have been satisfied.<br />
xii.<br />
Section 1129(a)(12)—Payment of Bankruptcy Fees<br />
54. Article II of the Plan provides that <strong>al</strong>l fees payable pursuant to section 1930 of the<br />
United States Judici<strong>al</strong> Code sh<strong>al</strong>l be paid for in full, in Cash, plus interest due and payable under<br />
31 U.S.C. § 3717 (if any), on <strong>al</strong>l disbursements, including Plan payments and disbursements in<br />
and outside the ordinary course of the Debtors’ business as of the Effective Date. Accordingly,<br />
the requirements of Bankruptcy Code section 1129(a)(12) have been satisfied.<br />
xiii.<br />
Section 1129(a)(13)—R<strong>et</strong>iree Benefits<br />
55. Bankruptcy Code section 1129(a)(13) requires a plan to provide for “r<strong>et</strong>iree<br />
benefits” (as defined in Bankruptcy Code section 1114) at levels established pursuant to<br />
Bankruptcy Code section 1114. Because the Debtors have no r<strong>et</strong>iree benefits obligations, this<br />
section of the Bankruptcy Code is inapplicable.<br />
xiv.<br />
Sections 1129(a)(14), (15), and (16)—Domestic Support Obligations;<br />
Unsecured Claims Against Individu<strong>al</strong> Debtors; Transfers by Nonprofit<br />
Organizations<br />
56. None of the Debtors have domestic support obligations, are individu<strong>al</strong>s or are<br />
nonprofit organizations. Therefore, Bankruptcy Code sections 1129(a)(14), (15) and (16) do not<br />
apply to the Chapter 11 Cases.<br />
xv.<br />
Section 1129(b)—Confirmation of Plan Over Nonacceptance of Impaired<br />
Class<br />
57. Notwithstanding the fact that the Rejecting Class is deemed to have voted not to<br />
accept the Plan, the Plan may be confirmed pursuant to Bankruptcy Code section 1129(b)(1)<br />
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because (i) Impaired Class 3 has voted to accept the Plan and (ii) the Plan satisfies the<br />
requirements of Bankruptcy Code section 1129(b) with respect to Class 4. Specific<strong>al</strong>ly, each<br />
member of Class 4 will equ<strong>al</strong>ly receive no distribution under the Plan, so the Plan necessarily<br />
does not unfairly discriminate with respect to Class 4 and there is no class junior to Class 4 and<br />
as such, no holder of any junior Claim or Interest will receive any recovery under the Plan.<br />
Further, no senior Class is receiving more than full recovery on account of its Claims (including<br />
Claims for interest and other contractu<strong>al</strong> rights).<br />
58. As a result, the Plan satisfies the requirements of Bankruptcy Code section<br />
1129(b). Thus, the Plan may be confirmed even though Bankruptcy Code section 1129(a)(8) is<br />
not satisfied. After entry of the Confirmation Order and upon the occurrence of the Effective<br />
Date, the Plan sh<strong>al</strong>l be binding upon the members of, and holders of Interests in, the Rejecting<br />
Class.<br />
xvi.<br />
Section 1129(c)—Only One Plan<br />
59. Other than the Plan (including previous versions thereof), one other plan<br />
(including previous versions thereof) had been filed in the Chapter 11 Cases; however, such prior<br />
plan was withdrawn on February 16, 2011. Accordingly, the requirements of Bankruptcy Code<br />
section 1129(c) have been satisfied.<br />
xvii.<br />
Section 1129(d)—Princip<strong>al</strong> Purpose of the Plan Is Not Avoidance of Taxes<br />
60. No government<strong>al</strong> unit has requested that the Bankruptcy Court refuse to confirm<br />
the Plan on the grounds that the princip<strong>al</strong> purpose of the Plan is the avoidance of taxes or the<br />
avoidance of the application of section 5 of the Securities Act. As evidenced by its terms, the<br />
princip<strong>al</strong> purpose of the Plan is not such avoidance.<br />
Accordingly, the requirements of<br />
Bankruptcy Code section 1129(d) have been satisfied.<br />
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N. Satisfaction of Confirmation Requirements<br />
61. Based upon the foregoing, the Plan satisfies the requirements for confirmation s<strong>et</strong><br />
forth in Bankruptcy Code section 1129.<br />
O. Disclosure: Agreements and Other Documents<br />
62. The Debtors have disclosed <strong>al</strong>l materi<strong>al</strong> facts regarding the Plan, the Purchase<br />
Agreement and the documents included in the Plan Supplement, including: (a) the Liquidating<br />
Trust Agreement; (b) the Interim TSN Trust Agreement; (c) the New Corporate Governance<br />
Documents; (d) to the extent known, the identity of the members of the New Boards and the<br />
nature and compensation for any Director who is an “insider” under the Bankruptcy Code; (e) to<br />
the extent known, the identity of the Officers of the Reorganized Debtors; (f) the Assumed<br />
Executory Contract and Unexpired Lease List; and (g) the Rejected Executory Contract and<br />
Unexpired Lease List, including the adoption, execution, and delivery of <strong>al</strong>l contracts, leases,<br />
instruments, securities, releases, indentures and other agreements related to any such documents.<br />
P. Conditions to Confirmation<br />
63. Pursuant to Article X.A of the Plan, entry of a Fin<strong>al</strong> Order, in form and substance<br />
acceptable to the Debtors, approving the Disclosure Statement with respect to the Plan as<br />
containing adequate information within the meaning of Bankruptcy Code section 1125, is the<br />
only condition precedent to Confirmation. Thus, the condition precedent to Confirmation has<br />
been satisfied.<br />
Q. Likelihood of Satisfaction of Conditions Precedent to the Effective Date<br />
64. Each of the conditions precedent to the Effective Date, as s<strong>et</strong> forth in Article X.B<br />
of the Plan, subject to regulatory approv<strong>al</strong>s, are reasonably likely to be satisfied or, as s<strong>et</strong> forth in<br />
and subject to the terms of the Plan, may be waived by the Debtors; provided that, in the event<br />
that the Creditors’ Committee or the Purchaser objects to the Debtors’ waiver of the condition<br />
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precedent to the Effective Date s<strong>et</strong> forth in Article X.B.7 of the Plan within the two-week notice<br />
period provided under Article X.C. of the Plan, then the Debtors sh<strong>al</strong>l seek and obtain<br />
Bankruptcy Court approv<strong>al</strong> of such waiver (which approv<strong>al</strong> may be sought on an expedited<br />
basis) for the waiver of such condition to be effective.<br />
R. Implementation<br />
65. All documents and agreements necessary to implement the Plan, including those<br />
contained in the Plan Supplement, and <strong>al</strong>l other relevant and necessary documents have been<br />
negotiated in good faith, at arm’s-length, and are in the best interests of the Debtors and the<br />
Reorganized Debtors and sh<strong>al</strong>l, upon compl<strong>et</strong>ion of documentation and execution be v<strong>al</strong>id,<br />
binding and enforceable documents and agreements not in conflict with any feder<strong>al</strong>, provinci<strong>al</strong> or<br />
state law.<br />
S. Corporate Action<br />
66. Upon the Effective Date, <strong>al</strong>l actions contemplated by the Plan sh<strong>al</strong>l be deemed<br />
authorized and approved in <strong>al</strong>l respects, including: (a) entry into the New Employment<br />
Agreements; (b) selection of the Directors and Officers of the Reorganized Debtors; (c) the<br />
establishment of the Disputed Claims Reserve; and (d) <strong>al</strong>l other actions contemplated by the Plan<br />
(wh<strong>et</strong>her to occur before, on or after the Effective Date). All matters provided for in the Plan<br />
involving the corporate structure of the Debtors or the Reorganized Debtors, and any corporate<br />
action required by the Debtors or the Reorganized Debtors in connection with implementation of<br />
the Plan sh<strong>al</strong>l be deemed to have occurred and sh<strong>al</strong>l be in effect upon the Effective Date (except<br />
for the Interim TSN Trust, which sh<strong>al</strong>l only be implemented, if at <strong>al</strong>l, pursuant to the terms of the<br />
Plan), without any requirement of further action by the Debtors, the Reorganized Debtors, or any<br />
of their respective directors or officers.<br />
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T. Executory Contracts and Unexpired Leases<br />
67. The Debtors have exercised reasonable business judgment in d<strong>et</strong>ermining wh<strong>et</strong>her<br />
to assume or reject each of their Executory Contracts and Unexpired Leases as s<strong>et</strong> forth in the<br />
Plan, the Plan Supplement, this Confirmation Order or otherwise (including the S<strong>al</strong>e Order) and<br />
such d<strong>et</strong>erminations with respect to the Debtors’ Executory Contracts and Unexpired Leases<br />
were done in accordance with the S<strong>al</strong>e Order. Each assumption or rejection of an Executory<br />
Contract or Unexpired Lease in accordance with the Plan, the Plan Supplement, this<br />
Confirmation Order or otherwise (including the S<strong>al</strong>e Order) sh<strong>al</strong>l be leg<strong>al</strong>, v<strong>al</strong>id and binding<br />
upon (a) the applicable Debtor and upon the Reorganized Debtors if such Executory Contract or<br />
Unexpired Lease is assumed and (b) <strong>al</strong>l non-Debtor parties to such Executory Contract or<br />
Unexpired Lease, <strong>al</strong>l to the same extent as if such assumption or rejection had been authorized<br />
and effectuated pursuant to a separate order of the Bankruptcy Court that was entered pursuant to<br />
Bankruptcy Code section 365 before Confirmation.<br />
U. Approv<strong>al</strong> of the Liquidating Trust Agreement<br />
68. The proposed terms and conditions of the Liquidating Trust Agreement are fair<br />
and reasonable and are approved. The Liquidating Trust Agreement is an essenti<strong>al</strong> element of<br />
the Plan, and entry into and consummation of the transactions contemplated by the Liquidating<br />
Trust Agreement are in the best interests of the Debtors, the Debtors’ Estates and holders of<br />
Claims, and are approved in <strong>al</strong>l respects. The Debtors have exercised reasonable business<br />
judgment in d<strong>et</strong>ermining to enter into the Liquidating Trust Agreement and have provided<br />
sufficient and adequate notice of the Liquidating Trust Agreement. The Debtors are authorized,<br />
without any further notice to, or action, order or approv<strong>al</strong> of, the Bankruptcy Court, to execute<br />
and deliver <strong>al</strong>l agreements, documents, instruments and certificates relating ther<strong>et</strong>o and to<br />
perform their obligations thereunder.<br />
The terms and conditions of the Liquidating Trust<br />
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Agreement have been negotiated in good faith, at arm’s length, are fair and reasonable, and are<br />
approved.<br />
The Liquidating Trust Agreement sh<strong>al</strong>l, upon execution, be v<strong>al</strong>id, binding and<br />
enforceable, and sh<strong>al</strong>l not be in conflict with any feder<strong>al</strong> or state law.<br />
V. Approv<strong>al</strong> of the Interim TSN Trust Agreement, the Issuance of Interim TSN<br />
Warrants and Approv<strong>al</strong> of the Interim TSN Warrant Agreement<br />
69. To the extent the provisions of Exhibit 3 to the Plan are triggered pursuant to<br />
Article V.G. thereof, the Debtors are authorized, without any further notice to, or action, order or<br />
approv<strong>al</strong> of, the Bankruptcy Court, to execute and deliver <strong>al</strong>l agreements, documents,<br />
instruments and certificates relating to their entry into the Interim TSN Trust Warrant Agreement<br />
and to perform their obligations thereunder, including the issuance of the Interim TSN Warrants.<br />
The terms and conditions of the Interim TSN Warrant Agreement have been negotiated in good<br />
faith, at arm’s length, are fair and reasonable and are approved. The Interim TSN Warrant<br />
Agreement sh<strong>al</strong>l, upon execution, be v<strong>al</strong>id, binding and enforceable, and sh<strong>al</strong>l not be in conflict<br />
with any feder<strong>al</strong> or state law.<br />
W. R<strong>et</strong>ention of Jurisdiction<br />
70. The Bankruptcy Court properly may r<strong>et</strong>ain jurisdiction over the matters s<strong>et</strong> forth<br />
in (a) Article XII and other applicable provisions of the Plan, (b) the Liquidating Trust<br />
Agreement, (c) the Interim TSN Trust Agreement, and (d) <strong>al</strong>l other documents included in the<br />
Plan Supplement.<br />
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II.<br />
ORDER<br />
BASED ON THE FOREGOING FINDINGS OF FACT AND CONCLUSIONS OF<br />
LAW, IT IS THEREFORE ORDERED, ADJUDGED AND DECREED THAT:<br />
71. This Confirmation Order sh<strong>al</strong>l confirm the Plan. A copy of the Plan is attached<br />
her<strong>et</strong>o as Exhibit A.<br />
72. Confirmation of the Plan. The Plan and the Plan Supplement (as such may be<br />
amended by this Confirmation Order or in accordance with the Plan) and each of their provisions<br />
are confirmed in each and every respect pursuant to Bankruptcy Code section 1129. The<br />
documents contained in the Plan Supplement, and any amendments, modifications and<br />
supplements ther<strong>et</strong>o, and <strong>al</strong>l documents and agreements related ther<strong>et</strong>o (including <strong>al</strong>l exhibits<br />
and attachments ther<strong>et</strong>o and documents referred to in such papers), and the execution, delivery<br />
and performance thereof by the Debtors and the Reorganized Debtors, are authorized and<br />
approved as fin<strong>al</strong>ized, executed and delivered. Without further order or authorization of the<br />
Bankruptcy Court, the Debtors, the Reorganized Debtors, the Liquidating Trustee, the Interim<br />
TSN Trust Board (as necessary), any other person necessary to take any actions to effectuate the<br />
provisions of the Plan, and their successors are authorized and empowered to make <strong>al</strong>l<br />
modifications to <strong>al</strong>l documents included as part of the Plan Supplement that are consistent with<br />
the Plan. As s<strong>et</strong> forth in the Plan, once fin<strong>al</strong>ized and executed and upon the occurrence of the<br />
Effective Date, the documents comprising the Plan Supplement and <strong>al</strong>l other documents<br />
contemplated by the Plan sh<strong>al</strong>l constitute leg<strong>al</strong>, v<strong>al</strong>id, binding and authorized obligations of the<br />
respective parties ther<strong>et</strong>o, enforceable in accordance with their terms.<br />
73. Findings of Fact and Conclusions of Law. The findings of fact and the<br />
conclusions of law stated in this Confirmation Order sh<strong>al</strong>l constitute findings of fact and<br />
conclusions of law pursuant to Bankruptcy Rule 7052, made applicable to the proceeding by<br />
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Bankruptcy Rule 9014. To the extent any finding of fact sh<strong>al</strong>l be d<strong>et</strong>ermined to be a conclusion<br />
of law, it sh<strong>al</strong>l be so deemed, and to the extent any conclusion of law sh<strong>al</strong>l be d<strong>et</strong>ermined to be a<br />
finding of fact, it sh<strong>al</strong>l be so deemed.<br />
74. The terms of the Plan, the Plan Supplement and exhibits ther<strong>et</strong>o are incorporated<br />
by reference into, and are an integr<strong>al</strong> part of, this Confirmation Order. The terms of the Plan, the<br />
Plan Supplement, <strong>al</strong>l exhibits ther<strong>et</strong>o, and <strong>al</strong>l other relevant and necessary documents, sh<strong>al</strong>l be<br />
effective and binding as of the Effective Date of the Plan.<br />
75. Plan Modifications. Subsequent to filing the Plan on December 27, 2011, the<br />
Debtors made certain non-materi<strong>al</strong> modifications to the Plan (the “Plan Modifications”), which<br />
are reflected in the version of the Plan attached her<strong>et</strong>o as Exhibit A. Except as provided for by<br />
law, contract or prior order of this Bankruptcy Court, none of the modifications made since the<br />
commencement of solicitation adversely affects the treatment of any Claim against or Interest in<br />
any of the Debtors under the Plan. The filing with the Bankruptcy Court of the Plan as modified<br />
by the Plan Modifications and the disclosure of the Plan Modifications on the record at the<br />
Confirmation Hearing constitute due and sufficient notice thereof. Accordingly, pursuant to<br />
Bankruptcy Code section 1127(a) and Bankruptcy Rule 3019, none of these modifications<br />
require addition<strong>al</strong> disclosure under Bankruptcy Code section 1125 or resolicitation of votes<br />
under Bankruptcy Code section 1126 (especi<strong>al</strong>ly in light of previously provided disclosures), nor<br />
do they require that holders of Claims or Interests be afforded an opportunity to change<br />
previously cast acceptances or rejections of the Plan. The Plan as modified and attached her<strong>et</strong>o<br />
sh<strong>al</strong>l constitute the Plan submitted for Confirmation by the Bankruptcy Court.<br />
76. Deemed Acceptance of Plan as Modified. In accordance with Bankruptcy Code<br />
section 1127 and Bankruptcy Rule 3019, <strong>al</strong>l holders of Claims who voted to accept the Plan or<br />
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who are conclusively presumed to have accepted the Plan are deemed to have accepted the Plan<br />
as modified by the Plan Modifications. No holder of a Claim sh<strong>al</strong>l be permitted to change its<br />
vote as a consequence of the Plan Modifications.<br />
77. Plan Classification Controlling. The terms of the Plan sh<strong>al</strong>l govern the<br />
classification of Claims and Interests for purposes of the Distributions to be made thereunder.<br />
The classifications s<strong>et</strong> forth on the b<strong>al</strong>lots tendered to or r<strong>et</strong>urned by the holders of Claims or<br />
Interests in connection with voting on the Plan pursuant to the Disclosure Statement and<br />
Solicitation Procedures Order: (a) were s<strong>et</strong> forth on the b<strong>al</strong>lots for purposes of voting to accept<br />
or reject the Plan; (b) in no event sh<strong>al</strong>l be deemed to modify or otherwise affect, the actu<strong>al</strong><br />
classification of such Claims and Interests under the Plan for Distribution purposes; (c) may not<br />
be relied upon by any holder of a Claim or Interest as representing the actu<strong>al</strong> classification of<br />
such Claim or Interest under the Plan for Distribution purposes; and (d) sh<strong>al</strong>l not be binding on<br />
the Debtors, Reorganized Debtors or Liquidating Trustee except for voting purposes.<br />
78. Administrative Claims Bar Date. Except as otherwise provided in Article II of the<br />
Plan, requests for payment of Administrative Claims must be filed and served on the<br />
Reorganized Debtors and the Purchaser pursuant to the procedures specified in the Confirmation<br />
Order and the notice of entry of the Confirmation Order (the “Notice of Confirmation”) attached<br />
her<strong>et</strong>o as Exhibit B, no later than 45 days after the Effective Date. Holders of Administrative<br />
Claims that are required to, but do not, file and serve a request for payment of such<br />
Administrative Claims by such date sh<strong>al</strong>l be forever barred, estopped and enjoined from<br />
asserting such Administrative Claims against the Debtors or Reorganized Debtors, the<br />
Purchaser, the Liquidating Trust and the Liquidating Trust Ass<strong>et</strong>s, or their respective<br />
property, and such Administrative Claims sh<strong>al</strong>l be deemed discharged as of the Effective<br />
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Date. Objections to such requests, if any, must be filed and served on the Reorganized Debtors<br />
and the requesting party no later than 90 days after the Effective Date. Notwithstanding the<br />
foregoing, no request for payment of an Administrative Claim need be filed with respect to an<br />
Administrative Claim previously Allowed by Fin<strong>al</strong> Order, including <strong>al</strong>l Administrative Claims<br />
expressly Allowed under this Plan.<br />
79. The Reorganized Debtors or the Purchaser, in consultation with the Creditors’<br />
Committee or the Liquidating Trustee, as applicable, may s<strong>et</strong>tle and pay any Administrative<br />
Claim in the ordinary course of business without any further notice to or action, order or<br />
approv<strong>al</strong> of the Bankruptcy Court. In the event that any party with standing objects to an<br />
Administrative Expense Claim, the Bankruptcy Court sh<strong>al</strong>l d<strong>et</strong>ermine the Allowed amount of<br />
such Administrative Claim. For the avoidance of doubt, <strong>al</strong>l Administrative Claims sh<strong>al</strong>l be paid<br />
in accordance with the Purchase Agreement.<br />
80. Gener<strong>al</strong> S<strong>et</strong>tlement of Claims and Interests. As one element of, and in<br />
consideration for, an over<strong>al</strong>l negotiated s<strong>et</strong>tlement of numerous disputed Claims and issues<br />
embodied in the Plan, pursuant to Bankruptcy Rule 9019 and Bankruptcy Code section 1123 and<br />
in consideration for the classification, Distributions, Releases and other benefits provided under<br />
the Plan, the provisions of the Plan sh<strong>al</strong>l, upon Consummation, constitute a good-faith<br />
compromise and s<strong>et</strong>tlement of <strong>al</strong>l Claims, Interests and controversies resolved pursuant to the<br />
Plan. Subject to Article VII, <strong>al</strong>l Distributions made pursuant to the Plan to holders of Allowed<br />
Claims and Interests in any Class are intended to be and sh<strong>al</strong>l be fin<strong>al</strong>.<br />
81. Approv<strong>al</strong> of S<strong>et</strong>tlements. The s<strong>et</strong>tlements provided in Article V of the Plan are<br />
expressly approved in <strong>al</strong>l respects pursuant to Bankruptcy Rule 9019 and Bankruptcy Code<br />
section 1123, and the Debtors and the Reorganized Debtors are authorized, without further<br />
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approv<strong>al</strong> of this Bankruptcy Court or any other party, to execute and deliver <strong>al</strong>l agreements,<br />
documents, instruments and certificates relating to such s<strong>et</strong>tlements and to perform their<br />
obligations thereunder.<br />
82. In addition to (and as part of) those s<strong>et</strong>tlements provided in Article V of the Plan,<br />
in full and fin<strong>al</strong> satisfaction of its Claims [Claim Nos. 143 and 144], the Texas Comptroller of<br />
Public Accounts (the “Texas Comptroller”) sh<strong>al</strong>l be entitled to an Allowed Priority Tax Claim in<br />
the amount of $147,004.66 (the “Texas Priority Tax Claim”) in respect of tax liabilities incurred<br />
during the period from October 1, 2007 through October 19, 2010, and an Allowed<br />
Administrative Claim in the amount of $42,701.82 (the “Texas Administrative Claim”) in<br />
respect of tax liabilities incurred during the period from October 20, 2010 through September 30,<br />
2011, which Texas Priority Tax Claim and Texas Administrative Claim will be paid on or as<br />
soon as reasonably practicable after the Effective Date in accordance with Article III of the Plan;<br />
provided, however, that, if the Effective Date has not occurred as of June 30, 2012, the Texas<br />
Comptroller sh<strong>al</strong>l be entitled to assert an addition<strong>al</strong> Administrative Claim for postp<strong>et</strong>ition<br />
interest, which interest will be c<strong>al</strong>culated at 4.25% per annum on the amount of the Texas<br />
Administrative Claim, and which interest will begin accruing on July 1, 2012. For the avoidance<br />
of doubt, even if the Effective Date has not occurred by June 30, 2012, the Texas Comptroller<br />
sh<strong>al</strong>l not be entitled to any Claim for postp<strong>et</strong>ition interest (other than any amounts on account of<br />
interest <strong>al</strong>ready included in the Texas Administrative Claim) that may otherwise have accrued<br />
from the P<strong>et</strong>ition Date through and including June 30, 2012. This s<strong>et</strong>tlement was negotiated in<br />
good faith, at arm’s-length, and represents a fair and reasonable s<strong>et</strong>tlement of the Texas<br />
Comptroller’s claims, in light of the various risks and costs to fully litigating wh<strong>et</strong>her the Texas<br />
Comptroller would be entitled to addition<strong>al</strong> interest and pen<strong>al</strong>ties.<br />
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83. Operation as of the Effective Date. As of the Effective Date, unless otherwise<br />
provided in the Plan, the Plan Supplement or this Confirmation Order, the Reorganized Debtors<br />
may, consistent with and in accordance with the Plan, operate their businesses and may use,<br />
acquire and dispose of property and s<strong>et</strong>tle and compromise Claims and Interests without<br />
supervision or approv<strong>al</strong> by the Bankruptcy Court and free of any restrictions of the Bankruptcy<br />
Code or the Bankruptcy Rules and in <strong>al</strong>l respects as if there were no pending cases under any<br />
chapter or provision of the Bankruptcy Code.<br />
84. Discharge of Debtors and Certain Other Parties. Except as otherwise specific<strong>al</strong>ly<br />
provided in the Plan, the Plan Supplement or this Confirmation Order, pursuant to Bankruptcy<br />
Code section 1141(d), the Distributions, rights and treatment that are provided in the Plan sh<strong>al</strong>l<br />
be in full and fin<strong>al</strong> satisfaction, s<strong>et</strong>tlement, release and discharge, effective as of the Effective<br />
Date, of <strong>al</strong>l Claims, Interests and Causes of Action of any nature whatsoever, including any<br />
interest accrued on Claims or Interests from and after the P<strong>et</strong>ition Date, wh<strong>et</strong>her known or<br />
unknown, against, liabilities of, Liens on, obligations of, rights against and Interests in, the<br />
Debtors, their Estates, the Purchaser, the Liquidating Trust and the Liquidating Trust Ass<strong>et</strong>s, or<br />
any of their respective ass<strong>et</strong>s or property, regardless of wh<strong>et</strong>her any property sh<strong>al</strong>l have been<br />
distributed or r<strong>et</strong>ained pursuant to the Plan on account of such Claims and Interests, including<br />
demands, liabilities and Causes of Action that arose before the Effective Date, any contingent or<br />
non-contingent liability on account of representations or warranties issued on or before the<br />
Effective Date, and <strong>al</strong>l debts of the kind specified in Bankruptcy Code sections 502(g), 502(h) or<br />
502(i), in each case wh<strong>et</strong>her or not: (1) a Proof of Claim or Interest based upon such Claim, debt,<br />
right or Interest is filed or deemed filed pursuant to Bankruptcy Code section 501; (2) a Claim or<br />
Interest based upon such Claim, debt, right or Interest is Allowed pursuant to Bankruptcy Code<br />
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section 502; or (3) the holder of such a Claim or Interest has accepted the Plan; provided that,<br />
notwithstanding the foregoing, nothing in the Plan, the Plan Supplement or this Confirmation<br />
Order sh<strong>al</strong>l release or discharge any of the parties to the Purchase Agreement from any liabilities<br />
or obligations arising under the Purchase Agreement. Except as otherwise provided herein, any<br />
default by the Debtors or their Affiliates with respect to any Claim or Interest that existed before<br />
or on account of the filing of the Chapter 11 Cases sh<strong>al</strong>l be deemed cured on the Effective Date.<br />
This Confirmation Order sh<strong>al</strong>l be a judici<strong>al</strong> d<strong>et</strong>ermination of the discharge of <strong>al</strong>l Claims and<br />
Interests subject to the Effective Date occurring, except as otherwise expressly provided in the<br />
Plan.<br />
85. Releases by the Debtors. As provided for in Article IX.B of the Plan, pursuant to<br />
Bankruptcy Code section 1123(b), and except as otherwise specific<strong>al</strong>ly provided in the Plan or<br />
the Plan Supplement, the Debtor Releases in the Plan are approved.<br />
86. Releases by Holders of Claims and Interests. As provided for in Article IX.C of<br />
the Plan, as of the Effective Date, the Third-Party Releases in the Plan are approved.<br />
87. Exculpation. The exculpations s<strong>et</strong> forth in Article IX.D. of the Plan are hereby<br />
approved and authorized.<br />
88. Injunction. From and after the Effective Date, and as contemplated in Article<br />
IX.F of the Plan, <strong>al</strong>l Entities are permanently enjoined from commencing or continuing in any<br />
manner, any Cause of Action released or to be released pursuant to the Plan or this Confirmation<br />
Order.<br />
89. Notwithstanding anything contained in the Confirmation Order or the Plan to the<br />
contrary, nothing in the Plan or Confirmation Order sh<strong>al</strong>l discharge, release, or otherwise<br />
preclude: (1) any liability of the Debtors or Reorganized Debtors to the United States, its<br />
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agencies, departments, or agents (collectively, the “U.S. Government”) arising on or after the<br />
Effective Date; (2) any liability to the U.S. Government that is not a “claim” within the meaning<br />
of Bankruptcy Code section 101(5); (3) any v<strong>al</strong>id right of s<strong>et</strong>off or recoupment of the U.S.<br />
Government against any of the Debtors; or (4) any liability of the Debtors or Reorganized<br />
Debtors under environment<strong>al</strong> law to any government<strong>al</strong> unit as the owner or operator of property<br />
that such entity owns or operates after the Effective Date. Moreover, nothing in the<br />
Confirmation Order or the Plan sh<strong>al</strong>l release or exculpate any non-Debtor, including any<br />
Released Party and/or Exculpated Party, from any liability to the U.S. Government, including but<br />
not limited to any liabilities arising under the Intern<strong>al</strong> Revenue Code, the environment<strong>al</strong> laws, or<br />
the crimin<strong>al</strong> laws against any Released Party and/or Exculpated Party, nor sh<strong>al</strong>l anything in this<br />
Confirmation Order or the Plan enjoin the U.S. Government from bringing any claim, suit, action<br />
or other proceeding against any non-Debtor, including any Released Party and/or Exculpated<br />
Party, for any liability whatsoever; provided, however, that the foregoing sentence sh<strong>al</strong>l not limit<br />
the scope of discharge granted to the Debtors or Reorganized Debtors under Bankruptcy Code<br />
sections 524 and 1141.<br />
90. As to the U.S. Government, nothing in the Plan or Confirmation Order sh<strong>al</strong>l limit<br />
or expand the scope of discharge or injunction to which the Debtors or Reorganized Debtors are<br />
entitled under the Bankruptcy Code. The discharge and injunction provisions contained in the<br />
Plan and Confirmation Order are not intended and sh<strong>al</strong>l not be construed to bar the U.S.<br />
Government from, subsequent to the Effective Date, pursuing any police or regulatory action.<br />
91. Distributions. Notwithstanding anything contained in the Plan, the Plan<br />
Supplement or this Confirmation Order, as of the entry of this Confirmation Order, the various<br />
transfer registers for each of the Classes of Claims or Interests as maintained by the Debtors or<br />
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their respective agents sh<strong>al</strong>l be deemed closed, and there sh<strong>al</strong>l be no further changes made to<br />
reflect any new record holders of any Claims or Interests. The Debtors, the Liquidating Trustee<br />
and the Indenture Trustee sh<strong>al</strong>l have no obligation to recognize any transfer of Claims or<br />
Interests occurring on or after the Distribution Record Date; provided, however, the Liquidating<br />
Trustee may choose, in its sole discr<strong>et</strong>ion, to recognize a transfer of any Claim upon presentation<br />
of appropriate and acceptable documentation.<br />
92. Establishment of the Liquidating Trust. On the Effective Date, the Liquidating<br />
Trust will be established and become effective for the benefit of the holders of Allowed Claims<br />
entitled to Distributions from the Liquidating Trust under the Plan and for the purpose of, among<br />
other things: (a) administering the Liquidating Trust Ass<strong>et</strong>s; (b) resolving <strong>al</strong>l Disputed Claims;<br />
(c) pursuing or abandoning R<strong>et</strong>ained Causes of Action; and (d) making <strong>al</strong>l required Distributions<br />
to the Liquidating Trust Beneficiaries as provided for under the Plan and the Liquidating Trust<br />
Agreement. The Liquidating Trust is intended to qu<strong>al</strong>ify as a liquidating trust pursuant to<br />
Treasury Regulation section 301.7701-4(d) and as a grantor trust pursuant to Treasury<br />
Regulation section 1.671-4(a), with no objective to continue or engage in the conduct of a trade<br />
or business. The Liquidating Trust sh<strong>al</strong>l not be deemed a successor in interest of the Debtors for<br />
any purpose other than as specific<strong>al</strong>ly s<strong>et</strong> forth in the Plan or in the Liquidating Trust Agreement.<br />
On the Effective Date, the Debtors sh<strong>al</strong>l transfer the Liquidating Trust Ass<strong>et</strong>s then in their<br />
possession to the Liquidating Trust. To the extent that certain Liquidating Trust Ass<strong>et</strong>s become<br />
available on a date after the Effective Date, such Liquidating Trust Ass<strong>et</strong>s will be transferred to<br />
the Liquidating Trust within five (5) Business Days of the date that such Liquidating Trust<br />
Ass<strong>et</strong>s become available. The Liquidating Trust Ass<strong>et</strong>s may be transferred subject to certain<br />
liabilities, as provided in the Plan or the Liquidating Trust Agreement. Such transfer sh<strong>al</strong>l be<br />
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exempt from any stamp, re<strong>al</strong> estate transfer, mortgage reporting, s<strong>al</strong>es, use or other similar tax,<br />
pursuant to Bankruptcy Code section 1146(a). Upon delivery of the Liquidating Trust Ass<strong>et</strong>s to<br />
the Liquidating Trust, the Debtors their Estates, the Purchaser, the Liquidating Trust and the<br />
Liquidating Trust Ass<strong>et</strong>s, and their respective predecessors, successors and assigns sh<strong>al</strong>l be<br />
discharged and released from <strong>al</strong>l liability with respect to the delivery of such Distributions. The<br />
Liquidating Trustee and the Liquidating Trust Board sh<strong>al</strong>l thereafter be authorized and appointed<br />
to take <strong>al</strong>l actions necessary to operate the Liquidating Trust pursuant to the terms of the<br />
Liquidating Trust Agreement.<br />
93. Establishment of Interim TSN Trust and Issuance of Interim TSN Warrants. In<br />
the event that the Closing Date does not occur on or before the Effective Date, pursuant to the<br />
terms of the Plan, Exhibit 3 to the Plan will be triggered, in which case, on the Effective Date<br />
and subject to Bankruptcy Court and any other necessary regulatory approv<strong>al</strong>s, the Interim TSN<br />
Trust will be established and become effective for the benefit of the holders of Allowed Claims<br />
entitled to Distributions from the Interim TSN Trust under the Plan and pursuant to the Interim<br />
TSN Trust Agreement. On the Effective Date, the holders of Allowed Unsecured Claims will, at<br />
their option, receive the Interim TSN Warrants or the Cash equiv<strong>al</strong>ent to such holder’s share of<br />
the Interim TSN Warrants. All Interim TSN Warrants sh<strong>al</strong>l be issued at an exercise price of<br />
$0.01, which sh<strong>al</strong>l be permitted to be exercised pursuant to and subject to the limitations of the<br />
Interim TSN Warrant Agreement. On or before the Effective Date, the Interim TSN Warrant<br />
Agreement sh<strong>al</strong>l be executed. To the extent the Interim TSN Trust is established, the Interim<br />
TSN Warrants will be available for Distribution to the holders of Allowed Claims entitled to<br />
Distributions from the Interim TSN Trust under the Plan, and the Interim TSN Trust Agreement.<br />
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The Interim TSN Trust Board sh<strong>al</strong>l thereafter be authorized and empowered to take <strong>al</strong>l actions<br />
necessary to operate the Interim TSN Trust.<br />
94. After the Closing Date, <strong>al</strong>l R<strong>et</strong>ained Ass<strong>et</strong>s of Reorganized TSN will be<br />
contributed to the Liquidating Trust as d<strong>et</strong>ermined by the Debtors or Reorganized Debtors in<br />
consultation with the Creditors’ Committee or the Liquidating Trustee, as applicable (or by the<br />
Bankruptcy Court if the foregoing parties do not agree). As soon as practicable after the Closing<br />
Date, each Reorganized Debtor will be wound up and dissolved. The New Common Stock will<br />
not, at any time, be distributed to the holders of the Interim TSN Warrants or Interim TSN Trust<br />
Interests.<br />
95. The Interim TSN Trust (to the extent established pursuant to the Plan) sh<strong>al</strong>l<br />
terminate as soon as practicable after Closing, but in no event later than the second anniversary<br />
of the Effective Date; provided that, on or after the date that is less than thirty (30) days before<br />
such termination date, the Bankruptcy Court, upon motion by a party in interest, may extend the<br />
term of the Interim TSN Trust for a finite period if such an extension is necessary to compl<strong>et</strong>e<br />
any pending matters required under the Interim TSN Trust Agreement provided that the<br />
aggregate of <strong>al</strong>l extensions sh<strong>al</strong>l not exceed two years, unless the Interim TSN Trust Board<br />
receives an opinion of counsel or a favorable ruling from the Intern<strong>al</strong> Revenue Service to the<br />
effect that any such extension would not adversely affect the status of the Interim TSN Trust as a<br />
liquidating trust within the meaning of Section 301.7701-4(d) of the Treasury Regulations for<br />
feder<strong>al</strong> income tax purposes. Notwithstanding the foregoing, extensions beyond two years in the<br />
aggregate may be obtained so long as the conditions in the preceding sentence are m<strong>et</strong> no more<br />
than six months prior to the expiration of the then-current termination date of the Interim TSN<br />
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Trust. There will not be any distribution of ass<strong>et</strong>s, i.e., the New Common Stock, by the Interim<br />
TSN Trust to holders of the Interim TSN Trust Interests.<br />
96. Section 1145 Exemption. To the extent that the Interim TSN Trust Interests,<br />
Interim TSN Warrants (each, in the event that the provisions of Exhibit 3 are triggered pursuant<br />
to Article V.G. of the Plan) and the Liquidating Trust Interests constitute “securities,” the<br />
exemption provisions of Bankruptcy Code section 1145 sh<strong>al</strong>l apply to the Interim TSN Trust<br />
Interests, Interim TSN Warrants (each, in the event that the provisions of Exhibit 3 are triggered<br />
pursuant to Article V.G. of the Plan) and Liquidating Trust Interests to the maximum extent<br />
permitted by law without further act or action by any person.<br />
97. Vesting of Ass<strong>et</strong>s in the Reorganized Debtors. Except as otherwise provided in<br />
the Plan, the Plan Supplement, this Confirmation Order, the Purchase Agreement, the S<strong>al</strong>e Order,<br />
or any agreement, instrument or other document incorporated therein, on the Effective Date, any<br />
and <strong>al</strong>l property in each Estate and <strong>al</strong>l Causes of Action (except those released pursuant to the<br />
Releases by the Debtors) sh<strong>al</strong>l vest in each respective Reorganized Debtor, free and clear of <strong>al</strong>l<br />
Liens, Claims, charges or other encumbrances; provided that to the extent the Acquired Ass<strong>et</strong>s<br />
have been transferred to the Purchaser on or before the Effective Date, solely the R<strong>et</strong>ained Ass<strong>et</strong>s<br />
will vest in each respective Reorganized Debtor; provided further that notwithstanding the<br />
foregoing, the Reorganized Debtors sh<strong>al</strong>l be obligated to transfer the Liquidating Trust Ass<strong>et</strong>s to<br />
the Liquidating Trust pursuant to the terms of the Plan and the Liquidating Trust Agreement. On<br />
and after the Effective Date, each Reorganized Debtor will operate its business in accordance<br />
with the terms hereof, the Plan, the Plan Supplement, the Purchase Agreement and the S<strong>al</strong>e<br />
Order, and, subject to such documents, it may use, acquire or dispose of property, and<br />
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compromise or s<strong>et</strong>tle any Claims, Interests or Causes of Action free of any restrictions of the<br />
Bankruptcy Code or Bankruptcy Rules.<br />
98. Effectuating Documents; Further Transactions. On and after the Effective Date,<br />
the Reorganized Debtors, the Liquidating Trustee and, as applicable, the Interim TSN Board, and<br />
the managers, officers and members of the Boards of Directors of each of the foregoing, are<br />
authorized to issue, execute, deliver, file or record such contracts, securities, instruments,<br />
releases, and other agreements or documents related to the foregoing, and take such actions as<br />
may be necessary or appropriate to effectuate, implement and further evidence the terms and<br />
conditions of the Plan, and the securities issued pursuant to the Plan in the name of and on beh<strong>al</strong>f<br />
of the Reorganized Debtors, the Liquidating Trust or, as applicable, the Interim TSN Trust,<br />
without the need for any approv<strong>al</strong>s, authorization or consents except for those expressly required<br />
pursuant to the Plan. The authorizations and approv<strong>al</strong>s contemplated in the Plan sh<strong>al</strong>l be<br />
effective notwithstanding any requirements under nonbankruptcy law.<br />
99. Approv<strong>al</strong> of Consents and Authorization to Take Acts Necessary to Implement<br />
Plan. Pursuant to Bankruptcy Code section 1142(b), section 303 of the Delaware Gener<strong>al</strong><br />
Corporation Law, and any other applicable provision of the business corporation laws of any<br />
applicable jurisdiction, each of the Debtors and the Reorganized Debtors is hereby authorized<br />
and empowered, without further notice to or action, order, or approv<strong>al</strong> of the Bankruptcy Court<br />
or further action by the respective officers, directors, members, or stockholders of the Debtors or<br />
the Reorganized Debtors, to take such actions and to perform such acts as may be necessary,<br />
desirable, or appropriate to comply with, implement, or execute the Plan, the documents and<br />
agreements included as exhibits to the Plan Supplement, <strong>al</strong>l other documents relating to the Plan,<br />
<strong>al</strong>l documents, instruments, and agreements related ther<strong>et</strong>o, and <strong>al</strong>l annexes, exhibits, and<br />
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schedules appended ther<strong>et</strong>o, and the obligations thereunder sh<strong>al</strong>l constitute leg<strong>al</strong>, v<strong>al</strong>id, binding<br />
and authorized obligations of each of the respective parties ther<strong>et</strong>o, enforceable in accordance<br />
with their terms. On the Effective Date, the appropriate Officers of the Reorganized Debtors and<br />
members of the Boards of directors of the Reorganized Debtors are authorized and empowered to<br />
issue, execute, and deliver the agreements, documents, securities, and instruments contemplated<br />
by the Plan, the documents and agreements included as exhibits to the Plan Supplement, <strong>al</strong>l other<br />
documents relating to the Plan, <strong>al</strong>l documents, instruments, and agreements related ther<strong>et</strong>o, and<br />
<strong>al</strong>l annexes, exhibits and schedules appended ther<strong>et</strong>o in the name of and on beh<strong>al</strong>f of the<br />
Reorganized Debtors.<br />
On the Effective Date, or as soon thereafter as is practicable, the<br />
Reorganized Debtors sh<strong>al</strong>l file their amended certificates or articles of incorporation with the<br />
applicable government<strong>al</strong> entity in which each such entity is (or will be) organized, as applicable,<br />
in accordance with the applicable gener<strong>al</strong> business law of each such jurisdiction.<br />
100. This Confirmation Order sh<strong>al</strong>l constitute <strong>al</strong>l approv<strong>al</strong>s and consents required, if<br />
any, by the feder<strong>al</strong>, provinci<strong>al</strong> or state laws, rules and regulations and any other government<strong>al</strong><br />
authority with respect to the implementation or consummation of the Plan, the documents and<br />
agreements included as exhibits to the Plan Supplement, <strong>al</strong>l other documents relating to the Plan,<br />
<strong>al</strong>l documents, instruments, and agreements related ther<strong>et</strong>o, and <strong>al</strong>l annexes, exhibits, and<br />
schedules appended ther<strong>et</strong>o, and any other acts and transactions referred to in or contemplated by<br />
the Plan.<br />
101. Each of the Debtors and the Reorganized Debtors is hereby authorized and<br />
empowered, without further notice to or action, order, or approv<strong>al</strong> of the Bankruptcy Court or<br />
further action by the respective officers, directors, members or stockholders of the Debtors or the<br />
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Reorganized Debtors, except as s<strong>et</strong> forth in the Plan, or the Plan Supplement, to remove, elect, or<br />
appoint, as the case may be, Directors and Officers of the Debtors or the Reorganized Debtors.<br />
102. Regulatory Approv<strong>al</strong> for Transfer of Licenses. Notwithstanding any other<br />
provision in the Plan, the Plan Supplement, the S<strong>al</strong>e Order, or this Confirmation Order, no<br />
transfer of control and/or assignment of any rights and interests of the Debtors in any feder<strong>al</strong><br />
license issued by the FCC, or Industry Canada, sh<strong>al</strong>l take place prior to the issuance of FCC or<br />
Industry Canada regulatory approv<strong>al</strong> for such transfer of control and/or assignment pursuant to<br />
the Communications Act of 1934, and the rules and regulations promulgated thereunder.<br />
103. Section 1146 Exemption from Certain Taxes and Fees. Pursuant to Bankruptcy<br />
Code section 1146(a), any transfers of property in contemplation of, in connection with, or<br />
pursuant to the Plan and/or the Purchase Agreement sh<strong>al</strong>l not be subject to any stamp tax or other<br />
similar tax or government<strong>al</strong> assessment in the United States or Canada, and this Confirmation<br />
Order sh<strong>al</strong>l direct and be deemed to direct the appropriate feder<strong>al</strong>, provinci<strong>al</strong>, state or loc<strong>al</strong><br />
government<strong>al</strong> offici<strong>al</strong>s or agents to forego the collection of any such tax or government<strong>al</strong><br />
assessment and to accept for filing and recordation instruments or other documents pursuant to<br />
such transfers of property without the payment of any such tax or government<strong>al</strong> assessment.<br />
Such exemption specific<strong>al</strong>ly applies, without limitation, to: (1) the transfer of the Acquired<br />
Ass<strong>et</strong>s to the Purchaser pursuant to the Purchase Agreement; (2) the transfer of the Liquidating<br />
Trust Ass<strong>et</strong>s to the Liquidating Trust; (3) the creation of any mortgage, deed of trust, lien or<br />
other security interest; (4) the making or assignment of any lease or sublease; (5) any<br />
Restructuring Transaction; or (6) the making or delivery of any deed or other instrument of<br />
transfer under, in furtherance of or in connection with the Plan, including: (a) any merger<br />
agreements; (b) agreements of consolidation, restructuring, disposition, liquidation or<br />
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dissolution; (c) deeds; or (d) assignments executed in connection with any transaction occurring<br />
under the Plan.<br />
104. Assumption and Rejection of Executory Contracts and Unexpired Leases. Except<br />
as otherwise provided in the Plan, in the Plan Supplement, in the Purchase Agreement, or in any<br />
contract, instrument, release, indenture, or other agreement or document entered into in<br />
connection with the Plan, each of the Debtors’ Executory Contracts and Unexpired Leases<br />
(including the Designated Contracts) sh<strong>al</strong>l be deemed assumed as of the Effective Date, unless<br />
such Executory Contract or Unexpired Lease: (1) was assumed or rejected previously by the<br />
Debtors; (2) expired or terminated pursuant to its own terms before the Effective Date; (3) is the<br />
subject of a motion to assume filed on or before the Effective Date; or (4) is identified on the<br />
Rejected Executory Contract and Unexpired Lease List.<br />
105. Entry of this Order sh<strong>al</strong>l constitute a Bankruptcy Court order approving the<br />
assumptions or rejections of such Executory Contracts or Unexpired Leases, as s<strong>et</strong> forth in the<br />
Plan, <strong>al</strong>l pursuant to Bankruptcy Code sections 365(a) and 1123. To the extent not <strong>al</strong>ready<br />
included in the S<strong>al</strong>e Order with regard to any Designated Contract, the Confirmation Order sh<strong>al</strong>l<br />
constitute an order of the Bankruptcy Court, approving (i) the assumption and assignment, or<br />
rejection, as the case may be, of Executory Contracts and Unexpired Leases, as described above,<br />
pursuant to Bankruptcy Code sections 365(a) and 1123(b)(2), (ii) that the Reorganized Debtors<br />
had properly provided for the cure of any defaults that might have existed, (iii) that each<br />
assumption and assignment was in the best interest of the Reorganized Debtors, their Estates and<br />
<strong>al</strong>l parties in interest in the Chapter 11 Cases, and (iv) the requirements for assumption and<br />
assignment of any Executory Contract or Unexpired Lease to be assumed had been satisfied.<br />
Unless otherwise indicated, <strong>al</strong>l assumptions or rejections of Executory Contracts and Unexpired<br />
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Leases pursuant to the Plan are effective as of the Effective Date. Each Executory Contract or<br />
Unexpired Lease assumed pursuant to the Plan or by Bankruptcy Court order, but not assigned to<br />
a third party before the Effective Date, sh<strong>al</strong>l revest in and be fully enforceable by the applicable<br />
contracting Reorganized Debtor in accordance with its terms, except as such terms may have<br />
been modified by such order.<br />
106. Notwithstanding anything to the contrary in the Plan, but subject to the Purchase<br />
Agreement and the S<strong>al</strong>e Order, the Debtors, in consultation with the Creditors’ Committee and<br />
the Liquidating Trustee, as applicable, reserve the right to <strong>al</strong>ter, amend, modify or supplement<br />
the Rejected Executory Contract and Unexpired Lease List in the Plan Supplement at any time<br />
before the Effective Date; provided that to the extent that, as of the Effective Date, there is any<br />
pending dispute b<strong>et</strong>ween one or more of the Debtors and a counterparty to an Executory Contract<br />
or Unexpired Lease regarding such counterparty’s Cure Claim, the Debtors and Reorganized<br />
Debtors sh<strong>al</strong>l reserve the right to add the applicable Executory Contract or Unexpired Lease to<br />
the Rejected Executory Contract and Unexpired Lease List following the resolution of such<br />
dispute, in which event such Executory Contract or Unexpired Lease sh<strong>al</strong>l be deemed rejected<br />
and such counterparty sh<strong>al</strong>l have any and <strong>al</strong>l rights with respect ther<strong>et</strong>o.<br />
107. The Stipulation and Order Regarding the Assumption of Contracts B<strong>et</strong>ween<br />
<strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong>, <strong>Inc</strong>. and Space Systems/Lor<strong>al</strong>, <strong>Inc</strong>. dated as of July 7, 2011 (the<br />
“Stipulation”), which was “So Ordered” by this Bankruptcy Court on July 7, 2011<br />
[Dock<strong>et</strong> No. 671], is incorporated by reference into the Plan and this Confirmation Order as if<br />
fully s<strong>et</strong> forth in the Plan and this Confirmation Order. To the extent of any inconsistency<br />
b<strong>et</strong>ween (a) any other provision of the Plan or this Confirmation Order and (b) any provision of<br />
the Stipulation, the Stipulation sh<strong>al</strong>l govern.<br />
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108. Claims Based on Rejection of Executory Contracts or Unexpired Leases. All<br />
Proofs of Claim with respect to Claims arising from the rejection of Executory Contracts or<br />
Unexpired Leases, if any, must be filed with the Bankruptcy Court within 30 days after the<br />
date of entry of an order of the Bankruptcy Court (including this Confirmation Order)<br />
approving such rejection. Any Claims arising from the rejection of an Executory Contract or<br />
Unexpired Lease not filed with the Bankruptcy Court within such time will be automatic<strong>al</strong>ly<br />
dis<strong>al</strong>lowed, forever barred from assertion, and sh<strong>al</strong>l not be enforceable against the Debtors or the<br />
Reorganized Debtors, the Estates, the Purchaser, the Liquidating Trust and the Liquidating Trust<br />
Ass<strong>et</strong>s or their respective property without the need for any objection by the Reorganized<br />
Debtors or further notice to, or action, order or approv<strong>al</strong> of, the Bankruptcy Court. All Allowed<br />
Claims arising from the rejection of the Debtors’ Executory Contracts or Unexpired Leases sh<strong>al</strong>l<br />
be classified as Unsecured Claims against the applicable Debtor and sh<strong>al</strong>l be treated in<br />
accordance with Article III of the Plan. The deadline to object to Claims arising from the<br />
rejection of Executory Contracts or Unexpired Leases pursuant to this Confirmation<br />
Order, if any, sh<strong>al</strong>l be the later of (a) 210 days following the date of entry of the<br />
Confirmation Order and (b) such other period of limitation as may be specific<strong>al</strong>ly fixed by<br />
an order of the Bankruptcy Court for objecting to such Claims.<br />
109. Cure of Defaults for Executory Contracts and Unexpired Leases Assumed. Any<br />
mon<strong>et</strong>ary defaults under each Executory Contract and Unexpired Lease to be assumed pursuant<br />
to the Plan sh<strong>al</strong>l be satisfied, in consultation with the Creditors’ Committee or Liquidating<br />
Trustee, as applicable, pursuant to Bankruptcy Code section 365(b)(1), by payment of the default<br />
amount in Cash on the Effective Date, subject to the limitations described below and in Article<br />
VI.B of the Plan, or on such other terms as the parties to such Executory Contracts or Unexpired<br />
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Leases may otherwise agree. In the event of a dispute regarding: (a) the amount of any payments<br />
to cure such a default; (b) the ability of the Reorganized Debtors or any assignee to provide<br />
“adequate assurance of future performance” (within the meaning of Bankruptcy Code<br />
section 365) under the Executory Contract or Unexpired Lease to be assumed; or (c) any other<br />
matter pertaining to assumption, the cure payments required by Bankruptcy Code<br />
section 365(b)(1) sh<strong>al</strong>l be made no later than ten (10) Business Days following the entry of a<br />
Fin<strong>al</strong> Order or orders resolving the dispute and approving the assumption.<br />
110. Assumption of any Executory Contract or Unexpired Lease pursuant to the<br />
Plan or otherwise sh<strong>al</strong>l result in the full release and satisfaction of any Claims or defaults,<br />
wh<strong>et</strong>her mon<strong>et</strong>ary or nonmon<strong>et</strong>ary, including defaults of provisions restricting the change<br />
in control or ownership interest composition or other bankruptcy-related defaults, arising<br />
under any assumed Executory Contract or Unexpired Lease at any time before the<br />
effective date of the assumption.<br />
111. Provisions Governing Distributions. The Distribution provisions of Article VII of<br />
the Plan are hereby approved and authorized in their entir<strong>et</strong>y. Except as otherwise s<strong>et</strong> forth in<br />
the Plan, the Liquidating Trustee, Interim TSN Board and the Reorganized Debtors, as<br />
applicable, sh<strong>al</strong>l make <strong>al</strong>l Distributions required under the Plan. For tax purposes, Distributions<br />
in full or parti<strong>al</strong> satisfaction of Allowed Claims sh<strong>al</strong>l be <strong>al</strong>located first to the princip<strong>al</strong> amount of<br />
Allowed Claims, with any excess <strong>al</strong>located to unpaid interest that accrued on such Claims.<br />
112. Notwithstanding anything contained in the Plan, the Plan Supplement or this<br />
Confirmation Order, the Liquidating Trustee will serve as Disbursing Agent to facilitate<br />
distributions to holders of Allowed Class 3 Claims pursuant to the Plan. In the event that Exhibit<br />
3 of the Plan is triggered pursuant to Article V.G. thereof, the Interim TSN Trust Board sh<strong>al</strong>l<br />
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make Distributions to holders of Claims in Class 3 when, and as authorized, pursuant to the<br />
Interim TSN Warrant Agreement and in compliance with the Plan.<br />
113. Release of Liens. Except as otherwise provided in the Plan or in any contract,<br />
instrument, release or other agreement or document created pursuant to the Plan (and except as<br />
may <strong>al</strong>ready have occurred pursuant to previous Bankruptcy Court or Canadian Court orders in<br />
these Cases), on the Effective Date and concurrently with the applicable Distributions made<br />
pursuant to the Plan, and, in the case of a Secured Claim, satisfaction in full of the portion of the<br />
Secured Claim that is Allowed as of the Effective Date, <strong>al</strong>l mortgages, deeds of trust, Liens,<br />
pledges or other security interests against any property of the Estates sh<strong>al</strong>l be fully released and<br />
discharged, and <strong>al</strong>l of the right, title and interest of any holder of such mortgages, deeds of trust,<br />
Liens, pledges or other security interests sh<strong>al</strong>l revert to the Reorganized Debtor and its<br />
successors and assigns. For the avoidance of doubt, <strong>al</strong>l mortgages, deeds of trust, Liens, pledges<br />
or other security interests against any property of the Estates sh<strong>al</strong>l be fully released and<br />
discharged on the Effective Date without any further action of any party, including, but not<br />
limited to, further order of the Bankruptcy Court or the Canadian Court, or filing updated<br />
schedules or statements typic<strong>al</strong>ly filed pursuant to the Uniform Commerci<strong>al</strong> Code or the Person<strong>al</strong><br />
Property Security Act (Ontario), or in accordance with any other re<strong>al</strong> or person<strong>al</strong> property<br />
registry system in any of the applicable provinces in Canada.<br />
114. Failure of Consummation. If the Effective Date of the Plan does not occur, the<br />
Plan sh<strong>al</strong>l be null and void in <strong>al</strong>l respects, and nothing contained in the Plan or the Disclosure<br />
Statement sh<strong>al</strong>l: (a) constitute a waiver or release of any Claims by or Claims against or Interests<br />
in the Debtors; (b) prejudice in any manner the rights of the Debtors, any holders of Claims or<br />
Interests, or any other Entity; or (c) constitute an admission, acknowledgment, offer or<br />
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undertaking by the Debtors, any holders of Claims or Interests, or any other Entity in any<br />
respect.<br />
115. R<strong>et</strong>ention of Jurisdiction. Notwithstanding the entry of this Order and the<br />
occurrence of the Effective Date, on and after the Effective Date, the Bankruptcy Court sh<strong>al</strong>l<br />
r<strong>et</strong>ain such jurisdiction over the Chapter 11 Cases and <strong>al</strong>l matters arising out of or related to the<br />
Chapter 11 Cases and the Plan, the Liquidating Trust Agreement, and the Interim TSN Trust<br />
Agreement, including jurisdiction with respect to those items enumerated in Article XII of the<br />
Plan, which are incorporated herein by reference.<br />
A. Immediate Binding Effect<br />
116. Immediate Binding Effect. The stays provided under Bankruptcy Rules 3020(e),<br />
6004(h) and/or 7062 are hereby waived. Subject to Article X.B of the Plan, and notwithstanding<br />
Bankruptcy Rules 3020(e), 6004(h) or 7062 or otherwise, upon the occurrence of the Effective<br />
Date, the terms of the Plan and the Plan Supplement sh<strong>al</strong>l be immediately effective and<br />
enforceable and deemed binding upon the Debtors, the Reorganized Debtors and any and <strong>al</strong>l<br />
holders of Claims or Interests (irrespective of wh<strong>et</strong>her such Claims or Interests are deemed to<br />
have accepted the Plan), <strong>al</strong>l Entities that are parties to or are subject to the s<strong>et</strong>tlements,<br />
compromises, releases, discharges and injunctions described in the Plan, each Entity acquiring<br />
property under the Plan, and any and <strong>al</strong>l non-Debtor parties to Executory Contracts and<br />
Unexpired Leases with the Debtors.<br />
117. Conflicts. Except as s<strong>et</strong> forth in the Plan, to the extent that any provision of the<br />
Disclosure Statement and Solicitation Procedures Order or any other order (other than this<br />
Confirmation Order, the S<strong>al</strong>e Order or the Glob<strong>al</strong> S<strong>et</strong>tlement Order) referenced in the Plan (or<br />
any exhibits, schedules, appendices, supplements or amendments to any of the foregoing),<br />
conflict with or are, in any way, inconsistent with any provision of the Plan, the Plan sh<strong>al</strong>l<br />
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govern and control; provided, however, that, if there is a conflict b<strong>et</strong>ween this Plan and a Plan<br />
Supplement document, the Plan Supplement document sh<strong>al</strong>l govern and control; and provided<br />
further, however, that, to the extent that any provision of the Plan conflicts with or is, in any<br />
way, inconsistent with any provision of this Confirmation Order, this Confirmation Order sh<strong>al</strong>l<br />
govern and control. Addition<strong>al</strong>ly, to the extent that any provision of the Plan or Confirmation<br />
Order conflicts with or is in any way inconsistent with any provision of the S<strong>al</strong>e Order, the<br />
Purchase Agreement or the Glob<strong>al</strong> S<strong>et</strong>tlement Order, the S<strong>al</strong>e Order, the Purchase Agreement or<br />
the Glob<strong>al</strong> S<strong>et</strong>tlement Order, as applicable, sh<strong>al</strong>l govern and control.<br />
118. Notice of Entry of the Confirmation Order. In accordance with Bankruptcy Rules<br />
2002 and 3020(c), (a) within ten (10) Business Days of the date of entry of this Confirmation<br />
Order, the Debtors sh<strong>al</strong>l serve the Notice of Confirmation, substanti<strong>al</strong>ly in the form attached<br />
her<strong>et</strong>o as Exhibit B and (b) within ten (10) Business Days of the occurrence of the Effective<br />
Date pursuant to the terms of the Plan, the Debtors sh<strong>al</strong>l serve the notice of Effective Date,<br />
substanti<strong>al</strong>ly in the form attached her<strong>et</strong>o as Exhibit C (the “Notice of Effective Date”) by United<br />
States mail, first-class postage prepaid, by hand, or by overnight courier service to <strong>al</strong>l parties<br />
served with the notice of the Confirmation Hearing; provided, however, that no notice or service<br />
of any kind sh<strong>al</strong>l be required to be mailed or made upon any Entity to whom the Debtors mailed<br />
notice of the Confirmation Hearing, but received such notice r<strong>et</strong>urned marked “undeliverable as<br />
addressed,” “moved, left no forwarding address” or “forwarding order expired,” or similar<br />
reason, unless the Debtors have been informed in writing by such Entity, or are otherwise aware,<br />
of that Entity’s new address.<br />
119. To supplement the notice described in the preceding paragraph, within<br />
twenty (20) Business Days of serving the Notice of Effective Date, the Debtors sh<strong>al</strong>l publish the<br />
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Notice of Effective Date once in The W<strong>al</strong>l Stre<strong>et</strong> Journ<strong>al</strong> (Nation<strong>al</strong> Edition), USA Today<br />
(Nation<strong>al</strong> Edition) and The Glob<strong>al</strong> and Mail (Nation<strong>al</strong> Edition).<br />
120. Mailing and publication of the Notice of Confirmation and the Notice of Effective<br />
Date in the time and manner s<strong>et</strong> forth herein sh<strong>al</strong>l be good and sufficient notice under the<br />
particular circumstances and in accordance with the requirements of Bankruptcy Rules 2002 and<br />
3020(c), and no further notice sh<strong>al</strong>l be necessary or required.<br />
121. The Notice of Confirmation and the Notice of Effective Date sh<strong>al</strong>l have the effect<br />
of an order of the Bankruptcy Court, sh<strong>al</strong>l constitute sufficient notice of the entry of this<br />
Confirmation Order to such filing and recording officers, and sh<strong>al</strong>l be a recordable instrument<br />
notwithstanding any contrary provision of applicable nonbankruptcy law.<br />
122. Profession<strong>al</strong> Compensation. All fin<strong>al</strong> requests for Accrued Profession<strong>al</strong><br />
Compensation sh<strong>al</strong>l be filed no later than 45 days after the Effective Date, or any other date<br />
scheduled by the Bankruptcy Court.<br />
After notice and a hearing in accordance with the<br />
procedures established by the Bankruptcy Code and prior Bankruptcy Court orders, the Allowed<br />
amounts of such Accrued Profession<strong>al</strong> Compensation sh<strong>al</strong>l be d<strong>et</strong>ermined by the Bankruptcy<br />
Court.<br />
123. Objections to any Claim for Accrued Profession<strong>al</strong> Compensation must be filed<br />
and served on the Reorganized Debtors, the Creditors’ Committee, the Office of the U.S. Trustee<br />
and the requesting party no later than the earlier of (a) 30 days after such application is filed or<br />
(b) 75 days after the Effective Date. All Accrued Profession<strong>al</strong> Compensation and <strong>al</strong>l claims for<br />
profession<strong>al</strong> compensation sought under Bankruptcy Code section 503(b) sh<strong>al</strong>l be paid either by<br />
the Debtors or the Purchaser pursuant to the terms of the Purchase Agreement.<br />
51
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124. Dissolution of the Creditors’ Committee. On the Effective Date, the Creditors’<br />
Committee sh<strong>al</strong>l dissolve, and its members sh<strong>al</strong>l be released and discharged from <strong>al</strong>l further<br />
authority, duties, responsibilities and obligations relating to and arising from the Chapter 11<br />
Cases. The r<strong>et</strong>ention and employment of the Profession<strong>al</strong>s r<strong>et</strong>ained by the Creditors’ Committee<br />
sh<strong>al</strong>l terminate as of the Effective Date; provided, however, that the Creditors’ Committee sh<strong>al</strong>l<br />
exist, and its Profession<strong>al</strong>s sh<strong>al</strong>l be r<strong>et</strong>ained, after such date with respect to (a) <strong>al</strong>l applications<br />
and objections filed, and any related hearing, pursuant to Bankruptcy Code sections 330 and 331<br />
and (b) enforcement of the provisions of the Purchase Agreement, the Glob<strong>al</strong> S<strong>et</strong>tlement Order,<br />
the Plan or this Confirmation Order.<br />
125. References to Plan Provisions. The failure specific<strong>al</strong>ly to include or to refer to<br />
any particular article, section or provision of the Plan, Plan Supplement or any related document<br />
in this Confirmation Order sh<strong>al</strong>l not diminish or impair the effectiveness of such article, section<br />
or provision, it being the intent of the Bankruptcy Court that the Plan and any related documents<br />
be confirmed and approved in their entir<strong>et</strong>y.<br />
126. Nonseverability of Plan Provisions Upon Confirmation. Each term and provision<br />
of the Plan, and the transactions related ther<strong>et</strong>o as it her<strong>et</strong>ofore may have been <strong>al</strong>tered or<br />
interpr<strong>et</strong>ed by the Bankruptcy Court is: (a) v<strong>al</strong>id and enforceable pursuant to its terms; (b)<br />
integr<strong>al</strong> to the Plan and the transactions related ther<strong>et</strong>o and may not be del<strong>et</strong>ed or modified<br />
except by the Debtors, who reserve the right to modify the Plan as to materi<strong>al</strong> terms pursuant to<br />
Article XI of the Plan; and (c) nonseverable and mutu<strong>al</strong>ly dependent.<br />
127. Fin<strong>al</strong> Order and Appe<strong>al</strong>s. This Confirmation Order is a fin<strong>al</strong> order, and the time<br />
period by which any party in interest wishing to appe<strong>al</strong> entry of this Confirmation Order sh<strong>al</strong>l<br />
run from the date of the entry of this Confirmation Order.<br />
52
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128. Authorization to Consummate. The Debtors and the Reorganized Debtors are<br />
authorized to consummate the Plan at any time after the entry of this Confirmation Order subject<br />
to satisfaction or waiver (by the required parties and with appropriate notice, if any) of the<br />
conditions precedent to the Effective Date s<strong>et</strong> forth in Article X.B of the Plan.<br />
Dated: ____________, 2012<br />
New York, New York<br />
United States Bankruptcy Judge<br />
53
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Exhibit A<br />
Plan- Not <strong>Inc</strong>luded, See Dock<strong>et</strong> No. 913
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Exhibit B<br />
Notice of Confirmation
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AKIN GUMP STRAUSS HAUER & FELD LLP<br />
One Bryant Park<br />
New York, New York 10036<br />
(212) 872-1000 (Telephone)<br />
(212) 872-1002 (Facsimile)<br />
Ira S. Dizengoff<br />
Arik Preis<br />
Ashleigh L. Blaylock<br />
Counsel to the Debtors and Debtors in Possession<br />
UNITED STATES BANKRUPTCY COURT<br />
SOUTHERN DISTRICT OF NEW YORK<br />
)<br />
In re: ) Chapter 11<br />
)<br />
TERRESTAR NETWORKS INC., <strong>et</strong> <strong>al</strong>., 1 ) Case No. 10-15446 (SHL)<br />
)<br />
Debtors.<br />
) Jointly Administered<br />
)<br />
NOTICE OF ENTRY OF ORDER CONFIRMING THE<br />
JOINT CHAPTER 11 PLAN OF TERRESTAR NETWORKS INC., ET AL.<br />
PLEASE TAKE NOTICE THAT, on [_____], the United States Bankruptcy Court for<br />
the Southern District of New York (the “Court”) entered the Findings of Fact, Conclusions of<br />
Law and Order Confirming the Joint Chapter 11 Plan of <strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> <strong>Inc</strong>., <strong>et</strong> <strong>al</strong>. (the<br />
“Confirmation Order”) [Dock<strong>et</strong> No.____]. Among other things, the Confirmation Order<br />
confirmed the Joint Chapter 11 Plan of Reorganization of <strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> <strong>Inc</strong>., <strong>et</strong> <strong>al</strong>.<br />
(Confirmation Version) [Dock<strong>et</strong> No. ___] (as amended from time to time in accordance with the<br />
terms of the Confirmation Order, the “Plan”), 2 thereby authorizing <strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> <strong>Inc</strong>. and<br />
its affiliated debtors and debtors in possession in the above-captioned chapter 11 cases<br />
(collectively, the “Debtors”) to implement the Plan in accordance with its terms.<br />
PLEASE TAKE FURTHER NOTICE THAT, pursuant to the Confirmation Order, <strong>al</strong>l<br />
proofs of Claim with respect to Claims arising from the rejection of Executory Contracts or<br />
Unexpired Leases, if any, must be filed with the Court on or before [________, 2012], the date<br />
1 The Debtors in these chapter 11 cases, <strong>al</strong>ong with the last four digits of each Debtor’s feder<strong>al</strong> taxpayeridentification<br />
number, are: <strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> <strong>Inc</strong>. (3931), <strong>TerreStar</strong> License <strong>Inc</strong>. (6537), <strong>TerreStar</strong> Nation<strong>al</strong><br />
Services <strong>Inc</strong>. (6319), <strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> Holdings (Canada) <strong>Inc</strong>. (1337), <strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> (Canada) <strong>Inc</strong>.<br />
(8766); and 0887729 B.C. Ltd. (1345).<br />
2 Capit<strong>al</strong>ized terms used but not otherwise defined herein sh<strong>al</strong>l have the same meaning ascribed to such terms in the<br />
Plan.
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that is 30 days after the date of entry of the Confirmation Order (or, with respect to any<br />
Executory Contract or Unexpired Lease that is added to the Rejected Executory Contract and<br />
Unexpired Lease List after confirmation but before the Effective Date, the date that is 30 days<br />
after such counterparty receives notice of being added to the Rejected Executory Contract and<br />
Unexpired Lease List). Any Claims arising from the rejection of an Executory Contract or<br />
Unexpired Lease not filed with the Court within such time will be automatic<strong>al</strong>ly dis<strong>al</strong>lowed,<br />
forever barred from assertion, and sh<strong>al</strong>l not be enforceable against the Debtors or the<br />
Reorganized Debtors, the Estates, the Purchaser, the Liquidating Trust and the Liquidating Trust<br />
Ass<strong>et</strong>s or their respective property without the need for any objection by the Reorganized<br />
Debtors or further notice to, or action, order or approv<strong>al</strong> of, the Bankruptcy Court. All Allowed<br />
Claims arising from the rejection of the Debtors’ Executory Contracts or Unexpired Leases sh<strong>al</strong>l<br />
be classified as Unsecured Claims against the applicable Debtor and sh<strong>al</strong>l be treated in<br />
accordance with Article III of the Plan. The deadline to object to Claims arising from the<br />
rejection of Executory Contracts or Unexpired Leases, if any, sh<strong>al</strong>l be the later of (a) 210 days<br />
following the date of entry of the Confirmation Order and (b) such other period of limitation as<br />
may be specific<strong>al</strong>ly fixed by an order of the Bankruptcy Court for objecting to such Claims.<br />
PLEASE TAKE FURTHER NOTICE THAT any proof of Claim that must be filed<br />
with the Court may be filed with the Debtors’ notice and claims agent, The Garden City Group,<br />
<strong>Inc</strong>., at the address listed below. Proofs of Claim must be actu<strong>al</strong>ly received by [________, 2012]<br />
and must be delivered via first class U.S. Mail (postage prepaid), in person, by courier service or<br />
by overnight delivery. Facsimile and electronic submissions are not acceptable. In addition,<br />
copies of the Confirmation Order and the Plan are available (a) upon request to The Garden City<br />
Group, <strong>Inc</strong>. by (i) c<strong>al</strong>ling the Debtors’ restructuring hotline at (866) 682-1770; (ii) visiting the<br />
Debtors’ restructuring website at: www.<strong>TerreStar</strong>Info.com; (iii) e-mailing the Debtors at<br />
<strong>TerreStar</strong>Info@gcginc.com; (iv) writing to <strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> <strong>Inc</strong>., c/o The Garden City Group,<br />
<strong>Inc</strong>., P.O. Box 9649, Dublin, Ohio 43017-4949; and/or (b) for a fee, via PACER, by visiting<br />
https://ecf.nysb.uscourts.gov.<br />
PLEASE TAKE FURTHER NOTICE THAT the Plan and its provisions are binding<br />
on the Debtors, the Reorganized Debtors, any holder of a Claim or Interest and such holder’s<br />
respective successors and assigns, wh<strong>et</strong>her or not the Claim or Interest of such holder is Impaired<br />
under the Plan and wh<strong>et</strong>her or not such holder or Entity voted to accept the Plan.<br />
New York, New York<br />
Dated: [____], 2012<br />
/s/ DRAFT<br />
AKIN GUMP STRAUSS HAUER & FELD LLP<br />
One Bryant Park<br />
New York, New York 10036<br />
(212) 872-1000 (Telephone)<br />
(212) 872-1002 (Facsimile)<br />
Ira S. Dizengoff<br />
Arik Preis<br />
Ashleigh L. Blaylock<br />
Counsel to the Debtors and Debtors in Possession<br />
2
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Exhibit C<br />
Notice of Effective Date
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AKIN GUMP STRAUSS HAUER & FELD LLP<br />
One Bryant Park<br />
New York, New York 10036<br />
(212) 872-1000 (Telephone)<br />
(212) 872-1002 (Facsimile)<br />
Ira S. Dizengoff<br />
Arik Preis<br />
Ashleigh L. Blaylock<br />
Counsel to the Debtors and Debtors in Possession<br />
UNITED STATES BANKRUPTCY COURT<br />
SOUTHERN DISTRICT OF NEW YORK<br />
)<br />
In re: ) Chapter 11<br />
)<br />
TERRESTAR NETWORKS INC., <strong>et</strong> <strong>al</strong>., 1 ) Case No. 10-15446 (SHL)<br />
)<br />
Debtors.<br />
) Jointly Administered<br />
)<br />
NOTICE OF (A) THE OCCURRENCE OF THE EFFECTIVE DATE<br />
UNDER THE JOINT CHAPTER 11 PLAN OF TERRESTAR NETWORKS INC., ET AL.;<br />
(B) ADMINISTRATIVE CLAIM BAR DATE; AND (C) DEADLINE FOR<br />
PROFESSIONALS TO FILE FINAL FEE APPLICATIONS<br />
PLEASE TAKE NOTICE THAT, on [_____], the United States Bankruptcy Court for<br />
the Southern District of New York (the “Bankruptcy Court”) entered the Findings of Fact,<br />
Conclusions of Law and Order Confirming the Joint Chapter 11 Plan of <strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> <strong>Inc</strong>.,<br />
<strong>et</strong> <strong>al</strong>. (the “Confirmation Order”) [Dock<strong>et</strong> No.____]. Among other things, the Confirmation<br />
Order confirmed the Joint Chapter 11 Plan of Reorganization of <strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> <strong>Inc</strong>., <strong>et</strong> <strong>al</strong>.<br />
(Confirmation Version) [Dock<strong>et</strong> No. ___] (as amended from time to time in accordance with the<br />
terms of the Confirmation Order, the “Plan”), 2 thereby authorizing <strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> <strong>Inc</strong>. and<br />
its affiliated debtors and debtors in possession in the above-captioned chapter 11 cases<br />
(collectively, the “Debtors”) to implement the Plan in accordance with its terms.<br />
PLEASE TAKE FURTHER NOTICE THAT copies of the Confirmation Order and the<br />
Plan are available (a) upon request to The Garden City Group, <strong>Inc</strong>. by (i) c<strong>al</strong>ling the Debtors’<br />
restructuring hotline at (866) 682-1770; (ii) visiting the Debtors’ restructuring website at:<br />
www.<strong>TerreStar</strong>Info.com; (iii) e-mailing the Debtors at <strong>TerreStar</strong>Info@gcginc.com; (iv) writing to<br />
1 The Debtors in these chapter 11 cases, <strong>al</strong>ong with the last four digits of each Debtor’s feder<strong>al</strong> taxpayeridentification<br />
number, are: <strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> <strong>Inc</strong>. (3931), <strong>TerreStar</strong> License <strong>Inc</strong>. (6537), <strong>TerreStar</strong> Nation<strong>al</strong><br />
Services <strong>Inc</strong>. (6319), <strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> Holdings (Canada) <strong>Inc</strong>. (1337), <strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> (Canada) <strong>Inc</strong>.<br />
(8766); and 0887729 B.C. Ltd. (1345).<br />
2 Capit<strong>al</strong>ized terms used but not otherwise defined herein sh<strong>al</strong>l have the same meaning ascribed to such terms in the<br />
Plan.
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<strong>TerreStar</strong> <strong>N<strong>et</strong>works</strong> <strong>Inc</strong>., c/o The Garden City Group, <strong>Inc</strong>., P.O. Box 9649, Dublin, Ohio 43017-<br />
4949; and/or (b) at the clerk’s office for the Bankruptcy Court and on the Bankruptcy Court’s<br />
offici<strong>al</strong> website at http://www.nysb.uscourts.gov, for a fee, through an account obtained from<br />
Pacer Service Center at 1-800-676-6856.<br />
PLEASE TAKE FURTHER NOTICE THAT, on [______], the Effective Date under<br />
the Plan occurred.<br />
PLEASE TAKE FURTHER NOTICE THAT, pursuant to Article II of the Plan, <strong>al</strong>l<br />
requests for payment of Administrative Claims must be filed and served on the Reorganized<br />
Debtors, the Purchaser and such other Entities who are designated by the Bankruptcy Rules, the<br />
Confirmation Order or other order of the Bankruptcy Court no later than [______], the date that<br />
is the 45th day after the Effective Date. Holders of Administrative Claims that are required<br />
to, but do not, file and serve a request for payment of such Administrative Claims by such<br />
date sh<strong>al</strong>l be forever barred, estopped and enjoined from asserting such Administrative<br />
Claims against the Debtors or Reorganized Debtors, the Liquidating Trust or their<br />
property, including the Liquidating Trust Ass<strong>et</strong>s, and such Administrative Claims sh<strong>al</strong>l be<br />
deemed discharged as of the Effective Date. Notwithstanding the foregoing, no request for<br />
payment of an Administrative Claim need be filed with respect to an Administrative Claim<br />
previously Allowed by Fin<strong>al</strong> Order, including <strong>al</strong>l Administrative Claims expressly Allowed under<br />
the Plan. For the avoidance of doubt, holders of Administrative Claims which arise and are paid<br />
in the ordinary course of business before the Administrative Claims Bar Date are not required to<br />
file a request for payment. Addition<strong>al</strong>ly, no requests for payment are required for obligations<br />
which arise after the Effective Date or obligations that are <strong>al</strong>lowed pursuant to the Plan.<br />
PLEASE TAKE FURTHER NOTICE THAT objections to payment of Administrative<br />
Claims, if any, must be filed and served on the Reorganized Debtors and the requesting party no<br />
later than [_______], the date that is the 90th day after the Effective Date.<br />
PLEASE TAKE FURTHER NOTICE THAT <strong>al</strong>l Profession<strong>al</strong>s or other Entities<br />
asserting a Claim for Accrued Profession<strong>al</strong> Compensation for services rendered before the<br />
Effective Date must file an application for fin<strong>al</strong> <strong>al</strong>lowance of such Claim for Accrued<br />
Profession<strong>al</strong> Compensation, and serve that application on the Reorganized Debtors and the notice<br />
parties specified by the Order Establishing Procedures for Interim Compensation and<br />
Reimbursement of Expenses of Profession<strong>al</strong>s [Dock<strong>et</strong> No. 174], no later than [______], the date<br />
that is the 45th day after the Effective Date.<br />
PLEASE TAKE FURTHER NOTICE THAT objections to any Claim for Accrued<br />
Profession<strong>al</strong> Compensation must be filed and served on the Reorganized Debtors, the Creditors’<br />
Committee, the U.S. Trustee and the requesting party no later than the earlier of (a) 30 days after<br />
such application is filed or (b) 75 days after the Effective Date.<br />
2
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PLEASE TAKE FURTHER NOTICE THAT the Plan and its provisions are binding<br />
on the Debtors, the Reorganized Debtors, any holder of a Claim or Interest and such holder’s<br />
respective successors and assigns, wh<strong>et</strong>her or not the Claim or Interest of such holder is Impaired<br />
under the Plan and wh<strong>et</strong>her or not such holder or Entity voted to accept the Plan.<br />
New York, New York<br />
Dated: [____], 2012<br />
/s/ DRAFT<br />
AKIN GUMP STRAUSS HAUER & FELD LLP<br />
One Bryant Park<br />
New York, New York 10036<br />
(212) 872-1000 (Telephone)<br />
(212) 872-1002 (Facsimile)<br />
Ira S. Dizengoff<br />
Arik Preis<br />
Ashleigh L. Blaylock<br />
Counsel to the Debtors and Debtors in Possession<br />
3
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Exhibit B<br />
Unpublished Authorities
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Exhibit B-1<br />
In re Enron Corp., No. 01-16034 (ALG) (Bankr. S.D.N.Y. July 15, 2004) [Dock<strong>et</strong> No. 19758]
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Pg Pg 128 1 of 163 336<br />
UNITED STATES BANKRUPTCY COURT<br />
NOT FOR PUBLICATION<br />
SOUTHERN DISTRICT OF NEW YORK<br />
__________________________________________<br />
:<br />
In re: : Chapter 11<br />
:<br />
ENRON CORP., <strong>et</strong> <strong>al</strong>., : Case No. 01-16034 (AJG)<br />
:<br />
Debtors. : (Jointly Administered)<br />
__________________________________________:<br />
FINDINGS OF FACT AND CONCLUSIONS OF LAW CONFIRMNG<br />
SUPPLEMENTAL MODIFIED FIFTH AMENDED JOINT PLAN OF<br />
AFFILIATED DEBTORS PURSUANT TO CHAPTER 11 OF<br />
THE UNITED STATES BANKRUPTCY CODE, AND RELATED RELIEF<br />
On June 3, 4, 7, 8, 9, 10, 14, 16, 17 and 18, 2004, this Court held 1 a confirmation hearing<br />
(the “Confirmation Hearing”) to consider a plan of reorganization under chapter 11 of title 11 of<br />
the United States Code (the “Bankruptcy Code”) proposed by Enron Corp. and certain of its<br />
direct and indirect subsidiaries, as debtors and debtors in possession (collectively, the<br />
“Debtors”). Specific<strong>al</strong>ly, the Debtors sought confirmation of the Debtors’ Fifth Amended Joint<br />
Plan of Affiliated Debtors Pursuant to Chapter 11 of the United States Bankruptcy Code, dated<br />
January 9, 2004 (the “Fifth Amended Plan”), as thereafter amended pursuant to that certain (a)<br />
Modification of Fifth Amended Plan, dated June 1, 2004 (the “Initi<strong>al</strong> Modification”), and (b)<br />
Supplement<strong>al</strong> Modification of Fifth Amended Plan, dated July 2, 2004 (the “Supplement<strong>al</strong><br />
Modification, and tog<strong>et</strong>her with the Fifth Amended Plan and the Initi<strong>al</strong> Modification, the<br />
1 This Court has subject matter jurisdiction over these cases under 28 U.S.C. §§ 157(a) and 1334(b) and under the<br />
July 10, 1984 "Standing Order of Referr<strong>al</strong> of Cases to Bankruptcy Judges" of the United States District Court for the<br />
Southern District of New York (Ward, Acting C.J.). This is a core matter under 28 U.S.C. § 157(b)(2)(L). This<br />
decision constitutes findings of fact and conclusions of law under FED. R. CIV. P. 52, as made applicable by FED. R.<br />
BANKR. P. 7052 and FED. R. BANKR. P. 9014. To the extent any of the findings of fact constitute conclusions of<br />
law, they are adopted as such. To the extent any of the conclusions of law constitute findings of fact, they are<br />
adopted as such.
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Pg Pg 129 2 of 163 336<br />
“Plan”). 2<br />
In the context of approv<strong>al</strong> of the Plan, the Debtors <strong>al</strong>so sought (a) approv<strong>al</strong> of the<br />
s<strong>et</strong>tlements embodied in the Plan, (b) consideration of the Debtors’ Motion Pursuant to<br />
Bankruptcy Rule 9019 and Section 105 and 363 of the Bankruptcy Code Seeking Approv<strong>al</strong> of<br />
the Glob<strong>al</strong> Compromise of Inter-Estate Issues (the “Glob<strong>al</strong> Compromise Motion”), dated May 4,<br />
2004 (Dock<strong>et</strong> No. 18198), and (c) consideration of the Motion of Debtors Pursuant to Section<br />
363 of the Bankruptcy Code for Order approving and Authorizing Post-Confirmation Allocation<br />
Formula for Overhead and Expenses (the “Overhead Allocation Motion”), dated March 24, 2004<br />
(Dock<strong>et</strong> No. 17283).<br />
The Court has reviewed and considered the Plan, <strong>al</strong>l affidavits submitted, as well as the<br />
testimony proffered and adduced, the exhibits admitted into evidence at the Confirmation<br />
Hearing and the arguments of counsel presented at the Confirmation Hearing. The Court has<br />
<strong>al</strong>so considered <strong>al</strong>l objections to confirmation of the Plan. This Court is cognizant of the<br />
compromises and s<strong>et</strong>tlements of the parties and other relevant factors affecting these Chapter 11<br />
Cases and takes judici<strong>al</strong> notice of the entire record. Based upon the following findings of fact<br />
and conclusions of law, the Court will confirm the Plan, including approv<strong>al</strong> of the s<strong>et</strong>tlements<br />
contained therein and approv<strong>al</strong> of the Glob<strong>al</strong> Compromise Motion and will approve the<br />
Overhead Allocation Motion. In addition, the Court herein disposes of <strong>al</strong>l objections to<br />
confirmation not otherwise previously resolved or withdrawn.<br />
I. INTRODUCTION<br />
The Confirmation Hearing, including the presentation of evidence and leg<strong>al</strong> argument,<br />
consumed nine tri<strong>al</strong> days, not including scheduling conferences. Nin<strong>et</strong>y-nine (99) objectors filed<br />
objections (including supplement<strong>al</strong> objections and reservations of rights) to confirmation prior to<br />
2 Capit<strong>al</strong>ized terms used in this decision that are not otherwise defined herein sh<strong>al</strong>l have the same meanings ascribed<br />
to them in the Plan.<br />
2
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and during the Confirmation Hearing. Addition<strong>al</strong>ly, six (6) Plan objectors <strong>al</strong>so filed separate<br />
objections to the Glob<strong>al</strong> Compromise Motion. Objections to confirmation by seventy-five (75)<br />
objectors and one (1) objection to the Glob<strong>al</strong> Compromise Motion, have been fully and<br />
consensu<strong>al</strong>ly resolved. These resolutions are documented by: (a) filed notices of withdraw<strong>al</strong>;<br />
(b) announcements on the record as to the withdraw<strong>al</strong> and/or other appropriate disposition; or (c)<br />
the entry of stipulations or s<strong>et</strong>tlement agreements that withdraw, moot or otherwise terminate an<br />
objection.<br />
The Court reviewed and considered:<br />
(a)<br />
(b)<br />
(c)<br />
(d)<br />
(e)<br />
(f)<br />
(g)<br />
The Plan and its sever<strong>al</strong> modifications and supplements;<br />
All evidence submitted in support of confirmation by the Debtors, the Creditors’<br />
Committee and the ENA Examiner, consisting of: (i) direct testimony by way of<br />
affidavits of Robert Bingham (the “Bingham Affidavit”), Jane Sullivan (the<br />
“Sullivan Affidavit”) and Raymond Bowen (the “Bowen Affidavit”) (Dock<strong>et</strong> Nos.<br />
18777, 18779 and 18778, respectively), (ii) direct written testimony of Steven<br />
Zelin, the Debtors’ expert on v<strong>al</strong>uation, regarding the v<strong>al</strong>uation of PGE,<br />
CrossCountry and Prisma (Debtors’ Tri<strong>al</strong> Exs. 24 and 25), (iii) direct live<br />
testimony of Steven Zelin, Debtors’ expert, on the Distribution Model and<br />
Liquidation An<strong>al</strong>ysis, (iv) direct live testimony of Stephen Cooper, and (v) the<br />
Debtors’ tri<strong>al</strong> exhibits admitted into evidence (Debtors’ Tri<strong>al</strong> Exs. 1 – 26);<br />
The entire record 3 in these Chapter 11 Cases, including, but not limited to, such<br />
items specific<strong>al</strong>ly identified in the attachment to the Debtors proposed finds of<br />
fact as to the matters of which the Court can take judici<strong>al</strong> notice (Dock<strong>et</strong> Nos.<br />
19307 and 19533) and Citations To The Record Respecting Statements Made By<br />
Counsel To The Enron North America Corp. Examiner At The June 16, 2004<br />
Confirmation Hearing (Dock<strong>et</strong> No. 19283);<br />
Leg<strong>al</strong> argument on beh<strong>al</strong>f of the Debtors, the Creditors’ Committee, the ENA<br />
Examiner and the supporting argument of Baupost and Racepoint Partners;<br />
The Glob<strong>al</strong> Compromise Motion;<br />
The Overhead Allocation Motion; and<br />
Written submissions in support of Plan confirmation and the Glob<strong>al</strong> Compromise<br />
Motion.<br />
3 Although the Court has presided over these cases since the filing and is familiar with <strong>al</strong>l aspects of these Chapter<br />
11 cases, the Court did not specific<strong>al</strong>ly review <strong>al</strong>l of the more than 19,750 dock<strong>et</strong> entries and more than 1,200<br />
related adversary proceedings for these findings of fact and conclusions of law.<br />
3
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The Court <strong>al</strong>so reviewed and considered the following in connection with Plan<br />
confirmation, the Glob<strong>al</strong> Compromise Motion and the Overhead Allocation Motion: (a) the<br />
testimony of the Debtors’ five witnesses on cross-examination, redirect examination and re-cross<br />
examination; (b) leg<strong>al</strong> argument on beh<strong>al</strong>f of <strong>al</strong>l objectors who timely sought leave to present<br />
arguments; (c) tri<strong>al</strong> exhibits admitted into evidence (Exs. AV1-AV10); (d) written submissions<br />
in opposition to Plan confirmation and the Glob<strong>al</strong> Compromise Motion; (e) <strong>al</strong>l objections filed in<br />
opposition to confirmation or the Glob<strong>al</strong> Compromise Motion and not withdrawn or otherwise<br />
resolved; and (f) the lack of any objections to the Overhead Allocation Motion.<br />
Each of the Debtors’ witnesses was credible, reliable and qu<strong>al</strong>ified to testify as to the<br />
topics addressed in his or her testimony. Among other things, Stephen Cooper and Robert<br />
Bingham brought their extensive experience as restructuring profession<strong>al</strong>s involved in complex<br />
chapter 11 cases and, with respect to these cases, their knowledge of the facts and circumstances<br />
surrounding the negotiation and development of the glob<strong>al</strong> compromise and the Plan. Raymond<br />
Bowen contributed his knowledge of the Enron Companies’ prep<strong>et</strong>ition and postp<strong>et</strong>ition business<br />
activities and, in particular, his knowledge and experience gained postp<strong>et</strong>ition while serving as<br />
Chief Financi<strong>al</strong> Officer and Treasurer. The Debtors’ expert witness, Steven Zelin, was qu<strong>al</strong>ified<br />
to testify as an expert (without objection) as to v<strong>al</strong>uation (relating to both going concern v<strong>al</strong>ue<br />
under the Plan and liquidation v<strong>al</strong>ue under a chapter 7) and as to the Distribution Model. Jane<br />
Sullivan, who certified the vote in these Chapter 11 Cases, has extensive experience in this field<br />
and is well qu<strong>al</strong>ified.<br />
With the exception of Ms. Sullivan, each of the Debtors’ witnesses has testified before<br />
the Court on prior occasions in these Chapter 11 Cases. The Court has found their testimony<br />
credible and reliable on each occasion, including, without limitation, in approving postp<strong>et</strong>ition<br />
4
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financing, extensions of exclusivity, ass<strong>et</strong> s<strong>al</strong>es and the formation and implementation of<br />
CrossCountry. Ms. Sullivan has testified before the Court previously in the context of certifying<br />
the vote in In re WorldCom, <strong>Inc</strong>., Case No. 02-13533 (AJG), where her testimony was found to<br />
be credible and reliable.<br />
The parties objecting to confirmation of the Plan presented no witnesses, wh<strong>et</strong>her fact or<br />
expert. 4<br />
The objecting parties’ efforts to attack the credibility of the Debtors’ witnesses were<br />
unpersuasive. Further, they presented no credible contraverting evidence in any form or manner<br />
nor did they successfully c<strong>al</strong>l into question the views expressed by the witnesses.<br />
In conjunction with a status conference held regarding the Confirmation Hearing, the<br />
Debtors sought a ruling from the Court that, due to the absence of any objections as to the<br />
v<strong>al</strong>uation of PGE, CrossCountry and Prisma, Debtors’ Tri<strong>al</strong> Exhibits 24 and 25 (comprising the<br />
Blackstone Report and Blackstone Report Supplement) sh<strong>al</strong>l be admitted as part of the Debtors’<br />
case in chief in lieu of the presentation of direct testimony, affidavit, proffer or deposition.<br />
Further, the Debtors sought a ruling that cross-examination as to the Blackstone Report and<br />
Blackstone Report Supplement be limited to the Distribution Model and the Liquidation An<strong>al</strong>ysis<br />
as s<strong>et</strong> forth in the Blackstone Report and the Blackstone Report Supplement. (Notice, Dock<strong>et</strong><br />
No. 18616, at 2; Dock<strong>et</strong> No. 18670, at 4). No party objected to any of the foregoing ruling<br />
requests. The Court granted such requests. Accordingly, Debtors’ Tri<strong>al</strong> Exhibits 24 and 25 were<br />
admitted into evidence, the going concern v<strong>al</strong>uation of PGE, CrossCountry and Prisma as s<strong>et</strong><br />
forth therein was uncontroverted and accepted by the Court and no evidence was adduced by any<br />
4 The PBGC attempted to offer the testimony of Karen Justesen as an expert to testify as to the PBGC’s c<strong>al</strong>culation<br />
of the Debtors’ unfunded pension plan liabilities. The Court ruled that Ms. Justesen would not be qu<strong>al</strong>ified as an<br />
expert witness on a procedur<strong>al</strong> basis for purposes of the Confirmation Hearing and further that her testimony as a<br />
non-expert was not relevant to any objection to confirmation of the Plan. The Court did not rely upon any part of<br />
Ms. Justesen's brief testimony in considering confirmation of the Plan.<br />
5
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of the objecting parties on v<strong>al</strong>uation issues except insofar as liquidation an<strong>al</strong>ysis is concerned.<br />
(6/7/04 Zelin Tr. at 12:17 – 14:17).<br />
Based upon the above and the further findings of fact and conclusions of law s<strong>et</strong> forth<br />
below, the Court will issue orders: (a) approving the s<strong>et</strong>tlements and compromises embodied in<br />
the Plan, including the glob<strong>al</strong> compromise; (b) granting the Glob<strong>al</strong> Compromise Motion;<br />
provided, however, that, should confirmation of the Plan be reversed on appe<strong>al</strong>, approv<strong>al</strong> of the<br />
Glob<strong>al</strong> Compromise Motion sh<strong>al</strong>l not remain in effect; (c) granting the Overhead Allocation<br />
Motion; (d) confirming the Plan; and (e) disposing of <strong>al</strong>l objections to confirmation and the<br />
Glob<strong>al</strong> Compromise Motion not otherwise previously resolved or withdrawn. The Debtors<br />
satisfied <strong>al</strong>l procedur<strong>al</strong> and due process requirements with regard to the Plan, the Glob<strong>al</strong><br />
Compromise Motion and the Overhead Allocation Motion. Due and proper notice and<br />
opportunity to be heard have been given as to such motions, the relief requested therein and the<br />
Plan.<br />
As reflected in the findings of fact s<strong>et</strong> forth herein, the evidence before the Court amply<br />
supports confirmation of the Plan, including the glob<strong>al</strong> compromise embodied therein, approv<strong>al</strong><br />
of the Glob<strong>al</strong> Compromise Motion and the Overhead Allocation Motion. Among other<br />
considerations s<strong>et</strong> forth herein, it is particularly compelling that: (a) the Plan is supported by the<br />
Debtors, the Creditors’ Committee and the ENA Examiner; (b) <strong>al</strong>l Plan Classes in which votes<br />
were cast (other than the Portland Debtors, for which the Confirmation Hearing has been<br />
adjourned) voted in favor of the Plan; (c) even if the claims asserted by the Vanguard Group,<br />
<strong>Inc</strong>., f/k/a the Ad Hoc Committee of Yosemite Noteholders (“Vanguard”) and App<strong>al</strong>oosa<br />
Management LLP (“App<strong>al</strong>oosa”) and Angelo, Gordon & Co., L.P. (“Angelo Gordon” and<br />
6
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tog<strong>et</strong>her with Vanguard and App<strong>al</strong>oosa, the “CLN Noteholders”) 5 were temporarily <strong>al</strong>lowed for<br />
voting purposes, the classes in which such votes would be counted (Class 5 and Class 185)<br />
would not <strong>al</strong>ter the outcome of the vote; and (d) none of the parties objecting to confirmation of<br />
the Plan has offered a single lay or expert witness or expert report to contradict any evidence<br />
presented by the Debtors at the Confirmation Hearing or in support of their objections.<br />
II. FINDINGS OF FACT 6<br />
A. Background, the Plan, Solicitation and Voting<br />
1). Background<br />
Commencing December 2, 2001, and periodic<strong>al</strong>ly thereafter, each of the Debtors filed a<br />
voluntary p<strong>et</strong>ition for relief pursuant to chapter 11 of the Bankruptcy Code. (Bingham Affidavit<br />
9; Dock<strong>et</strong> No. 1 in each of these Chapter 11 Cases). By order, dated December 3, 2001, as<br />
supplemented by orders entered following the P<strong>et</strong>ition Date for each Debtor filing its Chapter 11<br />
Case after December 2, 2001, the Debtors’ cases were consolidated for procedur<strong>al</strong> purposes and<br />
are being jointly administered. (Bingham Affidavit 9).<br />
The Debtors continue to operate their businesses and manage their properties as debtors<br />
in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. (Bingham<br />
Affidavit 10). The Chapter 11 Cases involve most of the major institution<strong>al</strong> investors in the<br />
United States, as well as many from around the world. Similarly, these Chapter 11 Cases<br />
involve thousands of trade creditors, energy traders, former employees and other creditor and<br />
equity constituencies located domestic<strong>al</strong>ly and worldwide. (Bingham Affidavit 9).<br />
5 Any reference herein to “creditors,” “parties” or “benefici<strong>al</strong> holders of claims” in connection with the CLN<br />
Noteholders is for ease of reference only and does not mean that the CLN Noteholders are in fact creditors, parties in<br />
interest or benefici<strong>al</strong> holders of claims.<br />
6 Citations contained herein to Debtors’ Tri<strong>al</strong> Ex. 1 refer to the Fifth Amended Plan. Citations contained herein to<br />
Debtors’ Tri<strong>al</strong> Ex. 5 refer to the Modified Fifth Amended Plan. Citations to certain transcripts are taken from the<br />
rough drafts of such transcripts and the pagination and/or line references may change in the fin<strong>al</strong> transcript.<br />
7
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On December 12, 2001, the United States Trustee for the Southern District of New York<br />
(the “U.S. Trustee”) appointed a statutory unsecured creditors’ committee to serve in <strong>al</strong>l of these<br />
Chapter 11 Cases (as reconstituted from time to time, the “Creditors’ Committee”). (Dock<strong>et</strong> No.<br />
195, as amended, modified and/or supplemented by Dock<strong>et</strong> Nos. 490, 6359 and 12594). 7<br />
On March 27, 2002, the U.S. Trustee appointed an employment-related issues committee<br />
(as reconstituted from time to time, the “Employee Related Issues Committee”) (Dock<strong>et</strong> No.<br />
2464, as amended, modified and/or supplemented by Dock<strong>et</strong> Nos. 2548 and 5255).<br />
On June 21, 2002, the Court issued a memorandum decision denying (a) requests for an<br />
addition<strong>al</strong> energy traders’ committee and a separate ENA creditors’ committee and (b) a motion<br />
to require ENA to obtain separate counsel. See gener<strong>al</strong>ly In re Enron Corp., 279 B.R. 671<br />
(Bankr. S.D.N.Y. 2002), aff’d sub. nom Mirant Americas Energy Mktg., L.P. v. Offici<strong>al</strong> Comm.<br />
Of Unsecured Creditors Of Enron Corp., 2003 WL 22327118 (S.D.N.Y. Oct. 10, 2003). At that<br />
time, the Court found that the Creditors’ Committee had fiduciary duties to <strong>al</strong>l Creditors,<br />
including ENA creditors, and that the ENA Examiner had a fiduciary duty solely to the ENA<br />
creditors. See id. As evidenced by the level of negotiation regarding the Plan, the glob<strong>al</strong><br />
compromise embodied in the Plan and the Glob<strong>al</strong> Compromise Motion, the Creditors’<br />
Committee and the ENA Examiner have acted on beh<strong>al</strong>f of the Creditors in these Chapter 11<br />
Cases. Accordingly, the interests of ENA creditors have been and continue to be adequately<br />
represented.<br />
7 By virtue of the U.S. Trustee’s action, the Creditors’ Committee was appointed for each of the Debtors. According<br />
to the Debtors, there are a number of Debtors that do not have any unsecured creditors. (This issue will be discussed<br />
more fully in the discussion of the “96 Debtors.”) However, the Debtors state that proofs of claims that <strong>al</strong>lege an<br />
unsecured claim have been filed against each and every estate. Therefore, because such claims have y<strong>et</strong> to be<br />
adjudicated, the Creditors’ Committee represents each and every Debtor in that, as of this date, unsecured claims are<br />
outstanding as to each estate.<br />
8
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During the course of these Chapter 11 Cases, and often in consultation with the<br />
Creditors’ Committee, the Debtors have endeavored to maximize recoveries to Creditors in a<br />
vari<strong>et</strong>y of ways, including, but not limited to, selling a substanti<strong>al</strong> portion of their ass<strong>et</strong> portfolio,<br />
thereby generating billions of dollars of cash available for distribution to Creditors, s<strong>et</strong>tling a<br />
substanti<strong>al</strong> percentage of the most significant liabilities of the Debtors’ estates, thereby<br />
consensu<strong>al</strong>ly reducing and resolving billions of dollars in Claims against the estates and<br />
prosecuting litigation against a number of Creditors and other parties seeking affirmative<br />
recovery on beh<strong>al</strong>f of these estates. (Bingham Affidavit 11). Despite being forced to reduce<br />
the workforce in certain instances, the Debtors have preserved approximately 24,000 jobs.<br />
(6/8/04 Cooper Tr. at 23:20 – 24:2). As part of their efforts to maximize v<strong>al</strong>ue, the Debtors<br />
stabilized and preserved their operations, including operations of non-Debtors. (6/8/04 Cooper<br />
Tr. at 12:5 – 12, 12:17 – 16:16).<br />
In February 2002, the Debtors employed Stephen Cooper and Stephen Forbes Cooper,<br />
LLC (“Cooper LLC”) to provide and perform management services for <strong>al</strong>l Debtors on the terms<br />
and conditions s<strong>et</strong> forth in such agreement. With various changes made to the employment<br />
agreement in response to filed objections, <strong>al</strong>l objections were resolved prior to the Court’s<br />
issuance of the order approving the Cooper LLC employment, dated April 4, 2002. (Dock<strong>et</strong> No.<br />
2725).<br />
On June 6, 2002, the Board of ENE announced its intention to compose the Board of, at<br />
least a majority – and, preferably, entirely – new independent directors. (Form 8-K of ENE, filed<br />
6/13/02; Debtors’ Tri<strong>al</strong> Ex. 2, § IV.A.10). In furtherance of this objective, on June 6, 2002, the<br />
four remaining long-standing directors, Robert A. Belfer, Norman P. Blake, Dr. Wendy L.<br />
Gramm and Herbert, S. Winokur Jr., resigned from the Board. (Form 8-K of ENE, filed 6/13/02;<br />
9
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Debtors’ Tri<strong>al</strong> Ex. 2, § IV.A.10). As of this date, the reconstituted Board of ENE consists of<br />
John A. B<strong>al</strong>lantine, Corbin A. McNeill, Jr., Raymond S. Troubh and Ron W. Haddock. (Forms<br />
8-K of ENE, filed 6/13/02, with regard to Messrs. B<strong>al</strong>lantine, McNeill and Troubh and filed<br />
8/5/02, with regard to Mr. Haddock; Debtors’ Tri<strong>al</strong> Ex. 2, § IV.A.10).<br />
During January and February 2002, approximately ten (10) different creditors, primarily<br />
trading creditors and sur<strong>et</strong>ies, moved for appointment of a trustee or examiner for ENA. No<br />
trustee has been appointed in these Chapter 11 Cases. Pursuant to an order, dated March 12,<br />
2002 consensu<strong>al</strong>ly resolving a pending motion for appointment of an examiner, Harrison J.<br />
Goldin was appointed to serve as the ENA Examiner with respect to cash management and<br />
overhead <strong>al</strong>locations. (Dock<strong>et</strong> No. 2066). The ENA Examiner’s role was later expanded and<br />
refined through a series of orders, including an order, dated April 24, 2002, appointing the ENA<br />
Examiner to serve as a “facilitator of a chapter 11 plan in the ENA chapter 11 case.” (Bingham<br />
Affidavit 12; Dock<strong>et</strong> Nos. 3302, 3599 and 10993).<br />
As acknowledged by the CLN Noteholders in their Objection to the Debtors’ Proposed<br />
Disclosure Statement and B<strong>al</strong>loting Procedures (Dock<strong>et</strong> No. 13556), the ENA Examiner’s role<br />
expanded to include, inter <strong>al</strong>ia, serving as a fiduciary protecting the interests of the ENA estate<br />
and as a plan facilitator for ENA, working with the Debtors and the Creditors’ Committee to<br />
facilitate the chapter 11 plan process for ENA and its subsidiaries. (6/17/04 Draft Tr. at 146:8 –<br />
24).<br />
In addition to the appointment of the ENA Examiner, the Court <strong>al</strong>so appointed an ENE<br />
Examiner, by order dated April 8, 2002. (Dock<strong>et</strong> No. 2838). The order granted the ENE<br />
Examiner authority and power to investigate transactions involving speci<strong>al</strong> purpose vehicles or<br />
entities created or structured by the Debtors or at the behest of the Debtors, that are, inter <strong>al</strong>ia,<br />
10
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not reflected on the ENE b<strong>al</strong>ance she<strong>et</strong>s. (Dock<strong>et</strong> No. 2838). The Court's approv<strong>al</strong> order<br />
occurred subsequent to the Debtors’ agreement to the appointment of the ENE Examiner in<br />
response to Creditors' motions (and joinders) seeking the appointment of a trustee, appointment<br />
of either a trustee or examiner, or appointment of an examiner for ENE. 8<br />
The terms of the<br />
appointment order were a result of many negotiating sessions with divergent creditor groups and<br />
the SEC. (Debtors’ Tri<strong>al</strong> Ex. 2, § IV.A.4.b.). On May 22, 2002, the U.S. Trustee appointed Ne<strong>al</strong><br />
Batson as the ENE Examiner. (Dock<strong>et</strong> No. 3924). The Court, by order dated May 24, 2002,<br />
approved the appointment. (Dock<strong>et</strong> No. 4003). The ENE Examiner has filed a series of reports<br />
wherein he reported and commented upon the transactions identified above. (Dock<strong>et</strong> Nos. 6615,<br />
9551, 11960 and 14455). By order dated October 7, 2002, the Court expanded the scope of the<br />
ENE Examiner’s role to address issues raised by sever<strong>al</strong> NEPCO customers and creditors of<br />
customers. (Dock<strong>et</strong> No. 6959).<br />
2). Bar Date and Proofs of Claim<br />
On August 1, 2002, the Court entered an Order Pursuant to Bankruptcy Rules 2002(a)(7),<br />
2002(l), and 3003(c)(3) Establishing Deadlines for Filing Proofs of Claim and Approving the<br />
Form and Manner of Providing Notice Thereof (as modified on October 23, 2003, the “Bar Date<br />
Order”). (Dock<strong>et</strong> Nos. 5518 and 13669).<br />
The Bar Date Order established a deadline (the “Bar Date”) for filing proofs of claim in<br />
each of the Debtors’ Chapter 11 Cases. The Court established October 15, 2002 as the Bar Date<br />
for the first fifty-seven (57) Debtors. The Bar Date Order established the Bar Date for<br />
subsequently filed Debtors as the last business day of the month that is two (2) months after the<br />
8 No hearing was ever held regarding these motions and joinders, as the parties sought to consensu<strong>al</strong>ly resolve the<br />
issues. A resolution was reached whereby an ENE Examiner would be appointed and the motions and joinders<br />
would be adjourned without date, subject to renew<strong>al</strong> at the requests of any of the parties. To date, no such request<br />
has been made.<br />
11
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date such Debtor filed its schedules of ass<strong>et</strong>s and liabilities and statement of financi<strong>al</strong> affairs<br />
(collectively, the “Schedules”). On October 23, 2003, the Court entered a Supplement<strong>al</strong> Order<br />
Pursuant to Bankruptcy Rules 2002(a)(7), 2002(l) and 3003(c)(3) Modifying Deadlines for Filing<br />
Proofs of Claim and Approving the Form and Manner of Providing Notice Thereof, establishing<br />
the Bar Date for any Debtor that filed its Schedules after October 23, 2003 as the last business<br />
day of the month that is one (1) month after the date such Schedules were filed. (Dock<strong>et</strong> No.<br />
13669).<br />
In excess of 24,500 proofs of claim have been filed in these Chapter 11 Cases.<br />
Approximately 5,000 of these claims are contingent or unliquidated. As of June 23, 2004, the<br />
Debtors had filed thirty-seven (37) omnibus objections to proofs of claim, as well as over fifty<br />
(50) individu<strong>al</strong> objections to proofs of claim and have successfully expunged or reclassified over<br />
12,500 claims in the amount of $694 billion (excluding the v<strong>al</strong>ue of unliquidated claims).<br />
(Dock<strong>et</strong> No. 12506; Dock<strong>et</strong> No. 18663, at 18 – 21, Ex. G, Dock<strong>et</strong> Nos. 19154, 19213 and<br />
19217). A substanti<strong>al</strong> amount of work, however, remains to resolve the outstanding proofs of<br />
claim to a level consistent with what the Debtors believe to be the proper amount of liabilities<br />
against the estate. (6/3/04 p.m. Bingham Tr. at 91:24 – 92:8; 6/8/04 Cooper Tr. at 24:18 – 25:8,<br />
65:25 – 66:6).<br />
While the Court does not directly maintain a Claims Register for the Debtors’ cases, the<br />
Court entered an order, inter <strong>al</strong>ia, (a) authorizing the Debtors to employ Bankruptcy Services<br />
LLC (“BSI”) as the Court’s noticing and claims agent, (b) appointing BSI as agent for the Clerk<br />
of the Court and custodian of court records and, thus, the authorized repository for <strong>al</strong>l proofs of<br />
claims filed in these Chapter 11 Cases, and (c) authorizing and directing BSI to maintain the<br />
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offici<strong>al</strong> Claims Registers for each of the Debtors. (Dock<strong>et</strong> No. 1191). Such order was entered<br />
pursuant to section 156(c) of title 28 of the United States Code.<br />
The Claims Register, as maintained by BSI, the Court-approved claims agent for the<br />
Debtors (Dock<strong>et</strong> No. 1191), reve<strong>al</strong>s that each of the Debtors has at least two (2) proofs of claim<br />
filed against them by non-insiders asserting unsecured claims against such Debtor and many<br />
Debtors have significantly more than two gener<strong>al</strong> unsecured claims filed against them. FTI<br />
Consulting, <strong>Inc</strong>. (“FTI”) was r<strong>et</strong>ained by the Debtors to work with BSI and to assist with claims<br />
management. (Dock<strong>et</strong> No. 8201).<br />
Despite the fact that proofs of claim have been filed against each of the Debtors,<br />
Appendix C to the Disclosure Statement (Debtors’ Tri<strong>al</strong> Ex. 8) s<strong>et</strong>s forth the estimated ass<strong>et</strong>s and<br />
claims against each of the Debtors. In accordance with the Debtors’ books and records, the<br />
Debtors estimate that there are no non-insider unsecured creditors (other than the PBGC) for 51<br />
of the Debtors.<br />
3). Certain Debtors<br />
As s<strong>et</strong> forth in Section 7.9 of the Initi<strong>al</strong> Modification, pursuant to the Court’s order, dated<br />
April 8, 2004, and the notice, dated May 17, 2004, in connection therewith (Dock<strong>et</strong> Nos. 17625<br />
and 18434), (a) a majority of the equity interests of Enron Mauritius Company, Enron India<br />
Holdings Ltd. and Offshore Power Production C.V. (collectively, the “Dabhol Debtors”) were<br />
sold, (b) such entities were, inter <strong>al</strong>ia, removed as Debtors and Proponents of the Plan, and<br />
(c) Classes 58, 59, 60, 246, 247 and 248 of the Plan have been rendered unnecessary and<br />
inoperative.<br />
In addition, as stated on the record at the Confirmation Hearing, the Debtors and the<br />
Creditors’ Committee have reached a s<strong>et</strong>tlement in princip<strong>al</strong>, subject to definitive documentation<br />
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and Court approv<strong>al</strong>, with certain former employees of Portland Gener<strong>al</strong> Holdings (“PGH”).<br />
Consequently, the Confirmation Hearing was adjourned with respect to the Portland Debtors and<br />
the Debtors may move to dismiss one or both of the Portland Debtors’ cases upon approv<strong>al</strong> of<br />
the s<strong>et</strong>tlement by the Court.<br />
Although not excluded from the Plan, Enron Development Funding Limited (“EDF”), a<br />
Debtor, is <strong>al</strong>so the subject of insolvency proceedings in the Cayman Islands. (Stipulation,<br />
Dock<strong>et</strong> No. 11953). In light of the joint proceedings, until such time as the Cayman scheme of<br />
arrangement proceedings has been concluded, no distributions of ass<strong>et</strong>s held by or attributed to<br />
EDF will be made to Creditors holding Allowed Claims pursuant to the Plan. The Court has<br />
been advised that it is currently anticipated that the Cayman proceedings will conclude in August<br />
2004.<br />
4). The Plan and Disclosure Statement<br />
In October 2002, Enron presented a chapter 11 plan structure with potenti<strong>al</strong> economic<br />
outcomes to the Creditors’ Committee. (Debtors’ Tri<strong>al</strong> Ex. 13). On July 11, 2003, the Debtors<br />
filed their Joint Plan of Affiliated Debtors Pursuant to Chapter 11 of the United States<br />
Bankruptcy Code and the accompanying disclosure statement. (Dock<strong>et</strong> Nos. 11698 and 11699).<br />
The Debtors filed an Amended Joint Plan of Affiliated Debtors Pursuant to Chapter 11 of the<br />
United States Bankruptcy Code and the accompanying disclosure statement on September 18,<br />
2003. (Dock<strong>et</strong> Nos. 12822 and 12823). Thereafter, on November 13, 2003, the Debtors further<br />
amended their Plan by filing a Second Amended Joint Plan of Affiliated Debtors Pursuant<br />
Chapter 11 of the United States Bankruptcy Code and the disclosure statement ther<strong>et</strong>o. (Dock<strong>et</strong><br />
Nos. 14154 and 14155). The Debtors filed their Third Amended Joint Plan of Affiliated Debtors<br />
Pursuant to Chapter 11 of the United States Bankruptcy Code and the disclosure statement<br />
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ther<strong>et</strong>o on December 17, 2003. (Dock<strong>et</strong> Nos. 14893 and 14894). On January 4, 2004, the<br />
Debtors filed their Fourth Amended Joint Plan of Affiliated Debtors Pursuant to Chapter 11 of<br />
the United States Bankruptcy Code and its accompanying Disclosure Statement. (Dock<strong>et</strong> Nos.<br />
15153 and 15154).<br />
With respect to the Plan, the Debtors <strong>al</strong>so filed (a) Modification of Fifth Amended Plan,<br />
dated June 1, 2004 (the “Initi<strong>al</strong> Modification”), and (b) Supplement<strong>al</strong> Modification of Fifth<br />
Amended Plan, dated July 2, 2004. (Dock<strong>et</strong> No. 18793 and 19477).<br />
On January 9, 2004, after due notice and a hearing, the Court entered, pursuant to, inter<br />
<strong>al</strong>ia, section 1125 of the Bankruptcy Code and Rule 3017(b) of the Feder<strong>al</strong> Rules of Bankruptcy<br />
Procedure (“Bankruptcy Rule”), an order approving the Debtors’ Disclosure Statement, which,<br />
inter <strong>al</strong>ia, approved the Disclosure Statement, finding that it contained “adequate information”<br />
within the meaning of section 1125 of the Bankruptcy Code and established procedures for the<br />
Debtors’ solicitation and tabulation of votes on the Plan (the “Solicitation Procedures Order”)<br />
(Dock<strong>et</strong> No. 15303).<br />
Various objectors, including The Bank of New York, as indenture trustee for the CLN<br />
Noteholders, objected to the Solicitation Procedures Order as initi<strong>al</strong>ly proposed because, among<br />
other reasons, such order did not provide for a mechanism for the direct solicitation of indirect<br />
noteholders of financing transactions. In order to resolve these objections, the Debtors modified<br />
paragraphs 17 – 19 of the Solicitation Procedures Order to include a process for direct<br />
solicitation of indirect noteholders pursuant to Fiduciary Stipulations. Based largely on such<br />
modifications, the objectors withdrew their objections to the Solicitation Procedures Order.<br />
(1/7/04 Hearing Tr. at 34 – 40).<br />
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5). Solicitation Procedures and Voting Extensions<br />
The fin<strong>al</strong> Solicitation Procedures Order established March 24, 2004 at 5:00 p.m. (New<br />
York Time) (the “Voting Deadline”) as the deadline to submit b<strong>al</strong>lots on the Plan to the<br />
Solicitation and Tabulation Agent and established March 24, 2004 at 4:00 p.m. (New York<br />
Time) as the deadline to file and serve objections to confirmation of the Plan. (Debtors’ Tri<strong>al</strong><br />
Ex. 3).<br />
On January 9, 2004, the Court <strong>al</strong>so entered an order, pursuant to sections 105(a), 502(c),<br />
1125 and 1126 of the Bankruptcy Code and Bankruptcy Rules 3003, 3017 and 3018, establishing<br />
voting procedures in connection with the Plan process and temporary <strong>al</strong>lowance of claims<br />
procedures related ther<strong>et</strong>o (the “Voting Procedures Order”). (Dock<strong>et</strong> No. 15296).<br />
On February 13, 2004, after due notice, a hearing and opportunity to be heard, the Court<br />
entered an Order Establishing, Among Other Things, Procedures and Deadlines Concerning<br />
Objections to Confirmation and Discovery in Connection Therewith. (the “Confirmation<br />
Discovery Procedures Order,” Dock<strong>et</strong> No. 16233). The Confirmation Discovery Procedures<br />
Order directed the Debtors to establish and staff an electronic document depository (the<br />
“Depository”) to include the documents identified therein relating to confirmation of the Plan<br />
and the glob<strong>al</strong> compromise and s<strong>et</strong>tlement, which depository was established and staffed on or<br />
before March 3, 2004, in compliance with the Confirmation Discovery Procedures Order. The<br />
Confirmation Discovery Procedures Order <strong>al</strong>so provided that any party in interest which, on or<br />
before March 3, 2004, filed an objection to confirmation of the Plan s<strong>et</strong>ting forth the leg<strong>al</strong> and<br />
factu<strong>al</strong> basis in support thereof, would be entitled to review documents contained in the<br />
Depository and to seek further discovery of the Debtors, the Creditors’ Committee, or the ENA<br />
Examiner in connection with confirmation of the Plan and the glob<strong>al</strong> compromise and s<strong>et</strong>tlement<br />
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underlying the Plan, subject to the restrictions s<strong>et</strong> forth therein. Sever<strong>al</strong> parties in interest filed<br />
objections to confirmation on or before March 3, 2004, including, but not limited to, the CLN<br />
Noteholders, thus providing those parties with a reasonable opportunity to access the Depository<br />
and seek further discovery of the Debtors, the Creditors’ Committee and the ENA Examiner<br />
concerning confirmation of the Plan and the glob<strong>al</strong> compromise and s<strong>et</strong>tlement. The<br />
Confirmation Discovery Procedures Order further provided that, in the event a dispute arose<br />
concerning any request for discovery in connection with confirmation of the Plan, the Court<br />
would schedule a chambers conference to discuss and resolve such dispute as soon as possible.<br />
Prior to the commencement of the Confirmation Hearing, the Court resolved <strong>al</strong>l such disputes.<br />
None of the Creditors that filed objections to confirmation of the Plan after March 3,<br />
2004 sought discovery or requested reconsideration of the Confirmation Discovery Procedures<br />
Order. Addition<strong>al</strong> discovery disputes were addressed by the Court on various matters related to<br />
the Confirmation Hearing, including, but not limited to, the following:<br />
(a)<br />
(b)<br />
(c)<br />
In conjunction with the Confirmation Discovery Procedures Order, the Court held<br />
a conference to address discovery disputes b<strong>et</strong>ween Baupost and the ENA<br />
Examiner and issued a ruling addressing such issues.<br />
Outside of the context of the Confirmation Discovery Procedures Order, Hiroo<br />
Awano requested a discovery conference seeking to compel responses to his<br />
discovery requests over the Debtors’ objections (including an objection that Mr.<br />
Awano failed to follow the procedures s<strong>et</strong> forth in the Confirmation Discovery<br />
Procedures Order). The parties initi<strong>al</strong>ly agreed to postpone a scheduled<br />
conference so as to enable them to explore a consensu<strong>al</strong> resolution of the issues.<br />
When a s<strong>et</strong>tlement was not forthcoming, Mr. Awano renewed his request for the<br />
discovery conference and the Court held a telephonic hearing on May 18, 2004.<br />
Thereafter, the matter was consensu<strong>al</strong>ly resolved.<br />
Although not arising under the Confirmation Discovery Procedures Order, but<br />
during this same time period, the Court held two (2) discovery conferences in<br />
connection with the Motion of the EDO Creditors for Order Granting Temporary<br />
Allowance of Claims for Voting Purposes. (Dock<strong>et</strong> No. 16313). At the first<br />
conference, App<strong>al</strong>oosa advised the Court that it would not be seeking any<br />
discovery in connection with its motion. Despite this representation, App<strong>al</strong>oosa<br />
then noticed the deposition of The Bank of New York. The Debtors objected and<br />
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the Court held a discovery conference and overruled the Debtors’ objection --<br />
<strong>al</strong>lowing the deposition to go forward.<br />
As evidenced by the foregoing, <strong>al</strong>l parties in interest had numerous opportunities to raise with the<br />
Court any concerns relating to discovery or the tri<strong>al</strong> process.<br />
App<strong>al</strong>oosa served addition<strong>al</strong> discovery requests seeking certain documents and<br />
communications related to temporary <strong>al</strong>lowance of claims for voting purposes and voting on the<br />
Plan. The Debtors and Creditors’ Committee objected to these discovery requests, inter <strong>al</strong>ia,<br />
because they asserted that the requests were overly broad and burdensome, as they were entitled<br />
to do under the Confirmation Discovery Procedures Order. (Confirmation Discovery Procedures<br />
Order at 12, Dock<strong>et</strong> No. 16233; Dock<strong>et</strong> No. 18557, Exs. C and D; and Dock<strong>et</strong> No. 18781, Ex.<br />
B). App<strong>al</strong>oosa did not file a motion to compel the Debtors or the Creditors’ Committee to<br />
produce these documents. At Ms. Sullivan’s deposition on May 28, 2004, App<strong>al</strong>oosa first<br />
requested the production of preliminary voting results provided to the Debtors by Innisfree and<br />
the applicable correspondences b<strong>et</strong>ween the Debtors and Innisfree. Because the Debtors viewed<br />
this subsequent request as specific, not overly broad or burdensome, the Debtors voluntarily<br />
produced these documents on the next business day, June 1, 2004, even though the new request<br />
was untimely under the Confirmation Discovery Procedures Order and the Debtors’ objection to<br />
the first request was not the subject of a motion to compel or any request for a discovery<br />
conference.<br />
Although it was argued that discovery was sought from the Creditors’ Committee in<br />
connection with voting-related correspondence and documents that were not produced, there is<br />
no evidence in the record that the Creditors’ Committee was in possession of voting-related<br />
correspondence and documents b<strong>et</strong>ween the Debtors and third parties. Even if the Creditors’<br />
Committee was in possession of these documents, App<strong>al</strong>oosa did not file a motion to compel the<br />
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Creditors’ Committee to produce such documents and App<strong>al</strong>oosa did not raise any issues related<br />
to its discovery requests with respect to the Creditors’ Committee until the Confirmation<br />
Hearing. In addition, the record does not support a finding that Vanguard ever requested that the<br />
Debtors or the Creditors’ Committee produce documents related to voting and solicitation as part<br />
of its discovery requests.<br />
On April 1, 2004, the Court held a status conference regarding confirmation of the Plan at<br />
which counsel for the Debtors, Creditors’ Committee and CLN Noteholders, among others, were<br />
present. During this hearing, counsel for the Debtors requested a continuance of the<br />
Confirmation Hearing so that the Debtors, the Creditors’ Committee and <strong>al</strong>l objectors could<br />
commence and conclude discovery and for the Debtors to submit relevant expert reports. (4/1/04<br />
Hearing Tr. at 183:16 – 187:4). Counsel for the Debtors <strong>al</strong>so informed the Court that, in<br />
connection with the adjournment of the Confirmation Hearing, sever<strong>al</strong> dates in the Voting<br />
Procedures Order, Solicitation Procedures Order and the Confirmation Discovery Procedures<br />
Order would <strong>al</strong>so be extended and the Debtors would submit an order to the Court providing for<br />
such extensions. (4/1/04 Hearing Tr. at 187:5 – 188:7, 188:22 – 189:8).<br />
On April 5, 2004, the Debtors submitted and the Court entered an Order Adjourning<br />
Confirmation Hearing and Adjusting Deadlines in Connection Therewith (the “Adjournment<br />
Order”). 9<br />
(Dock<strong>et</strong> No. 17528). Pursuant to the Adjournment Order, inter <strong>al</strong>ia, certain deadlines<br />
with regard to voting on the Plan were extended to May 24, 2004, solely in conjunction with a<br />
9 Certain deadlines in the Adjournment Order were further extended pursuant to the (a) Amended Supplement<strong>al</strong><br />
Order Adjusting Deadlines in Connection With the Debtors' Chapter 11 Plan dated May 7, 2004 (the “Amended<br />
Adjournment Order,” Dock<strong>et</strong> No. 18290), (b) Second Amended Supplement<strong>al</strong> Order Adjusting Deadlines in<br />
Connection with the Debtors' Chapter 11 Plan dated May 20, 2004 (the “Second Amended Adjournment Order,”<br />
Dock<strong>et</strong> No. 18491), and (c) Third Amended Supplement<strong>al</strong> Order Adjusting Deadlines in Connection with the<br />
Debtors' Chapter 11 Plan dated May 27, 2004 (the “Third Amended Adjournment Order,” Dock<strong>et</strong> No. 18693). For<br />
convenience, the Adjournment Order, Amended Adjournment Order, Second Amended Adjournment Order and<br />
Third Amended Adjournment Order are collectively referred to as the “Adjournment Orders.”<br />
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s<strong>et</strong>tlement of an Allowed Claim, temporary <strong>al</strong>lowance motion, or resolution of an objection to<br />
confirmation of the Plan, without prejudice to further extensions by agreement of the Debtors<br />
and the party entitled to vote on the Plan.<br />
The CLN Noteholders did not “directly” complain about or otherwise object to the<br />
extension of such deadlines under the Adjournment Order until May 7, 2004. Even though the<br />
CLN Noteholders “indirectly” raised the issue of their objection to the Adjournment Order in<br />
their objections to various Voting Stipulations heard on May 7, 2004, they never requested that<br />
the Court vacate or reconsider the Adjournment Order.<br />
Although the Solicitation Procedures Order established the Voting Deadline of March 24,<br />
2004 as the date by which Creditors were required to submit b<strong>al</strong>lots to vote on the Plan, this<br />
deadline was never designed nor intended to be the fin<strong>al</strong> date for votes to be counted. (Debtors’<br />
Tri<strong>al</strong> Ex. 3 at 27). See gener<strong>al</strong>ly In re OBT Partners, Ill. Ltd. P’ship, 214 B.R. 863 (N.D. Ill.<br />
1997) (noting that “[t]he voting deadline is not a line drawn in the sand.”). As s<strong>et</strong> forth in<br />
paragraph 3(m) of the Voting Procedures Order, claims that are <strong>al</strong>lowed pursuant to a Courtapproved<br />
s<strong>et</strong>tlement agreement on or before April 14, 2004 would be “entitled to vote on the<br />
Plan in accordance with the terms of such s<strong>et</strong>tlement.” (Debtors’ Tri<strong>al</strong> Ex. 20). Paragraphs 4(b)<br />
and 6(c) of the Voting Procedures Order further provide that hearings on temporary <strong>al</strong>lowance<br />
and b<strong>al</strong>lot correction motions would conclude on April 8, 2004 and orders related to such<br />
motions sh<strong>al</strong>l be entered by April 14, 2004. 10 (Debtors’ Tri<strong>al</strong> Ex. 20 at 4).<br />
Further, the Adjournment Orders extended certain dates related to deadlines for hearings<br />
and orders on temporary <strong>al</strong>lowance motions and Court-approved s<strong>et</strong>tlements that affected voting.<br />
(Dock<strong>et</strong> Nos. 17528, 18290, 18491 and 18693). The Debtors did not include any votes in the<br />
10 App<strong>al</strong>oosa withdrew its objection to the Voting Procedures Order in early January 2004 and did not contest any of<br />
the provisions in such order.<br />
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Vote Certification that were received after the Voting Deadline, unless they were approved by<br />
order of the Court as expressly contemplated by paragraphs 3(m), 4(b) and 6(c) of the Voting<br />
Procedures Order. (Sullivan Affidavit 8, 10; Initi<strong>al</strong> Vote Certification 13, 18 and Ex. E,<br />
Debtors’ Tri<strong>al</strong> Ex. 19).<br />
Despite receiving (a) initi<strong>al</strong> notice at the April 1, 2004 hearing that certain deadlines<br />
under the Voting Procedures Order and Solicitation Procedures Order would be extended, and<br />
(b) subsequent notice of entry of the Adjournment Order on April 5, 2004, as stated previously,<br />
the first time the CLN Noteholders “directly” objected to the Adjournment Order was at the May<br />
7, 2004 hearing in or<strong>al</strong> argument in opposition to the approv<strong>al</strong> of the Voting Stipulations.<br />
Although App<strong>al</strong>oosa did mention in its objection (Dock<strong>et</strong> No. 17734) to the J. Aron temporary<br />
<strong>al</strong>lowance stipulation (the “J. Aron Stipulation,” Dock<strong>et</strong> No. 17597) that App<strong>al</strong>oosa did not have<br />
notice that the Voting Deadline was going to be extended, any such mention is procedur<strong>al</strong>ly<br />
defective to constitute an objection to the Adjournment Order. 11<br />
To the extent that the CLN Noteholders sought to ch<strong>al</strong>lenge the effectiveness of the<br />
Adjournment Order, they needed to do so by seeking to have that order, as noted above, vacated<br />
or reconsidered, or by seeking leave to appe<strong>al</strong>. Although objections and comments were raised<br />
by the CLN Noteholders regarding entry of the Adjournment Order, at the conclusion of the May<br />
7, 2004 hearing on the Voting Stipulations, the CLN Noteholders informed the Court that they<br />
had no objections to entry of the Amended Adjournment Order that extended the deadlines in the<br />
Adjournment Order. (5/7/04 Hearing Tr. at 137:20 – 139:7, 166:24 – 167:6). While the CLN<br />
Noteholders reserved the right, at the May 7, 2004 hearing, to object to future deadline<br />
11 Vanguard filed a joinder to App<strong>al</strong>oosa=s objection that did not raise any specific leg<strong>al</strong> ch<strong>al</strong>lenges to the J. Aron<br />
Stipulation. (Dock<strong>et</strong> No. 17893).<br />
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extensions, they never objected to any extensions of the dates made by subsequent Adjournment<br />
Orders.<br />
Further, and more importantly, the Adjournment Order did not gener<strong>al</strong>ly extend the<br />
Voting Deadline regarding the casting of b<strong>al</strong>lots. Rather, as such deadline applies to the casting<br />
of b<strong>al</strong>lots by a party in conjunction with a s<strong>et</strong>tlement of an Allowed Claim, temporary <strong>al</strong>lowance<br />
motion, or resolution of objection to confirmation under the Voting Procedures Order that could<br />
be filed by April 14, 2004, the Adjournment Order extended such deadline to May 24, 2004.<br />
(Dock<strong>et</strong> No. 17528). Moreover, at the time of the entry of any Voting Stipulations under which<br />
a vote was cast after March 24, 2004, the Adjournment Orders were in effect and, therefore, any<br />
issue as to the timing of the casting of any b<strong>al</strong>lot related ther<strong>et</strong>o is without merit.<br />
As to the CLN Noteholders’ <strong>al</strong>leged requirement of notice of an extension, Exhibit D to<br />
the Solicitation Procedures Order specific<strong>al</strong>ly provides that “[t]he Debtors[,] in consultation with<br />
the Creditors= Committee, may extend the Voting Deadline in their discr<strong>et</strong>ion and without<br />
further notice” (emphasis added). In addition, there was no prohibition in any of the various<br />
voting and solicitation orders that restricted the Debtors’ ability to agree to extend the deadline to<br />
cast a b<strong>al</strong>lot for a particular Creditor during s<strong>et</strong>tlement negotiations. The Court <strong>al</strong>so d<strong>et</strong>ermined<br />
that sufficient cause existed to enter the Adjournment Orders and no notice or motion was<br />
required prior to the entry of such orders.<br />
Accordingly, based upon <strong>al</strong>l of foregoing, the CLN Noteholders have waived <strong>al</strong>l<br />
objections to the entry of the Adjournment Orders.<br />
6). Vote Solicitation<br />
On August 12, 2003, an order was entered r<strong>et</strong>aining Innisfree M&A <strong>Inc</strong>orporated<br />
(“Innisfree”) as the Debtors’ solicitation and tabulation agent. (Dock<strong>et</strong> No. 12250). Jane<br />
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Sullivan is a Director of Innisfree. (Sullivan Affidavit 1). Innisfree and Ms. Sullivan, in<br />
particular, are highly experienced in bankruptcy solicitation matters. Ms. Sullivan has over<br />
twenty (20) years of experience in public securities solicitations and over thirteen (13) years of<br />
experience in bankruptcy matters. Ms. Sullivan has worked on over nin<strong>et</strong>y (90) bankruptcy<br />
solicitations, tabulations and certifications of the vote, including, among others, In re WorldCom.<br />
(6/5/04 Sullivan Tr. at 167:4 – 12; Sullivan Affidavit 2). Ms. Sullivan and Innisfree <strong>al</strong>so have<br />
substanti<strong>al</strong> experience regarding the solicitation of securities Creditors. (Sullivan Affidavit<br />
23).<br />
In accordance with the Solicitation Procedures Order, Innisfree began mailing the<br />
Solicitation Materi<strong>al</strong>s to Creditors in late January of 2004. Innisfree compl<strong>et</strong>ed the gener<strong>al</strong><br />
mailing of Solicitation Packages and Non-Voting Solicitation Packages on February 3, 2004. 12<br />
(Sullivan Affidavit 27). During the solicitation process, Innisfree mailed approximately 36,000<br />
Solicitation Packages and 473,000 Non-Voting Solicitation Packages. (Sullivan Affidavit 33).<br />
In addition to the gener<strong>al</strong> mailing, Innisfree conducted a mailing for benefici<strong>al</strong> holders of<br />
claims related to “Financing Transactions,” as that term is used in the Disclosure Statement,<br />
which <strong>al</strong>lowed the benefici<strong>al</strong> holders of certain claims to be solicited directly with Solicitation<br />
Materi<strong>al</strong>s pursuant to a Court-approved stipulation with the benefici<strong>al</strong> holder’s agent or trustee<br />
(the “Fiduciary Stipulations”). (Sullivan Affidavit 28).<br />
Pursuant to the Fiduciary Stipulations, these benefici<strong>al</strong> holders were solicited directly<br />
with either “live” b<strong>al</strong>lots or provision<strong>al</strong> b<strong>al</strong>lots, depending on wh<strong>et</strong>her the claim was disputed as<br />
12 See Affidavit of Service of Voting and Non-Voting Documents by Innisfree (Dock<strong>et</strong> No. 16349); Amended<br />
Affidavit of Service of Voting and Non-Voting Documents by Innisfree (Dock<strong>et</strong> No. 16897); Supplement<strong>al</strong><br />
Affidavit of Service of Voting and Non-Voting Documents by Innisfree (Dock<strong>et</strong> No. 16826); Second Supplement<strong>al</strong><br />
Affidavit of Service of Voting and Non-Voting Documents by Innisfree (Dock<strong>et</strong> No. 18418); and Second Amended<br />
Affidavit of Service of Voting and Non-Voting Documents by Innisfree (Dock<strong>et</strong> No. 18419).<br />
23
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Pg Pg 151 24 of 163 336<br />
of January 9, 2004. (Sullivan Affidavit 29). Paragraph 18(f) of the Solicitation Procedures<br />
Order provides that the Debtors and the Creditors’ Committee reserved their rights to contest the<br />
direct tabulation of any <strong>al</strong>lowed votes cast in connection with the Fiduciary Stipulations.<br />
(Dock<strong>et</strong> No. 15303).<br />
There were a tot<strong>al</strong> of nine Fiduciary Stipulations relating to financing transactions<br />
commonly known as (a) Osprey/Whitewing (“Whitewing”); (b) E-NEXT; (c) Choctaw,<br />
Zephyrus and Sequoia (“Choctaw”); (d) Enron Teeside Operations Limited (“ETOL”); (e)<br />
Deutsche Trust Company Limited (“DTCL”); (f) Brazos LP (“Brazos”); (g) Flagstaff Capit<strong>al</strong><br />
Corporation (“Flagstaff”); (h) Yosemite and Credit-Linked Notes (“CLN”); and (i) Margaux. 13<br />
Innisfree compl<strong>et</strong>ed the mailing of Solicitation Packages to voting benefici<strong>al</strong> holders<br />
pursuant to the Fiduciary Stipulations on February 20, 2004. (Dock<strong>et</strong> No. 16826; Sullivan<br />
Affidavit 29).<br />
7). Temporary Claim Allowance for Voting Purposes<br />
The deadline for Creditors to file temporary <strong>al</strong>lowance motions and b<strong>al</strong>lot correction<br />
motions was February 17, 2004. (Sullivan Affidavit 30, Debtors’ Tri<strong>al</strong> Ex. 20, 4, 6).<br />
Numerous parties, including some provision<strong>al</strong>ly <strong>al</strong>lowed to submit b<strong>al</strong>lots pursuant to Fiduciary<br />
Stipulations, filed motions to temporarily <strong>al</strong>low their claims for voting purposes because their<br />
claims were not entitled to vote pursuant to the Voting Procedures Order. (Sullivan Affidavit<br />
30). Innisfree complied with the solicitation procedures for Creditors that filed temporary<br />
<strong>al</strong>lowance motions. (Sullivan Affidavit 30 – 31).<br />
13 See Affidavit of Service of Jane Sullivan Regarding CLN, Whitewing, Margaux and Marlin (Dock<strong>et</strong> No. 16061);<br />
Affidavit of Service of Jane Sullivan Regarding Flagstaff, Brazos and Choctaw (Dock<strong>et</strong> No. 16062); Affidavit of<br />
Service of Jane Sullivan Regarding ETOL and DTCL (Dock<strong>et</strong> No. 16063); Affidavit of Service of Jane Sullivan<br />
Regarding E-NEXT (Dock<strong>et</strong> No. 16064); Affidavit of Service of Jane Sullivan Regarding Amended CLN (Dock<strong>et</strong><br />
No. 16065); Affidavit of Service of Jane Sullivan Regarding Amended Margaux (Dock<strong>et</strong> No. 16413); Affidavit of<br />
Service of Jane Sullivan Regarding Amended CLN, Whitewing, Margaux and Marlin (Dock<strong>et</strong> No. 18416).<br />
24
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Pg Pg 152 25 of 163 336<br />
After reviewing the Sullivan Affidavit and hearing the testimony of Ms. Sullivan, the<br />
Court finds Ms. Sullivan to be a credible witness. Because Ms. Sullivan was traveling out of the<br />
country on the day the Sullivan Affidavit was to be filed, Ms. Sullivan delivered an executed and<br />
notarized signature page to the Debtors’ counsel with instructions that such signature page was to<br />
be held in escrow until Ms. Sullivan had reviewed and approved the fin<strong>al</strong> form of the Sullivan<br />
Affidavit. (6/4/04 Sullivan Tr. at 125:11 – 126:22, 164:9 – 165:18). Further, because the<br />
signature page was only attached to the Sullivan Affidavit after Ms. Sullivan reviewed and<br />
approved the fin<strong>al</strong> form of the Sullivan Affidavit and no credible evidence has been adduced to<br />
contradict Ms. Sullivan’s testimony and Ms. Sullivan adopted the contents of the Sullivan<br />
Affidavit during her testimony, the Court accepts the Sullivan Affidavit in its entir<strong>et</strong>y as a v<strong>al</strong>id<br />
and truthful affidavit that was not fraudulently submitted.<br />
As described in the affidavits of service of Innisfree, sworn to by Ms. Sullivan on<br />
February 17, 2004, March 10, 2004 and March 11, 2004 (each a “Sullivan Service Affidavit” and<br />
collectively, the “Sullivan Service Affidavits,” Dock<strong>et</strong> Nos. 16349, 16826 and 16897), (a) the<br />
transmitt<strong>al</strong> and service of the Solicitation Packages were adequate and sufficient under the<br />
circumstances of these Chapter 11 Cases and (b) adequate and sufficient notice of the<br />
Confirmation Hearing (including the March 24, 2004 deadline for filing and serving objections<br />
to confirmation) and other requirements, deadlines, hearings and matters described in the<br />
Solicitation Procedures Order was provided in compliance with the Bankruptcy Rules and the<br />
Solicitation Procedures Order and no other or further notice is required. No evidence was<br />
submitted by any objector sufficient to rebut the Debtors’ evidence regarding solicitation of the<br />
vote.<br />
25
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8). Vote Tabulation<br />
Innisfree carefully monitored wh<strong>et</strong>her b<strong>al</strong>lots were received by the Voting Deadline.<br />
(Sullivan Affidavit 40). Innisfree began receiving b<strong>al</strong>lots in late February 2004. (Sullivan<br />
Affidavit 41). Innisfree <strong>al</strong>so received provision<strong>al</strong> b<strong>al</strong>lots from Creditors that had filed a motion<br />
to temporarily <strong>al</strong>low their claims for voting purposes. (Sullivan Affidavit 45). Innisfree timeand<br />
date-stamped, or hand-marked, these provision<strong>al</strong> b<strong>al</strong>lots upon receipt, updated the voting<br />
information in Innisfree’s computer system and filed these claims separately until they were<br />
either <strong>al</strong>lowed, or not <strong>al</strong>lowed, to vote pursuant to an order by the Court. (Sullivan Affidavit<br />
45).<br />
Whenever the Court entered an order temporarily <strong>al</strong>lowing, or not <strong>al</strong>lowing, a claim, the<br />
Debtors’ counsel would advise FTI and Innisfree of the entry of the order and the impact of the<br />
order on how the specific claim was to be treated. (Sullivan Affidavit 46). Addition<strong>al</strong>ly, other<br />
claims were withdrawn by Creditors or expunged by Court orders through May 24, 2004.<br />
(Sullivan Affidavit 53). Because FTI provided updated data files to Innisfree reflecting these<br />
changes, Innisfree <strong>al</strong>so ran periodic audit reports with FTI to ensure that the updated data<br />
received from FTI was consistent with the voting records compiled by Innisfree. If any<br />
discrepancies were found, Innisfree made corrections to its database as needed. (Sullivan<br />
Affidavit 53).<br />
Innisfree is a neutr<strong>al</strong> party r<strong>et</strong>ained as an agent to solicit and tabulate b<strong>al</strong>lots. (Sullivan<br />
Affidavit 54). Neither Innisfree’s r<strong>et</strong>ention nor its compensation is based on wh<strong>et</strong>her the<br />
certified results reflect acceptance or rejection of the Plan or wh<strong>et</strong>her the Plan is confirmed.<br />
(Sullivan Affidavit 54). Innisfree followed the procedures s<strong>et</strong> forth in the Voting Procedures<br />
Order and the Solicitation Procedures Order. (Sullivan Affidavit 6, 10). Innisfree’s intern<strong>al</strong><br />
26
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process for compiling and organizing voting data, including the computer programs used in such<br />
process and qu<strong>al</strong>ity control process are reasonable and were designed and used to support the<br />
vote certification. (Sullivan Affidavit 16 – 21, 23, 24). The only objectors that ch<strong>al</strong>lenged the<br />
voting and tabulation process were the CLN Noteholders.<br />
Innisfree undertook qu<strong>al</strong>ity control measures designed to ensure the accuracy of the vote<br />
tabulation and certification. (Sullivan Affidavit 22, 25). As part of the qu<strong>al</strong>ity control<br />
process, Innisfree: (a) worked closely with FTI to address questions and issues related to the<br />
non-securities data that was provided to Innisfree; (b) received regular updates from FTI related<br />
to non-securities claims; and (c) participated in weekly conference c<strong>al</strong>ls beginning in September<br />
2003 with the Debtors, the Debtors’ counsel, FTI and BSI to address any issues related to the<br />
non-securities data provided by FTI, the solicitation and voting process for <strong>al</strong>l claims. (Sullivan<br />
Affidavit 22, 25).<br />
Innisfree performed sever<strong>al</strong> audits of the b<strong>al</strong>lot tabulations. (Sullivan Affidavit 53).<br />
Innisfree conducted an initi<strong>al</strong> audit following the Voting Deadline and, shortly thereafter,<br />
conducted a second compl<strong>et</strong>e audit of the b<strong>al</strong>lots to verify the results of the initi<strong>al</strong> audit.<br />
(Sullivan Affidavit 53). The cumulative effect of Innisfree’s qu<strong>al</strong>ity control measures helped<br />
to resolve potenti<strong>al</strong> and open issues and increased the accuracy of the databases used by Innisfree<br />
in tabulating the vote. (Sullivan Affidavit 22, 25). Innisfree periodic<strong>al</strong>ly provided interim<br />
voting reports to the Debtors and advised the Debtors that such interim voting reports were<br />
unaudited and subject to further revision. (6/4/04 Sullivan Tr. at 110:21 – 111:3). In fact, Ms.<br />
Sullivan testified that, as is true in most cases, the initi<strong>al</strong> voting report was compl<strong>et</strong>ely<br />
inaccurate. (6/4/04 Sullivan Tr. at 135:23 – 136:6, 166:8 – 21). Certain b<strong>al</strong>lots and provision<strong>al</strong><br />
27
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Pg Pg 155 28 of 163 336<br />
b<strong>al</strong>lots were <strong>al</strong>lowed to vote after the Voting Deadline pursuant to Court orders. (Sullivan<br />
Affidavit 53).<br />
9). Plan Elections<br />
Innisfree <strong>al</strong>so tabulated wh<strong>et</strong>her Creditors made certain elections under Sections 7.3, 7.4,<br />
7.7, 7.8 and 28.2 of the Plan (the “Plan Elections”). The Plan Elections were made either on the<br />
b<strong>al</strong>lot or the provision<strong>al</strong> b<strong>al</strong>lot that was sent to Creditors. (Sullivan Affidavit 34). All of the<br />
Plan Elections and Provision<strong>al</strong> Plan Elections that were not properly made were separately<br />
tracked and recorded by Innisfree and the Debtors mailed a notice to the affected Creditors<br />
informing them that their Plan Election was not properly executed. (Sullivan Affidavit 51).<br />
The Election Procedures Order <strong>al</strong>lowed the Debtors to solicit Creditors for the limited<br />
purpose of making the Plan Elections (the “Provision<strong>al</strong> Plan Elections”). (Dock<strong>et</strong> No. 17296;<br />
Sullivan Affidavit 38). If a Creditor’s claim is later <strong>al</strong>lowed for distribution purposes, the<br />
Provision<strong>al</strong> Plan Elections will be applied to the Creditor’s claim as long as it complies with the<br />
Election Procedures Order. (Dock<strong>et</strong> No. 17296; Sullivan Affidavit 38). No evidence was<br />
submitted by any objector to rebut the Debtors’ evidence concerning Plan Elections. The vote in<br />
WorldCom was certified by Ms. Sullivan and accepted by the Court. (6/4/04 Sullivan Tr. at<br />
167:10 – 14). Ms. Sullivan has never had a vote certification rejected by a court based upon the<br />
fact that it contained errors. (6/4/04 Sullivan Tr. at 167:16 – 19).<br />
10). Vote Certification<br />
As s<strong>et</strong> forth in d<strong>et</strong>ail in the Vote Certification, the procedures used to distribute<br />
Solicitation Packages and tabulate B<strong>al</strong>lots were fair, properly conducted and in accordance with<br />
the Solicitation Procedures Order, the Voting Procedures Order and <strong>al</strong>l applicable Feder<strong>al</strong> and<br />
loc<strong>al</strong> Bankruptcy Rules. (Debtors’ Tri<strong>al</strong> Ex. 19). In accordance with Loc<strong>al</strong> Rule 3018-1, on<br />
28
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Pg Pg 156 29 of 163 336<br />
May 26, 2004, the Affidavit of Jane Sullivan Certifying Tabulation of Acceptances and<br />
Rejections of Fifth Amended Joint Plan of Affiliated Debtors Pursuant to Chapter 11 of the<br />
United States Bankruptcy Code (the “Initi<strong>al</strong> Vote Certification”) (Dock<strong>et</strong> No. 18671; Debtors’<br />
Tri<strong>al</strong> Ex. 19), was filed with the Court.<br />
Based on orders entered on or after May 26, 2004, on June 2, 2004, the Supplement<strong>al</strong><br />
Affidavit of Jane Sullivan Certifying Tabulation of Acceptances and Rejections of Fifth<br />
Amended Joint Plan of Affiliated Debtors Pursuant to Chapter 11 of the United States<br />
Bankruptcy Code (Dock<strong>et</strong> No. 18863) (the “Amended Vote Certification” and, tog<strong>et</strong>her with the<br />
Initi<strong>al</strong> Vote Certification, the “Vote Certification”) was filed with the Court.<br />
As s<strong>et</strong> forth in Article XXX of the Plan, Claims in Classes 1 and 2 of the Plan are not<br />
impaired. Pursuant to section 1126(f) of the Bankruptcy Code, Classes 1 and 2 are deemed to<br />
have accepted the Plan and were not entitled to vote. As s<strong>et</strong> forth in Article XXX of the Plan and<br />
consistent with the Voting Procedures Order, Class 190 was deemed to have accepted the Plan.<br />
Classes 183 and 376 through 385 are impaired and anticipated to receive no distributions under<br />
the Plan. (Bingham Affidavit 64). Pursuant to section 1126(g) of the Bankruptcy Code,<br />
Classes 183 and 376 through 385 are deemed to have rejected the Plan and were not entitled to<br />
vote.<br />
Of the remaining 372 impaired Classes, four (4) Classes relate to the Portland Debtors for<br />
which confirmation has been adjourned and six (6) Classes relate to the Dabhol Debtors, which<br />
have since been severed from these jointly administered cases and withdrawn as proponents of<br />
the Plan. In addition, ten (10) Classes relate to EREC Subsidiary I (Classes 49 and 237), EREC<br />
Subsidiary II (Classes 50 and 238), EREC Subsidiary III (Classes 51 and 239), EREC Subsidiary<br />
IV (Classes 52 and 240) and EREC Subsidiary V (Classes 53 and 241). These five (5) entities<br />
29
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Pg Pg 157 30 of 163 336<br />
were created immediately prior to the bankruptcy filing for the Wind Entities as limited liability<br />
companies to succeed the Wind Entities in conjunction with the ass<strong>et</strong> s<strong>al</strong>e to GE Power Systems.<br />
(Debtors’ Tri<strong>al</strong> Ex. 10 at M-5). Accordingly, these Classes are duplicative of the Classes for the<br />
Wind Entities and no b<strong>al</strong>lots were cast in these Classes.<br />
Of the remaining 352 impaired Classes, b<strong>al</strong>lots were cast in 110 Classes by non-insiders.<br />
(Debtors’ Tri<strong>al</strong> Ex. 19, Exhibit F). With the exception of 2 Classes for PGH (a Debtor for which<br />
confirmation has been adjourned), each of these Classes voted to accept the Plan. (Debtors’<br />
Tri<strong>al</strong> Ex. 19, Exhibit F). Of the 110 Classes, 52 are Convenience Classes under the Plan. With<br />
the exception of the Convenience Class for PGH (a Debtor for which confirmation has been<br />
adjourned), the 51 other Classes voted to accept the Plan. (Debtors’ Tri<strong>al</strong> Ex. 19, Ex. F). With<br />
respect to the Convenience Class for ENA, of the tot<strong>al</strong> of 134 votes cast tot<strong>al</strong>ing $1,752,014.66,<br />
126, b<strong>al</strong>lots tot<strong>al</strong>ing $1,623,038.26, representing 93.15% of the tot<strong>al</strong> amount voted to accept the<br />
Plan and seven b<strong>al</strong>lots tot<strong>al</strong>ing $119,976.40, representing 6.85% of the tot<strong>al</strong> amount voted to<br />
reject the Plan. (Debtors’ Tri<strong>al</strong> Ex. 19, Ex. F).<br />
Six Classes voted to accept the Plan based on b<strong>al</strong>lots cast by insiders, where such b<strong>al</strong>lots<br />
were the only votes cast in those Classes. (Debtors’ Tri<strong>al</strong> Ex. 19, Ex. G). Of the 237 impaired<br />
Classes for which no b<strong>al</strong>lots were cast, 141 of these Classes are Classes of impaired Claims<br />
against a Debtor for which at least one other impaired Class has accepted the Plan. There are 96<br />
Debtors for which no b<strong>al</strong>lots were cast, wh<strong>et</strong>her insider or non-insider, in any impaired Class for<br />
each of those specific Debtors. 14<br />
(Debtors’ Tri<strong>al</strong> Ex. 19, Exs. F and G).<br />
14 The 96 Debtors for which no votes were received are as follows: PBOG Corp.; P<strong>al</strong>m Beach Development<br />
Company, LLC; Tenant Services, <strong>Inc</strong>.; EESO Merchant Investments, <strong>Inc</strong>.; Enron Feder<strong>al</strong> Solutions, <strong>Inc</strong>.; Enron<br />
LNG Mark<strong>et</strong>ing LLC; Enron Internation<strong>al</strong> Fuel Management Company; Enron Communications Leasing Corp.;<br />
Intratex Gas Company; Enron Processing Properties, <strong>Inc</strong>.; The New Energy Trading Company; EES Service<br />
Holdings, <strong>Inc</strong>.; ZWHC LLC; Zond Pacific, LLC; Enron Fuels Internation<strong>al</strong>, <strong>Inc</strong>.; Artemis Associates, LLC; EGS<br />
New Ventures Corp.; Louisiana Gas Mark<strong>et</strong>ing Company; Louisiana Resources Company; LGMI, <strong>Inc</strong>.; LRCI, <strong>Inc</strong>.;<br />
Enron Communications Group, <strong>Inc</strong>.; Enrock Management, LLC; ECI Texas, L.P.; Enrock, L.P.; ECI-Nevada Corp.;<br />
30
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Pg Pg 158 31 of 163 336<br />
Excluding the Portland Debtors (for which confirmation has been adjourned), <strong>al</strong>l of the<br />
Debtors are included in the glob<strong>al</strong> compromise embodied in the Plan and <strong>al</strong>so the subject of the<br />
Glob<strong>al</strong> Compromise Motion. More specific<strong>al</strong>ly, each of the 96 Debtors for which no b<strong>al</strong>lots<br />
were cast, are <strong>al</strong>l included in the substantive consolidation component of the glob<strong>al</strong> compromise.<br />
(Bingham Affidavit 82).<br />
As reflected on Appendix C-I, the Debtors estimate that there are no third party creditors<br />
against 51 of the 96 Debtors for which no votes were received. These 51 Debtors have directly<br />
held ass<strong>et</strong>s tot<strong>al</strong>ing approximately $68.5 million. The Debtors further estimate the remaining 45<br />
Debtors have third-party unsecured claims of approximately $910 million and directly held<br />
ass<strong>et</strong>s tot<strong>al</strong>ing approximately $296.5 million. In the aggregate, these 96 Debtors hold less than<br />
4.5% of the ass<strong>et</strong>s directly held by <strong>al</strong>l of the Debtors and have estimated third party claims<br />
against the Debtors representing only approximately 1.5% of the aggregate estimated claims.<br />
The summary contained in this paragraph regarding ass<strong>et</strong>s and claims is based on the information<br />
contained in the “Tot<strong>al</strong> Directly Held Ass<strong>et</strong>s” and “Pre P<strong>et</strong>ition Gener<strong>al</strong> Unsecured Claims” in<br />
Appendix C-I to the Disclosure Statement. (Debtors’ Tri<strong>al</strong> Ex. 8). Across <strong>al</strong>l voting Classes,<br />
St. Charles Development Company, LLC; C<strong>al</strong>casieu Development Company, LLC; C<strong>al</strong>vert City Power I, LLC;<br />
Enron ACS, <strong>Inc</strong>.; LOA, <strong>Inc</strong>.; Enron India LLC; Enron Internation<strong>al</strong> Holdings Corp.; Enron Warpspeed Services,<br />
<strong>Inc</strong>.; Modulus Technologies, <strong>Inc</strong>.; Enron Telecommunications, <strong>Inc</strong>.; Datasystems Group, <strong>Inc</strong>.; Omicron Enterprises,<br />
<strong>Inc</strong>.; EFS I, <strong>Inc</strong>.; EFS II, <strong>Inc</strong>.; EFS III, <strong>Inc</strong>.; EFS V, <strong>Inc</strong>.; EFS VI, L.P.; EFS VII, <strong>Inc</strong>.; EFS IX, <strong>Inc</strong>.; EFS X, <strong>Inc</strong>.;<br />
EFS XII, <strong>Inc</strong>.; EFS XV, <strong>Inc</strong>; EFS XVII, <strong>Inc</strong>.; Jovinole Associates; EFS Holdings, <strong>Inc</strong>.; Green Power Partners I LLC;<br />
TLS Investors, LLC; ECT Securities Limited Partnership; ECT Securities LP Corp.; Enron Internation<strong>al</strong> Ass<strong>et</strong><br />
Management Corp.; Enron Brazil Power Holdings XI Ltd.; Enron Holding Company LLC; Enron Development<br />
Management Ltd.; Enron Internation<strong>al</strong> Korea Holdings Corp.; Enron Caribe VI Holdings Ltd.; Enron Internation<strong>al</strong><br />
Asia Corp.; Enron Brazil Power Investments XI Ltd.; Paulista Electric<strong>al</strong> Distribution, LLC; Enron Pipeline<br />
Construction Services Company; Enron Pipeline Services Company; Enron Trailblazer Pipeline Company; Enron<br />
Liquid Services Corp.; Enron Machine and Mechanic<strong>al</strong> Services, <strong>Inc</strong>.; Enron Permian Gathering <strong>Inc</strong>.; Transwestern<br />
Gathering Company; Enron Gathering Company; EGP Fuels Company; Enron Ass<strong>et</strong> Management Resources, <strong>Inc</strong>.;<br />
Enron Brazil Power Holdings I Ltd.; Enron do Brazil Holdings Ltd.; Enron Renewable Energy Corp.; Enron<br />
Acquisition III Corp.; EFS IV, <strong>Inc</strong>.; EFS VIII, <strong>Inc</strong>.; EFS XIII, <strong>Inc</strong>.; Enron Credit <strong>Inc</strong>.; Richmond Power Enterprises,<br />
L.P.; ECT Strategic V<strong>al</strong>ue Corp.; Atlantic Commerci<strong>al</strong> Finance, <strong>Inc</strong>.; ET Power 3 LLC; Nowa Sarzyna Holding<br />
B.V.; Enron South America LLC; Enron Glob<strong>al</strong> Power & Pipelines LLC; Cabazon Power Partners LLC; Cabazon<br />
Holdings LLC; Victory Garden Power Partners I LLC; Oswego Cogen Company, LLC; and Enron Equipment<br />
Procurement Company.<br />
31
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over 9,400 b<strong>al</strong>lots aggregating approximately $26.6 billion were cast and included in the Vote<br />
Certification, with each Class in which b<strong>al</strong>lots were cast (excluding PGH) voting to accept the<br />
Plan. (Debtors’ Tri<strong>al</strong> Ex. 19 at Ex. F).<br />
All Classes of impaired Claims and Equity Interests either have accepted the Plan or will<br />
receive fair and equitable treatment in accordance with section 1129(b) of the Bankruptcy Code.<br />
(Debtors’ Tri<strong>al</strong> Ex. 1, § 29.3; Bingham Affidavit 79).<br />
On May 7, 2004, the Court approved the following stipulations regarding temporary<br />
<strong>al</strong>lowance of claims (the “Voting Stipulations”):<br />
(a)<br />
(b)<br />
(c)<br />
(d)<br />
(e)<br />
(f)<br />
(g)<br />
(h)<br />
(i)<br />
Stipulation and Order Regarding Temporary Allowance of Bank of Tokyo-<br />
Mitsubishi, Ltd. claims for voting purposes. (Dock<strong>et</strong> No. 18273).<br />
Stipulation and Order Regarding (A) Temporary Allowance of Certain Claims of<br />
AEP Energy Services Gas Holding Company and Houston Pipeline Company LP<br />
for Voting Purposes and (B) Withdraw<strong>al</strong> of the AEP Parties’ Supplement to Initi<strong>al</strong><br />
Objection to Confirmation of the Fifth Amended Joint Plan. (Dock<strong>et</strong> No. 18275).<br />
Stipulation and Order Regarding Temporary <strong>al</strong>lowance of AEP Energy Services,<br />
<strong>Inc</strong>. Claims for Voting Purposes. (Dock<strong>et</strong> No. 18277).<br />
Stipulation and Order Regarding Temporary Allowance of Claims Filed by<br />
Deutsche Trustee Company Limited. (Dock<strong>et</strong> No. 18279).<br />
Stipulation and Order Regarding Temporary Allowance of Claims of ETOL.<br />
(Dock<strong>et</strong> No. 18280).<br />
Stipulation and Order Regarding Temporary Allowance of Claims Filed by<br />
Barclays Bank PLC. (Dock<strong>et</strong> No. 18281).<br />
Stipulation and Order Regarding Temporary Allowance of Toronto Dominion<br />
(Texas), <strong>Inc</strong>. Claims for Voting Purposes. (Dock<strong>et</strong> No. 18282).<br />
Stipulation and Order Regarding Temporary Allowance of Claims Related to the<br />
E-Next Financing Transaction. (Dock<strong>et</strong> No. 18283).<br />
Stipulation and Order Regarding Temporary Allowance of Claims J. Aron &<br />
Company and European Power Source Company (UK) Limited for Voting<br />
Purposes. (Dock<strong>et</strong> No. 18284).<br />
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Stipulation and Order Regarding Temporary Allowance of Reliant Claims for Voting Purposes.<br />
(Dock<strong>et</strong> No. 18285).<br />
The CLN Noteholders objected to <strong>al</strong>l of the Voting Stipulations. Such objections <strong>al</strong>leged<br />
only that: (a) claims that are disputed on grounds similar to the CLN Claims cannot be<br />
temporarily <strong>al</strong>lowed; (b) the Debtors cannot contend that Bankruptcy Rule 3018 is unenforceable<br />
and then temporarily <strong>al</strong>low claims under Bankruptcy Rule 9019; and (c) the Debtors engaged in<br />
a scheme to gain addition<strong>al</strong> acceptances by waiting until after the voting deadline to confirm that<br />
Creditors voted in favor of the Plan and then agreed to temporarily <strong>al</strong>low such claims.<br />
The CLN Noteholders did not attempt to designate any votes as being solicited or cast in<br />
bad faith pursuant to section 1126(e) of the Bankruptcy Code. The CLN Noteholders instead<br />
argued at the Confirmation Hearing that <strong>al</strong>l votes to accept or reject the Plan should not be<br />
counted because the Debtors acted in bad faith with respect to Voting Stipulations and certain<br />
other stipulations that affect voting. The CLN Noteholders have not put forth evidence sufficient<br />
to support their <strong>al</strong>legations and the record in these cases clearly refutes any such <strong>al</strong>legations.<br />
The CLN Noteholders were the only parties that litigated the temporary <strong>al</strong>lowance of<br />
claims in Classes 5 and 185. In accordance with the Voting Procedures Order and a Fiduciary<br />
Stipulation entered with respect to such claims, the CLN Noteholders were entitled to submit<br />
provision<strong>al</strong> b<strong>al</strong>lots pending d<strong>et</strong>ermination of their entitlement to vote. (Debtors’ Tri<strong>al</strong> Exs. 3 and<br />
20). Of the provision<strong>al</strong> b<strong>al</strong>lots cast by <strong>al</strong>l holders of Yosemite and Credit-Linked Notes, of<br />
which the CLN Noteholders are some, (a) 89 accepting votes were cast in Class 5 in the<br />
aggregate amount of $549,440,162.50, (b) 104 rejecting votes were cast in Class 5 in the<br />
aggregate amount of $1,315,861,765.55, (c) 50 accepting votes were cast in Class 185 in the<br />
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aggregate amount of $339,987,249.50, and (d) 62 rejecting votes were cast in Class 185 in the<br />
aggregate amount of $764,181,540.55. (Debtors’ Tri<strong>al</strong> Ex. 19).<br />
Prior to resolution of the temporary <strong>al</strong>lowance requests with respect to the CLN<br />
Noteholders’ claims (the “CLN Claims”), an order was entered providing that, if the CLN<br />
Claims were temporarily <strong>al</strong>lowed to vote on the Plan, holders of notes related to the Mahonia<br />
Financing Transaction would <strong>al</strong>so be entitled to vote on the Plan. (Dock<strong>et</strong> No. 16739).<br />
Accordingly, holders of claims related to the Mahonia Financing Transaction submitted<br />
provision<strong>al</strong> b<strong>al</strong>lots. Thereafter, the holders of these claims entered into a stipulated order to vote<br />
these claims in favor of the Plan in the event these claims were temporarily <strong>al</strong>lowed for voting<br />
purposes. (Dock<strong>et</strong> No. 18650). Of the provision<strong>al</strong> b<strong>al</strong>lots cast by the holders of notes related to<br />
the Mahonia Financing Transaction, two (2) accepting votes were cast in Class 5 in the aggregate<br />
amount of $939,832,064.00 and two (2) accepting votes were cast in Class 185 in the aggregate<br />
amount of $1,377,774,191.00. (Debtors’ Tri<strong>al</strong> Ex. 19).<br />
Based on the information s<strong>et</strong> forth on Exhibits E and F to the Vote Certification, even if<br />
the Court had temporarily <strong>al</strong>lowed the claims of <strong>al</strong>l holders of Yosemite and Credit-Linked Notes<br />
for voting purposes, Classes 5 and 185 would still have voted to accept the Plan. <strong>Inc</strong>luding these<br />
votes, without consideration of votes cast in connection with the Mahonia Financing Transaction,<br />
would have resulted in Class 5 having accepting votes representing 70.16% of the dollar amounts<br />
voted and 92.04% numerosity and Class 185 having accepting votes representing 72.30% of the<br />
dollar amounts voted and 60.78% numerosity. (Debtors’ Tri<strong>al</strong> Ex. 19). <strong>Inc</strong>lusion of votes on<br />
beh<strong>al</strong>f of holders of claims related to the Mahonia Financing Transaction would have further<br />
increased the acceptance rates for both of these Classes. (Debtors’ Tri<strong>al</strong> Ex. 19).<br />
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On May 24, 2004, the Court rendered its decision with respect to the request of the<br />
holders of Yosemite and Credit-Linked Notes for temporary <strong>al</strong>lowance of their claims for voting<br />
purposes. As s<strong>et</strong> forth in the recitation of decision on the record of May 24, 2004, the Court<br />
ruled that:<br />
(a)<br />
(b)<br />
(c)<br />
As of the P<strong>et</strong>ition Date, the claims of the holders of Yosemite and Credit-Linked<br />
Notes were held by defendants in the MegaClaim Litigation. (May 24, 2004<br />
Transcript at page 25). The holders of Yosemite and Credit-Linked Notes took<br />
the Disputed Claims subject to the Debtors’ section 502(d) objections. (5/24/04<br />
Hearing Tr. at 24).<br />
In light of the objections raised by the Debtors and the extensive findings by the<br />
ENE Examiner, the holders of Yosemite and Credit-Linked Notes had the burden<br />
of proof to present sufficient evidence that they have colorable claims capable of<br />
temporary <strong>al</strong>lowance. (5/24/04 Hearing Tr. at 17).<br />
After considering <strong>al</strong>l of the evidence in the record as well as applicable pleadings,<br />
adversary proceedings, answers and other filings with the Court, the holders of<br />
Yosemite and Credit-Linked Notes provided no argument in defense of the claims<br />
in the MegaClaim Litigation against Citibank that would undermine the basis for<br />
the section 502(d) objection. The holders of Yosemite and Credit-Linked Notes<br />
have failed to establish any basis under Bankruptcy Rule 3018 to temporarily<br />
<strong>al</strong>low their <strong>al</strong>leged claims to vote in full or in part based upon any other<br />
considerations. (5/24/04 Hearing Tr. at 27).<br />
The claims of the holders of Yosemite and Credit-Linked Notes were temporarily <strong>al</strong>lowed for<br />
purposes of voting in the amount of zero dollars and the Court would issue its opinion as to<br />
wh<strong>et</strong>her equitable subordination constitutes a proper claims objection upon (a) notification by<br />
May 27, 2004 that a bond or cash-equiv<strong>al</strong>ent collater<strong>al</strong> in the amount of $350 million had been<br />
posted to secure the Debtors’ interests in the claims against Citibank in the MegaClaim<br />
Litigation, and (b) the request of the holders of Yosemite and Credit-Linked Notes by May 27,<br />
2004 that the Court reconsider their temporary <strong>al</strong>lowance motions. (5/24/04 Hearing Tr. at 27 –<br />
29).<br />
The due process rights of the holders of Yosemite and Credit-Linked Notes with regard to<br />
temporary <strong>al</strong>lowance of their claims have been protected throughout the temporary <strong>al</strong>lowance<br />
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process. The holders of Yosemite and Credit-Linked Notes filed sever<strong>al</strong> pleadings related to<br />
temporary <strong>al</strong>lowance, hearings were held to consider the merits of arguments raised therein, and,<br />
at the conclusion of the May 24, 2004 hearing, the Court <strong>al</strong>lowed the holders of Yosemite and<br />
Credit-Linked Notes to further pursue temporary <strong>al</strong>lowance of their claims provided a bond or<br />
cash equiv<strong>al</strong>ent collater<strong>al</strong> in the amount of $350 million was posted by May 27, 2004. (5/24/04<br />
Hearing Tr. at 27 – 29; Dock<strong>et</strong> No. 18711). The holders of Yosemite and Credit-Linked Notes<br />
did not post this collater<strong>al</strong>.<br />
Pursuant to an order, dated May 27, 2004, the Court memori<strong>al</strong>ized its May 24, 2004<br />
decision and denied the request of the holders of Yosemite and Credit-Linked Notes to have their<br />
claims temporarily <strong>al</strong>lowed for voting purposes as claims in Classes 5 and 185 of the Plan.<br />
(Dock<strong>et</strong> No. 18711).<br />
Innisfree provided a true and accurate certification of the vote. No evidence was<br />
submitted by any objector to rebut the accuracy of the Vote Certification.<br />
Counsel for the Debtors announced certain technic<strong>al</strong> and immateri<strong>al</strong> modifications to the<br />
Plan at the Confirmation Hearing. (Confirmation Hearing Tr. passim). Some of these<br />
modifications were filed and served on June 1, 2004 (Dock<strong>et</strong> No. 18793; Affidavit of Service<br />
Dock<strong>et</strong> No. 18960, dated June 8, 2004). Such modifications will have no impact on the<br />
treatment of any claims and interests and thus, pursuant to Bankruptcy Rule 3019, <strong>al</strong>l<br />
acceptances of the Plan are deemed acceptances of the Plan as modified at the Confirmation<br />
Hearing. (Bingham Affidavit 73).<br />
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B. The Glob<strong>al</strong> Compromise<br />
1). History of Negotiations Leading Up To Glob<strong>al</strong> Compromise<br />
In accordance with the Court’s orders, Cooper LLC was r<strong>et</strong>ained by <strong>al</strong>l Debtors to<br />
provide and perform management services on the terms and conditions s<strong>et</strong> forth in such<br />
agreement. (Dock<strong>et</strong> No. 2725). Mr. Cooper testified his fiduciary duties and responsibilities<br />
were owed to each of the Debtors’ estates. (6/8/04 Cooper Tr. at 17:25 – 18:2).<br />
In addition to being a member of Cooper LLC, Stephen Cooper is a founding member of<br />
Zolfo Cooper, LLC (“ZC”), an affiliate of Cooper LLC. (Dock<strong>et</strong> No. 1497). 15<br />
ZC has provided<br />
crisis management and restructuring services to troubled companies since 1982. (Dock<strong>et</strong> No.<br />
1497). On September 5, 2002, <strong>al</strong>l of the membership interests of Zolfo Cooper Management,<br />
LLC and Zolfo Cooper Capit<strong>al</strong>, LLC were transferred to ZC. (Dock<strong>et</strong> No. 7686). The members<br />
of ZC then transferred <strong>al</strong>l of the membership interests in ZC to Kroll, <strong>Inc</strong>., a publicly traded<br />
Delaware corporation. (Dock<strong>et</strong> No. 7686). As a result, ZC became a wholly owned subsidiary<br />
of Kroll, <strong>Inc</strong>. and subsequently changed its name to Kroll Zolfo Cooper, LLC. (Dock<strong>et</strong> No.<br />
8058). Kroll, <strong>Inc</strong>. did not purchase the membership interests of Cooper LLC, however, through a<br />
series of agreements, Kroll, <strong>Inc</strong>. became the benefici<strong>al</strong> recipient of <strong>al</strong>l proceeds paid to Cooper<br />
LLC. (Dock<strong>et</strong> No. 8058).<br />
In November 2001, the Debtors r<strong>et</strong>ained The Blackstone Group (“Blackstone”) as their<br />
financi<strong>al</strong> advisors to assist in the ev<strong>al</strong>uation of restructuring <strong>al</strong>ternatives and options. In<br />
December 2001, the Debtors asked Blackstone to develop an approach for the structuring of a<br />
chapter 11 plan. (Debtors’ Tri<strong>al</strong> Ex. 24 at 8).<br />
15 ZC subsequently changed its name to Kroll Zolfo Cooper, LLC.<br />
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Mr. Cooper saw as his primary fiduciary duty maximizing the v<strong>al</strong>ue of the Debtors’<br />
estates in the aggregate so that v<strong>al</strong>ue could <strong>al</strong>so be maximized on an individu<strong>al</strong> Debtor basis.<br />
(6/9/04 Cooper Tr. at 62:13 – 18). Shortly after Mr. Cooper was r<strong>et</strong>ained by the Debtors in<br />
February 2002, he made clear to the Creditors’ Committee that he intended to work in an open<br />
and productive manner with them to maximize v<strong>al</strong>ue for <strong>al</strong>l economic stakeholders. (6/8/04<br />
Cooper Tr. at 27:3 – 18).<br />
Because these Chapter 11 Cases raise numerous complex issues arising princip<strong>al</strong>ly from<br />
the interrelationships among the Debtors and their approximately 2,400 subsidiaries, these<br />
interrelationships required examination of the Debtors’ respective liabilities, rights to ass<strong>et</strong>s,<br />
extensive intercompany claims and varying degrees of entanglement. (Bingham Affidavit 13,<br />
6/8/04 Cooper Tr. at 27:19 – 28:9). To prevent these issues from posing a barrier to the efficient<br />
conclusion of these Chapter 11 Cases, the Debtors and the Creditors’ Committee d<strong>et</strong>ermined that<br />
a resolution was necessary if a chapter 11 plan for any Debtor were to succeed and before any<br />
distribution to Creditors could be made. (Bingham Affidavit 13; 6/8/04 Cooper Tr. at 32:22 –<br />
33:10).<br />
The Debtors’ efforts to negotiate the glob<strong>al</strong> compromise and the Plan were aimed at<br />
maximizing Creditors’ recoveries and minimizing the risks and costs of litigation. (Bingham<br />
Affidavit 11). There was no need for the Debtors to negotiate with and among each other<br />
because of various other mechanisms in place – including, but not limited to, the Distribution<br />
Model, the postp<strong>et</strong>ition overhead <strong>al</strong>location formula and the Bankruptcy Transaction Review<br />
Committee (the “BTRC”). (6/8/04 Cooper Tr. at 18:3 – 19:11, 26:10 – 27:2; Debtors’ Tri<strong>al</strong> Ex.<br />
24 at 23, 130 – 156; 6/7/04 Zelin Tr. at 20:25 – 21:23). These mechanisms helped to ensure<br />
fairness and reasonableness b<strong>et</strong>ween and among the various Debtor estates. Moreover, the<br />
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Creditors’ Committee and its advisor – who represented the economic stakeholders of <strong>al</strong>l of the<br />
Debtors – were involved in formulation of the Plan. (6/8/04 Cooper Tr. at 27:3 – 5; Bingham<br />
Affidavit 14, 16; 6/4/04 Bingham Tr. at 26:2 – 10). There was a very wide range of views<br />
amongst the members of the Creditors’ Committee as to wh<strong>et</strong>her the glob<strong>al</strong> compromise should<br />
include a 0/100 or a 100/0 distribution formula reflecting a resolution of a vari<strong>et</strong>y of inter-estate<br />
issues, including substantive consolidation. (6/8/04 Cooper Tr. at 117:24 – 118:6).<br />
Given the diverse creditor body and the many complex issues posed by these Chapter 11<br />
Cases and mindful of their respective fiduciary duties to Creditors, the Debtors and the<br />
Creditors’ Committee engaged in intensive an<strong>al</strong>ysis and spirited discussions and debate<br />
regarding the terms of a chapter 11 plan and related matters. (Bingham Affidavit 14; 6/4/04<br />
Bingham Tr. at 52:24 – 53:15; 6/8/04 Cooper Tr. at 28:10 – 23; 5/16/02 Hearing Tr. at 164 – 72).<br />
The discussions or negotiations with the Creditors’ Committee began as early as February<br />
2002. (6/9/04 Cooper Tr. at 85:15 – 17). These negotiations involved discussions on a vari<strong>et</strong>y of<br />
issues that led to the development of the Plan, including (a) maximizing v<strong>al</strong>ue to Creditors,<br />
(b) resolving issues regarding substantive consolidation and other inter-estate and inter-creditor<br />
disputes, and (c) facilitating an orderly and efficient distribution of v<strong>al</strong>ue to Creditors. (Bingham<br />
Affidavit 14). The Plan and the glob<strong>al</strong> compromise and s<strong>et</strong>tlement embodied therein represent<br />
the culmination of these efforts, which included the joint substantive consolidation an<strong>al</strong>ysis<br />
discussed below. (Bingham Affidavit 14).<br />
Commencing in February 2002, Mr. Bingham began to interface with representatives of<br />
Blackstone to discuss the formulation of a computerized model to synthesize estimates and<br />
projections regarding ass<strong>et</strong>s and liabilities, as well as to c<strong>al</strong>culate Creditor recoveries under a<br />
chapter 11 plan depending on various assumptions and variables. (Bingham Affidavit 15;<br />
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6/7/04 Zelin Tr. at 21:3 – 23; 6/3/04 a.m. Bingham Tr. at 67:18 – 68:6). Blackstone devised the<br />
Distribution Model, which is described in Appendix C of the Disclosure Statement. (Debtors’<br />
Tri<strong>al</strong> Ex. 8; 6/7/04 Zelin Tr. at 27:23 – 26:4; Debtors’ Tri<strong>al</strong> Ex. 24 at 23, 130 – 156; Bingham<br />
Affidavit 15). Mr. Zelin, the Debtors’ expert, has supervised the creation of financi<strong>al</strong> models<br />
in many other chapter 11 cases. (6/7/04 Zelin Tr. at 20:8 – 16). The Distribution Model has<br />
been extensively diligenced by the Debtors, the Creditors’ Committee and its advisors and the<br />
ENA Examiner and his profession<strong>al</strong>s. (6/7/04 Zelin Tr. at 25:16 – 26:11; Debtors’ Tri<strong>al</strong> Ex. 24<br />
at 23). Moreover, the well-diligenced Distribution Model <strong>al</strong>lowed the Debtors to ev<strong>al</strong>uate the<br />
various potenti<strong>al</strong> inter-estate issues that might exist and d<strong>et</strong>ermine the economic consequences of<br />
various positions and the potenti<strong>al</strong> impact on creditor recoveries. (Debtors’ Tri<strong>al</strong> Ex. 24 at 132).<br />
On October 29, 2002, the Debtors made a presentation to the Creditors’ Committee<br />
regarding a plan structure, which considered a vari<strong>et</strong>y of scenarios. (Bingham Affidavit 16;<br />
Debtors’ Tri<strong>al</strong> Ex. 13). B<strong>et</strong>ween October 29, 2002 and January 15, 2003, the Debtors and their<br />
profession<strong>al</strong>s and profession<strong>al</strong>s for the Creditors’ Committee m<strong>et</strong> three or four times to further<br />
an<strong>al</strong>yze the Distribution Model in connection with the development of the Plan. (6/4/04<br />
Bingham Tr. at 26:2 – 16).<br />
On January 15, 2003, the Debtors made a presentation to the Creditors’ Committee<br />
suggesting an approach to consider the treatment of Claims and the mechanics of distributions.<br />
(Bingham Affidavit 16; Debtors’ Tri<strong>al</strong> Ex. 14). The Debtors and the Creditors’ Committee<br />
continued to engage in substantive discussions regarding the outlines of a plan and subsequently<br />
agreed to a 30/70 distribution formula included in the glob<strong>al</strong> compromise and the Plan to resolve<br />
a vari<strong>et</strong>y of inter-estate issues, including substantive consolidation. (Bingham Affidavit 16).<br />
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Thereafter, the Debtors and their profession<strong>al</strong>s m<strong>et</strong> with the profession<strong>al</strong>s of the Creditors’<br />
Committee on a weekly basis. (6/4/04 Bingham Tr. at 26:12 – 16).<br />
Consistent with the expanded role of the ENA Examiner as plan facilitator for the ENA<br />
Creditors, the ENA Examiner and his profession<strong>al</strong>s were <strong>al</strong>so involved in the Plan negotiations<br />
on beh<strong>al</strong>f of stakeholders of ENA and its subsidiaries, particularly those stakeholders that held<br />
guaranties issued by ENE and other entities. (6/8/04 Cooper Tr. at 30:15 – 31:16).<br />
On February 14, 2003, the Debtors made a d<strong>et</strong>ailed presentation to the ENA Examiner<br />
and certain Creditors of ENA and its subsidiaries, which represented a cross-section of Creditors<br />
(including traders, insurers and institution<strong>al</strong> investors), with respect to the concepts underlying<br />
the glob<strong>al</strong> compromise embodied in the Plan. (Bingham Affidavit 16; Debtors’ Tri<strong>al</strong> Ex. 15).<br />
Attendees at the February 14, 2003 me<strong>et</strong>ing included either princip<strong>al</strong>s or counsel for the<br />
CLN Noteholders, specific<strong>al</strong>ly Mr. David Tepper of App<strong>al</strong>oosa and Ms. Hollace Cohen, counsel<br />
for Vanguard. Confidenti<strong>al</strong> information was provided to attendees at this me<strong>et</strong>ing that would not<br />
have been provided unless the parties had signed confidenti<strong>al</strong>ity agreements. (6/4/04 Bingham<br />
Tr. at 18:10 – 15, 20:11 – 22:20).<br />
The ENA Examiner’s report stated that the confidenti<strong>al</strong>ity agreement was executed<br />
before the end of January 2003, and that for sever<strong>al</strong> months before that the Debtors had<br />
numerous me<strong>et</strong>ings and conversations with the ENA Examiner and his profession<strong>al</strong>s to review<br />
the Debtors’ proposed structure for a plan and that the Debtors provided written materi<strong>al</strong>s to the<br />
ENA Examiner even prior to the execution of the confidenti<strong>al</strong>ity agreement. (2/10/03 ENA<br />
Examiner’s Report, at 5 – 7).<br />
Using estimated claims and ass<strong>et</strong> v<strong>al</strong>ues available at that time, the presentation included a<br />
broad spectrum of potenti<strong>al</strong> estimated creditor recoveries using approximately fifteen (15)<br />
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different s<strong>et</strong>s of assumptions regarding a number of inter-estate issues. The <strong>al</strong>ternative scenarios<br />
were provided to demonstrate the disparity of results depending upon the ultimate resolution of<br />
these contested issues. The presentation explained the need for a consensu<strong>al</strong> resolution of certain<br />
inter-estate issues to conserve the resources of the Debtors’ estates and maximize r<strong>et</strong>urns to<br />
Creditors. (Bingham Affidavit 16).<br />
At the February 14, 2003 me<strong>et</strong>ing, the Debtors proposed a distribution c<strong>al</strong>culation based<br />
on 30% of the recovery under a substantive consolidation scenario and 70% of the recovery<br />
based on a non-consolidation scenario. (Debtors’ Tri<strong>al</strong> Ex. 15 at 23). On May 7, 2003, the ENA<br />
Examiner made a counter-propos<strong>al</strong> to the Debtors and the Creditors’ Committee. (Bingham<br />
Affidavit 17; Debtors’ Tri<strong>al</strong> Ex. 16). Rather than the 30/70 distribution formula suggested by<br />
the Debtors and the Creditors’ Committee, in the May 7, 2003 presentation, the ENA Examiner<br />
advocated a 10/90 formula. In addition, the counter-propos<strong>al</strong> advocated, among other propos<strong>al</strong>s,<br />
a re<strong>al</strong>location of certain ass<strong>et</strong>s to ENA. (Bingham Affidavit 17; Debtors’ Tri<strong>al</strong> Ex. 16). On<br />
May 30, 2003, the ENA Examiner made another counter-propos<strong>al</strong> raising a number of addition<strong>al</strong><br />
concerns. (Bingham Affidavit 18; Debtors’ Tri<strong>al</strong> Ex. 17). On May 30, 2003, the Debtors and<br />
the Creditors’ Committee issued an an<strong>al</strong>ysis of the ENA Examiner’s May 7, 2003 counterpropos<strong>al</strong>.<br />
(Bingham Affidavit 19; Debtors’ Tri<strong>al</strong> Ex. 18).<br />
In the summer of 2003, the Debtors and the Creditors’ Committee reached a compromise<br />
with the ENA Examiner, which was incorporated into the Initi<strong>al</strong> Plan filed on July 11, 2003,<br />
<strong>al</strong>ong with the disclosure statement filed in connection therewith. (Bingham Affidavit 20). As<br />
reflected in the Initi<strong>al</strong> Plan, as modified by, the First Amended Plan, these terms included:<br />
(a)<br />
Recoveries to Creditors holding Allowed Unsecured Claims would be equ<strong>al</strong> to<br />
30% of their recoveries in a modified substantive consolidation scenario plus 70%<br />
of their recoveries in a scenario where there is no consolidation;<br />
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(b)<br />
(c)<br />
Holders of Allowed Guaranty Claims would be entitled to participate in the<br />
modified substantive consolidation scenario to the extent of 50% of their Allowed<br />
Guaranty Claims (rather than the 0% that a holder of an Allowed Guaranty Claim<br />
might otherwise receive in a compl<strong>et</strong>e substantive consolidation scenario);<br />
The n<strong>et</strong> economic equity v<strong>al</strong>ue of the following ass<strong>et</strong>s attributed to ENE on the<br />
Debtors’ books and records would be re<strong>al</strong>located for the benefit of ENA and its<br />
Creditors –<br />
(i)<br />
(ii)<br />
(iii)<br />
the v<strong>al</strong>ue attributable to Enron Canada,<br />
50% of the v<strong>al</strong>ue attributable to CPS, and<br />
the v<strong>al</strong>ue attributable to Bridgeline Holdings;<br />
(d)<br />
(e)<br />
Distributions to Creditors on account of their Allowed Unsecured Claims would<br />
be made from a common currency of pooled ass<strong>et</strong>s, except that holders of<br />
Allowed Unsecured Claims Against ENA and certain of its subsidiaries would be<br />
entitled to receive Cash in lieu of up to $125 million in Plan Securities; and<br />
The ENA Examiner would be consulted with respect to one of the five Persons<br />
and the Creditors’ Committee would be consulted with respect to four of the five<br />
Persons to be appointed by the Debtors to the Board of Directors of Reorganized<br />
ENE and, to the extent that the Litigation Trust and Remaining Ass<strong>et</strong> Trusts are<br />
created, the Litigation Trust Board and the Remaining Ass<strong>et</strong> Trust Boards.<br />
(Debtors’ Tri<strong>al</strong> Ex. 2, § I.B.1.c.).<br />
At that time, the ENA Examiner executed and delivered a l<strong>et</strong>ter agreement, dated July 10,<br />
2003, wherein he informed the Debtors and the Creditors’ Committee that he believed the<br />
compromises and s<strong>et</strong>tlements incorporated into the Initi<strong>al</strong> Plan were reasonable and that the<br />
economic treatment to Creditors of ENA and its subsidiaries was fair and worthy of being<br />
accepted by such Creditors. (Bingham Affidavit 20). As acknowledged by App<strong>al</strong>oosa in its<br />
Objection to the Motion of The Baupost Group, L.L.C. and Racepoint Partners, L.P. for an Order<br />
Directing the Appointment of an Examiner to Investigate and Report on (1) the Fairness to the<br />
Estate and Creditors of Enron Corp. of the Proposed S<strong>et</strong>tlement B<strong>et</strong>ween Enron Corp. and Enron<br />
North America Corp. That is Contained in the Debtors’ Joint Plan and (2) Related Matters, filed<br />
in August 2003, the ENA Examiner became an active participant in the plan formulation process<br />
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as a fiduciary for the ENA estate. (Dock<strong>et</strong> No. 12523 at 10, 15 – 16). App<strong>al</strong>oosa and Angelo<br />
Gordon further asserted that<br />
[t]he Committee and the Debtors have conducted an exhaustive investigation of<br />
substantive consolidation issues, again at considerable expense to the estates. The<br />
plan formulation process undertaken by the Debtors and the Committee began<br />
nearly a year ago and, since January 2003, included the extensive efforts of the<br />
ENA Examiner, producing a fragile consensus through a difficult, protracted<br />
negotiation.<br />
(Dock<strong>et</strong> No. 12523 at 10). Moreover, the objection recognized that the plan negotiation process<br />
directed by the Court “produced a negotiated consensus among the Debtors, the [Creditors’]<br />
Committee and the ENA Examiner concerning complex issues. . . .” (Dock<strong>et</strong> No. 12523 at 3 – 4;<br />
6/17/04 Draft Hearing Tr. at 172 – 74). Vanguard similarly objected to the relief requested by<br />
Baupost and stated that the Baupost motion was<br />
a blatant and belated attempt by Baupost to delay and derail confirmation of the<br />
thoroughly negotiated and well v<strong>et</strong>ted Joint Plan and the fair and carefully crafted<br />
compromises contained therein, regardless of the harm that would be caused to<br />
the Debtors and their creditors from the inherent cost and delay if the relief<br />
requested [by Baupost] were granted.<br />
(Dock<strong>et</strong> No. 12526 at 3).<br />
In October 2003, the ENA Examiner notified the Court, the Debtors and the Creditors’<br />
Committee that he was withdrawing his support for the Initi<strong>al</strong> Plan and the First Amended Plan<br />
due to certain misunderstandings b<strong>et</strong>ween the ENA Examiner, on the one hand and the Debtors<br />
and the Creditors’ Committee, on the other hand, regarding the terms of the glob<strong>al</strong> compromise,<br />
including, among others, (a) wh<strong>et</strong>her and to what extent the Debtors intended to ch<strong>al</strong>lenge Enron<br />
Guaranty Claims held by Creditors of ENA and its subsidiaries on the basis of constructive<br />
fraudulent conveyances, and (b) the <strong>al</strong>location of ownership of certain affirmative claims and<br />
causes of action that may be commenced by or on beh<strong>al</strong>f of the Debtors’ estates against third<br />
parties. (Bingham Affidavit 22).<br />
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In an effort to preserve the glob<strong>al</strong> compromise, the Debtors, the Creditors’ Committee<br />
and the ENA Examiner resumed discussions and negotiations over the terms of a joint chapter 11<br />
plan in October and November 2003. At that time, the parties could not reach a mutu<strong>al</strong><br />
understanding and, on November 13, 2003, the Debtors, with the support of the Creditors’<br />
Committee, but without the support of the ENA Examiner, filed the Second Amended Joint Plan<br />
of Affiliated Debtors Pursuant to Chapter 11 of the United States Bankruptcy Code (the “Second<br />
Amended Plan”), as well as the disclosure statement filed in connection therewith. (Bingham<br />
Affidavit 22). The ENA Examiner objected to the disclosure statement for the Second<br />
Amended Plan. (Dock<strong>et</strong> No. 14085). On November 13, 2003, the Debtors and the Creditors’<br />
Committee filed a joint reply to the ENA Examiner’s objection. (Dock<strong>et</strong> No. 14181).<br />
After the filing of the Second Amended Plan on November 13, 2003, the Court convened<br />
a chambers’ conference among the Debtors, Creditors’ Committee, ENA Examiner and their<br />
respective profession<strong>al</strong>s and strongly urged the parties to continue to attempt to achieve a glob<strong>al</strong><br />
resolution satisfactory to the Debtors, the Creditors’ Committee and the ENA Examiner.<br />
(Bingham Affidavit 23). Following addition<strong>al</strong> negotiations, on December 5, 2003, the Debtors,<br />
the Creditors’ Committee and the ENA Examiner agreed to modify certain provisions of the<br />
previous glob<strong>al</strong> compromise. (Bingham Affidavit 23). These modifications were incorporated<br />
in the Debtors’ Third Amended Joint Plan of Affiliated Debtors Pursuant to Chapter 11 of the<br />
United States Bankruptcy Code (the “Third Amended Plan”), filed on December 17, 2003, <strong>al</strong>ong<br />
with the disclosure statement filed in connection therewith. (Bingham Affidavit 23).<br />
On January 4, 2004, the Debtors filed the Fourth Amended Joint Plan of Affiliated<br />
Debtors Pursuant to Chapter 11 of the United States Bankruptcy Code (the “Fourth Amended<br />
Plan”) and disclosure statement (Dock<strong>et</strong> Nos. 15153 and 15154 ) filed in connection therewith.<br />
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The Fourth Amended Plan addressed certain objections that had been interposed to the adequacy<br />
of the information contained in the disclosure statement and Third Amended Plan. (Bingham<br />
Affidavit 24). The evolution of the Plan terms and the extensive negotiations and discussions<br />
b<strong>et</strong>ween the ENA Examiner, the Creditors’ Committee and the Debtors is further evidenced by<br />
the periodic reports filed by the ENA Examiner regarding the status of the chapter 11 plan<br />
developments and recommendations related to exclusivity. (Dock<strong>et</strong> Nos. 5415, 7539, 9181,<br />
10577, 15193 and 18167). In particular, the report filed on or about January 5, 2004 (Dock<strong>et</strong> No.<br />
15193) contains the ENA Examiner’s recitation of the circumstances and events related to<br />
withdraw<strong>al</strong> of his support for the First Amended Plan. In addition, changes and modifications to<br />
the Plan as a result of the discussion and negotiations b<strong>et</strong>ween the Debtors, the Creditors’<br />
Committee, the ENA Examiner and other parties in interest are evidenced by the prior filings of<br />
the Plan on July 11, 2003, September 18, 2003, November 13, 2003, December 17, 2003 and<br />
January 4, 2004 (Dock<strong>et</strong> Nos. 11698, 12822, 14154, 14893 and 15153) and the disclosure<br />
statements related ther<strong>et</strong>o. (Dock<strong>et</strong> Nos. 11699, 12823, 14155, 14894 and 15154).<br />
The Plan has been proposed in good faith and not by any means forbidden by law. The<br />
Plan is the result of extensive arm’s-length discussions, debate and/or negotiations among the<br />
Debtors, the Creditors’ Committee and the ENA Examiner. (Bingham Affidavit 74).<br />
The Plan is supported by substanti<strong>al</strong>ly <strong>al</strong>l of the major economic parties in interest in the<br />
Chapter 11 Cases, including (a) unanimous support of the Creditors’ Committee, which<br />
represents <strong>al</strong>l unsecured claimholders of the Debtors’ estates, (b) the various parties with whom<br />
the Debtors negotiated s<strong>et</strong>tlements and which now support, or do not object to confirmation of,<br />
the Plan, including Nation<strong>al</strong> City Bank and Baupost Group, and (c) the ENA Examiner on beh<strong>al</strong>f<br />
of ENA’s Creditors. (Bingham Affidavit 74). Both the Creditors’ Committee and the ENA<br />
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Examiner submitted l<strong>et</strong>ters in support of the Plan, which were transmitted to Creditors <strong>al</strong>ong<br />
with their solicitation packages. (Debtors’ Tri<strong>al</strong> Exs. 6 and 7). No evidence was submitted by<br />
any objector sufficient to rebut the Debtors’ evidence concerning the good faith, arm’s-length<br />
nature of negotiations regarding the Plan.<br />
2). Terms of the Glob<strong>al</strong> Compromise Embodied in the Plan<br />
On May 4, 2004, the Debtors filed the Glob<strong>al</strong> Compromise Motion, seeking approv<strong>al</strong> of<br />
the terms of the glob<strong>al</strong> compromise, as s<strong>et</strong> forth below, which s<strong>et</strong> forth the terms an<strong>al</strong>yzed,<br />
discussed and debated by the Debtors, Creditors’ Committee and the ENA Examiner. The<br />
various integrated elements of the glob<strong>al</strong> compromise (Bingham Affidavit 63) are:<br />
(a)<br />
(b)<br />
(c)<br />
(d)<br />
Distributions to Creditors based upon a formula pursuant to which, for Creditors<br />
other than those of the Portland Debtors, distributions will be made as if holders<br />
of an Allowed Claim were given the sum of (i) 70% of the distribution such<br />
holder would receive if the Debtors, other than the Portland Debtors, were not<br />
substantively consolidated, and (ii) 30% of the distribution such holder would<br />
receive if <strong>al</strong>l of the Debtors’ estates, other than those of the Portland Debtors,<br />
were substantively consolidated in a hypoth<strong>et</strong>ic<strong>al</strong> scenario, but notwithstanding<br />
this distribution formula, one-h<strong>al</strong>f of Allowed Guaranty Claims were included in<br />
such c<strong>al</strong>culation (Bingham Affidavit 38);<br />
The resolution of Intercompany Claims and other inter-estate issues to give<br />
holders of Allowed Intercompany Claims 70% of the distribution such Debtor<br />
would receive if the Debtors were not substantively consolidated and no<br />
distribution under the hypoth<strong>et</strong>ic<strong>al</strong> substantive consolidation scenario;<br />
The waiver of potenti<strong>al</strong> inter-Debtor remedies;<br />
The resolution of certain ass<strong>et</strong>-ownership disputes b<strong>et</strong>ween ENE and ENA,<br />
whereby:<br />
(i)<br />
(ii)<br />
(iii)<br />
the n<strong>et</strong> economic equity v<strong>al</strong>ue of Enron Canada will be deemed to be an<br />
ass<strong>et</strong> of ENA,<br />
the n<strong>et</strong> economic preferred equity v<strong>al</strong>ue of RMTC will be deemed to be an<br />
ass<strong>et</strong> of ENE,<br />
50% of the n<strong>et</strong> economic v<strong>al</strong>ue of CPS will be deemed to be an ass<strong>et</strong> of<br />
ENE and 50% will be deemed to be an ass<strong>et</strong> of ENA, and<br />
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(iv)<br />
the n<strong>et</strong> economic equity v<strong>al</strong>ue of Bridgeline Holdings will be deemed to<br />
be an ass<strong>et</strong> of ENA;<br />
(e)<br />
The resolution of inter-estate issues regarding rights to certain claims and causes<br />
of action, including that:<br />
(i)<br />
(ii)<br />
(iii)<br />
(iv)<br />
each Debtor will r<strong>et</strong>ain the benefits of its single-Debtor claims or causes of<br />
action for its respective Creditors subject to the 30/70 distribution formula;<br />
proceeds from avoidance actions involving two Debtors, other than those<br />
included in the definition of Litigation Trust Claims or Speci<strong>al</strong> Litigation<br />
Trust Claims, will be shared 50/50 b<strong>et</strong>ween the transferor Debtor and the<br />
Debtor whose antecedent debt was satisfied. (Debtors’ Tri<strong>al</strong> Ex. 2,<br />
§ I.B.1.c.);<br />
certain significant claims and causes of action (that is, the Litigation Trust<br />
Claims and Speci<strong>al</strong> Litigation Trust Claims) will be deemed to be owned<br />
by ENE, subject to the 30/70 distribution formula; and<br />
a portion of the distributions to be made on account of Allowed Enron<br />
Guaranty Claims resulting from recoveries on Litigation Trust Claims and<br />
Speci<strong>al</strong> Litigation Trust Claims will be re<strong>al</strong>located in accordance with the<br />
following formula: (a) 80% of such distributions will be r<strong>et</strong>ained by<br />
holders of such Allowed Enron Guaranty Claims and (b) 20% of such<br />
distributions will be deemed redistributed to holders of Gener<strong>al</strong> Unsecured<br />
Claims, if any, against the subsidiary Debtor that is the primary obligor<br />
corresponding to such Allowed Enron Guaranty Claims; provided,<br />
however, that, to the extent a holder of an Allowed Enron Guaranty Claim<br />
<strong>al</strong>so holds a Gener<strong>al</strong> Unsecured Claim for the primary obligation against<br />
the subsidiary Debtor, such Gener<strong>al</strong> Unsecured Claim will be excluded<br />
from the redistribution under part (b); and<br />
(f)<br />
Creation of Plan Currency—a blend of Creditor Cash and the equity interests of<br />
Prisma, PGE and CrossCountry—to pay Gener<strong>al</strong> Unsecured Claims against each<br />
Debtor’s estate.<br />
3). Factors Supporting the Glob<strong>al</strong> Compromise and Substantive Consolidation<br />
From mid-2002 and continuing into 2003, the Debtors and the Creditors’ Committee<br />
undertook a diligence process to ascertain wh<strong>et</strong>her substantive consolidation would be an<br />
appropriate remedy for some or <strong>al</strong>l of the Debtors in these Chapter 11 Cases. (Bingham<br />
Affidavit 33; 6/3/04 p.m. Bingham Tr. at 71:19 – 72:3). In that regard, the Debtors and their<br />
profession<strong>al</strong>s, as well as the Creditors’ Committee and its profession<strong>al</strong>s, each undertook an<br />
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ev<strong>al</strong>uation of the merits of substantive consolidation from both a leg<strong>al</strong> and a business standpoint.<br />
(6/8/04 Cooper Tr. at 27:23 – 28:9). The Debtors and the Creditors’ Committee, tog<strong>et</strong>her with<br />
their profession<strong>al</strong>s, separately reviewed and considered the Debtors’ books and records, public<br />
filings, key contracts and other documents, as well as the facts and leg<strong>al</strong> theories underlying<br />
various related inter-estate issues (Bingham Affidavit 33; 6/3/04 Bingham Tr. at 71:10 – 72:10)<br />
and conducted numerous joint interviews of current and former employees, an<strong>al</strong>yzed the relevant<br />
leg<strong>al</strong> standards and ev<strong>al</strong>uated the relationships b<strong>et</strong>ween certain of the Debtors and their largest<br />
Creditors. (Bingham Affidavit 33). The Debtors and the Creditors’ Committee concluded that,<br />
for each of the Debtors, there are relevant facts weighing both for and against substantive<br />
consolidation. (Bingham Affidavit 34). Appendix M to the Disclosure Statement summarizes<br />
the conclusions reached by the Debtors and the Creditors’ Committee as a result of their<br />
diligence. (Debtors’ Tri<strong>al</strong> Ex. 10).<br />
The Debtors considered numerous factors relevant to the issue of substantive<br />
consolidation for each Debtor, including, but not limited to, the following:<br />
(a)<br />
(b)<br />
(c)<br />
(d)<br />
(e)<br />
Many of the Debtors’ financi<strong>al</strong> transactions and statements have been found<br />
fraudulent, avoidable or misstated by numerous investigators, including courtappointed<br />
examiners and government<strong>al</strong> task forces;<br />
Each of the Debtors was able to prepare and file separate Schedules listing their<br />
prep<strong>et</strong>ition ass<strong>et</strong>s and liabilities;<br />
Separate books and records were maintained for each of the Debtors prep<strong>et</strong>ition;<br />
Prep<strong>et</strong>ition, a consolidated feder<strong>al</strong> tax r<strong>et</strong>urn was filed that included most of the<br />
Debtors, but, to the extent applicable, individu<strong>al</strong> state tax r<strong>et</strong>urns were prepared<br />
and filed for each of the Debtors;<br />
Prep<strong>et</strong>ition, each of the Debtors observed corporate form<strong>al</strong>ities including<br />
conducting periodic board me<strong>et</strong>ings and annu<strong>al</strong> shareholder me<strong>et</strong>ings; other than<br />
the me<strong>et</strong>ings held for ENE, the vast majority of these me<strong>et</strong>ings were by written<br />
consent, rather than through in-person me<strong>et</strong>ings involving debate and discussion;<br />
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(f)<br />
(g)<br />
(h)<br />
(i)<br />
(j)<br />
(k)<br />
(l)<br />
(m)<br />
(n)<br />
For substanti<strong>al</strong>ly <strong>al</strong>l of the Debtors, overlap existed as to the officers and directors<br />
of each Debtor and the officers and directors of other Debtors;<br />
Substanti<strong>al</strong>ly <strong>al</strong>l of the Debtors directly or indirectly participated in the<br />
centr<strong>al</strong>ized cash management system maintained by ENE prep<strong>et</strong>ition;<br />
Substanti<strong>al</strong>ly <strong>al</strong>l of the Debtors received direct or indirect prep<strong>et</strong>ition credit<br />
support from ENE through intercompany loans (wh<strong>et</strong>her directly to the Debtor or<br />
indirectly to the Debtor through the Debtor’s parent(s)), guaranties, indemnities,<br />
tot<strong>al</strong> r<strong>et</strong>urn swaps or other means of support;<br />
With very few exceptions, prior to the Initi<strong>al</strong> P<strong>et</strong>ition Date, none of the Debtors<br />
disseminated financi<strong>al</strong> information to Creditors or potenti<strong>al</strong> creditors or otherwise<br />
made such information available other than the consolidated financi<strong>al</strong> statements<br />
for ENE and its subsidiaries;<br />
Of the Debtors, ENE was the only entity with a credit rating by the major<br />
domestic rating agencies and ENA became unable to continue its business<br />
operations upon the downgrade of ENE’s credit rating;<br />
Although some costs were <strong>al</strong>located to subsidiaries, prep<strong>et</strong>ition, ENE absorbed<br />
substanti<strong>al</strong> overhead costs for most (if not <strong>al</strong>l) of the Debtors;<br />
Substanti<strong>al</strong>ly <strong>al</strong>l of the Debtors utilized ENE’s centr<strong>al</strong>ized services for risk<br />
management, insurance procurement, leg<strong>al</strong>, benefits and similar services;<br />
Although the intern<strong>al</strong> transaction approv<strong>al</strong> process for <strong>al</strong>l of the Debtors did not<br />
expressly require approv<strong>al</strong> of the board of the entity engaged in the transaction, it<br />
did require, depending on the dollar amount and type of transaction, approv<strong>al</strong> by<br />
the head of the applicable business unit (who might not be an officer or director of<br />
that entity), the head of the applicable business segment (who might not be an<br />
officer or director of that entity), the Office of the Chair of ENE and/or the Board<br />
of Directors of ENE; and<br />
The Debtors’ accounting policies permitted non-cash s<strong>et</strong>tlements and novations of<br />
intercompany obligations by <strong>al</strong>lowing subsidiaries to either (i) transfer their<br />
intercompany receivables owed by other subsidiaries to ENE, in exchange for a<br />
receivable from ENE or (ii) transfer their intercompany payables owed to other<br />
subsidiaries to ENE with ENE assuming the obligation, in exchange for a payable<br />
owed by the subsidiary to ENE. After the compl<strong>et</strong>ion of a non-cash s<strong>et</strong>tlement,<br />
the entity with the origin<strong>al</strong> payable would have a payable to ENE and ENE would<br />
have a payable to the other subsidiary. The entity with the origin<strong>al</strong> receivable<br />
from a subsidiary of ENE would have a receivable from ENE.<br />
(Bingham Affidavit 34; Debtors’ Tri<strong>al</strong> Ex. 10).<br />
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Based upon the Debtors’ review, at least one of the foregoing factors that would support<br />
substantive consolidation is present for each one of the Debtors, other than the Portland Debtors.<br />
(6/4/04 Bingham Tr. at 38:7 – 19; Debtors’ Tri<strong>al</strong> Ex. 10). In addition, there was extensive<br />
entanglement b<strong>et</strong>ween some or <strong>al</strong>l of the Debtors arising princip<strong>al</strong>ly from Intercompany Claims,<br />
as summarized in Appendix N of the Disclosure Statement and in the Blackstone Report.<br />
(Debtors’ Tri<strong>al</strong> Ex. 11; Debtors’ Tri<strong>al</strong> Ex. 24 at 152). A prime example of such entanglement is<br />
the fact that ENA is ENE’s single largest Creditor and ENA’s Claim against ENE is ENA’s<br />
single largest ass<strong>et</strong>. (Bingham Affidavit 35). Similar intercompany entanglement exists<br />
among Debtors within particular business units, such as R<strong>et</strong>ail Services and the Wind businesses<br />
and often extends to include ENE because the business units often operated on a negative cash<br />
flow basis and relied heavily on significant cash infusions from ENE (recorded by both Debtors<br />
as intercompany loans) to maintain their business operations. (Bingham Affidavit 35).<br />
In addition to entanglement issues, the evidence indicates that at least some Creditors<br />
may have de<strong>al</strong>t with the Debtors as a single economic unit. For example, the Debtors did not<br />
issue separate financi<strong>al</strong> statements, but relied, instead, on ENE’s consolidated financi<strong>al</strong><br />
statements in de<strong>al</strong>ing with creditors. (Bingham Affidavit 36). Similarly, <strong>al</strong>though the CLN<br />
Noteholders have <strong>al</strong>leged that they hold among the largest claims against ENA, the transactions<br />
surrounding issuance of the Yosemite and Credit-Linked Notes were mark<strong>et</strong>ed based on the<br />
creditworthiness of ENE, not ENA. (Debtors’ Tri<strong>al</strong> Ex. 10). In particular, the terms of such<br />
transactions provided that upon an event of default, which included ENE’s bankruptcy filing,<br />
senior unsecured obligations of ENE (not ENA) would be delivered to the relevant indenture<br />
trustee for the Yosemite and Credit-Linked Note trusts. (Debtors’ Tri<strong>al</strong> Ex. 2, § III.F.51; Proof<br />
of Claim No. 11735). Although the CLN Noteholders oppose the glob<strong>al</strong> compromise regarding<br />
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substantive consolidation, they have adduced no evidence to show that any Creditor of ENA<br />
relied on the separate creditworthiness of ENA.<br />
The downgrade of ENE’s credit ratings following the events in the F<strong>al</strong>l of 2001 <strong>al</strong>so<br />
negatively impacted the other Debtors’ ability to obtain credit and me<strong>et</strong> their financi<strong>al</strong><br />
obligations. Similarly, ENA’s ability to continue its trading operations was adversely affected<br />
by ENE’s credit downgrades. (Bingham Affidavit 36). As a result, the Debtors concluded that<br />
a compromise of the issue of substantive consolidation would be appropriate and fair from the<br />
vantage point of Creditors’ expectations. (Bingham Affidavit 36). The overwhelming<br />
incidence of common facts relevant to this an<strong>al</strong>ysis provides the basis for inclusion of <strong>al</strong>l the<br />
Debtors (other than the Portland Debtors) in the glob<strong>al</strong> compromise. (Bingham Affidavit 37;<br />
Debtors’ Tri<strong>al</strong> Ex. 10).<br />
The 30/70 distribution formula is not a precise mathematic<strong>al</strong> quantification of the<br />
likelihood of substantive consolidation of each Debtor into each of the other Debtors, which<br />
would be impossible to c<strong>al</strong>culate. Rather, the formula represents a negotiated compromise of<br />
numerous inter-estate issues, including substantive consolidation. (Bingham Affidavit 38).<br />
The 30/70 distribution formula is an integr<strong>al</strong> element of the glob<strong>al</strong> compromise and it cannot be<br />
separated from the other elements in the compromise. (6/9/04 Cooper Tr. at 55:24 – 56:14;<br />
6/3/04 p.m. Bingham Tr. at 162:13 – 17; Bingham Affidavit 63). Creditors, such as those of<br />
EPMI and ENA, benefit from the glob<strong>al</strong> compromise because the pooling of claims under the<br />
30% scenario reduces the impact of liability on an individu<strong>al</strong> estate as a result of potenti<strong>al</strong>ly<br />
massive claims, such as those relating to <strong>al</strong>leged mark<strong>et</strong> manipulation. Therefore, the 30%<br />
scenario ensures that any such liability is spread among the Debtors. (6/8/04 Cooper Tr. at 84:4<br />
– 21; Proof of Claim No. 12172; Bingham Affidavit 38). No evidence was submitted by any<br />
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objector to sufficiently rebut the Debtors’ evidence concerning the factors relating to the glob<strong>al</strong><br />
compromise as it relates to issues of substantive consolidation.<br />
4). Guaranty Claims and the Glob<strong>al</strong> Compromise<br />
As an integr<strong>al</strong> part of the glob<strong>al</strong> compromise and its s<strong>et</strong>tlement of inter-estate issues, for<br />
purposes of c<strong>al</strong>culating recoveries, Guaranty Claims are included in the substantive consolidation<br />
scenario at 50% of the amount that would be <strong>al</strong>lowed in the stand-<strong>al</strong>one scenario. (Debtors’<br />
Tri<strong>al</strong> Ex. 24 at 153). Guaranty Claims are thereby treated b<strong>et</strong>ter than the 30/70 formula would<br />
otherwise treat them because the 30% component would yield a zero distribution on a guaranty<br />
in a substantive consolidation scenario. Section 28.2 of the Plan provides an option to<br />
compromise and s<strong>et</strong>tle any constructive fraudulent transfer actions that have <strong>al</strong>ready been<br />
commenced, or for which Debtors have executed a tolling agreement, with respect to Claims<br />
against ENE predicated upon guaranties issued, amended, or replaced during the one-year period<br />
preceding the Initi<strong>al</strong> P<strong>et</strong>ition Date. (Debtors’ Tri<strong>al</strong> Ex. 1, § 28.2). Creditors whose Claims have<br />
been ch<strong>al</strong>lenged on these grounds have the opportunity to accept a discount to the <strong>al</strong>lowed<br />
amount of such Claims at varying percentages based upon the proximity of the execution of the<br />
guaranty to the Initi<strong>al</strong> P<strong>et</strong>ition Date. (Debtors’ Tri<strong>al</strong> Ex. 1, § 28.2). No evidence was submitted<br />
by any objector sufficient to rebut the Debtors’ evidence concerning the treatment of Guaranty<br />
Claims under the glob<strong>al</strong> compromise embodied in the Plan and s<strong>et</strong> forth in the Glob<strong>al</strong><br />
Compromise Motion.<br />
5). Intercompany Claims and the Glob<strong>al</strong> Compromise<br />
As an integr<strong>al</strong> part of the glob<strong>al</strong> compromise and its s<strong>et</strong>tlement of inter-estate issues,<br />
except with respect to the Portland Debtors, the Debtors holding Allowed Intercompany Claims<br />
(that is, accounts and notes owed by one Debtor to another Debtor) will receive 70% of the<br />
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distribution such Debtor would receive if the Debtors were not substantively consolidated.<br />
(Bingham Affidavit 47; 6/7/04 Zelin Tr. at 218:7 – 14, 266:7 – 13). As the 30% scenario is<br />
based on the hypoth<strong>et</strong>ic<strong>al</strong> substantive consolidation of <strong>al</strong>l Debtors (excluding the Portland<br />
Debtors), no distribution will be made on Intercompany Claims under this scenario. (Bingham<br />
Affidavit 47; Debtors’ Tri<strong>al</strong> Ex. 1, §§ 1.157, 2.1).<br />
The Debtors’ accounting policies permitted non-cash s<strong>et</strong>tlements of intercompany<br />
obligations by <strong>al</strong>lowing subsidiaries to either (1) transfer their intercompany receivables owed by<br />
other subsidiaries to ENE, in exchange for a receivable from ENE, or (2) transfer their<br />
intercompany payables owed to other subsidiaries to ENE with ENE assuming the obligation, in<br />
exchange for a payable owed by the subsidiary to ENE. After the compl<strong>et</strong>ion of a non-cash<br />
s<strong>et</strong>tlement, the entity with the origin<strong>al</strong> payable would have a payable to ENE and ENE would<br />
have a payable to the other subsidiary. The entity with the origin<strong>al</strong> receivable from a subsidiary<br />
of ENE would have a receivable from ENE. (Bingham Affidavit 46).<br />
Because of the scope and breadth of the intercompany transactions b<strong>et</strong>ween the Debtors,<br />
there is some degree of inescapable entanglement. (Debtors’ Tri<strong>al</strong> Ex. 11). For example, ENA<br />
holds the single largest claim against ENE and ENA’s Claim against ENE is ENA’s single<br />
largest ass<strong>et</strong>. (Bingham Affidavit 35; 6/9/04 Cooper Tr. at 107:25 – 108:3; 6/7/04 Zelin Tr. at<br />
78:15 – 80:3). However, the entanglement is not “hopeless” in that the Debtors believe that,<br />
with sufficient time and resources, substanti<strong>al</strong>ly <strong>al</strong>l the materi<strong>al</strong> entries to the intercompany<br />
accounts could be reviewed, ev<strong>al</strong>uated and potenti<strong>al</strong> ch<strong>al</strong>lenges identified. (Bingham Affidavit<br />
47).<br />
The Intercompany Claims that would be <strong>al</strong>lowed pursuant to the glob<strong>al</strong> compromise<br />
result from millions, if not hundreds of millions, of individu<strong>al</strong> debits and credits arising from the<br />
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Debtors’ business operations. (Bingham Affidavit 48). Although it is theor<strong>et</strong>ic<strong>al</strong>ly possible to<br />
investigate each transaction, it is neither necessary nor cost-effective to do so. Profession<strong>al</strong>s for<br />
the Debtors, the Creditors’ Committee and the ENA Examiner sampled entries, particularly those<br />
b<strong>et</strong>ween ENE and ENA and d<strong>et</strong>ermined that the Debtors’ books and records are sufficiently<br />
reliable to justify the <strong>al</strong>lowance of Intercompany Claims as incorporated into the glob<strong>al</strong><br />
compromise. (Bingham Affidavit 35, 48; 6/3/04 p.m. Bingham Tr. at 155:17 – 156:6, 156:23<br />
– 157:18).<br />
Pursuant to the glob<strong>al</strong> compromise, <strong>al</strong>l other potenti<strong>al</strong> inter-Debtor remedies, such as the<br />
potenti<strong>al</strong> dis<strong>al</strong>lowance, subordination or re-characterization of Intercompany Claims, and certain<br />
affirmative claims or causes of action against any other Debtor, will be waived. (Bingham<br />
Affidavit 49; Debtors’ Tri<strong>al</strong> Ex. 1, § 28.3). The Distribution Model identified the ass<strong>et</strong>s and<br />
liabilities of each Debtor’s estate. (6/8/04 Cooper Tr. at 18:12 – 17). C<strong>al</strong>culation of recoveries<br />
on intercompany claims is part of the Distribution Model. (6/7/04 Zelin Tr. at 21:17 – 23). The<br />
Distribution Model <strong>al</strong>lows the ev<strong>al</strong>uation of the impact on v<strong>al</strong>ue <strong>al</strong>locations of various potenti<strong>al</strong><br />
inter-estate issues that might be pursued in a chapter 11 case, including substantive<br />
consolidation. (6/7/04 Zelin Tr. at 24:20 – 25:10).<br />
The Distribution Model c<strong>al</strong>culates the v<strong>al</strong>ue that flows through intercompany receivables<br />
or payables and reflects movement of v<strong>al</strong>ue from one estate to another. (6/8/04 Cooper Tr. at<br />
197:25 – 198:5; Debtors’ Tri<strong>al</strong> Ex. 11). The Distribution Model resolves the circular nature of<br />
many of the intercompany relationships and s<strong>et</strong>tles at the optim<strong>al</strong> resolution. (Debtors’ Tri<strong>al</strong> Ex.<br />
24 at 131 – 32; 6/7/04 Zelin Tr. at 24:25 – 25:13). The Distribution Model c<strong>al</strong>culates how an<br />
increase in increment<strong>al</strong> v<strong>al</strong>ue in one estate would benefit <strong>al</strong>l Debtors in both the stand-<strong>al</strong>one and<br />
consolidated portions of the 30/70 distribution formula. (6/7/04 Zelin Tr. at 302:6 – 303:23).<br />
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Under the 70% component, increment<strong>al</strong> v<strong>al</strong>ue to one estate benefits other estates as a result of<br />
the intercompany relationships by virtue of the added v<strong>al</strong>ue flowing through the intercompany<br />
accounts. (6/7/04 Zelin Tr. at 302:6 – 303:23). Under the 30% component, the increase in v<strong>al</strong>ue<br />
directly increases the recovery to the consolidated estate. (6/7/04 Zelin Tr. at 302:6 – 303:23).<br />
No evidence was submitted by any objector sufficient to rebut the Debtors’ evidence concerning<br />
treatment of Intercompany Claims under the glob<strong>al</strong> compromise embodied in the Plan and s<strong>et</strong><br />
forth in the Glob<strong>al</strong> Compromise Motion.<br />
6). Inter-Debtor Waivers and the Glob<strong>al</strong> Compromise<br />
Given that millions of entries were made in intercompany accounts, a thorough an<strong>al</strong>ysis<br />
of each of the factors in support of or against subordination or re-characterization would be<br />
prohibitively expensive and contrary to the go<strong>al</strong> of maximizing Creditors’ recoveries. (Bingham<br />
Affidavit 48). Section 28.3(a) of the Plan applies only to claims and causes of action that are<br />
property of the respective Debtors’ estates. (Bingham Affidavit 50). These inter-Debtor<br />
waivers were negotiated as an integr<strong>al</strong> part of the glob<strong>al</strong> compromise to ensure that the efficient<br />
resolution of these Chapter 11 Cases would not be jeopardized by ongoing inter-estate disputes.<br />
(Bingham Affidavit 51).<br />
The inter-Debtor waivers will not affect the Debtors’ ability to pursue third parties<br />
(including non-Debtor affiliates) on any claims, causes of action, or ch<strong>al</strong>lenges available to any<br />
of the Debtors in the absence of substantive consolidation, including any avoidance actions or<br />
defenses to s<strong>et</strong>off for lack of mutu<strong>al</strong>ity. (Bingham Affidavit 51). Nor will such waivers inhibit<br />
the assertion of any defense in the MegaClaim Litigation, the Montgomery County Litigation, or<br />
any other litigation commenced by or on beh<strong>al</strong>f of the Debtors, the Debtors in Possession, or the<br />
Reorganized Debtors. (Bingham Affidavit 51). No evidence was submitted by any objector<br />
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sufficient to rebut the Debtors’ evidence concerning inter-Debtor waivers under the glob<strong>al</strong><br />
compromise embodied in the Plan and s<strong>et</strong> forth in the Glob<strong>al</strong> Compromise Motion.<br />
7). Resolution of Ass<strong>et</strong>-Ownership Disputes and the Glob<strong>al</strong> Compromise<br />
As an integr<strong>al</strong> part of the glob<strong>al</strong> compromise and its s<strong>et</strong>tlement of inter-estate issues, for<br />
purposes of c<strong>al</strong>culating distributions pursuant to the Plan, the n<strong>et</strong> economic ownership of Enron<br />
Canada, RMTC, CPS and Bridgeline Holdings will be resolved, and to a certain extent<br />
re<strong>al</strong>located, as follows (Bingham Affidavit 54):<br />
(a)<br />
(b)<br />
(c)<br />
(d)<br />
(e)<br />
The n<strong>et</strong> economic equity v<strong>al</strong>ue of Enron Canada will be deemed to be an ass<strong>et</strong> of<br />
ENA;<br />
The n<strong>et</strong> economic preferred equity v<strong>al</strong>ue of RMTC will be deemed to be an ass<strong>et</strong><br />
of ENE;<br />
50% of the n<strong>et</strong> economic v<strong>al</strong>ue of CPS will be deemed to be an ass<strong>et</strong> of ENE and<br />
50% will be deemed to be an ass<strong>et</strong> of ENA;<br />
Allocation of the n<strong>et</strong> economic ownership of CPS will be made only to the extent<br />
it is ultimately d<strong>et</strong>ermined or otherwise agreed that the v<strong>al</strong>ue in CPS constitutes<br />
property of the Debtors’ estates; and<br />
The n<strong>et</strong> economic equity v<strong>al</strong>ue of Bridgeline Holdings will be deemed to be an<br />
ass<strong>et</strong> of ENA.<br />
Given that ownership of these ass<strong>et</strong>s was ambiguous and hotly contested, in the Debtors’<br />
judgment, a negotiated compromise was preferable to full-blown litigation. (Bingham Affidavit<br />
54).<br />
The Debtors, the Creditors’ Committee and the ENA Examiner believe there are factu<strong>al</strong><br />
and leg<strong>al</strong> issues arising from the relative impact of these transactions on ENE and ENA,<br />
including wh<strong>et</strong>her <strong>al</strong>l or part of these transactions should be avoided, unwound or otherwise<br />
ch<strong>al</strong>lenged and the treatment of any intercompany claims or equity interests related ther<strong>et</strong>o. The<br />
Debtors concluded that some of those issues favor ENE, while others favor ENA and its<br />
subsidiaries. Such conclusion was reasonable. Among the arguments that could be asserted by<br />
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or on beh<strong>al</strong>f of ENE and ENA are: (a) wh<strong>et</strong>her the n<strong>et</strong> economic equity v<strong>al</strong>ue of Enron Canada<br />
should be attributed to ENE or ENA; (b) wh<strong>et</strong>her the n<strong>et</strong> economic preferred equity v<strong>al</strong>ue of<br />
RMTC should be attributed to ENE or ENA; (c) wh<strong>et</strong>her the n<strong>et</strong> economic v<strong>al</strong>ue of CPS should<br />
be attributed to ENE or ENA; and (d) wh<strong>et</strong>her the n<strong>et</strong> economic equity v<strong>al</strong>ue of Bridgeline<br />
Holdings should be attributed to ENE or ENA. (Bingham Affidavit 53).<br />
The dispute over the ownership of the n<strong>et</strong> economic equity v<strong>al</strong>ue of Enron Canada arose<br />
from the Slapshot financing transaction, which caused a potenti<strong>al</strong> shift of economic interest in<br />
Enron Canada from ENA to ENE. In the Slapshot transaction, ENE received $1 billion in<br />
preferred stock (ahead of ENA’s common stock) in r<strong>et</strong>urn for a $1 billion increase in its payable<br />
to ENA. (Bingham Affidavit 53).<br />
The arguments favoring ownership of the n<strong>et</strong> economic equity v<strong>al</strong>ue of Enron Canada by<br />
ENE may include the fact that: (a) the transaction was properly authorized, documented,<br />
recorded and supported by consideration; (b) even if meritorious, such litigation would<br />
potenti<strong>al</strong>ly produce addition<strong>al</strong> prep<strong>et</strong>ition unsecured Intercompany Claims and not a transfer of<br />
ownership of such ass<strong>et</strong>s; and (c) the measurement of damages, if any, to ENA from the addition<br />
of the preferred stock should be measure at the date the preferred stock was issued, not at the<br />
Initi<strong>al</strong> P<strong>et</strong>ition Date and any loss in v<strong>al</strong>ue to the receivable from ENE as of the Initi<strong>al</strong> P<strong>et</strong>ition<br />
Date would not be recoverable. (Bingham Affidavit 53).<br />
The arguments favoring ownership by ENA may include the fact that (a) ENA did not<br />
receive adequate consideration for this transfer of economic interest, and (b) Slapshot was a “tax<br />
fiction” and a fraudulent conveyance, pursuant to which, in the course of a single day,<br />
approximately $1 billion (a portion of the Slapshot funding) circled through Enron Canada and<br />
the process of this flow arguably removed debt and equity interests in Enron Canada (a solvent,<br />
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non-Debtor entity) owned by ENA and replaced them with a claim against ENE. (Bingham<br />
Affidavit 53). It should be noted that, under the glob<strong>al</strong> compromise, ENA benefits both from<br />
its deemed economic equity interest in Enron Canada and <strong>al</strong>lowance of a $1.039 billion<br />
intercompany claim of ENA against ENE representing the funds advanced by ENA to ENE to<br />
enable ENE to purchase the Enron Canada preferred stock. (6/4/04 Bingham. Tr. at 31:22 –<br />
32:14, 32:24 –33:5, 33:12 – 15).<br />
The dispute over the ownership of the n<strong>et</strong> economic preferred equity v<strong>al</strong>ue of RMTC<br />
arose out of the V<strong>al</strong>h<strong>al</strong>la financing transaction, which resulted in a shift of economic interest in<br />
RMTC from ENA to ENE. An entity that is currently benefici<strong>al</strong>ly owned by ENE invested $2.2<br />
billion to acquire <strong>al</strong>l of the preferred stock of RMTC. The $2.2 billion was subsequently loaned<br />
by RMTC to ENE. RMTC and ENE entered into an agreement whereby RMTC could engage in<br />
multiparty s<strong>et</strong>offs of obligations (the “RMTC S<strong>et</strong>off L<strong>et</strong>ter”). ENA owns the common stock in<br />
RMTC. ENA and EPMI owe substanti<strong>al</strong> amounts to RMTC due to trading activity. In addition<br />
to the $2.2 billion arising from V<strong>al</strong>h<strong>al</strong>la, ENE owes $3.4 billion to RMTC arising from Project<br />
NOLy. An indirect subsidiary of RMTC, New Energy Trading Co. (“NETCO”) received a<br />
transfer of $250 million from ENE shortly before the Initi<strong>al</strong> P<strong>et</strong>ition Date. ENE’s consideration<br />
for this transfer was an increase in its investment in ENA, which did not have any v<strong>al</strong>ue.<br />
(Bingham Affidavit 53).<br />
Among the arguments that favor ownership by ENE are: (a) the V<strong>al</strong>h<strong>al</strong>la transaction was<br />
properly authorized, documented, recorded and supported by consideration; (b) the RMTC S<strong>et</strong>off<br />
L<strong>et</strong>ter does not apply to the preferred stock because preferred stock is not an “obligation”; (c)<br />
even if meritorious, such litigation would potenti<strong>al</strong>ly produce addition<strong>al</strong> prep<strong>et</strong>ition unsecured<br />
Intercompany Claims and not a transfer of ownership of such ass<strong>et</strong>s; and (d) the measurement of<br />
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the damages, if any, to ENA from the addition of the preferred stock should be measured at the<br />
date the preferred stock was issued, not at the Initi<strong>al</strong> P<strong>et</strong>ition Date and any loss in v<strong>al</strong>ue to the<br />
receivable from ENE as of the Initi<strong>al</strong> P<strong>et</strong>ition Date would not be recoverable. (Bingham<br />
Affidavit 53).<br />
If litigated, ENA may assert that it is entitled to ownership of the n<strong>et</strong> preferred equity<br />
v<strong>al</strong>ue of RMTC because (a) ENA did not have receive adequate consideration for this transfer of<br />
economic interest, (b) V<strong>al</strong>h<strong>al</strong>la may be deemed to be a “tax fiction” and a fraudulent<br />
conveyance, and (c) the RMTC S<strong>et</strong>off L<strong>et</strong>ter must have been intended to permit RMTC to satisfy<br />
the preferred stock via s<strong>et</strong>off against the note receivable from ENE. If the s<strong>et</strong>off were<br />
effectuated, ENA would become the benefici<strong>al</strong> owner of the v<strong>al</strong>ue in RMTC including the<br />
receivable created under Project NOLy. (Bingham Affidavit 53).<br />
ENE and ENA dispute the ownership of the n<strong>et</strong> economic v<strong>al</strong>ue of CPS because prior to<br />
the Slapshot transaction, the parent of Stadacona owed ENE approximately $400 million (which<br />
is in excess of the fair v<strong>al</strong>ue of Stadacona). The essenti<strong>al</strong>ly worthless common equity was<br />
owned through the Sundance structure, with ENA owning 90% of the v<strong>al</strong>ue and the remaining<br />
10% owned by ENE. The Slapshot transaction replaced the ENE debt with debt into the<br />
structure. The banks “put” their position in the structure to ENE immediately prior to the Initi<strong>al</strong><br />
P<strong>et</strong>ition Date. (Bingham Affidavit 53).<br />
If litigated, ENE may assert that the n<strong>et</strong> economic v<strong>al</strong>ue of CPS should be attributed to<br />
ENE because, as b<strong>et</strong>ween ENE and ENA, under any reasonable scenario, the n<strong>et</strong> economic v<strong>al</strong>ue<br />
of CPS would belong to ENE. If the banks’ “put” remains effective, CPS’s v<strong>al</strong>ue would flow to<br />
ENE because it stepped into the banks’ position. If the Slapshot transaction were to be voided,<br />
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CPS’s payable to ENE, which was satisfied via the Slapshot transaction, would be reinstated and<br />
therefore the v<strong>al</strong>ue of CPS would flow to ENE. (Bingham Affidavit 53).<br />
Conversely, if litigated, ENA may assert that Slapshot created a cloud over ENE’s<br />
benefici<strong>al</strong> ownership of CPS, potenti<strong>al</strong>ly <strong>al</strong>tering it to a shared ownership with ENA. (Bingham<br />
Affidavit 53).<br />
ENE’s interests in Bridgeline Holdings resulted from a transfer of intercompany<br />
liabilities shortly before ENE’s bankruptcy. A “cash circle” involving Bridgeline Holdings was<br />
cleared in the month prior to the Initi<strong>al</strong> P<strong>et</strong>ition Date, to the benefit of ENE and the d<strong>et</strong>riment of<br />
ENA. Enron accounting policies <strong>al</strong>lowed but did not require non-cash s<strong>et</strong>tlement of<br />
intercompany accounts. Some group controllers effectuated such s<strong>et</strong>tlements, while some did<br />
not. (Bingham Affidavit 53).<br />
Arguments favoring attribution of ownership of the n<strong>et</strong> equity v<strong>al</strong>ue of Bridgeline<br />
Holdings to ENE are that (a) the intercompany accounts should remain as they were unless there<br />
was an error, (b) there is nothing in GAAP or the law that requires such s<strong>et</strong>tlements to be made<br />
or not made, and (c) even if meritorious, such litigation would potenti<strong>al</strong>ly produce addition<strong>al</strong><br />
prep<strong>et</strong>ition unsecured Intercompany Claims and not a transfer of ownership of such ass<strong>et</strong>s.<br />
(Bingham Affidavit 53).<br />
Arguments in favor of ownership by ENA may include the fact that the transfers may be<br />
deemed to be fraudulent conveyances and that other cash circles involving ENE-ENA-EPMI and<br />
ENE-ENA-ENGMC were not cleared at <strong>al</strong>l during two years prior to the Initi<strong>al</strong> P<strong>et</strong>ition Date,<br />
<strong>al</strong>so to the benefit of ENE and the d<strong>et</strong>riment of ENA. And, therefore, it would be inconsistent to<br />
leave the major cash circles in place and <strong>al</strong>low Bridgeline Holding’s cash circle to be eliminated.<br />
(Bingham Affidavit 53)<br />
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In March 2004, in vigorous opposition to the Plan, Baupost Group and Racepoint<br />
Partners (“Baupost/Racepoint”) filed with the Court (a) First Objection of the Baupost Group<br />
and Racepoint Partners, as Class 4 Creditors, to Confirmation of Fifth Amended Plan of<br />
Reorganization, dated March 2, 2004, (b) First Objection of the Baupost Group, as a Class 185<br />
Creditor, to Confirmation of Fifth Amended Plan of Reorganization, dated March 2, 2004, and<br />
(c) Supplement<strong>al</strong> Objection of the Baupost Group and Racepoint Partners, as Class 4 Creditors,<br />
to Confirmation of Fifth Amended Plan of Reorganization, dated March 23, 2004 (collectively,<br />
the “Baupost Plan Objections”). The Baupost Plan Objections raised issues regarding proposed<br />
ass<strong>et</strong> transfers under the Plan and the release of avoidance actions affecting Enron Guaranty<br />
Claims on the basis that such Plan components were unduly prejudici<strong>al</strong> to ENE creditors in favor<br />
of ENA creditors. Baupost/Racepoint <strong>al</strong>so indicated an intention to file a Second Supplement<strong>al</strong><br />
Objection to the Plan and the May 14, 2004 deadline for doing so was extended by agreement of<br />
Baupost/Racepoint, the Debtors and the Creditors’ Committee, pending ongoing efforts to<br />
resolve certain matters s<strong>et</strong> forth in the Baupost Plan Objections.<br />
The Baupost Plan Objections were ultimately resolved by the entry of a negotiated<br />
Stipulation and Order, Pursuant to 11 U.S.C. §§ 105(a), 502, 1126 and 1127, FED. R. BANKR. P.<br />
3018, 3019, 9014 and 9019 and LBR 3020-1(b), By and Among Debtors, Creditors’ Committee<br />
and The Baupost Group and The Racepoint Group Regarding Withdraw<strong>al</strong> of Confirmation<br />
Objections, Chapter 11 Plan Voting, and Certain Clarifications to Chapter 11 Plan and Related<br />
Matters, dated May 24, 2004 (Dock<strong>et</strong> No. 18757) (the “Baupost Stipulation”), in which<br />
Baupost/Racepoint agreed to withdraw the Baupost Plan Objections and to cast their votes in<br />
favor of the Plan.<br />
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Subsequent to the Baupost Stipulation, Baupost/Racepoint filed a Comment of the<br />
Baupost Group and Racepoint Partners in Response to Objections Interposed by Certain Parties<br />
to Confirmation of Fifth Amended Joint Plan of Affiliated Debtors, dated June 1, 2004 (the<br />
“Baupost Comment”). (Dock<strong>et</strong> No. 18786). As stated in the Baupost Comment, Baupost<br />
believes that the Plan is particularly benefici<strong>al</strong> to ENA creditors because under the glob<strong>al</strong><br />
compromise, in addition to taking from ENE the v<strong>al</strong>ue of Enron Canada (represented by the<br />
preferred stock in Enron Canada owned by ENE), ENA is <strong>al</strong>so <strong>al</strong>lowed to keep a $1.039 billion<br />
intercompany claim that represents the funds advanced to ENE by ENA, which ENE used to<br />
purchase the Enron Canada preferred stock. (Baupost Comment at 17). This intercompany<br />
claim is included in the Allowed Intercompany Claim held by ENA against ENE pursuant to the<br />
glob<strong>al</strong> compromise embodied and s<strong>et</strong> forth in the Glob<strong>al</strong> Compromise Motion. (6/4/04 Bingham<br />
Tr. at 31:22 – 32:14, 32:24 – 33:5, 33:12 – 33:15).<br />
No evidence was submitted by any objector sufficient to rebut the Debtors’ evidence<br />
concerning the resolution of ass<strong>et</strong> ownership disputes under the glob<strong>al</strong> compromise embodied in<br />
the Plan and s<strong>et</strong> forth in the Glob<strong>al</strong> Compromise Motion.<br />
8). Ownership of Certain Claims and Causes of Action and the Glob<strong>al</strong> Compromise<br />
As an integr<strong>al</strong> part of the glob<strong>al</strong> compromise and its s<strong>et</strong>tlement of inter-estate issues,<br />
other than Litigation Trust Claims or Speci<strong>al</strong> Litigation Trust Claims, each Debtor will r<strong>et</strong>ain the<br />
benefits of its single-Debtor claims or causes of action for its respective Creditors, subject to the<br />
30/70 distribution formula. (Bingham Affidavit 55; Debtors’ Tri<strong>al</strong> Ex. 1, § 28.1). To eliminate<br />
inter-estate disputes where the ownership of avoidance actions is unclear, pursuant to the Plan<br />
and the glob<strong>al</strong> compromise, such claims will be jointly prosecuted by each of the Debtors that<br />
could assert a cause of action on account of the subject transfer and the n<strong>et</strong> proceeds re<strong>al</strong>ized<br />
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from such litigation (wh<strong>et</strong>her by s<strong>et</strong>tlement or judgment) will be <strong>al</strong>located equ<strong>al</strong>ly b<strong>et</strong>ween each<br />
of the plaintiff Debtors. (Bingham Affidavit 56; Debtors’ Tri<strong>al</strong> Ex. 1, § 28.1). To the extent<br />
that a Claim arising under section 502(h) of the Bankruptcy Code is <strong>al</strong>lowed solely against ENE<br />
or the relevant subsidiary as a result of the voided transfer, an adjustment will be made to the<br />
amount of Intercompany Claims, as reflected on Exhibit F to the Plan, b<strong>et</strong>ween ENE and such<br />
subsidiary pursuant to the m<strong>et</strong>hodology agreed upon by the Debtors, the Creditors’ Committee<br />
and the ENA Examiner, as s<strong>et</strong> forth in the Plan Supplement. (Bingham Affidavit 56; Debtors’<br />
Tri<strong>al</strong> Ex. 1, §§ 1.21 and 1.195; Debtors’ Tri<strong>al</strong> Ex. 4, Schedule X).<br />
Litigation Trust Claims and Speci<strong>al</strong> Litigation Trust Claims will be deemed to be owned<br />
by ENE, subject to the 30/70 distribution formula, notwithstanding the inclusion of other Debtors<br />
as plaintiffs in such actions. (Bingham Affidavit 57; Debtors’ Tri<strong>al</strong> Ex. 1, §§ 1.168, 1.257,<br />
2.1(b)(iv)). The Debtors or the Creditors’ Committee have <strong>al</strong>ready commenced certain such<br />
actions, including the MegaClaim Litigation and the Montgomery County Litigation. (Bingham<br />
Affidavit 57).<br />
Any recoveries from the MegaClaim Litigation will be deemed to be ass<strong>et</strong>s of ENE.<br />
(6/8/04 Cooper Tr. at 194:14 – 17; 6/3/04 p.m. Bingham Tr. at 103:21 – 104:6; Debtors’ Tri<strong>al</strong><br />
Ex. 1, § 2.1(iv)). If ENE recovers any money from the MegaClaim Litigation, ENA will benefit<br />
as a result of its receivable from ENE. In addition, the 30/70 component of the glob<strong>al</strong><br />
compromise enables ENA (and <strong>al</strong>l other Debtors) to benefit from the ass<strong>et</strong>s of ENE. (6/9/04<br />
Cooper Tr. at 110:6 – 14). Furthermore, Creditors of ENE’s Debtor subsidiaries that hold<br />
Allowed Enron Guaranty Claims will benefit from such litigation on account of their claims<br />
against ENE.<br />
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Neither the Debtors nor any other party can accurately d<strong>et</strong>ermine the v<strong>al</strong>ue of the<br />
MegaClaim Litigation to any of the Debtors, including the v<strong>al</strong>ue of ENA’s interests as plaintiff,<br />
given the ambiguity as to who is entitled to the actions and the fact that discovery has only just<br />
begun and the actions have not been adjudicated. (6/3/04 p.m. Bingham Tr. at 105:9 – 107:7,<br />
107:25 – 108:10, 166:11 – 18). Non<strong>et</strong>heless, ENA benefits from the treatment of the MegaClaim<br />
Litigation and Montgomery County Litigation under the Plan and the glob<strong>al</strong> compromise<br />
because, inter <strong>al</strong>ia, ENA receives addition<strong>al</strong> benefits in the glob<strong>al</strong> compromise such as the ass<strong>et</strong><br />
transfers from ENE. (6/3/04 p.m. Bingham Tr. at 162:3 – 18).<br />
Deeming the Litigation Trust Claims and the Speci<strong>al</strong> Litigation Trust Claims as Ass<strong>et</strong>s of<br />
ENE is an integr<strong>al</strong> part of the glob<strong>al</strong> compromise (including substantive consolidation and the<br />
ass<strong>et</strong>-ownership issues discussed above) and is reasonable given the exchange of v<strong>al</strong>ue through<br />
the ass<strong>et</strong> transfers in favor of ENA, the difficulty of proving the relative harm to different Debtor<br />
entities with any degree of precision, the disputes over leg<strong>al</strong> ownership of such Claims and<br />
causes of action and the centr<strong>al</strong> role of the v<strong>al</strong>idity of ENE’s financi<strong>al</strong> statements in these<br />
actions. (Bingham Affidavit 58; 6/3/04 p.m. Bingham Tr. at 162:3 – 18).<br />
The Plan and the Glob<strong>al</strong> Compromise Motion <strong>al</strong>so provide that Creditors of ENE’s<br />
Debtor subsidiaries that do not have Enron Guaranty Claims will nevertheless share in potenti<strong>al</strong><br />
recoveries from Litigation Trust Claims and Speci<strong>al</strong> Litigation Trust Claims. Specific<strong>al</strong>ly,<br />
Section 10.1 of the Plan provides that a portion of the distributions to be made on account of<br />
Allowed Enron Guaranty Claims resulting from recoveries on Litigation Trust Claims or Speci<strong>al</strong><br />
Litigation Trust Claims will be re<strong>al</strong>located in accordance with the following formula: (a) 80% of<br />
such distributions will be r<strong>et</strong>ained by holders of such Allowed Enron Guaranty Claims; and (b)<br />
20% of such distributions will be deemed redistributed to holders of Gener<strong>al</strong> Unsecured Claims<br />
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against the subsidiary Debtor that is the primary obligor corresponding to such Allowed Enron<br />
Guaranty Claims; provided, however, that, to the extent a holder of an Allowed Enron Guaranty<br />
Claim <strong>al</strong>so holds a Gener<strong>al</strong> Unsecured Claim for the primary obligation against the subsidiary<br />
Debtor, such Gener<strong>al</strong> Unsecured Claim will be excluded from the redistribution under part (b).<br />
(Bingham Affidavit 59; Debtors Tri<strong>al</strong> Ex. 1, § 10.1).<br />
If a compromise and s<strong>et</strong>tlement of, or a Fin<strong>al</strong> Order with respect to, a Litigation Trust<br />
Claim or a Speci<strong>al</strong> Litigation Trust Claim provides for the waiver, subordination or dis<strong>al</strong>lowance<br />
of a defendant’s Claim or Claims against a Debtor other than ENE, such waived, subordinated or<br />
dis<strong>al</strong>lowed Claim(s) will be deemed <strong>al</strong>lowed at the lesser of (a) the “Estimated Allowed<br />
Amount” of such Claim on the Debtors’ claim management system, and (b) the filed proof of<br />
claim in respect of such Claim and such distribution will be assigned to ENE; provided that, if<br />
such proof of claim is filed as contingent or unliquidated, or at zero dollars, the Claim will be<br />
<strong>al</strong>lowed at the “Estimated Allowed Amount.” (Bingham Affidavit 60; Debtors’ Tri<strong>al</strong> Ex. 1, §§<br />
22.13, 23.13).<br />
If the Litigation Trust and the Speci<strong>al</strong> Litigation Trust are created, the Debtors or the<br />
Reorganized Debtors, as the case may be, will transfer Cash, in an amount to be jointly<br />
d<strong>et</strong>ermined by the Debtors or the Reorganized Debtors and the Creditors’ Committee, as<br />
necessary to fund the operations of the such trusts. (Debtors' Tri<strong>al</strong> Ex. 1, Art. XXII and Art.<br />
XXIII; Debtors’ Tri<strong>al</strong> Ex. 2, §§ XI.A.3, XI.B.3; Debtors’ Tri<strong>al</strong> Ex. 4, Schedule A, § 1.7;<br />
Debtors’ Tri<strong>al</strong> Ex. 4, Schedule B, § 1.7).<br />
The glob<strong>al</strong> compromise, therefore, provides for the economic benefits re<strong>al</strong>ized from<br />
Litigation Trust Claims and Speci<strong>al</strong> Litigation Trust Claims to be <strong>al</strong>located to ENE for further<br />
distribution under the Plan independent of wh<strong>et</strong>her the recoveries are re<strong>al</strong>ized in cash or through<br />
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waiver, subordination or dis<strong>al</strong>lowance of Claims. (Bingham Affidavit 60; 6/9/04 Cooper Tr. at<br />
110:15 – 111:4).<br />
No evidence was submitted by any objector sufficient to rebut the Debtors’ evidence<br />
regarding the fairness of resolving the ownership of claims and causes of action under the glob<strong>al</strong><br />
compromise embodied in the Plan and s<strong>et</strong> forth in the Glob<strong>al</strong> Compromise Motion.<br />
9). Plan Currency<br />
Plan Currency, in the context of the Plan, means that <strong>al</strong>l the economic stakeholders of the<br />
Debtors receive their pro rata share of cash and Plan Securities. It ensures that v<strong>al</strong>ue for each<br />
Debtor is maximized under the Plan; whereas v<strong>al</strong>ue would be lost through a separate plan for<br />
each Debtor. The use of a uniform Plan Currency <strong>al</strong>so facilitates the ease of distribution and<br />
provides certainty for the mark<strong>et</strong>place pre-distribution permitting Creditors most easily to v<strong>al</strong>ue<br />
the consideration to be received under the Plan. (6/8/04 Cooper Tr. at 61:5 – 62:4; Bingham<br />
Affidavit 41).<br />
The <strong>al</strong>ternative to using Plan Currency would have entailed creating a scheme for each of<br />
the Debtors providing for distributions of either cash or some type of interest in stock,<br />
Intercompany Claims, third party receivables, ass<strong>et</strong>s to be liquidated in the future and/or any<br />
other potenti<strong>al</strong> forms of consideration. (Bingham Affidavit 42). As distributions on<br />
Intercompany Claims are a significant element of certain Debtors’ ass<strong>et</strong> base, the uncertainty as<br />
to the form and manner of distributions on those Intercompany Claims would have led to further<br />
uncertainty, complications and delay. (Bingham Affidavit 42).<br />
Based on the Debtors’ current estimates of ass<strong>et</strong> v<strong>al</strong>ues and Allowed Claims, Plan<br />
Currency is expected to be approximately two-thirds in the form of Creditor Cash and<br />
approximately one-third in the form of Plan Securities. These estimates may vary based on<br />
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wh<strong>et</strong>her closing of the s<strong>al</strong>es of PGE and CrossCountry occur. Currently, signed contracts exist<br />
for the purchase and s<strong>al</strong>e of PGE and CrossCountry. The Debtors’ ass<strong>et</strong>s targ<strong>et</strong>ed for<br />
contribution to Prisma have not y<strong>et</strong> been contributed. In the event that the s<strong>al</strong>es of PGE and<br />
CrossCountry are consummated, as currently estimated, the Plan Currency would be<br />
approximately 92% in the form of Creditor Cash and approximately 8% in the form of Prisma<br />
Common Stock. (Bingham Affidavit 42).<br />
No evidence was submitted by any objector sufficient to rebut the Debtors’ evidence<br />
regarding the use of Plan Currency under the glob<strong>al</strong> compromise embodied in the Plan and s<strong>et</strong><br />
forth in the Glob<strong>al</strong> Compromise Motion.<br />
10). ENA Creditors’ Option to Exchange Cash for Stock 16<br />
As an integr<strong>al</strong> part of the glob<strong>al</strong> compromise and its s<strong>et</strong>tlement of inter-estate issues,<br />
Creditors of ENA and its affiliates EPMI, EGLI, EGM, EIM, ENGMC, ENA Upstream,<br />
ECTRIC and ERAC may elect to receive up to $125 million in distributions in the form of Cash<br />
instead of Plan Securities, thereby providing more securities to other Debtors’ estates. (Bingham<br />
Affidavit 61; Debtors’ Tri<strong>al</strong> Ex. 1, § 7.3). The cash election option is an integr<strong>al</strong> part of the<br />
glob<strong>al</strong> compromise of other inter-estate issues and cannot be viewed in a vacuum. (Bingham<br />
Affidavit 62). No evidence was submitted by any objector sufficient to rebut the Debtors’<br />
evidence regarding the cash election option for ENA Creditors.<br />
11). Liquidation An<strong>al</strong>ysis and Benefits of the Glob<strong>al</strong> Compromise<br />
It would not be possible under one or more chapter 7 cases to more effectively wind<br />
down the estates and maximize v<strong>al</strong>ue for creditors than under the Plan. (6/8/04 Cooper Tr. at<br />
16 By orders, dated April 1, 2004 and October 2, 2003, approving compromises and s<strong>et</strong>tlements s<strong>et</strong> forth in<br />
stipulations, cash options were <strong>al</strong>so offered for Wind Creditors and for benefici<strong>al</strong> holders of ETS Debentures,<br />
respectively. (Dock<strong>et</strong> Nos. 17456 and 13269; Debtors’ Tri<strong>al</strong> Ex. 1, §§ 7.7 and 7.8)<br />
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71:18 – 22). Even under the most optimistic chapter 7 assumptions, each holder of an Allowed<br />
Gener<strong>al</strong> Unsecured Claim will receive pursuant to the Plan v<strong>al</strong>ue that is not less than the amount<br />
such holder would receive in a chapter 7 liquidation. (Bingham Affidavit 90; Debtors’ Tri<strong>al</strong><br />
Ex. 9; 6/7/04 Zelin Tr. at 350:5 – 7; 6/3/04 a.m. Bingham Tr. at 42:10 – 23; Debtors’ Tri<strong>al</strong> Ex. 24<br />
at errata 127, 128 n.1, 129 n.1).<br />
The Debtors’ Liquidation An<strong>al</strong>ysis appropriately assumes the Court will approve the<br />
s<strong>et</strong>tlements and compromises embodied in the Plan, including the 30/70 distribution formula and<br />
the other agreements reached under the glob<strong>al</strong> compromise, as well as the exclusion of the<br />
Portland Debtors from the glob<strong>al</strong> compromise. Not only does this approach recognize that the<br />
many issues resolved by the glob<strong>al</strong> compromise would remain and require resolution in a<br />
conversion to chapter 7, but that practic<strong>al</strong>ly it is more useful for Creditors to compare estimated<br />
recoveries using the same assumptions regarding these issues. (Bingham Affidavit 92; 6/3/04<br />
a.m. Bingham Tr. at 42:10 – 20).<br />
To have a clear understanding of the differences b<strong>et</strong>ween recoveries under the Plan<br />
compared to a potenti<strong>al</strong> chapter 7, Creditors need an “apples to apples” comparison. (Bingham<br />
Affidavit 92). The CLN Noteholders objected to use of such a comparison at the Disclosure<br />
Statement Hearing and the Court overruled their objection recognizing not only the need for an<br />
“apples to apples” comparison, but <strong>al</strong>so the practic<strong>al</strong> limitation that, in order to prepare a<br />
liquidation an<strong>al</strong>ysis for each Debtor outside of the glob<strong>al</strong> compromise, then a vari<strong>et</strong>y of unknown<br />
variables must be resolved that are otherwise resolved by virtue of the compromise. (1/6/04<br />
Hearing Tr. at 148 – 166).<br />
Moreover, because the “best interests” test compares recoveries under the chapter 11 Plan<br />
to recoveries in a chapter 7 liquidation, the comparison must exclude the effect of outcomes of<br />
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leg<strong>al</strong> issues existing in both chapter 11 and chapter 7. To make that comparison, recoveries must<br />
be compared in the two chapters assuming the common leg<strong>al</strong> issues are resolved the same way in<br />
each chapter. Further, there is no basis to believe that the leg<strong>al</strong> issues would be resolved in any<br />
different way, wh<strong>et</strong>her litigated in chapter 11 or chapter 7.<br />
The Debtors’ Liquidation An<strong>al</strong>ysis reflects data output from the Distribution Model as of<br />
December 2003 and summarizes accurately the estimated recoveries to Creditors under a<br />
hypoth<strong>et</strong>ic<strong>al</strong> chapter 7, based upon input provided by the sources listed in Debtors’ Tri<strong>al</strong> Ex. 24.<br />
(Debtors’ Tri<strong>al</strong> Ex. 9; Bingham Affidavit 89; 6/7/04 Zelin Tr. at 37:15 – 24; Debtors’ Tri<strong>al</strong> Ex.<br />
24 at 23, errata 127, 128 n.1, 129 n.1). Moreover, the well-diligenced Distribution Model<br />
<strong>al</strong>lowed the Debtors to ev<strong>al</strong>uate the various potenti<strong>al</strong> inter-estate issues that might exist and<br />
d<strong>et</strong>ermine the economic consequences of various positions and the potenti<strong>al</strong> impact on creditor<br />
recoveries. (Debtors’ Tri<strong>al</strong> Ex. 24 at 132). The assumptions used in Debtors’ Tri<strong>al</strong> Exhibits 9,<br />
24, 25 and 26 were reasonable.<br />
Exhibits AV2A through AV2Q are printed portions of a section of the Blackstone Model<br />
related to ENA and are not “stand-<strong>al</strong>one” liquidation an<strong>al</strong>yses. (6/4//04 Bingham, Tr. at 9:20 –<br />
23). The Debtors have not performed and did not withhold any liquidation an<strong>al</strong>yses that should<br />
have been provided in the Disclosure Statement. (6/4/04 Bingham Tr. at 11:23 – 12:7; 1/6/04<br />
Hearing Tr. at 150 – 155).<br />
The Blackstone Report includes a sensitivity an<strong>al</strong>ysis wherein six <strong>al</strong>ternative outputs<br />
were generated using the Distribution Model. (Debtors’ Tri<strong>al</strong> Ex. 24 at errata 155). These<br />
different scenarios demonstrate the flexibility of the model. (Debtors’ Tri<strong>al</strong> Ex. 24 at errata 155).<br />
In addition, the different scenarios reflect variations on the terms of the glob<strong>al</strong> compromise<br />
assuming different outcomes on certain substantive issues. (6/7/04 Zelin Tr. at 30:25 – 31:6).<br />
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For example, Sensitivity 1 assumes that ENE owned <strong>al</strong>l disputed ass<strong>et</strong>s and that <strong>al</strong>l of the<br />
ownership disputes b<strong>et</strong>ween ENE and ENA were resolved in ENE’s favor. (Debtors’ Tri<strong>al</strong> Ex.<br />
24 at errata 155; 6/7/04 Zelin Tr. at 33:4 – 13, 138:22 – 139:2). Such resolution is consistent<br />
with the Debtors’ books and records as of the Initi<strong>al</strong> P<strong>et</strong>ition Date. (6/7/04 Zelin Tr. at 33:4 –<br />
13). Under Sensitivity 1 (Stand-Alone), the recovery for ENA creditors under a chapter 11 plan<br />
would be only 17.4%, as compared to a Plan recovery of 20.1%. (Debtors’ Tri<strong>al</strong> Ex. 23 at errata<br />
155).<br />
In order to illustrate the c<strong>al</strong>culation of the 30/70 distribution formula, Appendix C to the<br />
Disclosure Statement s<strong>et</strong>s forth the ass<strong>et</strong>s and liabilities of each Debtor on a “stand <strong>al</strong>one basis,”<br />
which assumes <strong>al</strong>l elements of the glob<strong>al</strong> compromise exist except for the 30/70 split. As a<br />
result, except for the three assumptions for liquidation described by Messrs. Bingham and Zelin<br />
in their testimony, d<strong>et</strong>ailed information regarding the ass<strong>et</strong>s and liabilities for each Debtor in a<br />
liquidation are disclosed in Appendix C. (Debtors’ Tri<strong>al</strong> Ex. 8; Bingham Affidavit 15).<br />
Exhibit AV1 represents one part of the c<strong>al</strong>culation to d<strong>et</strong>ermine recovery under the<br />
distribution model with <strong>al</strong>l of the glob<strong>al</strong> compromise assumptions in place except the 30/70<br />
distribution formula for purposes of d<strong>et</strong>ermining the 70% portion of the formula. All of the<br />
testimony supported the finding that this c<strong>al</strong>culation could never represent a stand-<strong>al</strong>one an<strong>al</strong>ysis<br />
of each estate because the s<strong>et</strong>tlements embodied in the glob<strong>al</strong> compromise were contingent upon<br />
the agreement as to the 30/70 distribution formula, the absence of which would undo <strong>al</strong>l of the<br />
other s<strong>et</strong>tlements. The 30/70 distribution formula is an integr<strong>al</strong> and necessary part of the glob<strong>al</strong><br />
s<strong>et</strong>tlement.<br />
Exhibit AV1 does not contain a compl<strong>et</strong>e an<strong>al</strong>ysis of the ass<strong>et</strong>s and liabilities of ENA on<br />
a stand-<strong>al</strong>one basis. Messrs. Bingham and Zelin testified Ex. AV1 is a parti<strong>al</strong> printout of a<br />
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section of the Blackstone Model related to ENA that was prepared on a liquidation basis and<br />
used as one of the components for the c<strong>al</strong>culation reflected on Appendix L of the Disclosure<br />
Statement. (6/4/04 Bingham Tr. at 9:9 – 19; 6/7/04 Zelin Tr. at 68:21 – 23). Addition<strong>al</strong>ly, Mr.<br />
Zelin testified that Ex. AV1 “doesn’t take the Liquidation An<strong>al</strong>ysis <strong>al</strong>l the way through to what’s<br />
presented in Appendix L.” (6/7/04 Zelin Tr. at 74:20 – 22).<br />
The three primary assumptions that account for the difference b<strong>et</strong>ween the Plan recovery<br />
percentage in Appendix C and the liquidation recoveries in Appendix L are (a) the diminished<br />
v<strong>al</strong>ues of CrossCountry, PGE and Prisma, (b) the projected $100 million in increment<strong>al</strong> overhead<br />
assumed in a consensu<strong>al</strong> or “best case scenario” liquidation, and (c) the 10% present-v<strong>al</strong>ue<br />
discount for a projected one-year delay in distributions. (6/7/04 Zelin Tr. at 75:10 – 76:2;<br />
Bingham Affidavit 90).<br />
The $100 million adjustment to post-confirmation expenses (January 1, 2004 – December<br />
31, 2006) is derived by comparing the estimated expenses s<strong>et</strong> forth in Appendix G to the<br />
Disclosure Statement ($850,899,000) to the expenses s<strong>et</strong> forth in Appendix L to the Disclosure<br />
Statement ($950,900,000). (Debtors’ Tri<strong>al</strong> Exs. 2 and 9).<br />
The estimates included in Appendix L do not include, inter <strong>al</strong>ia, the addition<strong>al</strong> potenti<strong>al</strong><br />
costs and further delays to distribution that would result from (a) the appointment of separate<br />
chapter 7 trustees for multiple Enron estates and such trustees r<strong>et</strong>aining their own separate leg<strong>al</strong><br />
and financi<strong>al</strong> profession<strong>al</strong>s, (b) any requests for a trustee election under section 702 of the<br />
Bankruptcy Code, 17 (c) any requests for the appointment of one or more Creditors’ Committees<br />
pursuant to section 705 of the Bankruptcy Code, and (d) any increase in the number of, or<br />
17 While the Debtors did not reference the consideration raised by section 702 of the Bankruptcy Code as a possible<br />
consequence in the absence of the glob<strong>al</strong> compromise, given the history of these cases, it is extremely likely that,<br />
even with a consensu<strong>al</strong>ly agreed to single trustee, some creditor of one of the 177 Debtors would seek an election<br />
under section 702 of the Bankruptcy Code.<br />
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change to the nature of, inter-estate litigations. (6/7/04 Zelin Tr. at 40:7 – 19; Debtors’ Tri<strong>al</strong> Ex.<br />
24 at 128 n.1).<br />
The timing of the occurrence of the Effective Date will not impact the conclusion s<strong>et</strong><br />
forth in Appendix L that Creditors will receive more under the Plan than they would in a case<br />
under chapter 7. (6/4/04 Bingham Tr. at 35:14 – 22). In addition, changes in the v<strong>al</strong>ue of ass<strong>et</strong>s<br />
(including through litigation recoveries) and liabilities prior to the Effective Date will <strong>al</strong>so not<br />
impact such conclusion s<strong>et</strong> forth in Appendix L to the Disclosure Statement. (6/4/04 Bingham<br />
Tr. at 26:22 – 27:15, 34:12 – 36:22).<br />
The structure of the Plan has given, and will continue to give, the Debtors addition<strong>al</strong><br />
negotiating leverage when negotiating with potenti<strong>al</strong> purchasers of the platform entities—PGE,<br />
CrossCountry and Prisma. If the proposed purchase price is too low, the Debtors have the option<br />
of not selling the entity and instead spinning the stock out to Creditors. (6/7/04 Zelin Tr. at<br />
42:13 – 43:24; 6/8/04 Cooper Tr. at 19:12 – 21:7; Debtors’ Tri<strong>al</strong> Exs. 24 and 25).<br />
Based on this evidence, which the Court finds credible and unrebutted, the v<strong>al</strong>ue to be<br />
distributed to Creditors on account of Allowed Claims under the Plan, as of the Effective Date, is<br />
not less than the amount that such holder would receive or r<strong>et</strong>ain if the Debtors, or any of them,<br />
were liquidated under chapter 7.<br />
Absent the glob<strong>al</strong> compromise, Creditors would receive sm<strong>al</strong>ler distributions as a result<br />
of the delay and litigation that would occur without the glob<strong>al</strong> compromise. (6/8/04 Cooper Tr.<br />
at 33:16 – 34:5; Debtors’ Tri<strong>al</strong> Ex. 26).<br />
Appendix L represents the “best case scenario”, assuming that one chapter 7 trustee, after<br />
doing the necessary diligence, would conclude that the glob<strong>al</strong> compromise is the best way of<br />
distributing v<strong>al</strong>ue to Creditors most expeditiously and without protracted inter-estate litigation.<br />
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(6/7/04 Zelin Tr. at 39:11 – 40:3; Debtors’ Tri<strong>al</strong> Ex. 24 at 128 n.1, 129 n.1). Under the more<br />
re<strong>al</strong>istic scenario of multiple chapter 7 cases for thirteen (13) different Debtors, it would cost<br />
approximately $1.25 billion to litigate the issues resolved by the glob<strong>al</strong> compromise, thereby<br />
substanti<strong>al</strong>ly reducing the v<strong>al</strong>ue available for distributions to Creditors as compared with the<br />
“best case scenario.” (Debtors’ Tri<strong>al</strong> Ex. 26; 6/8/04 Cooper Tr. at 32:22 – 34:9, 60:14 – 61:4).<br />
In addition, as found under the “best case scenario” there would likely be further costs, delay and<br />
disruption if, as previously discussed, a trustee election were sought under section 702 of the<br />
Bankruptcy Code.<br />
Throughout the Confirmation Hearing, the CLN Noteholders posited that a so-c<strong>al</strong>led<br />
“liquidation an<strong>al</strong>ysis” should be with the assumption that only ENA converted to chapter 7 to<br />
liquidate, but <strong>al</strong>l the other Debtors confirmed the Plan, including the glob<strong>al</strong> compromise for <strong>al</strong>l<br />
Debtors other than ENA. This theory is illogic<strong>al</strong> and contrary to the entir<strong>et</strong>y of the record before<br />
the Court. As discussed in d<strong>et</strong>ail throughout these findings of fact, the interrelationships b<strong>et</strong>ween<br />
ENA, ENE and other Debtors are evidenced by, inter <strong>al</strong>ia, the ass<strong>et</strong> disputes, <strong>al</strong>lowance of<br />
Intercompany Claims, s<strong>et</strong>tlement of substantive consolidation and resolution of other similar<br />
issues through the glob<strong>al</strong> compromise. Moreover, Messrs. Cooper and Zelin both testified as to<br />
the impossibility of this concept in these Chapter 11 Cases. (6/7/04 Zelin Tr. at 173:18 – 174:15;<br />
6/8/04 Cooper Tr. at 155:5 – 17).<br />
If the glob<strong>al</strong> compromise is not approved, the issue of intercompany accounts would be<br />
re-opened, and the accuracy of the b<strong>al</strong>ances, the appropriateness of the historic<strong>al</strong> <strong>al</strong>locations of<br />
overhead to operating entities, and the historic<strong>al</strong> absorption of non-<strong>al</strong>located overhead by ENE<br />
would have to be d<strong>et</strong>ermined. Addition<strong>al</strong>ly, there would have to be a resolution regarding recharacterization<br />
of the intercompany accounts as debt or equity, the impact of various debtor<br />
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agreements would have to be reviewed and ev<strong>al</strong>uated for appropriateness and a series of<br />
ownership issues by way of contested ass<strong>et</strong>s would have to be resolved. (6/8/04 Cooper Tr. at<br />
35:3 – 20).<br />
If the issues that are the subject of the glob<strong>al</strong> compromise were to be litigated, the key<br />
inter-Debtor issues that would most likely be investigated and litigated include intercompany<br />
issues, including the accuracy of intercompany accounts and b<strong>al</strong>ances, the appropriateness of<br />
historic<strong>al</strong> overhead <strong>al</strong>locations, potenti<strong>al</strong> re-characterization of intercompany accounts as debt or<br />
equity, the impact of various inter-Debtor agreements and the resolution of ass<strong>et</strong>-ownership<br />
issues. In addition to these intercompany issues, absent the glob<strong>al</strong> compromise, the Debtors<br />
would have to address the propri<strong>et</strong>y of substantive consolidation, ownership of third-party<br />
preference and fraudulent conveyance actions, timing of insolvency of each Debtor, impact and<br />
v<strong>al</strong>idity of the master n<strong>et</strong>ting agreements and other contractu<strong>al</strong> arrangements, impact of RMTC,<br />
ownership of the aiding and ab<strong>et</strong>ting actions against third parties and investigation and pursuit of<br />
potenti<strong>al</strong> intercompany fraud actions. (6/8/04 Cooper Tr. at 34:10 – 36:15).<br />
There will be an increase in cost to obtain new counsel and profession<strong>al</strong> advisors for the<br />
Debtors if separate representation is requested for certain Debtors. (6/8/04 Cooper Tr. at 37:3 –<br />
20).<br />
Absent confirmation of the Plan and approv<strong>al</strong> of the glob<strong>al</strong> compromise, conversion to<br />
chapter 7 could well require 13 chapter 7 trustees, 13 law firms, 13 financi<strong>al</strong> advisors and<br />
addition<strong>al</strong> conflict attorneys. Estates for which separate representation would be needed most<br />
likely include ENE, ENA, EPMI, ENGMC, EESI, EEMC, EESO, EBS (Broadband), ECTRIC,<br />
EDF, ETS, NEPCO and the Wind Entities. (6/8/04 Cooper Tr. at 37:16 – 38:9; Debtors’ Tri<strong>al</strong><br />
Ex. 26).<br />
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The trustee and attorneys for each chapter 7 Debtor would have to (a) familiarize<br />
themselves with the state of affairs of the Debtor, including locating and organizing resources to<br />
manage the day-to-day businesses, (b) assess the current litigation and claims, (c) establish <strong>al</strong>l of<br />
the business processes necessary to manage the estate, (d) undertake intercompany ev<strong>al</strong>uations,<br />
and (e) file and prosecute litigation. (6/8/04 Cooper Tr. at 39:3 – 15).<br />
Mr. Cooper assumed that, in the interest of efficiency, the Court would appoint an expert<br />
to review, ev<strong>al</strong>uate, and, if necessary, correct the intercompany accounts. (6/8/04 Cooper Tr. at<br />
38:23 – 39:2). This assumption is reasonable, as well as conservative, in its impact on costs.<br />
FTI estimated that review and ev<strong>al</strong>uation of intercompany accounts would cost<br />
approximately $25 million (6/8/04 Cooper Tr. at 42:7 – 10). Based upon this estimate, if a<br />
review of those intercompany accounts had to go back to 1997, the cost of a court-appointed<br />
expert would be at least $200 million. (6/8/04 Cooper Tr. at 39:25 – 40:6, 41:19 – 42:11).<br />
A credible estimate of the leg<strong>al</strong>, financi<strong>al</strong> and other profession<strong>al</strong> fees that would be<br />
incurred in the absence of the glob<strong>al</strong> compromise would be as follows:<br />
(a)<br />
(b)<br />
$5 million per month for ENE for the first 36 months, $2.5 million per month for<br />
the next 24 months and $1.3 million per month for the next 24 months, for a tot<strong>al</strong><br />
of $270 million over and above the day-to-day operations of the estate and the<br />
budg<strong>et</strong> for post-confirmation operations;<br />
$2.5 million per month for ENA for the first 36 months, $1.3 million per month<br />
for the next 24 months and $0.6 million per month for the next 24 months, for a<br />
tot<strong>al</strong> of $135 million over and above the day-to-day operations of the estate and<br />
the budg<strong>et</strong> for post-confirmation operations;<br />
(c) $2 million per month for the combined Wind Entities for the first 36 months, $1<br />
million per month for the next 24 months and $0.5 million per month for the next<br />
24 months, for a tot<strong>al</strong> of $108 million over and above the day-to-day operations of<br />
the estate and the budg<strong>et</strong> for post-confirmation operations;<br />
(d)<br />
$10 million per month for the 10 other estates for the first 36 months, $5 million<br />
per month for the next 24 months and $2.5 million per month for the next 24<br />
months, for a tot<strong>al</strong> of $540 million over and above the day-to-day operations of<br />
the estate and the budg<strong>et</strong> for post-confirmation operations;<br />
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(e)<br />
(f)<br />
The tot<strong>al</strong> leg<strong>al</strong>, financi<strong>al</strong> and other profession<strong>al</strong> fees incurred by the Debtors in the<br />
absence of the glob<strong>al</strong> compromise would amount to an estimated $1.053 billion,<br />
with an addition<strong>al</strong> estimated $200 million for a Court-appointed expert to perform<br />
a r<strong>et</strong>rospective an<strong>al</strong>ysis of intercompany claims going back to 1997; and<br />
The grand tot<strong>al</strong> in leg<strong>al</strong>, financi<strong>al</strong> and other profession<strong>al</strong> fees that would be<br />
incurred in the absence of the glob<strong>al</strong> compromise would be an estimated $1.253<br />
billion.<br />
(6/8/04 Cooper Tr. at 40:16 – 42:4; Debtors’ Tri<strong>al</strong> Ex. 26). Absent the glob<strong>al</strong> compromise, the<br />
Debtors assembled a plausible time estimate as follows:<br />
(a)<br />
(b)<br />
(c)<br />
(d)<br />
(e)<br />
(f)<br />
2 to 3 months to engage trustees and profession<strong>al</strong>s;<br />
2 to 4 months to reach agreement on Court-appointed expert on intercompany<br />
accounts and the scope of the expert’s review;<br />
Up to 18 months for investigation by the expert;<br />
8 to 12 months of discovery following the expert’s report;<br />
1 to 2 years of trying 100 – 200 causes of action; and<br />
1 to 2 years of appe<strong>al</strong>s if only h<strong>al</strong>f of the litigation outcomes are unsatisfactory to<br />
specific plaintiffs.<br />
(6/8/04 Cooper Tr. at 39:24 – 40:15). These estimates are reasonable. 18<br />
Practic<strong>al</strong> considerations that would make conversion to a chapter 7 in the absence of the<br />
glob<strong>al</strong> compromise difficult and costly include finding or developing human resources systems,<br />
cash management systems, intern<strong>al</strong> tax advice and intern<strong>al</strong> claims management on a stand<strong>al</strong>one<br />
basis for each Debtor. (6/8/04 Cooper Tr. at 42:14 – 23).<br />
The $1.25 billion estimated cost absent the glob<strong>al</strong> compromise did not include <strong>al</strong>l of the<br />
other day-to-day costs of running the Debtors’ estates. (6/8/04 Cooper Tr. at 42:12 – 23). These<br />
18 These cost and timing estimates were developed by Mr. Cooper after his deposition testimony. They were not<br />
submitted in any documentary form prior to the confirmation hearing. The Court recognizes that the objectors that<br />
cross-examined Mr. Cooper at the hearing with respect to these estimates did not have an opportunity to prepare for<br />
such examination prior to the hearing because these estimates were first raised by Mr. Cooper at the Hearing.<br />
However, upon hearing these estimates, the objectors relied on their cross-examination of Mr. Cooper and did not<br />
seek leave to present any contrary evidence regarding the assumptions that underlaid his estimates. The Court finds<br />
that the premises upon which Mr. Cooper relies and the associated estimates are reasonable.<br />
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expenses were <strong>al</strong>located in accordance with the post-confirmation overhead <strong>al</strong>location formula.<br />
(6/8/04 Cooper Tr. at 43:21 – 25).<br />
12). Glob<strong>al</strong> Compromise Is Fair and Reasonable<br />
The divergence in Creditor viewpoints demonstrates that the resolution reached in the<br />
glob<strong>al</strong> compromise f<strong>al</strong>ls well within the reasonable range of litigation outcomes. The Court has<br />
taken judici<strong>al</strong> notice that, based on the objections, that neither ENE Creditors nor ENA Creditors<br />
are fully satisfied with the results. The fact is that, absent the glob<strong>al</strong> compromise, individu<strong>al</strong><br />
Creditors would be mounting offensives to promote their individu<strong>al</strong> agendas and these Chapter<br />
11 Cases would devolve into full-sc<strong>al</strong>e estate-wide litigation. (See, e.g., Dock<strong>et</strong> Nos. 16649,<br />
16650, 16692, 16701, 16702, 16707, 17236, 17244, 17937, 18422, 18426, 18483 and 18490).<br />
Based on the foregoing, the benefits obtained from avoiding estate-wide litigation by<br />
Creditors with conflicting interests are compelling and, absent the glob<strong>al</strong> compromise, litigation<br />
of the complex inter-estate issues resolved by the glob<strong>al</strong> compromise would have resulted in<br />
substanti<strong>al</strong>ly lower recoveries for virtu<strong>al</strong>ly <strong>al</strong>l Creditors. (Debtors’ Tri<strong>al</strong> Ex. 26).<br />
The s<strong>et</strong>tlement reflected in the glob<strong>al</strong> compromise is supported by sound business<br />
justifications. Moreover, the Court has presided over these Chapter 11 Cases for more than two<br />
and a h<strong>al</strong>f years, and based on the entir<strong>et</strong>y of the record in these proceedings, has independently<br />
ev<strong>al</strong>uated and assessed the merits of the issues resolved by the glob<strong>al</strong> compromise and concludes<br />
that the s<strong>et</strong>tlements embodied therein are fair, reasonable, in the best interests of the Debtors’<br />
estates and well within the range of reasonable litigation outcomes.<br />
The benefits of the glob<strong>al</strong> compromise for Creditors outweigh the cost. The glob<strong>al</strong><br />
compromise benefits <strong>al</strong>l Creditors by, inter <strong>al</strong>ia, reducing the potenti<strong>al</strong> cost of litigation,<br />
including the cost of performing diligence regarding a multitude of underlying facts and<br />
transactions, the profession<strong>al</strong> fees associated with litigation, the delay and uncertainty associated<br />
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with litigation, the prolonged cost of administering the estates, the resulting depl<strong>et</strong>ion of the<br />
estates’ ass<strong>et</strong>s, as well as Creditors’ lost time-v<strong>al</strong>ue of money resulting from later distributions.<br />
The glob<strong>al</strong> compromise will save Creditors hundreds of millions of dollars and give them the<br />
certainty of distributions now, rather than the uncertainty of any future distributions, which will<br />
be greatly reduced after extended estate-wide litigation. Most importantly, however, the glob<strong>al</strong><br />
compromise provides Creditors a fair and reasonable <strong>al</strong>ternative to litigation, which, in the<br />
context of the Plan, is supported by the Creditors’ Committee and the ENA Examiner, who has<br />
fiduciary duties and obligations to the ENA estate, in the context of the Plan and the result it<br />
reaches f<strong>al</strong>ls well within the range of possible litigation outcomes.<br />
Other than cross-examination of the witnesses to ch<strong>al</strong>lenge the reliability of the premises<br />
put forth by the Debtors’ witnesses, there was no independent evidence presented by any<br />
objector refuting any of the Debtors’ contentions.<br />
No evidence was submitted by any objector to rebut the Debtors’ evidence concerning<br />
the benefits of the glob<strong>al</strong> compromise and that the glob<strong>al</strong> compromise and Plan are in the best<br />
interest of creditors.<br />
C. Other Plan Considerations<br />
1). Classification and Treatment of Claims<br />
The Plan provides for separate classification of Claims and Equity Interests in 385<br />
Classes 19 based upon differences in the leg<strong>al</strong> nature and/or priority of such Claims and Equity<br />
Interests, or in order to implement the provisions of the glob<strong>al</strong> compromise.<br />
(a)<br />
Class 1 provides for the separate classification of the Priority Non-Tax Claims.<br />
19 Classes 182 and 364 are expected to receive no distributions under the Plan. Similarly, Gener<strong>al</strong> Unsecured<br />
Claims Classes 58, 59, and 60 and Convenience Claims Classes 246, 247 and 248 have been rendered inoperative<br />
given the severance of the Dabhol Debtors from these Chapter 11 Cases.<br />
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(b)<br />
(c)<br />
(d)<br />
(e)<br />
(f)<br />
(g)<br />
(h)<br />
(i)<br />
(j)<br />
(k)<br />
Class 2 provides for the separate classification of the Secured Claims.<br />
Classes 3 through 182 provide for the separate classification of the Gener<strong>al</strong><br />
Unsecured Claims on a per Debtor basis.<br />
Class 183 provides for the separate classification of the Enron Subordinated<br />
Debenture Claims.<br />
Class 184 provides for the separate classification of the Enron TOPRS Debenture<br />
Claims.<br />
Classes 185 through 189 provide for the separate classification for Guaranty<br />
Claims against Enron, Wind, ENA, ACFI and EPC, respectively.<br />
Classes 191 – 372 provide for the separate classification of Convenience Claims<br />
on a per Debtor basis.<br />
Classes 373 through 375 provide for the separate classification of the<br />
Convenience ENA Guaranty Claims, the Convenience ACFI Guaranty Claims<br />
and the Convenience EPC Guaranty Claims.<br />
Classes 376 through 382 provide for the separate classification of the<br />
Subordinated Claims.<br />
Classes 383 and 384 provide for the separate classification of the Enron Preferred<br />
Equity Interests and Enron Common Equity Interest, respectively.<br />
Class 385 provides for the separate classification of Other Equity Interests.<br />
(Bingham Affidavit 73; Debtors’ Tri<strong>al</strong> Ex. 1, Art. IV).<br />
As required by section 1123(a)(1) of the Bankruptcy Code, Article IV of the Plan<br />
designates Classes of Claims and Classes of Equity Interests. As required by sections 1123(a)(2)<br />
and 1123(a)(3) of the Bankruptcy Code, Article XXX of the Plan specifies wh<strong>et</strong>her each Class of<br />
Claims and Equity Interests is impaired or unimpaired under the Plan. As provided by Articles<br />
V through XX and XXX of the Plan, Classes 1 and 2 are rendered unimpaired and Classes 3<br />
through 385 are impaired or deemed impaired, as contemplated by section 1123(b)(1). As<br />
required by section 1123(a)(4) of the Bankruptcy Code, Articles V through XXI of the Plan<br />
specify the treatment of each Class or Equity Interest in each particular Class and provide for the<br />
same as the treatment of each other Claim or Equity Interest in such Class.<br />
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The reason for the separate classification for the Enron Guaranty Claims is to give effect<br />
to the glob<strong>al</strong> compromise embodied in the Plan. (6/3/04 p.m. Bingham Tr. at 66:18 – 67:6;<br />
Bingham Affidavit 73). Given that guaranties presumably were made by the Debtors with full<br />
knowledge of each Debtor’s corporate separateness, the Debtors believe the case for tot<strong>al</strong><br />
substantive consolidation and its typic<strong>al</strong> elimination of guaranty claims <strong>al</strong>tog<strong>et</strong>her is subject to<br />
differing interpr<strong>et</strong>ations and a recognition of 50% of Allowed Guaranty Claims in the 30%<br />
scenario is warranted. (Bingham Affidavit 39; 6/4/04 Bingham Tr. at 14:2 – 16:19).<br />
The separate classification of the Convenience Claims is based on v<strong>al</strong>id business, factu<strong>al</strong><br />
and leg<strong>al</strong> reasons and is therefore reasonable and proper under the Plan as it avoids thousands of<br />
Creditors holding fraction<strong>al</strong> interests in securities in the three business platforms of PGE, Prisma<br />
and CrossCountry, if they are not sold prior to distributions under the Plan. (Debtors’ Tri<strong>al</strong> Ex.<br />
1, Article XVI). The Convenience Claims within each Convenience Class are substanti<strong>al</strong>ly<br />
similar and the separate classification of the Convenience Claims was for purposes of<br />
convenience of implementing the Plan, not for gerrymandering of votes.<br />
V<strong>al</strong>id business, factu<strong>al</strong> and leg<strong>al</strong> reasons exist for the separate classification of the<br />
various Classes of Claims and Equity Interest created under the Plan and such Classes do not<br />
unfairly discriminate b<strong>et</strong>ween or among holders of Claims and Equity Interest. The Debtors’<br />
classification scheme has a ration<strong>al</strong> basis because it is based upon the respective leg<strong>al</strong> rights of<br />
each holder of a Claim or Equity Interest, as implemented in the Plan. For example, Class 185<br />
(Enron Guaranty Claims) is classified separately from Class 4 (ENE Gener<strong>al</strong> Unsecured) in order<br />
to implement the distribution and treatment of provisions of the glob<strong>al</strong> compromise. The<br />
classification scheme was not proposed to create a consenting impaired class and, thereby,<br />
manipulate class voting. (Bingham Affidavit 73). Moreover, both Class 4 and Class 185 voted<br />
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to accept the Plan. (Debtors’ Tri<strong>al</strong> Ex. 19). Thus, the Plan me<strong>et</strong>s the requirements of section<br />
1122(a) of the Bankruptcy Code.<br />
Pursuant to the glob<strong>al</strong> compromise and the Plan, a Creditor holding a Guaranty Claim<br />
will receive, in addition to what it will receive on account of its corresponding Allowed Gener<strong>al</strong><br />
Unsecured Claim, a distribution that includes (a) 70% of the distribution such holder would<br />
receive if the Debtors were not substantively consolidated, and (b) 30% of the distribution such<br />
holder would receive if <strong>al</strong>l the Debtors’ estates, other than the estate of the Portland Debtors,<br />
were substantively consolidated, with one adjustment. Because guaranty claims receive zero in a<br />
substantive consolidation, the Guaranty Claims here would have received 70% of their<br />
distribution without consolidation and 30% of zero. The glob<strong>al</strong> compromise, however, provides<br />
they g<strong>et</strong> 70% of their distribution without consolidation plus one-h<strong>al</strong>f the 30% distribution they<br />
would receive if their <strong>al</strong>lowed guaranty claims were not eliminated in a substantive<br />
consolidation. Thus, the treatment afforded to such Claims is distinct from that provided to<br />
Allowed Gener<strong>al</strong> Unsecured Claims. (Bingham Affidavit 39 and 63).<br />
Claims in Classes 376 through 382 relating to Subordinated Claims sh<strong>al</strong>l be d<strong>et</strong>ermined<br />
pursuant to a Fin<strong>al</strong> Order in accordance with the provisions of the Bankruptcy Code under the<br />
principles of equitable subordination or otherwise. (Debtors’ Tri<strong>al</strong> Ex. 1, § 1.179). The Plan<br />
provides the Court with flexibility to d<strong>et</strong>ermine the amount and extent of subordination of any<br />
claim. (See, e.g., Debtors’ Tri<strong>al</strong> Ex. 1, § 1.180).<br />
Schedule S of the Plan Supplement lists the types of claims the Debtors believe are<br />
entitled to the benefits of subordination according to the provisions of the underlying documents.<br />
(Bingham Affidavit 72; Debtors’ Tri<strong>al</strong> Ex. 4, Schedule S). The rights of the Debtors, except as<br />
otherwise expressly provided in the Baupost Stipulation, and of any other party in interest in<br />
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these Chapter 11 Cases are expressly reserved until further order of the Court fin<strong>al</strong>ly approving<br />
the types of claims entitled to the benefits of subordination as currently described in Schedule S<br />
of the Plan Supplement. (5/28/04 Hearing Tr. at 8:15 – 21).<br />
No evidence was submitted by any objector sufficient to rebut the Debtors’ evidence<br />
concerning classification and treatment of claims.<br />
2). V<strong>al</strong>uation of Platform Entities<br />
The Plan provides that the v<strong>al</strong>ue of the Prisma Common Stock, CrossCountry Common<br />
Equity, Existing PGE Common Stock or PGE Common Stock, as the case may be, will be<br />
d<strong>et</strong>ermined by the Court as of the Confirmation Date, as the same may be increased or reduced in<br />
accordance with the provisions of the Plan. To the extent that <strong>al</strong>l of the Prisma Common Stock,<br />
CrossCountry Common Equity, Existing PGE Common Stock or PGE Common Stock, as the<br />
case may be, is converted into Cash, one or more promissory notes, equity interests of the<br />
purchaser thereof or such other form of consideration prior to the later to occur of (a) the<br />
commencement of distributions with respect ther<strong>et</strong>o, and (b) the Effective Date, the v<strong>al</strong>ue sh<strong>al</strong>l<br />
be such amount re<strong>al</strong>ized in Cash or the then-fair mark<strong>et</strong> v<strong>al</strong>ue of the consideration received as<br />
d<strong>et</strong>ermined by the Court. To the extent that a portion, but not <strong>al</strong>l, of the Prisma Common Stock,<br />
CrossCountry Common Equity, Existing PGE Common Stock or PGE Common Stock, as the<br />
case may be, is converted into Cash, one or more promissory notes, equity interests of the<br />
purchaser thereof or such other form of consideration prior to the later to occur of (a) the<br />
commencement of distributions with respect ther<strong>et</strong>o, and (b) the Effective Date, the v<strong>al</strong>ue of such<br />
Prisma Common Stock, CrossCountry Common Equity, Existing PGE Common Stock or PGE<br />
Common Stock, as the case may be, the v<strong>al</strong>ue sh<strong>al</strong>l be equ<strong>al</strong> to the sum of (i) the Cash or thenfair<br />
mark<strong>et</strong> v<strong>al</strong>ue of such consideration as d<strong>et</strong>ermined by the Court re<strong>al</strong>ized from such<br />
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disposition plus, (ii) the product of (y) such consideration re<strong>al</strong>ized per share upon such<br />
disposition of Prisma Common Stock, CrossCountry Common Equity, Existing PGE Common<br />
Stock or PGE Common Stock, as the case may be, times (z) the number of shares Prisma<br />
Common Stock, CrossCountry Common Equity, Existing PGE Common Stock or PGE Common<br />
Stock, respectively, remaining with the Debtors immediately following such disposition.<br />
(Debtors’ Tri<strong>al</strong> Ex. 1, § 1.264).<br />
The Debtors’ expert, Steven Zelin, submitted unopposed expert opinion on v<strong>al</strong>uation of<br />
PGE, CrossCountry and Prisma. Hence, pursuant to the Court’s prior ruling, Debtors’ Tri<strong>al</strong><br />
Exhibits 24 and 25 (the Blackstone Report and Blackstone Supplement) were admitted into<br />
evidence and the going concern v<strong>al</strong>uation of PGE, CrossCountry and Prisma as s<strong>et</strong> forth therein<br />
was uncontroverted and accepted by the Court. (Dock<strong>et</strong> No. 18616, page 2). The evidence of<br />
v<strong>al</strong>uation as to the three platform businesses of the Debtors, as s<strong>et</strong> forth in the Blackstone Report,<br />
uses v<strong>al</strong>uation dates during and at year-end 2003. (Debtors’ Tri<strong>al</strong> Ex. 24 at 15 – 17, errata 55, 85<br />
and 125).<br />
Based on the Blackstone Report, the evidence of the following findings is unrebutted and<br />
accepted by the Court:<br />
(a)<br />
(b)<br />
The indicative equity v<strong>al</strong>ue range for PGE s<strong>et</strong> forth in Debtors’ Tri<strong>al</strong> Exhibit 24 is<br />
$1.132 billion to $1.413 billion, with a midpoint of $1.273 billion. (Debtors’<br />
Tri<strong>al</strong> Ex. 24 at errata 55).<br />
The indicative equity v<strong>al</strong>ue range for CrossCountry s<strong>et</strong> forth in Debtors’ Tri<strong>al</strong><br />
Exhibit 24 is $1.417 billion to $1.576 billion with a midpoint of $1.497 billion.<br />
(Debtors’ Tri<strong>al</strong> Ex. 25 at 85).<br />
(c) The indicative equity v<strong>al</strong>ue range for Prisma s<strong>et</strong> forth in Debtors’ Tri<strong>al</strong> Exhibit 24<br />
is $713 million to $918 million with a midpoint of $815 million. (Debtors’ Tri<strong>al</strong><br />
Ex. 24 at 125).<br />
The Blackstone Report Supplement (Debtors’ Tri<strong>al</strong> Ex. 25) was provided solely to<br />
provide updated “bring-down” v<strong>al</strong>uations of PGE, CrossCountry and Prisma from the May 4,<br />
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2004 Blackstone Report. (Debtors’ Tri<strong>al</strong> Ex. 25 at 6). Although contracts of s<strong>al</strong>e have been<br />
entered into for PGE and CrossCountry, because such transactions have not y<strong>et</strong> closed, the<br />
Blackstone v<strong>al</strong>uations of these entities are independent of the contract prices associated with<br />
these transactions. (Debtors’ Tri<strong>al</strong> Ex. 25 at 6 n.1).<br />
Based on the Blackstone Report Supplement, dated May 31, 2004, the evidence of the<br />
following findings is unrebutted and accepted by the Court:<br />
(a)<br />
(b)<br />
The indicative equity v<strong>al</strong>ue range for PGE s<strong>et</strong> forth in Debtors’ Tri<strong>al</strong> Exhibit 25 is<br />
$1.166 billion to $1.459 billion, with a midpoint of $1.313 billion. (Debtors’<br />
Tri<strong>al</strong> Ex. 25 at 18).<br />
The indicative equity v<strong>al</strong>ue range for CrossCountry s<strong>et</strong> forth in Debtors’ Tri<strong>al</strong><br />
Exhibit 25 is $1.614 billion to $1.770 billion with a midpoint of $1.692 billion.<br />
(Debtors’ Tri<strong>al</strong> Ex. 25 at 36).<br />
(c) The indicative equity v<strong>al</strong>ue range for Prisma s<strong>et</strong> forth in Debtors’ Tri<strong>al</strong> Exhibit 25<br />
is $776 million to $989 million with a midpoint of $882 million. (Debtors’ Tri<strong>al</strong><br />
Ex. 25 at 41).<br />
The aggregate increase in the midpoint indicative equity v<strong>al</strong>ue ranges of PGE, CrossCountry and<br />
Prisma resulting from the bring down of the v<strong>al</strong>uations of PGE, CrossCountry and Prisma to<br />
May 31, 2004 is $302 million. (Debtors’ Tri<strong>al</strong> Ex. 25 at 7).<br />
Using the midpoint indicative equity v<strong>al</strong>ue for each of the Operating Entities, the Court<br />
has ample evidence to conclude that:<br />
(a)<br />
The indicative equity v<strong>al</strong>ue of PGE is $1.312 billion and, assuming 62.5 million<br />
shares of PGE Common Stock will be issued pursuant to the Plan, the v<strong>al</strong>ue of<br />
each share of PGE Common Stock will be $21.008. (Debtors’ Tri<strong>al</strong> Exhibit 1, §<br />
1.186; Debtors’ Tri<strong>al</strong> Ex. 25 at 18; 6/7/04 Zelin Tr. at 128:7 – 11).<br />
(b) The indicative equity v<strong>al</strong>ue of CrossCountry is $1.692 billion and, assuming 75.0<br />
million shares of common equity will be issued pursuant to the Plan, the v<strong>al</strong>ue of<br />
each share of CrossCountry Common Stock will be $22.56 per share. (Debtors’<br />
Tri<strong>al</strong> Ex. 1, § 1.68; Debtors’ Tri<strong>al</strong> Ex. 25 at 36:20).<br />
20 In the event that CrossCountry is an Entity other than a corporation and assuming 75.0 million units of common<br />
equity of such Entity will be issued pursuant to the Plan, the v<strong>al</strong>ue of each such unit of common equity of<br />
CrossCountry will be $22.56 per unit. (Debtors’ Tri<strong>al</strong> Ex. 1, § 1.68).<br />
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(c)<br />
The indicative equity v<strong>al</strong>ue of Prisma is $882 million and, assuming 40.0 million<br />
shares of Prisma Common Stock will be issued pursuant to the Plan, the v<strong>al</strong>ue of<br />
each share of Prisma Common Stock will be $22.05. (Debtors’ Tri<strong>al</strong> Ex. 1, §<br />
1.209; Debtors’ Tri<strong>al</strong> Ex. 25, at 41).<br />
As the testimony regarding the v<strong>al</strong>uation of PGE, CrossCountry and Prisma was neither<br />
questioned nor refuted by any other evidence or party during the Confirmation Hearing, the<br />
Court accepts the Blackstone Report, Blackstone Report Supplement and Mr. Zelin’s testimony<br />
as conclusive evidence of the v<strong>al</strong>ue of these ass<strong>et</strong>s for the purposes of Plan confirmation.<br />
If the pending s<strong>al</strong>e contracts for PGE and CrossCountry close, then the going concern<br />
v<strong>al</strong>ue and the liquidation v<strong>al</strong>ue would be the same. (6/7/04 Zelin Tr. at 105:16 – 106:10).<br />
However, as stated by Mr. Zelin, there are certain downward adjustments that would more likely<br />
occur in a chapter 7 contract closing on PGE and CrossCountry than a chapter 11 contract<br />
closing. (6/7/04 Zelin Tr. at 44:18 – 46:07; 90:06 – 91:19; 206:20 – 207:07).<br />
3). Cramdown<br />
The Distribution Model flows the ass<strong>et</strong> v<strong>al</strong>ues through a tradition<strong>al</strong> recovery “waterf<strong>al</strong>l,”<br />
paying senior-most Creditors first and <strong>al</strong>locating v<strong>al</strong>ue consistent with Bankruptcy Code<br />
priorities. (Debtors’ Tri<strong>al</strong> Ex. 24 at 131). The Distribution Model assumes that priority claims<br />
are paid in full prior to distributions to any holders of Allowed Gener<strong>al</strong> Unsecured Claims.<br />
(6/7/04 Zelin Tr. at 298:13 – 24). The Distribution Model is consistent with the absolute priority<br />
rule. (6/7/04 Zelin Tr. at 260:24 – 261:3).<br />
The Plan delineates 385 separate classes of Claims and Equity Interests. Of these, Class<br />
1 (Priority Non-Tax Claims) and Class 2 (Secured Claims) will be paid in full. Classes 183<br />
(Enron Subordinated Debenture Claims), 184 (Enron TOPRS Debenture Claims) and 376<br />
through 385 (Subordinated Claims, Enron Preferred Equity Interests, Enron Common Equity<br />
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Interests and Other Equity Interests) are estimated to receive no distributions under the Plan.<br />
Creditors in Classes 3 through 375 (excepting Classes 182 and 364) 21 are estimated to receive<br />
distributions ranging from 5.1% to 75.7% of the <strong>al</strong>lowed amount of their claims. The Plan <strong>al</strong>so<br />
provides for payment in full of Allowed Administrative Expense Claims and Allowed Priority<br />
Tax Claims. (Bingham Affidavit 64; Debtors’ Tri<strong>al</strong> Ex. 1, §§ 3.1 and 3.3). No party has<br />
objected to the cramdown of the Classes of Equity Interests that are deemed to reject the Plan.<br />
(Bingham Affidavit 86).<br />
Upon approv<strong>al</strong> of the glob<strong>al</strong> compromise embodied in the Plan and s<strong>et</strong> forth in the Glob<strong>al</strong><br />
Compromise Motion, <strong>al</strong>l Classes of impaired Claims and Equity Interests either have accepted<br />
the Plan or will receive fair and equitable treatment in accordance with section 1129(b) of the<br />
Bankruptcy Code. (Bingham Affidavit 79).<br />
The Debtors’ estimated recoveries on Allowed Equity Interests are reflected in the<br />
Disclosure Statement as $0. (Debtors’ Tri<strong>al</strong> Ex. 2 at 90). Consistent with the fact that it is<br />
anticipated that holders of Allowed Equity Interests will not receive or r<strong>et</strong>ain any property under<br />
the Plan in respect of such interests, notices of non-voting status were sent to the holders of these<br />
interests and they were deemed to have rejected the Plan. (Debtors’ Tri<strong>al</strong> Ex. 3 at 4 – 5, J).<br />
Nevertheless, in the event that <strong>al</strong>l Allowed Claims are paid in full, with interest, the Plan<br />
provides that excess Plan Currency and Trust Interests are available for redistribution to holders<br />
of Allowed Subordinated Claims, Enron Preferred Equity Interests, Enron Common Equity<br />
Interests and Other Equity Interests. (Debtors’ Tri<strong>al</strong> Ex. 1, §§ 17.2, 18.2, 19.2 and 20.1). Under<br />
21 Classes 182 and 364 are expected to receive no distributions under the Plan. Similarly, Gener<strong>al</strong> Unsecured<br />
Claims Classes 58, 59, and 60 and Convenience Claims Classes 246, 247, and 248 have been rendered inoperative<br />
given the severance of the Dabhol Debtors from these Chapter 11 Cases.<br />
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the Plan, no ass<strong>et</strong>s are transferred into the trusts for equity interests until <strong>al</strong>l Allowed Claims are<br />
paid in full with interest. (Debtors’ Tri<strong>al</strong> Ex. 1, §§ 18.2 and 19.2).<br />
No evidence was submitted by any objector sufficient to rebut the Debtors’ evidence<br />
relating to cramdown of the Plan pursuant to section 1129(b) of the Bankruptcy Code.<br />
4). Good Faith<br />
The Plan has been proposed in good faith and not by any means forbidden by law.<br />
(Bingham Affidavit 74). The purposes of the Plan, including the disposition or distribution of<br />
<strong>al</strong>l of the Debtors’ ass<strong>et</strong>s and the prosecution of litigation for the benefit of the Debtors’ estates,<br />
is appropriate and v<strong>al</strong>ue-maximizing. The glob<strong>al</strong> compromise embodied in the Plan and the<br />
Glob<strong>al</strong> Compromise Motion was the result of good faith negotiations b<strong>et</strong>ween the Debtors, the<br />
Creditors’ Committee and the ENA Examiner. (Bingham Affidavit 16 – 18, 20, 22, 23;<br />
Debtors’ Tri<strong>al</strong> Exs. 13 – 18).<br />
No credible evidence has been presented by any objector sufficient to rebut the Debtors’<br />
evidence that the voting and solicitation process, including the entry of stipulations and orders<br />
affecting voting and b<strong>al</strong>lots cast on the Plan, was conducted in good faith. No evidence was<br />
submitted by any objector to rebut the Debtors’ evidence relating to the good faith nature of the<br />
Plan and the negotiations leading to the Plan and the voting process.<br />
5). Wind-Down and Post-Confirmation Governance<br />
Except as provided in the Plan, confirmation of the Plan is not likely to be followed by<br />
liquidation or the need for further financi<strong>al</strong> reorganization of the Debtors. (Bingham Affidavit<br />
83).<br />
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Article XXXVII of the Plan provides that the occurrence of the Effective Date and the<br />
substanti<strong>al</strong> consummation of the Plan are subject to satisfaction of the following conditions<br />
precedent:<br />
(a)<br />
(b)<br />
(c)<br />
(d)<br />
(e)<br />
Entry of the Confirmation Order: The Clerk of the Court sh<strong>al</strong>l have entered the<br />
Confirmation Order, in form and substance reasonably satisfactory to the Debtors<br />
and the Creditors’ Committee and the effectiveness of which sh<strong>al</strong>l not have been<br />
stayed ten (10) days following the entry thereof.<br />
Execution of Documents; Other Actions: All other actions and documents<br />
necessary to implement the Plan sh<strong>al</strong>l have been effected or executed.<br />
Prisma Consents Obtained: The requisite consents to the transfer of the Prisma<br />
Ass<strong>et</strong>s to Prisma and the issuance of the Prisma Common Stock have been<br />
obtained.<br />
CrossCountry Consents Obtained: The requisite consents to the issuance of the<br />
CrossCountry Common Equity have been obtained.<br />
PGE Approv<strong>al</strong>: The requisite consents for the issuance of the PGE Common<br />
Stock have been obtained.<br />
(Debtors’ Tri<strong>al</strong> Ex. 1, § 37.1).<br />
The Plan <strong>al</strong>so provides that, to the extent practicable and leg<strong>al</strong>ly permissible, each of the<br />
above conditions precedent may be waived, in whole or in part, by the Debtors with the consent<br />
of the Creditors’ Committee. (Debtors’ Tri<strong>al</strong> Ex. 1, § 37.2).<br />
As required by section 1123(a)(5), Articles XII through XLI of the Plan provide adequate<br />
means for implementation of the Plan through, inter <strong>al</strong>ia, issuance and distribution of Plan<br />
Securities, creation of the various trusts, transfer of certain ass<strong>et</strong>s to the trusts and disbursement<br />
of funds to certain parties. (Debtors’ Tri<strong>al</strong> Ex. 1, Arts. XXII through XXXII).<br />
Upon satisfaction of the applicable conditions s<strong>et</strong> forth in Section 32.1(c) of the Plan,<br />
each of PGE, CrossCountry Distributing Company and Prisma intends to issue Plan Securities<br />
pursuant to section 1145(a)(1) of the Bankruptcy Code. Each of PGE, CrossCountry<br />
Distributing Company and Prisma is an “affiliate participating in a joint plan with [each<br />
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Debtor],” as such phrase is used in section 1145(a)(1) of the Bankruptcy Code, and such issuance<br />
of each Plan Security pursuant to the Plan will be “in exchange for a claim against, [or] interest<br />
in . . . [a Debtor],” as such phrase is used in section 1145(a)(1)(A) of the Bankruptcy Code.<br />
(Debtors’ Tri<strong>al</strong> Ex. 1, §§ 1.193 and 32.1(c); Debtors’ Tri<strong>al</strong> Ex. 24 at 31, 57 – 58 and 87 – 109).<br />
If formed, each of the Litigation Trust and Speci<strong>al</strong> Litigation Trust will constitute a “successor to<br />
[a Debtor] under the [P]lan,” as such phrase is used in section 1145(a)(1) of the Bankruptcy<br />
Code and any distribution of Trust Interests pursuant to the Plan will be “in exchange for a claim<br />
against, [or] interest in . . . [a Debtor],” as such phrase is used in section 1145(a)(1)(A) of the<br />
Bankruptcy Code. (Debtors’ Tri<strong>al</strong> Ex. 1, §§ 1.88, 22.1 and 23.1).<br />
On the Effective Date of the Plan, the Reorganized Debtor Plan Administrator will (a)<br />
facilitate the prosecution or s<strong>et</strong>tlement of objections to and estimations of Claims, (b) prosecute<br />
or s<strong>et</strong>tle claims and causes of action held by the Debtors, (c) assist the Litigation Trustee and the<br />
Speci<strong>al</strong> Litigation Trustee in performing their duties, (d) c<strong>al</strong>culate and assist the Disbursing<br />
Agent in implementing <strong>al</strong>l distributions in accordance with the Plan, (e) file <strong>al</strong>l required tax<br />
r<strong>et</strong>urns and pay taxes and other obligations, (f) report periodic<strong>al</strong>ly to the Court on the status of<br />
the Claims resolution process, distributions on Allowed Claims and prosecution of causes of<br />
action, (g) liquidate the Remaining Ass<strong>et</strong>s and provide for the distribution of the n<strong>et</strong> proceeds<br />
thereof in accordance with the Plan, (h) consult with and provide information to the DCR<br />
Overseers in connection with the voting or s<strong>al</strong>e of the Plan Securities to be deposited into the<br />
Disputed Claims reserve, and (i) perform such other responsibilities as may be vested in the<br />
Reorganized Debtor Administrator pursuant to the Plan, the Reorganized Debtor Plan<br />
Administration Agreement or Court order, or as necessary and proper to carry out the provisions<br />
of the Plan. (Bingham Affidavit 93; 6/3/04 p.m. Bingham Tr. at 122:12 – 123:3).<br />
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As of the Effective Date, the Reorganized Debtor Plan Administrator will be Cooper<br />
LLC, as the fiduciary responsible for, inter <strong>al</strong>ia, insuring compliance with the Plan pursuant to<br />
and in accordance with the provisions of the Plan and the Reorganized Debtor Plan<br />
Administration Agreement, a copy of which was filed as Exhibit O to the Plan Supplement. The<br />
responsibilities of the Reorganized Debtor Plan Administrator are s<strong>et</strong> forth in the Plan. (Debtors’<br />
Tri<strong>al</strong> Ex. 1 at § 36.2; Debtors’ Tri<strong>al</strong> Ex. 4 at Schedule O; Bingham Affidavit 76). The<br />
Reorganized Debtor Plan Administrator will have responsibility for overseeing the<br />
administration of the Reorganized Debtors, subject to the supervision of the Board of Directors<br />
of the Reorganized Debtors. (Bingham Affidavit 66).<br />
Pursuant to Article XXXV of the Plan and except to the extent that the responsibility for<br />
the same is vested in the Reorganized Debtor Plan Administrator pursuant to the Reorganized<br />
Debtor Plan Administration Agreement, the Disbursing Agent sh<strong>al</strong>l be empowered to (a) take <strong>al</strong>l<br />
steps and execute <strong>al</strong>l instruments and documents necessary to effectuate the Plan, (b) make<br />
distributions contemplated by the Plan, (c) comply with the Plan and the obligations thereunder,<br />
(d) file <strong>al</strong>l tax r<strong>et</strong>urns and pay taxes in connection with the reserves created pursuant to Article<br />
XVIII of the Plan, and (e) exercise such other powers as may be vested in the Disbursing Agent<br />
pursuant to order of the Court, pursuant to the Plan, or as deemed by the Disbursing Agent to be<br />
necessary and proper to implement the provisions of the Plan. (Debtors’ Tri<strong>al</strong> Ex. 1 at § 35.2).<br />
Pursuant to Article XXII of the Plan, the Litigation Trustee, upon direction by the<br />
Litigation Trust Board and the exercise of their collective reasonable business judgment, sh<strong>al</strong>l, in<br />
an expeditious but orderly manner, liquidate and convert to Cash the ass<strong>et</strong>s of the Litigation<br />
Trust, make timely distributions and not unduly prolong the duration of the Litigation Trust. The<br />
liquidation of the Litigation Trust Claims may be accomplished either through the prosecution,<br />
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compromise and s<strong>et</strong>tlement, abandonment or dismiss<strong>al</strong> of any or <strong>al</strong>l claims, rights or causes of<br />
action, or otherwise. The Litigation Trustee, upon direction by the Litigation Trust Board, sh<strong>al</strong>l<br />
have the absolute right to pursue or not to pursue any and <strong>al</strong>l Litigation Trust Claims as it<br />
d<strong>et</strong>ermines is in the best interests of the beneficiaries of the Litigation Trust, and consistent with<br />
the purposes of the Litigation Trust and sh<strong>al</strong>l have no liability for the outcome of its decision<br />
except for any damages caused by willful misconduct or gross negligence. The Litigation<br />
Trustee may incur any reasonable and necessary expenses in liquidating and converting the<br />
ass<strong>et</strong>s to Cash and sh<strong>al</strong>l be reimbursed in accordance with the provisions of the Litigation Trust<br />
Agreement. (Debtors’ Tri<strong>al</strong> Ex. 1 at § 22.6(a)).<br />
The Litigation Trustee sh<strong>al</strong>l be named in the Confirmation Order or in the Litigation<br />
Trust Agreement and sh<strong>al</strong>l have the power (a) to prosecute for the benefit of the Litigation Trust<br />
<strong>al</strong>l claims, rights and causes of action transferred to the Litigation Trust (wh<strong>et</strong>her such suits are<br />
brought in the name of the Litigation Trust or otherwise), and (b) to otherwise perform the<br />
functions and take the actions provided for or permitted herein or in any other agreement<br />
executed by the Litigation Trustee pursuant to the Plan. Any and <strong>al</strong>l proceeds generated from<br />
such claims, rights and causes of action sh<strong>al</strong>l be the property of the Litigation Trust. (Debtors’<br />
Tri<strong>al</strong> Ex. 1 at § 22.6(b)).<br />
Pursuant to Article XXIII of the Plan, the Speci<strong>al</strong> Litigation Trustee, upon direction by<br />
the Speci<strong>al</strong> Litigation Trust Board and the exercise of their collective reasonable business<br />
judgment, sh<strong>al</strong>l, in an expeditious but orderly manner, liquidate and convert to Cash the ass<strong>et</strong>s of<br />
the Speci<strong>al</strong> Litigation Trust, make timely distributions and not unduly prolong the duration of the<br />
Speci<strong>al</strong> Litigation Trust. The liquidation of the Speci<strong>al</strong> Litigation Trust Claims may be<br />
accomplished either through the prosecution, compromise and s<strong>et</strong>tlement, abandonment or<br />
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dismiss<strong>al</strong> of any or <strong>al</strong>l claims, rights or causes of action, or otherwise. The Speci<strong>al</strong> Litigation<br />
Trustee, upon direction by the Speci<strong>al</strong> Litigation Trust Board, sh<strong>al</strong>l have the absolute right to<br />
pursue or not to pursue any and <strong>al</strong>l claims, rights or causes of action, as it d<strong>et</strong>ermines is in the<br />
best interests of the beneficiaries of the Speci<strong>al</strong> Litigation Trust and consistent with the purposes<br />
of the Speci<strong>al</strong> Litigation Trust, and sh<strong>al</strong>l have no liability for the outcome of its decision except<br />
for any damages caused by willful misconduct or gross negligence. The Speci<strong>al</strong> Litigation<br />
Trustee may incur any reasonable and necessary expenses in liquidating and converting the<br />
ass<strong>et</strong>s to Cash. (Debtors’ Tri<strong>al</strong> Ex. 1 at § 23.6(a)).<br />
The Speci<strong>al</strong> Litigation Trustee sh<strong>al</strong>l be named in the Confirmation Order or in the Speci<strong>al</strong><br />
Litigation Trust Agreement and sh<strong>al</strong>l have the power (a) to prosecute for the benefit of the<br />
Speci<strong>al</strong> Litigation Trust <strong>al</strong>l claims, rights and causes of action transferred to the Speci<strong>al</strong><br />
Litigation Trust (wh<strong>et</strong>her such suits are brought in the name of the Speci<strong>al</strong> Litigation Trust or<br />
otherwise), and (b) to otherwise perform the functions and take the actions provided for or<br />
permitted herein or in any other agreement executed by the Speci<strong>al</strong> Litigation Trustee pursuant to<br />
the Plan. Any and <strong>al</strong>l proceeds generated from such claims, rights and causes of action sh<strong>al</strong>l be<br />
the property of the Speci<strong>al</strong> Litigation Trust. (Debtors’ Tri<strong>al</strong> Ex. 1 at § 23.6(b)).<br />
Cooper LLC sh<strong>al</strong>l assume the duties of the Reorganized Debtor Plan Administrator and<br />
the Litigation Trustee (if such trust(s) is (are) formed). (Debtors’ Tri<strong>al</strong> Ex. 4 at Schedule A,<br />
Schedule B, Schedule O). Mr. Cooper has had extensive prior experience in Chapter 11<br />
restructurings and inform<strong>al</strong> restructurings spanning 30 years. Mr. Cooper’s experience includes<br />
the following activities and offices: (a) a founder of what was then Touche Ross's reorganization<br />
advisory services group; (b) a founder of his own firm with one of his former partners in the<br />
early '80s and the b<strong>al</strong>ance of his career has been with that firm; (c) the chief restructuring officer<br />
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of the Laidlaw corporation for the last five to seven years; (d) the financi<strong>al</strong> advisor for Morrison<br />
Knudsen and their successor, the Washington Group; (e) a financi<strong>al</strong> advisor to Sunbeam; and (f)<br />
the financi<strong>al</strong> advisor to Polaroid. Based on Mr. Cooper’s extensive prior experience with respect<br />
to restructuring activities, the Court finds that the post-confirmation involvement of Cooper LLC<br />
is both appropriate and benefici<strong>al</strong> for the Debtors, their estates and their Creditors. (6/8/04<br />
Cooper Tr. at 12:15 – 21).<br />
Pursuant to the Plan and except as s<strong>et</strong> forth in Article XXV therein, the Reorganized<br />
Debtors will r<strong>et</strong>ain <strong>al</strong>l ass<strong>et</strong>s not otherwise transferred to the Litigation Trust, the Speci<strong>al</strong><br />
Litigation Trust, the Severance S<strong>et</strong>tlement Fund Trust, the Operating Trusts, or the Operating<br />
Entities. (Debtors’ Tri<strong>al</strong> Ex. 2, § VII.C; Debtors’ Tri<strong>al</strong> Ex. 1, §§ 1.219 and 42.1). Remaining<br />
Ass<strong>et</strong>s may include Cash, Claims, avoidance actions and other causes of action against third<br />
parties on beh<strong>al</strong>f of the Debtors’ estates, proceeds of liquidated ass<strong>et</strong>s, the Debtors’ stock in the<br />
Enron Companies, trading contracts, equity investments, inventory, re<strong>al</strong> property and other<br />
miscellaneous ass<strong>et</strong>s. The winding down of the Debtors’ estates remains a complicated process<br />
as there are a significant number of individu<strong>al</strong> ass<strong>et</strong>s that need to be collected or sold, or<br />
otherwise handled. (Debtors’ Tri<strong>al</strong> Ex. 2, § VII.C; Debtors’ Tri<strong>al</strong> Ex. 1, §§ 36.2 and 42.1).<br />
Some of these ass<strong>et</strong>s are currently involved in litigation proceedings and/or complex<br />
cross-ownership structures. In addition, the Reorganized Debtors will have sufficient funds to<br />
continue to manage the ass<strong>et</strong>s until such ass<strong>et</strong>s are liquidated, to pursue the litigation and to<br />
make distributions, in each case, as contemplated by the Plan. (Debtors’ Tri<strong>al</strong> Ex. 2, § VII.C;<br />
Debtors’ Tri<strong>al</strong> Ex. 1, Art. XXXVI; Debtors’ Tri<strong>al</strong> Ex. 1, § 42.1). As s<strong>et</strong> forth in the Blackstone<br />
Report, the aggregate assumed v<strong>al</strong>ue of the Remaining Ass<strong>et</strong>s, including Mariner, Sithe and<br />
Stadacona, was $2.698 billion. The Mariner, Sithe and Stadacona ass<strong>et</strong>s have been sold,<br />
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resulting in a n<strong>et</strong> assumed v<strong>al</strong>ue of $2.04 billion for the Remaining Ass<strong>et</strong>s that have not y<strong>et</strong> been<br />
sold. (Debtors’ Tri<strong>al</strong> Ex. 24 at 139 – 141).<br />
The Debtors intend to ensure that their defined benefit plans are fully funded and that the<br />
funding will be sufficient to prevent further harm to current employees and r<strong>et</strong>irees. (6/8/04<br />
Cooper Tr. at 68:4 – 10). The Debtors have begun to take the steps necessary to terminate the<br />
defined benefit plans pursuant to a standard termination by seeking approv<strong>al</strong> of the board of<br />
directors, notifying employees, seeking approv<strong>al</strong> of the PBGC and seeking an appropriate tax<br />
ruling from the Intern<strong>al</strong> Revenue Service. (6/8/04 Cooper Tr. at 96:7 – 12). The Debtors are<br />
current on their minimum contribution obligations with respect to defined benefit plans and<br />
premium funding to the PBGC. (Dock<strong>et</strong> No. 15132 at 3 n.3). The Debtors have entered into<br />
negotiations with the PBGC regarding the amount of shortf<strong>al</strong>ls for the Cash B<strong>al</strong>ance Plan (6/8/04<br />
Cooper Tr. at 96:13 – 16). The Debtors have the financi<strong>al</strong> means to ensure the full funding of<br />
such defined benefit plans. (6/8/04 Cooper Tr. at 69:11 – 14).<br />
The Plan includes provisions designed to streamline the governance and oversight of<br />
these Chapter 11 Cases, including provisions to appoint a five-member board of directors of<br />
Reorganized ENE. (Bingham Affidavit 67). The Restated Articles contain a prohibition in the<br />
charter of a debtor of issuance of non-voting equity securities. (Debtors’ Tri<strong>al</strong> Ex. 4 at Schedule<br />
Q(1), Section 4.1; Debtors’ Tri<strong>al</strong> Ex. 4 at Schedule Q(1), Art. 4). As required by section<br />
1123(a)(7), Article XL of the Plan contains provisions with respect to the manner of selection of<br />
directors of the Reorganized Debtors. (Debtors’ Tri<strong>al</strong> Ex. 1, Art. XL).<br />
As s<strong>et</strong> forth in the Schedule U and V to the Plan Supplement, filed on March 9, 2004 and<br />
as modified by the Debtors’ Notice of Modifications to Scheduled Directors, Officers, and<br />
Insiders, filed on June 2, 2004 (the “Governance Modification,” Dock<strong>et</strong> No. 18841), the Board<br />
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of Directors of Reorganized ENE sh<strong>al</strong>l consist of five individu<strong>al</strong>s, including, Stephen D. Benn<strong>et</strong>t,<br />
Rick A. Harrington, James R. Latimer, III and John J. Ray, III. Due to previously unforeseen<br />
obligations and time constraints, one addition<strong>al</strong> director has removed his name from<br />
consideration regarding the Board of Directors of Reorganized ENE. (Bingham Affidavit 76;<br />
Dock<strong>et</strong> No. 18841). If the Debtors select a replacement person during the period prior to the<br />
Effective Date, such selection sh<strong>al</strong>l be made in a manner consistent with the provisions of<br />
Section 40.1 of the Plan and the Debtors sh<strong>al</strong>l file a notice thereof with the Court. If the Debtors<br />
select a replacement person after the Effective Date, such selection sh<strong>al</strong>l be made in accordance<br />
with the Reorganized Debtors Certificate of <strong>Inc</strong>orporation and the Reorganized Debtors Bylaws,<br />
as the same may be amended. (Dock<strong>et</strong> No. 18841 at 1 – 2; Debtors’ Tri<strong>al</strong> Ex. 4, Schedule O<br />
§ 12).<br />
Three of these individu<strong>al</strong>s were selected by the Debtors after consultation with the<br />
Creditors’ Committee and one was selected by the Debtors after consultation with the ENA<br />
Examiner. The remaining individu<strong>al</strong> to be named sh<strong>al</strong>l be selected by the Debtors after<br />
consultation with the Creditors’ Committee. (Bingham Affidavit 76). No officer or director of<br />
the proposed Reorganized Debtors has any motivation to favor one Debtor over another. (6/8/04<br />
Cooper Tr. at 70:19 – 24). By virtue of ENE’s obligation to carry out the Plan and the parti<strong>al</strong><br />
substantive consolidation embodied therein, <strong>al</strong>l directors and officers of ENE sh<strong>al</strong>l have<br />
fiduciary duties to <strong>al</strong>l Creditors of <strong>al</strong>l Debtors to carry it out fairly.<br />
Section 33.4 of the Plan provides that the ENA Examiner’s role sh<strong>al</strong>l conclude on the<br />
Effective Date and the ENA Examiner and the profession<strong>al</strong>s r<strong>et</strong>ained by the ENA Examiner sh<strong>al</strong>l<br />
be released and discharged from any remaining obligations outstanding pursuant to the orders of<br />
the Court, with certain limited exceptions. Pursuant to Section 33.4(b) of the Plan, the term of<br />
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the ENA Examiner’s involvement in the Chapter 11 Cases may be extended. In the event that a<br />
motion seeking such extension is timely filed, any party in interest, including, without limitation,<br />
the Debtors or the Creditors’ Committee, may interpose an objection or a response with respect<br />
ther<strong>et</strong>o. (Bingham Affidavit 67; Debtors’ Tri<strong>al</strong> Ex. 1, § 33.4(b)).<br />
As s<strong>et</strong> forth in Schedule A to the Plan Supplement, the Litigation Trust Board will be<br />
comprised of five persons selected by ENE, after consultation with the Creditors’ Committee<br />
with respect to four and the ENA Examiner with respect to one. (Debtors’ Tri<strong>al</strong> Ex. 4, Schedule<br />
A, § 4.1). Consistent with the foregoing, as of the date hereof, the members of the Litigation<br />
Trust Board include Stephen D. Benn<strong>et</strong>t, Rick A. Harrington, James R. Latimer, III and John J.<br />
Ray, III. The fin<strong>al</strong> member of the Litigation Trust Board will consist of the fifth member<br />
appointed by ENE following consultation with the Creditors’ Committee.<br />
As s<strong>et</strong> forth in Schedule B to the Plan Supplement, the Speci<strong>al</strong> Litigation Trust Board<br />
will be comprised of no less than three persons and no more than five persons. Three of the<br />
initi<strong>al</strong> members of the Speci<strong>al</strong> Litigation Trust Board sh<strong>al</strong>l be representatives from ABN AMRO<br />
Bank, CALYON as successor in interest to Credit Lyonnais and Wells Fargo Bank Minnesota,<br />
N.A. and the remaining two members (if any) will be d<strong>et</strong>ermined and nominated by the<br />
Creditors’ Committee. (Debtors’ Tri<strong>al</strong> Ex. 4, Schedule B, § 4.1).<br />
As s<strong>et</strong> forth in Schedule Y to the Plan Supplement, the Guidelines for the Disputed<br />
Claims Reserve provide that the DCR Overseers will be comprised of five individu<strong>al</strong>s selected<br />
by ENE, after consultation with the Creditors’ Committee with respect to four and the ENA<br />
Examiner with respect to one. (Debtors’ Tri<strong>al</strong> Ex. 4, Scheduled Y, § VII.1). The DCR<br />
Overseers include Stephen D. Benn<strong>et</strong>t, Rick A. Harrington, James R. Latimer, III and John J.<br />
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Ray, III. The fin<strong>al</strong> member of the DCR Overseers will consist of the fifth member appointed by<br />
ENE following consultation with the Creditors’ Committee.<br />
As s<strong>et</strong> forth in Schedule Z to the Plan Supplement, the Guidelines for the DCR Overseers<br />
provide that (a) in d<strong>et</strong>ermining how the Disbursing Agent should vote Plan Securities, the DCR<br />
Overseers sh<strong>al</strong>l, subject to the remainder of the guidelines s<strong>et</strong> forth in Schedule Z, exercise their<br />
business judgment to vote the Plan Securities in a manner that they believe will maximize the<br />
v<strong>al</strong>ue of the Plan Securities, or the proceeds thereof, upon their release from the DCR to holders<br />
of Allowed Claims, (b) in fulfillment of their responsibilities, each of the DCR Overseers sh<strong>al</strong>l<br />
have the same duties, liabilities, defenses and standards of care of a director of a corporation<br />
chartered under the Delaware Gener<strong>al</strong> Corporation Law, and (c) in the event that any of the DCR<br />
Overseers has a conflict of interest in any matter or issue, such DCR Overseer must fully<br />
disclose the nature of such conflict or potenti<strong>al</strong> conflict and sh<strong>al</strong>l not be entitled to vote or take<br />
part in any action with respect to such matter or issue. (Guidelines for DCR Overseers,<br />
§§ IV.A.1, V.A and VI).<br />
Following consummation of the Plan, the Debtors intend to reorganize intern<strong>al</strong>ly for the<br />
purposes of managing their ass<strong>et</strong>s over the next sever<strong>al</strong> years to conduct an orderly windingdown<br />
of their business affairs. (Bingham Affidavit 93). The Plan maximizes v<strong>al</strong>ue to<br />
Creditors by providing a structure that <strong>al</strong>lows the Debtors to wind-down their affairs over a<br />
number of years, while at the same time maximizing the v<strong>al</strong>ue of <strong>al</strong>l of their ass<strong>et</strong>s and<br />
distributing them to Creditors. (6/7/04 Zelin Tr. at 38:5 – 39:3; 6/8/04 Cooper Tr. at 64:25 –<br />
66:14). The Debtors have assumed that the estates would be wound down over a three-year<br />
period, through December 31, 2006, plus sever<strong>al</strong> more years to compl<strong>et</strong>e the liquidation process.<br />
(6/7/04 Zelin Tr. at 94:21 – 95:10; Debtors’ Tri<strong>al</strong> Ex. 9, at L-3, L-4, L-6).<br />
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The structure of a v<strong>al</strong>ue-maximizing wind-down of estates has <strong>al</strong>ready begun to benefit<br />
Creditors, as seen by the fact that Debtors have been able to obtain a significantly higher price<br />
for CrossCountry than possible in a chapter 7. (6/7/04 Zelin Tr. at 42:24 – 43:24). If the Debtors<br />
were forced to sell ass<strong>et</strong>s in a chapter 7, the leverage or b<strong>al</strong>ance of power in those s<strong>al</strong>e<br />
negotiations would shift. As a result, the liquidation v<strong>al</strong>ues for CrossCountry, Prisma and PGE<br />
would be less than the v<strong>al</strong>ues of those ass<strong>et</strong>s under the Plan. (6/7/04 Zelin Tr. at 41:17 – 43:24).<br />
Pursuant to Section 42.3 of the Plan, once each Debtor makes its fin<strong>al</strong> distribution<br />
pursuant the Plan, it is deemed dissolved. Thus, the Debtors’ corporations cannot be trafficked<br />
in for any tax purpose and there would be no n<strong>et</strong> operating losses available upon discharge.<br />
(Debtors’ Tri<strong>al</strong> Ex. 1, § 42.3; 6/8/04 Cooper Tr. at 67:7 – 15).<br />
It would be very chaotic if, on the Effective Date, the automatic stay were to terminate<br />
and <strong>al</strong>l Creditors were free then to enforce their prep<strong>et</strong>ition claims against the Reorganized<br />
Debtors. It would not be possible to carry out the Plan and have an equitable distribution of<br />
ass<strong>et</strong>s if Creditors were able to sue the Reorganized Debtors to collect on their prep<strong>et</strong>ition<br />
claims. (6/8/04 Cooper Tr. at 55:17 – 56). No evidence was submitted by any objector sufficient<br />
to rebut the Debtors’ evidence concerning wind-down and post-confirmation governance.<br />
6). Exculpation<br />
The Debtors are unaware of any v<strong>al</strong>id cause of action, and no party offered any evidence<br />
of any claim, that would be waived as a result of the exculpation provision in Section 42.7 of the<br />
Plan. (6/9/04 Cooper Tr. at 92:24 – 93:7; 6/3/04 p.m. Bingham Tr. at 171:7 – 22). However, the<br />
Debtors never investigated wh<strong>et</strong>her there are any causes of action that could be asserted against<br />
potenti<strong>al</strong> defendants, and that would be released under Section 42.7. (6/9/04 Cooper Tr. at 139:3<br />
– 8).<br />
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The exculpation provision in the Plan is appropriately limited to a qu<strong>al</strong>ified immunity for<br />
acts of negligence and does not relieve any party of liability for gross negligence or willful<br />
misconduct. As part of their key employee r<strong>et</strong>ention program, the Court authorized (Dock<strong>et</strong> No.<br />
3587) the Debtors to provide indemnification to their officers and directors for their postp<strong>et</strong>ition<br />
acts, as provided for under the Articles of <strong>Inc</strong>orporation of the Debtors, the Oregon Business<br />
Corporation Act and other applicable law and consistent with the scope of the exculpation<br />
provision in Section 42.7 of the Plan.<br />
The Debtors’ officers and directors, Mr. Cooper and employees of Mr. Cooper have<br />
provided services and consideration to the Debtors during the course of these Chapter 11 Cases.<br />
(6/8/04 Cooper Tr. at 12:17 – 13:6, 13:10 – 14:2, 14:6 – 18:16, 20:12 – 21:11 and 22:14 – 23:1;<br />
Bowen Affidavit 1, 19, 20, 42 and 64; Bingham Affidavit 4, 11, 15 and 16). Mr. Cooper<br />
has served as interim chief executive officer, interim president and chief restructuring officer.<br />
(6/8/04 Cooper Tr. at 11:24 – 25). Upon his employment by the Debtors, he took sever<strong>al</strong><br />
immediate steps to address the state of confusion that existed, including rebuilding the entire<br />
senior management team, transitioning away from the previous senior management team and<br />
centr<strong>al</strong>izing authority and responsibility for the Enron Companies’ decision-making processes.<br />
(6/8/04 Cooper Tr. at 12:17 – 13:6).<br />
To centr<strong>al</strong>ize authority, Mr. Cooper (a) ensured that the appropriate policies and<br />
procedures were put in place so that critic<strong>al</strong> decisions flowed to the senior management group of<br />
the organization for review, ev<strong>al</strong>uation and approv<strong>al</strong>, and (b) simplified the Enron Companies by<br />
organizing the Debtors into simply configured groups organized around core ass<strong>et</strong>s, non-core<br />
ass<strong>et</strong>s, litigation and investigations, wind-down of the trading book, chapter 11 and<br />
miscellaneous issues. (6/8/04 Cooper Tr. at 13:7 – 14).<br />
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In addition to the evidence adduced at the Confirmation Hearing and on the full record of<br />
these Chapter 11 Cases, the Debtors, the Creditors’ Committee and the Employee Committee,<br />
including their directors, officers, employees, members, attorneys, consultants, advisors and<br />
agents (acting in such capacity) have provided v<strong>al</strong>uable services to the Debtors’ estates in<br />
satisfaction of their statutory fiduciary duties. The ENA Examiner has provided v<strong>al</strong>uable<br />
services to the estates of ENA and its subsidiaries in satisfaction of his duties imposed by the<br />
Court. The Indenture Trustees have provided v<strong>al</strong>uable services to the applicable Debtors’ estates<br />
in satisfaction of their duties imposed by their respective indentures and applicable law.<br />
No evidence was submitted by any objector sufficient to rebut the Debtors’ evidence<br />
concerning exculpation.<br />
7). Post-Confirmation Overhead Allocation Formula<br />
Consistent with Section 2.3 of the Plan, on March 24, 2004, the Debtors filed, after<br />
consultation with the Creditors’ Committee and the ENA Examiner, the Overhead Allocation<br />
Motion with the Court and, in connection with the entry of the Confirmation Order, requested<br />
that the Court enter an order with respect to the <strong>al</strong>location of overhead and expenses among the<br />
Debtors and the Reorganized Debtors, as the case may be. (Debtors’ Tri<strong>al</strong> Ex. 1, § 2.3; Dock<strong>et</strong><br />
No. 17283). The Debtors and their profession<strong>al</strong>s, in consultation with the Creditors’ Committee<br />
and the ENA Examiner and their profession<strong>al</strong>s, have worked diligently to formulate a m<strong>et</strong>hod of<br />
<strong>al</strong>location for overhead and other expenses from and after the Confirmation Date (the “Post-<br />
Confirmation Allocation Formula”). In developing the Post-Confirmation Allocation Formula,<br />
the Debtors and their advisors reviewed the current <strong>al</strong>location formula by which overhead and<br />
expenses are <strong>al</strong>located to the Enron Companies. The Debtors initiated numerous discussions<br />
with the Debtors’ business department heads and top management focusing on financi<strong>al</strong> and<br />
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operation<strong>al</strong> <strong>al</strong>location strategies. (Bowen Affidavit 42). No objections have been filed or<br />
asserted as to this Overhead Allocation Motion.<br />
The Post-Confirmation Allocation Formula provides for a m<strong>et</strong>hodology for <strong>al</strong>location,<br />
from and after the Confirmation Date, of overhead and other expenses among the Enron<br />
Companies that benefit from such expenses. In broad terms, the proposed Post-Confirmation<br />
Allocation Formula is conceptu<strong>al</strong>ly similar to the <strong>al</strong>location formula in place for the postp<strong>et</strong>ition<br />
period. The Post-Confirmation Allocation Formula uses the same cost departments to categorize<br />
overhead expenses. Like the postp<strong>et</strong>ition <strong>al</strong>location formula, pursuant to the Post-Confirmation<br />
Allocation Formula, the m<strong>et</strong>hodology of <strong>al</strong>locating expenses within each cost department to a<br />
particular Enron Company is based upon wh<strong>et</strong>her there is (a) a direct measure of usage or benefit<br />
b<strong>et</strong>ween a particular expense and Enron Company, or (b) an indirect measure of usage or benefit.<br />
Where there is a direct measure of usage or benefit b<strong>et</strong>ween a particular expense and a particular<br />
entity, the Post-Confirmation Allocation Formula uses that direct measure; where no direct<br />
measure of usage or benefit exists or is readily and reasonably available, then an indirect<br />
measure is used to <strong>al</strong>locate expenses. (Bowen Affidavit 44; Debtors’ Tri<strong>al</strong> Ex. 23).<br />
While similar to the postp<strong>et</strong>ition <strong>al</strong>location formula, the Post-Confirmation Allocation<br />
Formula is not identic<strong>al</strong>. Unlike the postp<strong>et</strong>ition <strong>al</strong>location formula, the Post-Confirmation<br />
Allocation Formula does not <strong>al</strong>locate expenses to the Enron Companies included in the Debtors’<br />
operating platforms (that is, PGE, CrossCountry or Prisma) to the extent such operating<br />
platforms have service agreements that have become effective. Instead, those Enron Companies<br />
will be charged in accordance with the terms and conditions of the respective agreements. Also,<br />
in contrast to the postp<strong>et</strong>ition <strong>al</strong>location formula’s use of a m<strong>et</strong>hodology that takes into account<br />
each Enron Company’s average ass<strong>et</strong>s and revenues and, if such Enron Company is a Debtor, its<br />
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average ass<strong>et</strong>s and liabilities, the Post-Confirmation Allocation Formula uses ass<strong>et</strong>s and claims<br />
as proxies to indirectly measure the benefit of and thereby indirectly <strong>al</strong>locate, those certain<br />
expenses that cannot readily or otherwise be <strong>al</strong>located directly. The Post-Confirmation<br />
Allocation Formula incorporates certain other developments and provisions for <strong>al</strong>locating<br />
overhead and other expenses, as well as funding such <strong>al</strong>located expenses, that are not a part of<br />
the existing postp<strong>et</strong>ition <strong>al</strong>location formula. (Bowen Affidavit 45).<br />
The Post-Confirmation Allocation Formula is in the best interests of the Debtors, their<br />
estates and Creditors. The Post-Confirmation Allocation Formula represents a refinement of the<br />
postp<strong>et</strong>ition <strong>al</strong>location formula based upon the information learned by experience during the<br />
pendency of these Chapter 11 Cases. The Post-Confirmation Allocation Formula is the product<br />
of comprehensive and thoughtful exchange b<strong>et</strong>ween and among the Debtors, the Creditors’<br />
Committee and the ENA Examiner over the course of many negotiations. (Bowen Affidavit<br />
62).<br />
The Post-Confirmation Allocation Formula is conceptu<strong>al</strong>ly sound and equitably<br />
distributes corporate overhead without incurring excessive addition<strong>al</strong> expense in order to<br />
perform the <strong>al</strong>locations. The Post-Confirmation Allocation Formula (a) provides a formula for<br />
<strong>al</strong>location, from and after the Confirmation Date, of overhead expenses and other expenses<br />
among the Debtors and their non-Debtor affiliates, (b) takes into consideration the evolving<br />
nature of the Enron Companies’ tasks from and after the Confirmation Date, (c) fully and fairly<br />
<strong>al</strong>locates expenses to such Enron Companies based upon the tasks from and after the<br />
Confirmation Date, and (d) eliminates instances of duplicative <strong>al</strong>location of overhead expenses.<br />
(Bowen Affidavit 63).<br />
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Sufficient business justifications exist to merit the approv<strong>al</strong> of the Post-Confirmation<br />
Allocation Formula. (Bowen Affidavit 64). No evidence was submitted by any objector<br />
sufficient to rebut the Debtors’ evidence regarding the Post-Confirmation Allocation Formula.<br />
8). Addition<strong>al</strong> Facts in Support of Confirmation<br />
The Court is entitled to and has considered the entir<strong>et</strong>y of the record in these Chapter 11<br />
Cases, but takes particular note of the documents listed herein and the addition<strong>al</strong> documents<br />
identified by the Debtors.<br />
Article XXXIV of the Plan provides for the assumption, rejection, or assignment of any<br />
executory contract or unexpired lease of the Debtors not previously assumed or rejected (or<br />
subject to assumption or rejection) under section 365 of the Bankruptcy Code, as contemplated<br />
by section 1123(b)(2) of the Bankruptcy Code. (Debtors’ Tri<strong>al</strong> Ex. 1, Art. XXXIV).<br />
Article II of the Plan provides for the s<strong>et</strong>tlement of certain claims of the Debtors pursuant<br />
to section 1123(b)(3) of the Bankruptcy Code and Bankruptcy Rule 9019. (Debtors’ Tri<strong>al</strong> Ex. 1,<br />
Article II).<br />
ENE is a public-utility holding company registrant by reason of its ownership of PGE.<br />
ENE previously filed the Plan with the SEC. The SEC has (a) approved the Plan and the<br />
transactions contemplated therein under section 11(f) of PUHCA, and (b) authorized the Debtors<br />
under section 11(g) of PUHCA and related rules to disseminate the Plan and Disclosure<br />
Statement to Creditors and other parties in interest in order to solicit votes to approve the Plan.<br />
(Debtors’ Tri<strong>al</strong> Ex. 4, Schedule CC). The Debtors no longer have, and the Reorganized Debtors<br />
will not have, any rates subject to approv<strong>al</strong> of any government<strong>al</strong> regulatory commission; thus,<br />
section 1129(a)(6) of the Bankruptcy Code is inapplicable. (Bingham Affidavit 77).<br />
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In accordance with sections 1129(a)(9)(A) and (B) of the Bankruptcy Code, the Plan<br />
provides that <strong>al</strong>l Allowed Administrative Expense Claims under section 503(b) of the<br />
Bankruptcy Code and <strong>al</strong>l Allowed Priority Claims under section 507(a) of the Bankruptcy Code<br />
(excluding Priority Tax Claims under section 507(a)(8) of the Bankruptcy Code) will be paid in<br />
full, in Cash, on the later of the Effective Date and the date such Claims become Allowed<br />
Claims, or as soon thereafter as is practicable. (Debtors’ Tri<strong>al</strong> Ex. 1, Art. III).<br />
Allowed Administrative Expense Claims representing liabilities incurred in the ordinary<br />
course of business by the Debtors, including tax liabilities, or liabilities arising under loans or<br />
advances to or other obligations incurred by the Debtors in Possession during the Chapter 11<br />
Cases sh<strong>al</strong>l be paid by the Reorganized Debtor Plan Administrator in accordance with the terms<br />
and conditions of any particular transaction and any agreements relating ther<strong>et</strong>o. (Debtors’ Tri<strong>al</strong><br />
Ex. 1, Art. III). The Confirmation Order will establish the bar date for Administrative Expense<br />
Claims. (Bingham Affidavit 80).<br />
Section 1129(a)(9)(C) permits deferred payment over a period of six years from the date<br />
of assessment of the tax so long as the amount so paid has a v<strong>al</strong>ue, as of the effective date of the<br />
plan, equ<strong>al</strong> to the <strong>al</strong>lowed amount of the priority tax claim. 11 U.S.C. 1129(a)(9)(C). Section 3.3<br />
of the Plan complies with section 1129(a)(9)(C). (Bingham Affidavit 81; Debtors’ Tri<strong>al</strong> Ex. 1,<br />
Art. III, § 3.3). On May 31, 2004, the Debtors filed and served a Notice of Election of Option<br />
with Respect to Payment of Priority Tax Claims. (Dock<strong>et</strong> No. 18775). The notice stated that<br />
pursuant to the Plan, the Debtors have elected to exercise their option to make distributions to<br />
each holder of an Allowed Priority Tax Claim in full, in Cash, on the Effective Date.<br />
In accordance with sections 507 and 1129(a)(12) of the Bankruptcy Code, the Plan<br />
provides that <strong>al</strong>l fees payable pursuant to section 1930 of title 28 of the United States Code, sh<strong>al</strong>l<br />
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be paid as and when due or otherwise pursuant to an agreement b<strong>et</strong>ween the Reorganized<br />
Debtors and the U.S. Trustee until such time as a Chapter 11 Case for a Debtor sh<strong>al</strong>l be closed in<br />
accordance with the provisions of Section 42.17 of the Plan. (Debtors’ Tri<strong>al</strong> Ex. 5, § 42.10).<br />
The Debtors have budg<strong>et</strong>ed for and have the necessary Cash to pay these fees and charges on the<br />
Effective Date. (Bingham Affidavit 84).<br />
The Debtors have no “r<strong>et</strong>iree benefits” within the meaning of section 1114(a) of the<br />
Bankruptcy Code. (Bingham Affidavit 85).<br />
Pursuant to the interim application procedures established under section 331 of the<br />
Bankruptcy Code, the Court authorized and approved the payment of certain fees and expenses<br />
of profession<strong>al</strong>s r<strong>et</strong>ained in these Chapter 11 Cases. (Bingham Affidavit 75). All such fees<br />
and expenses, as well as <strong>al</strong>l other accrued fees and expenses of profession<strong>al</strong>s through the<br />
Effective Date, remain subject to fin<strong>al</strong> review for reasonableness by the Fee Committee and the<br />
Court under section 330 of the Bankruptcy Code. (Bingham Affidavit 75). All payments or<br />
bonuses to be made in connection with the Effective Date or that relate to the success of the<br />
reorganization or that otherwise are required to be disclosed, including any amounts to be paid to<br />
officers and directors, (a) are disclosed in the Disclosure Statement, (b) have been disclosed at or<br />
prior to the Confirmation Hearing, or (c) are subject to the approv<strong>al</strong> of the Court. (Bingham<br />
Affidavit 75). 22<br />
22 As evidenced by the record in these Chapter 11 Cases and disclosed in the Debtors’ Memorandum of Law in<br />
Support of Confirmation, speci<strong>al</strong> fee arrangements have been approved by the Court with respect to the following<br />
persons: (i) Batchelder & Partners, <strong>Inc</strong>. (now known as Relation<strong>al</strong> Advisors LLC) – r<strong>et</strong>ained pursuant to that certain<br />
Fin<strong>al</strong> Order, dated October 10, 2002 (Dock<strong>et</strong> No. 7077), Pursuant to 11 U.S.C. §§ 327(a) and 328(a) Authorizing the<br />
Employment and R<strong>et</strong>ention of Batchelder & Partners, <strong>Inc</strong>. as Financi<strong>al</strong> Advisor for the Debtors and Debtors-in-<br />
Possession; (ii) The Blackstone Group L.P. – r<strong>et</strong>ained pursuant to that certain Fin<strong>al</strong> Order, dated October 10, 2002<br />
(Dock<strong>et</strong> No. 7080), Pursuant to 11 U.S.C. §§ 327(a) and 328(a) Authorizing the Employment and R<strong>et</strong>ention of The<br />
Blackstone Group L.P. as Financi<strong>al</strong> Advisor for the Debtors and Debtors-in-Possession; (iii) Houlihan Lokey<br />
Howard & Zukin Financi<strong>al</strong> Advisors, <strong>Inc</strong>. – r<strong>et</strong>ained pursuant to that certain Order, dated October 10, 2002 (Dock<strong>et</strong><br />
No. 7075), Pursuant to 11 U.S.C.§§ 328(a) and 1103, FED. R. BANKR. P. 2014 and S.D.N.Y. LBR 2014-1,<br />
Authorizing Employment and R<strong>et</strong>ention of Houlihan Lokey Howard & Zukin Financi<strong>al</strong> Advisors, <strong>Inc</strong>. as Financi<strong>al</strong><br />
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Pursuant to sections 503(b)(3) and (4) of the Bankruptcy Code, the Court will review any<br />
applications for substanti<strong>al</strong> contribution to ensure compliance with the statutory requirements<br />
and that the fees requested are reasonable. (Bingham Affidavit 75).<br />
The Debtors have modified Section 42.12 of the Plan to provide that, unless otherwise<br />
ordered by the Court, the Debtors and each Enron Affiliate will r<strong>et</strong>ain and not destroy or<br />
otherwise dispose of Documents. (Initi<strong>al</strong> Modification, at § 42.12). As such, the Court finds that<br />
Section 42.12 of the Plan adequately protects Creditors’ rights with respect to the preservation of<br />
documents.<br />
On or about March 28, 2002, the Court entered an order authorizing and approving the<br />
s<strong>et</strong>tlement of <strong>al</strong>l amounts owed by New Power Holdings, <strong>Inc</strong>. and NPW to ENE, EESI, ENA and<br />
EPMI pursuant to certain commodities contracts b<strong>et</strong>ween the parties. (Dock<strong>et</strong> No. 2532,<br />
amended by Dock<strong>et</strong> No. 3103). On or about January 13, 2003, Rufus T. Dorsey IV (the<br />
“NewPower Examiner”) was appointed in the Chapter 11 Cases of NewPower Holdings, <strong>Inc</strong>. and<br />
TNPC Holdings, <strong>Inc</strong>., currently pending in the Court for the Northern District of Georgia,<br />
Advisors to Offici<strong>al</strong> Committee of Unsecured Creditors Nunc Pro Tunc as of December 17, 2001; (iv) Cooper LLC-<br />
-r<strong>et</strong>ained pursuant to that certain Order, dated April 5, 2002 and as modified on October 24, 2002, May 29, 2003,<br />
November 20, 2003 (Dock<strong>et</strong> Nos. 2725, 7420, 10942, 14379), Authorizing the Debtors to Enter Into an Agreement<br />
to Employ Stephen Forbes Cooper, LLC as an Independent Contractor to Provide Management Services For the<br />
Debtors Nunc Pro Tunc to January 28, 2002. (v) Susman Godfrey L.L.P. (“Susman”) – r<strong>et</strong>ained pursuant to that<br />
certain Nunc Pro Tunc Order, dated March 14, 2004 (Dock<strong>et</strong> No. 2119), Pursuant to Bankruptcy Code §§ 327(e)<br />
and 330 Authorizing Employment of Susman Godfrey L.L.P. as Class Action Defense Counsel for the Debtors in<br />
Accordance With Its Norm<strong>al</strong> Hourly Rates and Disbursement Policies, as modified pursuant to that certain Order,<br />
dated May 31, 2002 (Dock<strong>et</strong> No. 4169), Modifying Origin<strong>al</strong> Order, Pursuant to Sections 327(a) and 330 of the<br />
Bankruptcy Code, Authorizing the Expansion of the Employment of Susman in Accordance with the Hourly Rates<br />
and Disbursement Policies Previously Approved by the Court and an Order, dated June 26, 2003 (Dock<strong>et</strong> No.<br />
11458), Modifying Order, Pursuant to §§ 327(e) and 330 of the Bankruptcy Code, Authorizing the Expansion of the<br />
R<strong>et</strong>ention of Susman. With respect to the fee arrangements referenced in clauses (i),(ii), (iii), and (iv) hereof, the<br />
advisors are paid monthly fees, transaction fees and success fees. In addition, the advisors listed in clauses (i), (ii)<br />
and (iii) are required to file interim and fin<strong>al</strong> fee applications with the Court; however, the Fee Committee only is<br />
entitled to comment on the reasonableness of expenses (not the monthly fee or success fees). With respect to the fee<br />
arrangements referenced in clause (v), certain of Susman’s fees and expenses are subject to Fee Committee review;<br />
however, with respect to Susman’s r<strong>et</strong>ention in connection with the MegaClaim litigation, Susman is to be paid a<br />
monthly fee and success fee without further application to the Court.<br />
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Newnan Division (the "NewPower Cases”). (Objection, Dock<strong>et</strong> No. 17383). The Court finds<br />
that confirmation of the Plan does not (a) affect such appointment, or (b) interfere with orders<br />
entered in the NewPower Cases.<br />
Pursuant to the Fiduciary Services Agreement dated March 14, 2002, as amended on<br />
April 17, 2002, b<strong>et</strong>ween the Debtors and State Stre<strong>et</strong>, approved by the Court on April 19, 2002<br />
(Dock<strong>et</strong> No. 3174), State Stre<strong>et</strong> received a blank<strong>et</strong> indemnity for <strong>al</strong>l liability incurred in<br />
connection with the provision of its services pursuant to such agreement. (Dock<strong>et</strong> No. 2236 at <br />
6.2). The Fiduciary Services Agreement was entered into at the demand of the DOL, which had<br />
an opportunity to review and comment upon, and to which the DOL consented in writing. The<br />
DOL cannot now claim that a release from liability for one non-Debtor in this case is acceptable<br />
while another is not under the circumstances where there is no evidence that any addition<strong>al</strong><br />
consideration was provided by State Stre<strong>et</strong> to receive such release. 23<br />
III. CONCLUSIONS OF LAW<br />
A. Burden of Proof<br />
To obtain confirmation of the Plan, the Debtors must demonstrate that the Plan satisfies<br />
the provisions of section 1129 of the Bankruptcy Code by a preponderance of the evidence. See<br />
Heartland Feder<strong>al</strong> Savings & Loan Ass’n v. Briscoe Enterprises., Ltd. II (In re Briscoe<br />
Enterprises., Ltd. II), 994 F.2d 1160, 1165 (5th Cir. 1993) (“The combination of legislative<br />
silence, Supreme Court holdings, and the structure of the [Bankruptcy] Code leads this Court to<br />
conclude that preponderance of the evidence is the debtor’s appropriate standard of proof under<br />
23 The payment of fees and expenses pursuant to the Fiduciary Services Agreement, including the payment of any<br />
indemnification rights, is subject to ongoing litigation in the Court. It is unclear at this time wh<strong>et</strong>her the Debtors or<br />
the employee benefit plans for which State Stre<strong>et</strong> serves as the independent fiduciary are ultimately obligated to<br />
provide the indemnification s<strong>et</strong> forth in such agreement. Nothing contained herein sh<strong>al</strong>l constitute an admission by<br />
the Debtors with respect to which entity is ultimately liable for such indemnification obligation.<br />
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both § 1129(a) and in a cramdown”); see <strong>al</strong>so In re Kent Termin<strong>al</strong> Corp., 166 B.R. 555, 561<br />
(Bankr. S.D.N.Y. 1994) (holding that, “the fin<strong>al</strong> burden of proof at . . . confirmation hearings<br />
remains a preponderance of the evidence.”). The Debtors have m<strong>et</strong> that burden, by having<br />
demonstrated, by a preponderance of the evidence, that <strong>al</strong>l of the requirements of section 1129 of<br />
the Bankruptcy Code have been satisfied with respect to the Plan.<br />
B. The Glob<strong>al</strong> Compromise Is Fair and Equitable and Is Approved<br />
Bankruptcy courts may approve s<strong>et</strong>tlements if they are fair, equitable and do not f<strong>al</strong>l<br />
“below the lowest point in the range of reasonableness.” Protective Comm. for Indep.<br />
Stockholders of TMT Trailer Ferry, <strong>Inc</strong>. v. Anderson, 390 U.S. 414, 428 (1968); Cosoff v.<br />
Rodman (In re W.T. Grant Co.), 699 F.2d 599, 608 (2d Cir. 1983); Nellis v. Shugrue, 165 B.R.<br />
115, 123 (S.D.N.Y. 1994); Vaughn v. Drexel Burnham Lambert Group, <strong>Inc</strong>. (In re Drexel<br />
Burnham Lambert Group, <strong>Inc</strong>.), 134 B.R. 499, 505 (Bankr. S.D.N.Y. 1991). The Debtors have<br />
demonstrated that the glob<strong>al</strong> compromise embodied in the Plan and s<strong>et</strong> forth in the Glob<strong>al</strong><br />
Compromise Motion is fair and equitable and f<strong>al</strong>ls well within the range of reasonable litigation<br />
outcomes.<br />
In addition, section 363(b)(1) of the Bankruptcy Code provides an addition<strong>al</strong> basis to<br />
approve s<strong>et</strong>tlement agreements, which frequently involve the disposition of ass<strong>et</strong>s of the estate.<br />
See Martin v. Martin, 91 F.3d 389, 394 (3d Cir. 1996). The Debtors have shown that sound<br />
business justifications exist for the Debtors to enter into the glob<strong>al</strong> compromise.<br />
Section 105(a) of the Bankruptcy Code <strong>al</strong>so provides an addition<strong>al</strong> basis to approve the<br />
glob<strong>al</strong> compromise under the Court’s broad, equitable principles to achieve fairness and justice<br />
in the reorganization process. See Momentum Mfg. Corp. v. Employee Creditors Comm. (In re<br />
Momentum Mfg. Corp.), 25 F.3d 1132, 1136 (2d Cir. 1994). The Debtors have shown that the<br />
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glob<strong>al</strong> compromise is fair and just and that it preserves and protects the v<strong>al</strong>ue of the Debtors’<br />
estates for the benefit of the Creditors.<br />
1). The Benefits of S<strong>et</strong>tlement Compared to the Costs of Litigation<br />
The compromises, s<strong>et</strong>tlements and waivers contained in the glob<strong>al</strong> compromise are fair<br />
and equitable and f<strong>al</strong>l well within the reasonable range of litigation outcomes. If the glob<strong>al</strong><br />
compromise is not adopted and the many individu<strong>al</strong> inter-estate issues are litigated to their<br />
conclusion, with vast expense and delay, many Creditors would face greatly reduced recoveries.<br />
Mr. Cooper plausibly estimated that the Debtors would incur an addition<strong>al</strong> $1.25 billion in leg<strong>al</strong>,<br />
financi<strong>al</strong> and other profession<strong>al</strong> fees if the glob<strong>al</strong> compromise is not approved, which would<br />
reduce aggregate Creditor recoveries. (6/8/04 Cooper Tr. at 33:25 – 34:9, 38:10 – 42:11;<br />
Debtors’ Tri<strong>al</strong> Ex. 26). 24<br />
Even the “best case scenario” provided in the Blackstone Report<br />
requires the same conclusion. (Debtors’ Tri<strong>al</strong> Ex. 24 at errata 127-29 n. 1; 6/7/04 Zelin Tr. at<br />
39:4 – 41:16). In addition, the litigation and attendant cost and delay would be d<strong>et</strong>riment<strong>al</strong> to the<br />
Debtors’ ability to conclude these Chapter 11 Cases. Accordingly, the glob<strong>al</strong> compromise f<strong>al</strong>ls<br />
within the range of reasonableness and is fair, equitable, reasonable and in the best interests of<br />
the estates. For the same reasons, sound business justifications <strong>al</strong>so exist for the Debtors to enter<br />
into the glob<strong>al</strong> compromise.<br />
2). Prospect of Complex and Protracted Litigation if the S<strong>et</strong>tlement Is Not Approved<br />
The inter-estate issues and Claims resolved by the glob<strong>al</strong> compromise involve numerous<br />
claimants and complicated factu<strong>al</strong> scenarios and leg<strong>al</strong> arguments that make litigation an<br />
undesirable and costly option. Without the glob<strong>al</strong> compromise, it would be necessary to address<br />
24 Barry v. Smith (In re N.Y., New Haven, & Hartford R. Co.), 632 F.2d 955, 961 (2d Cir. 1980) (“If a reasonable<br />
outcome of litigation would result in [creditors] receiving less than that afforded them by the Compromise Plan, then<br />
the plan should be sustained.”).<br />
110
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countless discr<strong>et</strong>e inter-estate transactions and disputes, which could take years to unravel and<br />
likely involve extensive litigation.<br />
Significant costs are associated with pursuing litigation rather than compromise,<br />
including the cost of performing the necessary litigation diligence regarding a multitude of<br />
underlying facts and transactions, the profession<strong>al</strong> fees associated with litigation, the uncertainty<br />
and delay associated with litigation, the prolonged costs of administering the estates and the<br />
resulting depl<strong>et</strong>ion of the estates’ ass<strong>et</strong>s. See Depoister v. Mary M. Holloway Found., 36 F.3d<br />
582, 587 (7th Cir. 1994) (citing substanti<strong>al</strong> leg<strong>al</strong> fees that would be generated if litigation is<br />
continued as support for s<strong>et</strong>tlement agreement). If the Debtors’ cases were to be converted to<br />
chapter 7 cases and litigation pursued rather than compromise, it is more likely than not that at<br />
least thirteen (13) trustees would be required as opposed to the “best case scenario” s<strong>et</strong> forth in<br />
the Disclosure Statement. Such trustees would need to r<strong>et</strong>ain their own counsel and<br />
profession<strong>al</strong>s to review numerous issues, including ev<strong>al</strong>uating intercompany claims, at a tot<strong>al</strong><br />
estimated cost of $1.25 billion in addition to <strong>al</strong>l of the other day-to-day costs of operating the<br />
Debtors’ estates. In addition, such litigation would take at least an addition<strong>al</strong> seven (7) years to<br />
resolve, delaying any distributions to Creditors. Implementation of the glob<strong>al</strong> compromise will<br />
eliminate the inevitable risks and costs that would be associated with full-blown litigation and<br />
will help safeguard Creditor recoveries at significantly higher levels at a much earlier point in<br />
time.<br />
The glob<strong>al</strong> compromise provides Creditors an assurance of recovery that inter-estate<br />
litigation does not provide. See Shugrue, 165 B.R. at 124 (discussing the existence of numerous<br />
claimants, various claims and complicated facts and leg<strong>al</strong> arguments as factors supporting<br />
s<strong>et</strong>tlement).<br />
111
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Moreover, litigation of these issues would necessarily require a fact-intensive<br />
examination of the many complex intercompany transactions among the Debtors. The great<br />
difficulty and cost of unraveling these intercompany transactions is one of the princip<strong>al</strong> reasons<br />
that the Debtors and the Creditors’ Committee worked tog<strong>et</strong>her to craft the glob<strong>al</strong> compromise in<br />
order to maximize Creditor recoveries. (Debtors’ Tri<strong>al</strong> Exs. 10 and 11). See In re Carla<br />
Leather, <strong>Inc</strong>., 44 B.R. 457, 471 (Bankr. S.D.N.Y. 1984) (citing considerable expense to<br />
reconstruct debtor’s books and records in support of finding that s<strong>et</strong>tlement was in best interests<br />
of creditors). In addition, litigation of the complex and novel leg<strong>al</strong> issues resolved by the glob<strong>al</strong><br />
compromise would likely involve lengthy appe<strong>al</strong>s if the compromise is not approved. See<br />
Newman v. Stein, 464 F.2d 689, 694-95 (2d Cir. 1972) (citing the likelihood of protracted<br />
appe<strong>al</strong>s as support for s<strong>et</strong>tlement agreement); In re Texaco, <strong>Inc</strong>., 84 B.R. 893, 902 (Bankr.<br />
S.D.N.Y. 1988) (same). 25<br />
3). Comp<strong>et</strong>ency and Experience of Counsel Who Support the S<strong>et</strong>tlement<br />
The Debtors and the Creditors’ Committee and their attorneys firmly believe the glob<strong>al</strong><br />
compromise is fair to each of the Debtors and their respective Creditors and f<strong>al</strong>ls within the<br />
range of reasonableness required for approv<strong>al</strong> by the Court. (Debtors’ Tri<strong>al</strong> Ex. 6). The ENA<br />
Examiner, who has recommended Creditors vote in favor of the Plan, has <strong>al</strong>so agreed that the<br />
glob<strong>al</strong> compromise is within the range of reasonableness as to Creditors of ENA and its direct<br />
and indirect subsidiaries in the context of the Plan. (Debtors’ Tri<strong>al</strong> Ex. 7). The Debtors, the<br />
Creditors’ Committee and the ENA Examiner are represented by attorneys who are recognized<br />
as being knowledgeable and experienced in the field of complex chapter 11 bankruptcies. See In<br />
25 Although the glob<strong>al</strong> compromise itself may be subject to an appe<strong>al</strong>, absent the glob<strong>al</strong> compromise, appe<strong>al</strong>s of the<br />
numerous litigations that are resolved under the glob<strong>al</strong> compromise would likely continue for longer than any appe<strong>al</strong><br />
of the glob<strong>al</strong> compromise.<br />
112
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re Dow Corning Corp., 192 B.R. 415, 424 (Bankr. E.D. Mich. 1996) (considering counsel’s<br />
prominence in field of law as weighing heavily in favor of s<strong>et</strong>tlements). Moreover, the ENA<br />
Examiner, members of the Creditors’ Committee and the Debtors’ officers and directors are<br />
experienced business persons with many years of experience in distressed business situations.<br />
4). The S<strong>et</strong>tlement Is the Product of Arm’s-Length Bargaining<br />
Over the course of approximately two (2) years, the Debtors and the Creditors’<br />
Committee engaged in intensive an<strong>al</strong>ysis and extensive discussions regarding the formulation of<br />
the terms of a chapter 11 plan and the numerous related complex issues. Following the<br />
expansion of the ENA Examiner’s duties to include acting as a fiduciary in the role of a plan<br />
facilitator for the ENA Creditors, these negotiations included the ENA Examiner. The intense<br />
and, at times, acrimonious discussions regarding the terms of the glob<strong>al</strong> compromise, b<strong>et</strong>ween<br />
the Debtors and Creditors’ Committee on the one hand and the ENA Examiner, on the other<br />
hand, ensued over the next sever<strong>al</strong> months and ultimately resulted in the glob<strong>al</strong> compromise as<br />
embodied in the Plan and s<strong>et</strong> forth in the Glob<strong>al</strong> Compromise Motion. The s<strong>et</strong>tlement reflected<br />
in the glob<strong>al</strong> compromise is the product of extensive, arm’s-length, good faith negotiations<br />
among the Debtors, the Creditors’ Committee and the ENA Examiner. See Dow Corning, 192<br />
B.R. at 424 (considering the difficulty and contentiousness of negotiations in finding s<strong>et</strong>tlements<br />
were products of arm’s-length bargaining).<br />
5). The Inter-Debtor Waivers Are Appropriate<br />
The glob<strong>al</strong> compromise does not seek an improper “hybrid” substantive consolidation, as<br />
some objectors have contended. Rather, the 30/70 formula is a means to an end to the interestate<br />
acrimony that the Court sought to resolve when appointing the ENA Examiner as a “plan<br />
facilitator.” It is well established that debtors may properly reach a s<strong>et</strong>tlement regarding wh<strong>et</strong>her<br />
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the estates should be substantively consolidated. See In re Resorts Int’l, <strong>Inc</strong>., 145 B.R. 412, 418,<br />
459 (Bankr. D. N.J. 1990) (approving as fair and equitable a glob<strong>al</strong> s<strong>et</strong>tlement contained in plan<br />
s<strong>et</strong>tling <strong>al</strong>l potenti<strong>al</strong> litigation, including substantive consolidation, fraudulent conveyance,<br />
preference and equitable subordination causes of action); In re Stoecker, 125 B.R. 767, 774<br />
(Bankr. N.D. Ill. 1991) (referring to s<strong>et</strong>tlement of substantive consolidation motion); In re Apex<br />
Oil Co., 118 B.R. 683, 688 (Bankr. E.D. Mo. 1990) (referring to court’s previous approv<strong>al</strong> of<br />
s<strong>et</strong>tlement of sever<strong>al</strong> significant claims, including substantive consolidation).<br />
As a practic<strong>al</strong> matter, if any Debtor’s estate were to r<strong>et</strong>ain the right to pursue avoidance<br />
actions against any other Debtor’s estate, <strong>al</strong>l the estates would have to r<strong>et</strong>ain <strong>al</strong>l their<br />
intercompany claims wh<strong>et</strong>her based on avoidance actions, re-characterization of debt to equity or<br />
otherwise. The Court finds and concludes that the benefits of preserving these actions are<br />
outweighed by the cost and delay entailed thereby.<br />
The provision in Section 28.3(a) of the Plan extinguishing claims that could have been<br />
asserted by the Debtors against one another is consistent with the preclusive effect the Plan will<br />
have if it is confirmed. Moreover, the inclusion of the specific provision in Section 28.3(a)<br />
regarding the waiver and extinguishment of claims makes these Chapter 11 Cases the converse<br />
of that in Maxwell Communication Corp. v. Soci<strong>et</strong>e Gener<strong>al</strong>e (In re Maxwell Corp.), 93 F.3d<br />
1036, 1044-45 (2d Cir. 1996), in which the confirmation order and the plan did not address<br />
wh<strong>et</strong>her the debtor could maintain an avoidance action to recover prep<strong>et</strong>ition transfers. In these<br />
Chapter 11 Cases, the Plan is abundantly clear about the waiver and extinguishment of these<br />
claims. If the Plan is confirmed, any subsequent claim that is inconsistent with this provision<br />
will be barred by section 1141(a) of the Bankruptcy Code and res judicata. See In re PWS<br />
Holding Corp., 303 F.3d 308, 314-15 (3d Cir. 2002) (upholding plan’s extinguishment of state<br />
114
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law creditor causes of action that could have been commenced by the debtors as debtors in<br />
possession).<br />
6). ENE’s Deemed Ownership of Litigation Trust Claims Is an Integrated Part of the Glob<strong>al</strong><br />
Compromise<br />
Pursuant to the Plan, ENE will be deemed the owner of Litigation Trust claims by virtue<br />
of the glob<strong>al</strong> compromise. Deeming these actions to be ass<strong>et</strong>s of ENE is an integr<strong>al</strong> part of the<br />
glob<strong>al</strong> compromise and is fair and reasonable under the circumstances. ENE is the plaintiff in<br />
most of these actions, many of which involve the v<strong>al</strong>idity of ENE’s financi<strong>al</strong> statements and<br />
there is often difficulty in proving the relative harm to different Debtor entities. Any recoveries<br />
from these actions will benefit <strong>al</strong>l holders of Allowed Gener<strong>al</strong> Unsecured Claims and Allowed<br />
Guaranty Claims by virtue of ENE’s contribution to the modified substantive consolidation<br />
scenario in the 30/70 compromise. Further, holders of Allowed Intercompany Claims against<br />
ENE and Allowed Enron Guaranty Claims will share in any recoveries on Litigation Trust<br />
Claims as Creditors of ENE. Addition<strong>al</strong>ly, ENA, in particular, obtains many other benefits from<br />
the glob<strong>al</strong> compromise, including the resolution of certain issues in favor of ENA in a manner<br />
not otherwise achievable absent the glob<strong>al</strong> compromise. These benefits include: (a) the deemed<br />
ownership of certain ass<strong>et</strong>s by ENA, which were reflected as ass<strong>et</strong>s of ENE on the Debtors’<br />
books and records as of the Initi<strong>al</strong> P<strong>et</strong>ition Date; (b) the <strong>al</strong>lowance of ENA’s $12.6 billion n<strong>et</strong><br />
Intercompany Claim against ENE; and (c) despite the agreed deemed assignment of the n<strong>et</strong><br />
economic equity v<strong>al</strong>ue of Enron Canada to ENA, the <strong>al</strong>lowance of the $1.039 billion<br />
Intercompany Claim of ENA against ENE arising from funds advanced to ENE by ENA, which<br />
ENE used to purchase the Enron Canada preferred stock.<br />
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7). The Glob<strong>al</strong> Compromise Is Not a Sub Rosa Plan<br />
Under the circumstances of these Chapter 11 Cases, the glob<strong>al</strong> compromise does not<br />
amount to a sub rosa plan. To constitute a sub rosa or de facto plan, creditors must have been<br />
denied the procedur<strong>al</strong> and due process protections afforded under the Bankruptcy Code.<br />
However, in these cases, Creditors have <strong>al</strong>ready had more than adequate notice of the terms of<br />
the glob<strong>al</strong> compromise by virtue of service of the Plan, Disclosure Statement and Glob<strong>al</strong><br />
Compromise Motion and they have had ample opportunity to provide input by, to the extent<br />
applicable, voting on the Plan and/or filing objections to the Plan and the Glob<strong>al</strong> Compromise<br />
Motion.<br />
Courts have recognized that s<strong>et</strong>tlement agreements are not sub rosa plans but can serve as<br />
an important “building block” to confirmation of a plan. See Sec. and Exch. Comm’n v. Drexel<br />
Burnham Lambert <strong>Inc</strong>. (In re Drexel Burnham Lambert Group, <strong>Inc</strong>.), 130 B.R. 910, 926-27<br />
(S.D.N.Y. 1991); In re Crowthers McC<strong>al</strong>l Pattern, <strong>Inc</strong>., 114 B.R. 877, 885 (Bankr. S.D.N.Y.<br />
1990). The glob<strong>al</strong> compromise embodied in the Plan and s<strong>et</strong> forth in the Glob<strong>al</strong> Compromise<br />
Motion is an essenti<strong>al</strong> building block to resolution of these Chapter 11 Cases. Without its<br />
approv<strong>al</strong>, these Chapter 11 Cases will be mired in protracted, internecine litigation to resolve the<br />
many inter-estate issues that must be resolved prior to any resolution of these Chapter 11 Cases.<br />
Therefore, the Court concludes that the glob<strong>al</strong> compromise contained in the Glob<strong>al</strong> Compromise<br />
Motion is not a sub rosa plan. Alternatively, the Court could approve the glob<strong>al</strong> compromise to<br />
the extent it establishes the ass<strong>et</strong>s of each Debtor’s estate and subsequently approve distributions<br />
of these ass<strong>et</strong>s for those Debtors lacking a confirmed plan.<br />
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8). Approv<strong>al</strong> of Glob<strong>al</strong> Compromise Is Warranted<br />
Approv<strong>al</strong> of the glob<strong>al</strong> compromise is warranted based on the foregoing findings of fact<br />
and conclusions of law. The glob<strong>al</strong> compromise inures to the benefit of <strong>al</strong>l of the Debtors and<br />
their respective estates. The Debtors have shown that if the glob<strong>al</strong> compromise is not<br />
implemented, the resulting inter-estate disputes will lead to protracted and costly litigation. The<br />
consequences of this sustained litigation would further increase administrative costs and<br />
expenses under a chapter 7 liquidation. Thus, the delay resulting from the inter-estate litigation<br />
would further diminish the v<strong>al</strong>ue that could be derived from the s<strong>al</strong>e of ass<strong>et</strong>s. Therefore, absent<br />
the glob<strong>al</strong> compromise, a chapter 7 liquidation of the Debtors’ estates would result in a<br />
significant reduction in the present v<strong>al</strong>ue of the ultimate proceeds available to distribute in the<br />
Chapter 11 Cases. Further, if the glob<strong>al</strong> compromise is not approved, there is no evidence that<br />
any b<strong>et</strong>ter compromise, from the objectors standpoint, would ever be reached. Indeed, the<br />
Baupost s<strong>et</strong>tlement is indicative of the fragile nature of the glob<strong>al</strong> compromise and the likelihood<br />
that were the glob<strong>al</strong> compromise not to be approved, the result would be that groups would<br />
splinter into various economic factions and increase the contentious nature of these cases—<br />
resulting in delay and significant addition<strong>al</strong> costs.<br />
The Court concludes that the glob<strong>al</strong> compromise as embodied in the Plan should be<br />
approved for <strong>al</strong>l Debtors. As discussed below, the Court concludes that the Plan complies with<br />
section 1129 of the Bankruptcy Code and can be confirmed. If, however, the Plan cannot be<br />
confirmed as to the 96 Debtors for which no b<strong>al</strong>lots were cast in any impaired Class for each of<br />
those specific Debtors, the Glob<strong>al</strong> Compromise Motion can be approved as to those Debtors<br />
based on the findings of fact and conclusions of law contained herein. As previously noted,<br />
<strong>al</strong>though the Court has concluded that the Glob<strong>al</strong> Compromise Motion does not constitute a sub<br />
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rosa plan, if for any reason it were subsequently d<strong>et</strong>ermined to constitute a sub rosa plan, then<br />
the Glob<strong>al</strong> Compromise Motion may be approved for the limited purpose of d<strong>et</strong>ermining the<br />
ass<strong>et</strong>s and liabilities of the estates, but not for purposes of making distributions to any specific<br />
Creditors in estates of Debtors not having a confirmed plan.<br />
C. The Plan Complies With Section 1129 of the Bankruptcy Code<br />
1). Section 1129(a)(1)<br />
Pursuant to section 1129(a)(1) of the Bankruptcy Code, a plan must “compl[y] with the<br />
applicable provisions of [the Bankruptcy Code].” 11 U.S.C. § 1129(a)(1). The Court concludes<br />
that the Plan complies fully with the requirements of section 1129(a)(1) of the Bankruptcy Code,<br />
including, as applicable, sections 1121, 1122, 1123, 1141 and 1145 of the Bankruptcy Code.<br />
(i) Section 1121<br />
The Court concludes that the Debtors have satisfied section 1121 of the Bankruptcy Code<br />
in that the Debtors have standing to file a plan.<br />
(ii) Section 1122(a)<br />
Section 1122 of the Bankruptcy Code provides that “a plan may place a claim or an<br />
interest in a particular class only if such claim or interest is substanti<strong>al</strong>ly similar to the other<br />
claims or interests of such class.” 11 U.S.C. § 1122. Under section 1122(a), the relevant inquiry<br />
is wh<strong>et</strong>her <strong>al</strong>l claims of a class have substanti<strong>al</strong>ly similar rights to a portion of each Debtor’s<br />
estate. A plan proponent is afforded significant flexibility in classifying claims under<br />
section 1122(a) provided there is a reasonable basis for the classification scheme and <strong>al</strong>l claims<br />
within a particular class are substanti<strong>al</strong>ly similar. See A<strong>et</strong>na Cas. & Sur. Co. v. Chateaugay<br />
Corp. (In re Chateaugay Corp.), 89 F.3d 942, 949 (2d Cir. 1996); In re Drexel Burnham<br />
Lambert Group, <strong>Inc</strong>., 138 B.R. 723, 757 (Bankr. S.D.N.Y. 1992).<br />
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Decisions interpr<strong>et</strong>ing section 1122(a) gener<strong>al</strong>ly uphold separate classification of<br />
different groups of unsecured claims when a reasonable basis exists for the classification. The<br />
Bankruptcy Code only prohibits the identic<strong>al</strong> classification of dissimilar claims and does not<br />
require the same classification for claims sharing some attributes. See In re Chateaugay Corp.,<br />
155 B.R. 625, 630 (Bankr. S.D.N.Y. 1993); In re 499 W. Warren St. Assocs., Ltd. P’ship, 151<br />
B.R. 307, 312 (Bankr. N.D.N.Y. 1992).<br />
The Plan provides for separate classification of Claims and Equity Interests for each<br />
Debtor in 385 Classes based upon differences in the leg<strong>al</strong> nature and/or priority of such Claims<br />
and Equity Interests.<br />
The treatment of Guaranty Claims is appropriate in light of the glob<strong>al</strong> compromise<br />
embodied in the Plan and such classification and treatment is in accordance therewith. If tot<strong>al</strong><br />
substantive consolidation were ordered, any claim against multiple debtor entities for the same<br />
liability, wh<strong>et</strong>her joint, primary or secondary (including guaranty claims), typic<strong>al</strong>ly would be<br />
deemed to constitute one claim to be satisfied out of the common pool of ass<strong>et</strong>s. See In re<br />
Gulfco. Inv. Corp., 593 F.2d 921, 928 (10th Cir. 1979); see <strong>al</strong>so Moran v. Hong Kong &<br />
Shanghai Banking Corp. (In re Deltacorp <strong>Inc</strong>.), 179 B.R. 773, 777 (Bankr. S.D.N.Y. 1995).<br />
As a result, the multitude of Guaranty Claims would be extinguished in their entir<strong>et</strong>y.<br />
Although substantive consolidation often results in <strong>al</strong>l guaranty claims being eliminated, it is<br />
appropriate for a s<strong>et</strong>tlement of substantive consolidation to recognize a portion of guaranty<br />
claims. See In re Piece Goods Shops Co., 188 B.R. 778, 786 (Bankr. M.D.N.C. 1995); Drexel,<br />
138 B.R. at 748 (approving s<strong>et</strong>tlement and substantive consolidation contained in plan under<br />
which only a portion of guaranty claims were recognized). Therefore, the classification and<br />
treatment of Guaranty Claims as provided in the Plan is appropriate.<br />
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The separate classification of the Convenience Claims and the treatment of such Claims<br />
as provided in the Plan is appropriate. The separate classification of the Convenience Claims is<br />
v<strong>al</strong>id and appropriate pursuant to section 1122 as it based on v<strong>al</strong>id business, factu<strong>al</strong> and leg<strong>al</strong><br />
reasons.<br />
Claims in Classes 376 through 382 relating to Subordinated Claims sh<strong>al</strong>l be d<strong>et</strong>ermined<br />
pursuant to a Fin<strong>al</strong> Order in accordance with the provisions of the Bankruptcy Code under the<br />
principles of equitable subordination or otherwise. The Plan provides the Court with flexibility<br />
to d<strong>et</strong>ermine the amount and extent of subordination of any claim.<br />
Furthermore, the Plan’s classification of the equitably subordinated Claims into a single<br />
class does not offend the guidelines s<strong>et</strong> forth by section 1122 because upon Fin<strong>al</strong> Order that a<br />
Claim is an Other Subordinated Claim, <strong>al</strong>l such Other Subordinated Claims will be substanti<strong>al</strong>ly<br />
similar. In the event that distributions are made to holders of equitably subordinated Claims,<br />
such distributions will be made in accordance with the priority scheme s<strong>et</strong> forth in Section 17.2<br />
of the Plan. (Debtors’ Tri<strong>al</strong> Ex. 1, § 17.2). Accordingly, the Debtors’ classification scheme with<br />
respect to Subordinated Claims is reasonable.<br />
The Court concludes that the Plan’s classifications conform to the statute and separately<br />
classify claims based on reasonable business justifications and not for gerrymandering purposes.<br />
V<strong>al</strong>id business, factu<strong>al</strong> and leg<strong>al</strong> reasons exist for the separate classification of each of<br />
these Classes of Claims and Equity Interests created under the Plan and such Classes do not<br />
unfairly discriminate b<strong>et</strong>ween or among holders of Claims and Equity Interests. The Debtors’<br />
classification has a ration<strong>al</strong> basis because it is based on the respective leg<strong>al</strong> rights of each holder<br />
of a Claim or Equity Interest against the applicable Debtor’s estate. The classification scheme<br />
was not proposed to create a consenting impaired class and, thereby, manipulate class voting.<br />
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Cf. John Hancock Mut. Life Ins. Co. v. Route 37 Bus. Park Assocs., 987 F.2d 154, 161-62 (3d<br />
Cir. 1993) (d<strong>et</strong>ermining that the proposed plan of reorganization had no reasonable prospect of<br />
confirmation because the debtor’s proposed classification scheme was an improper attempt to<br />
manipulate voting). Moreover, with the exception of PGH, <strong>al</strong>l Classes that voted in respect of<br />
the Plan have voted in favor of the Plan. Thus, the Plan me<strong>et</strong>s the requirements of section<br />
1122(a).<br />
(iii) Section 1123(a)<br />
Every chapter 11 plan must comply with the seven requirements s<strong>et</strong> forth in section<br />
1123(a) of the Bankruptcy Code. The Court concludes that the Plan complies fully with each<br />
such requirement:<br />
(a)<br />
(b)<br />
(c)<br />
(d)<br />
(e)<br />
(f)<br />
The Plan designates Classes of Claims and Classes of Equity Interests<br />
as required by section 1123(a)(1). (Debtors’ Tri<strong>al</strong> Ex. 1, Art. IV).<br />
The Plan specifies wh<strong>et</strong>her each Class of Claims and Equity Interests is impaired<br />
or unimpaired under the Plan and the treatment of each such impaired Class, as<br />
required by sections 1123(a)(2) and 1123(a)(3), respectively. (Debtors’ Tri<strong>al</strong> Ex.<br />
1, Art. XXX).<br />
The Plan specifies wh<strong>et</strong>her each Class of Claims and Equity Interests is impaired<br />
or unimpaired under the Plan and the treatment of each such impaired Class, as<br />
required by sections 1123(a)(2) and 1123(a)(3), respectively. (Debtors’ Tri<strong>al</strong> Ex.<br />
1, Art. XXX).<br />
The treatment of each Claim or Equity Interest in each particular Class is the same<br />
as the treatment of each other Claim or Equity Interest in such Class as required<br />
by section 1123(a)(4). (Debtors’ Tri<strong>al</strong> Ex. 1, Art. IV-XXI).<br />
The Plan provides adequate means for implementation of the Plan through, inter<br />
<strong>al</strong>ia, issuance and distribution of Plan Securities, creation of the various trusts,<br />
transfer of certain ass<strong>et</strong>s to the trusts and disbursement of funds to certain parties<br />
as required by section 1123(a)(5). (Debtors’ Tri<strong>al</strong> Ex. 1, Arts. XII – XLI).<br />
The Restated Articles comply with the requirement of section 1123(a)(6) of the<br />
Bankruptcy Code, which requires a prohibition in the charter of a debtor of<br />
issuance of non-voting equity securities. (Debtors’ Tri<strong>al</strong> Ex. 4, Sched. Q(1), Art.<br />
IV, § 4.1).<br />
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(g)<br />
The Plan contains provisions with respect to the manner of selection of directors<br />
of the Reorganized Debtors that are consistent with the interests of Creditors,<br />
Equity Interest holders and public policy in accordance with section 1123(a)(7).<br />
(Debtors’ Tri<strong>al</strong> Ex. 1, Art. XL).<br />
(iv) Section 1123(b)<br />
Section 1123(b) of the Bankruptcy Code s<strong>et</strong>s forth the permissive provisions that may be<br />
incorporated into a chapter 11 plan. Just as the Plan complies with section 1123(a), each<br />
provision of the Plan is <strong>al</strong>so consistent with section 1123(b):<br />
(a)<br />
(b)<br />
(c)<br />
(d)<br />
Classes 1 and 2 are rendered unimpaired and Classes 3 through 385 are impaired<br />
or deemed impaired, as contemplated by section 1123(b)(1) of the Bankruptcy<br />
Code. (Debtors’ Tri<strong>al</strong> Ex. 1, Arts. V – XX, XXX).<br />
The Plan provides for the assumption, assumption and assignment, or rejection of<br />
executory contracts and unexpired leases that have not been previously assumed<br />
or rejected under section 365 of the Bankruptcy Code, as contemplated by section<br />
1123(b)(2) of the Bankruptcy Code. (Debtors’ Tri<strong>al</strong> Ex. 1, Art. XXXIV).<br />
The Plan provides for the s<strong>et</strong>tlement, or the r<strong>et</strong>ention and enforcement, of certain<br />
claims of the Debtors pursuant to section 1123(b)(3) of the Bankruptcy Code and<br />
Bankruptcy Rule 9019. (Debtors’ Tri<strong>al</strong> Ex. 1, Art. II; Glob<strong>al</strong> Compromise<br />
Motion, Dock<strong>et</strong> No. 18198).<br />
The Plan provides for the disposition of <strong>al</strong>l or substanti<strong>al</strong>ly <strong>al</strong>l of the property of<br />
the Debtors’ estates and the distribution of the proceeds therefrom to holders of<br />
Allowed Claims and Allowed Equity Interests in accordance with section<br />
1123(b)(4) of the Bankruptcy Code. (Debtors’ Tri<strong>al</strong> Ex. 2, § I.B.4).<br />
In accordance with section 1123(b)(3) of the Bankruptcy Code, the Reorganized Debtors<br />
or the Litigation Trust and Speci<strong>al</strong> Litigation Trust, as applicable, are authorized representatives<br />
of the Debtors’ estates. Enforcement of the Litigation Trust Claims and Speci<strong>al</strong> Litigation Trust<br />
Claims by the Reorganized Debtors, Litigation Trust, or Speci<strong>al</strong> Litigation Trust sh<strong>al</strong>l not result<br />
in any impairment or lapse of such claims and causes of action, notwithstanding any contrary<br />
state law.<br />
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(v) Section 1145<br />
Any issuance of the Plan Securities or the Trust Interests pursuant to the Plan will comply<br />
with section 1145(a)(1) of the Bankruptcy Code.<br />
2). Section 1129(a)(2)<br />
Section 1129(a)(2) of the Bankruptcy Code requires a plan proponent to “compl[y] with<br />
the applicable provisions of [the Bankruptcy Code].” 11 U.S.C. § 1129(a)(2). Section<br />
1129(a)(2) is intended to encompass the disclosure and solicitation requirements under section<br />
1125 of the Bankruptcy Code. See In re Johns-Manville Corp., 68 B.R. 618, 630 (Bankr.<br />
S.D.N.Y. 1986), aff’d in part, rev’d in part on other grounds, 78 B.R. 407 (S.D.N.Y. 1987),<br />
aff’d, Kane v. Johns-Manville Corp., 843 F.2d 636 (2d Cir. 1988); In re Toy & Sports<br />
Warehouse, <strong>Inc</strong>., 37 B.R. 141, 149 (Bankr. S.D.N.Y. 1984); H.R. Rep. No. 95-595, at 412<br />
(1977); S. Rep. No. 95-989, at 126 (1978) (“Paragraph (2) [of section 1129(a)] requires that the<br />
proponent of the plan comply with the applicable provisions of chapter 11, such as section 1125<br />
regarding disclosure.”). The Debtors have complied with the applicable provisions of title 11,<br />
including, specific<strong>al</strong>ly, sections 1125, 1126 and 1141(d)(3) of the Bankruptcy Code.<br />
(i) Section 1125<br />
On January 9, 2004, after due notice and a hearing, the Court entered the Solicitation<br />
Procedures Order, which, inter <strong>al</strong>ia, approved the Disclosure Statement, finding that it contained<br />
“adequate information” within the meaning of section 1125 of the Bankruptcy Code and<br />
established procedures for the Debtors’ solicitation of votes on the Plan.<br />
Nothing in the Bankruptcy Code would require the Debtors to have included with the<br />
Disclosure Statement a liquidation an<strong>al</strong>ysis for each Debtor on a “stand-<strong>al</strong>one” basis in the<br />
absence of the glob<strong>al</strong> compromise. The Debtors have properly incorporated the glob<strong>al</strong><br />
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compromise into the Liquidation An<strong>al</strong>ysis. The Liquidation An<strong>al</strong>ysis need not be premised on a<br />
non-consolidated scenario, when the Debtors have <strong>al</strong>ready submitted one based on the glob<strong>al</strong><br />
compromise, including a s<strong>et</strong>tlement of substantive consolidation issues, as embodied in the Plan.<br />
In re Stone & Webster, <strong>Inc</strong>., 286 B.R. 532, 544 (Bankr. D. Del. 2002). 26<br />
The Plan cannot be confirmed if the glob<strong>al</strong> compromise is not approved. The r<strong>et</strong>urn on<br />
the Plan must be compared to the r<strong>et</strong>urn in chapter 7 cases. Because the issues resolved in the<br />
glob<strong>al</strong> compromise will <strong>al</strong>so exist in multiple chapter 7 cases, the only ration<strong>al</strong> assumption to<br />
make for purposes of the best interests test is that the issues would be similarly resolved in<br />
chapter 7. Courts have consistently applied s<strong>et</strong>tlements embodied in chapter 11 plans to<br />
liquidation an<strong>al</strong>yses. See In Matter of Texas Extrusion Corp., 844 F.2d 1142, 1159 (5th Cir.<br />
1988) (approving bankruptcy court’s application of an important s<strong>et</strong>tlement proposed in a joint<br />
plan of reorganization to liquidation an<strong>al</strong>yses of four bankruptcy estates); In re MCorp Fin., <strong>Inc</strong>.,<br />
160 B.R. 941, 961 (S.D. Tex. 1993) (acknowledging that a s<strong>et</strong>tlement that was a critic<strong>al</strong> element<br />
of the plan and that was approved by the court should remain to affect a liquidation for the<br />
purposes of the best interests of the creditors test); In re Ames Dep’t Stores, Eastern R<strong>et</strong>ailers<br />
Serv. Corp., <strong>et</strong> <strong>al</strong>., Nos. 90 B 11233 through 90 B 11285 (Bankr. S.D.N.Y. confirmed as of<br />
December 29, 1992) (finding that the assumption of s<strong>et</strong>tlements under the plan of reorganization<br />
26 As stated, on January 9, 2004 the Court approved the Disclosure Statement as providing adequate information.<br />
Further, regarding the adequacy of disclosure as to the Liquidation An<strong>al</strong>ysis, there have been no intervening events<br />
that would render the information contained in the Disclosure Statement inadequate. Therefore, modifications to the<br />
Disclosure Statement and resolicitation of votes are not required. Mr. Zelin’s testimony indicates that the Debtors<br />
have entered into contracts for two of the platforms and that those contract v<strong>al</strong>ues would increase their liquidation<br />
v<strong>al</strong>ue, thereby reducing the difference b<strong>et</strong>ween recoveries to Creditors from a chapter 7 liquidation versus their<br />
treatment under the Plan. The Court, however, finds that based upon Mr. Zelin’s further testimony concerning the<br />
benefits of selling the platforms under chapter 11, the over<strong>al</strong>l n<strong>et</strong> effect in the difference is not significant enough<br />
under the circumstances to warrant a modification to the Disclosure Statement. Therefore, as previously stated, the<br />
absence of such modification would not render the Disclosure Statement inadequate and require resolicitation of<br />
votes. This is because a creditor, in these cases, would not need to possess such information to make an informed<br />
judgment about the Plan. Therefore, the Disclosure Statement, which the Court previously approved, was, and<br />
continues to be, in compliance with section 1125.<br />
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with regard to, inter <strong>al</strong>ia, substantive consolidation and claims, into the section 1129(a)(7)<br />
liquidation an<strong>al</strong>ysis was reasonable). The plain language of section 1125(a)(1) and the<br />
jurisprudence provide a debtor is not required to disclose information about other possible plans.<br />
Kirk v. Texaco, <strong>Inc</strong>., 82 B.R. 678 (S.D.N.Y. 1988).<br />
(ii) Section 1126<br />
The Debtors have solicited acceptances of the Plan consistent with section 1126(b) of the<br />
Bankruptcy Code. In accordance with section 1126 of the Bankruptcy Code and pursuant to the<br />
Solicitation Orders, the Debtors solicited acceptances or rejections of the Plan from holders of <strong>al</strong>l<br />
Allowed Claims in each Class of impaired Claims that are to receive distributions under the Plan.<br />
Classes 1 and 2 of the Plan are unimpaired. As a result, pursuant to section 1126(f) of the<br />
Bankruptcy Code, holders of Claims in those Classes are conclusively presumed to have<br />
accepted the Plan. Classes 3 through 375 of the Plan are impaired. As a result, pursuant to<br />
section 1126(a) of the Bankruptcy Code, holders of Claims in such Classes (other than Class<br />
190) were entitled to vote to accept or reject the Plan. 27 The Debtors do not anticipate that<br />
Classes 376 through 385 of the Plan will receive any distributions under the Plan, therefore, the<br />
holders of Claims and Equity Interests in such Classes were not solicited and are conclusively<br />
presumed to have rejected the Plan pursuant to section 1126(g) of the Bankruptcy Code. The<br />
voting results are s<strong>et</strong> forth above and evidenced by Debtors’ Tri<strong>al</strong> Exhibit 19. The Debtors have<br />
complied with the applicable provisions of section 1126.<br />
(iii) Section 1141(d)(3)<br />
In d<strong>et</strong>ermining wh<strong>et</strong>her a debtor should be denied a discharge under section 1141(d)(3),<br />
courts have distinguished a wholes<strong>al</strong>e liquidation of a debtor’s ass<strong>et</strong>s from a supervised<br />
27 Class 190 (Intercompany Claims) is deemed to have voted to accept the Plan because the holders of such<br />
Intercompany Claims are the Plan proponents.<br />
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divestiture process. Specific<strong>al</strong>ly, courts have found that, where a debtor’s post-confirmation<br />
business consists of managing ass<strong>et</strong>s pending their s<strong>al</strong>e to third parties, such debtor was entitled<br />
to a discharge. See, e.g., In re River Capit<strong>al</strong> Corp., 155 B.R. 382, 387 (Bankr. E.D. Va. 1991);<br />
In re T-H New Orleans Ltd. P’ship, 188 B.R. 799, 804 (E.D. La. 1995), aff’d, In Matter of T-H<br />
New Orleans Ltd. P’ship, 116 F.3d 790, 803-04 (5th Cir. 1997); In Matter of First Am. He<strong>al</strong>th<br />
Care of Ga., <strong>Inc</strong>., 220 B.R. 720, 726 (Bankr. S.D. Ga. 1998).<br />
Pursuant to the Plan, the Reorganized Debtors will r<strong>et</strong>ain <strong>al</strong>l ass<strong>et</strong>s not otherwise<br />
transferred to the Litigation Trust, the Speci<strong>al</strong> Litigation Trust, the Severance S<strong>et</strong>tlement Fund<br />
Trust, the Operating Trusts, or the Operating Entities. The Reorganized Debtors and the<br />
Reorganized Debtor Plan Administrator will continue to manage and operate these ass<strong>et</strong>s until a<br />
favorable s<strong>al</strong>e or resolution of each of the Remaining Ass<strong>et</strong>s is fin<strong>al</strong>ized. These Remaining<br />
Ass<strong>et</strong>s may include Cash, claims, avoidance actions and other causes of action against third<br />
parties on beh<strong>al</strong>f of the Debtors’ estates, proceeds of liquidated ass<strong>et</strong>s, the Debtors’ stock in the<br />
Enron Companies, trading contracts, equity investments, inventory, re<strong>al</strong> property and other<br />
miscellaneous ass<strong>et</strong>s. The wind down of the Debtors’ estates remains a complicated process as<br />
there are a significant number of individu<strong>al</strong> ass<strong>et</strong>s that need to be collected or sold, or otherwise<br />
handled. Some of these ass<strong>et</strong>s are the subject matter of pending litigation proceedings and/or<br />
complex cross-ownership structures. Further, the policy underlying section 1143(d)(3)(A) is to<br />
prevent trafficking in empty corporate shells for tax avoidance. H.R. No. 95-595, 95th Cong. at<br />
384 (1977); In re Rath Packing Co., 55 B.R. 528, 537 (Bankr. N.D. Iowa 1985).<br />
Based on case law precedents and the Plan’s stated purpose of providing a supervised<br />
divestiture of estate ass<strong>et</strong>s, section 1141(d)(3) of the Bankruptcy Code does not bar the<br />
application of a discharge to the Debtors. In fact, the ind<strong>et</strong>erminate period of r<strong>et</strong>ention of the<br />
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ass<strong>et</strong>s after the Effective Date and the clear need for ongoing business operations to maximum<br />
v<strong>al</strong>ue for <strong>al</strong>l creditors in liquidating the ass<strong>et</strong>s necessitates the application of the section 1141<br />
discharge to the Reorganized Debtors. Based upon the foregoing, the Court concludes that the<br />
requirements of section 1129(a)(2) have been satisfied. Based upon the foregoing, the Court<br />
concludes that the requirements of section 1129(a)(2) of the Bankruptcy Code have been<br />
satisfied.<br />
3). Section 1129(a)(3)<br />
Section 1129(a)(3) of the Bankruptcy Code requires a plan be “proposed in good faith<br />
and not by any means forbidden by law.” 11 U.S.C. § 1129(a)(3). The United States Court of<br />
Appe<strong>al</strong>s for the Second Circuit has defined the good faith standard as “requiring a showing that<br />
the plan was proposed with ‘honesty and good intentions’ and with ‘a basis for expecting that a<br />
reorganization can be effected.’” Koelbl v. Glessing (In re Koelbl), 751 F.2d 137, 139 (2d Cir.<br />
1984) (quoting Manati Sugar Co. v. Mock, 75 F.2d 284, 285 (2d Cir. 1935)); see <strong>al</strong>so Johns-<br />
Manville, 68 B.R. at 631-32. In the context of a chapter 11 plan, courts have held that a plan is<br />
considered proposed in good faith “if there is a likelihood that the plan will achieve a result<br />
consistent with the standards prescribed under the [Bankruptcy] Code.” In re Leslie Fay Cos.,<br />
207 B.R. 764, 781 (Bankr. S.D.N.Y. 1997) (quoting In re Texaco <strong>Inc</strong>., 84 B.R. 893, 907 (Bankr.<br />
S.D.N.Y. 1988), appe<strong>al</strong> dismissed, 92 B.R. 38 (S.D.N.Y. 1988)). “The requirement of good faith<br />
must be viewed in light of the tot<strong>al</strong>ity of the circumstances surrounding the establishment of a<br />
chapter 11 plan.” In re Leslie Fay Cos., 207 B.R. at 781 (Bankr. S.D.N.Y. 1997) (citations<br />
omitted).<br />
As s<strong>et</strong> forth in the findings of fact, the Plan is the result of extensive arm’s-length<br />
discussions, debate and/or negotiations among the Debtors, the Creditors’ Committee and the<br />
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ENA Examiner. Accordingly, the Court concludes that the Plan satisfies the requirements of 11<br />
U.S.C. § 1129(a)(3).<br />
4). Section 1129(a)(4)<br />
Section 1129(a)(4) of the Bankruptcy Code requires that certain profession<strong>al</strong> fees and<br />
expenses paid by the plan proponent, by the debtor, or by a person issuing securities or acquiring<br />
property under the plan, be subject to approv<strong>al</strong> of the court as reasonable. 28<br />
Section 1129(a)(4)<br />
of the Bankruptcy Code has been construed to require that <strong>al</strong>l payments of profession<strong>al</strong> fees<br />
made from estate ass<strong>et</strong>s be subject to review and approv<strong>al</strong> by the Court as to their<br />
reasonableness. See, e.g., In re River Vill. Assocs., 161 B.R. 127, 141 (Bankr. E.D. Pa. 1993),<br />
aff’d, 181 B.R. 795 (E.D. Pa. 1995).<br />
Pursuant to the interim application procedures established under section 331 of the<br />
Bankruptcy Code, the Court authorized and approved the payment of certain fees and expenses<br />
of profession<strong>al</strong>s r<strong>et</strong>ained in the Chapter 11 Cases. All such fees and expenses, as well as <strong>al</strong>l<br />
other accrued fees and expenses of profession<strong>al</strong>s through the Effective Date, remain subject to<br />
fin<strong>al</strong> review by the Fee Committee and the Court for reasonableness under section 330 of the<br />
Bankruptcy Code. In addition, pursuant to sections 503(b)(3) and (4) of the Bankruptcy Code,<br />
the Court must review any applications for substanti<strong>al</strong> contribution to ensure compliance with<br />
the statutory requirements and that the fees requested are reasonable. Moreover, <strong>al</strong>l payments or<br />
bonuses to be made in connection with the Effective Date or which relate to the success of the<br />
reorganization or which otherwise are required to be disclosed, including any amounts to be paid<br />
28 Section 1129(a)(4) of the Bankruptcy Code requires that:<br />
Any payment made or to be made by the proponent, by the debtor, or by a person issuing<br />
securities or acquiring property under the plan, for services or for costs and expenses in or in<br />
connection with the case, or in connection with the plan and incident to the case, has been<br />
approved by, or is subject to approv<strong>al</strong> of, the court as reasonable.<br />
11 U.S.C. § 1129(a)(4).<br />
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to officers and directors, (a) are disclosed in the Disclosure Statement, (b) have been disclosed at<br />
or prior to the Confirmation Hearing, or (c) are subject to the approv<strong>al</strong> of the Court. The<br />
foregoing procedures for the Court’s review and ultimate d<strong>et</strong>ermination of the fees and expenses<br />
to be paid by the Debtors satisfy the objectives of section 1129(a)(4) of the Bankruptcy Code.<br />
5). Section 1129(a)(5)<br />
Section 1129(a)(5) of the Bankruptcy Code requires that the plan proponent disclose the<br />
identity and affiliations of the proposed officers and directors of the reorganized debtors; that the<br />
appointment or continuance of such officers and directors be consistent with the interests of<br />
creditors and equity interest holders and with public policy; and that there be disclosure of the<br />
identity and compensation of any insiders to be r<strong>et</strong>ained or employed by the reorganized debtors.<br />
Schedule U and V to the Plan Supplement filed on March 9, 2004, as modified by the<br />
Governance Modification, identifies the individu<strong>al</strong>s the Debtors have preliminarily identified to<br />
serve as officers and directors of Reorganized ENE, as well as the other Reorganized Debtors, as<br />
of the Effective Date.<br />
The Reorganized Debtors’ employment of Cooper LLC is consistent with the interests of<br />
Creditors. Mr. Cooper, as the Chief Executive Officer and Chief Restructuring Officer of the<br />
Debtors, is intimately familiar with the business and ass<strong>et</strong>s of the Debtors. Cooper LLC’s<br />
appointment as Reorganized Debtor Plan Administrator is consistent with the interests of<br />
Creditors and public policy. See In re Apex Oil Co., 118 B.R. 683, 704-05 (Bankr. E.D. Mo.<br />
1990) (where debtors and the creditors’ committee believe control of entity by proposed<br />
individu<strong>al</strong>s will be benefici<strong>al</strong>, the requirements of section 1129(a)(5) are satisfied); Toy &<br />
Sports, 37 B.R. at 149-50 (continuation of debtor’s president and founder, who had many years<br />
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of experience in the debtors’ business, satisfied section 1129(a)(5) and enhanced feasibility of<br />
the plan).<br />
Subject to Court approv<strong>al</strong> and pursuant to their respective engagement agreements,<br />
certain profession<strong>al</strong>s of the Debtors and the Creditors, may seek a success fee in connection with<br />
confirmation of the Plan. Based upon the foregoing, the Court concludes that the Debtors have<br />
satisfied or will be able to satisfy the requirements of section 1129(a)(5).<br />
6). Section 1129(a)(6)<br />
Section 1129(a)(6) of the Bankruptcy Code requires that any regulatory commission<br />
having jurisdiction over the rates charged by the reorganized debtor in the operation of its<br />
businesses approve any rate change provided for in the plan. The provision is not applicable to<br />
the Debtors and Reorganized Debtors. The SEC has, however, approved the Plan under section<br />
11(f) of PUHCA and issued a report in connection therewith.<br />
7). Section 1129(a)(7)<br />
Section 1129(a)(7) of the Bankruptcy Code requires that a plan be in the best interests of<br />
creditors and stockholders, as follows:<br />
With respect to each impaired class of claims or interests–<br />
(A)<br />
each holder of a claim or interest of such class–<br />
(i)<br />
(ii)<br />
has accepted the plan; or<br />
will receive or r<strong>et</strong>ain under the plan on account of such<br />
claim or interest property of a v<strong>al</strong>ue, as of the effective date<br />
of the plan, that is not less than the amount that such holder<br />
would so receive or r<strong>et</strong>ain if the debtor were liquidated<br />
under chapter 7 of this title on such date . . . .<br />
11 U.S.C. § 1129(a)(7)(A).<br />
The “best interests” test focuses on individu<strong>al</strong> dissenting creditors rather than classes of<br />
claims. See Bank of Am. Nat’l Trust & Sav. Ass’n v. 203 N. LaS<strong>al</strong>le St. P’ship, 526 U.S. 434,<br />
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442 (1999). The test requires that each holder of a claim or equity interest either accept the plan<br />
or receive or r<strong>et</strong>ain under the plan property having a present v<strong>al</strong>ue, as of the effective date of the<br />
plan, not less than the amount such holder would receive or r<strong>et</strong>ain if the debtor were liquidated<br />
under chapter 7 of the Bankruptcy Code on such date.<br />
Under the “best interests” test, the court must find that each impaired creditor will receive<br />
or r<strong>et</strong>ain v<strong>al</strong>ue not less than the amount he would receive if the debtor were liquidated. See 203<br />
N. LaS<strong>al</strong>le, 526 U.S. at 442; In re Century Glove, <strong>Inc</strong>., No. Civ. A. 90-400-SLR, Civ. A. 90-401-<br />
SLR, 1993 WL 239489, at *7 (D. Del. Feb. 10, 1993). As section 1129(a)(7) of the Bankruptcy<br />
Code makes clear, the liquidation an<strong>al</strong>ysis applies only to non-accepting impaired claims or<br />
equity interests. If a class of claims or equity interests unanimously accepts the plan, the “best<br />
interests” test automatic<strong>al</strong>ly is deemed satisfied for <strong>al</strong>l members of that accepting class. See<br />
Drexel, 138 B.R. at 761.<br />
Moreover, pursuant to section 1126(f) of the Bankruptcy Code, a class that is not<br />
impaired under the plan is conclusively deemed to have accepted the plan. Here, each holder of<br />
a Claim in Classes 1 and 2 is unimpaired and is conclusively deemed to have accepted the Plan.<br />
Therefore, the “best interests” test is satisfied with respect to each of these Classes.<br />
As an initi<strong>al</strong> matter, to d<strong>et</strong>ermine the v<strong>al</strong>ue impaired Creditors and impaired Equity<br />
Interest holders would receive if the Debtors were liquidated, the Court must d<strong>et</strong>ermine the<br />
dollar amount that would be generated from the liquidation of the Debtors’ ass<strong>et</strong>s and properties<br />
in the context of a chapter 7 liquidation case. The liquidation an<strong>al</strong>ysis need not be done on a<br />
“stand-<strong>al</strong>one,” Debtor-by-Debtor basis, but may be done based on certain assumptions (such as<br />
substantive consolidation or a compromise of substantive consolidation) if there is a legitimate<br />
basis for such assumptions. See Stone & Webster, 286 B.R. 532, 545. Moreover, it is impossible<br />
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to d<strong>et</strong>ermine what an appropriate “stand <strong>al</strong>one” assumption for a liquidation an<strong>al</strong>ysis would be<br />
absent inclusion of the glob<strong>al</strong> compromise embodied in the Plan. Even assuming that an<br />
appropriate “stand-<strong>al</strong>one” chapter 7 case for ENA was based on no glob<strong>al</strong> compromise and only<br />
on ENA’s books and records as of the Initi<strong>al</strong> P<strong>et</strong>ition Date, ENA Creditors would stand to<br />
receive less than under the Plan.<br />
The assumptions used by the Debtors in their Liquidation An<strong>al</strong>ysis as s<strong>et</strong> forth in<br />
Appendix L to the Disclosure Statement are appropriate and reasonably based on the facts in<br />
these Chapter 11 Cases. In the context of the erosion of proceeds available for distribution<br />
associated with a chapter 7 case, confirmation of the Plan provides each non-accepting Creditor<br />
or Equity Interest holder with a recovery not less, and, in fact, more, than what such Creditor or<br />
Equity Interest holder would receive in a liquidation of the Debtors’ estates under chapter 7 of<br />
the Bankruptcy Code.<br />
The Plan provides for a reorganization to <strong>al</strong>low for an orderly wind-down of the Debtors’<br />
business affairs over the next sever<strong>al</strong> years. The Debtors’ Liquidation An<strong>al</strong>ysis clearly reflects<br />
that holders of Allowed Claims will receive under the Plan not less than such Creditors would<br />
receive in a chapter 7. Under the circumstances, the date of the actu<strong>al</strong> occurrence of the<br />
Effective Date under the Plan has no impact on the satisfaction of the “best interests” test.<br />
Nor does the Plan violate the “best interests” of creditors test because Debtors have stated<br />
that they have relied upon the Debtors’ books and records with respect to the v<strong>al</strong>ue of certain<br />
ass<strong>et</strong>s for particular Debtors, intercompany account b<strong>al</strong>ances and claims. ENE has cautioned<br />
Creditors that its financi<strong>al</strong> statements filed with the SEC for fisc<strong>al</strong> years ended 1997 through<br />
2000 and for the first three quarters of 2001 should not be relied upon. (Bingham Affidavit<br />
58). While the Debtors’ prep<strong>et</strong>ition financi<strong>al</strong> statements may be unreliable in certain respects,<br />
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profession<strong>al</strong>s for the Debtors, the Creditors’ Committee and the ENA Examiner sampled<br />
intercompany entries, particularly those b<strong>et</strong>ween ENE and ENA, and d<strong>et</strong>ermined that the<br />
Debtors’ books and records were gener<strong>al</strong>ly reliable as they related to intercompany transactions.<br />
Indicating that prep<strong>et</strong>ition financi<strong>al</strong> statements may be unreliable does not amount to the type of<br />
“fanciful assumptions” that have concerned the Second Circuit because they “undermine the<br />
credibility of the entire reorganization propos<strong>al</strong>.” Pegasus Agency, <strong>Inc</strong>. v. Grammatikakis (In re<br />
Pegasus Agency, <strong>Inc</strong>.), 101 F.3d 882, 887 (2d Cir. 1996).<br />
If the existence of unreliable prep<strong>et</strong>ition financi<strong>al</strong> statements could preclude the<br />
confirmation of a plan, it would be impossible to confirm any plan in these Chapter 11 Cases or<br />
in any other case with similar facts. Far from relying on speculative or unreliable assumptions,<br />
the glob<strong>al</strong> compromise lays to rest the many uncertainties involving intercompany transactions<br />
and potenti<strong>al</strong> avoidance claims that would otherwise jeopardize the resolution of these Chapter<br />
11 Cases. (6/8/04 Cooper Tr. at 34:16 – 35:21).<br />
No objector has ch<strong>al</strong>lenged the Debtors’ proposed means of handling any ass<strong>et</strong> or<br />
business. The sole question is wh<strong>et</strong>her the n<strong>et</strong> present v<strong>al</strong>ue recovery is equ<strong>al</strong> or greater under<br />
the Plan than in chapter 7. No one has claimed “scrap v<strong>al</strong>ue” is greater than the going concern<br />
v<strong>al</strong>ue the Debtors are obtaining under the Plan by distributing their businesses to creditors or<br />
selling them as going concerns and distributing their proceeds. The purpose of a best interest<br />
liquidation an<strong>al</strong>ysis is to compare recoveries in a chapter 7 liquidation to a chapter 11 plan – not<br />
to compare different leg<strong>al</strong> outcomes to disputed issues. Accordingly, the existence of a stand<strong>al</strong>one<br />
liquidation an<strong>al</strong>ysis is irrelevant to confirmation of the Plan. As the Plan is premised upon<br />
the approv<strong>al</strong> of the glob<strong>al</strong> compromise, no further liquidation an<strong>al</strong>yses are required.<br />
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The Debtors’ evidence shows that the Plan creates b<strong>et</strong>ter recovery than a liquidation<br />
under chapter 7 would provide. The Plan proposes that the Debtors utilize the ass<strong>et</strong>s to<br />
maximize v<strong>al</strong>ue. The Debtors will maintain each business platform as a going concern and will<br />
sell the ass<strong>et</strong>s if they maximize v<strong>al</strong>ue, otherwise the ass<strong>et</strong>s will be distributed to Creditors<br />
through the distribution of shares of the platform entities. The Debtors witnesses testified that<br />
there was no other way to maximize v<strong>al</strong>ue other than as proposed in the Plan. In fact, the<br />
witnesses established that the ability of the Debtors to distribute stock instead of being forced to<br />
liquidate, as would be the case in chapter 7, enabled the Debtors to withdraw the platforms from<br />
the mark<strong>et</strong> place when the offering prices were less than “going concern v<strong>al</strong>ue.” Moreover, the<br />
ability to withdraw the platforms enhances the Debtors’ ability in closing any contract as it<br />
increases the Debtors’ negotiating leverage. The ability to distribute such “going concern v<strong>al</strong>ue”<br />
through the distribution of stock to creditors is not possible in a chapter 7. Therefore, once a<br />
case is converted to chapter 7, the mark<strong>et</strong>place can take advantage of such limitation. Even<br />
under the present circumstances where two of the platform entities are under contract for s<strong>al</strong>e,<br />
the testimony supports the finding that these contracts will bring greater v<strong>al</strong>ue to the estates if<br />
they are ultimately closed in chapter 11 rather than chapter 7.<br />
As discussed, under the Plan, Creditors are not limited to receiving only the liquidation<br />
v<strong>al</strong>ue of the various platforms. Rather, Creditors will receive either the liquidation v<strong>al</strong>ue if it<br />
exceeds the going concern v<strong>al</strong>ue or will receive the going concern v<strong>al</strong>ue if such is higher than the<br />
liquidation v<strong>al</strong>ue. Therefore, on any given effective date, v<strong>al</strong>ues under the Plan will <strong>al</strong>ways<br />
exceed a chapter 7 liquidation v<strong>al</strong>ue on such dates because of the Debtors’ improved negotiating<br />
leverage in selling ass<strong>et</strong>s under chapter 11.<br />
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Based on the evidence, which the Court finds credible and unrebutted, the v<strong>al</strong>ue to be<br />
distributed to Creditors on account of Allowed Claims under the Plan, as of the Effective Date, is<br />
not less than the amount that such holder would receive or r<strong>et</strong>ain if the Debtors, or any of them,<br />
were liquidated under chapter 7. Therefore, the Court concludes that the requirements of section<br />
1129(a)(7) of the Bankruptcy Code have been satisfied.<br />
8). Section 1129(a)(8)<br />
Section 1129(a)(8) of the Bankruptcy Code requires that each class of impaired claims or<br />
interests accept the plan:<br />
With respect to each class of claims or interests—<br />
(A)<br />
(B)<br />
such class has accepted the plan; or<br />
such class is not impaired under the plan<br />
11 U.S.C. § 1129(a)(8).<br />
Classes 1 and 2 are unimpaired under the Plan, are conclusively deemed to have accepted the<br />
Plan, pursuant to section 1126(f) of the Bankruptcy Code, and, therefore, satisfy section<br />
1129(a)(8)(B) of the Bankruptcy Code. As s<strong>et</strong> forth in the Voting Certification, the impaired<br />
classes entitled to vote voted to accept the Plan by the requisite majorities that me<strong>et</strong> the<br />
acceptance requirements of section 1126(c). Thus, as to the unimpaired Classes and the impaired<br />
classes that vote to accept the Plan, the Court concludes that the requirement of<br />
section 1129(a)(8)(A) is satisfied.<br />
Classes of Creditors with respect to the 96 Debtors, referenced in footnote 14, are<br />
impaired and the Creditors in those classes did not cast any b<strong>al</strong>lots. Therefore, section<br />
1129(a)(8)(A) is not satisfied as to these 96 Debtors. However, as will be discussed<br />
subsequently, the Plan may be confirmed as to those classes under section 1129(b) of the<br />
Bankruptcy Code. Classes 376 through 385 are deemed to have voted to reject the Plan. As to<br />
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those classes as well, the Plan may be confirmed under the cramdown provisions of section<br />
1129(b) of the Bankruptcy Code.<br />
9). Section 1129(a)(9)<br />
Section 1129(a)(9) of the Bankruptcy Code requires that persons holding claims entitled<br />
to priority under section 507(a) of the Bankruptcy Code receive specified cash payments under<br />
the plan. Unless the holder of a particular claim agrees to a different treatment with respect to<br />
such claim, section 1129(a)(9) requires the plan to provide as follows:<br />
(A)<br />
(B)<br />
with respect to a claim of a kind specified in<br />
section 507(a)(1) or 507(a)(2) of [the Bankruptcy Code], on<br />
the effective date of the plan, the holder of such claim will<br />
receive on account of such claim cash equ<strong>al</strong> to the <strong>al</strong>lowed<br />
amount of such claim;<br />
with respect to a class of claims of a kind specified in<br />
section 507(a)(3), 507(a)(4), 507(a)(5), 507(a)(6) or<br />
507(a)(7) of [the Bankruptcy Code], each holder of a claim<br />
of such class will receive –<br />
(i)<br />
(ii)<br />
if such class has accepted the plan, deferred cash payments<br />
of a v<strong>al</strong>ue, as of the effective date of the plan, equ<strong>al</strong> to the<br />
<strong>al</strong>lowed amount of such claim; or<br />
if such class has not accepted the plan, cash on the effective<br />
date of the plan equ<strong>al</strong> to the <strong>al</strong>lowed amount of such claim;<br />
and<br />
(C)<br />
with respect to a claim of a kind specified in<br />
section 507(a)(8) of [the Bankruptcy Code], the holder of<br />
such claim will receive on account of such claim deferred<br />
cash payments, over a period not exceeding six years after<br />
the date of assessment of such claim, of a v<strong>al</strong>ue, as of the<br />
effective date of the plan, equ<strong>al</strong> to the <strong>al</strong>lowed amount of<br />
such claim.<br />
11 U.S.C. § 1129(a)(9).<br />
In accordance with sections 1129(a)(9)(A) and (B) of the Bankruptcy Code, the Plan<br />
provides that <strong>al</strong>l Allowed Administrative Expense Claims under section 503(b) of the<br />
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Bankruptcy Code and <strong>al</strong>l Allowed Priority Claims under section 507(a) (excluding Priority Tax<br />
Claims under section 507(a)(8)) will be paid in full, in Cash, on the later of the Effective Date<br />
and the date such Claims become Allowed Claims, or as soon thereafter as is practicable.<br />
(Debtors’ Tri<strong>al</strong> Ex. 1, Art. III, V). Allowed Administrative Expense Claims representing<br />
liabilities incurred in the ordinary course of business by the Debtors, including postp<strong>et</strong>ition tax<br />
liabilities, or liabilities arising under loans or advances to or other obligations incurred by the<br />
Debtors in Possession during the Chapter 11 Cases, which will be paid by the Reorganized<br />
Debtor Plan Administrator in accordance with the terms and conditions of any particular<br />
transaction and any agreements relating ther<strong>et</strong>o. (Debtors’ Tri<strong>al</strong> Ex. 1, Art. III). The<br />
Confirmation Order establishes a deadline for parties to assert Administrative Expense Claims.<br />
The Plan <strong>al</strong>so satisfies the requirements of section 1129(a)(9)(C) with respect to the<br />
treatment of Priority Tax Claims under section 507(a)(8). On May 31, 2004, the Debtors filed<br />
and served a Notice of Election of Option with Respect to Payment of Priority Tax Claims,<br />
stating that, pursuant to the Plan, the Debtors have elected to exercise their option to make<br />
distributions to each holder of an Allowed Priority Tax Claim in full, in Cash, on the Effective<br />
Date. (Dock<strong>et</strong> No. 18775). Based upon the foregoing, the Court concludes that the Plan satisfies<br />
the requirements of section 1129(a)(9) of the Bankruptcy Code.<br />
10). Section 1129(a)(10)<br />
Section 1129(a)(10) provides that, if a class of claims is impaired under a chapter 11<br />
plan, at least one class of impaired claims under such plan must vote to accept the plan. See 11<br />
U.S.C. § 1129(a)(10). Though the Plan governs the treatment of claims against the 177 jointly<br />
administered Debtors, pursuant to applicable law, the affirmative vote of one impaired class<br />
under the Plan is sufficient to satisfy section 1129(a)(10). See In re SGPA, <strong>Inc</strong>., Ch. 11 Case No.<br />
137
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1-01-02609 (Bankr. M.D. Pa. Sept. 28, 2001) (joint chapter 11 plan of reorganization complied<br />
with section 1129(a)(10) because at least one class of impaired creditors accepted the plan,<br />
notwithstanding the fact that each debtor entity did not have an accepting impaired class). The<br />
plain language and inherent fundament<strong>al</strong> policy behind section 1129(a)(10) of the Bankruptcy<br />
Code provides that an affirmative vote of one impaired class under a plan is sufficient to satisfy<br />
section 1129(a)(10) of the Bankruptcy Code.<br />
Further, aside from the plain meaning an<strong>al</strong>ysis, by virtue of the substantive consolidation<br />
component of the glob<strong>al</strong> compromise, the requirements of section 1129(a)(10) are satisfied as to<br />
each of the Debtors lacking an impaired accepting class because those Debtors are part of the<br />
glob<strong>al</strong> compromise embodied in the Plan. Substantive consolidation is not eliminated when the<br />
r<strong>et</strong>urns of creditors are adjusted to take into account their individu<strong>al</strong> equities as they have been<br />
adjusted here. See Stone v. Eacho (In re Tiptop Tailors, <strong>Inc</strong>.), 128 F.2d 16, 16 (4th Cir. 1942),<br />
denying reh’g of 127 F.2d 284 (4th Cir. 1942).<br />
In addition, the Court notes that at least one court has confirmed a chapter 11 plan<br />
(without requiring either substantive consolidation or the filing of separate plans) where it<br />
appears that impaired classes of certain (but not <strong>al</strong>l) of the jointly administered debtors vote only<br />
for the one plan before the court. See, e.g., In re Resorts Int’l <strong>Inc</strong>., 145 B.R. 412, 416 (Bankr. D.<br />
N.J. 1990). It is quite common for debtors with a complex corporate structure to file a joint<br />
chapter 11 plan pursuant to which the corporate form is preserved, or in which a “deemed<br />
consolidation” is proposed and approved. In such circumstances, <strong>al</strong>l debtors are treated as a<br />
single leg<strong>al</strong> entity for voting and distribution purposes. See, e.g., In re Genesis He<strong>al</strong>th Ventures,<br />
<strong>Inc</strong>., 266 B.R. 591, 619 (Bankr. D. Del. 2001).<br />
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Accordingly, the Court concludes that the Plan satisfies section 1129(a)(10). 29<br />
11). Section 1129(a)(11)<br />
Section 1129(a)(11) of the Bankruptcy Code requires that the Court d<strong>et</strong>ermine that the<br />
Plan is feasible as a condition precedent to confirmation. Specific<strong>al</strong>ly, the Court must d<strong>et</strong>ermine<br />
that:<br />
Confirmation of the plan is not likely to be followed by the liquidation, or the<br />
need for further financi<strong>al</strong> reorganization, of the debtor or any successor to the<br />
debtor under the plan, unless such liquidation or reorganization is proposed in the<br />
plan.<br />
11 U.S.C. § 1129(a)(11).<br />
The Plan is feasible within the meaning of this provision. The feasibility test s<strong>et</strong> forth in<br />
section 1129(a)(11) requires the Court to d<strong>et</strong>ermine wh<strong>et</strong>her the Plan is workable and has a<br />
reasonable likelihood of success. See Leslie Fay, 207 B.R. at 788. The Second Circuit has<br />
provided that “the feasibility standard is wh<strong>et</strong>her the plan offers a reasonable assurance of<br />
success. Success need not be guaranteed.” Kane v Johns-Manville Corp., 843 F.2d at 649.<br />
Based on the foregoing findings and conclusions of law, the Plan satisfies the feasibility standard<br />
of section 1129(a)(11).<br />
12). Section 1129(a)(12)<br />
Section 1129(a)(12) of the Bankruptcy Code requires the payment of “[a]ll fees payable<br />
under section 1930 [of title 28 of the United States Code], as d<strong>et</strong>ermined by the court at the<br />
hearing on confirmation of the plan . . . .” Section 507 of the Bankruptcy Code provides that<br />
29 Alternatively, the Court could confirm the Plan for each Debtor having an actu<strong>al</strong> impaired accepting Class of<br />
Claims and, having found that the glob<strong>al</strong> compromise is not a sub rosa plan as to the 96 Debtors lacking an impaired<br />
accepting class, approve the glob<strong>al</strong> compromise as contained in the Glob<strong>al</strong> Compromise Motion as to those 96<br />
Debtors. Further, even if the Court were to d<strong>et</strong>ermine that the glob<strong>al</strong> compromise were a sub rosa plan as to the 96<br />
Debtors (because it d<strong>et</strong>ermines the distribution scheme as to those Debtors), the Court could confirm the Plan for<br />
each of the Debtors having an actu<strong>al</strong> impaired accepting Class of Claims and approve the glob<strong>al</strong> compromise as to<br />
the 96 Debtors, limited to establishing the ass<strong>et</strong>s and liabilities of those estates.<br />
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“any fees and charges assessed against the estate under [section 1930 of] chapter 123 of title 28”<br />
are afforded priority as administrative expenses. In accordance with sections 507 and<br />
1129(a)(12) of the Bankruptcy Code, the Plan provides that <strong>al</strong>l fees payable pursuant to section<br />
1930 of title 28 of the United States Code, sh<strong>al</strong>l be paid as and when due or otherwise pursuant<br />
to an agreement b<strong>et</strong>ween the Reorganized Debtors and the U.S. Trustee until such time as a<br />
Chapter 11 Case for a Debtor sh<strong>al</strong>l be closed in accordance with the provisions of Section 42.17<br />
of the Plan. (Debtors’ Tri<strong>al</strong> Ex. 5, § 42.10). The Debtors have budg<strong>et</strong>ed for and have the<br />
necessary Cash to pay these fees and charges on the Effective Date. (Bingham Affidavit 84).<br />
Thus, the Court concludes that the Plan satisfies the requirements of section 1129(a)(12) of the<br />
Bankruptcy Code.<br />
13). Section 1129(a)(13)<br />
Section 1129(a)(13) of the Bankruptcy Code requires that a plan provide for the<br />
continuation of r<strong>et</strong>iree benefits at levels established pursuant to section 1114 of the Bankruptcy<br />
Code. In compliance with section 1129(a)(13) of the Bankruptcy Code, the Plan provides that<br />
from and after the Effective Date, the Reorganized Debtors sh<strong>al</strong>l continue to pay <strong>al</strong>l r<strong>et</strong>iree<br />
benefits (within the meaning of section 1114 of the Bankruptcy Code), if any, at the level<br />
established in accordance with subsection (e)(1)(B) or (g) of section 1114 of the Bankruptcy<br />
Code, at any time prior to the Confirmation Date and for the duration of the period during which<br />
the Debtors have obligated themselves to provide such benefits. (Debtors’ Tri<strong>al</strong> Ex. 1, Art. XLII,<br />
§ 42.11). Accordingly, the Court concludes that the Plan satisfies the requirements of section<br />
1129(a)(13) of the Bankruptcy Code.<br />
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14). Section 1129(b)<br />
Section 1129(b) of the Bankruptcy Code provides a mechanism for confirmation of a<br />
plan when the plan is not accepted by <strong>al</strong>l impaired classes of claims and equity interests, as<br />
follows:<br />
Notwithstanding section 510(a) of [the Bankruptcy Code], if <strong>al</strong>l of the applicable<br />
requirements of [section 1129(a) of the Bankruptcy Code] other than [the<br />
requirement contained in section 1129(a)(8) that a plan must be accepted by <strong>al</strong>l<br />
impaired classes] are m<strong>et</strong> with respect to a plan, the court, on request of the<br />
proponent of the plan, sh<strong>al</strong>l confirm the plan notwithstanding the requirements of<br />
such paragraph if the plan does not discriminate unfairly, and is fair and<br />
equitable, with respect to each class of claims or interests that is impaired under,<br />
and has not accepted, the plan.<br />
11 U.S.C. § 1129(b)(1) (emphasis added).<br />
Thus, in accordance with section 1129(b) of the Bankruptcy Code, the Bankruptcy Court<br />
may impose a plan over the dissenting vote of impaired classes of claims or equity interests as<br />
long as the plan (a) does not “discriminate unfairly” and (b) is “fair and equitable” with respect<br />
to the dissenting class or classes.<br />
The Plan was proposed by <strong>al</strong>l of the Debtors as a joint plan. The ENA Examiner, as an<br />
independent representative of the ENA Creditors, believes that the glob<strong>al</strong> compromise and<br />
s<strong>et</strong>tlement embodied in the Plan is a reasonable and fair resolution of these issues based upon the<br />
plausible outcomes of litigation. (Debtors’ Tri<strong>al</strong> Ex. 6-7).<br />
With respect to the assertion that the Plan diverts v<strong>al</strong>ue from ENA for the benefit of ENE,<br />
the Court rejected such position in connection with the hearing on the extension of exclusivity<br />
held on May 6, 2004. (5/6/04 Hearing Tr., passim). At such hearing, various Creditors argued<br />
that the Court should deny extension of the Debtors’ exclusive periods because the Plan was not<br />
mark<strong>et</strong> tested to <strong>al</strong>low for the filing of a comp<strong>et</strong>ing plan, which was proposed by ENE (ENA’s<br />
controlling equity holder), and ENA has not proposed its own plan. After lengthy argument on<br />
141
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wh<strong>et</strong>her exclusivity should be denied, the Court granted the Debtors’ motion to extend<br />
exclusivity, thereby overruling the creditors’ objections. (Order Extending Exclusive Period For<br />
Debtors to Solicit Acceptances of their Joint Chapter 11 Plan, dated 5/6/04 (Dock<strong>et</strong> No. 18245)).<br />
The various Creditors’ objections to the Plan in this regard have not changed. For the same<br />
reasons argued at length at the exclusivity hearing, the Plan does not violate section 1129(b) and<br />
the objections relative ther<strong>et</strong>o are overruled.<br />
(i) The Plan Does Not Discriminate Unfairly<br />
A plan unfairly discriminates in violation of section 1129(b) of the Bankruptcy Code only<br />
if similar claims are treated differently by a debtor without a reasonable basis for the disparate<br />
treatment. See 11 U.S.C. § 1129(b). Pursuant to the Plan, similar Claims receive similar<br />
treatment under the Plan. The Court <strong>al</strong>ready has concluded that the Plan does not discriminate<br />
unfairly with respect to Class 185 Enron Guaranty Claims. The Plan does not “discriminate<br />
unfairly” with respect to the impaired Classes of Equity Interests that are deemed to reject the<br />
Plan. No party has objected to the cramdown of these Classes of Equity Interests.<br />
(ii) The Plan Does Not Violate the Absolute Priority Rule<br />
Section 1129(b)(2)(c) of the Bankruptcy Code requires that a plan be “fair and equitable”<br />
to a rejecting class of interests as follows:<br />
(C) With respect to a class of interests –<br />
(i) the plan provides that each holder of an interest of such class<br />
receive or r<strong>et</strong>ain on account of such interest property of a v<strong>al</strong>ue,<br />
as of the effective date of the plan, equ<strong>al</strong> to the greatest of the<br />
<strong>al</strong>lowed amount of any fixed liquidation preference to which<br />
such holder is entitled, any fixed redemption price to which such<br />
holder is entitled, or the v<strong>al</strong>ue of such interest; or<br />
(ii) the holder of any interest that is junior to the interests of such<br />
class will not receive or r<strong>et</strong>ain under the plan on account of such<br />
junior interest any property.<br />
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See 11 U.S.C. § 1129(b)(2)(C).<br />
Section 1129(b)(2)(B)(ii) of the Bankruptcy Code provides:<br />
(2) For the purpose of this subsection, the condition that a plan be fair and<br />
equitable with respect to a class includes the following requirements:<br />
11 U.S.C. § 1129(b)(2)(B)(ii).<br />
(B) With respect to a class of unsecured claims –<br />
. . . .<br />
(ii) the holder of any claim or interest that is junior to the claims of<br />
such class will not receive or r<strong>et</strong>ain under the plan on account of<br />
such junior claim or interest any property.<br />
Distributions made pursuant to the Plan conform with the requirements of section<br />
1129(b)(2)(B)(ii) of the Bankruptcy Code because distributions are made based on an order of<br />
priority such that, absent consent, holders of Allowed Claims or Equity Interests in a given Class<br />
must be paid in full before a distribution is made to a more junior Class. The Plan’s contingent<br />
right to payment afforded to the stockholders of ENE is the embodiment of and not a violation of<br />
the absolute priority rule. The shareholders receive that which section 1129(b)(2)(B) provides<br />
that they may receive—property remaining after creditors are paid in full. The issuance of a<br />
certificate representing shareholders contingent right to payment is not itself a distribution of<br />
property of the estate and, therefore, the absolute priority scheme is not violated. Classes of<br />
Creditors will receive present v<strong>al</strong>ue distributions of their claims prior to any more junior Classes<br />
receiving distributions.<br />
Accordingly, the Plan satisfies the cramdown requirements of section 1129(b) of the<br />
Bankruptcy Code.<br />
D. The Release, Injunction and Exculpation Provisions of the Plan<br />
The Plan includes limited discharge, injunction and exculpation provisions that are<br />
necessary and appropriate in the context of these Chapter 11 Cases.<br />
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1). Discharge<br />
Section 42.3 provides for a discharge of Claims against and Equity Interests in the<br />
Debtors and Debtors in Possession. Section 1.46 of the Plan defines Claims as “any right to<br />
payment from the Debtors or from property of the Debtors or their estates . . . .” Section 1.139<br />
of the Plan defines Equity Interest as “any equity interest in any of the Debtors . . . .” Therefore,<br />
the discharge s<strong>et</strong> forth in Section 42.3 comports with section 524(e) of the Bankruptcy Code as<br />
not providing for a discharge of non-debtor claims. In addition, the Debtors have modified<br />
Section 4.3 of the Plan to del<strong>et</strong>e the reference to the “Reorganized Debtors’ subsidiaries, the<br />
Reorganized Debtor Plan Administrator, their agents and employees” from the entities against<br />
whom <strong>al</strong>l Persons and Entities are precluded from asserting Claims. (Debtors’ Tri<strong>al</strong> Ex. 5,<br />
§ 42.3).<br />
2). Injunctions<br />
Section 42.4 of the Plan enjoins Persons or Entities who have held, hold or may hold<br />
Claims (or other debt or liability discharged pursuant to the Plan) from commencing or<br />
continuing actions against the Debtors, the Debtors in Possession or the Reorganized Debtors, on<br />
any such Claim or other debt or liability or Equity Interest or other right of equity interest that is<br />
terminated or cancelled pursuant to the Plan. As Section 42.4 of the Plan is limited in scope to<br />
the Debtors, the Debtors in Possession or the Reorganized Debtors, this injunction is likewise<br />
appropriate.<br />
Sever<strong>al</strong> courts have found that government<strong>al</strong> authorities are no different from other<br />
creditors in certain situations. See In re Pacific Gas & Elec. Co., 281 B.R. 1, 27 (Bankr. N.D.<br />
C<strong>al</strong>. 2002) (finding that, “where the government acts like a creditor, it is stayed just like other<br />
creditors.”). Accordingly, section 502 of the Bankruptcy Code governs the <strong>al</strong>lowance of claims,<br />
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and no exception exists within section 502 for claims based upon the <strong>al</strong>leged police or regulatory<br />
powers of a government<strong>al</strong> unit or agency.<br />
3). Releases and Exculpations<br />
The Plan does not provide for broad third-party releases, but rather, limited exculpation<br />
for acts during these Chapter 11 Cases. The exculpation neither affects liability for prep<strong>et</strong>ition<br />
actions nor absolves parties from liability for gross negligence or willful misconduct.<br />
Bankruptcy law fosters negotiation of plan terms among constituent creditors. Numerous<br />
parties negotiated the Plan and made various compromises. Exculpation for participating in the<br />
plan process is appropriate where plan negotiation could not have occurred without protection<br />
from liability. As recognized by the Second Circuit in Drexel, where a debtor’s plan requires the<br />
s<strong>et</strong>tlement of numerous, complex issues, protection of third parties against leg<strong>al</strong> exposure may be<br />
a key component of such s<strong>et</strong>tlement. See Sec. and Exch. Comm’n v. Drexel Burnham Lambert<br />
Group, <strong>Inc</strong>. (In re Drexel Burnham Lambert Group, <strong>Inc</strong>.), 960 F.2d 285 (2d Cir. 1992).<br />
Moreover, without such exculpation, negotiation of a Plan in these Chapter 11 Cases would not<br />
have been possible – a result in contravention of the purposes of the Bankruptcy Code. Without<br />
creditor participation in plan formulation, the v<strong>al</strong>ue of these chapter 11 estates would be<br />
immeasurably depl<strong>et</strong>ed by costly and lengthy litigation, thereby injuring <strong>al</strong>l creditors. 30<br />
30 The DOL interposed an objection to confirmation of the Plan <strong>al</strong>leging that the exculpatory provisions of the Plan<br />
violate ERISA (Dock<strong>et</strong> No. 17173, 12(C), 23-31.). The DOL objection, however, fails to consider that not <strong>al</strong>l<br />
releases are precluded under ERISA. “A release is not an ‘agreement or instrument’ within the meaning of section<br />
1110(a).” Leavitt v. Northwestern Bell Telephone Co., 921 F.2d 160, 161 (8th Cir.1990). “Private s<strong>et</strong>tlements of<br />
ERISA claims do not compromise the policies underlying ERISA.” Id. at 162. This includes s<strong>et</strong>tlements containing<br />
releases. Specific<strong>al</strong>ly, “[s]ection 1110(a) prohibits agreements that diminish the statutory obligations of a fiduciary.<br />
A release, however, does not relieve a fiduciary of any responsibility, obligation, or duty imposed by ERISA;<br />
instead, it merely s<strong>et</strong>tles a dispute that the fiduciary did not fulfill its responsibility or duty on a given occasion.” Id.<br />
at 161-62.<br />
In the event of a conflict b<strong>et</strong>ween ERISA and other feder<strong>al</strong> law, ERISA is subordinated to other feder<strong>al</strong> law. PBGC<br />
v. CF&I Fabricators of Utah, <strong>Inc</strong>. (In re CF&I Fabricators of Utah, <strong>Inc</strong>.), 150 F.3d 1293, 1301 (10th Cir. 1998),<br />
cert. denied, 526 U.S. 1145 (1999) (terms of ERISA not sole measure of d<strong>et</strong>ermining v<strong>al</strong>ue of claim for terminated<br />
plan in bankruptcy). The v<strong>al</strong>idity of this argument was recognized (but not decided) by the United States District<br />
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The exculpation provisions in Section 42.7 of the Plan are reasonable and customary and<br />
in the best interests of the estates. If the claims for which individu<strong>al</strong>s are exculpated are actu<strong>al</strong>ly<br />
brought, the Debtors and their employees may be asked for discovery and tri<strong>al</strong> testimony.<br />
(6/9/04 Cooper Tr. at 90:20 – 25, 92:13 –15). To the extent any entity or individu<strong>al</strong> cannot be<br />
exculpated as provided herein, the Court enjoins <strong>al</strong>l such claims to be filed initi<strong>al</strong>ly with this<br />
Court and only with the Court. Addition<strong>al</strong>ly, the Court is not precluded from hearing actions<br />
brought by parties under ERISA. 31<br />
The Court concludes that the release, injunction and<br />
exculpation provisions in Article XLII of the Plan are reasonable and appropriate in these<br />
Chapter 11 Cases.<br />
The Court further concludes that the exculpation provision found in Section 42.7 of the<br />
Plan is substanti<strong>al</strong>ly similar to the exculpation provision found in the confirmed chapter 11 plan<br />
of In re WorldCom, <strong>Inc</strong>., Case No. 02-13533 (AJG)), as well as other complex chapter 11 cases.<br />
Contrary to certain arguments made during the Confirmation Hearing, nothing contained in the<br />
WorldCom Order Confirming the Debtors’ Modified Second Amended Joint Plan, entered by the<br />
Court on October 31, 2003 (the “WorldCom Order”) (Dock<strong>et</strong> No. 9686, order confirming the<br />
plan of reorganization in the chapter 11 cases of In re WorldCom, <strong>Inc</strong>., Case No. 02-13533<br />
(AJG)) contradicts the scope of the exculpation in section 42.7 of the Plan.<br />
Court for the Southern District of New York in PBGC v. LTV Steel Corp. (In re Chateaugay Corp.), 87 B.R. 779,<br />
801 n.5 (S.D.N.Y. 1988), rev’d on other grounds, 496 U.S. 633 (1990).<br />
31 As was stated in Browning v. Levy, 283 F.3d 761, 779 (6th Cir. 2002):<br />
[T]he exclusive jurisdiction of the district courts over certain ERISA claims does not preclude such claims<br />
from being brought in bankruptcy proceedings, because the “bankruptcy court is not a free standing court,”<br />
but rather “a ‘unit’ of the district court.” In re Frontier Airlines, <strong>Inc</strong>., 84 B.R. 724, 727 (Bankr. Colo. 1988)<br />
(holding that the bankruptcy court had jurisdiction to hear claims arising under ERISA); 28 U.S.C. § 151.<br />
Because the bankruptcy court is a unit of the district court, and therefore able to share in the district courts’<br />
exclusive jurisdiction over ERISA claims, the bankruptcy court has no less power to hear ERISA claims<br />
than it does any other non-core bankruptcy proceeding. Frontier Airlines, 84 B.R. at 727-28.<br />
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E. Other Plan Issues<br />
1). Standing<br />
Even though the Court has considered and addressed <strong>al</strong>l of the substantive leg<strong>al</strong><br />
arguments made by Vanguard, App<strong>al</strong>oosa and Angelo Gordon in connection with the Plan and<br />
the Glob<strong>al</strong> Compromise Motion, the Court makes the following ruling on their standing to<br />
address certain issues. 32<br />
Section 1128(b) of the Bankruptcy Code provides that “[a] party in interest may object to<br />
confirmation of a plan.” 11 U.S.C. § 1128(b). Section 1109(b) of the Bankruptcy Code further<br />
provides that:<br />
A party in interest, including the debtor, the trustee, a creditors’ committee, an<br />
equity security holders’ committee, a creditor, an equity security holder, or any<br />
indenture trustee, may raise and may appear and be heard on any issue in a case<br />
under this chapter.<br />
11 U.S.C. § 1109(b). Although section 1109(b) provides that a party in interest may raise and be<br />
heard on any issue in a case, a party in interest must still satisfy the gener<strong>al</strong> requirements of the<br />
standing doctrine. Southern Blvd. <strong>Inc</strong>. v. Martin Paint Stores (In re Martin Paint Stores), 207<br />
B.R. 57, 61 (Bankr. S.D.N.Y. 1997) (citing In re James Wilson Assocs., 965 F.2d 160, 169 (7th<br />
Cir. 1992)); see <strong>al</strong>so In re Tascosa P<strong>et</strong>roleum Corp., 196 B.R. 856, 863 (D. Kan. 1996)<br />
(rejecting argument that 1109(b) would <strong>al</strong>low a creditor to object to absolutely any issue under<br />
chapter 11 and concluding that section 1109(b) does not waive tradition<strong>al</strong> prudenti<strong>al</strong> limitations<br />
on standing).<br />
32 The issue of standing is a jurisdiction<strong>al</strong> predicate and, therefore, there can be no waiver of this issue. See United<br />
States v. Hays, 515 U.S. 737, 742 (1995) (“The question of standing is not subject to waiver”); Wight v.<br />
Bankamerica Corp., 219 F.3d 79, 90 (2d Cir. 2000) (“[W]e have <strong>al</strong>ready held that arguments for or against standing<br />
may not be waived”). To the extent that any party suggests that the Court should not address the issue at this stage<br />
of the case because of the Creditors’ Committees failure to raise the issue any earlier, the Court disagrees and<br />
concludes that it is appropriate to address the issue.<br />
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Standing addresses the question of “wh<strong>et</strong>her [a] litigant is entitled to have a court decide<br />
the merits of a dispute or of particular issues.” Elk Grove Unified Sch. Dist. v. Newdow, 124<br />
S.Ct. 2301, 2308, 2004 WL 1300159, at *5 (June 14, 2004) (quoting Warth v. Seldin, 422 U.S.<br />
490, 498 (1975)). “’The doctrine of standing incorporates both constitution<strong>al</strong> and prudenti<strong>al</strong><br />
limitations on feder<strong>al</strong> court jurisdiction.’” Wight, 219 F.3d at 86 (quoting Lamont v. Woods, 948<br />
F.2d 825, 829 (2d Cir. 1991)).<br />
The constitution<strong>al</strong> component of standing stems from the case or controversy requirement<br />
of Article III of the Constitution. E.g., id. Standing in the constitution<strong>al</strong> sense has three<br />
elements:<br />
(i) the plaintiff must have sustained an "injury in fact," which means that a<br />
leg<strong>al</strong>ly-protected interest must actu<strong>al</strong>ly have been invaded in a concr<strong>et</strong>e and<br />
particularized manner; (ii) the injury must be traceable to the defendant's action,<br />
i.e., there must be a caus<strong>al</strong> connection; and (iii) a ruling in favor of the plaintiff<br />
will likely redress the injury.<br />
19 Court Stre<strong>et</strong> Assocs., LLC v. Resolution Trust Corp. (In re 19 Court Stre<strong>et</strong> Assocs., LLC), 190<br />
B.R. 983, 991 (Bankr. S.D.N.Y. 1996) (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-<br />
61 (1992)).<br />
Prudenti<strong>al</strong> standing refers to judici<strong>al</strong>ly-created limitations on the exercise of jurisdiction.<br />
See Elk Grove, 2004 WL 1300159 at *5 (“prudenti<strong>al</strong> standing . . . embodies ‘judici<strong>al</strong>ly selfimposed<br />
limits on the exercise of feder<strong>al</strong> jurisdiction’”). The standing doctrine’s prudenti<strong>al</strong><br />
requirements are rules of self-restraint and are applied to further the proper role of the courts in a<br />
democratic soci<strong>et</strong>y. Wight, 219 F.3d at 86. Foremost of the prudenti<strong>al</strong> requirements is the rule<br />
that a party must assert its own leg<strong>al</strong> rights. See id.; see <strong>al</strong>so De Jesus-Keolamphu v. Village of<br />
Pelham Manor, 999 F. Supp. 556, 567 (S.D.N.Y. 1998) (“As a gener<strong>al</strong> prudenti<strong>al</strong> rule, a plaintiff<br />
may not claim standing to vindicate the constitution<strong>al</strong> or statutory rights of third parties”). Thus,<br />
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even if standing in the Article III sense has been established, a plaintiff must assert their own<br />
leg<strong>al</strong> rights and interests and a plaintiff cannot rest a claim to relief on the leg<strong>al</strong> rights of third<br />
parties. See Warth, 422 U.S. at 499; see <strong>al</strong>so Kane v. Johns-Manville Corp., 843 F.2d 636, 643<br />
(2d Cir. 1988) (“Gener<strong>al</strong>ly, litigants in feder<strong>al</strong> court are barred from asserting the constitution<strong>al</strong><br />
and statutory rights of others in an effort to obtain relief for injury to themselves”).<br />
follows:<br />
The policy justifications for the third-party standing doctrine has been articulated as<br />
Feder<strong>al</strong> courts must hesitate before resolving a controversy, even one within their<br />
constitution<strong>al</strong> powers to resolve, on the basis of the rights of third persons not<br />
parties to the litigation. The reasons are two. First, the courts should not<br />
adjudicate such rights unnecessarily, and it may be that in fact the holders of those<br />
rights either do not wish to assert them, or will be able to enjoy them regardless of<br />
wh<strong>et</strong>her the in-court litigant is successful or not . . . . Second, third parties<br />
themselves usu<strong>al</strong>ly will be the best proponents of their own rights. The courts<br />
depend on effective advocacy, and therefore should prefer to construe leg<strong>al</strong> rights<br />
only when the most effective advocates of those rights are before them.<br />
Singl<strong>et</strong>on v. Wulff, 428 U.S. 106, 113-14 (1976) as cited in De Jesus-Keolamphu, 999 F. Supp. at<br />
567. Based upon these concerns the Supreme Court has narrowly limited when a party will have<br />
standing to assert the rights of another. See De Jesus-Keolamphu, 999 F. Supp. at 567. Thirdparty<br />
standing will be recognized where: “(1) the third parties have suffered an ‘injury in fact,’<br />
(2) the plaintiff has a ‘close relation’ to the third parties such that the plaintiff will effectively<br />
represent the third parties' interests, and (3) the third parties are hindered in their ability to<br />
protect their own interests.” See id. (citing Powers v. Ohio, 499 U.S. 400, 410-11 (1991)).<br />
The Creditors’ Committee argue that Vanguard, App<strong>al</strong>oosa and Angelo Gordon do not<br />
have standing to object to <strong>al</strong>l fac<strong>et</strong>s of the Glob<strong>al</strong> Compromise Motion. 33<br />
The Committee argues<br />
33 In connection with a motion in limine and confirmation, the Court permitted the parties to supplement the record<br />
with briefs on the issue. The Debtors briefed the issue in its memorandum of law in support of the Plan and later<br />
withdrew its objection. The Committee filed a response to the submissions filed by Vanguard, App<strong>al</strong>oosa and<br />
Angelo Gordon.<br />
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that Vanguard, App<strong>al</strong>oosa and Angelo Gordon may not assert the rights of other creditors of<br />
other bankruptcy estates to object to the Glob<strong>al</strong> Compromise Motion. 34<br />
Here, prudenti<strong>al</strong> concerns argue against Vanguard, App<strong>al</strong>oosa and Angelo Gordon from<br />
asserting rights derived from other creditors of other bankruptcy estates to object to the Glob<strong>al</strong><br />
Compromise Motion. Specific<strong>al</strong>ly, at the Hearing an issue was raised wh<strong>et</strong>her the Glob<strong>al</strong><br />
Compromise Motion is a sub rosa plan as to the 96 Debtors referenced in footnote 14. It seemed<br />
apparent to the Court at the Hearing that Vanguard, App<strong>al</strong>oosa and Angelo Gordon were<br />
attempting to assert the substantive rights of creditors and parties in interest in these 96 cases in<br />
connection with this issue. In the Court’s view, it is inappropriate for Vanguard, App<strong>al</strong>oosa and<br />
Angelo Gordon (or any other party that is not a creditor or party in interest of the 96 Debtors) to<br />
assert the interests of creditors and parties in interest of these 96 Debtors where there has been no<br />
showing that Vanguard, App<strong>al</strong>oosa and Angelo Gordon: i) have a ‘close relation’ to the creditors<br />
and parties in interest of these 96 Debtors; or ii) that the creditors and parties in interest of these<br />
96 estates are hindered in their ability to protect their own interests. See De Jesus-Keolamphu,<br />
999 F. Supp. at 567. These concerns are underscored by the fact that the record indicates that<br />
each of the 96 Debtors has creditors that appear to be unsecured and that can assert their own<br />
In addition to these briefs, the Court received affidavits from Vanguard, App<strong>al</strong>oosa and Angelo Gordon disclosing<br />
Vanguard, App<strong>al</strong>oosa and Angelo Gordon’s claims against the Debtors other than claims. Based upon the affidavits,<br />
it appears that Vanguard, App<strong>al</strong>oosa and Angelo Gordon <strong>al</strong>l hold direct claims against ENE and ENA; and Angelo<br />
Gordon holds direct claims against ENA Upstream.<br />
34 It is the Court’s understanding that in light of the applicability of the Glob<strong>al</strong> Compromise Motion to <strong>al</strong>l of the<br />
Debtors, including ENE and ENA, the Creditors’ Committee later withdrew its objection to the standing of<br />
Vanguard, App<strong>al</strong>oosa and Angelo Gordon to oppose the glob<strong>al</strong> compromise as sought for <strong>al</strong>l Debtors under the Plan.<br />
Thus, to the extent that Vanguard, App<strong>al</strong>oosa and Angelo Gordon hold independent claims in any of the Debtors’<br />
estates, the Creditors’ Committee does not appear to object to Vanguard’s, App<strong>al</strong>oosa’s and Angelo Gordon’s<br />
asserting their rights. Apparently, however, the Committee did not withdraw its objection concerning wh<strong>et</strong>her<br />
Vanguard, App<strong>al</strong>oosa and Angelo Gordon have standing to pursue issues regarding approv<strong>al</strong> of the glob<strong>al</strong><br />
compromise outside of the Plan as to the 96 Debtors referenced in footnote 14. As previously noted, the Debtors<br />
withdrew the entir<strong>et</strong>y of their objection.<br />
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objections to the Glob<strong>al</strong> Compromise Motion. Accordingly, the Court concludes that Vanguard,<br />
App<strong>al</strong>oosa and Angelo Gordon may not assert the rights derived from the 96 Debtors.<br />
2). Section 1127<br />
Pursuant to section 1127 of the Bankruptcy Code, a plan proponent may modify a plan at<br />
any time before confirmation so long as the plan, as modified, satisfies the requirements of<br />
sections 1122 and 1123 of the Bankruptcy Code. In addition, Bankruptcy Rule 3019 provides, in<br />
relevant part, that:<br />
after a plan has been accepted and before its confirmation, the proponent may file<br />
a modification to the plan. If the court finds after hearing on notice to the trustee,<br />
any committee appointed under the Code, and any other entity designated by the<br />
court that the proposed modification does not adversely change the treatment of<br />
the claim of any creditor or the interest of any equity security holder who has not<br />
accepted in writing the modification, it sh<strong>al</strong>l be deemed accepted by <strong>al</strong>l creditors<br />
and equity security holders who have previously accepted the plan.<br />
FED. R. BANKR. P. 3019.<br />
None of the modifications in the Plan Modification or the documents in the Plan<br />
Supplement constitute an adverse change. The following definition of adverse change is<br />
instructive on this point: “The best test is wh<strong>et</strong>her the modification so affects any creditor or<br />
interest holder who accepted the plan that such entity, if it knew of the modification, would be<br />
likely to reconsider its acceptance.” 9 COLLIER ON BANKRUPTCY 3019.01 (15th ed. Rev. 2004);<br />
see <strong>al</strong>so In re Am. Solar King Corp., 90 B.R. 808, 826 (Bankr. W.D. Tex. 1988) (modification is<br />
not materi<strong>al</strong> if “the only adverse impact flowing from this modification is a miniscule dilution of<br />
the stock issue”); accord In re Century Glove, <strong>Inc</strong>., No. Civ. A. 90-400-SLR, Civ. A. 90-401-<br />
SLR, 1993 WL 239489, *3 (D. Del. Feb. 10, 1993) (citing Am. Solar King, 90 B.R. 808, that<br />
modifications only require further disclosure when debtor intends to solicit votes from previously<br />
dissenting creditors or when modification materi<strong>al</strong>ly and adversely impacts parties who<br />
previously voted for the plan).<br />
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Certain technic<strong>al</strong> and minor modifications were made to the Plan at the Confirmation<br />
Hearing. Such modifications will have no materi<strong>al</strong> adverse impact on the treatment of any<br />
claims and interests and thus, pursuant to Bankruptcy Rule 3019, <strong>al</strong>l acceptances to the Plan are<br />
deemed acceptances of the Plan as modified at the Confirmation Hearing. As s<strong>et</strong> forth above, the<br />
Plan complies fully with section 1122 and 1123 of the Bankruptcy Code. In addition, the<br />
Debtors have complied with section 1125 with respect to the Plan. Accordingly, the<br />
requirements of section 1127 of the Bankruptcy Code have been satisfied.<br />
3). Post-Confirmation Overhead Allocation Formula<br />
The Post-Confirmation Allocation Formula is in the best interests of the Debtors, their<br />
estates and Creditors. The Post-Confirmation Allocation Formula is conceptu<strong>al</strong>ly sound and<br />
equitably distributes corporate overhead without incurring excessive addition<strong>al</strong> expense in order<br />
to perform the <strong>al</strong>locations. Sufficient business justifications exist to merit the approv<strong>al</strong> of the<br />
Post-Confirmation Allocation Formula.<br />
4). Remaining Objections<br />
(i) Shareholder Objections<br />
The objections of Edwin and Helen Doty (Dock<strong>et</strong> No. 15229), Irwin Goldman (Dock<strong>et</strong><br />
No. 15538), J. Corey Qua (not dock<strong>et</strong>ed), Arnold Rahn (not dock<strong>et</strong>ed), and Hugo Renda (Dock<strong>et</strong><br />
No. 17465) (collectively, the “Shareholder Objections”) gener<strong>al</strong>ly <strong>al</strong>lege that the holders of ENE<br />
common stock should receive distributions under the Plan. The Bankruptcy Code requires that a<br />
holder of any interest that is junior to claims or other interests will not receive or r<strong>et</strong>ain under the<br />
plan on account of such junior interest. See 11 U.S.C. § 1129(b)(2)(B)(ii). As s<strong>et</strong> forth above,<br />
the Court finds that the Plan complies with section 1129(b)(2)(B)(ii) of the Bankruptcy Code.<br />
Accordingly, the Shareholder Objections should be overruled.<br />
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(ii) Classification Objections<br />
The objections of Vanguard (Dock<strong>et</strong> Nos. 18426, 16692 and 17244), App<strong>al</strong>oosa (Dock<strong>et</strong><br />
Nos. 16707, 17236 and 18422), CIBC (Dock<strong>et</strong> No. 17203), CRRA (Dock<strong>et</strong> No. 17225), Reliance<br />
Trust Company (“Reliance”) (Dock<strong>et</strong> No. 17221), and State Stre<strong>et</strong> Bank and Trust Company<br />
(“State Stre<strong>et</strong>”) (Dock<strong>et</strong> No. 17166) (collectively, the “Classification Objections”) gener<strong>al</strong>ly<br />
object to the classification and/or treatment of (a) guaranty claims, (b) joint liability claims, and<br />
(c) claims subject to contractu<strong>al</strong> and/or equitable subordination. The Court finds that the<br />
treatment of Guaranty Claims and Joint Liability Claims is appropriate in light of the glob<strong>al</strong><br />
compromise embodied in the Plan and such classification and treatment is in accordance<br />
therewith. Moreover, a plan proponent is given significant flexibility in classifying claims under<br />
section 1122(a) of the Bankruptcy Code if there is a reasonable basis for the classification<br />
scheme. See In re Drexel Burnham Lambert Group, <strong>Inc</strong>., 138 B.R. 723, 757 (Bankr. S.D.N.Y.<br />
1992). Furthermore, given the risk that a Guaranty Claim would not exist if there were<br />
substantive consolidation, it is appropriate to separately classify those claims and adjust the<br />
recovery on the Guaranty Claims to reflect this risk. With respect to contractu<strong>al</strong> subordination<br />
issues, the Court concludes that <strong>al</strong>l creditors within each class are receiving the same treatment.<br />
The extent to which a creditor is entitled to the benefits of subordination is a matter of intercreditor<br />
relationships, which is preserved by section 510 of the Bankruptcy Code. Section 8.1 of<br />
the Plan simply acknowledges that the contractu<strong>al</strong> subordination rights, if any, of the holders of<br />
the “Senior Indebtedness” are preserved. Claims in Classes 376 through 382 relating to<br />
Subordinated Claims sh<strong>al</strong>l be d<strong>et</strong>ermined pursuant to a Fin<strong>al</strong> Order in accordance with the<br />
provisions of the Bankruptcy Code under the principles of equitable subordination or otherwise.<br />
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(Debtors’ Tri<strong>al</strong> Ex. 1, § 1.179). The Plan provides the Court with flexibility to d<strong>et</strong>ermine the<br />
amount and extent of subordination of any claim.<br />
(iii) Best Interests/Feasibility Objections<br />
The objections of Vanguard (Dock<strong>et</strong> Nos. 18426, 16692 and 17244), American Electric<br />
Power Company, <strong>Inc</strong>., American Electric Power Service Corporation, AEP Energy Services,<br />
<strong>Inc</strong>., AEP Energy Services Ltd., AEP Desert Sky LP, LLC, and AEP Desert Sky GP, LLC<br />
(collectively, “AEP”) (Dock<strong>et</strong> No. 16701), App<strong>al</strong>oosa (Dock<strong>et</strong> Nos. 16707, 17236 and 18422),<br />
CRRA (Dock<strong>et</strong> No. 17225), Q-West Energy Company, Cohort Energy Company, Riverside<br />
Products & Services, L.L.C., Linder Oil Company, a partnership, Mayne & Mertz, <strong>Inc</strong>., Stone<br />
Energy Corporation, Unimark L.L.C. and ProGas, <strong>Inc</strong>. (collectively, “Q-West”) (Dock<strong>et</strong> No.<br />
17194), Reliance (Dock<strong>et</strong> No. 17221), The State of Oregon, through its Department of Justice<br />
(Dock<strong>et</strong> No. 17175), and Toronto Dominion (Texas), <strong>Inc</strong>. (“Toronto Dominion”) (Dock<strong>et</strong> No.<br />
16700) (collectively, the “Best Interests Objections”) gener<strong>al</strong>ly <strong>al</strong>lege that the Plan does not<br />
satisfy the bests interests of creditors test or is not feasible under sections 1125, 1129(a)(2),<br />
1129(a)(7), and 1129(a)(11) of the Bankruptcy Code because (a) the Liquidation An<strong>al</strong>ysis is<br />
insufficient and/or speculative, (b) a separate liquidation an<strong>al</strong>ysis is required for each Debtor, (c)<br />
the glob<strong>al</strong> compromise embodied in the Plan is not in the best interests of creditors, (d) the<br />
Effective Date is not certain, and (e) creditors would receive more under chapter 7. Based on the<br />
findings and conclusions s<strong>et</strong> forth above, the Court concludes that the Best Interests Objections<br />
should be overruled.<br />
(iv) Cramdown Objections<br />
The objections of Vanguard (Dock<strong>et</strong> Nos. 18426, 16692 and 17244), AEP (Dock<strong>et</strong> No.<br />
16701), App<strong>al</strong>oosa (Dock<strong>et</strong> Nos. 16707, 17236 and 18422), Q-West (Dock<strong>et</strong> No. 17194), PBGC<br />
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(Dock<strong>et</strong> Nos. 16693 and 17248), Reliance (Dock<strong>et</strong> No. 17221), and Upstream Energy Services,<br />
as Agent for Certain Texas Gas Producers (“Upstream”) (Dock<strong>et</strong> No. 17157) (collectively, the<br />
“Cramdown Objections”) gener<strong>al</strong>ly <strong>al</strong>lege that the Plan does not satisfy sections 1129(a)(10)<br />
and/or 1129(b) of the Bankruptcy Code. As s<strong>et</strong> forth above, the Court concludes that the Plan<br />
satisfies the requirements of sections 1129(a)(10) and 1129(b) of the Bankruptcy Code, and the<br />
Cramdown Objections should be overruled.<br />
(v) Glob<strong>al</strong> Compromise Objections<br />
The objections of Vanguard (Dock<strong>et</strong> Nos. 18426, 16692 and 17244), AEP (Dock<strong>et</strong> No.<br />
16701), App<strong>al</strong>oosa (Dock<strong>et</strong> Nos. 16707, 17236 and 18422), CRRA (Dock<strong>et</strong> No. 17225), Q-West<br />
(Dock<strong>et</strong> No. 17194), Reliance (Dock<strong>et</strong> No. 17221), and Toronto Dominion (Dock<strong>et</strong> No. 16700)<br />
(collectively, the “Glob<strong>al</strong> Compromise Objections”) gener<strong>al</strong>ly <strong>al</strong>lege that the parti<strong>al</strong> substantive<br />
consolidation, including the inter-Debtor waivers and the establishment of the Litigation Trust,<br />
embodied in the Plan (a) is not fair, reasonable or equitable, (b) was not subject to higher and<br />
b<strong>et</strong>ter offers, and (c) constitutes a sub rosa plan. For the reasons s<strong>et</strong> forth above, the Court<br />
concludes that (a) the compromises, s<strong>et</strong>tlements and waivers contained in the glob<strong>al</strong> compromise<br />
are fair and equitable and f<strong>al</strong>l well within the reasonable range of litigation outcomes, (b) sound<br />
business justifications exist for the Debtors to enter into the glob<strong>al</strong> compromise, (c) the glob<strong>al</strong><br />
compromise is not a sub rosa plan, and (d) even if the glob<strong>al</strong> compromise were found to be a sub<br />
rosa plan as to the 96 Debtors referenced in footnote 14, non<strong>et</strong>heless, the glob<strong>al</strong> compromise<br />
could be approved, limited to establishing the ass<strong>et</strong>s and liabilities of those estates. Accordingly,<br />
the Glob<strong>al</strong> Compromise Objections should be overruled.<br />
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(vi) Discharge, Release, Injunction and Exculpation Objections<br />
The objections of Vanguard (Dock<strong>et</strong> Nos. 18426, 16692 and 17244), Ash Grove Cement<br />
Company, <strong>Inc</strong>. (“Ash Grove”) (Dock<strong>et</strong> No. 17274), Grupo IMSA, S.A. de C.V. (“Grupo IMSA”)<br />
(Dock<strong>et</strong> No. 17280), PBGC (Dock<strong>et</strong> Nos. 16693 and 17248), Reliance (Dock<strong>et</strong> No. 17221),<br />
State Stre<strong>et</strong> (Dock<strong>et</strong> No. 17166), Toronto Dominion (Dock<strong>et</strong> No. 16700), Upstream (Dock<strong>et</strong> No.<br />
17157), and the United States Department of Labor (“DOL”) (Dock<strong>et</strong> No. 17173) (collectively,<br />
the “Discharge Objections”) gener<strong>al</strong>ly <strong>al</strong>lege that: (a) the Debtors are not entitled to a discharge<br />
under section 1141(d)(3) of the Bankruptcy Code; (b) Section 42.4 of the Plan may limit the<br />
rights of creditors to assert claims, counterclaims and defenses in certain adversary proceedings;<br />
(c) the release, injunction and exculpation provisions are too broad; and (d) the exculpatory<br />
provisions of the Plan violate ERISA. As s<strong>et</strong> forth above, the Court concludes that (a) the<br />
Debtors’ supervised divestiture of ass<strong>et</strong>s over an ind<strong>et</strong>erminate period of time entitle them to a<br />
discharge under section 1141 of the Bankruptcy Code and (b) the release and exculpation<br />
provisions contained in the Plan are in the best interests of the Debtors’ estates and do not violate<br />
applicable bankruptcy and nonbankruptcy law, including ERISA. Furthermore, as stated on the<br />
record at the Confirmation Hearing, nothing s<strong>et</strong> forth in Section 42.4 of the Plan limits the ability<br />
of a Person or Entity that is a plaintiff or defendant in an adversary proceeding or an action<br />
outside the Court from asserting defenses, counterclaims or cross-claims, including against the<br />
Debtors, the Debtors in Possession or the Reorganized Debtors, subject to any limitations<br />
imposed under applicable law upon the assertion of such defenses, counterclaims, or crossclaims.<br />
Accordingly, the Discharge Objections should be overruled.<br />
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(vii) Claims Estimation Objections<br />
The objections of App<strong>al</strong>oosa (Dock<strong>et</strong> Nos. 16707, 17236 and 18422), CRRA (Dock<strong>et</strong> No.<br />
17225), Reliance Trust Company (Dock<strong>et</strong> No. 17221), and Upstream (Dock<strong>et</strong> No. 17157)<br />
(collectively, the “Claims Estimation Objections”) gener<strong>al</strong>ly <strong>al</strong>lege (a) the claims estimation<br />
procedures previously approved by the Court should not apply to claims subject to pending<br />
adversary proceedings and (b) Section 21.2 of the Plan improperly eliminates a claimant’s right<br />
to seek reconsideration under section 502(j) of the Bankruptcy Code. Section 21.2 of the Plan<br />
provides for the estimation of Claims, unless otherwise limited by an order of the Court. As<br />
provided in the Order Pursuant to Sections 105(a), 363(b) and 402(c) of the Bankruptcy Code<br />
and Feder<strong>al</strong> Rules of Bankruptcy Procedure 3007, 7042, 9013, 9014 and 9019, (1) Establishing<br />
Procedures to Estimate Unliquidated and Contingent Claims, (2) Establishing Procedures to<br />
Adjudicate Counterclaims, (3) Establishing Procedures to Compromise Claims and<br />
Counterclaims, and (4) Fixing Notice Procedures and Approving Form and Manner of Notice,<br />
entered February 18, 2004 (Dock<strong>et</strong> No. 16353), the holder of a fully liquidated claim may elect<br />
to exclude such claim from the estimation procedures. Furthermore, the Debtors have modified<br />
Section 21.2 of the Plan to clarify that such provision does not impair a claimant’s rights to seek<br />
reconsideration under section 502(j) of the Bankruptcy Code. Thus, Section 21.2 of the Plan<br />
does not (a) compel estimation of liquidated, disputed claims or (b) extinguish a claimant’s right<br />
to seek reconsideration. Accordingly, the Claims Estimations Objections should be overruled.<br />
(viii) Jurisdiction Objections<br />
The objections of Ash Grove (Dock<strong>et</strong> No. 17274), Grupo IMSA (Dock<strong>et</strong> No. 17280) and<br />
PBGC (Dock<strong>et</strong> Nos. 16693 and 17248) (collectively, the “Jurisdiction Objections”) gener<strong>al</strong>ly<br />
<strong>al</strong>lege that the r<strong>et</strong>ention of jurisdiction by the Court is overly broad. Section 38.1 of the Plan<br />
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provides for the Court’s r<strong>et</strong>ention of appropriate jurisdiction, and the Plan does not attempt to<br />
wrest jurisdiction from other courts or administrative bodies with appropriate jurisdiction or vest<br />
jurisdiction in the Court outside of the Court’s properly r<strong>et</strong>ained jurisdiction. Accordingly, the<br />
Court concludes that such r<strong>et</strong>ention of jurisdiction is proper, see In re Friedberg, 192 B.R. 338,<br />
341 (Bankr. S.D.N.Y. 1996) and In re Johns-Manville Corp., 97 B.R. 174, 180 (Bankr. S.D.N.Y.<br />
1989), and the Jurisdiction Objections should be overruled.<br />
(ix) Distribution Issues<br />
The People of the State of C<strong>al</strong>ifornia, ex rel. Bill Lockyer, Attorney Gener<strong>al</strong> (Dock<strong>et</strong> No.<br />
16676) <strong>al</strong>lege that interim distributions should require Court approv<strong>al</strong>. The Court concludes that<br />
this objection should be overruled because creditors are adequately protected by the provisions<br />
of the Plan and the order confirming the Plan. Specific<strong>al</strong>ly, (a) Section 32 of the Plan governs<br />
the time and manner of distributions under the Plan; (b) Section 21.2 of the Plan provides<br />
protection to <strong>al</strong>l claimants in that, the Debtors may request the estimation for fin<strong>al</strong> distribution<br />
purposes of any contingent, unliquidated or Disputed Claim subject to notice and a hearing; (c)<br />
Section 21.3 of the Plan provides that the Disbursing Agent sh<strong>al</strong>l make adequate reserves for<br />
Disputed Claims, and (d) the Confirmation Order will establish (i) a deadline or bar date for<br />
creditors and parties in interest to assert Administrative Expense Claims against the Debtors, and<br />
(ii) the procedures for filing, resolving and reserving for such Administrative Expense Claims.<br />
Therefore, the Plan protects creditors’ rights with respect to Court approv<strong>al</strong> of distributions under<br />
the Plan.<br />
Longacre Master Fund, Ltd. (Dock<strong>et</strong> Nos. 17226 and 17812), joined by SPCP Group,<br />
LLC (Dock<strong>et</strong> No. 19117), asserts that record dates should be established 30 days before any<br />
distributions under the Plan to <strong>al</strong>low for the accurate reflection of holders of Allowed Claims<br />
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throughout the post-confirmation period. Longacre <strong>al</strong>so requests that language be added to the<br />
Plan regarding: (a) single checks to holders of multiple claims; and (b) utilizing addresses on<br />
notices of transfer. The Court concludes that these objections should be overruled because (i)<br />
Section 1.218 of the Plan provides that the Record Date will be established by the Court in the<br />
Confirmation Order for the purpose of d<strong>et</strong>ermining the holders of Allowed Claims and Allowed<br />
Equity Interests entitled to receive distributions pursuant to the Plan; and (ii) the Bankruptcy<br />
Code does not require the Debtors to fashion “floating record dates” to aid claims traders in the<br />
secondary claims mark<strong>et</strong>.<br />
(x) Guaranty S<strong>et</strong>tlement Objection<br />
Grupo IMSA (Dock<strong>et</strong> No. 17280) <strong>al</strong>leges that Section 28.2 of the Plan unfairly forces a<br />
premature election to s<strong>et</strong>tle Guaranty Claims without the benefit of discovery and adjudication<br />
on the merits. Section 28.2 of the Plan does not force any party to s<strong>et</strong>tle. Rather, Section 28.2<br />
provides for a s<strong>et</strong>tlement election to be made on the B<strong>al</strong>lot. This provision does not force a<br />
litigant to make an election; if a litigant needs addition<strong>al</strong> time for discovery, such litigant can<br />
choose not to exercise the election provided for in Section 28.2 of the Plan. Moreover, if the<br />
Debtors provided for the benefits of discovery and adjudication as well as for the benefit of the<br />
election provided for in Section 28.2 of the Plan, such discovery and adjudication would defeat<br />
the purpose of the s<strong>et</strong>tlement election in Section 28.2 of the Plan. Providing a mechanism for<br />
s<strong>et</strong>tlement is consistent with the Bankruptcy Code. See 11 U.S.C. § 1123(b)(3)(A).<br />
Accordingly, the objection should be overruled.<br />
(xi) Section 365 Objection<br />
Reliance (Dock<strong>et</strong> No. 17221) objects to the Plan to the extent the Plan’s treatment of its<br />
agreement with the Debtors is inconsistent with section 365 of the Bankruptcy Code. The Plan<br />
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provides for the assumption, assumption and assignment, or rejection of executory contracts and<br />
unexpired leases that have not been previously assumed or rejected under section 365 of the<br />
Bankruptcy Code, as contemplated by section 1123(b)(2) of the Bankruptcy Code. (Debtors’<br />
Tri<strong>al</strong> Ex. 1, Art. XXXIV). The Court concludes that the Plan complies with section 365 of the<br />
Bankruptcy Code, and the objection of Reliance Trust Company should be overruled.<br />
(xii) Administrative Expense Claim Objection<br />
The objection of Grupo IMSA (Dock<strong>et</strong> No. 17280) <strong>al</strong>leges that the Plan fails to<br />
adequately address Administrative Claims, to the extent that the treatment of Administrative<br />
Claims is not adequately addressed either in the Plan or in an order confirming such Plan, in<br />
violation of section 1129(a)(9). The Court concludes that the objection of Grupo IMSA should<br />
be overruled based on the fact that the Plan satisfies the requirements of section 1129(a)(9).<br />
(xiii) Document R<strong>et</strong>ention Objection<br />
The objections of Ash Grove (Dock<strong>et</strong> No. 17274) and Toronto Dominion (Dock<strong>et</strong> No.<br />
16700) (the “Document R<strong>et</strong>ention Objections”) assert that Section 42.12 of the Plan would<br />
permit the Debtors to improperly destroy Documents in their possession upon the first<br />
anniversary of the Confirmation Date, which documents may be both discoverable and integr<strong>al</strong><br />
to pending litigation. The Court concludes that the Document R<strong>et</strong>ention Objections should be<br />
overruled based on the modifications to Section 42.12 of the Plan.<br />
(xiv) NewPower Investigation Objection<br />
The objection of the NewPower Examiner asserts that the Plan, to the extent that the<br />
Debtors seek to impair, <strong>al</strong>ter or otherwise prejudice the NewPower Examiner’s investigation in<br />
the NewPower Cases, (a) does not comply with section 1104 of the Bankruptcy Code, (b)<br />
interferes improperly with the effectuation of the NewPower Examiner’s orders, and (c) is not<br />
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proposed in good faith in violation of section 1129(a)(3) of the Bankruptcy Code. The Court<br />
concludes that the objection of the NewPower Examiner should be overruled because (a) the<br />
NewPower Examiner was appointed in the NewPower Cases, not the Debtors’ Chapter 11 Cases,<br />
and the confirmation of the Plan does not affect such appointment, (b) res judicata and collater<strong>al</strong><br />
estoppel appear to preclude the NewPower Examiner from pursuing a re-characterization of the<br />
s<strong>et</strong>tlement payment, and (c) the claim objection process, and not confirmation of the Plan, is the<br />
appropriate platform for the d<strong>et</strong>ermination of this dispute.<br />
(xv) Plan Governance Objections<br />
The objection of Upstream (Dock<strong>et</strong> No. 17157) suggests that, as a condition of<br />
confirmation, the Court should require a separate fiduciary be inst<strong>al</strong>led to provide post<br />
confirmation plan governance for the ENA Plan and the ENA Creditors. The Court concludes<br />
that the objection of Upstream Energy Services (Dock<strong>et</strong> No. 17157) should be overruled<br />
because, as s<strong>et</strong> forth above, the post confirmation governance provisions s<strong>et</strong> forth in the Plan<br />
(including the ability of Creditors of ENA or its direct or indirect subsidiaries to file a motion<br />
seeking to extend the ENA Examiner’s duties post-Effective Date) are appropriate and sufficient<br />
to protect the interests of <strong>al</strong>l creditors.<br />
(xvi) Good Faith Objections<br />
The objections of Vanguard (Dock<strong>et</strong> Nos. 18426, 16692 and 17244), App<strong>al</strong>oosa (Dock<strong>et</strong> Nos.<br />
16707, 17236 and 18422), Grupo IMSA (Dock<strong>et</strong> No. 17280), and Q-West Energy (Dock<strong>et</strong> No.<br />
17194) (collectively, the “Good Faith Objections”) gener<strong>al</strong>ly <strong>al</strong>lege that the Plan was not<br />
proposed in good faith for the following reasons: (a) the Debtors failed to solicit higher and<br />
b<strong>et</strong>ter liquidation transactions (addressed above as “Glob<strong>al</strong> Compromise Objections”); (b) the<br />
Debtors attempt to limit the affirmative defenses of s<strong>et</strong>off and recoupment (addressed above as<br />
161
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“Discharge Objections”); (c) the Debtors have gerrymandered the classes of claims in the Plan<br />
by separately classifying Enron Gener<strong>al</strong> Unsecured Claims and Enron Guaranty Claims<br />
(addressed above as “Classification Objections”); (d) the Plan fails to maximize the distributions<br />
to ENA’s creditors because its distribution scheme, proposed under the guise of a glob<strong>al</strong><br />
compromise, diverts substanti<strong>al</strong> v<strong>al</strong>ue away from ENA to or for the benefit of ENA’s sole<br />
shareholder, ENE, under circumstances where ENE is entitled to no distribution from ENA’s<br />
insolvent estate, and to the d<strong>et</strong>riment of ENA’s creditors (addressed above as “Glob<strong>al</strong><br />
Compromise Objections”); and (e) the Debtors have failed to establish a good faith process for<br />
resolving the claims of Grupo IMSA and other similarly situated creditors (addressed above as<br />
“Claims Estimation Objections”). As previously addressed herein, each of the Good Faith<br />
Objections should be overruled.<br />
(xvii) Addition<strong>al</strong> Objections<br />
To the extent not withdrawn, resolved or otherwise specific<strong>al</strong>ly addressed above, for the<br />
reasons stated herein, the Plan complies with <strong>al</strong>l applicable provisions of the Bankruptcy Code,<br />
and the Court concludes that the remaining objections should be overruled in their entir<strong>et</strong>y.<br />
Each of the objections to the April 27 Plan, July 2 Plan or the Plan not her<strong>et</strong>ofore<br />
withdrawn or resolved by written or or<strong>al</strong> agreement stated and made a part of the record of the<br />
Confirmation Hearing, is overruled and denied.<br />
IV. SUMMARY<br />
The Plan me<strong>et</strong>s <strong>al</strong>l the requirements of chapter 11 and should be confirmed, and the<br />
Glob<strong>al</strong> Compromise Motion, to the extent necessary (and subject to the condition that should<br />
confirmation of the Plan be reversed on appe<strong>al</strong>, approv<strong>al</strong> of the Glob<strong>al</strong> Compromise Motion sh<strong>al</strong>l<br />
162
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not remain in effect), and the Overhead Allocation Motion satisfy <strong>al</strong>l leg<strong>al</strong> standards, are in the<br />
best interest of the Debtors’ estates, and should be approved.<br />
An appropriate Order will be entered.<br />
Dated: New York, New York<br />
July 15, 2004<br />
s/ Arthur J. Gonz<strong>al</strong>ez<br />
UNITED STATES BANKRUPTCY JUDGE<br />
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Exhibit B-2<br />
In re Tower Auto., <strong>Inc</strong>., No. 05-10578 (ALG) (Bankr. S.D.N.Y. July 12, 2007) [Dock<strong>et</strong><br />
No. 2932]
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UNITED STATES BANKRUPTCY COURT<br />
SOUTHERN DISTRICT OF NEW YORK<br />
)<br />
) Chapter 11<br />
In re )<br />
) Case No. 05-10578 (ALG)<br />
TOWER AUTOMOTIVE, INC., <strong>et</strong> <strong>al</strong>., 1 ) Jointly Administered<br />
)<br />
FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER PURSUANT<br />
TO 11 U.S.C. §§ 1129(A) AND (B) AND FED. R. BANKR. P. 3020 CONFIRMING<br />
FIRST AMENDED JOINT PLAN OF TOWER AUTOMOTIVE, INC.<br />
AND ITS DEBTOR SUBSIDIARIES UNDER CHAPTER 11 OF THE<br />
BANKRUPTCY CODE WITH TECHNICAL MODIFICATIONS<br />
Tower Automotive, <strong>Inc</strong>. and certain of its direct and indirect subsidiaries, as debtors and<br />
debtors in possession (collectively, the “Debtors” or “Tower”) having:<br />
• commenced on February 2, 2005 (the “P<strong>et</strong>ition Date”) chapter 11 cases by filing<br />
voluntary p<strong>et</strong>itions for relief under chapter 11 of title 11 of the United States Code (the<br />
“Bankruptcy Code”) (collectively, the “Chapter 11 Cases”);<br />
• continued to operate their businesses and manage their property as debtors in possession<br />
pursuant to sections 1107(a) and 1108 of the Bankruptcy Code; 2<br />
• filed on May 23, 2007, the Motion of the Debtors for an Order: (A) Approving the Ass<strong>et</strong><br />
Purchase Agreement by and b<strong>et</strong>ween the Debtors and the Purchaser, or such other<br />
Purchase Agreement(s) B<strong>et</strong>ween the Debtors and the Successful Bidder at the Auction;<br />
(B) Authorizing the S<strong>al</strong>e of All or Substanti<strong>al</strong>ly All of the Ass<strong>et</strong>s of the Debtors Free and<br />
Clear of All Claims and Interests; and (C) Authorizing the Assumption and Assignment<br />
of Certain Executory Contracts and Unexpired Leases in Connection Therewith (the<br />
“S<strong>al</strong>e Motion”) (Dock<strong>et</strong> No. 2640) and filed on July 9, 2007, an affidavit by Eric<br />
Mendelsohn of Lazard Frères & Co. LLC in support of the S<strong>al</strong>e Motion (the<br />
“Mendelsohn Affidavit”) (Dock<strong>et</strong> No. 2893);<br />
1 The Debtors are the following entities: Tower Automotive, <strong>Inc</strong>.; Algoods, USA, <strong>Inc</strong>.; R.J. Tower Corporation;<br />
Tower Automotive Bardstown, <strong>Inc</strong>.; Tower Automotive Bowling Green, LLC; Tower Automotive Chicago,<br />
LLC; Tower Automotive Finance, <strong>Inc</strong>.; Tower Automotive Granite City, LLC; Tower Automotive Granite City<br />
Services, LLC; Tower Automotive Internation<strong>al</strong>, <strong>Inc</strong>.; Tower Automotive Internation<strong>al</strong> Holdings, <strong>Inc</strong>.; Tower<br />
Automotive Internation<strong>al</strong> Yorozu Holdings, <strong>Inc</strong>.; Tower Automotive Lansing, LLC; Tower Automotive<br />
Madison, LLC; Tower Automotive Michigan, LLC; Tower Automotive Milwaukee, LLC; Tower Automotive<br />
Plymouth, <strong>Inc</strong>.; Tower Automotive Products Company, <strong>Inc</strong>.; Tower Automotive Receivables Company, <strong>Inc</strong>.;<br />
Tower Automotive Services and Technology, LLC; Tower Automotive, s.r.o.; Tower Automotive Technology,<br />
<strong>Inc</strong>.; Tower Automotive Technology Products, <strong>Inc</strong>.; Tower Automotive Tool, LLC; Tower Services, <strong>Inc</strong>.; and<br />
Trylon Corporation.<br />
2 Unless otherwise noted, capit<strong>al</strong>ized terms not defined in these Findings of Fact, Conclusions of Law and<br />
Confirmation Order (this “Confirmation Order”), sh<strong>al</strong>l have the meanings ascribed to them in the Plan. The<br />
rules of interpr<strong>et</strong>ation s<strong>et</strong> forth in Article I of the Plan sh<strong>al</strong>l apply to this Confirmation Order.<br />
K&E 11771836.17
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• filed on May 23, 2007, the Debtors’ Motion for an Order Approving Cure and Notice<br />
Procedures for the Assumption and Assignment of Certain Executory Contracts and<br />
Unexpired Leases (the “Cure Procedures Motion”) (Dock<strong>et</strong> No. 2638);<br />
• filed on June 6, 2007, the First Amended Joint Plan of Tower Automotive, <strong>Inc</strong>. and its<br />
Debtor Subsidiaries Under Chapter 11 of the Bankruptcy Code which the Debtors re-filed<br />
on July 9, 2007 so as to incorporate certain technic<strong>al</strong> modifications as the First Amended<br />
Joint Plan of Tower Automotive, <strong>Inc</strong>. and its Debtor Subsidiaries Under Chapter 11 of the<br />
Bankruptcy Code with Technic<strong>al</strong> Modifications (Dock<strong>et</strong> No. 2879) attached her<strong>et</strong>o as<br />
Exhibit A (as modified and amended, and as modified hereby, the “Plan”);<br />
• filed on June 6, 2007, the Amended Disclosure Statement for the First Amended Joint<br />
Plan of Tower Automotive, <strong>Inc</strong>. and its Debtor Subsidiaries Under Chapter 11 of the<br />
Bankruptcy Code (as the same may have been subsequently modified and amended, the<br />
“Disclosure Statement”) (Dock<strong>et</strong> No. 2712);<br />
• distributed solicitation materi<strong>al</strong>s beginning on or about June 8, 2007, consistent with the<br />
Bankruptcy Code, the Feder<strong>al</strong> Rules of Bankruptcy Procedure (the “Bankruptcy Rules”)<br />
and the Disclosure Statement Order, as evidenced by the Affidavit of Service of Bridg<strong>et</strong><br />
G<strong>al</strong>lerie of Bankruptcy Services LLC (“BSI”), the Debtors’ claims and b<strong>al</strong>loting agent<br />
(the “Voting Agent”), (Dock<strong>et</strong> No. 2803) (the “BSI Affidavit”) and the Affidavit of<br />
Service of Financi<strong>al</strong> B<strong>al</strong>loting Group LLC (“FBG”) of Solicitation Packages and Non-<br />
Voting Notices on Holders of Public Securities (Dock<strong>et</strong> No. 2878) (the “FBG<br />
Affidavit”);<br />
• filed on June 15, 2007, the Motion of the Debtors for Entry of An Order Approving<br />
Amended Agreements with the Milwaukee Unions, the Offici<strong>al</strong> Committee of R<strong>et</strong>ired<br />
Employees, the UAW and the IUE-CWA (the “R<strong>et</strong>iree S<strong>et</strong>tlement Amendment Motion”)<br />
(Dock<strong>et</strong> No. 2766);<br />
• published notice of the Confirmation Hearing (as defined below) (the “Confirmation<br />
Hearing Notice”) in the USA Today, The New York Times, the D<strong>et</strong>roit Free Press/ D<strong>et</strong>roit<br />
News, Automotive News, and the nation<strong>al</strong> edition of The W<strong>al</strong>l Stre<strong>et</strong> Journ<strong>al</strong>, consistent<br />
with the Disclosure Statement Order, as evidenced by the Affidavit of Publication in The<br />
New York Times of Alice Weber of The New York Times, Affidavit of Publication in<br />
The W<strong>al</strong>l Stre<strong>et</strong> Journ<strong>al</strong> of Glenn Hellums, Jr. of The W<strong>al</strong>l Stre<strong>et</strong> Journ<strong>al</strong>, Affidavit of<br />
Publication in USA Today Domestic of Karri Dvir of USA Today, Affidavit of<br />
Publication in the D<strong>et</strong>roit News and Free Press of Jay H. Heyman of Porte Advertising,<br />
<strong>Inc</strong>. and Affidavit of Publication of Automotive News (Dock<strong>et</strong> Nos. 2874, 2875, 2876,<br />
2877, 2885) (collectively, the “Publication Affidavits”);<br />
• filed on July 2, 2007, the various documents comprising the Plan Supplement (the “Plan<br />
Supplement”) (Dock<strong>et</strong> No. 2834);<br />
• filed on July 9, 2007, the Memorandum of Law in Support of Confirmation of the First<br />
Amended Joint Plan of Tower Automotive, <strong>Inc</strong>. and its Debtor Subsidiaries Under<br />
Chapter 11 of the Bankruptcy Code with Technic<strong>al</strong> Modifications (the “Plan<br />
Confirmation Brief”) (Dock<strong>et</strong> No. 2886), tog<strong>et</strong>her with the Affidavit of James M<strong>al</strong>lak in<br />
Support of Confirmation of the First Amended Joint Plan of Tower Automotive, <strong>Inc</strong>. and<br />
its Debtor Subsidiaries Under Chapter 11 of the Bankruptcy Code with Technic<strong>al</strong><br />
Modifications (the “M<strong>al</strong>lak Affidavit”), Affidavit of Michael J. T<strong>al</strong>arico in Support of<br />
Confirmation of the First Amended Joint Plan of Tower Automotive, <strong>Inc</strong>. and its Debtor<br />
Subsidiaries under Chapter 11 with Technic<strong>al</strong> Modifications (the “T<strong>al</strong>arico Affidavit”)<br />
and the Affidavit of Barbara Horvath in Support of Substantive Consolidation of the<br />
Substantively Consolidated Debtors and the Internation<strong>al</strong> Holding Company Debtors (the<br />
“Horvath Affidavit”), as exhibits ther<strong>et</strong>o in support of the Plan Confirmation Brief; and<br />
K&E 11771836.17<br />
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• filed on July 10, 2007, a report d<strong>et</strong>ailing the results of the Plan voting process (the<br />
“Voting Report”) (Dock<strong>et</strong> No. 2896).<br />
This Court having:<br />
• entered an order approving the Cure Procedures Motion on June 5, 2007 (the “Cure<br />
Procedures Order”) (Dock<strong>et</strong> No. 2717);<br />
• entered an order on June 5, 2007 which approved the Disclosure Statement as containing<br />
“adequate information” in accordance with section 1125 of the Bankruptcy Code and<br />
established certain solicitation, noticing and other related procedures (the “Disclosure<br />
Statement Order”) (Dock<strong>et</strong> No. 2712);<br />
• s<strong>et</strong> July 11, 2007, at 11:00 a.m., prevailing Eastern Time, as the date and time of a<br />
hearing pursuant to Bankruptcy Rules 3017 and 3018 and sections 1126, 1128 and 1129<br />
of the Bankruptcy Code to consider Confirmation of the Plan (the “Confirmation<br />
Hearing”);<br />
• entered an order approving the R<strong>et</strong>iree S<strong>et</strong>tlement Amendment Motion on June 29, 2007<br />
(the “R<strong>et</strong>iree S<strong>et</strong>tlement Order”) (Dock<strong>et</strong> No. 2815);<br />
• entered an order approving the S<strong>al</strong>e Motion on July 12, 2007 (the “S<strong>al</strong>e Order”);<br />
• reviewed the Plan, Disclosure Statement, the Plan Confirmation Brief, the M<strong>al</strong>lak<br />
Affidavit, the T<strong>al</strong>arico Affidavit, the Horvath Affidavit, the S<strong>al</strong>e Motion, the Mendelsohn<br />
Affidavit, the Voting Report and <strong>al</strong>l filed pleadings, exhibits, statements and comments<br />
regarding Confirmation (collectively, the “Confirmation Papers”);<br />
• heard the statements of counsel in respect of Confirmation;<br />
• considered <strong>al</strong>l or<strong>al</strong> representations, testimony, documents, filings and other evidence<br />
regarding Confirmation; and<br />
• taken judici<strong>al</strong> notice of the papers and pleadings on file in the Chapter 11 Cases.<br />
NOW, THEREFORE, it appearing to this Court that (i) notice of the Confirmation<br />
Hearing was adequate and appropriate as to <strong>al</strong>l parties to be affected by the Plan and the<br />
transactions contemplated thereby, and (ii) the leg<strong>al</strong> and factu<strong>al</strong> bases s<strong>et</strong> forth in the<br />
Confirmation Papers and presented at the Confirmation Hearing establish just cause for the relief<br />
granted here; and after due deliberation thereon and good cause appearing therefore, the Court<br />
hereby makes and issues the following Findings of Fact, Conclusions of Law and Orders: 3<br />
3 This Confirmation Order constitutes the Court’s findings of fact and conclusions of law under Fed. R. Civ. P.<br />
52, as made applicable by Bankruptcy Rules 7052 and 9014. Any and <strong>al</strong>l findings of fact sh<strong>al</strong>l constitute<br />
findings of fact even if they are stated as conclusions of law, and any and <strong>al</strong>l conclusions of law sh<strong>al</strong>l constitute<br />
conclusions of law even if they are stated as findings of fact.<br />
K&E 11771836.17<br />
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I. FINDINGS OF FACT AND CONCLUSIONS OF LAW<br />
IT IS HEREBY FOUND AND DETERMINED THAT:<br />
Jurisdiction and Venue<br />
a) On the P<strong>et</strong>ition Date, the Debtors commenced these Chapter 11 Cases. Venue in the<br />
Southern District of New York was proper as of the P<strong>et</strong>ition Date and continues to be proper as<br />
of the date hereof. Confirmation of the Plan is a core proceeding under 28 U.S.C. § 157(b)(2).<br />
The Court has subject matter jurisdiction over this matter pursuant to 28 U.S.C. § 1334; and the<br />
Court has exclusive jurisdiction to d<strong>et</strong>ermine wh<strong>et</strong>her the Plan complies with the applicable<br />
provisions of the Bankruptcy Code and should be confirmed.<br />
Eligibility (11 U.S.C. § 109)<br />
b) The Debtors were and are entities eligible for relief under section 109 of the Bankruptcy<br />
Code.<br />
Modifications to the Plan<br />
c) All modifications to the Plan since the entry of the Disclosure Statement Order are<br />
consistent with <strong>al</strong>l of the provisions of the Bankruptcy Code, including, but not limited to,<br />
sections 1122, 1123, 1125 and 1127 of the Bankruptcy Code. The modifications to the Plan are<br />
hereby approved, pursuant to section 1127 of the Bankruptcy Code and Bankruptcy Rule 3019.<br />
Disclosure Statement Order<br />
d) On June 5, 2007, the Court entered the Disclosure Statement Order that, among other<br />
things: (a) approved the Disclosure Statement as containing adequate information within the<br />
meaning of section 1125 of the Bankruptcy Code and Bankruptcy Rule 3017; (b) fixed July 6,<br />
2007 as the Voting Deadline (as defined in Exhibit 2 to the Disclosure Statement Order (the<br />
“Solicitation Procedures”)) for voting to accept or reject the Plan; (c) fixed July 11, 2007, at<br />
11:00 a.m., prevailing Eastern Time, as the date and time for the commencement of the<br />
Confirmation Hearing; (d) fixed July 6, 2007, as the deadline for objecting to the Plan;<br />
K&E 11771836.17<br />
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(e) approved the form and m<strong>et</strong>hod of notice of the Confirmation Hearing Notice (as defined in<br />
the Solicitation Procedures) and (f) fixed June 1, 2007 as the Voting Record Date (as defined in<br />
the Solicitation Procedures).<br />
Transmitt<strong>al</strong> and Mailing of Materi<strong>al</strong>s; Notice<br />
e) As evidenced by the BSI Affidavit and the FBG Affidavit, <strong>al</strong>l persons, entities or<br />
government<strong>al</strong> agencies entitled or required to receive notice have received due, proper and<br />
adequate notice of the Disclosure Statement, the Plan, the Disclosure Statement Hearing, the<br />
Confirmation Hearing and other bar dates and hearings, <strong>al</strong>ong with <strong>al</strong>l deadlines for voting on or<br />
objecting to the Plan, in accordance with the procedures s<strong>et</strong> forth in the Disclosure Statement<br />
Order and in substanti<strong>al</strong> compliance with Bankruptcy Rules 2002(b), 3017 and 3020(b), and such<br />
transmitt<strong>al</strong> and service were adequate and sufficient and no other or further notice is or sh<strong>al</strong>l be<br />
required. The Debtors published the Confirmation Hearing Notice once each in the USA Today,<br />
The New York Times, the D<strong>et</strong>roit Free Press/ D<strong>et</strong>roit News, Automotive News, and the nation<strong>al</strong><br />
edition of The W<strong>al</strong>l Stre<strong>et</strong> Journ<strong>al</strong>, consistent with the Disclosure Statement Order, as evidenced<br />
by the Publication Affidavits.<br />
Voting Report<br />
f) Prior to the Confirmation Hearing, the Debtors filed the Voting Report. All procedures<br />
used to distribute the Solicitation Packages (as defined in the Solicitation Procedures) to the<br />
applicable Holders of Claims and to tabulate the B<strong>al</strong>lots and Master B<strong>al</strong>lots were fair and<br />
conducted in accordance with the Solicitation Procedures, the Disclosure Statement Order, the<br />
Bankruptcy Code, the Bankruptcy Rules, the loc<strong>al</strong> rules of the Bankruptcy Court for the<br />
Southern District of New York (the “Loc<strong>al</strong> Bankruptcy Rules”), and <strong>al</strong>l other applicable rules,<br />
laws and regulations.<br />
g) As evidenced by the Voting Report, Classes 4, 5, 6 and 7 have voted to accept the Plan.<br />
K&E 11771836.17<br />
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Judici<strong>al</strong> Notice<br />
h) The Court takes judici<strong>al</strong> notice of the dock<strong>et</strong> of the Chapter 11 Cases maintained by the<br />
Clerk of the Court and/or its duly appointed agent, including, without limitation, <strong>al</strong>l pleadings<br />
and other documents on file, <strong>al</strong>l orders entered, and <strong>al</strong>l evidence and arguments made, proffered<br />
or adduced at the hearings held before the Court during the pendency of the Chapter 11 Cases.<br />
The Court admits into evidence the M<strong>al</strong>lak Affidavit, the T<strong>al</strong>arico Affidavit and the Horvath<br />
Affidavit. Resolutions of objections to Confirmation explained on the record at the Confirmation<br />
Hearing are hereby incorporated by reference.<br />
Burden of Proof<br />
i) The Debtors, as proponents of the Plan, have m<strong>et</strong> their burden of proving the elements of<br />
sections 1129(a) and 1129(b) of the Bankruptcy Code by a preponderance of the evidence, which<br />
is the applicable evidentiary standard for the Confirmation. Further, the Debtors have proven the<br />
elements of sections 1129(a) and 1129(b) of the Bankruptcy Code by clear and convincing<br />
evidence.<br />
The Plan Complies with the Applicable Provisions of the Bankruptcy Code<br />
j) The Plan complies with <strong>al</strong>l applicable provisions of the Bankruptcy Code as required by<br />
section 1129(a)(1) of the Bankruptcy Code, including, without limitation, sections 1122 and<br />
1123 of the Bankruptcy Code.<br />
The Plan Satisfies the Classification Requirements of Sections 1122(a) and 1123(a)(1) of the<br />
Bankruptcy Code By Placing Only Substanti<strong>al</strong>ly Similar Claims or Equity Interests in<br />
Each Class<br />
k) The classification of Claims and Equity Interests under the Plan is proper under the<br />
Bankruptcy Code. Pursuant to sections 1122(a) and 1123(a)(1) of the Bankruptcy Code,<br />
Article III of the Plan provides for the separate classification of Claims and Equity Interests into<br />
nine Classes, based on differences in the leg<strong>al</strong> nature and/or priority of such Claims and Equity<br />
Interests (other than Administrative Expense Claims, Fee Claims and Priority Tax Claims, which<br />
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are addressed in Article II of the Plan). 4 As required by section 1122(a) of the Bankruptcy Code,<br />
each Class of Claims and Equity Interests contains only Claims or Equity Interests that are<br />
substanti<strong>al</strong>ly similar to the other Claims or Equity Interests within that Class. As a result thereof,<br />
the requirements of sections 1122(a) and 1123(a)(1) of the Bankruptcy Code have been satisfied.<br />
The Plan Satisfies the Mandatory Plan Requirements of Section 1123(a) of the Bankruptcy<br />
Code<br />
l) The Plan fully complies with each requirement of section 1123(a)(1)-(8) of the<br />
Bankruptcy Code, as follows:<br />
1. Section 1123(a)(1). Article III of the Plan designates each Class of Claims and<br />
Equity Interests, as required by section 1123(a)(1) of the Bankruptcy Code. Further,<br />
Article II of the Plan designates claims of the types described in sections 507(a)(1)<br />
(Administrative Claims), 503(b) (Fee Claims) and 507(a)(8) (Priority Tax Claims) of<br />
the Bankruptcy Code. Because these Chapter 11 Cases were commenced as<br />
voluntary chapter 11 cases, there are no claims of a kind specified in section<br />
507(a)(2) (claims arising during the “gap” period in an involuntary case). As a result<br />
thereof, the requirements of section 1123(a)(1) of the Bankruptcy Code have been<br />
satisfied.<br />
2. Section 1123(a)(2). Article III of the Plan specifies that Claims in Classes 1 (Other<br />
Priority Claims), 2 (Other Secured Claims) and 3 (Second Lien Claims) are<br />
Unimpaired Classes under the Plan. Addition<strong>al</strong>ly, while not classified, Article II of<br />
the Plan specifies that Administrative Claims, DIP Facility Claims and Priority Tax<br />
Claims are unimpaired. As a result thereof, the requirements of section 1123(a)(2) of<br />
the Bankruptcy Code have been satisfied.<br />
3. Section 1123(a)(3). Article III of the Plan specifies the treatment of each Impaired<br />
Class under the Plan, including Classes 4 (Internation<strong>al</strong> Holding Company Debtor<br />
Claims), 5 (R.J. Tower Gener<strong>al</strong> Unsecured Claims), 6 (5.75% Convertible Senior<br />
Note Claims), 7 (Other Gener<strong>al</strong> Unsecured Claims), 8 (6.75% Debenture Related<br />
Claims) and 9 (Common Equity Interests). As a result thereof, the requirements of<br />
section 1123(a)(3) of the Bankruptcy Code have been satisfied.<br />
4. Section 1123(a)(4). The Plan does not discriminate among Claims or Equity Interests<br />
of the same Class and uniformly provides for the same treatment of each Claim or<br />
Equity Interest of a particular Class. As a result thereof, the requirements of section<br />
1123(a)(4) of the Bankruptcy Code have been satisfied.<br />
5. Section 1123(a)(5). Article V of the Plan s<strong>et</strong>s forth in d<strong>et</strong>ail the means for<br />
implementation of the Plan, including, inter <strong>al</strong>ia, (i) consummation of the S<strong>al</strong>e<br />
Transaction in which, among other things, substanti<strong>al</strong>ly <strong>al</strong>l of the asserts of the<br />
Debtors including certain contracts and leases will be transferred to the Purchaser<br />
4 The Administrative Expense Claims and the Priority Tax Claims are not required to be designated pursuant to<br />
section 1123(a)(1) of the Bankruptcy Code. 11 U.S.C. § 1123(a)(1).<br />
K&E 11771836.17<br />
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Pg Pg 299 8 of 45 336<br />
(See Plan, Article V.A); (ii) establishment of the Post-Consummation Trust and the<br />
Unsecured Creditors Trust (See Plan, Articles V.B, C, VIII, IX); (iii) substantive<br />
consolidation of the Substantively Consolidated Debtors into a single entity and the<br />
Internation<strong>al</strong> Holding Company Debtors into another entity, in both cases solely for<br />
purposes of voting and distributions under the Plan (See Plan, Article V.E);<br />
(iv) cancellation of notes, stock, instruments, certificates and equity interests (See<br />
Plan, Article V.F); (v) establishment of the R<strong>et</strong>ained Profession<strong>al</strong> Escrow Account<br />
which will ensure the payment of <strong>al</strong>l accrued and/or unpaid fees and expenses<br />
awardable and <strong>al</strong>lowable under sections 328, 330(a) or 331 of the Bankruptcy Code<br />
by <strong>al</strong>l R<strong>et</strong>ained Profession<strong>al</strong>s (See Plan, Article V.G); (vi) <strong>al</strong>l cash necessary for the<br />
Debtors or the Trusts to make payments pursuant to the Plan sh<strong>al</strong>l be obtained from<br />
the proceeds of the S<strong>al</strong>e or the proceeds of the Post-Consummation Trust Ass<strong>et</strong>s and<br />
the Unsecured Creditors Trust Ass<strong>et</strong>s (See Plan, Article V.L); and (vii) obtaining the<br />
relief granted in the R<strong>et</strong>iree S<strong>et</strong>tlement Order (See Plan, Article V.O). As a result<br />
thereof, the requirements of section 1123(a)(5) of the Bankruptcy Code have been<br />
satisfied.<br />
6. Section 1123(a)(6). Because the Plan provides for the s<strong>al</strong>e of substanti<strong>al</strong>ly <strong>al</strong>l of the<br />
Debtors’ ass<strong>et</strong>s to the Purchaser and the cancellation of <strong>al</strong>l notes, stock, instruments,<br />
certificates and equity interests and because neither the Post-Consummation Trust nor<br />
the Unsecured Creditors Trust is issuing non-voting equity securities, section<br />
1123(a)(6) of the Bankruptcy Code, prohibiting the issuance of non-voting equity<br />
securities, has been satisfied.<br />
7. Section 1123(a)(7). The Plan complies with the requirements of section 1123(a)(7) of<br />
the Bankruptcy Code because the Debtors, at or prior to the Confirmation Hearing,<br />
will disclose the identity of the administrators of the Trusts to be established under<br />
the Plan. After the Effective Date of the Plan, the Debtors’ Remaining Ass<strong>et</strong>s will be<br />
transferred to a Post-Consummation Trust. See Plan, Article V. On the Effective<br />
Date and in compliance with the provisions of the Plan, the Debtors will establish the<br />
Post-Consummation Trust and the Post-Consummation Trust Plan Administrator will<br />
be appointed and will administer the Post-Consummation Trust in accordance with<br />
the Post-Consummation Trust Agreement. On the Effective Date, the Debtors and the<br />
Committee will establish the Unsecured Creditors Trust and the Unsecured Creditors<br />
Trust Plan Administrator will be appointed and will administer the Unsecured<br />
Creditors Trust in accordance with the terms of the Unsecured Creditors Trust<br />
Agreement. The appointment of both the Post-Consummation Trust Plan<br />
Administrator and the Unsecured Creditors Trust Plan Administrator is consistent<br />
with the interests of Creditors and with public policy. As a result thereof, the<br />
requirements of section 1123(a)(7) of the Bankruptcy Code have been satisfied. This<br />
provision as it pertains to the selection of officers and directors is not applicable in<br />
these Chapter 11 Cases because the Debtors are not reorganizing.<br />
8. Section 1123(a)(8). Each of the Debtors are corporations. Accordingly, section<br />
1123(a)(8) of the Bankruptcy Code is not implicated by the Plan.<br />
The Discr<strong>et</strong>ionary Contents of the Plan Comply with Section 1123(b) of the Bankruptcy<br />
Code<br />
m) The Plan contains various provisions that may be construed as discr<strong>et</strong>ionary, but are not<br />
required. Such discr<strong>et</strong>ionary provisions are not inconsistent in any way the applicable provisions<br />
of the Bankruptcy Code.<br />
K&E 11771836.17<br />
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Pg Pg 300 9 of 45 336<br />
(i)<br />
Treatment of Executory Contracts and Unexpired Leases<br />
n) In accordance with section 1123(b)(2) of the Bankruptcy Code, Article VI of the Plan<br />
provides that on the Effective Date (i) the Debtors will assume and assign the Assumed<br />
Contracts to the Purchaser pursuant to the terms of the Purchase Agreement as of the Closing (as<br />
defined in the Purchase Agreement), (ii) the Debtors will assume and assign the R<strong>et</strong>ained<br />
Contracts, if any, to the Post-Consummation Trust as of the Closing (as defined in the Purchase<br />
Agreement), and (iii) any executory contracts and unexpired leases not previously assumed,<br />
assumed and assigned or rejected will be rejected pursuant to section 365 of the Bankruptcy<br />
Code. The Confirmation Order will constitute an order of the Court approving such rejections<br />
pursuant to section 365 of the Bankruptcy Code as of the Effective Date. Within 5 days after the<br />
Effective Date, the Debtors will serve each party to an executory contract or unexpired lease that<br />
is being rejected with notice of such rejection. All proofs of claim arising from such rejection<br />
must be filed with the Voting Agent within 30 days after the date of service of notice of the<br />
rejection of the applicable executory contract or unexpired lease.<br />
(ii)<br />
Substantive Consolidation<br />
o) Pursuant to section 1123(a)(5)(C) of the Bankruptcy Code, the Plan provides for the<br />
substantive consolidation of the Substantively Consolidated Debtors into a single entity and the<br />
Internation<strong>al</strong> Holding Company Debtors into another entity, in both scenarios, solely for<br />
purposes of voting and distributions under the Plan.<br />
p) As s<strong>et</strong> forth in the Horvath Affidavit, the Debtors and their profession<strong>al</strong>s, including a<br />
team of forensic accountants from FTI Consulting <strong>Inc</strong>. (“FTI”), the Debtors’ Court-approved<br />
financi<strong>al</strong> advisors, spent significant time and attention an<strong>al</strong>yzing intercompany relationships and<br />
de<strong>al</strong>ings in order to d<strong>et</strong>ermine the propri<strong>et</strong>y of substantive consolidation. The due diligence<br />
employed by FTI and the Debtors was adequate. The m<strong>et</strong>hodology used, assumptions made and<br />
conclusions reached in the Horvath Affidavit are reasonable. For the reasons s<strong>et</strong> forth in the<br />
K&E 11771836.17<br />
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Pg Pg 301 10 of 336 45<br />
Horvath Affidavit, substantive consolidation is an essenti<strong>al</strong> element of the Plan. Further,<br />
substantive consolidation of the Substantively Consolidated Debtors, on the one hand, and the<br />
Internation<strong>al</strong> Holding Company Debtors, on the other hand, is in the best interests of <strong>al</strong>l<br />
Creditors, necessary for the efficient liquidation of the Debtors and is appropriate in these<br />
Chapter 11 Cases.<br />
(iii)<br />
Releases/ Injunctions/ Exculpations<br />
q) The Plan provides for (A) the release by the Debtors of certain causes of action,<br />
(B) certain releases by Holders of Claims, (C) injunction provisions prohibiting parties from<br />
pursuing Claims released under the Plan, and (D) an exculpation provision. These provisions are<br />
proper because, among other things, they are the product of arm’s-length negotiations and have<br />
been critic<strong>al</strong> to obtaining the support of the various constituencies for the Plan. Such release,<br />
exculpation and injunction provisions are fair and equitable, reasonable, in good faith, given for<br />
v<strong>al</strong>uable consideration, and in the best interests of the Debtors and these Chapter 11 Cases, and<br />
there are no pending objections ther<strong>et</strong>o. The record of the Confirmation Hearing and these<br />
Chapter 11 Cases is sufficient to support the release, injunction and exculpation provisions<br />
contained in Article XIII of the Plan. Neither the release, injunction nor the exculpation<br />
provisions, nor any other provisions of the Plan, are inconsistent with the Bankruptcy Code and,<br />
thus the requirements of section 1123(b) of the Bankruptcy Code are satisfied.<br />
r) Debtor Release. Article XIII.B of the Plan represents a v<strong>al</strong>id s<strong>et</strong>tlement of whatever<br />
claims the Debtors may have against the Debtor Releasees pursuant to section 1123(b)(3)(A) of<br />
the Bankruptcy Code. The Debtors represent that they do not have any meaningful claims<br />
against the Debtor Releasees. Moreover, pursuing any such claims against the Debtor Releasees<br />
would not be in the best interest of the Debtors’ various constituencies and the costs involved<br />
would likely outweigh any potenti<strong>al</strong> benefit from pursuing such claims. The Debtor Release is<br />
limited solely to claims or causes of action that belong to the Debtors. The Debtors’ release of<br />
K&E 11771836.17<br />
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Pg Pg 302 11 of 336 45<br />
claims is a component of the consensu<strong>al</strong> Plan process. No constructive purpose is furthered by<br />
preserving or seeking to prosecute any claims against the Debtor Releasees.<br />
s) Third Party Release. The Third Party Release is an important aspect of the Plan. The<br />
Third Party Release provides for: (i) the release by Creditors that vote in favor of the Plan and<br />
those parties who have otherwise consented to give a release, and (ii) the release, to the fullest<br />
extent permissible under applicable law, as such may be extended or interpr<strong>et</strong>ed subsequent to<br />
the Effective Date, by Creditors who reject the Plan or who do not vote to accept the Plan. The<br />
b<strong>al</strong>lots explicitly stated that a vote to accept the Plan constitutes an acceptance and assent to the<br />
releases s<strong>et</strong> forth in the Plan and directed parties to Article XIII of the Plan for further<br />
information about the release provisions. Thus, those voting to accept the Plan were on notice<br />
that they would be granting the Third Party Release.<br />
t) Exculpation. The Exculpated Parties are entitled to protection from lawsuits from<br />
disgruntled Creditors or any other parties in interest with respect to the Exculpated Parties’<br />
participation in these Chapter 11 Cases. The exculpation provision is appropriately limited and<br />
does not relieve any party of liability for gross negligence or willful misconduct.<br />
u) Injunction. The injunction is necessary to preserve and enforce the releases granted by<br />
the Plan and is narrowly tailored to achieve that purpose.<br />
(iv)<br />
Unsecured Creditors Trust<br />
v) Pursuant to section 1123(b)(3) of the Bankruptcy Code, Article IX of the Plan provides<br />
that the Unsecured Creditors Trust Plan Administrator, acting as the appointed representative of<br />
the applicable Debtor estate or estates, sh<strong>al</strong>l have the right to commence and prosecute the<br />
Residu<strong>al</strong> Chapter 5 Claims on beh<strong>al</strong>f of the Unsecured Creditors Trust and that the proceeds<br />
sh<strong>al</strong>l be distributed to Beneficiaries pursuant to the terms of the Unsecured Creditors Trust<br />
Agreement.<br />
K&E 11771836.17<br />
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Pg Pg 303 12 of 336 45<br />
w) Pursuant to section 1123(b)(6) of the Bankruptcy Code, Article XIV of the Plan provides<br />
that, among other things, this Court sh<strong>al</strong>l r<strong>et</strong>ain jurisdiction over <strong>al</strong>l matters arising in, arising<br />
under, and related to these Chapter 11 Cases and the Plan, including the prosecution of any<br />
adversary proceedings, including, but not limited to, the Residu<strong>al</strong> Chapter 5 Claims.<br />
Accordingly, the continuing jurisdiction of the Court is consistent with applicable law and is<br />
therefore permissible under section 1123(b)(6) of the Bankruptcy Code.<br />
Bankruptcy Rule 3016<br />
x) The Plan is dated and identifies the entities submitting it, thereby satisfying Bankruptcy<br />
Rule 3016(a). The filing of the Disclosure Statement with the Clerk of Court satisfies<br />
Bankruptcy Rule 3016(b).<br />
The Debtors and Others Have Complied Fully With The Applicable Provisions of the<br />
Bankruptcy Code<br />
y) The Debtors, as proponents of the Plan, have complied with <strong>al</strong>l applicable provisions of<br />
the Bankruptcy Code as required by section 1129(a)(2) of the Bankruptcy Code, including,<br />
without limitation, sections 1123, 1125 and 1126 of the Bankruptcy Code and Bankruptcy Rules<br />
3017, 3018 and 3019.<br />
z) Based on the record before the Court, votes for acceptance and rejection and/or any other<br />
election on the Plan as provided for on the B<strong>al</strong>lots were solicited in good faith and complied with<br />
sections 1125 and 1126 of the Bankruptcy Code, Bankruptcy Rules 3017 and 3018 and the<br />
Solicitation Procedures, Disclosure Statement Order and <strong>al</strong>l other applicable rules, laws and<br />
regulations.<br />
aa)<br />
The Debtors, the Committee and their respective present and former members,<br />
shareholders, partners, representatives, officers, directors, employees, advisors, attorneys, and<br />
agents have solicited votes on the Plan and have participated in the activities described in section<br />
1125 of the Bankruptcy Code in good faith within the meaning of section 1125(e) of the<br />
Bankruptcy Code and in compliance with the applicable provisions of the Disclosure Statement<br />
-12-<br />
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Pg Pg 304 13 of 336 45<br />
Order, the Disclosure Statement, the Bankruptcy Code, the Bankruptcy Rules, the Loc<strong>al</strong><br />
Bankruptcy Rules, and <strong>al</strong>l other applicable rules, laws and regulations and are entitled to the<br />
protections afforded by section 1125(e) of the Bankruptcy Code and the exculpation provisions<br />
s<strong>et</strong> forth in Article XIII of the Plan.<br />
The Debtors Have Complied with Section 1125 of the Bankruptcy Code<br />
bb)<br />
The Debtors are proper debtors under section 109 of the Bankruptcy Code and proper<br />
proponents of the Plan under section 1121(a) of the Bankruptcy Code.<br />
cc) On June 5, 2007, the Court approved the Disclosure Statement pursuant to section 1125<br />
of the Bankruptcy Code as containing “adequate information” of a kind and in sufficient d<strong>et</strong>ail to<br />
enable hypoth<strong>et</strong>ic<strong>al</strong>, reasonable investors typic<strong>al</strong> of the Debtors’ Creditors to make an informed<br />
judgment wh<strong>et</strong>her to accept or reject the Plan.<br />
dd)<br />
The Solicitation Package (which contains the Disclosure Statement) approved by the<br />
Court in the Disclosure Statement Order, was transmitted to each Creditor in Classes 4, 5, 6 and<br />
7 that was entitled to vote to accept or reject the Plan, as well as to other parties in interest in<br />
these Chapter 11 Cases, in compliance with section 1125 of the Bankruptcy Code and the<br />
Disclosure Statement Order (the “Solicitation”). In addition, Holders of Claims and Equity<br />
Interest in Classes 1, 2, 3, 8 and 9 that were not entitled to vote to accept or reject the Plan were<br />
provided with certain non-voting materi<strong>al</strong>s approved by the Court in compliance with the<br />
Disclosure Statement Order.<br />
ee)<br />
The Debtors, the Committee, the Purchaser and their respective present and former<br />
members, officers, directors, employees, advisors, attorneys and agents did not solicit the<br />
acceptance or rejection of the Plan by any Holders of Claims or Equity Interest prior to the<br />
approv<strong>al</strong> and transmission of the Disclosure Statement. Votes to accept or reject the Plan were<br />
only solicited by the Debtors and/or their agents after disclosure to Holders of Claims or Equity<br />
Interests of adequate information as defined in section 1125(a) of the Bankruptcy Code.<br />
K&E 11771836.17<br />
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Pg Pg 305 14 of 336 45<br />
The Debtors Have Complied with Section 1126 of the Bankruptcy Code<br />
ff)<br />
gg)<br />
As s<strong>et</strong> forth in the Voting Report, Classes 4, 5, 6 and 7 have voted to accept the Plan.<br />
Holders of Claims in Classes 8 and 9 will receive no recoveries under the Plan and, thus,<br />
are deemed to have rejected the Plan. Nevertheless, as s<strong>et</strong> forth below, pursuant to section<br />
1129(b) of the Bankruptcy Code, the Plan may be confirmed over the deemed rejections of<br />
Classes 8 and 9 because the Plan does not discriminate unfairly and is fair and equitable with<br />
respect to each such Class. See 11 U.S.C. § 1129(b).<br />
hh)<br />
Based upon the foregoing, the requirements of section 1129(a)(2) of the Bankruptcy<br />
Code have been satisfied.<br />
ii)<br />
The Debtors, the Committee, the Purchaser and their respective present and former<br />
members, officers, directors, employees, advisors, attorneys, and agents have participated in<br />
good faith and in compliance with the applicable provisions of the Bankruptcy Code with regard<br />
to the offering, issuance and distribution of recoveries under the Plan and, therefore, are not, and<br />
on account of such distributions will not be, liable at any time for the violation of any applicable<br />
law, rule, or regulation governing the Solicitation of acceptances or rejections of the Plan or such<br />
distributions made pursuant to the Plan.<br />
The Plan Has Been Proposed in Good Faith and Not By Any Means Forbidden by Law<br />
(Section 1129(a)(3) of the Bankruptcy Code)<br />
jj)<br />
In d<strong>et</strong>ermining that the Plan has been proposed in good faith, the Court has examined the<br />
tot<strong>al</strong>ity of the circumstances surrounding the filing of these Chapter 11 Cases, the Plan itself, and<br />
the process leading to its formulation. See Bankruptcy Rule 3020(b). The Plan satisfies the<br />
requirements of good faith. The Plan is the product of arm’s-length negotiations b<strong>et</strong>ween the<br />
Debtors, the Holders of various secured and unsecured Claims against the Debtors, the<br />
Committee and the Purchaser. The Plan has been proposed by the Debtors with the legitimate<br />
and honest purpose of selling substanti<strong>al</strong>ly <strong>al</strong>l of the Debtors’ foreign and domestic ass<strong>et</strong>s to the<br />
Purchaser, to be followed by the orderly liquidation of the Debtors’ remaining ass<strong>et</strong>s, if any, and<br />
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Pg Pg 306 15 of 336 45<br />
the orderly distribution of proceeds to Holders of Allowed Claims pursuant to the Plan. The Plan<br />
therefore serves the public interest and assures fair treatment of Creditors. In addition, the Plan<br />
has not been proposed by any means prohibited by law (including, without limitation, any Law<br />
(as defined in the Purchase Agreement)).<br />
The Plan Provides For Court Approv<strong>al</strong> Of Certain Administrative Payments (Section<br />
1129(a)(4) of the Bankruptcy Code)<br />
kk)<br />
The procedures s<strong>et</strong> forth in the Plan for the Court’s review and ultimate d<strong>et</strong>ermination of<br />
the fees and expenses to be paid by the Debtors satisfy the objectives of section 1129(a)(4) of the<br />
Bankruptcy Code. Therefore, the Plan complies with section 1129(a)(4) of the Bankruptcy<br />
Code.<br />
The Debtors Have Properly Disclosed the Identity of Proposed Officers and Directors and<br />
the Compensation of Insiders (Section 1129(a)(5) of the Bankruptcy Code)<br />
ll)<br />
The Plan complies with the requirements of section 1129(a)(5) of the Bankruptcy Code<br />
because the Debtors and the Committee will, at or prior to the Confirmation Hearing, disclose<br />
the identity of the Post-Consummation Trust Plan Administrator and the Unsecured Creditors<br />
Trust Administrator.<br />
The Plan Does Not Contain Any Rate Changes Subject to the Jurisdiction of any<br />
Government<strong>al</strong> Regulatory Commission and will not Require Government<strong>al</strong> Regulatory<br />
Approv<strong>al</strong> (Section 1129(a)(6) of the Bankruptcy Code)<br />
mm)<br />
Because the Plan contemplates the s<strong>al</strong>e, liquidation and distribution of <strong>al</strong>l ass<strong>et</strong>s of the<br />
Debtors’ Estates and does not provide for any rate changes over which a government<strong>al</strong><br />
regulatory commission has jurisdiction, section 1129(a)(6) of the Bankruptcy Code is satisfied.<br />
The Plan is in the Best Interests of All Creditors of and Equity Interest Holders in the<br />
Debtors (Section 1129(a)(7) of the Bankruptcy Code)<br />
nn)<br />
The Plan satisfies the so-c<strong>al</strong>led “best interests of creditors test” s<strong>et</strong> forth in section<br />
1129(a)(7) of the Bankruptcy Code.<br />
oo)<br />
As s<strong>et</strong> forth in the liquidation an<strong>al</strong>ysis annexed to the Disclosure Statement as Exhibit C<br />
(the “Liquidation An<strong>al</strong>ysis”), members of each Impaired Class will receive at least as much<br />
K&E 11771836.17<br />
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under the Plan as they would if the Debtors were liquidated under Chapter 7 of the Bankruptcy<br />
Code. The m<strong>et</strong>hodology used and assumptions made in the Liquidation An<strong>al</strong>ysis are reasonable.<br />
pp)<br />
With respect to each Impaired Class, each Holder of an Allowed Claim or Equity Interest<br />
in such Class has accepted the Plan or will receive under the Plan on account of such Claim or<br />
Equity Interest property of a v<strong>al</strong>ue, as of the Effective Date, that is not less than the amount such<br />
Holder would receive if the Debtors were liquidated on the Effective Date under Chapter 7 of the<br />
Bankruptcy Code.<br />
The Plan Has Not Been Accepted By All Impaired Classes (Section 1129(a)(8) of the<br />
Bankruptcy Code)<br />
qq)<br />
Because the Plan provides that Classes 8 (Trust Related Claims) and 9 (Common Equity<br />
Interests) will not receive any distribution or r<strong>et</strong>ain any property under the Plan, they are<br />
“Deemed Rejected Classes” and the Debtors are seeking confirmation under section 1129(b) of<br />
the Bankruptcy Code, not section 1129(a)(8) of the Bankruptcy Code.<br />
The Plan Provides For The Statutorily Mandated Treatment Of Administrative And<br />
Priority Tax Claims (Section 1129(a)(9) of the Bankruptcy Code)<br />
rr)<br />
The treatment of Allowed Working Capit<strong>al</strong> Administrative Claims, Allowed Other<br />
Administrative Expense Claims, Allowed Priority Tax Claims, and Allowed Other Priority<br />
Claims under Articles II.A, II.C and III.B of the Plan satisfies the requirements of section<br />
1129(a)(9) of the Bankruptcy Code. The Plan complies in <strong>al</strong>l respects with Section 1129(a)(9) of<br />
the Bankruptcy Code.<br />
At Least One Impaired Class Of Claims Has Accepted The Plan (Section 1129(a)(10) of the<br />
Bankruptcy Code)<br />
ss)<br />
As s<strong>et</strong> forth in the Voting Report, Classes 4, 5, 6 and 7 have voted to accept the Plan.<br />
Accordingly, section 1129(a)(10) of the Bankruptcy Code has been satisfied in <strong>al</strong>l respects.<br />
The Plan Is Feasible (Section 1129(a)(11) of the Bankruptcy Code)<br />
tt)<br />
The evidence proffered or adduced at the Confirmation Hearing, including the T<strong>al</strong>arico<br />
Affidavit: (a) is persuasive and credible, (b) has not been contravened by other evidence, and<br />
K&E 11771836.17<br />
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(c) establishes that the Debtors will have sufficient funds available to me<strong>et</strong> their obligations<br />
under the Plan, thus satisfying the requirements of section 1129(a)(11) of the Bankruptcy Code.<br />
The Plan Provides For The Payment Of All Fees Under 28 U.S.C. § 1930 (Section<br />
1129(a)(12) of the Bankruptcy Code)<br />
uu)<br />
Article XV.C of the Plan provides that <strong>al</strong>l fees payable pursuant to section 1930 of title<br />
28 of the United States Code after the Effective Date, as d<strong>et</strong>ermined by the Court at a hearing<br />
pursuant to section 1128 of the Bankruptcy Code, sh<strong>al</strong>l be paid prior to the closing of the Chapter<br />
11 Cases on the earlier of when due or the Effective Date, or as soon thereafter as practicable,<br />
and sh<strong>al</strong>l be payable by the Post-Consummation Trust, so long as the Post-Consummation Trust<br />
is in existence, and to the extent that the Chapter 11 Cases have not been closed and the<br />
Unsecured Creditors Trust is in existence at the time the Post-Consummation Trust terminates,<br />
sh<strong>al</strong>l be payable by the Unsecured Creditors Trust commencing with the c<strong>al</strong>endar quarter<br />
following the Post-Consummation Trust's termination until such time as the Unsecured Creditors<br />
Trust is terminated and the Debtors’ bankruptcy cases are closed. The Trusts have adequate<br />
means to pay <strong>al</strong>l such fees. The Plan therefore satisfies the requirements of section 1129(a)(12)<br />
of the Bankruptcy Code.<br />
The Plan Adequately and Properly Treats R<strong>et</strong>iree Benefits (Section 1129(a)(13) of the<br />
Bankruptcy Code)<br />
vv)<br />
Section 1129(a)(13) of the Bankruptcy Code requires a plan to provide for r<strong>et</strong>iree benefits<br />
at levels established pursuant to section 1114 of the Bankruptcy Code. As d<strong>et</strong>ailed above, the<br />
Court entered the R<strong>et</strong>iree S<strong>et</strong>tlement Order which further modify the Debtors’ r<strong>et</strong>iree benefits.<br />
Payment of r<strong>et</strong>iree benefits will be governed by and the Debtors will comply with the terms of<br />
the R<strong>et</strong>iree S<strong>et</strong>tlement Order.<br />
The Plan therefore satisfies the requirements of<br />
section 1129(a)(13) of the Bankruptcy Code.<br />
K&E 11771836.17<br />
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Pg Pg 309 18 of 336 45<br />
Satisfaction of Confirmation Requirements<br />
ww)<br />
For <strong>al</strong>l of the above reasons, the Plan satisfies <strong>al</strong>l the requirements for Confirmation s<strong>et</strong><br />
forth in section 1129(a) of the Bankruptcy Code, except section 1129(a)(8) of the Bankruptcy<br />
Code.<br />
Confirmation of Plan Over Nonacceptance of Impaired Class (Section 1129(b) of the<br />
Bankruptcy Code)<br />
xx)<br />
Notwithstanding the fact that the Debtors have not complied with section 1129(a)(8) of<br />
the Bankruptcy Code, the Plan may be confirmed pursuant to section 1129(b)(1) of the<br />
Bankruptcy Code notwithstanding the existence of the Deemed Rejected Classes because Classes<br />
4, 5, 6 and 7 have voted to accept the Plan.<br />
The Plan Does Not Discriminate Unfairly Against Classes 8 or 9 or Any Other Class of<br />
Claims or Equity Interests<br />
yy)<br />
No Class under the Plan has Claims against (or Equity Interests in) the Debtors that is<br />
similar to the Claims (or Equity Interests) in the other Classes. Further, members within each<br />
Class are treated similarly. Accordingly, the Plan does not discriminate unfairly in respect to<br />
Classes 8 or 9 or any other Class of Claims or Equity Interests.<br />
The Plan is Fair and Equitable With Respect to Classes 8 and 9 and Any Other Class of<br />
Claims or Equity Interests<br />
zz)<br />
With respect to the Deemed Rejected Classes, no Holders of Claims or Equity Interests<br />
subordinate to the Holders of the Claims and Equity Interests in the Deemed Rejected Classes<br />
will receive or r<strong>et</strong>ain any property under the Plan. Accordingly the requirements of sections<br />
1129(b)(2)(B)(ii) and 1129(b)(2)(C)(ii) are satisfied with respect to the Deemed Rejected<br />
Classes, and the Plan is fair and equitable with respect to such Deemed Rejected Classes.<br />
aaa)<br />
Pursuant to section 1129(b) of the Bankruptcy Code, the Court finds that the Plan is “fair<br />
and equitable” (as defined in section 1129(b) of the Bankruptcy Code) with respect to the<br />
Deemed Rejected Classes and any other Class of Claims or Equity Interests and the Plan does<br />
K&E 11771836.17<br />
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Pg Pg 310 19 of 336 45<br />
not unfairly discriminate against such Deemed Rejected Classes or any other Class of Claims or<br />
Equity Interests.<br />
bbb)<br />
Based on the foregoing, the Plan satisfies the requirements of section 1129(b) of the<br />
Bankruptcy Code.<br />
Only One Plan (11 U.S.C. § 1129(c))<br />
ccc)<br />
Other than the Plan (including previous versions thereof), no other plan has been filed in<br />
these Chapter 11 Cases. Accordingly, the requirements of section 1129(c) of the Bankruptcy<br />
Code have been satisfied.<br />
Princip<strong>al</strong> Purpose of the Plan Is Not Avoidance of Taxes (Section 1129(d) of the<br />
Bankruptcy Code)<br />
ddd)<br />
No party in interest that is a government<strong>al</strong> unit has requested that the Court not confirm<br />
the Plan on grounds that the princip<strong>al</strong> purpose of the Plan is the avoidance of taxes or the<br />
avoidance of the application of section 5 of the Securities Act of 1933, and the princip<strong>al</strong> purpose<br />
of the Plan is not such avoidance. Accordingly, the Plan satisfies the requirements of section<br />
1129(d) of the Bankruptcy Code.<br />
Preservation of Causes of Action<br />
eee)<br />
The provisions regarding Causes of Action in Article XIII.F of the Plan are appropriate<br />
and are in the best interests of the Debtors, their Estates and Holders of Claims and Equity<br />
Interests.<br />
Maintenance of Causes of Action<br />
fff)<br />
Except as otherwise provided in the Plan or this Confirmation Order, after the Effective<br />
Date the Post-Consummation Trust sh<strong>al</strong>l r<strong>et</strong>ain <strong>al</strong>l rights to commence and pursue, as<br />
appropriate, any and <strong>al</strong>l Other Actions, wh<strong>et</strong>her arising before or after the P<strong>et</strong>ition Date, in any<br />
court or other tribun<strong>al</strong> including, without limitation, in an adversary proceeding filed in one or<br />
more of the Chapter 11 Cases and <strong>al</strong>l actions s<strong>et</strong> forth in the Plan Supplement.<br />
K&E 11771836.17<br />
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Pg Pg 311 20 of 336 45<br />
ggg)<br />
Except as otherwise provided in the Plan or this Confirmation Order, after the Effective<br />
Date the Unsecured Creditors Trust sh<strong>al</strong>l r<strong>et</strong>ain <strong>al</strong>l rights to commence and pursue any and <strong>al</strong>l<br />
Residu<strong>al</strong> Chapter 5 Claims.<br />
hhh)<br />
Except as otherwise provided in the Plan, Purchase Agreement or Confirmation Order, in<br />
accordance with section 1123(b)(3) of the Bankruptcy Code, any claims, rights, and Causes of<br />
Action, and which such claims, rights and Causes of Action are Excluded Ass<strong>et</strong>s and are not<br />
Residu<strong>al</strong> Chapter 5 Claims, that the Debtors may hold against any Entity sh<strong>al</strong>l vest upon the<br />
Effective Date in the Post-Consummation Trust. The Post-Consummation Trust, through its<br />
authorized agents and representatives, sh<strong>al</strong>l r<strong>et</strong>ain and may exclusively enforce any and <strong>al</strong>l Other<br />
Actions. After the Effective Date, the Post-Consummation Trust sh<strong>al</strong>l have the exclusive right,<br />
authority, and discr<strong>et</strong>ion to institute, prosecute, abandon, s<strong>et</strong>tle, or compromise any and <strong>al</strong>l Other<br />
Actions, without the consent or approv<strong>al</strong> of any third party and without any further order of the<br />
Bankruptcy Court; provided, however, that the Post-Consummation Trust Administrator sh<strong>al</strong>l<br />
provide an accounting of such activities upon reasonable request of the Unsecured Creditors<br />
Trust Administrator.<br />
Preservation of All Causes of Action Not Expressly Sold, S<strong>et</strong>tled or Released<br />
iii)<br />
Unless a Claim or Cause of Action against a Holder or other Person or Entity is acquired<br />
by Purchaser (and is an Excluded Ass<strong>et</strong>) pursuant to the Purchase Agreement, or is a Residu<strong>al</strong><br />
Chapter 5 Claim, or is expressly waived, relinquished, released, compromised or s<strong>et</strong>tled in the<br />
Plan or any Fin<strong>al</strong> Order (including the S<strong>al</strong>e Order and the Confirmation Order), subject to the<br />
terms of the Purchase Agreement, the Debtors expressly reserve such Claim or Cause of Action<br />
for later adjudication by the Debtors or the Post-Consummation Trust (including, without<br />
limitation, claims and Causes of Action not specific<strong>al</strong>ly identified or of which the Debtors may<br />
presently be unaware or which may arise or exist by reason of addition<strong>al</strong> facts or circumstances<br />
unknown to the Debtors at this time or facts or circumstances which may change or be different<br />
K&E 11771836.17<br />
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Pg Pg 312 21 of 336 45<br />
from those the Debtors now believe to exist) and, therefore, it is the intention of the Plan that no<br />
preclusion doctrine, including, without limitation, the doctrines of res judicata, collater<strong>al</strong><br />
estoppel, issue preclusion, claim preclusion, waiver, estoppel (judici<strong>al</strong>, equitable or otherwise) or<br />
laches sh<strong>al</strong>l apply to such claims or Causes of Action upon or after the Confirmation or<br />
Consummation of the Plan based on the Disclosure Statement, the Plan or the Confirmation<br />
Order, except where such claims or Causes of Action have been released in the Plan (including,<br />
without limitation, and for the avoidance of doubt, the Debtor Release contained in Article<br />
XIII.B of the Plan) or any other Fin<strong>al</strong> Order (including the Confirmation Order). In addition, the<br />
Debtors and Post-Consummation Trust expressly reserve the right to pursue or adopt any claims<br />
<strong>al</strong>leged in any lawsuit in which the Debtors are a defendant or an interested party, against any<br />
Person or Entity, including, without limitation, the plaintiffs or co defendants in such lawsuits,<br />
unless such claims are acquired by Purchaser pursuant to the Purchase Agreement, or are a<br />
Residu<strong>al</strong> Chapter 5 Claim.<br />
Likelihood of Satisfaction of Conditions Precedent to Effectiveness<br />
jjj)<br />
Each of the conditions precedent to the Effective Date, as s<strong>et</strong> forth in Article XII of the<br />
Plan, has been satisfied or waived in accordance with the provisions of the Plan, or is reasonably<br />
likely to be satisfied.<br />
Actions in Furtherance of Plan<br />
kkk)<br />
The agreements, s<strong>et</strong>tlements, transactions and transfers authorized by the Plan and this<br />
Confirmation Order are fair and reasonable and are entered into in good faith.<br />
Assumed, Assigned and Rejected Executory Contracts and Unexpired Leases<br />
lll)<br />
The Plan satisfies <strong>al</strong>l requirements for the assumption, assignment or rejection of<br />
executory contracts and unexpired leases contained in the Bankruptcy Code, including, without<br />
limitation, the requirement to cure <strong>al</strong>l outstanding defaults, if any, and to provide adequate<br />
assurance of such contracts and leases.<br />
K&E 11771836.17<br />
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Pg Pg 313 22 of 336 45<br />
Conditions to Confirmation<br />
mmm) Entry of this Confirmation Order sh<strong>al</strong>l satisfy the conditions s<strong>et</strong> forth in Article XII.A of<br />
the Plan.<br />
II. ORDER<br />
BASED ON THE FOREGOING FINDINGS OF FACT, IT IS THEREFORE<br />
ORDERED, ADJUDGED AND DECREED THAT:<br />
A. Order<br />
1. This Confirmation Order sh<strong>al</strong>l confirm the Plan. A copy of the Plan is attached<br />
her<strong>et</strong>o as Exhibit A.<br />
B. Objections<br />
2. To the extent that any objections to Confirmation have not been withdrawn,<br />
waived or s<strong>et</strong>tled prior to entry of this Confirmation Order or otherwise resolved as stated on the<br />
record of the Confirmation Hearing, they are hereby overruled on the merits.<br />
C. Findings of Fact and Conclusions of Law<br />
3. The findings of the Court s<strong>et</strong> forth above and the conclusions of law stated herein<br />
sh<strong>al</strong>l constitute findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052, made<br />
applicable to this proceeding by Bankruptcy Rule 9014. To the extent any finding of fact sh<strong>al</strong>l<br />
be d<strong>et</strong>ermined to be a conclusion of law, it sh<strong>al</strong>l be so deemed, and vice versa.<br />
D. Confirmation of the Plan<br />
4. The Plan and Plan Supplement (as such may be amended by this Confirmation<br />
Order) and each of their provisions are confirmed in each and every respect pursuant to section<br />
1129 of the Bankruptcy Code. The terms of the Plan, the Plan Supplement, and exhibits ther<strong>et</strong>o<br />
are incorporated by reference into, and are an integr<strong>al</strong> part of, this Confirmation Order. The<br />
terms of the Plan, the Plan Supplement, <strong>al</strong>l exhibits ther<strong>et</strong>o, and <strong>al</strong>l other relevant and necessary<br />
documents, sh<strong>al</strong>l be effective and binding as of the Effective Date of the Plan.<br />
K&E 11771836.17<br />
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Pg Pg 314 23 of 336 45<br />
E. Plan Modifications<br />
5. All modifications or amendments to the Plan since the entry of the Disclosure<br />
Statement Order are approved pursuant to section 1127(a) of the Bankruptcy Code and do not<br />
require addition<strong>al</strong> disclosure or resolicitation under Bankruptcy Rule 3019.<br />
F. Plan Classification Controlling<br />
6. The terms of the Plan sh<strong>al</strong>l solely govern the classification of Claims and Equity<br />
Interests for purposes of the distributions to be made thereunder. The classifications s<strong>et</strong> forth on<br />
the B<strong>al</strong>lots tendered to or r<strong>et</strong>urned by the Debtors’ Creditors in connection with voting on the<br />
Plan (a) were s<strong>et</strong> forth on the B<strong>al</strong>lots solely for purposes of voting to accept or reject the Plan;<br />
(b) do not necessarily represent, and in no event sh<strong>al</strong>l be deemed to modify or otherwise affect,<br />
the actu<strong>al</strong> classification of such Claims under the Plan for distribution purposes; (c) may not be<br />
relied upon by any Holder of a Claim as representing the actu<strong>al</strong> classification of such Claims<br />
under the Plan for distribution purposes; and (d) sh<strong>al</strong>l not be binding on the Debtors and either of<br />
the Trusts except for voting purposes.<br />
G. Effects of Confirmation<br />
(a) Assumption and Rejection of Executory Contracts and Unexpired Leases<br />
7. The contract and unexpired lease provisions of Article VI of the Plan sh<strong>al</strong>l be, and<br />
hereby are, approved.<br />
(i) Assumption and Assignment of Assumed Contracts<br />
8. The Debtors will assume the Assumed Contracts and assign the Assumed<br />
Contracts to the Purchaser pursuant to the terms of the Purchase Agreement and S<strong>al</strong>e Order. The<br />
designation of a contract or lease as an Assumed Contract sh<strong>al</strong>l not be deemed an admission that<br />
such contract or lease constitutes an Executory Contract or Unexpired Lease.<br />
(ii) Assumption and Assignment of R<strong>et</strong>ained Contracts<br />
9. The Debtors will assume and assign the R<strong>et</strong>ained Contracts, if any, to the Post-<br />
Consummation Trust. The designation of a contract or lease as a R<strong>et</strong>ained Contract sh<strong>al</strong>l not be<br />
deemed an admission that such contract or lease constitutes an Executory Contract or Unexpired<br />
Lease.<br />
K&E 11771836.17<br />
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Pg Pg 315 24 of 336 45<br />
(iii)<br />
Approv<strong>al</strong> of Assumptions and Assignments<br />
10. This Confirmation Order and the S<strong>al</strong>e Order sh<strong>al</strong>l constitute orders of the Court<br />
approving the assumptions and assignments described in Article VI.A of the Plan, pursuant to<br />
sections 363, 365 and 1123 of the Bankruptcy Code, as of the Effective Date. The Cure<br />
Procedures Order specified the procedures for providing notice to each party whose Executory<br />
Contract or Unexpired Lease is being assumed or assumed and assigned pursuant to the Plan of:<br />
(a) the contract or lease being assumed or assumed and assigned; (b) the cure amount, if any, that<br />
the applicable Debtor believes it would be obligated to pay in connection with such assumption;<br />
and (c) the procedures for such party to object to the assumption or assumption and assignment<br />
of the applicable contract or lease or the amount of the proposed cure claim.<br />
(iv)<br />
Executory Contracts and Unexpired Leases to Be Rejected<br />
11. On the Effective Date, except for an Executory Contract or Unexpired Lease that<br />
was previously assumed, assumed and assigned or rejected by an order of the Court or that is<br />
assumed pursuant to Article VI.A of the Plan, each Executory Contract and Unexpired Lease<br />
entered into by a Debtor prior to the P<strong>et</strong>ition Date that has not previously expired or terminated<br />
pursuant to its own terms will be rejected pursuant to section 365 of the Bankruptcy Code. This<br />
Confirmation Order will constitute an order of the Court approving such rejections pursuant to<br />
section 365 of the Bankruptcy Code as of the Effective Date. Within five (5) days after the<br />
Effective Date, the Debtors will serve each party to an Executory Contract or Unexpired Lease<br />
that is being rejected with notice of such rejection.<br />
(v)<br />
Claims Based on Rejection of Executory Contracts or Unexpired<br />
Leases<br />
12. All proofs of Claim arising from the rejection (if any) of Executory Contracts or<br />
Unexpired Leases must be filed with the Voting Agent within thirty (30) days after the date of<br />
service of notice of the rejection of the applicable Executory Contract or Unexpired Lease. Any<br />
Claims arising from the rejection of an Executory Contract or Unexpired Lease for which proofs<br />
of Claim were not timely Filed within that time period will be forever barred from assertion<br />
against the Debtors or their Estates and property, or the Trusts, unless otherwise ordered by the<br />
K&E 11771836.17<br />
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Pg Pg 316 25 of 336 45<br />
Court or as otherwise provided herein. All such Claims sh<strong>al</strong>l, as of the Effective Date, be subject<br />
to the permanent injunction s<strong>et</strong> forth in Article XIII.G of the Plan.<br />
(vi)<br />
Cure of Defaults for Executory Contracts and Unexpired Leases<br />
Assumed Pursuant to the Plan<br />
13. Any mon<strong>et</strong>ary amounts by which any Executory Contract and Unexpired Lease to<br />
be assumed pursuant to the Plan (including pursuant to Article VI.A of the Plan) or otherwise is<br />
in default sh<strong>al</strong>l be satisfied, pursuant to section 365(b)(1) of the Bankruptcy Code, by payment of<br />
the default amount in Cash on the Effective Date or on such other terms as the parties to each<br />
such Executory Contract or Unexpired Lease may otherwise agree, with <strong>al</strong>l such amounts to be<br />
payable by the Debtors out of the Post-Consummation Trust Priority Account. If the Post-<br />
Consummation Trust Priority Account is not sufficient to provide for payment in full of <strong>al</strong>l cure<br />
amounts, the Post-Consummation Trust Plan Administrator sh<strong>al</strong>l utilize the other ass<strong>et</strong>s (or<br />
proceeds thereof) of the Post-Consummation Trust (other than ass<strong>et</strong>s held in segregated<br />
accounts), to the extent necessary, to pay such cure amounts in full. In the event of a dispute<br />
regarding: (a) the amount of any cure payments; (b) the ability of the Purchaser or any assignee<br />
to provide “adequate assurance of future performance” (within the meaning of section 365 of the<br />
Bankruptcy Code) under the contract or lease to be assumed; or (c) any other matter pertaining to<br />
assumption; the cure payments required by section 365(b)(1) of the Bankruptcy Code sh<strong>al</strong>l be<br />
made following the entry of a Fin<strong>al</strong> Order resolving the dispute and approving the assumption of<br />
any Executory Contracts or Unexpired Leases.<br />
(vii)<br />
Assumption of D&O Insurance Policies<br />
14. As of the Effective Date, the Post-Consummation Trust sh<strong>al</strong>l be deemed to have<br />
assumed <strong>al</strong>l of the Debtors’ directors’ and officers’ liability insurance policies pursuant to<br />
section 365(a) of the Bankruptcy Code. Entry of the Confirmation Order will constitute the<br />
Court’s approv<strong>al</strong> of the foregoing assumption of each of the directors’ and officers’ liability<br />
insurance policies. Notwithstanding anything to the contrary contained in the Plan, Confirmation<br />
of the Plan sh<strong>al</strong>l not discharge, impair or otherwise modify any indemnity obligations assumed<br />
by the foregoing assumption of the directors’ and officers’ liability insurance policies, and each<br />
K&E 11771836.17<br />
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Pg Pg 317 26 of 336 45<br />
such indemnity obligation will be deemed and treated as an Executory Contract that has been<br />
assigned to the Post-Consummation Trust as to which no proof of claim need be Filed.<br />
(b) Existing Injunction and Stays Remain in Effect until Effective Date<br />
15. The stay imposed by section 362 of the Bankruptcy Code sh<strong>al</strong>l remain in full<br />
force and effect until the Effective Date. All injunctions or stays imposed during these Chapter<br />
11 Cases or contained in the Plan or this Confirmation Order sh<strong>al</strong>l remain in full force and effect<br />
in accordance with their terms. Nothing herein sh<strong>al</strong>l bar the taking of such other actions as are<br />
necessary to effectuate the transactions specific<strong>al</strong>ly contemplated by the Plan or by this<br />
Confirmation Order.<br />
H. Matters Relating to Implementation of the Plan<br />
(a) S<strong>al</strong>e of Ass<strong>et</strong>s<br />
16. On the Effective Date, the Debtors sh<strong>al</strong>l consummate the S<strong>al</strong>e Transaction and,<br />
among other things, the Acquired Ass<strong>et</strong>s including the Assumed Contracts, sh<strong>al</strong>l be transferred<br />
to the Purchaser free and clear of <strong>al</strong>l Claims, Encumbrances (as defined in the Purchase<br />
Agreement) and Interests pursuant to the terms of the Purchase Agreement, S<strong>al</strong>e Order and<br />
Confirmation Order. All the terms of the Purchase Agreement and S<strong>al</strong>e Order are incorporated<br />
herein by reference.<br />
17. On the Effective Date, <strong>al</strong>l Chapter 5 Claims, exclusive of the Residu<strong>al</strong> Chapter 5<br />
Claims 5 , sh<strong>al</strong>l be transferred by the Debtors to the Purchaser pursuant to the S<strong>al</strong>e Order,<br />
Purchase Agreement, Plan and sections 1123 (a)(5)(D), 1123 (b)(3)(B) and 1123 (b)(4) of the<br />
Bankruptcy Code and the Purchaser sh<strong>al</strong>l be authorized to dismiss or s<strong>et</strong>tle such Chapter 5<br />
Claims without further order of the Bankruptcy Court and to prosecute any Chapter 5 Claims in<br />
the Bankruptcy Court that are not otherwise dismissed or s<strong>et</strong>tled.<br />
5 The definition of Residu<strong>al</strong> Chapter 5 Claims in the Plan and Schedule 1.1(a)(ii) to the Purchase Agreement sh<strong>al</strong>l<br />
be hereby amended to include the Chapter 5 Claims against the following entities: (i) Visteon, (ii) Shape<br />
Corporation, (iii) D<strong>et</strong>roit Electro-Coatings, Co., LLC, (iv) TRW Steering & Suspension Systems, and (v)<br />
Acemco Automotive, <strong>Inc</strong>.<br />
K&E 11771836.17<br />
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Pg Pg 318 27 of 336 45<br />
(b) Post-Consummation Trust and Unsecured Creditors Trust<br />
18. The provisions of the Plan related to the Post-Consummation Trust, the Post-<br />
Consummation Trust Administrator, the Unsecured Creditors Trust and the Unsecured Creditors<br />
Trust Plan Administrator, including, without limitation, Articles V.B, V.C, VIII and IX of the<br />
Plan are hereby approved and incorporated herein by reference. All of the expenses and<br />
distributions of the Post-Consummation Trust sh<strong>al</strong>l be paid from the funds received from the<br />
Purchaser under the Purchase Agreement, up to the Purchase Price Cap (as defined in the<br />
Purchase Agreement); provided, however, that the Purchaser sh<strong>al</strong>l be entitled to receive copies of<br />
reasonably d<strong>et</strong>ailed invoices (the “Invoices”) s<strong>et</strong>ting forth the services provided to the Post-<br />
Consummation Trust and sh<strong>al</strong>l have seven business days to object to the reasonableness of such<br />
invoices. After the Purchaser’s seven business day review period has expired, the Post-<br />
Consummation Trust sh<strong>al</strong>l be authorized to pay <strong>al</strong>l invoices the Purchaser did not object to and to<br />
pay the undisputed portion of any invoices the Purchaser did object to. Any objections to the<br />
reasonableness of such invoices that are not resolved by the Purchaser and the Post-<br />
Consummation Trust sh<strong>al</strong>l be decided by the Bankruptcy Court after notice and a hearing.<br />
Copies of the Invoices sh<strong>al</strong>l be delivered by overnight mail to the Purchaser at c/o Lowenstein<br />
Sandler P.C., 65 Livingston Avenue, Roseland, New Jersey 07068, Attn: Richard Bernstein,<br />
Esq.<br />
19. In accordance with the s<strong>et</strong>tlement of the Committee’s limited objection to Plan<br />
confirmation read into the record at the Confirmation and S<strong>al</strong>e Hearing, the definition of<br />
Unsecured Creditors Trust Ass<strong>et</strong>s in the Plan sh<strong>al</strong>l include the following addition<strong>al</strong> payments to<br />
be made on the Effective Date to the Unsecured Creditors Trust: (a) $650,000 from the Post-<br />
Consummation Trust (the “Addition<strong>al</strong> Payment”); and (b) $350,000 from the Purchaser. Upon<br />
payment of the Addition<strong>al</strong> Payment by the Post-Consummation Trust, $250,000 of the<br />
Addition<strong>al</strong> Payment sh<strong>al</strong>l be deemed a Capped Payment as s<strong>et</strong> forth in section 2.1(b) of the<br />
Purchase Agreement.<br />
K&E 11771836.17<br />
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Pg Pg 319 28 of 336 45<br />
(c)<br />
Restructuring Transactions<br />
(i) Restructuring Transactions Gener<strong>al</strong>ly<br />
20. On or after the Confirmation Date, the applicable Debtors and/or Post-<br />
Consummation Trust Plan Administrator, or the Purchaser, consistent with Section 5.11 of the<br />
Purchase Agreement, may enter into Restructuring Transactions without further order of the<br />
Bankruptcy Court.<br />
(d) Substantive Consolidation<br />
21. The Plan is predicated on the substantive consolidation of the Substantively<br />
Consolidated Debtors, on the one hand, as well as the substantive consolidation of the<br />
Internation<strong>al</strong> Holding Company Debtors, on the other hand, each for voting and distribution<br />
purposes only, <strong>al</strong>l as s<strong>et</strong> forth more fully in Article XI of the Plan.<br />
22. The Court concludes that the substantive consolidation proposed in the Plan is<br />
necessary and appropriate and satisfies the test s<strong>et</strong> forth in In re Augie/Restivo Baking, Co., 860<br />
F.2d 515, 518 (2d Cir. 1988). As outlined in the Plan Confirmation Brief, the benefits of<br />
substantive consolidation far outweigh any possible harm to Creditors. Accordingly, use of<br />
substantive consolidation as an equitable remedy is appropriate in this case.<br />
(e) Cancellation of Notes and Equity Interests<br />
23. On the Effective Date, except to the extent otherwise provided in the Plan, <strong>al</strong>l<br />
notes, stock, instruments, certificates, and other documents evidencing the 5.75% Convertible<br />
Senior Note Claims, the 6.75% Trust Convertible Subordinated Debenture Claims, the 9.25%<br />
Senior Euro Note Claims, the 12% Senior Note Claims, and Equity Interests sh<strong>al</strong>l be cancelled,<br />
and the obligations of the Debtors thereunder or in any way related ther<strong>et</strong>o sh<strong>al</strong>l be discharged.<br />
On the Effective Date, except to the extent otherwise provided in the Plan, any indenture relating<br />
to any of the foregoing, including but not limited to the 5.75% Convertible Senior Note<br />
Indenture, the 6.75% Trust Convertible Subordinated Debenture, the 9.25% Senior Euro Note<br />
Indenture and the 12% Senior Note Indenture sh<strong>al</strong>l be deemed to be canceled, as permitted by<br />
section 1123(a)(5)(F) of the Bankruptcy Code, and the obligations of the Debtors thereunder<br />
sh<strong>al</strong>l be discharged. The 5.75% Convertible Senior Note Indenture, the 9.25% Senior Euro Note<br />
K&E 11771836.17<br />
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Pg Pg 320 29 of 336 45<br />
Indenture and the 12% Senior Note Indenture sh<strong>al</strong>l continue in effect solely for the purposes of:<br />
(i) <strong>al</strong>lowing Holders of the 5.75% Convertible Senior Note Claims, the 9.25% Senior Euro Note<br />
Claims and the 12% Senior Note Claims to receive distributions under the Plan; and (ii) <strong>al</strong>lowing<br />
and preserving the rights of the Indenture Trustees under the 5.75% Convertible Senior Note<br />
Indenture, the 9.25% Senior Euro Note Indenture and the 12% Senior Note Indenture to (x) make<br />
distributions in satisfaction of Allowed 5.75% Convertible Senior Note Claims, the 9.25% Senior<br />
Euro Note Claims and the 12% Senior Note Claims, (y) exercise their respective charging liens<br />
against any such distributions, and (z) seek compensation and reimbursement for any fees and<br />
expenses incurred in making such distributions.<br />
(f) Creation of R<strong>et</strong>ained Profession<strong>al</strong> Escrow Account<br />
24. On the Effective Date, the Post-Consummation Trust sh<strong>al</strong>l establish the R<strong>et</strong>ained<br />
Profession<strong>al</strong> Escrow Account and reserve the amounts necessary to ensure the payment of <strong>al</strong>l<br />
Accrued Profession<strong>al</strong> Compensation.<br />
(g) R<strong>et</strong>ention by Debtors and Post-Consummation Trust of Other Actions<br />
25. Subject to Article XIII.F of the Plan, <strong>al</strong>l Other Actions, <strong>al</strong>ong with any associated<br />
recoveries, proceeds and s<strong>et</strong>tlements, sh<strong>al</strong>l remain the property of the Debtors’ Estates and sh<strong>al</strong>l<br />
be devised to the Post-Consummation Trust, provided, however, no Acquired Ass<strong>et</strong>s or Residu<strong>al</strong><br />
Chapter 5 Claims (or the proceeds thereof) sh<strong>al</strong>l be devised to the Post-Consummation Trust.<br />
(h) Corporate Action<br />
26. Upon the entry of this Confirmation Order by the Court, <strong>al</strong>l matters provided for<br />
under the Plan and the Purchase Agreement involving the corporate structure of the Debtors will<br />
be deemed authorized and approved without any requirement of further action by the Debtors,<br />
the Debtors’ shareholders or the Debtors’ boards of directors. On and after the Effective Date,<br />
the Trusts are authorized and directed to issue, execute and deliver the agreements, documents,<br />
and distributions contemplated by the Plan and the Purchase Agreement in the name of and on<br />
beh<strong>al</strong>f of the Debtors.<br />
K&E 11771836.17<br />
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Pg Pg 321 30 of 336 45<br />
(i) D&O Tail Coverage Policies<br />
27. To the extent provided under the Purchase Agreement, on the Effective Date the<br />
Debtors or the Post-Consummation Trust Plan Administrator will obtain sufficient tail coverage,<br />
in an amount consistent with the level of coverage existing prior to the Effective Date, for a<br />
period of six years under a directors’ and officers’ insurance policy for the current and former<br />
officers and directors of the Debtors utilizing the Post-Consummation Trust Priority Account.<br />
(j) ERISA S<strong>et</strong>tlement Agreement<br />
28. The Post-Consummation Trust Plan Administrator, after the Effective Date, sh<strong>al</strong>l<br />
pay $2 million out of the Post-Consummation Indemnity Account pursuant to the terms of the<br />
ERISA S<strong>et</strong>tlement Agreement, it being understood that any refund paid to the Debtors under the<br />
ERISA S<strong>et</strong>tlement Agreement up to $2 million sh<strong>al</strong>l be r<strong>et</strong>urned to the Post-Consummation<br />
Indemnity Account.<br />
(k) Sources of Cash for Plan Distribution<br />
29. All Cash necessary for the Debtors, or the Trusts, as the case may be, to make<br />
payments pursuant to the Plan sh<strong>al</strong>l be obtained from the S<strong>al</strong>e Proceeds and the proceeds of the<br />
Post-Consummation Trust Ass<strong>et</strong>s and the Unsecured Creditors Trust Ass<strong>et</strong>s, as the case may be.<br />
(l) Release of Liens<br />
30. Except as otherwise provided in the Plan or in any contract, instrument, release or<br />
other agreement or document entered into or delivered in connection with the Plan, on the<br />
Effective Date and concurrently with the applicable distributions made pursuant to Article III of<br />
the Plan, <strong>al</strong>l Interests, mortgages, deeds of trust, liens or other security interests against the<br />
property of any of the Debtors’ Estates will be fully released and discharged.<br />
31. Except as otherwise provided in the Purchase Agreement, pursuant to the terms of<br />
the Purchase Agreement and S<strong>al</strong>e Order, on the Effective Date <strong>al</strong>l Acquired Ass<strong>et</strong>s sh<strong>al</strong>l be<br />
transferred to the Purchaser free and clear of <strong>al</strong>l Claims, Encumbrances or Interests pursuant to<br />
sections 105, 363, 365, 1123 and 1141(c) of the Bankruptcy Code.<br />
32. On the Effective Date the Unsecured Creditors Trust Ass<strong>et</strong>s sh<strong>al</strong>l be transferred to<br />
the Unsecured Creditors Trust free and clear of <strong>al</strong>l Claims, Encumbrances or Interests.<br />
(m)<br />
K&E 11771836.17<br />
Effectuating Documents; Further Transactions; Exemption from Certain<br />
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Pg Pg 322 31 of 336 45<br />
Transfer Taxes<br />
33. The chief executive officer or chief financi<strong>al</strong> officer of each Debtor will be<br />
authorized to execute, deliver, file or record such contracts, instruments, releases and other<br />
agreements or documents and take such actions as may be necessary or appropriate to effectuate<br />
and implement the provisions of the Plan and the Purchase Agreement. The secr<strong>et</strong>ary and any<br />
assistant secr<strong>et</strong>ary of each Debtor will be authorized to certify or attest to any of the foregoing<br />
actions. Pursuant to section 1146 of the Bankruptcy Code, the following will not be subject to<br />
any stamp tax, re<strong>al</strong> estate transfer tax or similar tax: (1) the S<strong>al</strong>e Transaction; (2) the creation of<br />
any mortgage, deed of trust, lien or other security interest; (3) the making or assignment of any<br />
lease or sublease; (4) any Restructuring Transaction; or (5) the making or delivery of any deed or<br />
other instrument of transfer under, in furtherance of or in connection with the Plan, including<br />
(a) any merger agreements; (b) agreements of consolidation, restructuring, disposition,<br />
liquidation or dissolution; (c) deeds; (d) bills of s<strong>al</strong>e or (e) assignments executed in connection<br />
with any Restructuring Transaction pursuant to the Plan.<br />
(n) The Releases, Injunction and Exculpation Under the Plan<br />
34. The following releases, injunctions and exculpations s<strong>et</strong> forth in Article XIII of<br />
the Plan are hereby approved and authorized in their entir<strong>et</strong>y:<br />
(i)<br />
Releases by the Debtors<br />
ON THE EFFECTIVE DATE AND EFFECTIVE AS OF THE EFFECTIVE DATE<br />
AND IMMEDIATELY PRIOR TO THE TRANSFER OF THE RESPECTIVE TRUSTS’<br />
ASSETS TO SUCH TRUSTS (SUCH THAT THE TRUSTS WILL NOT RECEIVE ANY<br />
CLAIM RELEASED HEREUNDER), FOR THE GOOD AND VALUABLE<br />
CONSIDERATION PROVIDED BY EACH OF THE DEBTOR RELEASEES,<br />
INCLUDING, BUT NOT LIMITED TO: (A) THE DISCHARGE OF DEBT AND ALL<br />
OTHER GOOD AND VALUABLE CONSIDERATION PAID PURSUANT TO THE<br />
PLAN OR OTHERWISE; AND (B) THE SERVICES OF THE DEBTORS’ PRESENT<br />
AND FORMER OFFICERS AND DIRECTORS IN FACILITATING THE<br />
IMPLEMENTATION OF THE RESTRUCTURING CONTEMPLATED BY THE PLAN,<br />
AND IN VIEW OF THE INDEMNIFICATION PURSUANT TO ARTICLE XIII.E OF<br />
THE PLAN OF DEBTORS’ FORMER OFFICERS AND DIRECTORS AS<br />
INDEMNIFIED PARTIES, EACH OF THE DEBTORS SHALL PROVIDE A FULL<br />
DISCHARGE AND RELEASE TO THE DEBTOR RELEASEES (AND EACH SUCH<br />
DEBTOR RELEASEE SO RELEASED SHALL BE DEEMED RELEASED AND<br />
DISCHARGED BY THE DEBTORS) AND EACH SUCH DEBTOR RELEASEE’S<br />
RESPECTIVE PROPERTIES FROM ANY AND ALL CLAIMS, CAUSES OF ACTION<br />
AND ANY OTHER DEBTS, OBLIGATIONS, RIGHTS, SUITS, DAMAGES, ACTIONS,<br />
CAUSES OF ACTION, REMEDIES, AND LIABILITIES WHATSOEVER, WHETHER<br />
KNOWN OR UNKNOWN, FORESEEN OR UNFORESEEN, EXISTING AS OF THE<br />
K&E 11771836.17<br />
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EFFECTIVE DATE OR THEREAFTER ARISING, IN LAW, AT EQUITY, WHETHER<br />
FOR TORT, FRAUD, CONTRACT, VIOLATIONS OF FEDERAL OR STATE<br />
SECURITIES LAWS, OR OTHERWISE, BASED IN WHOLE OR IN PART UPON ANY<br />
ACT OR OMISSION, TRANSACTION, OR OTHER OCCURRENCE OR<br />
CIRCUMSTANCES EXISTING OR TAKING PLACE PRIOR TO OR ON THE<br />
EFFECTIVE DATE ARISING FROM OR RELATED IN ANY WAY TO THE<br />
DEBTORS, INCLUDING, WITHOUT LIMITATION, THOSE THAT ANY OF THE<br />
DEBTORS OR THE TRUSTS WOULD HAVE BEEN LEGALLY ENTITLED TO<br />
ASSERT (WHETHER INDIVIDUALLY OR COLLECTIVELY) OR THAT ANY<br />
HOLDER OF A CLAIM OR EQUITY INTEREST OR OTHER PERSON OR ENTITY<br />
WOULD HAVE BEEN LEGALLY ENTITLED TO ASSERT FOR OR ON BEHALF OF<br />
ANY OF THE DEBTORS OR ANY OF THEIR ESTATES AND FURTHER INCLUDING<br />
THOSE IN ANY WAY RELATED TO THE CHAPTER 11 CASES OR THE PLAN;<br />
PROVIDED, HOWEVER, THAT THE FOREGOING DEBTOR RELEASE SHALL NOT<br />
OPERATE TO WAIVE OR RELEASE FROM ANY CAUSES OF ACTION EXPRESSLY<br />
SET FORTH IN AND PRESERVED BY THE PLAN OR PLAN SUPPLEMENT.<br />
THE DEBTORS SHALL NOT HAVE RELEASED NOR BE DEEMED TO HAVE<br />
RELEASED BY OPERATION OF ARTICLE XIII.B OF THE PLAN OR OTHERWISE<br />
ANY CLAIMS, DEBTS, OBLIGATIONS, RIGHTS, SUITS, DAMAGES, ACTIONS,<br />
INTERESTS, REMEDIES, LIABILITIES OR CAUSES OF ACTION THAT THEY OR<br />
THE TRUSTS MAY HAVE NOW OR IN THE FUTURE AGAINST THE NON-<br />
RELEASED PARTIES.<br />
ENTRY OF THE CONFIRMATION ORDER SHALL CONSTITUTE THE<br />
COURT’S APPROVAL, PURSUANT TO SECTION 363 OF THE BANKRUPTCY CODE<br />
AND BANKRUPTCY RULE 9019, OF THE DEBTOR RELEASE, WHICH INCLUDES<br />
BY REFERENCE EACH OF THE RELATED PROVISIONS AND DEFINITIONS<br />
CONTAINED IN THE PLAN, AND FURTHER, SHALL CONSTITUTE THE COURT’S<br />
FINDING THAT THE DEBTOR RELEASE IS: (A) IN EXCHANGE FOR GOOD AND<br />
VALUABLE CONSIDERATION PROVIDED BY THE DEBTOR RELEASEES,<br />
REPRESENTING GOOD FAITH SETTLEMENT AND COMPROMISE OF THE<br />
CLAIMS RELEASED BY THE DEBTOR RELEASE; (B) IN THE BEST INTERESTS OF<br />
THE DEBTORS AND ALL HOLDERS OF CLAIMS; (C) FAIR, EQUITABLE, AND<br />
REASONABLE; (D) APPROVED AFTER DUE NOTICE AND OPPORTUNITY FOR<br />
HEARING; AND (E) A BAR TO THE DEBTORS OR TRUSTS ASSERTING ANY<br />
CLAIM RELEASED BY THE DEBTORS AGAINST ANY OF THE DEBTOR<br />
RELEASEES OR THEIR RESPECTIVE PROPERTY.<br />
(ii)<br />
Third Party Release<br />
ON THE EFFECTIVE DATE, EFFECTIVE AS OF THE EFFECTIVE DATE,<br />
THE RELEASING PARTIES SHALL PROVIDE A FULL DISCHARGE AND RELEASE<br />
(AND EACH PERSON OR ENTITY SO RELEASED SHALL BE DEEMED RELEASED<br />
BY THE RELEASING PARTIES) TO THE DEBTOR RELEASEES, AND THEIR<br />
RESPECTIVE PROPERTY FROM ANY AND ALL CLAIMS, CAUSES OF ACTION<br />
AND ANY OTHER DEBTS, OBLIGATIONS, RIGHTS, SUITS, DAMAGES, ACTIONS,<br />
REMEDIES, AND LIABILITIES WHATSOEVER, WHETHER KNOWN OR<br />
UNKNOWN, FORESEEN OR UNFORESEEN, EXISTING AS OF THE EFFECTIVE<br />
DATE OR THEREAFTER ARISING, IN LAW, AT EQUITY, WHETHER FOR TORT,<br />
FRAUD, CONTRACT, VIOLATIONS OF FEDERAL OR STATE SECURITIES LAWS,<br />
OR OTHERWISE, BASED IN WHOLE OR IN PART UPON ANY ACT OR OMISSION,<br />
TRANSACTION, OR OTHER OCCURRENCE OR CIRCUMSTANCES EXISTING OR<br />
TAKING PLACE PRIOR TO OR ON THE EFFECTIVE DATE ARISING FROM OR<br />
RELATED IN ANY WAY TO THE DEBTORS, INCLUDING THOSE IN ANY WAY<br />
K&E 11771836.17<br />
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RELATED TO THE CHAPTER 11 CASES OR THE PLAN; PROVIDED, HOWEVER,<br />
THAT THE FOREGOING THIRD PARTY RELEASE SHALL NOT OPERATE TO<br />
WAIVE OR RELEASE ANY OF THE DEBTOR RELEASEES FROM ANY CAUSES OF<br />
ACTION EXPRESSLY SET FORTH IN AND PRESERVED BY THE PLAN OR PLAN<br />
SUPPLEMENT, OR RELEASE THE PURCHASER FROM ITS OBLIGATIONS UNDER<br />
THE PURCHASE AGREEMENT, THE SALE ORDER, THE PLAN AND THE<br />
RETIREE SETTLEMENTS.<br />
THE THIRD PARTY RELEASE SHALL HAVE NO EFFECT ON THE CLAIMS<br />
OF RELEASEES TREATED UNDER THE PLAN, TO THE EXTENT OF ALLOWANCE<br />
OF CLAIMS AND SATISFACTION OF CLAIMS PURSUANT TO THE PLAN.<br />
THE RELEASING PARTIES SHALL NOT HAVE RELEASED NOR DEEMED<br />
TO HAVE RELEASED BY OPERATION OF ARTICLE XIII.C OF THE PLAN OR<br />
OTHERWISE ANY CLAIMS OR CAUSES OF ACTION THAT THEY, THE DEBTORS<br />
OR THE TRUSTS MAY HAVE NOW OR IN THE FUTURE AGAINST THE NON-<br />
RELEASED PARTIES.<br />
ENTRY OF THE CONFIRMATION ORDER SHALL CONSTITUTE THE<br />
COURT’S APPROVAL PURSUANT TO SECTION 363 OF THE BANKRUPTCY CODE<br />
AND BANKRUPTCY RULE 9019 OF THE THIRD PARTY RELEASE, WHICH<br />
INCLUDES BY REFERENCE EACH OF THE RELATED PROVISIONS AND<br />
DEFINITIONS CONTAINED IN THE PLAN, AND FURTHER, SHALL CONSTITUTE<br />
THE COURT’S FINDING THAT THE THIRD PARTY RELEASE IS: (A) IN<br />
EXCHANGE FOR GOOD AND VALUABLE CONSIDERATION PROVIDED BY THE<br />
THIRD PARTY RELEASEES, REPRESENTING GOOD FAITH SETTLEMENT AND<br />
COMPROMISE OF THE CLAIMS RELEASED BY THE THIRD PARTY RELEASE;<br />
(B) IN THE BEST INTERESTS OF THE DEBTORS AND ALL HOLDERS OF CLAIMS;<br />
(C) FAIR, EQUITABLE, AND REASONABLE; (D) APPROVED AFTER DUE NOTICE<br />
AND OPPORTUNITY FOR HEARING; AND (E) A BAR TO ANY OF THE<br />
RELEASING PARTIES ASSERTING ANY CLAIM RELEASED BY THE THIRD<br />
PARTY RELEASE AGAINST ANY OF THE THIRD PARTY RELEASEES OR THEIR<br />
PROPERTY.<br />
No provision contained in the Plan or in this Confirmation Order sh<strong>al</strong>l be construed as<br />
discharging, releasing or relieving any non-Debtor subsidiary or affiliate of Tower, in any<br />
capacity, from any liability with respect to the Pension Plan under any law, government policy or<br />
regulatory provision. PBGC and the Pension Plan sh<strong>al</strong>l not be enjoined or precluded from<br />
enforcing such liability against any party as a result of the Plan’s provisions for satisfaction,<br />
release and discharge of claims.<br />
Notwithstanding any other provision of the Plan or anything in the Plan to the contrary,<br />
including Section XIII.G of the Plan, nothing in the Plan, any amendment to the Plan, or in this<br />
Confirmation Order, sh<strong>al</strong>l release, enjoin, preclude, or otherwise affect in any way the<br />
prosecution of any claims, to the extent available under applicable nonbankruptcy law, against<br />
any non-Debtor affiliate or subsidiary based on control group liability arising from or relating to<br />
the Debtors' withdraw<strong>al</strong> from the United Furniture Workers Pension Fund A (the “Pension<br />
Fund”), provided, however, that (i) the Purchaser and <strong>al</strong>l such non-Debtor affiliates and/or<br />
subsidiaries reserve <strong>al</strong>l defenses to such claims and (ii) paragraph 37 of the S<strong>al</strong>e Order s<strong>et</strong>s forth<br />
the resolution of the Pension Fund’s claims described in this paragraph.<br />
(iii)<br />
Exculpation<br />
Notwithstanding anything contained in the Plan to the contrary, the Exculpated Parties<br />
sh<strong>al</strong>l neither have nor incur any liability to any Person or Entity for any prep<strong>et</strong>ition or<br />
K&E 11771836.17<br />
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Pg Pg 325 34 of 336 45<br />
postp<strong>et</strong>ition act taken or omitted to be taken in connection with or related to formulating,<br />
negotiating, preparing, disseminating, implementing, administering the Plan or otherwise, the<br />
Plan Supplement, the Disclosure Statement, the Post-Consummation Trust Agreement, the<br />
Unsecured Creditors Trust Agreement or any contract, instrument, release or other agreement or<br />
document created or entered into in connection with the Plan, or any other prep<strong>et</strong>ition or<br />
postp<strong>et</strong>ition act taken or omitted to be taken in connection with or in contemplation of the<br />
restructuring of the Debtors or confirming or consummating the Plan; provided, however, that<br />
the provisions of Article XIII.D of the Plan sh<strong>al</strong>l have no effect on the liability of any Person or<br />
Entity that results from any such act or omission that is d<strong>et</strong>ermined in a Fin<strong>al</strong> Order to have<br />
constituted gross negligence or willful misconduct; provided further, that each Exculpated Party<br />
sh<strong>al</strong>l be entitled to rely upon the advice of counsel concerning its duties pursuant to, or in<br />
connection with, the above referenced documents; provided still further, that the foregoing<br />
Exculpation sh<strong>al</strong>l not apply to any acts or omissions expressly s<strong>et</strong> forth in and preserved by the<br />
Plan or Plan Supplement.<br />
(iv)<br />
Injunction<br />
FROM AND AFTER THE EFFECTIVE DATE, ALL PERSONS AND ENTITIES<br />
ARE PERMANENTLY ENJOINED FROM COMMENCING OR CONTINUING IN ANY<br />
MANNER AGAINST THE DEBTORS, THE PURCHASER, THE COMMITTEE, THE<br />
COMMITTEE MEMBERS, THE RETIREE COMMITTEE, THE RETIREE<br />
COMMITTEE MEMBERS, INDENTURE TRUSTEES OR THE TRUSTS, THEIR<br />
SUCCESSORS AND ASSIGNS, AND EACH OF THEIR RESPECTIVE CURRENT AND<br />
FORMER MEMBERS, OFFICERS, DIRECTORS, MANAGED FUNDS INVESTMENT<br />
ADVISORS, AGENTS, FINANCIAL ADVISORS, ATTORNEYS, EMPLOYEES,<br />
PARTNERS, AFFILIATES AND REPRESENTATIVES (EACH OF THE FOREGOING<br />
IN ITS INDIVIDUAL CAPACITY AS SUCH), AND THEIR ASSETS AND<br />
PROPERTIES, AS THE CASE MAY BE, ANY SUIT, ACTION OR OTHER<br />
PROCEEDING, ON ACCOUNT OF OR RESPECTING ANY CLAIM, DEMAND,<br />
LIABILITY, OBLIGATION, DEBT, RIGHT, CAUSE OF ACTION, INTEREST OR<br />
REMEDY RELEASED OR TO BE RELEASED PURSUANT TO THE PLAN OR THE<br />
CONFIRMATION ORDER.<br />
FROM AND AFTER THE EFFECTIVE DATE, TO THE EXTENT OF THE<br />
RELEASE GRANTED IN ARTICLE XIII.C OF THE PLAN, THE RELEASING<br />
PARTIES SHALL BE PERMANENTLY ENJOINED FROM COMMENCING OR<br />
CONTINUING IN ANY MANNER AGAINST THE DEBTOR RELEASEES, THEIR<br />
SUCCESSORS AND ASSIGNS, AND EACH OF THEIR RESPECTIVE CURRENT AND<br />
FORMER MEMBERS, OFFICERS, DIRECTORS, MANAGED FUNDS, INVESTMENT<br />
ADVISORS, AGENTS, FINANCIAL ADVISORS, ATTORNEYS, EMPLOYEES,<br />
PARTNERS, AFFILIATES AND REPRESENTATIVES (EACH OF THE FOREGOING<br />
IN ITS INDIVIDUAL CAPACITY AS SUCH), AND THEIR ASSETS AND<br />
PROPERTIES, AS THE CASE MAY BE, ANY SUIT, ACTION OR OTHER<br />
PROCEEDING, ON ACCOUNT OF OR RESPECTING ANY CLAIM, DEMAND,<br />
LIABILITY, OBLIGATION, DEBT, RIGHT, CAUSE OF ACTION, INTEREST OR<br />
REMEDY RELEASED OR TO BE RELEASED PURSUANT TO ARTICLE XIII.C OF<br />
THE PLAN.<br />
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED FOR IN THE PLAN, THE<br />
PURCHASE AGREEMENT OR IN OBLIGATIONS ISSUED PURSUANT TO THE<br />
PLAN, FROM AND AFTER THE EFFECTIVE DATE, ALL PERSONS AND ENTITIES<br />
SHALL BE PRECLUDED FROM ASSERTING AGAINST THE PURCHASER, THE<br />
DEBTORS, THE DEBTORS IN POSSESSION, THE DEBTORS’ ESTATES, THE<br />
TRUSTS, THE COMMITTEE, THE COMMITTEE MEMBERS, THE RETIREE<br />
COMMITTEE, THE RETIREE COMMITTEE MEMBERS, INDENTURE TRUSTEES,<br />
K&E 11771836.17<br />
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ANY OF THEIR SUCCESSORS AND ASSIGNS, AND EACH OF THEIR RESPECTIVE<br />
CURRENT AND FORMER MEMBERS, OFFICERS, DIRECTORS, MANAGED<br />
FUNDS, INVESTMENT ADVISORS, AGENTS, FINANCIAL ADVISORS,<br />
ATTORNEYS, EMPLOYEES, PARTNERS, AFFILIATES AND REPRESENTATIVES<br />
(EACH OF THE FOREGOING IN ITS INDIVIDUAL CAPACITY AS SUCH), AND<br />
THEIR ASSETS AND PROPERTIES, ANY OTHER CLAIMS OR EQUITY INTERESTS<br />
RELATED TO THE DEBTORS BASED UPON ANY DOCUMENTS, INSTRUMENTS,<br />
OR ANY ACT OR OMISSION, TRANSACTION OR OTHER ACTIVITY OF ANY<br />
KIND OR NATURE THAT OCCURRED PRIOR TO THE EFFECTIVE DATE.<br />
THE RIGHTS AFFORDED IN THE PLAN AND THE TREATMENT OF ALL<br />
CLAIMS AND EQUITY INTERESTS IN THE PLAN SHALL BE IN EXCHANGE FOR<br />
AND IN COMPLETE SATISFACTION OF CLAIMS AND EQUITY INTERESTS OF<br />
ANY NATURE WHATSOEVER RELATED TO THE DEBTORS, INCLUDING ANY<br />
INTEREST ACCRUED ON CLAIMS FROM AND AFTER THE PETITION DATE,<br />
AGAINST THE DEBTORS OR ANY OF THEIR ASSETS OR PROPERTIES. ON THE<br />
EFFECTIVE DATE, ALL SUCH CLAIMS AGAINST, AND EQUITY INTERESTS IN,<br />
THE DEBTORS SHALL BE SATISFIED AND RELEASED IN FULL.<br />
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED FOR IN THE PLAN, THE<br />
PURCHASE AGREEMENT OR IN OBLIGATIONS ISSUED PURSUANT TO THE<br />
PLAN, ALL PARTIES AND ENTITIES ARE PERMANENTLY ENJOINED, ON AND<br />
AFTER THE EFFECTIVE DATE, ON ACCOUNT OF ANY CLAIM OR EQUITY<br />
INTEREST SATISFIED AND RELEASED HEREBY, FROM:<br />
K&E 11771836.17<br />
(i)<br />
(ii)<br />
COMMENCING OR CONTINUING IN ANY MANNER ANY<br />
ACTION OR OTHER PROCEEDING OF ANY KIND AGAINST<br />
ANY DEBTOR, THE PURCHASER, THE TRUSTS, THE<br />
COMMITTEE, THE COMMITTEE MEMBERS, THE RETIREE<br />
COMMITTEE, THE RETIREE COMMITTEE MEMBERS, THE<br />
INDENTURE TRUSTEES, AND EACH OF THEIR RESPECTIVE<br />
CURRENT AND FORMER MEMBERS, OFFICERS, DIRECTORS,<br />
MANAGED FUNDS, INVESTMENT ADVISORS, AGENTS,<br />
FINANCIAL ADVISORS, ATTORNEYS, EMPLOYEES,<br />
PARTNERS, AFFILIATES AND REPRESENTATIVES (EACH OF<br />
THE FOREGOING IN ITS INDIVIDUAL CAPACITY AS SUCH),<br />
OR ANY OF THEIR SUCCESSORS AND ASSIGNS, OR ANY OF<br />
THEIR ASSETS AND PROPERTIES;<br />
ENFORCING, ATTACHING, COLLECTING OR RECOVERING<br />
BY ANY MANNER OR MEANS ANY JUDGMENT, AWARD,<br />
DECREE OR ORDER AGAINST ANY DEBTOR, THE<br />
PURCHASER, THE TRUSTS, THE COMMITTEE, THE<br />
COMMITTEE MEMBERS, THE RETIREE COMMITTEE, THE<br />
RETIREE COMMITTEE MEMBERS, INDENTURE TRUSTEES<br />
AND ANY OF THEIR RESPECTIVE SUCCESSORS AND<br />
ASSIGNS, AND EACH OF THEIR RESPECTIVE CURRENT AND<br />
FORMER MEMBERS, OFFICERS, DIRECTORS, MANAGED<br />
FUNDS, INVESTMENT ADVISORS, AGENTS, FINANCIAL<br />
ADVISORS, ATTORNEYS, EMPLOYEES, PARTNERS,<br />
AFFILIATES AND REPRESENTATIVES (EACH OF THE<br />
FOREGOING IN ITS INDIVIDUAL CAPACITY AS SUCH), AND<br />
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Pg Pg 327 36 of 336 45<br />
THEIR RESPECTIVE ASSETS AND PROPERTIES;<br />
(iii) CREATING, PERFECTING, OR ENFORCING ANY<br />
ENCUMBRANCE OF ANY KIND AGAINST ANY DEBTOR, THE<br />
PURCHASER, THE TRUSTS, THE INDENTURE TRUSTEES, AND<br />
EACH OF THEIR RESPECTIVE CURRENT AND FORMER<br />
MEMBERS, OFFICERS, DIRECTORS, MANAGED FUNDS,<br />
INVESTMENT ADVISORS, AGENTS, FINANCIAL ADVISORS,<br />
ATTORNEYS, EMPLOYEES, PARTNERS, AFFILIATES AND<br />
REPRESENTATIVES (EACH OF THE FOREGOING IN ITS<br />
INDIVIDUAL CAPACITY AS SUCH), OR THE PROPERTY OR<br />
ESTATE OF ANY OF THE FOREGOING; OR<br />
(IV)<br />
ASSERTING ANY RIGHT OF SETOFF, SUBROGATION OR<br />
RECOUPMENT OF ANY KIND AGAINST ANY OBLIGATION<br />
DUE FROM ANY DEBTOR, THE PURCHASER, THE TRUSTS OR<br />
AGAINST THE PROPERTY OR ESTATE OF ANY DEBTOR, THE<br />
PURCHASER OR THE TRUSTS, AND EACH OF THEIR<br />
RESPECTIVE CURRENT AND FORMER MEMBERS, OFFICERS,<br />
DIRECTORS, MANAGED FUNDS, INVESTMENT ADVISORS,<br />
AGENTS, FINANCIAL ADVISORS, ATTORNEYS, EMPLOYEES,<br />
PARTNERS, AFFILIATES AND REPRESENTATIVES (EACH OF<br />
THE FOREGOING IN ITS INDIVIDUAL CAPACITY AS SUCH),<br />
EXCEPT TO THE EXTENT A RIGHT TO SETOFF,<br />
RECOUPMENT OR SUBROGATION IS ASSERTED WITH<br />
RESPECT TO A TIMELY FILED PROOF OF CLAIM;<br />
PROVIDED THAT NOTHING IN THIS CONFIRMATION ORDER<br />
SHALL ENJOIN THYSSENKRUPP BUDD COMPANY OR<br />
THYSSEN KRUPP BUDD SYSTEMS LLC FROM ASSERTING A<br />
RIGHT OF SET-OFF BY VIRTUE OF THE PROOFS OF CLAIM<br />
FILED BY THEIR AFFILIATES.<br />
BY ACCEPTING DISTRIBUTIONS PURSUANT TO THE PLAN, EACH<br />
HOLDER OF AN ALLOWED CLAIM RECEIVING DISTRIBUTIONS PURSUANT TO<br />
THE PLAN WILL BE DEEMED TO HAVE SPECIFICALLY CONSENTED TO THE<br />
INJUNCTIONS SET FORTH IN ARTICLE XIII.G OF THE PLAN.<br />
Notwithstanding any other provision of the Plan or anything in the Plan to the contrary,<br />
including the foregoing provisions of Section XIII.G of the Plan, nothing in the Plan, any<br />
amendment to the Plan, or in this Confirmation Order, sh<strong>al</strong>l enjoin any claims, to the extent<br />
available under applicable nonbankruptcy law, of the Pension Fund against any non-Debtor<br />
affiliates or subsidiaries any claims based on control group liability arising from or related to the<br />
Debtors’ withdraw<strong>al</strong> from the Pension Fund, provided, however, that (i) the Purchaser and <strong>al</strong>l<br />
such non-Debtor affiliates and/or subsidiaries reserve <strong>al</strong>l defenses to such claims and (ii)<br />
paragraph 37 of the S<strong>al</strong>e Order s<strong>et</strong>s forth the resolution of the Pension Fund’s claims described in<br />
this paragraph.<br />
K&E 11771836.17<br />
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I. Consummation<br />
35. The substanti<strong>al</strong> consummation of the Plan, within the meaning of section 1127 of<br />
the Bankruptcy Code, sh<strong>al</strong>l be, and hereby is, deemed to mean the occurrence of the close of the<br />
Effective Date.<br />
J. R<strong>et</strong>ention of Jurisdiction<br />
36. Notwithstanding the entry of the Confirmation Order and the occurrence of the<br />
Effective Date, the Court sh<strong>al</strong>l r<strong>et</strong>ain jurisdiction of <strong>al</strong>l matters arising out of, or related to, these<br />
Chapter 11 Cases and the Plan pursuant to, and for the purposes of, sections 105(a) and 1142 of<br />
the Bankruptcy Code and for, among other things, the following purposes:<br />
a. <strong>al</strong>low, dis<strong>al</strong>low, d<strong>et</strong>ermine, liquidate, classify, estimate or establish the<br />
priority or secured or unsecured status of any Claim or Equity Interest,<br />
including the resolution of any request for payment of any Administrative<br />
Claim and the resolution of any and <strong>al</strong>l objections to the <strong>al</strong>lowance or<br />
priority of Claims or Equity Interests;<br />
b. grant or deny any applications for <strong>al</strong>lowance of compensation or<br />
reimbursement of expenses authorized pursuant to the Bankruptcy Code or<br />
the Plan, for periods ending on or before the Effective Date;<br />
c. resolve any matters related to the assumption, assignment or rejection of<br />
any Executory Contract or Unexpired Lease to which a Debtor is party or<br />
with respect to which a Debtor may be liable and to hear, d<strong>et</strong>ermine and, if<br />
necessary, liquidate, any Claims arising therefrom, including those matters<br />
related to any amendment to the Plan after the Effective Date pursuant to<br />
Article XV.D of the Plan which purports to add Executory Contracts or<br />
Unexpired Leases to the list of Executory Contracts and Unexpired Leases<br />
to be assumed;<br />
d. ensure that distributions to Holders of Allowed Claims are accomplished<br />
pursuant to the provisions of the Plan;<br />
e. decide or resolve any motions, adversary proceedings, contested or<br />
litigated matters and any other matters and grant or deny any applications<br />
involving a Debtor that may be pending on the Effective Date or instituted<br />
by the Trusts after the Effective Date, provided, however, that the Trusts<br />
sh<strong>al</strong>l reserve the right to commence actions in <strong>al</strong>l appropriate jurisdictions;<br />
K&E 11771836.17<br />
f. enter such orders as may be necessary or appropriate to implement or<br />
consummate the provisions of the Plan, the S<strong>al</strong>e Transaction, the Post-<br />
Consummation Trust Agreement, the Unsecured Creditors Trust<br />
Agreement and <strong>al</strong>l other contracts, instruments, releases, indentures and<br />
other agreements or documents adopted in connection with the Plan, Plan<br />
Supplement, Post-Consummation Trust Agreement, Unsecured Creditors<br />
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Trust Agreement or the Disclosure Statement;<br />
g. resolve any cases, controversies, suits or disputes that may arise in<br />
connection with the Consummation, interpr<strong>et</strong>ation or enforcement of the<br />
S<strong>al</strong>e Order, the Plan, or any Person’s or Entity’s obligations incurred in<br />
connection with the Plan;<br />
h. hear and d<strong>et</strong>ermine <strong>al</strong>l Chapter 5 Claims and Causes of Action that are<br />
pending as of the date hereof or that may be commenced in the future;<br />
i. issue injunctions, enforce them, enter and implement other orders or take<br />
such other actions as may be necessary or appropriate to restrain<br />
interference by any Person or Entity with Consummation or enforcement<br />
of the Plan, except as otherwise provided in the Plan;<br />
j. enforce Article XIII.A, Article XIII.B, Article XIII.C, Article XIII.D, and<br />
Article XIII.E of the Plan;<br />
k. enforce the injunction s<strong>et</strong> forth in Article XIII.G of the Plan;<br />
l. resolve any cases, controversies, suits or disputes with respect to the<br />
releases, injunction and other provisions contained in Article XIII of the<br />
Plan, and enter such orders as may be necessary or appropriate to<br />
implement or enforce <strong>al</strong>l such releases, injunctions and other provisions;<br />
m. enter and implement such orders as necessary or appropriate if the<br />
Confirmation Order is modified, stayed, reversed, revoked or vacated;<br />
n. resolve any other matters that may arise in connection with or relate to the<br />
Plan, the Disclosure Statement, the S<strong>al</strong>e Order, the Confirmation Order or<br />
any contract, instrument, release, indenture or other agreement or<br />
document adopted in connection with the Plan or the Disclosure<br />
Statement; and<br />
o. enter an order and/or Fin<strong>al</strong> Decree concluding these Chapter 11 Cases.<br />
K. Payment of Statutory Fees<br />
37. All fees payable pursuant to section 1930 of title 28 of the United States Code<br />
after the Effective Date, as d<strong>et</strong>ermined by the Court at a hearing pursuant to section 1128 of the<br />
Bankruptcy Code, sh<strong>al</strong>l be paid prior to the closing of the Chapter 11 Cases on the earlier of<br />
when due or the Effective Date, or as soon thereafter as practicable, and sh<strong>al</strong>l be payable by the<br />
Post-Consummation Trust, so long as the Post-Consummation Trust is in existence, and to the<br />
extent that the Chapter 11 Cases have not been closed and the Unsecured Creditors Trust is in<br />
existence at the time the Post-Consummation Trust terminates, sh<strong>al</strong>l be payable by the<br />
K&E 11771836.17<br />
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Unsecured Creditors Trust commencing with the c<strong>al</strong>endar quarter following the Post-<br />
Consummation Trust's termination until such time as the Unsecured Creditors Trust is terminated<br />
and the Debtors’ Chapter 11 Cases are closed.<br />
L. Section 1145 Exemption<br />
38. To the extent that the benefici<strong>al</strong> interests in the Trusts issued in accordance with<br />
the provisions of the Plan, the Post-Consummation Trust Agreement or the Unsecured Creditors<br />
Trust Agreement constitute securities, such benefici<strong>al</strong> interests sh<strong>al</strong>l be exempt from registration<br />
pursuant to section 1145 of the Bankruptcy Code.<br />
M. Exemption from Stamp Taxes<br />
39. Pursuant to section 1146 of the Bankruptcy Code, any transfers of property<br />
pursuant to the Plan, including, but not limited to the S<strong>al</strong>e Transaction, sh<strong>al</strong>l not be subject to any<br />
document recording tax, stamp tax, conveyance fee, intangibles or similar tax, mortgage tax,<br />
stamp act, re<strong>al</strong> estate transfer tax, mortgage recording tax or other similar tax or government<strong>al</strong><br />
assessment in the United States, and the Confirmation Order sh<strong>al</strong>l direct the appropriate state or<br />
loc<strong>al</strong> government<strong>al</strong> offici<strong>al</strong>s or agents to forego the collection of any such tax or government<strong>al</strong><br />
assessment and to accept for filing and recordation any of the foregoing instruments or other<br />
documents without the payment of any such tax or government<strong>al</strong> assessment.<br />
N. Repayment of Industri<strong>al</strong> Revenue Bonds<br />
40. The Bank of New York Trust Company, N.A., as indenture trustee for the<br />
Industri<strong>al</strong> Revenue Bonds sh<strong>al</strong>l accept payment in full on the Industri<strong>al</strong> Revenue Bonds from the<br />
S<strong>al</strong>e Proceeds and, if paid in full at the time of the closing of the S<strong>al</strong>e Transaction, sh<strong>al</strong>l not draw<br />
on any outstanding l<strong>et</strong>ters of credit.<br />
O. Treatment of Second Lien Claims<br />
41. On the Effective Date, the Second Lien Collater<strong>al</strong> Account Fin<strong>al</strong> B<strong>al</strong>ance sh<strong>al</strong>l be<br />
r<strong>et</strong>urned to the Second Lien Agent for the Pro Rata benefit of the Second Lien Lenders and the<br />
Second Lien Adjusted Base Claim sh<strong>al</strong>l be paid, in full in Cash, as provided for in section<br />
III.B.3. of the Plan. In addition, (i) each undrawn Prep<strong>et</strong>ition L<strong>et</strong>ter of Credit sh<strong>al</strong>l be r<strong>et</strong>urned to<br />
the issuer undrawn and marked canceled or Debtors sh<strong>al</strong>l be released, following payment of the<br />
K&E 11771836.17<br />
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Second Lien Collater<strong>al</strong> Account Fin<strong>al</strong> B<strong>al</strong>ance and Second Lien Adjusted Base Claim to the<br />
Second Lien Agent, by Deutsche Bank Trust Company Americas, as issuer, from any and <strong>al</strong>l<br />
liability or responsibility with respect to such undrawn l<strong>et</strong>ter of credit and (ii) the Second Lien<br />
Agent’s leg<strong>al</strong> fees incurred prior to the Effective Date, but not paid prior to or on the Effective<br />
Date, sh<strong>al</strong>l be paid in accordance with the procedures outlined in Article III.B.3. of the Plan.<br />
42. No later than thirty (30) days after the closing of the S<strong>al</strong>e Transaction (expected to<br />
take place on or before July 31, 2007), the Purchaser or its successors, assigns, or transferees, as<br />
applicable, sh<strong>al</strong>l pay, or cause to be paid, to Perella Weinberg Partners, LP (“PWP”), as<br />
compensation for the financi<strong>al</strong> advisory services provided by PWP to the Second Lien Agent,<br />
$3,500,000.00 in cash by wire transfer and such obligation sh<strong>al</strong>l constitute an Allowed<br />
Administrative Claim in the Debtors’ Chapter 11 Cases; provided, however, notwithstanding<br />
anything contrary in the Agreement, such Allowed Administrative Claim sh<strong>al</strong>l constitute an<br />
Assumed Liability (as defined in the Agreement) and under no circumstance sh<strong>al</strong>l the Post-<br />
Consummation Trust or the Unsecured Creditors Trust be required to pay any amounts in respect<br />
of such Claim. PWP will not be required to take any addition<strong>al</strong> steps and there are no other<br />
conditions outstanding that will prevent the Purchaser or its successors, assigns, or transferees, as<br />
applicable, from paying, or causing to be paid, to PWP the aforementioned $3,500,000.00 fee.<br />
P. Speci<strong>al</strong> Provisions Regarding Subordinated Securities Claims<br />
43. Notwithstanding anything in the Plan to the contrary, including in Article XIII of<br />
the Plan, nothing in the Plan, any amendment to the Plan, or in the Confirmation Order sh<strong>al</strong>l:<br />
(i) impact in any way the right or ability of the lead plaintiffs in the Securities Litigation to<br />
pursue and recover on any Claims against the Debtors solely to the extent of any coverage<br />
provided by any insurance policy, including any directors and officers insurance policy; or<br />
(ii) release, enjoin, preclude, or otherwise affect in any way the prosecution of the claims<br />
asserted, or which may be asserted, against any non-Debtor in the Securities Litigation or the<br />
right of the lead plaintiffs in such litigation to (a) pursue further litigation, including without<br />
limitation appe<strong>al</strong>s, against any non-Debtor defendants, or (b) to enter into or enforce any<br />
s<strong>et</strong>tlement or enforce any judgment obtained in connection therewith or relating ther<strong>et</strong>o,<br />
K&E 11771836.17<br />
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Pg Pg 332 41 of 336 45<br />
provided, however, that notwithstanding the foregoing, (i) the terms and conditions of that<br />
certain Stipulation and Order B<strong>et</strong>ween the Debtors On the One Hand and the Securities Plaintiffs<br />
on the Other Hand Resolving Debtors’ Application for Order Reclassifying Securities Plaintiffs’<br />
Claims (Dock<strong>et</strong> # 2395) sh<strong>al</strong>l remain in full force and effect; and (ii) the s<strong>al</strong>e of ass<strong>et</strong>s authorized<br />
pursuant to the S<strong>al</strong>e Order sh<strong>al</strong>l not give rise to claims in the Securities Litigation against<br />
Purchaser and any of its Affiliates, successors or assigns and each of their current and former<br />
members, officers, directors, managed funds, investment advisors, attorneys, employees,<br />
partners, Affiliates and representatives (each of the foregoing in its individu<strong>al</strong> capacity), and<br />
sh<strong>al</strong>l not affect the Purchaser acquiring the ass<strong>et</strong>s s<strong>et</strong> forth in the S<strong>al</strong>e Order free and clear of<br />
liens, claims and encumbrances.<br />
Q. Speci<strong>al</strong> Provision Regarding Nissan North America, <strong>Inc</strong>.<br />
44. The Purchaser has agreed, subject to the Effective Date, to be bound by the terms<br />
and conditions of the confidenti<strong>al</strong> s<strong>et</strong>tlement agreement entered into b<strong>et</strong>ween the Debtors and<br />
Nissan North America, <strong>Inc</strong>., which s<strong>et</strong>tlement agreement is subject to approv<strong>al</strong> of the Court.<br />
R. Speci<strong>al</strong> Provision Regarding Comerica Leasing Corporation<br />
45. Upon entry of this Confirmation Order, the Debtors will dismiss with prejudice<br />
their pending adversary proceeding against Comerica Leasing Corporation (A.P. # 07-01422).<br />
S. Speci<strong>al</strong> Provision Regarding United Furniture Workers Pension Fund A<br />
46. Nothing s<strong>et</strong> forth herein or in the Plan sh<strong>al</strong>l operate to discharge, modify or waive<br />
the s<strong>et</strong>tlements by and among the Debtors, the Purchaser and the United Furniture Workers<br />
Pension Fund A (the “Pension Fund”), as more particularly s<strong>et</strong> forth in the S<strong>al</strong>e Order and in that<br />
certain Stipulation and Order B<strong>et</strong>ween the Debtors and United Furniture Workers Pension Fund<br />
A Reducing and Fixing Proofs of Claim Nos. 6652, 6653, 6654, 6655, 6656, 6657, 6658, 6659,<br />
6660, 6661, 6662, 6663, 6664, 6665, 6666, 6667, 6668, 6669, 6670, 6671, 6672, 6673, 6674,<br />
6675, 6676 and 6677 dated June 20, 2007.<br />
T. References to Plan Provisions<br />
47. The failure specific<strong>al</strong>ly to include or to refer to any particular article, section or<br />
provision of the Plan, Purchase Agreement, S<strong>al</strong>e Order or any related agreement relating to the<br />
K&E 11771836.17<br />
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Plan in this Confirmation Order sh<strong>al</strong>l not diminish or impair the effectiveness of such article,<br />
section or provision, it being the intent of the Court that the Plan be confirmed, and such related<br />
agreements including, but not limited to, the Purchase Agreement and S<strong>al</strong>e Order, be approved in<br />
their entir<strong>et</strong>y.<br />
U. Post-Confirmation Notices and Bar Dates<br />
(a) Notice of Entry of the Confirmation Order<br />
48. In accordance with Bankruptcy Rules 2002 and 3020(c), within five (5) business<br />
days of the date of entry of this Confirmation Order, the Debtors (or their agents) sh<strong>al</strong>l give<br />
notice of the entry of this Confirmation Order, in substanti<strong>al</strong>ly the form of Exhibit B annexed<br />
her<strong>et</strong>o (the “Notice of Confirmation”) by United States mail, first class postage prepaid, by hand,<br />
or by overnight courier service to <strong>al</strong>l parties having been served with the Confirmation Hearing<br />
Notice; provided, however, that no notice or service of any kind sh<strong>al</strong>l be required to be mailed or<br />
made upon any person to whom the Debtors mailed a Confirmation Hearing Notice, but received<br />
such notice r<strong>et</strong>urned marked “undeliverable as addressed,” “moved, left no forwarding address”<br />
or “forwarding order expired,” or similar reason, unless the Debtors have been informed in<br />
writing by such person, or are otherwise aware, of that person’s new address.<br />
49. To supplement the notice described in the preceding sentence, within fifteen days<br />
of the date of this Confirmation Order the Debtors sh<strong>al</strong>l publish the Notice of Confirmation once<br />
each in the USA Today, The New York Times, the D<strong>et</strong>roit Free Press/ D<strong>et</strong>roit News, Automotive<br />
News, and the nation<strong>al</strong> edition of The W<strong>al</strong>l Stre<strong>et</strong> Journ<strong>al</strong>.<br />
50. The Notice of Confirmation sh<strong>al</strong>l have the effect of an order of the Court, sh<strong>al</strong>l<br />
constitute sufficient notice of the entry of this Confirmation Order to such filing and recording<br />
officers, and sh<strong>al</strong>l be a recordable instrument notwithstanding any contrary provision of<br />
applicable non-bankruptcy law.<br />
51. Mailing and publication of the Notice of Confirmation in the time and manner s<strong>et</strong><br />
forth in the preceding paragraph are good and sufficient under the particular circumstances and<br />
in accordance with the requirements of Bankruptcy Rules 2002 and 3020(c), and no further<br />
notice is necessary.<br />
K&E 11771836.17<br />
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(b) Profession<strong>al</strong> Compensation<br />
52. R<strong>et</strong>ained Profession<strong>al</strong>s or other Entities asserting a Fee Claim for services<br />
rendered before the Confirmation Date must File and serve on the Post-Consummation Trust and<br />
such other Entities who are designated by the Bankruptcy Rules, the Confirmation Order, or<br />
other order of the Court an application for fin<strong>al</strong> <strong>al</strong>lowance of such Fee Claim no later than 45<br />
days after the Effective Date; provided that any profession<strong>al</strong> who may receive compensation or<br />
reimbursement of expenses pursuant to the Ordinary Course Profession<strong>al</strong>s Order may continue to<br />
receive such compensation and reimbursement of expenses for services rendered before the<br />
Effective Date, without further Court review or approv<strong>al</strong>, pursuant to the Ordinary Course<br />
Profession<strong>al</strong>s Order. Objections to any Fee Claim must be Filed and served on the Post-<br />
Consummation Trust Plan Administrator and the requesting party by the later of (i) 75 days after<br />
the Effective Date and (ii) 30 days after the Filing of the applicable request for payment of the<br />
Fee Claim. To the extent necessary, this Confirmation Order will amend and supersede any<br />
previously entered order of the Court regarding the payment of Fee Claims. Each Holder of an<br />
Allowed Fee Claim sh<strong>al</strong>l be paid by the Post-Consummation Trust Plan Administrator from the<br />
R<strong>et</strong>ained Profession<strong>al</strong> Escrow Account.<br />
53. The Indenture Trustees may submit d<strong>et</strong>ailed invoices to the Debtors or the Trusts,<br />
as applicable, for <strong>al</strong>l fees and expenses for which the Indenture Trustees seek reimbursement<br />
without the need for further Court approv<strong>al</strong>. The Debtors or the Trusts, as applicable, upon<br />
review of such invoices, may pay those amounts that the Debtors or the Trusts, as applicable, in<br />
their sole discr<strong>et</strong>ion, deem reasonable, and sh<strong>al</strong>l object in writing to those fees and expenses, if<br />
any, that the Debtors or the Trusts, as applicable, deem to be unreasonable. In the event that the<br />
Debtors or the Trusts, as applicable, object to <strong>al</strong>l or any portion of an Indenture Trustee’s<br />
invoice, the Debtors or the Trusts, as applicable, and such Indenture Trustee will endeavor, in<br />
good faith, to reach mutu<strong>al</strong> agreement on the amount of such disputed fees and/or expenses. In<br />
the event that the Debtors or the Trusts, as applicable, and an Indenture Trustee are unable to<br />
resolve any differences regarding disputed fees or expenses, either party sh<strong>al</strong>l be authorized to<br />
move to have such dispute heard by the Court.<br />
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Pg Pg 335 44 of 336 45<br />
V. Rights of the Purchaser<br />
54. Nothing contained in this Confirmation Order sh<strong>al</strong>l modify the rights of the<br />
Purchaser s<strong>et</strong> forth in Section 2.2 of the Purchase Agreement to review and object to claims.<br />
W. Changes to Plan and Plan Supplement<br />
55. Effective as of the date hereof, and subject to the limitations contained in the<br />
Plan: (a) the Debtors reserve the right, in accordance with the Bankruptcy Code and the<br />
Bankruptcy Rules, to amend or modify the Plan and the exhibits comprising the Plan Supplement<br />
prior to the entry of the Confirmation Order; and (b) after the entry of the Confirmation Order,<br />
the Debtors or the Post-Consummation Trust, as the case may be, may, upon order of the Court,<br />
amend or modify the Plan and the exhibits comprising the Plan Supplement, in accordance with<br />
section 1127(b) of the Bankruptcy Code, or remedy any defect or omission or reconcile any<br />
inconsistency in the Plan in such manner as may be necessary to carry out the purpose and intent<br />
of the Plan. Any such modification sh<strong>al</strong>l be made subject to the reasonable consent of the<br />
Purchaser, the Committee, and the Second Lien Agent (but only to the extent such modification<br />
materi<strong>al</strong>ly affects the rights of the Second Lien Agent or the Second Lien Lenders), provided that<br />
if any party objects to such modification, the Debtors, the Purchaser or the Committee or the<br />
Second Lien Agent may seek an expedited hearing before the Court to address such objection.<br />
X. Effect of Confirmation Order<br />
56. If there is any direct conflict b<strong>et</strong>ween the terms of the Plan or the Plan<br />
Supplement and the terms of this Confirmation Order, the terms of this Confirmation Order sh<strong>al</strong>l<br />
control. If there is any inconsistency b<strong>et</strong>ween the terms of the S<strong>al</strong>e Order and the terms of this<br />
Confirmation Order, the terms of the S<strong>al</strong>e Order sh<strong>al</strong>l control. Nothing herein amends, modifies<br />
or affects in any way the Purchase Agreement and S<strong>al</strong>e Order. The Purchase Agreement and<br />
S<strong>al</strong>e Order sh<strong>al</strong>l continue in full force and effect notwithstanding entry of this Confirmation<br />
Order, Confirmation of the Plan or the occurrence of the Effective Date.<br />
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Pg Pg 336 45 of 336 45<br />
Y. Authorization to Consummate<br />
57. The Debtors are authorized to consummate the Plan at any time after the entry of<br />
this Confirmation Order subject to satisfaction or waiver (by the required parties) of the<br />
conditions precedent to effectiveness s<strong>et</strong> forth in Article XII of the Plan.<br />
Z. Captions<br />
58. Subsequent to the Effective Date, the Debtors sh<strong>al</strong>l use following caption with<br />
respect to the Debtors’ Chapter 11 Cases:<br />
UNITED STATES BANKRUPTCY COURT<br />
SOUTHERN DISTRICT OF NEW YORK<br />
)<br />
) Chapter 11<br />
In re )<br />
TALT 1<br />
(f.k.a. Tower Automotive, <strong>Inc</strong>.)<br />
) Case Nos. 05-10576- 05-10601 (ALG)<br />
) Jointly Administered<br />
)<br />
AA.<br />
Fin<strong>al</strong> Confirmation Order<br />
59. This Confirmation Order is a fin<strong>al</strong> order and the period in which an appe<strong>al</strong> must<br />
be filed sh<strong>al</strong>l commence upon the entry hereof.<br />
IT IS SO ORDERED.<br />
Dated: New York, New York<br />
July 12, 2007<br />
/s/ Allan L. Gropper<br />
UNITED STATES BANKRUPTCY JUDGE<br />
1 The following case numbers are being jointly administered: 05-10576, 05-10577, 05-10578, 05-10579, 05-<br />
10580, 05-10581, 05-10582, 05-10583, 05-10584, 05-10585, 05-10586, 05-10587, 05-10588, 05-10589, 05-<br />
10590, 05-10591, 05-10592, 05-10593, 05-10594, 05-10595, 05-10596, 05-1097, 05-10598, 05-10599, 05-<br />
10560 and 05-10561.<br />
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