<PAGE> 1
FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of earliest event Reported) June 16, 1995
-------------
THE COLUMBIA GAS SYSTEM, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-1098 13--1594808
- - ---------------------------- ----------- -------------------
(State of other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
20 Montchanin Road, Wilmington, Delaware 19807
-----------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code (302) 429-5000
--------------
<PAGE> 2
Item 5. Other Events
Information contained in a News Release dated June 14, 1995, is
incorporated herein by reference.
The following information concerning material filed with the United
States Bankruptcy Court for the District of Delaware on June 14, 1995, is also
provided:
1) First Amended Plan of Reorganization of The Columbia Gas
System, Inc., dated June 14, 1995
2) Disclosure Statement pursuant to Section 1125 of the
Bankruptcy Code for the First Amended Plan of Reorganization
of The Columbia Gas System, Inc., dated June 14, 1995
3) The First Amended Plan of Reorganization of The Columbia Gas
System, Inc. (CG Plan) proposes paying creditors in new
securities of the registrant and, to a lessor extent cash, the
full amount of their claims which will include their principal
balances plus accrued prepetition interest and postpetition
interest and interest on overdue principal and interest at
various rates described in the CG Plan. A list of factors is
included in this Form 8-K filing that can be used to calculate
an estimated claim amount through December 31, 1995, based on
the methodology which is explained in detail in the CG Plan.
To calculate the estimated claim amount multiply the factor by
the principal amount held. Note that these factors should be
used only for estimating the approximate value of claims under
the filed CG Plan. While the Corporation believes that the
plan ultimately approved will be substantially similar to the
CG Plan filed, there are many elements which could alter the
CG Plan and the applicability of these factors. As explained
in the CG Plan, the ultimate payout to creditors will depend
on the time of emergence which in turn depends on obtaining
necessary approvals, upon the acceptance of the CG Plan by the
requisite number and amount of creditors and upon the
satisfaction of other conditions including the concurrent
emergence of the Columbia Gas Transmission Corporation. For
some security classes, the ultimate payout will also depend on
the level of interest rates through year-end 1995.
4) Second Amended Plan of Reorganization of Columbia Gas
Transmission Corporation dated June 14, 1995
5) Disclosure Statement pursuant to Section 1125 of the
Bankruptcy Code for the Second Amended Plan of Reorganization
of Columbia Gas Transmission Corporation dated June 14, 1995
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
The Columbia Gas System, Inc.
-----------------------------
(Registrant)
By /s/ R. E. Lowe
---------------------------
R.E. Lowe
Vice President and
Controller
Date: June 16, 1995
<PAGE> 4
Contacts: Media - W. R. McLaughlin (302) 429-5443
H. W. Chaddock (302) 429-5261
Analysts - T. L. Hughes (302) 429-5363
K. P. Murphy (302) 429-5471
FOR IMMEDIATE RELEASE June 14, 1995
AMENDED REORGANIZATION PLANS FILED BY COLUMBIA GAS COMPANIES
WILMINGTON, DEL. -- The Columbia Gas System, Inc., (NYSE:CG)
and its principal pipeline subsidiary, Columbia Gas Transmission Corp., filed
amended reorganization plans and disclosure statements with the U.S. Bankruptcy
Court for the District of Delaware here today.
The amendments incorporate the settlement reached earlier
between Columbia Transmission and its producer creditors and spell out the
terms of the new securities to be issued to Parent Company creditors and the
methodology to be used in pricing these securities.
The Parent Company plan is a full pay plan that provides for a
total distribution of approximately $3.6 billion to its creditors. Columbia
Transmission's plan will pay approximately $1.7 billion to outside creditors
and $2.2 billion to the Parent Company to resolve its secured and unsecured
debt claims. Columbia Transmission's unsecured creditors will receive various
percentages of their allowed claims depending upon their classification under
its plan.
The two companies are mailing notices to approximately 130,000
shareholders, bondholders and other creditors announcing the Bankruptcy Court
hearing on the adequacy of the disclosure documents filed today by the two
companies, which has been scheduled for July 18, 1995.
Another Bankruptcy Court hearing is scheduled for Thursday,
June 15, on the motion filed by Columbia Transmission seeking approval of the
settlement agreement it reached with major producer creditors. These producers
represent more than 80 percent of the producer claims filed against Columbia
Transmission.
The Columbia Gas System, Inc., is one of the nation's largest
natural gas holding companies. Subsidiary companies are
<PAGE> 5
- 2 -
engaged in the exploration, production, purchase, storage, transmission and
distribution of natural gas and other energy operations such as cogeneration.
The Parent Company and Columbia Transmission have been operating as
debtors-in-possession under the Bankruptcy Code since July 31, 1991.
<PAGE> 6
The Columbia Gas System, Inc.
Claim Estimation Factors
Debenture Claims
<TABLE>
<CAPTION>
CUSIP # Issue Factor (1)
<S> <C> <C>
197648AW8 6.250% due 10/1991 1.4331
197648AX6 6.625% due 10/1992 1.4180
197648AY4 7.250% due 5/1993 1.4166
197648AZ1 7.000% due 10/1993 1.4133
197648BA5 9.000% due 10/1994 1.4814
197648BB3 8.750% due 4/1995 1.4764
197648BC1 9.125% due 10/1995 1.4945
197648BD9 8.375% due 3/1996 1.4721
197648BE7 8.250% due 9/1996 1.4665
197648BF4 7.500% due 3/1997 1.4289
197648BG2 7.500% due 6/1997 1.4020
197648BH0 7.500% due 10/1997 1.4197
197648BJ6 7.500% due 5/1998 1.4104
197648BK3 9.875% due 6/1999 1.5157
197648BM9 10.125% due 11/1995 1.4937
197648BN7 9.125% due 5/1996 1.4720
197648BP2 10.250% due 5/1999 1.5157
197648BU1 10.250% due 8/2011 1.5931
197648BT4 9.000% due 8/1993 1.4948
197648BV9 10.500% due 6/2012 1.5550
197648BW7 10.150% due 11/2013 1.5517
</TABLE>
LESOP Claims
<TABLE>
<CAPTION>
<S> <C> <C>
CUSIP # Issue Factor (1)
292168AA9 LESOP 1.4543
</TABLE>
(1) To calculate estimated claim through December 31, 1995 multiply factor by
principal amount held.
<PAGE> 7
The Columbia Gas System, Inc.
Claim Estimation Factors
Medium-Term Note Claims
<TABLE>
<CAPTION>
CUSIP # Issue Factor (1)
<S> <C> <C>
19765AAA0 9.30% MTN A due 9/1999 1.5382
19765AAB8 9.30% MTN A due 9/2019 1.5382
19765AAC6 9.25% MTN A due 9/2000 1.5353
19765AAD4 9.32% MTN A due 9/2001 1.5393
19765AAE2 9.35% MTN A due 9/2001 1.5411
19765AAF9 9.25% MTN A due 9/1999 1.5353
19765AAG7 9.40% MTN A due 9/2009 1.5439
19765AAH5 9.39% MTN A due 9/2009 1.5434
19765AAJ1 9.27% MTN A due 9/2000 1.5364
19765AAK8 9.40% MTN A due 9/2019 1.5439
19765AAK8 9.40% MTN A due 9/2019 1.5439
19765AAL6 9.34% MTN A due 10/2009 1.5405
19765AAM4 9.20% MTN A due 9/1998 1.5324
19765AAN2 9.25% MTN A due 9/2004 1.5353
19765AAP7 9.20% MTN A due 9/2004 1.5324
19765AAR3 9.40% MTN A due 10/1999 1.5439
19765AAQ5 9.40% MTN A due 10/2000 1.5439
19765AAS1 9.50% MTN A due 10/2014 1.5497
19765AAT9 9.50% MTN A due 10/2019 1.5497
19765AAU6 9.43% MTN A due 10/2019 1.5457
19765AAV4 9.22% MTN B due 12/2019 1.5335
19765AAW2 9.30% MTN B due 12/2019 1.5382
19765AAX0 8.98% MTN B due 12/1998 1.5196
19765AAY8 8.98% MTN B due 12/1999 1.5196
19765AAZ5 8.95% MTN B due 12/1998 1.5179
19765ABA9 9.18% MTN B due 1/2010 1.5312
19765ABB7 9.24% MTN B due 12/2014 1.5347
19765ABC5 9.07% MTN B due 1/2000 1.5249
19765ABD3 9.53% MTN B due 2/2005 1.5515
19765ABE1 9.50% MTN B due 2/2002 1.5497
19765ABF8 9.49% MTN B due 2/2004 1.5492
19765ABG6 9.48% MTN B due 2/2003 1.5486
19765ABH4 9.95% MTN B due 5/2020 1.5758
19765ABJ0 9.95% MTN B due 5/2020 1.5758
19765ABK7 9.90% MTN B due 6/2005 1.5729
19765ABL5 9.90% MTN B due 5/2005 1.5729
19765ABM3 9.90% MTN B due 6/2010 1.5729
19765ABN1 9.91% MTN B due 5/2020 1.5735
19765ABP6 9.72% MTN B due 6/2000 1.5625
19765ABQ3 9.70% MTN B due 6/2000 1.5613
19765ABV3 9.80% MTN B due 6/2010 1.5671
19765ABR2 9.86% MTN B due 6/2005 1.5706
19765ABS0 9.86% MTN B due 6/2005 1.5706
19765ABT8 9.98% MTN B due 6/2020 1.5775
19765ABU5 9.90% MTN B due 6/2007 1.5729
</TABLE>
<PAGE> 8
<TABLE>
<S> <C> <C>
19765AEW1 9.62% MTN C due 6/2005 1.5567
19765ABX9 9.74% MTN C due 6/2020 1.5636
19765ABY7 9.70% MTN C due 6/2020 1.5613
19765ABZ4 9.55% MTN C due 6/2000 1.5526
19765ACA8 9.60% MTN C due 6/2002 1.5555
</TABLE>
(1) To calculate estimated claim through December 31, 1995 multiply factor by
principal amount held.
<PAGE> 9
The Columbia Gas System, Inc.
Claim Estimation Factors
$750 Million Credit Agreement Claims
<TABLE>
<CAPTION>
Original Issuance Maturity
CUSIP # Rate Date Date Factor (1)(2)
<S> <C> <C> <C> <C>
N/A 7.063% 6/17/91 8/19/91 1.3544
N/A 7.375% 4/8/91 10/8/91 1.3494
N/A 7.250% 4/10/91 10/10/91 1.3487
N/A 7.125% 5/21/91 11/21/91 1.3613
N/A 7.250% 6/7/91 12/9/91 1.3573
</TABLE>
$500 Million Credit Agreement Claims
<TABLE>
<CAPTION>
Original Issuance Maturity
CUSIP # Rate Date Date Factor (1)(2)
<S> <C> <C> <C> <C>
N/A 6.438% 6/14/91 8/14/91 1.3117
</TABLE>
Auction Note Claims
<TABLE>
<CAPTION>
Original Issuance Maturity
CUSIP # Rate Date Date Factor (1)(2)
<S> <C> <C> <C> <C>
N/A 6.949% 2/21/91 6/20/91 1.3447
N/A 6.929% 2/21/91 6/20/91 1.3447
N/A 6.250% 6/6/91 8/5/91 1.3557
N/A 6.300% 6/6/91 8/5/91 1.3558
N/A 6.420% 6/6/91 10/4/91 1.3560
</TABLE>
Bid Note Claims
<TABLE>
<CAPTION>
Original Issuance Maturity
CUSIP # Rate Date Date Factor (1)(2)
<S> <C> <C> <C> <C>
N/A 6.090% 5/1/91 6/24/91 1.3445
N/A 6.130% 5/2/91 7/19/91 1.3445
N/A 6.150% 5/21/91 7/23/91 1.3445
N/A 6.240% 5/7/91 9/20/91 1.3624
N/A 6.540% 4/10/91 10/7/91 1.3697
N/A 6.700% 3/12/91 7/10/91 1.3446
N/A 6.180% 5/6/91 8/5/91 1.3625
N/A 6.200% 5/22/91 8/20/91 1.3589
N/A 6.200% 5/22/91 8/20/91 1.3589
N/A 6.220% 5/28/91 9/19/91 1.3576
</TABLE>
<PAGE> 10
(1) To calculate estimated claim through December 31, 1995 multiply factor by
principal amount held.
(2) The claim amount will be based, in part, on the level of the six month
LIBOR rate through the time of emergence. The specific factors assume a
six month LIBOR rate of 6.69% from July 31, 1995 to December 31, 1995.
<PAGE> 11
The Columbia Gas System, Inc.
Claim Estimation Factors
Commercial Paper Claims
<TABLE>
<CAPTION>
Original Issuance Maturity
CUSIP # Discount Date Date Factor (1)(2)
<S> <C> <C> <C> <C>
19765CTL2 6.100% 5/7/91 6/20/91 1.3445
19765CU89 6.070% 5/28/91 7/8/91 1.3445
19765CUK2 6.050% 4/30/91 7/19/91 1.3445
19765CUK2 6.070% 5/2/91 7/19/91 1.3445
19765CUN6 6.050% 4/30/91 7/22/91 1.3445
19765CV70 6.750% 2/28/91 8/7/91 1.3412
19765CVD7 6.700% 2/22/91 8/13/91 1.3394
19765CVG0 6.700% 2/22/91 8/16/91 1.3386
19765CVG0 6.200% 6/17/91 8/16/91 1.3386
19765CVK1 6.250% 6/11/91 8/19/91 1.3377
19765CVP0 6.200% 6/17/91 8/23/91 1.3365
19765CWC8 6.650% 3/14/91 9/12/91 1.3307
19765CWJ3 6.700% 3/21/91 9/18/91 1.3290
19765CX11 6.050% 4/30/91 10/1/91 1.3252
19765CYN2 6.500% 4/3/91 11/22/91 1.3101
19765CV54 6.100% 5/6/91 8/5/91 1.3418
19765CVC9 6.250% 6/12/91 8/12/91 1.3397
19765CVL9 6.240% 6/14/91 8/20/91 1.3374
19765CVN5 6.240% 6/14/91 8/22/91 1.3368
19765CVP0 6.200% 6/18/91 8/23/91 1.3365
19765CX86 6.170% 4/9/91 10/8/91 1.3231
19765CYF9 6.300% 6/6/91 11/15/91 1.3121
19765CYT9 6.300% 6/6/91 11/27/91 1.3086
</TABLE>
(1) To calculate estimated claim through December 31, 1995 multiply factor by
principal amount held.
(2) The claim amount will be based, in part, on the level of the six month
LIBOR rate through the time of emergence. The specific factors assume a
six month LIBOR rate of 6.69% from July 31, 1995 to December 31, 1995.
<PAGE> 12
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
- - ----------------------------------X
IN RE: : CHAPTER 11
: CASE NO. 91-803 (HSB)
THE COLUMBIA GAS SYSTEM, INC. :
:
DEBTOR. :
- - ----------------------------------X
FIRST AMENDED PLAN OF REORGANIZATION OF
THE COLUMBIA GAS SYSTEM, INC.
RESPECTFULLY SUBMITTED,
STROOCK & STROOCK & LAVAN
LEWIS KRUGER
ROBIN E. KELLER
SEVEN HANOVER SQUARE
NEW YORK, NEW YORK 10004-2696
(212) 806-5400
CRAVATH, SWAINE & MOORE
JOHN F. HUNT
JOHN E. BEERBOWER
825 EIGHTH AVENUE
NEW YORK, NEW YORK 10019-7475
(212) 474-1000
YOUNG, CONAWAY, STARGATT & TAYLOR
JAMES L. PATTON, JR.
11TH FLOOR - RODNEY SQUARE NORTH
P.O. BOX 391
WILMINGTON, DELAWARE 19899-0391
(302) 571-6600
CO-COUNSEL FOR
THE COLUMBIA GAS SYSTEM, INC.
DATED: JUNE 13, 1995
<PAGE> 13
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
I. DEFINED TERMS, RULES OF INTERPRETATION,
COMPUTATION OF TIME AND GOVERNING LAW . . . . . . . . . . . . . . . 2
A. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . 2
1. "Administrative Claim" . . . . . . . . . . . . . . . . . . 2
2. "Administrative Fee Order" . . . . . . . . . . . . . . . . 2
3. "Allowed" . . . . . . . . . . . . . . . . . . . . . . . . 2
4. "Assumed Executory Contract Claim" . . . . . . . . . . . . 3
5. "Auction Notes" . . . . . . . . . . . . . . . . . . . . . 3
6. "Avoidance Claim" . . . . . . . . . . . . . . . . . . . . 3
7. "Bank Agent" . . . . . . . . . . . . . . . . . . . . . . . 3
8. "Bankruptcy Code" . . . . . . . . . . . . . . . . . . . . 3
9. "Bankruptcy Court" . . . . . . . . . . . . . . . . . . . . 3
10. "Bankruptcy Rules" . . . . . . . . . . . . . . . . . . . . 3
11. "Bar Date" . . . . . . . . . . . . . . . . . . . . . . . . 4
12. "Bar Date Order" . . . . . . . . . . . . . . . . . . . . . 4
13. "Bid Notes" . . . . . . . . . . . . . . . . . . . . . . . 4
14. "Board of Directors" and "Board" . . . . . . . . . . . . . 4
15. "Borrowed Money Claim" . . . . . . . . . . . . . . . . . . 5
16. "Borrowed Money Instruments" . . . . . . . . . . . . . . . 5
17. "Business Day" . . . . . . . . . . . . . . . . . . . . . . 5
18. "Calendar Quarter" . . . . . . . . . . . . . . . . . . . . 5
19. "Canada Sale Agreement" . . . . . . . . . . . . . . . . . 5
20. "Cash Collateral Orders" . . . . . . . . . . . . . . . . . 5
21. "Cash Consideration" . . . . . . . . . . . . . . . . . . . 6
22. "Claim" . . . . . . . . . . . . . . . . . . . . . . . . . 6
23. "Class" . . . . . . . . . . . . . . . . . . . . . . . . . 6
24. "CNR" . . . . . . . . . . . . . . . . . . . . . . . . . . 6
25. "Columbia" . . . . . . . . . . . . . . . . . . . . . . . . 6
26. "Columbia Canada" . . . . . . . . . . . . . . . . . . . . 6
27. "Columbia Customer Guaranty" . . . . . . . . . . . . . . . 7
28. "Columbia Omnibus Settlement" . . . . . . . . . . . . . . 8
29. "Columbia Secured Claim" . . . . . . . . . . . . . . . . . 9
30. "Commercial Paper" . . . . . . . . . . . . . . . . . . . . 9
31. "Common Stock" . . . . . . . . . . . . . . . . . . . . . . 10
32. "Complying Class 4 Claimant" . . . . . . . . . . . . . . . 10
33. "Confirmation" . . . . . . . . . . . . . . . . . . . . . . 10
34. "Confirmation Date" . . . . . . . . . . . . . . . . . . . 10
35. "Confirmation Order" . . . . . . . . . . . . . . . . . . . 10
36. "Contributors" . . . . . . . . . . . . . . . . . . . . . . 10
37. "Creditor" . . . . . . . . . . . . . . . . . . . . . . . . 10
38. "Creditors' Committee" . . . . . . . . . . . . . . . . . . 10
39. "Customer Settlement Proposal" . . . . . . . . . . . . . . 11
40. "D&O Insurance" . . . . . . . . . . . . . . . . . . . . . 11
41. "Debentures" . . . . . . . . . . . . . . . . . . . . . . . 11
42. "DECS" . . . . . . . . . . . . . . . . . . . . . . . . . 11
43. "Deficiency Claim" . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
<PAGE> 14
<TABLE>
<S> <C>
44. "Derivative Action" . . . . . . . . . . . . . . . . . . . 11
45. "DIP Facility" . . . . . . . . . . . . . . . . . . . . . . 11
46. "DIP Facility Claim" . . . . . . . . . . . . . . . . . . . 12
47. "Disbursing Agent" . . . . . . . . . . . . . . . . . . . . 12
48. "Disbursing Agent Agreement" . . . . . . . . . . . . . . . 12
49. "Disclosure Statement" . . . . . . . . . . . . . . . . . . 12
50. "Disputed" . . . . . . . . . . . . . . . . . . . . . . . . 12
51. "District Court" . . . . . . . . . . . . . . . . . . . . . 12
52. "Effective Date" . . . . . . . . . . . . . . . . . . . . . 12
53. "Equity Committee" . . . . . . . . . . . . . . . . . . . . 13
54. "ERISA" . . . . . . . . . . . . . . . . . . . . . . . . . 13
55. "Estate" . . . . . . . . . . . . . . . . . . . . . . . . . 13
56. "Fee Examiner" . . . . . . . . . . . . . . . . . . . . . . 13
57. "FERC" . . . . . . . . . . . . . . . . . . . . . . . . . . 13
58. "FERC Gas Tariff" . . . . . . . . . . . . . . . . . . . . 13
59. "File" or "Filed" . . . . . . . . . . . . . . . . . . . . 13
60. "Final Order" . . . . . . . . . . . . . . . . . . . . . . 13
61. "First Issue Security" or "Issue A" . . . . . . . . . . . 14
62. "First Mortgage Bonds" . . . . . . . . . . . . . . . . . . 14
63. "$500 Million Credit Agreement" . . . . . . . . . . . . . 14
64. "HCA" . . . . . . . . . . . . . . . . . . . . . . . . . . 14
65. "Holder" . . . . . . . . . . . . . . . . . . . . . . . . 14
66. "Indenture Trustee" . . . . . . . . . . . . . . . . . . . 15
67. "Intercompany Claims" . . . . . . . . . . . . . . . . . . 15
68. "Intercompany Claims Litigation" . . . . . . . . . . . . . 15
69. "Interest" . . . . . . . . . . . . . . . . . . . . . . . . 15
70. "Inventory Loan Agreement" . . . . . . . . . . . . . . . . 15
71. "Investment Grade" . . . . . . . . . . . . . . . . . . . . 15
72. "IRS" . . . . . . . . . . . . . . . . . . . . . . . . . . 16
73. "IRS Closing Agreement" . . . . . . . . . . . . . . . . . 16
74. "IRS Order" . . . . . . . . . . . . . . . . . . . . . . . 16
75. "IRS Settlement Agreement" . . . . . . . . . . . . . . . . 16
76. "Issue" . . . . . . . . . . . . . . . . . . . . . . . . . 16
77. "Kotaneelee Escrow" . . . . . . . . . . . . . . . . . . . 16
78. "Ledger Closing Date" . . . . . . . . . . . . . . . . . . 16
79. "LESOP" . . . . . . . . . . . . . . . . . . . . . . . . . 16
80. "LESOP Action" . . . . . . . . . . . . . . . . . . . . . . 16
81. "LESOP Action Claims" . . . . . . . . . . . . . . . . . . 17
82. "LESOP Debentures" . . . . . . . . . . . . . . . . . . . . 17
83. "LESOP Guaranty" . . . . . . . . . . . . . . . . . . . . . 17
84. "LESOP Indenture" . . . . . . . . . . . . . . . . . . . . 17
85. "LESOP Indenture Trustee" . . . . . . . . . . . . . . . . 17
86. "LESOP Trust" . . . . . . . . . . . . . . . . . . . . . . 17
87. "LESOP Thrift Plan Trustee" . . . . . . . . . . . . . . . 17
88. "LIBOR" . . . . . . . . . . . . . . . . . . . . . . . . . 17
89. "Liquidation Value" . . . . . . . . . . . . . . . . . . . 18
90. "Maximum Offer Amount" . . . . . . . . . . . . . . . . . . 18
91. "Maximum Proof of Claim Amount" . . . . . . . . . . . . . 18
92. "Medium Term Notes" . . . . . . . . . . . . . . . . . . . 18
93. "Miscellaneous Administrative Claim" . . . . . . . . . . . 18
94. "New Indenture" . . . . . . . . . . . . . . . . . . . . . 18
95. "New Indenture Trustee" . . . . . . . . . . . . . . . . . 19
96. "New Indenture Securities" . . . . . . . . . . . . . . . . 19
</TABLE>
(ii)
<PAGE> 15
<TABLE>
<CAPTION>
Page
----
<S> <C>
97. "New Preferred Stock" . . . . . . . . . . . . . . . . . . 19
98. "1961 Indenture" . . . . . . . . . . . . . . . . . . . . . 19
99. "Non-Borrowed Money Claim" . . . . . . . . . . . . . . . . 19
100. "Offer of Settlement" . . . . . . . . . . . . . . . . . . 19
101. "Omnibus Orders" . . . . . . . . . . . . . . . . . . . . . 19
102. "PBGC" . . . . . . . . . . . . . . . . . . . . . . . . . . 19
103. "Person" . . . . . . . . . . . . . . . . . . . . . . . . . 20
104. "Petition Date" . . . . . . . . . . . . . . . . . . . . . 20
105. "Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . 20
106. "Plan Mailing Date" . . . . . . . . . . . . . . . . . . . 20
107. "Post-Petition Operational Claim" . . . . . . . . . . . . 20
108. "Pricing Formulae" . . . . . . . . . . . . . . . . . . . . 20
109. "Priority Tax Claim" . . . . . . . . . . . . . . . . . . . 20
110. "Professional" . . . . . . . . . . . . . . . . . . . . . . 20
111. "Professional Claim" . . . . . . . . . . . . . . . . . . . 21
112. "Pro-Rata Share" . . . . . . . . . . . . . . . . . . . . . 21
113. "Qualifying Class 4 Claimant" . . . . . . . . . . . . . . 21
114. "Questionnaire" . . . . . . . . . . . . . . . . . . . . . 21
115. "Rate Swap Agreement" . . . . . . . . . . . . . . . . . . 21
116. "Record Date" . . . . . . . . . . . . . . . . . . . . . . 21
117. "Recordation Order" . . . . . . . . . . . . . . . . . . . 21
118. "Rejecting Class 4 Claimant" . . . . . . . . . . . . . . . 22
119. "Releasee" . . . . . . . . . . . . . . . . . . . . . . . . 22
120. "Reliance Group" . . . . . . . . . . . . . . . . . . . . . 22
121. "Reorganization Case" . . . . . . . . . . . . . . . . . . 22
122. "Reorganized Columbia" . . . . . . . . . . . . . . . . . . 22
123. "Reorganized TCO" . . . . . . . . . . . . . . . . . . . . 22
124. "Retirement Plan" . . . . . . . . . . . . . . . . . . . . 22
125. "Schedule of Liabilities" . . . . . . . . . . . . . . . . 22
126. "SEC" . . . . . . . . . . . . . . . . . . . . . . . . . . 22
127. "Securities Action" . . . . . . . . . . . . . . . . . . . 22
128. "Securities Action Claim" . . . . . . . . . . . . . . . . 23
129. "Setoff Funds" . . . . . . . . . . . . . . . . . . . . . . 23
130. "Setoff Order" . . . . . . . . . . . . . . . . . . . . . . 23
131. "Settlement Amount" . . . . . . . . . . . . . . . . . . . 23
132. "$750 Million Credit Agreement" . . . . . . . . . . . . . 23
133. "Stipulation of Dismissal With Prejudice" . . . . . . . . 23
134. "Stockholder" . . . . . . . . . . . . . . . . . . . . . . 23
135. "Stock Value" . . . . . . . . . . . . . . . . . . . . . . 23
136. "Supplemental Bar Date" . . . . . . . . . . . . . . . . . 24
137. "Supplemental Bar Date Order" . . . . . . . . . . . . . . 24
138. "Supplemental Proof of Claim" . . . . . . . . . . . . . . 24
139. "Surrender Instruments" . . . . . . . . . . . . . . . . . 24
140. "TCO" . . . . . . . . . . . . . . . . . . . . . . . . . . 24
141. "TCO Committees" . . . . . . . . . . . . . . . . . . . . . 24
142. "TCO Plan" . . . . . . . . . . . . . . . . . . . . . . . . 24
143. "TCO Proceeding" . . . . . . . . . . . . . . . . . . . . . 24
144. "Term Loan Facility" . . . . . . . . . . . . . . . . . . . 25
145. "Unclaimed Distribution" . . . . . . . . . . . . . . . . . 25
146. "Unclassified Claim" . . . . . . . . . . . . . . . . . . . 25
</TABLE>
(iii)
<PAGE> 16
<TABLE>
<CAPTION>
Page
----
<S> <C>
147. "U.S. Trustee" . . . . . . . . . . . . . . . . . . . . . . 25
148. "U.S. Trustee's Fee Claims" . . . . . . . . . . . . . . . 25
149. "Voting Deadline" . . . . . . . . . . . . . . . . . . . . 25
150. "Working Capital Facility" . . . . . . . . . . . . . . . . 25
B. Rules of Interpretation . . . . . . . . . . . . . . . . . . . . 25
C. Computation of Time . . . . . . . . . . . . . . . . . . . . . . 26
D. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 26
II. UNCLASSIFIED CLAIMS AND
CLASSES OF CLAIMS AND INTERESTS . . . . . . . . . . . . . . . . . . 27
A. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
B. Unclassified Claims . . . . . . . . . . . . . . . . . . . . . . 27
1. Administrative Claims . . . . . . . . . . . . . . . . . . 27
a. Professional Claims . . . . . . . . . . . . . . . . . 28
b. Post-Petition Operational Claims . . . . . . . . . . 28
c. Assumed Executory Contract Claims . . . . . . . . . . 28
d. U.S. Trustee's Fee Claims . . . . . . . . . . . . . . 28
e. Miscellaneous Administrative Claims . . . . . . . . . 28
2. Priority Tax Claims . . . . . . . . . . . . . . . . . . . 29
C. Classes of Claims and Interests . . . . . . . . . . . . . . . 29
1. Class 1 - DIP Facility Claim . . . . . . . . . . . . . . . 29
2. Class 2 - Non-Borrowed Money Claims . . . . . . . . . . . 29
3. Class 3 - Borrowed Money Claims . . . . . . . . . . . . . 29
a. Class 3.1 - Borrowed Money Convenience Claims . . . . 29
b. Class 3.2 - Other Borrowed Money Claims . . . . . . . 30
i. Debenture Claims . . . . . . . . . . . . . . . . 30
ii. $500 Million Credit Agreement Claims . . . . . . 30
iii. $750 Million Credit Agreement Claims . . . . . . 30
iv. Commercial Paper Claims . . . . . . . . . . . . 30
v. Bid Note Claims . . . . . . . . . . . . . . . . 30
vi. Auction Note Claims . . . . . . . . . . . . . . 30
vii. Medium Term Note Claims . . . . . . . . . . . . 30
viii. LESOP Claims . . . . . . . . . . . . . . . . . 30
ix. Rate Swap Claims . . . . . . . . . . . . . . . . 31
4. Class 4 - Securities Action Claims . . . . . . . . . . . . 31
5. Class 5 - Intercompany Claims . . . . . . . . . . . . . . 31
6. Class 6 - Assumed Claims . . . . . . . . . . . . . . . . . 31
a. Class 6.1 - Indemnity Claims . . . . . . . . . . . . 31
b. Class 6.2 - Pension Claims . . . . . . . . . . . . . 31
c. Class 6.3 - Shawmut Guaranty Claim . . . . . . . . . 32
7. Class 7 - Interests in Columbia Common Stock . . . . . . . 32
III. TREATMENT OF CLAIMS AND INTERESTS . . . . . . . . . . . . . . . . . 32
A. Treatment of Unclassified Claims . . . . . . . . . . . . . . . 32
1. Administrative Claims . . . . . . . . . . . . . . . . . . 32
a. Professional Claims . . . . . . . . . . . . . . . . . 32
b. Post-Petition Operational Claims . . . . . . . . . . 32
</TABLE>
(iv)
<PAGE> 17
<TABLE>
<CAPTION>
Page
----
<S> <C>
c. Assumed Executory Contract Claims . . . . . . . . . 33
d. U.S. Trustee's Fee Claims . . . . . . . . . . . . . . 33
e. Miscellaneous Administrative Claims . . . . . . . . . 33
2. Priority Tax Claims . . . . . . . . . . . . . . . . . . . 35
B. Treatment of Classified Claims . . . . . . . . . . . . . . . . 36
1. Class 1 - DIP Facility Claim . . . . . . . . . . . . . . . 36
2. Class 2 - Non-Borrowed Money Claims . . . . . . . . . . . 36
3. Class 3 - Borrowed Money Claims . . . . . . . . . . . . . 37
a. Class 3.1 - Borrowed Money Convenience Claims . . . . 37
b. Class 3.2 - Other Borrowed Money Claims . . . . . . . 37
4. Class 4 - Securities Action Claims . . . . . . . . . . . . 40
5. Class 5 - Intercompany Claims . . . . . . . . . . . . . . 45
C. Treatment of Assumed Claims . . . . . . . . . . . . . . . . . . 46
1. Class 6.1 - Indemnity Claims . . . . . . . . . . . . . . . 46
2. Class 6.2 - Pension Claims . . . . . . . . . . . . . . . . 46
3. Class 6.3 - Shawmut Guaranty Claim . . . . . . . . . . . 46
D. Treatment of Class 7 - Interests in Common Stock . . . . . . . 46
IV. PROVISIONS GOVERNING DISTRIBUTIONS . . . . . . . . . . . . . . . . . 47
A. Transactions On the Effective Date . . . . . . . . . . . . . . 47
B. Distributions on Unclassified Claims and Claims in Classes 1,
2, 4 and 6 . . . . . . . . . . . . . . . . . . . . . . . . . . 49
C. Distributions on Classes 3.1 and 3.2 Claims . . . . . . . . . . 49
1. Ledger Closing Date . . . . . . . . . . . . . . . . . . . 49
2. Surrender of Instruments . . . . . . . . . . . . . . . . . 50
3. Cancellation of Surrender Instruments and Termination of
Debt Obligations . . . . . . . . . . . . . . . . . . . . . 52
4. Distributions of Cash, New Debt Instruments, Preferred
Stock and DECS . . . . . . . . . . . . . . . . . . . . . . 53
5. Cash in Lieu of Fractional Shares; Rounding of New
Indenture Securities . . . . . . . . . . . . . . . . . . . 54
D. Reorganized Columbia or Third Party as Disbursing Agent for
Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
E. Costs of Distribution . . . . . . . . . . . . . . . . . . . . . 56
F. Delivery of Distributions; Unclaimed Distributions . . . . . . 56
1. Delivery of Distributions in General . . . . . . . . . . . 56
2. Unclaimed Distributions . . . . . . . . . . . . . . . . . 57
G. Means of Cash Payments . . . . . . . . . . . . . . . . . . . . 59
H. Setoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
I. Effective Date Payments or Distributions . . . . . . . . . . . 60
J. Limit on Distributions . . . . . . . . . . . . . . . . . . . . 61
K. Continuation of Certain Retirement, Workers' Compensation and
Long-Term Disability Benefits . . . . . . . . . . . . . . . . . 61
V. MEANS FOR IMPLEMENTATION OF THE PLAN . . . . . . . . . . . . . . . . 62
A. Continued Corporate Existence and Vesting of Assets in
Reorganized Columbia . . . . . . . . . . . . . . . . . . . . . 62
B. Corporate Governance, Directors and Officers . . . . . . . . . 63
</TABLE>
(v)
<PAGE> 18
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Certificate of Incorporation . . . . . . . . . . . . . . . 63
2. Directors and Officers of Reorganized Columbia . . . . . . 63
3. Corporate Action . . . . . . . . . . . . . . . . . . . . . 63
4. Voting Securities . . . . . . . . . . . . . . . . . . . . 64
C. Preservation of Rights of Action . . . . . . . . . . . . . . . 64
D. Release of Liens . . . . . . . . . . . . . . . . . . . . . . . 64
E. Columbia's Funding Obligations . . . . . . . . . . . . . . . . 65
F. Derivative Claims . . . . . . . . . . . . . . . . . . . . . . . 65
G. Columbia Omnibus Settlement . . . . . . . . . . . . . . . . . . 66
H. LESOP Claims . . . . . . . . . . . . . . . . . . . . . . . . . 66
VI. BAR DATES; PROCEDURES FOR ESTABLISHING ALLOWED CLAIMS
AND FOR RESOLVING DISPUTED CLAIMS . . . . . . . . . . . . . . . . . 67
A. Bar Date for Objections to Non-Administrative Claims . . . . . 67
B. Bar Dates for Certain Administrative Claims . . . . . . . . . . 68
1. Professional Claims . . . . . . . . . . . . . . . . . . . 68
2. Bar Date for Administrative Claims Arising From Rejection
of Executory Contracts or Unexpired Leases . . . . . . . . 69
3. Non-Ordinary Course Administrative Claims . . . . . . . . 69
C. Authority to Prosecute Objections . . . . . . . . . . . . . . . 69
VII. TREATMENT OF EXECUTORY CONTRACTS AND
UNEXPIRED LEASES; ADDITIONAL BAR DATES . . . . . . . . . . . . . . . 70
A. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
B. Payments Related to Assumption of Executory Contracts and
Unexpired Leases . . . . . . . . . . . . . . . . . . . . . . . 70
C. Bar Date for Rejection Damages . . . . . . . . . . . . . . . . 71
D. Executory Contracts and Unexpired Leases Entered Into and Other
Obligations Incurred After the Petition Date . . . . . . . . . 72
VIII. CONDITIONS PRECEDENT TO CONFIRMATION
AND CONSUMMATION OF THE PLAN . . . . . . . . . . . . . . . . . . . 72
A. Conditions to Confirmation . . . . . . . . . . . . . . . . . . 72
B. Conditions to Effective Date . . . . . . . . . . . . . . . . . 73
C. Waiver of Conditions to Confirmation or Effective Date . . . . 75
D. Effect of Non-Occurrence of Conditions to Effective Date . . . 77
E. Failure of Plan to Become Effective . . . . . . . . . . . . . . 77
IX. CONFIRMABILITY AND SEVERABILITY
OF THE PLAN AND CRAMDOWN . . . . . . . . . . . . . . . . . . . . . . 78
A. Confirmability and Severability of the Plan . . . . . . . . . . 78
B. Cramdown . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
</TABLE>
(vi)
<PAGE> 19
<TABLE>
<CAPTION>
Page
----
<S> <C>
X. DISCHARGE, RELEASES, SETTLEMENT OF CLAIMS AND INJUNCTION . . . . . . 78
A. Discharge of Claims and Termination of Interests . . . . . . . 78
B. Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . 80
C. Limitation of Liability . . . . . . . . . . . . . . . . . . . . 81
D. Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
E. Intercompany Claims . . . . . . . . . . . . . . . . . . . . . . 84
F. Borrowed Money Claims . . . . . . . . . . . . . . . . . . . . . 85
XI. RETENTION OF JURISDICTION . . . . . . . . . . . . . . . . . . . . . 85
XII. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . 88
A. Dissolution of the Creditors' Committee and the Equity
Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
B. Modification of the Plan . . . . . . . . . . . . . . . . . . . 90
1. General . . . . . . . . . . . . . . . . . . . . . . . . . 90
2. Amendments of Certain Provisions . . . . . . . . . . . . . 90
C. Revocation of the Plan . . . . . . . . . . . . . . . . . . . . 91
D. Severability of Plan Provisions . . . . . . . . . . . . . . . . 91
E. Successors and Assigns . . . . . . . . . . . . . . . . . . . . 92
F. Service of Documents on Columbia or Reorganized Columbia . . . 92
G. Payment and Withholding of Taxes . . . . . . . . . . . . . . . 93
CONFIRMATION REQUEST . . . . . . . . . . . . . . . . . . . . . . . . . . 94
</TABLE>
(vii)
<PAGE> 20
EXHIBITS
<TABLE>
<CAPTION>
Exhibits Description
- - -------- -----------
<S> <C>
Exhibit A Restated Certificate of
Incorporation
Exhibit B New Indenture
Exhibit C Certificate of Designation of the New
Preferred Stock
Exhibit D Certificate of Designation of the DECS
Exhibit E Executory Contracts of Columbia
Exhibit F Pricing Formulae
Exhibit G Calculations of Allowed Claims and of Post-
Petition Interest Recognitions for Class
3.2 Claims (Initial Calculations Only on
LESOP Claims)
Exhibit H Calculation of Post-Petition
Interest on the Columbia
Secured Claim
</TABLE>
(viii)
<PAGE> 21
INTRODUCTION
The Columbia Gas System, Inc. ("Columbia") proposes the following amended
plan of reorganization (the "Plan"). This Plan amends the plan of
reorganization Filed by Columbia on April 17, 1995.
For a discussion of Columbia's history, businesses, properties, results
of operations and projections for future operations and for a summary and
analysis of the Plan and related matters, reference should be made to the
Disclosure Statement Pursuant to Section 1125 of the Bankruptcy Code for the
First Amended Plan of Reorganization of The Columbia Gas System, Inc. Dated
June 13, 1995 (the "Disclosure Statement"), Filed by Columbia with the
Bankruptcy Court. Columbia is the proponent of the Plan within the meaning of
section 1129 of the Bankruptcy Code.
ALL HOLDERS OF CLAIMS AGAINST AND INTERESTS IN COLUMBIA SHOULD READ THE
PLAN AND THE DISCLOSURE STATEMENT IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR
REJECT THE PLAN.
<PAGE> 22
I. DEFINED TERMS, RULES OF INTERPRETATION,
COMPUTATION OF TIME AND GOVERNING LAW
A. DEFINED TERMS
As used in the Plan, the capitalized terms below have the following
meanings. Any term used in the Plan that is not defined herein, but that is
used in the Bankruptcy Code or the Bankruptcy Rules, shall have the meaning
assigned to that term in the Bankruptcy Code or the Bankruptcy Rules.
1. "ADMINISTRATIVE CLAIM" means a Claim for costs and expenses of
administration allowed under sections 503, 507(a)(1), 507(b) or 1114(e)(2) of
the Bankruptcy Code, as more fully described in Section II.B.1,
"Administrative Claims."
2. "ADMINISTRATIVE FEE ORDER" means the Administrative Order under
sections 105(a) and 331 of the Bankruptcy Code Establishing Procedures for
Interim Compensation and Reimbursement of Expenses for all Professionals
entered in the Reorganization Case by the Bankruptcy Court on November 15,
1991, as subsequently amended or supplemented.
3. "ALLOWED" when used with respect to a Claim, means a Claim against
Columbia:
a. which has been scheduled as undisputed, not contingent and
liquidated in the Schedule of Liabilities, and as to which no proof of claim
or objection has been timely Filed;
b. as to which a proof of claim has been timely Filed and either:
i. no objection thereto has been timely Filed; or
-2-
<PAGE> 23
ii. the Claim has been allowed (but only to the extent
allowed) by a Final Order; or
c. which is a Professional Claim for which a fee award amount has
been approved by a Final Order.
4. "ASSUMED EXECUTORY CONTRACT CLAIM" means a Claim described in
Section II.B.1.c.
5. "AUCTION NOTES" means those certain notes issued to evidence "Money
Market Loans" made pursuant to Section 2.03 of the $500 Million Credit
Agreement.
6. "AVOIDANCE CLAIM" means a claim which a trustee, debtor in
possession or appropriate party-in-interest may assert under section 542, 544,
545, 547, 548, 549, 550 or 551 of the Bankruptcy Code.
7. "BANK AGENT" means Morgan Guaranty Trust Company of New York, in its
capacity as agent under and pursuant to the provisions of the $500 Million
Credit Agreement and the $750 Million Credit Agreement, respectively.
8. "BANKRUPTCY CODE" means title 11 of the United States Code, Section
Section 101 et seq., as now in effect or as the same may hereafter be
amended.
9. "BANKRUPTCY COURT" means the United States Bankruptcy Court for the
District of Delaware or, if such court ceases to exercise jurisdiction over
the Reorganization Case, the court or adjunct thereof that exercises
jurisdiction over the Reorganization Case.
10. "BANKRUPTCY RULES" means, collectively, the Federal Rules of
Bankruptcy Procedure and the Local Bankruptcy Rules for
-3-
<PAGE> 24
the District of Delaware, as now in effect or as the same may from time to
time hereafter be amended.
11. "BAR DATE" means any applicable date by which proofs of claim must
have been or, in the future, must be, Filed, as established by the Bar Date
Order or the Plan.
12. "BAR DATE ORDER" means, collectively, the orders of the Bankruptcy
Court establishing Bar Dates by which proofs of claim must have been, or in
the future must be, Filed against the Estate, including the Order Establishing
Bar Date for Filing Proofs of Claim entered by the Bankruptcy Court on
December 13, 1991, the Supplemental Bar Date Order, if entered, and the
Confirmation Order.
13. "BID NOTES" means, collectively, the promissory notes, described in
clauses (i) through (v) below, issued by Columbia to the respective payees
named therein, to evidence borrowings from such payees, to wit: (i) Promissory
Note dated June 22, 1988 payable to the order of Bank of Montreal; (ii)
Promissory Note dated June 22, 1988 payable to the order of Continental
Illinois National Bank and Trust Company of Chicago; (iii) Promissory Note
dated March 20, 1991 payable to the order of First City, Texas - Houston,
N.A.; (iv) Promissory Note dated June 22, 1988 payable to the order of Morgan
Guaranty Trust Company of New York; and (v) Promissory Note dated January 19,
1990 payable to the order of The Toronto-Dominion Bank.
14. "BOARD OF DIRECTORS" AND "BOARD" mean the board of directors of
Columbia.
-4-
<PAGE> 25
15. "BORROWED MONEY CLAIM" means any Claim classified in Class 3.1 or
Class 3.2 of the Plan.
16. "BORROWED MONEY INSTRUMENTS" means, collectively, the Auction Notes,
the Bid Notes, the Commercial Paper, the Debentures, the LESOP Debentures, the
Medium Term Notes, any notes issued pursuant to the $500 Million Credit
Agreement other than the Auction Notes, and any notes issued pursuant to the
$750 Million Credit Agreement.
17. "BUSINESS DAY" means any day which is not a Saturday, a Sunday or a
day which in Wilmington, Delaware, Charleston, West Virginia or New York, New
York is a legal holiday or a day on which banking institutions are authorized
or required by law or other government action to close.
18. "CALENDAR QUARTER" means a three (3) month period ending on any
March 31, June 30, September 30 or December 31, provided that the first
Calendar Quarter shall be deemed to be the period commencing on the Effective
Date and ending on the first day that is (x) the last day of such a three (3)
month period and (y) more than sixty days after the Effective Date.
19. "CANADA SALE AGREEMENT" means that certain Share Sale and Purchase
Agreement between Columbia and Anderson Exploration Ltd., dated as of November
25, 1991, and approved by the Bankruptcy Court pursuant to an order dated
December 31, 1991.
20. "CASH COLLATERAL ORDERS" means the final orders of the Bankruptcy
Court, dated July 31, 1991 and August 23, 1991, which respectively authorize
TCO to use the cash collateral pledged by TCO to Columbia pursuant to the
Inventory Loan Agreements and the
-5-
<PAGE> 26
Indenture of Mortgage and Deed of Trust securing the First Mortgage Bonds and
grant to Columbia and certain other secured parties certain replacement liens
and security interests in TCO's assets.
21. "CASH CONSIDERATION" means the amount of cash, if any, to be
included in the consideration to be paid by Columbia, in accordance with the
provisions of the Plan, in satisfaction of Class 3.2 Claims (exclusive of any
cash to be paid pursuant to the provisions of Section IV.C.5), determined in
the manner described in Section III.B.3.b.
22. "CLAIM" means, as against Columbia,
a. a right to payment, whether or not such right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured; or
b. a right to an equitable remedy for breach of performance if
such breach gives rise to a right to payment, whether or not such right to an
equitable remedy is reduced to judgment, fixed, contingent, matured,
unmatured, disputed, undisputed, secured or unsecured.
23. "CLASS" means a class of Claims or Interests.
24. "CNR" means Columbia Natural Resources, Inc., a Texas corporation.
25. "COLUMBIA" means The Columbia Gas System, Inc., a Delaware
corporation.
26. "COLUMBIA CANADA" means the entity known on the date of the Canada
Sale Agreement as Columbia Gas Development of Canada,
-6-
<PAGE> 27
Ltd., a Canadian corporation, which was the subject of that agreement.
27. "COLUMBIA CUSTOMER GUARANTY" means Columbia's guaranty of (a) the
financial integrity of the Customer Settlement Proposal and (b) the payment of
distributions on account of those claims against TCO arising from TCO's
obligation to make refunds, including applicable interest thereon, pursuant to
regulations or orders of FERC, or any order of a court of competent
jurisdiction on appeal of an order of FERC, or the terms of the FERC Gas
Tariffs, to customer creditors of TCO, substantially all of which are
classified in the TCO Plan as "Class 3.2 Claims", and to the Gas Research
Institute, if Class 3.2 has voted to accept the TCO Plan and such customer
creditors and the Gas Research Institute have either voted in favor of the TCO
Plan or have executed the Waiver Agreement, as that term is defined in the TCO
Plan, prior to such plan's effective date. Specifically, Columbia has agreed
(i) that the Customer Settlement Proposal will not be "retraded" with TCO's
customer-creditors so as to reduce the financial benefits of the settlement to
them, (ii) that the financial benefits of the Customer Settlement Proposal
will not be adversely affected by virtue of any subsequent settlement reached
with other parties in either the TCO Proceeding or the Reorganization Case,
and (iii) that Columbia and TCO will include the Customer Settlement Proposal
and Columbia's guaranty in their respective plans of reorganization. The
foregoing guaranty does not apply to any modification imposed on the Customer
Settlement Proposal or on the TCO Plan or the Columbia Plan incorporating
-7-
<PAGE> 28
the Customer Settlement Proposal by the action of any judicial or regulatory
authority.
28. "COLUMBIA OMNIBUS SETTLEMENT" means Columbia's agreement,
conditioned on the TCO Plan becoming effective without any modification that
is not consented to by Columbia, to facilitate the prompt emergence of TCO and
Columbia from their respective Chapter 11 proceedings by (i) assisting TCO to
monetize the TCO Plan which is estimated to provide for value to be
distributed to TCO's creditors of approximately $3.9 billion (in the event of
100% acceptance of the settlement offers to TCO's producer and other creditors
embodied in the TCO Plan), which distribution, in the case of third party
creditors, will be substantially in cash, (ii) providing a guaranty of payment
of distributions to TCO's creditors as provided under the TCO Plan (excluding
assumed obligations), (iii) providing the Columbia Customer Guaranty, (iv)
consenting to the assumption by Reorganized TCO of certain pre-petition
environmental claims of governmental agencies and certain other claims against
TCO, and (v) accepting new secured debt securities of Reorganized TCO (rather
than cash) for a portion of the Columbia Secured Claim and contributing the
balance of the Columbia Secured Claim to Reorganized TCO's equity, in
consideration for (a) the retention by Columbia of the equity of Reorganized
TCO, (b) the settlement of litigation over the liquidation of the producer,
customer and certain other claims against TCO, and (c) a settlement of the
claims raised or which could have been raised in the Intercompany Claims
Litigation among Columbia, CNR, TCO, the creditors'
-8-
<PAGE> 29
committee and the customers' committee appointed in the TCO Proceeding and all
other claims and disputes between TCO's creditors and Columbia and various
other claims and disputes between TCO's creditors and TCO, as provided in the
TCO Plan (other than claims arising in the normal course of business
subsequent to the Petition Date between creditors of TCO and TCO or Columbia).
29. "COLUMBIA SECURED CLAIM" means, as of the Effective Date, the
aggregate of:
a. (i) the unpaid principal owing as of the Petition Date in respect of
the First Mortgage Bonds, (ii) the unpaid principal and accrued and unpaid
interest owing as of the Petition Date in respect of the Inventory Financing
Agreement and (iii) the interest on all such unpaid principal and interest
from the Petition Date to the Effective Date, calculated for purposes of this
Plan in the manner described in Exhibit H;
b. all amounts to which Columbia is entitled under the Cash Collateral
Orders, including post-petition interest as allowed by the Bankruptcy Court;
and
c. all amounts to which Columbia is entitled for reasonable fees, costs
and charges approved by the Bankruptcy Court under section 506 of the
Bankruptcy Code.
30. "COMMERCIAL PAPER" means the Commercial Paper Master Note, dated
October 5, 1990, and any evidence of the debt of Columbia which was originally
issued pursuant thereto as "commercial paper" (as that term is commonly
understood in the financial markets).
-9-
<PAGE> 30
31. "COMMON STOCK" means the class of common stock presently authorized
for issuance by Columbia.
32. "COMPLYING CLASS 4 CLAIMANT" means a Holder of a Securities Action
Claim that Files, on or before the Supplemental Bar Date, a Supplemental Proof
of Claim in compliance with the requirements of the Supplemental Bar Date
Order or, alternatively, if the Supplemental Bar Date Order is not entered, a
Holder of a Securities Action Claim that submits a properly completed
Questionnaire with its ballot for voting on the Plan.
33. "CONFIRMATION" means the entry of the Confirmation Order on the
docket of the Bankruptcy Court.
34. "CONFIRMATION DATE" means the date on which the Bankruptcy Court
enters the Confirmation Order on its docket.
35. "CONFIRMATION ORDER" means the order of the Bankruptcy Court
confirming the Plan pursuant to section 1129 of the Bankruptcy Code.
36. "CONTRIBUTORS" has the meaning set forth in Section III.B.4.
37. "CREDITOR" means
a. a Person that has a Claim against Columbia that arose at the
time of or before the Petition Date; or
b. a Person that has a Claim against the Estate of a kind
specified in sections 502(g), 502(h) or 502(i) of the Bankruptcy Code.
38. "CREDITORS' COMMITTEE" means the Official Committee of Unsecured
Creditors appointed in the Reorganization Case pursuant to section 1102 of the
Bankruptcy Code.
-10-
<PAGE> 31
39. "CUSTOMER SETTLEMENT PROPOSAL" means the terms and agreements
embodied in the Stipulation and Agreement, dated April 17, 1995, filed by TCO
with FERC.
40. "D&O INSURANCE" means those certain insurance policies which provide
coverage to Columbia and others for, among other things, liabilities in
connection with directors and officers of Columbia, TCO and any other
subsidiary of Columbia.
41. "DEBENTURES" mean the debt instruments, other than the Medium Term
Notes, issued pursuant to the 1961 Indenture.
42. "DECS" means the shares of Dividend Enhanced Convertible Preferred
Stock(TM) to be issued by Reorganized Columbia under the Plan pursuant to a
certificate of designation substantially in the form of Exhibit D, the terms
of which will be as described in the Disclosure Statement.
43. "DEFICIENCY CLAIM" means the amount, if any, by which the Allowed
amount of the DIP Facility Claim exceeds the value of the collateral securing
the DIP Facility Claim as determined by the Bankruptcy Court.
44. "DERIVATIVE ACTION" means those certain consolidated actions
captioned as In re Columbia Gas System, Inc. Derivative Litigation, Consol.
C.A. No. 12159, currently pending before the Chancery Court of the State of
Delaware in and for New Castle County.
45. "DIP FACILITY" means that certain Secured Revolving Credit
Agreement, dated as of August 20, 1991, among Columbia, the financial
institutions party thereto and Chemical Bank, as
-11-
<PAGE> 32
successor to Manufacturers Hanover Trust Company, as agent, as amended or
restated from time to time.
46. "DIP FACILITY CLAIM" means the Claim arising from the DIP Facility.
47. "DISBURSING AGENT" means (i) Columbia or Reorganized Columbia, in
each case in its capacity as a disbursing agent under the Plan, or (ii) any
third-party designated to act as a disbursing agent under the Plan, in its
capacity as such disbursing agent.
48. "DISBURSING AGENT AGREEMENT" means any agreement for disbursing
agent services to be entered into between Columbia or Reorganized Columbia and
a third-party Disbursing Agent, as the same may be amended from time to time.
49. "DISCLOSURE STATEMENT" has the meaning set forth in the
"Introduction" to this Plan.
50. "DISPUTED" when used with respect to a Claim, means a Claim that is
not an Allowed Claim and that has not been barred or otherwise disallowed or
discharged. If an objection is timely Filed or deemed timely Filed and
relates to the allowance of only a portion of a Claim, such Claim shall be a
Disputed Claim to the extent of the portion of such Claim to which such
objection relates.
51. "DISTRICT COURT" means the United States District Court for the
District of Delaware.
52. "EFFECTIVE DATE" means the first Business Day that is at least
eleven (11) days after the Confirmation Date and on which (a) no stay of the
Confirmation Order is in effect and (b)
-12-
<PAGE> 33
all conditions to the Effective Date set forth in Section VIII.B have been
satisfied or, if waivable, waived.
53. "EQUITY COMMITTEE" means the Official Committee of Equity Security
Holders appointed in the Reorganization Case pursuant to section 1102 of the
Bankruptcy Code.
54. "ERISA" means the Employee Retirement Security Act of 1974, as
amended.
55. "ESTATE" means the estate created for Columbia in the Reorganization
Case pursuant to section 541 of the Bankruptcy Code.
56. "FEE EXAMINER" means the fee examiner appointed by the Bankruptcy
Court pursuant to the Bankruptcy Court's January 8, 1992 Order Retaining
Examiner on Fees and Expenses.
57. "FERC" means the Federal Energy Regulatory Commission.
58. "FERC GAS TARIFF" means the documents filed by TCO with, and in
force from time to time pursuant to procedures established by, FERC setting
forth the rates at and the conditions under which TCO renders natural gas-
related services to its customers.
59. "FILE" OR "FILED" means file or filed in the Reorganization Case
with the Bankruptcy Court, or in the case of proofs of claim, (a) file or
filed with Poorman-Douglas Corporation, the claims agent designated by order
of the Bankruptcy Court dated December 13, 1991, or (b) deemed so filed
pursuant to section 1111(a) of the Bankruptcy Code.
60. "FINAL ORDER" means an order or judgment entered by the Bankruptcy
Court or other court of competent jurisdiction which
-13-
<PAGE> 34
has not been reversed, vacated or stayed, and as to which the time to appeal
or seek certiorari has expired with no appeal or petition for certiorari
having been timely taken or filed, or as to which any appeal that has been or
may be taken or any petition for certiorari that has been or may be filed has
been resolved by the highest court to which the order or judgment was appealed
or from which certiorari was sought.
61. "FIRST ISSUE SECURITY" OR "ISSUE A" means any of the New Indenture
Securities maturing by its terms in less than six years from the Effective
Date.
62. "FIRST MORTGAGE BONDS" means those certain bonds, designated Series
A, B, D, E and F, issued pursuant to and secured by the Indenture of Mortgage
and Deed of Trust, dated as of August 30, 1985, made by TCO in favor of
Wilmington Trust Company as Trustee, as amended or restated from time to time.
63. "$500 MILLION CREDIT AGREEMENT" means that certain $500 Million
Amended and Restated Credit Agreement, dated as of September 17, 1990, among
Columbia, the banks listed therein and Morgan Guaranty Trust Company of New
York, as agent, as amended or restated from time to time.
64. "HCA" means the Public Utility Holding Company Act of 1935, as
amended, 15 U.S.C. Section Section 79, et seq.
65. "HOLDER" means the holder of a Claim or Interest and, when used in
conjunction with a Class or type of Claim or Interest, means a holder of a
Claim or Interest in such Class or of such type.
-14-
<PAGE> 35
66. "INDENTURE TRUSTEE" means Marine Midland Bank, as successor trustee
to Morgan Guaranty Trust Company of New York, under the 1961 Indenture.
67. "INTERCOMPANY CLAIMS" means the claims and causes of action asserted
against Columbia and CNR in the Intercompany Claims Litigation and any claims
and causes of action against Columbia or CNR arising out of the same or
similar facts and circumstances.
68. "INTERCOMPANY CLAIMS LITIGATION" means the litigation against
Columbia and CNR on behalf of TCO and the creditors' committee and the
customers' committee appointed in the TCO Proceeding in the complaints styled
and numbered Columbia Gas Transmission Corporation v. The Columbia Gas System,
Inc. and Columbia Natural Resources, Inc., Adv. No. A92-35, filed on March 19,
1992 and May 26, 1992, pending before the District Court.
69. "INTEREST" means the rights of the Stockholders as holders of shares
of Common Stock (other than Securities Action Claims).
70. "INVENTORY LOAN AGREEMENT" means that certain Inventory Financing
Agreement, dated as of June 19, 1985, between TCO and Columbia, and the
related Security Agreement, dated June 19, 1985, between TCO and Wilmington
Trust Company, as each such agreement may have been amended from time to time.
71. "INVESTMENT GRADE" means, when used in respect of a security, that
such security has been rated higher than Ba1 and BB+ by Moody's Investors
Service, Inc. and Standard & Poor's Ratings Group, respectively.
-15-
<PAGE> 36
72. "IRS" means the United States Internal Revenue Service.
73. "IRS CLOSING AGREEMENT" means the Department of the Treasury -
Internal Revenue Service Agreement As To Final Determination of Tax Liability,
which is attached as Exhibit A to the IRS Settlement Agreement.
74. "IRS ORDER" means the Order of the Bankruptcy Court, dated October
12, 1994, approving the IRS Settlement Agreement.
75. "IRS SETTLEMENT AGREEMENT" means that certain Stipulation and Order
of Settlement of Proofs of Claim Filed by the IRS, dated October 12, 1994, by
and between the IRS and Columbia, including the IRS Closing Agreement.
76. "ISSUE" means, when referring to the New Indenture Securities, any
tranche of such New Indenture Securities having identical maturity dates.
77. "KOTANEELEE ESCROW" means that certain escrow established pursuant
to the Canada Sale Agreement as security for the indemnification by Columbia
of Anderson Exploration Ltd. with respect to certain representations and
warranties included, and certain litigation referenced, in the Canada Sale
Agreement.
78. "LEDGER CLOSING DATE" has the meaning set forth in Section IV.C.1.
79. "LESOP" means the leveraged employee stock ownership portion of the
Employees' Thrift Plan of Columbia Gas System, as Amended and Restated
Effective April 1, 1990, as the same may have been or may be amended or
restated from time to time.
80. "LESOP ACTION" means that certain action styled and numbered The
First National Bank of Boston, Trustee v. The
-16-
<PAGE> 37
Columbia Gas System, Inc., C.A. No. 94-230, pending before the Bankruptcy
Court.
81. "LESOP ACTION CLAIMS" means the Claims arising or which could have
arisen under the LESOP Action.
82. "LESOP DEBENTURES" means those certain amortizing debentures issued
pursuant to the LESOP Indenture.
83. "LESOP GUARANTY" means Columbia's subordinated guaranty, set forth
in Article X of the LESOP Indenture, of the repayment of the LESOP Debentures.
84. "LESOP INDENTURE" means that certain Indenture, dated as of October
3, 1989, among the Employees' Thrift Plan of Columbia Gas System Trust,
Columbia and The First National Bank of Boston, as successor indenture
trustee, as the same may have been or may be amended or restated from time to
time.
85. "LESOP INDENTURE TRUSTEE" means The First National Bank of Boston in
its capacity as successor trustee under the LESOP Indenture.
86. "LESOP TRUST" means the Employees' Thrift Plan of Columbia Gas
System Trust established in connection with the LESOP pursuant to the Trust
Agreement dated as of October 17, 1991 between Columbia and the LESOP Trustee
(which succeeded the Master Savings Plan Trust Agreement, dated as of March
14, 1990, between Columbia and Bankers Trust Company).
87. "LESOP THRIFT PLAN TRUSTEE" means First Fidelity Bank, N.A., in its
capacity as trustee under the LESOP Trust.
88. "LIBOR" means, with respect to any date, the "London Interbank
Offered Rate" for deposits of six months as such term
-17-
<PAGE> 38
is quoted by IDD Information Services (as referenced in Dow Jones News
Retrieval, a service of Dow Jones & Company, Inc.), with respect to such date,
provided, however, that LIBOR with respect to any date that is not a Business
Day shall mean LIBOR for the next succeeding Business Day.
89. "LIQUIDATION VALUE" means (i) with respect to a share of the DECS,
the weighted average of the trading prices of all trades on the New York Stock
Exchange of shares of Common Stock for the five consecutive trading days
ending on the fifth trading day prior to the Effective Date and (ii) with
respect to a share of New Preferred Stock, $25.00.
90. "MAXIMUM OFFER AMOUNT" has the meaning set forth in Section III.B.4.
91. "MAXIMUM PROOF OF CLAIM AMOUNT" has the meaning set forth in Section
III.B.4.
92. "MEDIUM TERM NOTES" means the debt issued by Columbia pursuant to
the thirty-fifth, thirty-sixth and thirty-seventh supplemental indentures,
dated as of August 18, 1989, November 30, 1989 and June 6, 1990, respectively,
to the 1961 Indenture.
93. "MISCELLANEOUS ADMINISTRATIVE CLAIM" means a Claim described in
Section II.B.1.e.
94. "NEW INDENTURE" means the indenture, substantially in the form
attached as Exhibit B (including the form of supplement for the New Indenture
Securities), to be entered into by Columbia and the New Indenture Trustee as
of the Effective Date, pursuant to which the New Indenture Securities are to
be issued.
-18-
<PAGE> 39
95. "NEW INDENTURE TRUSTEE" means the Person that is the indenture
trustee under the New Indenture.
96. "NEW INDENTURE SECURITIES" means those certain debt instruments to
be issued under the Plan by Columbia on the Effective Date under and in
accordance with the terms of the New Indenture, the terms of which will be as
described in the Disclosure Statement.
97. "NEW PREFERRED STOCK" means the shares of new preferred stock to be
issued by Reorganized Columbia in connection with the Plan pursuant to a
certificate of designation substantially in the form of Exhibit C, the terms
of which will be as described in the Disclosure Statement.
98. "1961 INDENTURE" means that certain Indenture, dated as of June 1,
1961, as the same may from time to time have been amended or supplemented,
between Columbia and Marine Midland Bank, as successor trustee to Morgan
Guaranty Trust Company of New York.
99. "NON-BORROWED MONEY CLAIM" means a Claim classified as a Class 2
Claim in the Plan.
100. "OFFER OF SETTLEMENT" has the meaning set forth in Section III.B.4.
101. "OMNIBUS ORDERS" mean the Final Orders of the Bankruptcy Court,
dated December 15, 1992 and January 25, 1993, authorizing Columbia to pay,
without the need for prior Bankruptcy Court approval, the fees of certain
professionals retained in the ordinary course of business by Columbia.
102. "PBGC" means the Pension Benefit Guaranty Corporation.
-19-
<PAGE> 40
103. "PERSON" means a natural person, or any legal entity or organization
including, without limitation, any corporation, partnership (general or
limited), limited liability company, business trust, unincorporated
organization or association, joint stock company, trust, association,
governmental body (or any agency, instrumentality or political subdivision
thereof), or any other entity.
104. "PETITION DATE" means July 31, 1991.
105. "PLAN" means this First Amended Plan of Reorganization of Columbia
and all exhibits, attachments and schedules annexed hereto or referenced
herein, as the same may be amended, modified or supplemented by or with the
consent of Columbia.
106. "PLAN MAILING DATE" means that date set by order of the Bankruptcy
Court as the date for the mailing of the Plan to Holders of Claims and
Interests for purposes of voting thereon.
107. "POST-PETITION OPERATIONAL CLAIM" means a Claim described in Section
II.B.1.b.
108. "PRICING FORMULAE" means the pricing methodologies described in
Exhibit F.
109. "PRIORITY TAX CLAIM" means a Claim described in Section II.B.2.
110. "PROFESSIONAL" means any professional employed in the Reorganization
Case pursuant to sections 327 or 1103 of the Bankruptcy Code, any professional
employed by Columbia pursuant to the Omnibus Orders and any professional
seeking compensation or reimbursement of expenses pursuant to sections 330(a)
and 503(b)(4) of the Bankruptcy Code.
-20-
<PAGE> 41
111. "PROFESSIONAL CLAIM" means a Claim described in Section II.B.1.a.
112. "PRO-RATA SHARE" means a fraction the numerator of which is the
aggregate of the Allowed amount of a Class 3.2 Claim and the post-petition
interest to be paid on such Claim in accordance with the Plan (as reduced by
the application of the set-off provisions of Section IV.H and of Section V.H,
as appropriate), and the denominator of which is the aggregate of the Allowed
amounts of all Allowed Class 3.2 Claims and the post-petition interest to be
paid on all such Claims in accordance with the Plan (as so reduced).
113. "QUALIFYING CLASS 4 CLAIMANT" means a Complying Class 4 Claimant
whose purchases, sales or holdings of shares of Common Stock or debt
securities of Columbia are within the categories described in Paragraph 2 of
Section III.B.4.
114. "QUESTIONNAIRE" means the questionnaire for the Holders of
Securities Action Claims, approved by order of the Bankruptcy Court.
115. "RATE SWAP AGREEMENT" means that certain Interest Rate Swap
Agreement, dated as of November 30, 1990, between Columbia and The Toronto-
Dominion Bank, New York Branch and the agreements entered into by Columbia and
such bank ancillary or pursuant thereto.
116. "RECORD DATE" means June 1, 1995.
117. "RECORDATION ORDER" means the order of the Bankruptcy Court, dated
April 18, 1995, Authorizing Procedures to Maintain Records of Certain Pre-
Petition Claims.
-21-
<PAGE> 42
118. "REJECTING CLASS 4 CLAIMANT" has the meaning set forth in Section
III.B.4.
119. "RELEASEE" has the meaning set forth in Section X.D.
120. "RELIANCE GROUP" means, collectively, Reliance Insurance Company and
United Pacific Insurance Company.
121. "REORGANIZATION CASE" means the case commenced under Chapter 11 of
the Bankruptcy Code bearing number 91-803 pending in the Bankruptcy Court with
respect to Columbia.
122. "REORGANIZED COLUMBIA" means Columbia (i) on the Effective Date to
the extent and for the purpose of performing those acts which are required
under the Plan to be performed by Reorganized Columbia on the Effective Date
and (ii) after the Effective Date.
123. "REORGANIZED TCO" means TCO (i) on the effective date of the TCO
Plan to the extent and for the purpose of performing those acts which are
required under the TCO Plan to be performed by Reorganized TCO on the
effective date of the TCO Plan and (ii) after the effective date of the TCO
Plan.
124. "RETIREMENT PLAN" has the meaning set forth in Section II.C.6.b.
125. "SCHEDULE OF LIABILITIES" means the schedule of assets and
liabilities Filed by Columbia under section 521(1) of the Bankruptcy Code, as
amended from time to time.
126. "SEC" means the United States Securities and Exchange Commission.
127. "SECURITIES ACTION" means that certain consolidated action styled
and numbered In re Columbia Gas Securities
-22-
<PAGE> 43
Litigation, Consol. C.A. No. 91-357, pending before the United States District
Court for the District of Delaware.
128. "SECURITIES ACTION CLAIM" means any Claim or claim asserted in,
arising under or related to the Securities Action or which are based upon the
same or similar allegations giving rise to the Securities Action.
129. "SETOFF FUNDS" means those funds held by Morgan Guaranty Trust
Company of New York in accordance with the Setoff Order.
130. "SETOFF ORDER" means that certain Stipulation and Order Authorizing
Investment of Certain Funds subject to Setoff and Providing Adequate
Protection, among Columbia, Morgan Guaranty Trust Company of New York and
Mellon Bank, N.A., approved by the Bankruptcy Court on December 17, 1992.
131. "SETTLEMENT AMOUNT" has the meaning set forth in Section III.B.4.
132. "$750 MILLION CREDIT AGREEMENT" means that certain $750 Million
Credit Agreement, dated as of October 5, 1988, among Columbia, the banks
listed therein and Morgan Guaranty Trust Company of New York, as Agent, as
amended or restated from time to time.
133. "STIPULATION OF DISMISSAL WITH PREJUDICE" has the meaning set forth
in Section IV.A.
134. "STOCKHOLDER" means any holder of any of the issued and outstanding
shares of Common Stock.
135. "STOCK VALUE" means, with respect to a share of Common Stock, the
weighted average of the trading prices of all trades
-23-
<PAGE> 44
on the New York Stock Exchange of shares of Common Stock for the five
consecutive trading days ending on the last trading date prior to the date on
which the value of such share is to be determined.
136. "SUPPLEMENTAL BAR DATE" means the bar date for filing proofs of
claim provided in the Supplemental Bar Date Order.
137. "SUPPLEMENTAL BAR DATE ORDER" has the meaning set forth in Section
III.B.4.
138. "SUPPLEMENTAL PROOF OF CLAIM" means a timely Filed proof of claim
complying with the Supplemental Bar Date Order.
139. "SURRENDER INSTRUMENTS" has the meaning set forth in Section IV.C.2.
140. "TCO" means Columbia Gas Transmission Corporation, a Delaware
corporation and a wholly-owned subsidiary of Columbia.
141. "TCO COMMITTEES" has the meaning set forth in Section X.D.
142. "TCO PLAN" means the Second Amended Plan of Reorganization of TCO,
dated June 13, 1995, and all exhibits, attachments and schedules annexed
thereto or referenced therein, filed in the TCO Proceeding, as the same may be
further amended, modified or supplemented, provided that such further
amendments, modifications or supplements shall have been consented to by
Columbia and TCO.
143. "TCO PROCEEDING" means TCO's case under Chapter 11 of the Bankruptcy
Code, bearing number 91-804, pending in the United States Bankruptcy Court for
the District of Delaware.
-24-
<PAGE> 45
144. "TERM LOAN FACILITY" means one or more term loan banking facilities,
other than the Working Capital Facility, to be entered into by Reorganized
Columbia as of the Effective Date with such financial institution or
institutions and on such terms and conditions as Reorganized Columbia may deem
appropriate.
145. "UNCLAIMED DISTRIBUTION" has the meaning set forth in Section
IV.F.2.
146. "UNCLASSIFIED CLAIM" means a Claim described in Section II.B.1.
147. "U.S. TRUSTEE" means the Office of the United States Trustee.
148. "U.S. TRUSTEE'S FEE CLAIMS" means the Claims described in Section
II.B.1.d.
149. "VOTING DEADLINE" means the deadline for voting to accept or reject
the Plan established by Final Order.
150. "WORKING CAPITAL FACILITY" means one or more working capital banking
facilities to be entered into by Reorganized Columbia as of the Effective Date
with such financial institution or institutions and on such terms and
conditions as Reorganized Columbia may deem appropriate.
B. RULES OF INTERPRETATION
For purposes of the Plan: (i) whenever from the context it is
appropriate, each term, whether stated in the singular or the plural, shall
include both the singular and the plural; (ii) any reference in the Plan to a
contract, instrument, release, indenture or other agreement or document being
in a particular form or on particular terms and conditions means that such
-25-
<PAGE> 46
document shall be substantially in such form or substantially on such terms
and conditions; (iii) any reference in the Plan to a document or exhibit Filed
or to be Filed means such document or exhibit, as it may have been or may be
amended, modified or supplemented; (iv) unless otherwise specified, all
references in the Plan to sections, articles, schedules and exhibits are
references to sections, articles, schedules and exhibits of or to the Plan;
(v) the words "herein" and "hereto" refer to the Plan in its entirety rather
than a particular portion of the Plan; (vi) captions and headings to articles
and sections are inserted for convenience of reference only and are not
intended to be a part of or to affect the interpretation of the Plan; and
(vii) the rules of construction set forth in section 102 of the Bankruptcy
Code shall apply.
C. COMPUTATION OF TIME
In computing any period of time prescribed or allowed by the Plan, the
provisions of Bankruptcy Rule 9006(a) shall apply.
D. GOVERNING LAW
EXCEPT TO THE EXTENT THAT THE BANKRUPTCY CODE OR BANKRUPTCY RULES ARE
APPLICABLE, AND SUBJECT TO THE PROVISIONS OF ANY CONTRACT, INSTRUMENT,
RELEASE, INDENTURE OR OTHER AGREEMENT OR DOCUMENT ENTERED INTO IN CONNECTION
WITH THE PLAN, THE RIGHTS AND OBLIGATIONS ARISING UNDER THE PLAN SHALL BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF DELAWARE, WITHOUT GIVING EFFECT TO CONFLICTS-OF-LAW PRINCIPLES WHICH
WOULD APPLY THE LAW OF A JURISDICTION OTHER THAN THE STATE OF DELAWARE OR THE
UNITED STATES OF AMERICA.
-26-
<PAGE> 47
II. UNCLASSIFIED CLAIMS AND
CLASSES OF CLAIMS AND INTERESTS
A. GENERAL
Administrative Claims and Priority Tax Claims described below in Section
II.B, have not been classified and the Holders thereof are not entitled to
vote on the Plan.
To the extent that a Holder of a Claim asserts or holds more than one
Claim and such Claims are classified in different Classes, each such Claim
shall be deemed for purposes of this Plan to be a distinct Claim entitled to
participate in the appropriate Class, subject to the following sentence. If
any Holder of a Claim asserts or holds more than one Claim in any one Class,
all of such Claims shall be aggregated and the Holder's aggregate Claim shall
be accorded the treatment appropriate for a Claim of such type and amount.
A Claim is classified in a particular Class only to the extent that the
Claim qualifies within the description of that Class. A Claim is also
classified in a particular Class for the purpose of receiving distributions
pursuant to the Plan only to the extent that such Claim is an Allowed Claim in
that Class and has not been paid, released or otherwise satisfied.
B. UNCLASSIFIED CLAIMS
1. ADMINISTRATIVE CLAIMS
Administrative Claims consist of those Claims described below:
-27-
<PAGE> 48
a. PROFESSIONAL CLAIMS
Professional Claims consist of all Administrative Claims for unpaid fees
and expenses of Professionals and amounts for compensation Allowed under
sections 330(a) and 503(b) of the Bankruptcy Code.
b. POST-PETITION OPERATIONAL CLAIMS
Post-Petition Operational Claims consist of all Administrative Claims in
respect of liabilities incurred by Columbia in the ordinary course of business
during the pendency of the Reorganization Case including, but not limited to,
Administrative Claims of governmental units for taxes, trade vendor and
supplier payment obligations and obligations under contracts and leases.
c. ASSUMED EXECUTORY CONTRACT CLAIMS
Assumed Executory Contract Claims consist of all obligations of Columbia
to cure defaults arising from or in connection with the assumption of pre-
petition executory contracts and unexpired leases by Columbia, under the Plan
or otherwise, pursuant to section 365(b)(1) of the Bankruptcy Code.
d. U.S. TRUSTEE'S FEE CLAIMS
The U.S. Trustee's Fee Claims consist of the fees Columbia is required to
pay pursuant to 28 U.S.C. Section 1930(a)(6).
e. MISCELLANEOUS ADMINISTRATIVE CLAIMS
Miscellaneous Administrative Claims consist of all Administrative Claims
other than Professional Claims, Post-Petition Operational Claims, Assumed
Executory Contract Claims and U.S. Trustee's Fee Claims, including but not
limited to
-28-
<PAGE> 49
Claims which are (i) contingent indemnification Claims of officers, directors,
employees and agents of Columbia, TCO or any other subsidiary of Columbia and
(ii) post-petition personal injury and property damage Claims. Miscellaneous
Administrative Claims include specifically: (i) the indemnity Claims arising
under the Canada Sale Agreement in favor of the purchaser of the stock of
Columbia Canada and (ii) indemnity Claims under Columbia's indemnity
agreements with the Reliance Group.
2. PRIORITY TAX CLAIMS
Priority Tax Claims consist of all Claims for the payment of taxes
entitled to priority in payment pursuant to section 507(a)(8) of the
Bankruptcy Code.
C. CLASSES OF CLAIMS AND INTERESTS
1. CLASS 1 - DIP FACILITY CLAIM
Class 1 consists of the DIP Facility Claim.
2. CLASS 2 - NON-BORROWED MONEY CLAIMS
Class 2 consists of all pre-petition Claims that are not Unclassified
Claims and that are not treated in any other Class under the Plan.
3. CLASS 3 - BORROWED MONEY CLAIMS
a. CLASS 3.1 - BORROWED MONEY CONVENIENCE CLAIMS
Class 3.1 consists of all Claims the principal amount of which, as
of the Record Date, did not exceed $20,000 and that, but for such monetary
limitation, would be classified in Class 3.2.
-29-
<PAGE> 50
b. CLASS 3.2 - OTHER BORROWED MONEY CLAIMS
Class 3.2 consists of the following Claims the principal amount of
which, as of the Record Date, exceeded $20,000:
i. DEBENTURE CLAIMS:
All pre-petition Claims arising under the Debentures;
ii. $500 MILLION CREDIT AGREEMENT CLAIMS:
All pre-petition Claims (other than the Auction Note Claims) arising
under the $500 Million Credit Agreement;
iii. $750 MILLION CREDIT AGREEMENT CLAIMS:
All pre-petition Claims arising under the $750 Million Credit
Agreement;
iv. COMMERCIAL PAPER CLAIMS:
All pre-petition Claims arising under the Commercial Paper;
v. BID NOTE CLAIMS:
All pre-petition Claims arising under the Bid Notes;
vi. AUCTION NOTE CLAIMS:
All pre-petition Claims arising under the Auction Notes;
vii. MEDIUM TERM NOTE CLAIMS:
All pre-petition Claims arising under the Medium Term Notes;
viii. LESOP CLAIMS:
All Claims arising under the LESOP Guaranty, subject, however, to
the provisions of Section V.H; and
-30-
<PAGE> 51
ix. RATE SWAP CLAIMS:
All pre-petition Claims arising under the Rate Swap Agreement.
4. CLASS 4 - SECURITIES ACTION CLAIMS
Class 4 consists of all Securities Action Claims the Holders of
which have, on or before the Supplemental Bar Date, Filed a Supplemental Proof
of Claim or, alternatively, if a Supplemental Bar Date Order has not been
entered, have submitted a Questionnaire complying in all respects with the
Bankruptcy Court order approving the Questionnaire.
5. CLASS 5 - INTERCOMPANY CLAIMS
Class 5 consists of the Intercompany Claims.
6. CLASS 6 - ASSUMED CLAIMS
a. CLASS 6.1 - INDEMNITY CLAIMS
Class 6.1 consists of the pre-petition Claims of the officers,
directors, employees or agents of Columbia, TCO or Columbia's other
subsidiaries arising from liabilities assessed against such officers,
directors, employees or agents for which Columbia is obligated to indemnify
them pursuant to the terms of Columbia's certificate of incorporation or
otherwise, to the extent insurance proceeds from the D&O Insurance are
inadequate or unavailable to satisfy such Claims.
b. CLASS 6.2 - PENSION CLAIMS
Class 6.2 consists of all Claims Filed by the PBGC relating to the
Retirement Income Plan for the Columbia Gas System Companies (the "Retirement
Plan"), including the Retirement Plan's Claims, if any, for minimum funding
-31-
<PAGE> 52
contributions required by ERISA and the three proofs of claim Filed by the
PBGC with regard to the Retirement Plan.
c. CLASS 6.3 - SHAWMUT GUARANTY CLAIM
Class 6.3 consists of Columbia's secondary obligation to Shawmut
Bank of Boston, N.A. for certain of the obligations of Columbia Gas of Ohio,
Inc. under the lease for the latter's headquarters in Columbus, Ohio.
7. CLASS 7 - INTERESTS IN COLUMBIA COMMON STOCK
Class 7 consists of all Interests of the Stockholders.
III. TREATMENT OF CLAIMS AND INTERESTS
A. TREATMENT OF UNCLASSIFIED CLAIMS
1. ADMINISTRATIVE CLAIMS
a. PROFESSIONAL CLAIMS
Each Holder of an Allowed Professional Claim will receive cash equal
to the amount of such Claim and such post-petition interest as may be Allowed
by the Bankruptcy Court (unless Columbia and the Holder of such Claim agree to
less favorable treatment) on the later of (i) the Effective Date and (ii) the
tenth day after the date on which an order allowing such Claim and post-
petition interest becomes a Final Order.
b. POST-PETITION OPERATIONAL CLAIMS
Each Post-Petition Operational Claim that is unpaid as of the
Effective Date will be assumed and paid by Reorganized Columbia pursuant to
the terms and conditions of the particular transaction giving rise to such
Claim, without any further action on the part of the Holder of such Claim.
-32-
<PAGE> 53
c. ASSUMED EXECUTORY CONTRACT CLAIMS
Each Assumed Executory Contract Claim that is an Allowed Claim on
the Effective Date will be paid, together with any post-petition interest
which may be due thereon, calculated as described below, in cash, on the
Effective Date or upon such earlier or later date as may be authorized by
order of the Bankruptcy Court. Any Assumed Executory Contract Claim that
becomes an Allowed Claim after the Effective Date will be paid, together with
any post-petition interest which may be due thereon, calculated as described
below, in cash, within thirty days after the end of the Calendar Quarter in
which such Claim becomes an Allowed Claim.
Post-petition interest shall be calculated from the date a defaulted
payment was required to have been made to and including the day prior to the
date of distribution: (i) with respect to any Assumed Executory Contract Claim
evidenced by a written agreement setting forth a non-default contractual
interest rate, at such non-default contractual rate, and (ii) with respect to
any other Assumed Executory Contract Claim, at the rate of six percent (6%)
per annum, or as otherwise provided by the Bankruptcy Court.
d. U.S. TRUSTEE'S FEE CLAIMS
U.S. Trustee's Fee Claims that are unpaid as of the Effective Date
will be paid in cash on the Effective Date.
e. MISCELLANEOUS ADMINISTRATIVE CLAIMS
Indemnity Claims under the Canada Sale Agreement (i) if liquidated
by Final Order on the Effective Date, will be paid on
-33-
<PAGE> 54
the Effective Date in cash or (ii) if not then liquidated, will be assumed by
Reorganized Columbia and the then-existing Kotaneelee Escrow will be adjusted
in accordance with the terms of the Canada Sale Agreement. At Columbia's
option, the Kotaneelee Escrow may be replaced on the Effective Date or at any
time thereafter by a letter of credit as provided for in the Canada Sale
Agreement.
Indemnity Claims arising under agreements with the Reliance Group (i) if
liquidated on the Effective Date, will be paid on the Effective Date in cash
or (ii) if not then liquidated, will be assumed by Reorganized Columbia.
Any remaining Miscellaneous Administrative Claim that is unpaid as of the
Effective Date will be assumed by Reorganized Columbia and paid in cash as it
becomes due and payable or as otherwise agreed to or directed by the
Bankruptcy Court.
Any Miscellaneous Administrative Claim liquidated prior to the Effective
Date and not paid at the time liquidated shall be entitled, when paid, to
receive, in cash, post-petition interest from the date such Claim is
liquidated to and including the day prior to the date of payment thereof
calculated: (i) with respect to any Miscellaneous Administrative Claim
evidenced by a written agreement setting forth a non-default contractual
interest rate, at such non-default contractual rate, and (ii) with respect to
any other Miscellaneous Administrative Claims, at the rate of six percent (6%)
per annum, or as otherwise provided by the Bankruptcy Court.
-34-
<PAGE> 55
2. PRIORITY TAX CLAIMS
Each Priority Tax Claim (other than a Claim that is the subject of the
IRS Order) that is Allowed on the Effective Date, and any post-petition
interest due thereon, will be paid, to the extent Allowed, in cash on the
Effective Date. Any such Priority Tax Claim that becomes an Allowed Claim
after the Effective Date, and any post-petition interest due thereon, will be
paid, to the extent Allowed, in cash within thirty days from the date on which
it becomes an Allowed Claim.
Priority Tax Claims that are the subject of the IRS Order will be paid in
installments over a period not to exceed six years from the date of assessment
of such Claims, together with interest at the rate set forth in Section D.7 of
the IRS Closing Agreement. The full amount of such Claims will be paid in
cash in equal quarterly installments beginning on the date which is three
months after the Effective Date and ending on the last quarterly date which
does not exceed six years from the date of assessment of such Claims, except
that the first quarterly installment shall be paid in three equal monthly
installments beginning on the Effective Date. Each monthly or quarterly
installment shall be paid together with interest on such installment accrued
to the date of payment, at the rate set forth in the IRS Order and the IRS
Settlement Agreement. Notwithstanding the foregoing, however, Reorganized
Columbia shall have the right to pay the Claims of the IRS, or any remaining
balance of such Claims, in full or in part at any time on or after the
Effective Date, without premium or penalty. Any
-35-
<PAGE> 56
payments with respect to Claims of the IRS made by TCO or Reorganized TCO
pursuant to the IRS Settlement Agreement shall reduce the Claim of the IRS in
accordance with Section D.7 of the IRS Closing Agreement.
All holders of Priority Tax Claims shall be entitled to post-petition
interest payable pursuant to the appropriate statute imposing such tax, at the
rate of interest set forth in such statute, or, if no rate is set forth in
such statute, at the rate of six percent (6%) per annum, or as otherwise
provided by the Bankruptcy Court, provided, however, that the rate of interest
to be paid to the IRS shall be governed by the provisions of the IRS Order and
the IRS Settlement Agreement.
B. TREATMENT OF CLASSIFIED CLAIMS
1. CLASS 1 - DIP FACILITY CLAIM
The DIP Facility Claim shall be paid in full in cash on the Effective
Date, if then Allowed, or if not then Allowed, then on or before the tenth day
after such Claim becomes an Allowed Claim. On the Effective Date, the DIP
Facility will terminate by its terms. Any Deficiency Claim shall be treated
as an Administrative Claim in accordance with section 364(c) of the Bankruptcy
Code and the Bankruptcy Court order approving the DIP Facility.
The Class 1 Claim is unimpaired.
2. CLASS 2 - NON-BORROWED MONEY CLAIMS
On the Effective Date, the Holder of each Allowed Class 2 Claim shall be
paid, in cash, the Allowed amount of its Claim together with post-petition
interest thereon from the Petition
-36-
<PAGE> 57
Date to and including the day prior to the Effective Date calculated: (i) with
respect to any Allowed Class 2 Claim evidenced by a written agreement setting
forth a non-default contractual interest rate, at such non-default contractual
rate, and (ii) with respect to any other Allowed Class 2 Claim, at the rate of
six percent (6%) per annum, or as otherwise provided by the Bankruptcy Court.
Class 2 Claims are unimpaired.
3. CLASS 3 - BORROWED MONEY CLAIMS
a. CLASS 3.1 - BORROWED MONEY CONVENIENCE CLAIMS
On the Effective Date, the Holder of each Allowed Class 3.1 Claim
shall be paid, in cash, the Allowed amount of its Claim (determined in
accordance with the paragraph of Exhibit G relevant to such Claim in those
cases where such paragraph describes the method of computation of the Allowed
amount of the Claim), together with post-petition interest thereon calculated
in accordance with the paragraph of Exhibit G relevant to such Claim as if
such Claim were an Allowed Class 3.2 Claim.
Class 3.1 Claims are unimpaired.
b. CLASS 3.2 - OTHER BORROWED MONEY CLAIMS
On the Effective Date, the Holder of each Allowed Class 3.2 Claim
shall be paid the Allowed amount of its Claim (determined in accordance with
the paragraph of Exhibit G relevant to such Claim in those cases where such
paragraph describes the method of computation of the Allowed amount of the
Claim), together with post-petition interest thereon calculated in accordance
with the paragraph of Exhibit G relevant to such
-37-
<PAGE> 58
Claim, by the issuance to the Holder thereof of its Pro Rata Share, subject to
adjustment as described in Section IV.C.5, of (i) the Cash Consideration, if
any, (ii) the aggregate principal amount of each Issue of New Indenture
Securities, (iii) the aggregate Liquidation Value of the New Preferred Stock
and (iv) the aggregate Liquidation Value of the DECS.
The New Preferred Stock and the DECS shall be subject to optional
redemption by Reorganized Columbia as set forth in Exhibits C and D,
respectively. As provided in Exhibit C, Reorganized Columbia may not redeem
any New Preferred Stock on or prior to the 120th day following the Effective
Date (or, if such day is not a Business Day, the next succeeding Business Day)
if, after giving effect to such redemption, any DECS would remain outstanding.
The total number of shares of New Preferred Stock to be issued pursuant
to the preceding paragraph will be that number of shares that has an aggregate
Liquidation Value of $200 million and the total number of shares of DECS to be
issued pursuant to the preceding paragraph will be that number of shares that
has an aggregate Liquidation Value of $200 million, subject, in each case, to
adjustment as described in Section IV.C.5. The amount of the Cash
Consideration, if any, will be determined by Columbia prior to the Effective
Date taking into account the cash Columbia projects will be available to it on
the Effective Date, the cash Columbia estimates will be required post-
Effective Date for its and its subsidiaries' working capital and liquidity
needs and the cash required by it to fulfill its obligations under the Plan
and
-38-
<PAGE> 59
the Columbia Omnibus Settlement. Columbia intends to obtain a Term Loan
Facility which will become available upon Columbia's emergence from Chapter
11. If the Term Loan Facility is obtained and is available for borrowing on
the Effective Date and if borrowings thereunder are available at an all-in
cost (determined without regard to future changes in relevant Term Loan
Facility reference rates) equal to or lower than the weighted average cost of
borrowing through the issuance of New Indenture Securities (assuming each
Issue thereof is issued in the same principal amount), Reorganized Columbia
will provide as Cash Consideration and for purposes of payments required under
Section IV.C.5 at least the lesser of $350 million and the then available
amount of such Term Loan Facility. The balance of the consideration to be
paid to holders of Allowed Class 3.2 Claims will be in the form of New
Indenture Securities, divided among the respective Issues thereof
substantially equally, with no Issue having an aggregate principal amount
which is more than 150% of the aggregate principal amount of any other Issue
(subject, however, to the provisions of Section IV.C.5).
The payments and distributions to the Holders of Allowed Class 3.1 Claims
and Allowed Class 3.2 Claims are in complete satisfaction of any rights of
such Holders to enforce the subordination provisions contained in any
document, instrument or provision pertinent to or relevant to such Holders'
Claims, and the distributions to be made to Holders of such Claims shall not
be subject to any claim, attachment or similar right of any Holder of an
Allowed Class 3.1 Claim or an Allowed Class 3.2
-39-
<PAGE> 60
Claim asserting the benefit of any subordination provisions. Such payments
and distributions shall also constitute full satisfaction and release of such
Holders' Securities Action Claims in accordance with Section X.F.
Class 3.2 Claims are impaired.
4. CLASS 4 - SECURITIES ACTION CLAIMS
In order to determine the scope of Class 4, both in terms of number
and amount of Claims represented by the class proof of claim Filed in the
Reorganization Case as well as all other Claims asserting Securities Action
Claims, Columbia intends to pursue the motion pending with the Bankruptcy
Court for an order approving a supplemental bar date for Holders of Claims
arising from the Securities Action (the "Supplemental Bar Date Order").
The Supplemental Bar Date Order, if entered, will provide that each
Holder of a Securities Action Claim against Columbia or a like claim against
any other party that has asserted timely indemnification Claims against
Columbia must complete and File with respect to each actual or threatened
Claim or claim, by a date set forth therein, a Supplemental Proof of Claim
setting forth, among other things, (i) the amount of such Holder's Securities
Action Claim; (ii) as to each purchase and sale of shares of Common Stock or
debt securities, the ownership, purchase or sale of which forms the basis of
such Claim or claim, the date of such purchase or sale, the quantity purchased
or sold and the aggregate purchase price of such purchase or net proceeds of
such sale; and (iii) the number of shares of Common Stock and
-40-
<PAGE> 61
the form of and principal amount of any Columbia debt securities held by such
Holder on June 19, 1991. Should the Supplemental Bar Date Order not be
entered prior to solicitations of acceptances to the Plan, Columbia shall seek
the Bankruptcy Court's approval of a Questionnaire which will require a Holder
of a Securities Action Claim to provide the same information proposed in the
Supplemental Bar Date Order.
Any Holder of a Securities Action Claim failing to File, on or before the
Supplemental Bar Date, a Supplemental Proof of Claim or, alternatively, if the
Supplemental Bar Date Order is not entered, a Questionnaire complying in all
respects with the order of the Bankruptcy Court approving the Questionnaire,
shall be forever barred from asserting any Securities Action Claim against
Columbia or Reorganized Columbia, shall not participate in the Offer of
Settlement, shall receive no distribution under the Plan in respect of its
Securities Action Claim and shall be enjoined from asserting such claim
against any other party that has asserted a timely indemnification Claim
against Columbia in connection with the Securities Action.
Pursuant to the Plan, Columbia proposes to settle and discharge all
Securities Action Claims of Qualifying Class 4 Claimants by making the
following offer (the "Offer of Settlement"):
1. Columbia and various non-debtors (collectively, the "Contributors")
will contribute up to an aggregate of $18 million (such amount, as the same
may be changed as described below in
-41-
<PAGE> 62
this Section III.B.4, the "Settlement Amount") in such proportions as the
Contributors may agree among themselves.
2. (a) A Qualifying Class 4 Claimant that purchased shares of Common
Stock on or after March 1, 1990, but not later than September 30, 1990, or on
or after May 15, 1991, but not later than June 18, 1991, and held such shares
continuously until at least June 19, 1991, will receive not less than $.50 nor
more than $1.00 per share so purchased. A Qualifying Class 4 Claimant that
purchased shares of Common Stock on or after October 1, 1990, but no later
than May 14, 1991, and held such shares continuously until at least June 19,
1991, will receive not less than $1.50 nor more than $3.00 per share so
purchased. A Qualifying Class 4 Claimant that purchased shares of Common
Stock on or after March 1, 1990 and sold such shares on or after March 31,
1991, but not later than June 18, 1991, will receive not less than $.10 nor
more than $.20 per share so purchased.
(b) A Qualifying Class 4 Claimant that purchased Columbia debt
securities on or after March 1, 1990, but not later than September 30, 1990,
or on or after May 15, 1991, but not later than June 18, 1991, and held such
debt securities continuously until at least June 19, 1991, will receive not
less than $.50 nor more than $1.00 for each $100 principal amount of debt so
purchased. A Qualifying Class 4 Claimant that purchased Columbia debt
securities on or after October 1, 1990, but not later than May 14, 1991, and
held such debt securities continuously until at least June 19, 1991, will
receive not less than $1.50 nor more than $3.00 for each $100 principal amount
of
-42-
<PAGE> 63
debt so purchased. A Qualifying Class 4 Claimant that purchased Columbia
debt securities on or after March 1, 1990, and sold such debt securities on or
after March 31, 1991, but not later than June 18, 1991, will receive not less
than $.10 nor more than $.20 per $100 principal amount of debt so purchased.
3. Columbia will, following the Supplemental Bar Date (if the
Supplemental Bar Date Order is entered) or following receipt of the
Questionnaires, as appropriate, calculate the aggregate amount that would be
payable to Qualifying Class 4 Claimants pursuant to the Offer of Settlement
were each Qualifying Class 4 Claimant to be paid the maximum amount offered to
it under paragraph (2) above (the "Maximum Proof of Claim Amount") and will
adjust the Settlement Amount and the amount to be paid to each Qualifying
Class 4 Claimant as follows:
(i) if the Maximum Proof of Claim Amount is $18 million or less, the
Settlement Amount shall be the Maximum Proof of Claim Amount and
each Qualifying Class 4 Claimant shall receive the maximum
settlement amount offered to such Qualifying Class 4 Claimant in
paragraph (2) above (the "Maximum Offer Amount");
(ii) if the Maximum Proof of Claim Amount exceeds $18 million but
does not exceed $36 million, then the Settlement Amount shall be $18
million and each Qualifying Class 4 Claimant shall receive an amount
equal to the Maximum Offer Amount multiplied by a fraction, the
numerator of which is $18 million and the
-43-
<PAGE> 64
denominator of which is the Maximum Proof of Claim Amount; and
(iii) if the Maximum Proof of Claim Amount exceeds $36 million, then
Columbia may, at its option either (x) increase the Settlement
Amount to the amount which is one-half of the Maximum Proof of Claim
Amount, in which case each Qualifying Class 4 Claimant shall receive
the minimum settlement amount offered to it in paragraph (2) above,
provided, however, that Columbia may elect to pay, to each
Qualifying Class 4 Claimant pro-rata, all or any part of that
portion of the Settlement Amount that exceeds $18 million in the
form of shares of Common Stock, having a Stock Value on the date of
distribution equal to the amount not paid in cash or (y) withdraw
the Offer of Settlement in which case all Class 4 Claims shall be
Rejecting Class 4 Claimants.
4. Columbia shall have the option to withdraw the Offer of Settlement
if Qualifying Class 4 Claimants holding Claims representing at least 75% of
the Maximum Proof of Claim Amount do not vote in favor of the Plan.
5. If Columbia does not exercise its option to withdraw the Offer of
Settlement, any Qualifying Class 4 Claimant voting in favor of the Plan will,
by execution of the ballot, have accepted the Offer of Settlement and shall
have its Class 4 Claim treated in the manner set forth above and will have
waived and released any and all claims of such Qualifying Class 4 Claimant
alleged in or which could have been alleged in the Securities
-44-
<PAGE> 65
Action against each of the Contributors and against each other defendant in
the Securities Action, such waiver and release to become effective only upon
the distribution to such Qualifying Class 4 Claimant of the amount offered to
it under the Offer of Settlement.
6. No offer is made to Holders of Securities Action Claims other than
Qualifying Class 4 Claimants, and Holders who are not Qualifying Class 4
Claimants will receive no distribution under the Offer of Settlement. Any
Complying Class 4 Claimant that is not a Qualifying Class 4 Claimant, any
Qualifying Class 4 Claimant that does not vote in favor of the Plan, and, if
Class 4 rejects the Plan or if the Offer of Settlement is withdrawn, all Class
4 Claimants, shall be Rejecting Class 4 Claimants. Reorganized Columbia shall
object to and/or seek the estimation of the Claims of Rejecting Class 4
Claimants, and such Claimants shall litigate their Securities Action Claims in
the Bankruptcy Court. Rejecting Class 4 Claimants shall have their Claims
paid on the Effective Date, if then Allowed, or if not then Allowed, within
thirty days from the date such Claims become Allowed, in Common Stock (valued
for such purposes at the Stock Value as of the date of distribution) or, at
Reorganized Columbia's discretion, in cash or any combination of the
foregoing.
Class 4 Claims are impaired.
5. CLASS 5 - INTERCOMPANY CLAIMS
Pursuant to the Columbia Omnibus Settlement, the Intercompany Claims
shall be settled and discharged in full.
The Class 5 Claims are unimpaired.
-45-
<PAGE> 66
C. TREATMENT OF ASSUMED CLAIMS
1. CLASS 6.1 - INDEMNITY CLAIMS
Each Class 6.1 Claim shall be paid (i) if Allowed on the Effective Date,
in full in cash on the Effective Date, and (ii) if not then Allowed, shall be
assumed and paid in the ordinary course.
Class 6.1 Claims are unimpaired.
2. CLASS 6.2 - PENSION CLAIMS
On the Effective Date, Reorganized Columbia shall assume its obligations
to the Retirement Plan, including all obligations imposed by ERISA. Class 6.2
Claims shall survive and be unaffected by the Plan.
Class 6.2 Claims are unimpaired.
3. CLASS 6.3 - SHAWMUT GUARANTY CLAIM
Columbia's secondary obligations to Shawmut Bank of Boston, N.A. shall be
assumed and shall be unaffected by the Plan.
The Class 6.3 Claim is unimpaired.
D. TREATMENT OF CLASS 7 - INTERESTS IN COMMON STOCK
All Holders of Class 7 Interests shall retain their outstanding shares of
Common Stock. Class 7 Interests may be affected by the Plan as a result of
the issuance of the DECS and the possible issuance of additional shares of
Common Stock.
Class 7 Interests are deemed impaired.
-46-
<PAGE> 67
IV. PROVISIONS GOVERNING DISTRIBUTIONS
A. TRANSACTIONS ON THE EFFECTIVE DATE
The following transfers and transactions shall take place on the
Effective Date:
1. Reorganized Columbia shall take or cause to be taken all actions
which are necessary or appropriate to effect:
(a) the filing with the Secretary of State of the State of Delaware of
an amended and restated certificate of incorporation substantially in the
form of Exhibit A and certificates of designation with respect to the New
Preferred Stock and the DECS substantially in the form of Exhibits C and
D, respectively;
(b) the issuance of shares of the New Preferred Stock and DECS under the
Plan; and
(c) the issuance of the New Indenture Securities.
2. Reorganized Columbia shall enter into the New Indenture.
3. Reorganized Columbia shall enter into one or more Disbursing Agent
Agreements.
4. If not previously entered into, Reorganized Columbia shall enter
into the Working Capital Facility and the Term Loan Facility unless Columbia
waives this condition to the Effective Date.
5. Reorganized Columbia shall make all cash payments required to be
made under the Plan on the Effective Date to Holders of Allowed Claims other
than those Claims classified in Class 3.1 or Class 3.2.
-47-
<PAGE> 68
6. Reorganized Columbia shall deliver to the appropriate Disbursing
Agent or Disbursing Agents all consideration required to be paid on the
Effective Date to Holders of Allowed Claims in Class 3.1 and Class 3.2.
7. The Disbursing Agent or Disbursing Agents shall make all
distributions required to be made, pursuant to the Plan, on the Effective Date
to Holders of Allowed Claims in Class 3.1 and 3.2.
8. The Setoff Funds shall be distributed in accordance with the terms
of the Setoff Order and the interest earned and accrued on the Setoff Funds
shall be distributed to Reorganized Columbia.
9. Unless Columbia withdraws the Offer of Settlement as permitted by
the Plan, the Settlement Amount shall be distributed to the Qualifying Class 4
Claimants.
10. Reorganized Columbia shall adjust or replace the Kotaneelee Escrow
in accordance with the provisions of the Canada Sale Agreement.
11. A Stipulation of Dismissal With Prejudice of the Intercompany Claims
Litigation, which is conditioned only upon the completion of payment by
Reorganized TCO of all distributions payable on the effective date of the TCO
Plan (the "Stipulation of Dismissal With Prejudice") shall have been filed
with and, if necessary, approved by the District Court. To the extent not
previously resolved, the Motion to Unseal Judicial Records, filed with the
District Court by the customer's committee appointed in the TCO Proceeding,
shall not be dismissed.
-48-
<PAGE> 69
12. The LESOP shall be terminated and the Common Stock held by the LESOP
Thrift Plan Trustee in Fund E of the LESOP Trust shall be purchased by
Reorganized Columbia in accordance with the terms of the Plan.
13. Reorganized Columbia shall take any and all further actions
necessary or appropriate to effectuate the Plan.
B. DISTRIBUTIONS ON UNCLASSIFIED CLAIMS AND CLAIMS IN CLASSES 1, 2, 4 AND 6
Except as otherwise provided under the Plan or pursuant to a Final Order,
distributions to Holders of (i) Unclassified Claims and Class 1, Class 2,
Class 4 and Class 6 Claims that are Allowed Claims as of the Effective Date
will be made by Reorganized Columbia commencing on the Effective Date, in
accordance with the treatment provided under the Plan for such Claims and (ii)
distributions to Holders of any such Claims that become Allowed after the
Effective Date will be made, in the case of Unclassified Claims and Class 6
Claims, in the ordinary course of business as such Claims become Allowed and,
in the case of the remaining such Classes of Claims, within thirty days after
the end of the Calendar Quarter in which such Claims become Allowed.
C. DISTRIBUTIONS ON CLASSES 3.1 AND 3.2 CLAIMS.
1. LEDGER CLOSING DATE
As of the close of business on a date to be determined by Columbia and
notice of which shall have been given to Holders as the Bankruptcy Court by
Final Order shall direct, which date shall not be less than ten nor more than
thirty days prior to the Effective Date (the "Ledger Closing Date"), all
transfer ledgers,
-49-
<PAGE> 70
transfer books, registers and any other records maintained by the designated
transfer agents in accordance with the Recordation Order with respect to
ownership of the Borrowed Money Instruments and the Borrowed Money Claims
arising therefrom or in connection therewith shall be closed, and for purposes
of the Plan, there shall be no further changes in the record holders of any
Borrowed Money Instruments or any Borrowed Money Claim arising therefrom or in
connection therewith on such ledgers, books, registers or records. Columbia
shall thereafter have no obligation to recognize any transfer of any Borrowed
Money Instrument or any Borrowed Money Claim arising therefrom or in
connection therewith but shall be entitled instead to recognize and deal with,
for all purposes under the Plan, only those Persons that are Holders of
Borrowed Money Instruments or any Borrowed Money Claim arising therefrom or in
connection therewith on the Ledger Closing Date, as reflected on such ledgers,
books, registers or records.
2. SURRENDER OF INSTRUMENTS
Each Holder of a Claim arising from an Auction Note, a Bid Note, a
Debenture, any note issued pursuant to the $500 Million Loan Agreement other
than the Auction Notes, and any note issued pursuant to the $750 Million Loan
Agreement (each, a "Surrender Instrument"), as a condition to the delivery to
such Holder of the distributions to which it is entitled under the Plan, shall
be required to surrender the Surrender Instrument giving rise to such Claim to
the Person set forth opposite the name of such Surrender Instrument in the
table below:
-50-
<PAGE> 71
<TABLE>
<CAPTION>
Surrender Instrument Person
-------------------- ------
<S> <C>
Auction Notes Columbia
Bid Notes Columbia
Debentures Indenture Trustee
Notes issued pursuant Bank Agent
to the $500 Million
Credit Agreement (other
than Auction Notes)
Notes issued pursuant Bank Agent
to the $750 Million
Credit Agreement
</TABLE>
To the extent that such Holder is not the record holder of such relevant
Surrender Instrument as of the Ledger Closing Date, such Holder must deliver
to the specified Person, together with the relevant Surrender Instrument,
documents reasonably satisfactory to Columbia evidencing succession of title
from the record holder thereof. In the event that any such Surrender
Instrument has been lost, destroyed, stolen or mutilated, the Holder thereof
may instead execute and deliver an affidavit of loss and indemnity with
respect thereto in form that is customarily utilized for such purposes and
that is reasonably satisfactory to Columbia, together with, if Columbia so
requests, a bond in form and substance (including, without limitation, amount)
reasonably satisfactory to Columbia. Until a Holder of record on the Ledger
Closing Date, or its successor, surrenders the relevant Surrender Instrument,
or otherwise complies with the foregoing provisions of this Section IV.C.2,
the distribution to be made to such Holder under the Plan shall not be so
delivered to such Holder, and such Holder shall have no rights under, or with
respect to,
-51-
<PAGE> 72
the New Indenture, the New Indenture Securities, the New Preferred Stock or
the DECS issuable to it or the cash payable to it under the Plan.
Procedures concerning the surrender of Surrender Instruments shall be
approved by order of the Bankruptcy Court and notice thereof shall be given to
Holders of Class 3.1 and Class 3.2 Claims prior to the Effective Date.
3. CANCELLATION OF SURRENDER INSTRUMENTS AND TERMINATION OF DEBT
OBLIGATIONS
Promptly upon surrender of a Surrender Instrument in accordance with
Section IV.C.2, such Surrender Instrument, if not previously so delivered,
shall be delivered to Reorganized Columbia and canceled.
As of the Effective Date, upon the delivery by Reorganized Columbia to
the appropriate Disbursing Agent of all distributions to be made to Holders of
Allowed Claims in Classes 3.1 and 3.2, the Borrowed Money Instruments, the
$500 Million Credit Agreement, the $750 Million Credit Agreement, the 1961
Indenture, the Rate Swap Agreement, the Commercial Paper Master Note
representing the Commercial Paper, the LESOP Indenture and any other
instrument or document evidencing any Claims in Class 3.1 or Class 3.2 shall
be terminated, deemed null and void and of no further force and effect and
none of the Bank Agent, the Indenture Trustee, the LESOP Indenture Trustee and
the Holders or owners of the Borrowed Money Instruments shall have any further
obligations thereunder, in each case except as may be otherwise provided for
in any Disbursing Agent Agreement, and all Borrowed
-52-
<PAGE> 73
Money Claims and all Claims arising pursuant to or in connection with the
Borrowed Money Instruments or any other document or instrument referred to in
this paragraph shall be deemed satisfied and discharged, and the Holders
thereof shall have no further rights against Columbia or Reorganized Columbia
except that each Holder of an Allowed Borrowed Money Claim shall have the
right to receive from the applicable Disbursing Agent the consideration to
which it is entitled under the Plan upon compliance by such Holder with the
terms of the Plan.
4. DISTRIBUTIONS OF CASH, NEW DEBT INSTRUMENTS, PREFERRED STOCK AND
DECS
On the Effective Date, Reorganized Columbia shall deliver to the
appropriate Disbursing Agents, as agent for the Holders of Allowed Claims in
Class 3.1 and Class 3.2, (i) the Cash Consideration, if any, (ii) the cash
required to pay Allowed Class 3.1 Claims, (iii) the cash necessary to make
payments required in accordance with Section IV.C.5, (iv) one duly issued
certificate, registered in the name of each of the appropriate Disbursing
Agents, for, in the aggregate, the number of shares of DECS to be issued under
the Plan to Holders of Class 3.2 Claims, and (v) one duly issued certificate,
registered in the name of each of the appropriate Disbursing Agents, for, in
the aggregate, the number of shares of Preferred Stock to be issued under the
Plan to Holders of Class 3.2 Claims. On the Effective Date, Reorganized
Columbia shall deliver to The Depository Trust Company or its nominee, for the
account of the appropriate Disbursing Agents, one or more duly issued and
authenticated New
-53-
<PAGE> 74
Indenture Securities for each Issue to be issued under the Plan, payable to
The Depository Trust Company or its nominee. On the Effective Date, or from
time to time thereafter upon compliance with the provisions of Section IV.C.2
in the case of Claims arising from Surrender Instruments, the Disbursing Agent
shall make all appropriate distributions of such consideration in accordance
with the Plan in respect of Allowed Class 3.1 Claims and Allowed Class 3.2
Claims.
5. CASH IN LIEU OF FRACTIONAL SHARES; ROUNDING OF NEW INDENTURE
SECURITIES
(a) Fractional shares of New Preferred Stock or DECS will not be
issued or distributed. Any Holder of an Allowed Class 3.2 Claim entitled, but
for this provision, to receive a fractional share of New Preferred Stock or
DECS, shall, in lieu thereof, be paid cash in an amount equal to the
Liquidation Value of such fractional share.
(b) New Indenture Securities shall be issued only in denominations
of $1,000 or integral multiples thereof.
Any Holder of an Allowed Class 3.2 Claim entitled as a result of the
treatment of Claims as provided in Section III.B.3.b, to receive New Indenture
Securities aggregating less than $70,000 in principal amount shall receive (i)
First Issue Securities to the extent of that portion of its entitlement that
is an integral multiple of $1,000 and (ii) cash or a First Issue Security for
the balance, as described below. Any Holder of an Allowed Class 3.2 Claim
entitled to receive New Indenture Securities aggregating $70,000 or more in
principal amount shall
-54-
<PAGE> 75
receive (i) for such portion of its entitlement that is an integral multiple
of $7,000, equal principal amounts of each Issue of New Indenture Securities,
(ii) for so much of the balance of its entitlement that is an integral
multiple of $1,000, First Issue Securities and (iii) for the balance of its
entitlement, cash or a First Issue Security, as described below.
If the amount to be paid pursuant to clause (ii) of the first sentence or
clause (iii) of the second sentence of the preceding paragraph (a) is $500 or
less, such amount shall be paid in cash or (b) is more than $500, such amount
shall be paid, at Reorganized Columbia's option, in cash or by the issuance of
a First Issue Security in the principal amount of $1,000, in which latter case
Reorganized Columbia shall deduct from the Cash Consideration, if any, to
which such Holder is entitled, the amount by which $1,000 exceeds the amount
required to be paid to such holder under such clause (ii) or (iii).
D. REORGANIZED COLUMBIA OR THIRD PARTY AS DISBURSING AGENT FOR CLAIMS
Reorganized Columbia, as Disbursing Agent, or such third-party Disbursing
Agent as Reorganized Columbia may in its sole discretion employ, shall make
all distributions required in respect of Claims under the Plan. Each such
Disbursing Agent shall serve without bond, and such third-party Disbursing
Agent shall be entitled to receive from Reorganized Columbia, without further
Bankruptcy Court approval, reasonable compensation for distribution services
rendered pursuant to the Plan and reimbursement of reasonable and necessary
out-of-pocket expenses
-55-
<PAGE> 76
incurred in connection with such services, on terms acceptable to Reorganized
Columbia.
E. COSTS OF DISTRIBUTION
Reorganized Columbia shall bear all costs associated with the
effectuation of the Plan, including but not limited to all costs of
distributions to Holders of Allowed Claims and the fees and expenses of the
Disbursing Agents in accordance with the respective Disbursing Agent
Agreements.
F. DELIVERY OF DISTRIBUTIONS; UNCLAIMED DISTRIBUTIONS
1. DELIVERY OF DISTRIBUTIONS IN GENERAL
Distributions to each Holder of an Allowed Unclassified Claim or a Class
1 Claim, Class 2 Claim, Class 4 Claim or Class 6.1 Claim shall be made (i) at
the address set forth on the proof of claim or any amendment thereto Filed by
such Holder, (ii) in lieu of the address set forth in clause (i), at the
address set forth in any written notice of address change received by the
relevant Disbursing Agent after the Effective Date or (iii) at the address of
such Holder reflected in the Schedule of Liabilities if no proof of claim has
been Filed and the relevant Disbursing Agent has not received a written notice
of a change of address. Distributions to Holders of Allowed Class 3.1 Claims
and Allowed Class 3.2 Claims shall be sent to the Persons at the addresses set
forth in the records of the appropriate designated transfer agent maintained
in accordance with the Recordation Order, provided, however, that New
Indenture Securities that are to be issued in non-certificated form shall be
credited by The Depository Trust Company to the accounts of its participants
for
-56-
<PAGE> 77
the benefit of the Persons entitled thereto pursuant to the Plan, in
accordance with the procedures of The Depository Trust Company and the
instructions of the appropriate Disbursing Agent.
2. UNCLAIMED DISTRIBUTIONS
An Unclaimed Distribution shall be (A) any distribution made to the
Holder of an Allowed Claim pursuant to the Plan including, in the case of any
check or other instrument, the proceeds thereof, that (i) is returned to
Reorganized Columbia or the applicable Disbursing Agent as undeliverable or
because delivery thereof is not accepted or (ii) in the case of a distribution
made in the form of a check, is not presented for payment within six months
after it is sent to the payee thereof, and (B) any distribution to be made to
the Holder of an Allowed Claim pursuant to the Plan in respect of a Surrender
Instrument if such Surrender Instrument is not surrendered to the appropriate
Person in accordance with Section IV.C.2 or the provisions of Section IV.C.2
are not otherwise complied with within six months after the Effective Date.
Any Unclaimed Distribution in the form of cash shall, until such time as
such Unclaimed Distribution becomes deliverable, be paid over by the
appropriate Disbursing Agent to Reorganized Columbia, which shall hold such
cash and may commingle it with its other funds. Unclaimed Distributions in
the form of the New Indenture Securities, New Preferred Stock or DECS shall be
held by the applicable Disbursing Agent (through The Depository Trust Company
in the case of New Indenture Securities that are to be issued in non-
certificated form). Notwithstanding any provision
-57-
<PAGE> 78
herein to the contrary, any Holder of an Allowed Claim that does not claim an
Unclaimed Distribution within five years after the Confirmation Date shall not
participate in any further distributions under the Plan and shall be forever
barred from asserting any such Claim against Reorganized Columbia or its
property. At the end of such five year period, the Unclaimed Distributions
consisting of New Indenture Securities, New Preferred Stock, DECS and any
dividends, interest and other property received in exchange for or in respect
of such New Indenture Securities, New Preferred Stock or DECS shall be
delivered (if not already delivered) by the Disbursing Agent (through The
Depository Trust Company in the case of New Indenture Securities that are to
be issued in non-certificated form) to Reorganized Columbia which shall retain
the same as its property, free of any restrictions, and may cancel any such
New Indenture Securities, New Preferred Stock or DECS. Any cash held by any
Disbursing Agent in respect of such Claims shall be delivered by such
Disbursing Agent to Reorganized Columbia and any such cash previously
delivered to and being held by Reorganized Columbia shall be the property of
Reorganized Columbia, free of any restrictions. Nothing contained in the Plan
shall require any Disbursing Agent or Reorganized Columbia to attempt to
locate any Holder of an Allowed Claim other than by reviewing its own or
Reorganized Columbia's records or the records maintained in accordance with
the Recordation Order.
-58-
<PAGE> 79
G. MEANS OF CASH PAYMENTS
Cash payments made pursuant to the Plan shall be in United States dollars
by check drawn on a domestic bank selected by the Disbursing Agent making such
payment, or, at the option of such Disbursing Agent, by wire transfer from a
domestic bank; provided, however, that cash payments to foreign creditors, if
any, may be made, at the option of such Disbursing Agent, in such funds and by
such means as are necessary or customary in a particular foreign jurisdiction.
All foreign currency costs and wire transfer costs incurred in making
distributions to any Holder of a Claim pursuant to the Plan shall be for the
account of such Holder.
H. SETOFFS
Reorganized Columbia may set off against any Allowed Claim and the
distributions to be made pursuant to the Plan on account of such Claim, the
claims, rights and causes of action of any nature that Columbia or Reorganized
Columbia may hold against the Holder of such Allowed Claim; provided, however,
that neither the failure to effect such a setoff nor the allowance of any
Claim hereunder shall constitute a waiver or release by Columbia or
Reorganized Columbia of any such claim, right or cause of action that Columbia
or Reorganized Columbia may possess against such Holder.
On the Effective Date, Morgan Guaranty Trust Company of New York shall,
in accordance with the terms of the Setoff Order, deliver the Setoff Funds to
the Disbursing Agent which shall distribute such Setoff Funds to Holders of
Allowed Class 3.1
-59-
<PAGE> 80
Claims and Allowed Class 3.2 Claims that arise by virtue of the $500 Million
Credit Agreement (other than Auction Notes) and the $750 Million Credit
Agreement in partial satisfaction of their Claims. The remaining amount of
each of the Claims arising from the $500 Million Credit Agreement and the $750
Million Credit Agreement shall be treated as a Class 3.2 Claim or, if the
principal amount of the Claim as of the Record Date (after giving effect to
the foregoing reduction) is not greater than $20,000, as a Class 3.1 Claim.
In accordance with the provisions of the Setoff Order, interest earned
and accrued on the Setoff Funds shall be distributed by Morgan Guaranty Trust
Company of New York to Columbia on the Effective Date.
I. EFFECTIVE DATE PAYMENTS OR DISTRIBUTIONS
Any payment or distribution that is required under the Plan to be made on
the Effective Date or other date, if made as soon as practicable thereafter,
shall be deemed to have been made on the Effective Date or such other date, as
applicable. All cash distributions required to be made pursuant to the Plan
shall be deemed to have been made upon the mailing of a check or transmission
of a wire transfer by Columbia or Reorganized Columbia to the Disbursing
Agent, as agent for the Holder of the Allowed Claim entitled to such
distribution. Any Holder of an Allowed Claim entitled to post-petition
interest in accordance with the Plan shall receive such post-petition interest
on the cash portion of the distribution to which it is entitled, in an amount
calculated consistent with the relevant paragraph of
-60-
<PAGE> 81
Exhibit G, from the Petition Date to and including the day before the date of
distribution of the cash payments made with respect to such Claim, provided,
however, that with respect to Allowed Claims in respect of a Surrender
Instrument which has not been surrendered to the appropriate Person in
accordance with Section IV.C.2 or the provisions of Section IV.C.2 are not
otherwise complied with, such post-petition interest shall cease to accrue as
of the day before the Effective Date.
J. LIMIT ON DISTRIBUTIONS
Anything to the contrary contained in the Plan notwithstanding, no Holder
of a Claim shall receive under the Plan more than the Allowed amount of such
Claim, together with any post-petition interest to which such Holder may be
entitled pursuant to the Plan or any order of the Bankruptcy Court. All
payments and distributions to be made under the Plan shall be made without
interest, penalty or late charge arising subsequent to the Petition Date,
except as expressly provided by the Plan or by Final Order.
K. CONTINUATION OF CERTAIN RETIREMENT, WORKERS' COMPENSATION AND LONG-TERM
DISABILITY BENEFITS
Notwithstanding anything to the contrary herein contained, all employee
and retiree benefit plans or programs in existence as of the Petition Date
(other than the LESOP) shall continue after the Effective Date.
-61-
<PAGE> 82
V. MEANS FOR IMPLEMENTATION OF THE PLAN
A. CONTINUED CORPORATE EXISTENCE AND VESTING OF ASSETS IN REORGANIZED
COLUMBIA
Columbia shall continue to exist after the Effective Date as Reorganized
Columbia, a Delaware corporation, with all the rights and powers of a
corporation under applicable law and without prejudice to any right to alter
or terminate such existence (whether by merger or otherwise) under Delaware
law, subject to the terms and provisions of this Plan and the Confirmation
Order. Except as otherwise provided in the Plan, on or after the Effective
Date, all property of the Estate, and any property and assets acquired by
Columbia or Reorganized Columbia under any provisions of the Plan, shall vest
in Reorganized Columbia, free and clear of any and all Claims, liens, charges
and other encumbrances. On and after the Effective Date, Reorganized Columbia
may operate its business and may use, acquire and dispose of property or
assets and compromise or settle any claims against it without supervision or
approval by the Bankruptcy Court and free of any restrictions of the
Bankruptcy Code or Bankruptcy Rules, other than those restrictions expressly
imposed by the Plan or the Confirmation Order. Without limiting the
foregoing, Reorganized Columbia may pay the charges that it incurs on or after
the Effective Date for professional fees, disbursements, expenses or related
support services without application to the Bankruptcy Court.
-62-
<PAGE> 83
B. CORPORATE GOVERNANCE, DIRECTORS AND OFFICERS
1. CERTIFICATE OF INCORPORATION
On the Effective Date, the certificate of incorporation of Reorganized
Columbia shall be amended and restated to read in its entirety as set forth in
Exhibit A. The certificate of incorporation as so amended shall, among other
things, prohibit the issuance of non-voting equity securities to the extent
required by section 1123(a) of the Bankruptcy Code. After the Effective
Date, Reorganized Columbia may further amend and restate its certificate of
incorporation or by-laws as permitted by the Delaware General Corporation Law.
2. DIRECTORS AND OFFICERS OF REORGANIZED COLUMBIA
Those persons serving as the directors and officers of Columbia as of the
date hereof will, subject to changes in the ordinary course of business,
continue to serve in their same capacities on behalf of Reorganized Columbia
after Confirmation.
3. CORPORATE ACTION
Upon the Effective Date, adoption by Reorganized Columbia of an amended
and restated certificate of incorporation and the other matters contemplated
by or provided for under the Plan involving the corporate structure of
Columbia or Reorganized Columbia or corporate action to be taken by or
required of either Columbia or Reorganized Columbia shall be deemed to have
occurred and be effective and all actions required or contemplated in order to
consummate the Plan shall be authorized and approved in all respects without
any requirement of further action by Stockholders or directors of Columbia or
Reorganized Columbia.
-63-
<PAGE> 84
4. VOTING SECURITIES
The New Preferred Stock and the DECS shall be deemed voting securities
for purposes of section 1123(a) of the Bankruptcy Code but shall not be deemed
voting securities for purposes of the HCA.
C. PRESERVATION OF RIGHTS OF ACTION
Except as provided elsewhere in the Plan or in any contract, instrument,
release, indenture or other agreement or document entered into or created in
connection with the Plan, in accordance with section 1123(b) of the Bankruptcy
Code, Reorganized Columbia shall retain and may enforce any claims, rights and
causes of action that either Columbia or its Estate may hold against any
Person and shall retain the right to prosecute all adversary proceedings
asserting Avoidance Claims that are pending before the Bankruptcy Court as of
the Effective Date. All other Avoidance Claims will be released. Reorganized
Columbia and its successors and assigns may pursue such retained claims,
rights or causes of action, as appropriate, in accordance with the best
interests of Reorganized Columbia.
D. RELEASE OF LIENS
Except as otherwise provided in the Plan or in any contract, instrument,
release, indenture or other agreement or document created in connection with
the Plan, on the Effective Date, all mortgages, deeds of trust, liens or other
security interests against the property or assets of the Estate shall be
deemed discharged and satisfied, and all the right, title and interest of any
holder of any such mortgage, deed of trust, lien or other
-64-
<PAGE> 85
security interest shall revert to Reorganized Columbia and its successors and
assigns.
E. COLUMBIA'S FUNDING OBLIGATIONS
Columbia and Reorganized Columbia shall be obligated, but only to the
extent expressly set forth herein, to fund all distributions required to be
made under the Plan, on the Effective Date or otherwise, and in accordance
with the provisions of the Plan, including but not limited to, (i) required
distributions to the Holders of Claims on or after the Effective Date and (ii)
distributions in respect of those obligations expressly assumed by Reorganized
Columbia under the Plan.
F. DERIVATIVE CLAIMS
The claims alleged in the Derivative Actions are property of the Estate
under section 541 of the Bankruptcy Code. On March 15, 1995, the Columbia
Board of Directors formed a Special Litigation Committee of the Board to
determine whether the continued conduct of the Derivative Action is in the
best interests of Columbia. The Special Litigation Committee has retained
counsel to assist it in its investigation. Once the Special Litigation
Committee has completed its investigation and submitted its determination to
the Board, which determination shall be binding on the Board, the Plan shall
be amended to describe such determination and provide for the treatment of the
purported derivative claims arising from such Derivative Action.
-65-
<PAGE> 86
G. COLUMBIA OMNIBUS SETTLEMENT
Pursuant to the TCO Plan, Reorganized TCO, with the consent of Columbia,
may opt to make a portion of certain payments to Class 3.3 and Class 3.4
claimants under the TCO Plan in the form of shares of Common Stock. If such
option is elected and consented to by Columbia, Reorganized Columbia shall
authorize the issuance of and issue such shares of Common Stock as may be
necessary to fulfill Reorganized TCO's obligations arising from the exercise
of such option and make such shares of Common Stock available to Reorganized
TCO by (i) selling such shares to Reorganized TCO for cash, in exchange for
indebtedness or partly for cash and partly in exchange for indebtedness or
(ii) as otherwise determined by Columbia.
Columbia and Reorganized Columbia shall be bound by the provisions of the
Columbia Customer Guaranty. Notwithstanding any other provisions to the
contrary, the Columbia Customer Guaranty shall survive from Confirmation of
the Plan until the TCO Plan is fully consummated.
H. LESOP CLAIMS
On the Effective Date, the LESOP shall be terminated and Reorganized
Columbia, in accordance with the terms of the LESOP Trust, shall purchase the
shares of Common Stock held by the LESOP Thrift Plan Trustee in Fund E of the
LESOP Trust for cash at a price per share equal to the Stock Value as of the
Effective Date. Such cash purchase price shall be delivered by Columbia to
the LESOP Indenture Trustee, which shall distribute such purchase price pro
rata to the Holders of the LESOP Debentures. For
-66-
<PAGE> 87
purposes of the Plan, the Claim of each Holder of a LESOP Debenture shall be
reduced by its pro rata share of such purchase price. The amount of such
reduction shall be applied first to reduce the post-petition interest to which
each Holder is entitled as calculated in accordance with the relevant
paragraph of Exhibit G and then to reduce the principal amount of each
Holder's LESOP Claim. Any principal amount remaining after such reduction
shall be treated as a Class 3.2 Claim or, if the principal amount of such
Claim as of the Record Date (after giving effect to the foregoing reduction)
is not greater than $20,000, as a Class 3.1 Claim.
As of the Effective Date, the LESOP Action Claims shall be deemed
discharged and dismissed with prejudice in consideration for the treatment of
LESOP Claims under the Plan.
VI. BAR DATES; PROCEDURES FOR ESTABLISHING ALLOWED CLAIMS
AND FOR RESOLVING DISPUTED CLAIMS
A. BAR DATE FOR OBJECTIONS TO NON-ADMINISTRATIVE CLAIMS
Any non-Administrative Claim which was not Filed at least thirty days
prior to the date of the hearing on the Disclosure Statement may be objected
to by Columbia, Reorganized Columbia, the Equity Committee, or the Creditors'
Committee by the later of (i) the Effective Date or (ii) sixty days after a
proof of claim with respect to such Claim has been Filed. Any such Claim that
has not been objected to on or prior to such date shall be an Allowed Claim in
the appropriate Class.
-67-
<PAGE> 88
B. BAR DATES FOR CERTAIN ADMINISTRATIVE CLAIMS
1. PROFESSIONAL CLAIMS
Professionals or other Persons requesting compensation or reimbursement
of expenses pursuant to sections 330, 331 or 503(b) of the Bankruptcy Code for
services rendered before the Effective Date (including compensation requested
pursuant to section 503(b)(4) of the Bankruptcy Code by any Professional or
other Person for making a "substantial contribution" in the Reorganization
Case) shall File and serve on Reorganized Columbia, the U.S. Trustee and the
Fee Examiner an application for final allowance of compensation and
reimbursement of expenses no later than thirty days after the Effective Date;
provided, however, that any Professional that is subject to the Administrative
Fee Order or other such order of the Bankruptcy Court as of the Effective Date
may continue to receive compensation and reimbursement of expenses as provided
therein for services rendered before the Effective Date. Objections to such
applications must be Filed and served on Reorganized Columbia, the U.S.
Trustee, the Fee Examiner and the requesting party no later than sixty days
after the Effective Date. Payment of such professional fees shall be subject
to approval by the Bankruptcy Court following a hearing. Nothing herein shall
be deemed a consent of Columbia to the payment of any post-petition interest
on any such compensation or reimbursement.
-68-
<PAGE> 89
2. BAR DATE FOR ADMINISTRATIVE CLAIMS ARISING FROM REJECTION OF
EXECUTORY CONTRACTS OR UNEXPIRED LEASES
Bar dates for Administrative Claims arising from the rejection of
executory contracts or unexpired leases shall be established as set forth in
Section VII.C.
3. NON-ORDINARY COURSE ADMINISTRATIVE CLAIMS
Columbia shall file a motion seeking an order of the Bankruptcy
Court establishing sixty (60) days after the Confirmation Date as the bar date
for the Filing of any motion seeking allowance of an Administrative Claim
excluding any:
(a) Administrative Claims of Professionals and other entities
requesting compensation or reimbursement of expenses pursuant to
sections 327, 328, 330, 331, 503(b) or 1103 of the Bankruptcy Code
for services rendered before the Effective Date,
(b) Post-Petition Operational Claims,
(c) Assumed Executory Contract Claims,
(d) U.S. Trustee Fee Claims, and
(e) contingent indemnification Claims of officers, directors,
employees and agents of Columbia or its subsidiaries, including TCO.
C. AUTHORITY TO PROSECUTE OBJECTIONS
Subject to any objections to applications made in accordance with this
Section VI or Section VII.C, after the Effective Date, only Reorganized
Columbia shall have the authority to File objections, and shall have authority
to settle, compromise, withdraw or litigate to judgment objections to Claims
Filed by
-69-
<PAGE> 90
it, upon notice to the party that had made the Claim and subject to the
approval of the Bankruptcy Court.
VII. TREATMENT OF EXECUTORY CONTRACTS AND
UNEXPIRED LEASES; ADDITIONAL BAR DATES
A. GENERAL
Except as otherwise provided in the Plan or in any contract, instrument,
release, indenture, or other agreement or document entered into in connection
with the Plan, on the Effective Date (i) all of Columbia's executory contracts
that have not been expressly assumed or rejected by order of the Bankruptcy
Court as of the Confirmation Date and that are listed on Exhibit E attached
hereto shall be assumed or rejected or otherwise dealt with as set forth on
said Exhibit and (ii) all other executory contracts that have not been
expressly rejected shall be assumed.
B. PAYMENTS RELATED TO ASSUMPTION OF EXECUTORY CONTRACTS AND UNEXPIRED
LEASES
Any monetary amounts by which any executory contract or unexpired lease
to be assumed pursuant to the Plan is in default will be satisfied, pursuant
to section 1123(a)(5)(G) of the Bankruptcy Code, by payment of the defaulted
amount, together with such post-petition interest as may be due with respect
thereto, in cash on the Effective Date or on such other terms as are agreed to
by Columbia and the parties to such executory contract or unexpired lease. In
the event of a dispute regarding (i) the amount of any cure payments, (ii) the
ability of Reorganized Columbia to provide "adequate assurance of future
performance" (within the meaning of section 365 of the Bankruptcy
-70-
<PAGE> 91
Code) under the contract or lease to be assumed or (iii) any other matter
pertaining to assumption, the cure payments required by section 1123(a)(5)(G)
of the Bankruptcy Code will be made following the entry of a Final Order
resolving the dispute and approving the assumption.
C. BAR DATE FOR REJECTION DAMAGES
If the rejection of an executory contract or unexpired lease pursuant to
the Plan or the Confirmation Order gives rise to an unsecured Claim or
Administrative Claim by the other party or parties to such contract or lease,
such Claim will be forever barred and will not be enforceable against
Columbia, Reorganized Columbia or its successors or assigns, or the properties
of any of them, unless, with respect to an Administrative Claim, a request for
payment, or, with respect to any other Claim, a proof of claim is Filed and
served on Reorganized Columbia within the later of (i) the time period
established by the Bankruptcy Court in its Final Order authorizing such
rejection or (ii) thirty days after the Effective Date. Objections to any
request for payment or proof of Claim shall be filed not later than sixty days
after the Effective Date.
-71-
<PAGE> 92
D. EXECUTORY CONTRACTS AND UNEXPIRED LEASES ENTERED INTO AND OTHER
OBLIGATIONS INCURRED AFTER THE PETITION DATE
Executory contracts and unexpired leases entered into and other
obligations incurred by Columbia after the Petition Date (unless an order of
the Bankruptcy Court has been entered authorizing rejection of such contracts
or leases) shall survive and remain unaffected by the Plan or entry of the
Confirmation Order.
VIII. CONDITIONS PRECEDENT TO CONFIRMATION
AND CONSUMMATION OF THE PLAN
A. CONDITIONS TO CONFIRMATION
The Bankruptcy Court shall not enter the Confirmation Order unless and
until each of the following conditions has been satisfied or, to the extent
permitted, duly waived by Columbia pursuant to Section VIII.C:
1. The Bankruptcy Court has entered or shall concurrently enter an
order, pursuant to section 1129 of the Bankruptcy Code, confirming the TCO
Plan.
2. The Plan shall have been approved by the SEC under the HCA and the
SEC shall also have approved all transactions contemplated by the TCO Plan
which require its approval.
3. There shall have been no material adverse change to Columbia's
business, properties, financial condition, results of operations or business
prospects between the Plan Mailing Date and the Confirmation Date.
4. No material environmental liability Claim shall have been Filed by
any Person, including, without limitation, any
-72-
<PAGE> 93
state or federal environmental or regulatory agency, asserting actual or
potential liability against Columbia or against any affiliate or predecessor
of Columbia for which Columbia may be liable, other than Claims Filed pursuant
to consensual settlement agreements between Columbia and such state or federal
environmental or regulatory agency or other governmental entity.
5. TCO and Columbia shall have received a ruling from the IRS, in form
and substance satisfactory to TCO and Columbia, to the effect that payments
made by TCO under the TCO Plan that are attributable to the breach,
termination or rejection of gas purchase contracts are deductible in the year
paid by TCO for Federal income tax purposes.
6. The Plan shall not have been amended, modified, waived, supplemented
or withdrawn, in whole or in part, without (a) the prior consent of Columbia,
after consultation with the Creditors' Committee and the Equity Committee, and
(b) the consent of the Creditors' Committee and the Equity Committee to the
extent required by the provisions of Section XII.B.2.
7. Each of Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group shall have issued a provisional or similar rating to the effect
that each Issue of the New Indenture Securities, upon its issuance in
accordance with the Plan, shall be rated Investment Grade.
8. Qualifying Class 4 Claimants holding Securities Action Claims
accounting for at least 75% of the Maximum Proof of Claim Amount have accepted
the Offer of Settlement.
-73-
<PAGE> 94
B. CONDITIONS TO EFFECTIVE DATE
The Plan shall not be consummated and the Effective Date shall not occur
unless and until each of the following conditions has been satisfied or, to
the extent permitted, duly waived by Columbia pursuant to Section VIII.C:
1. The Confirmation Order shall not have been vacated, reversed or
stayed.
2. The Bankruptcy Court shall have confirmed the TCO Plan and the order
with respect to such confirmation shall not have been vacated, reversed or
stayed. The TCO Plan shall have become or shall concurrently become effective
on terms consistent with the Plan and without any amendments to which Columbia
shall not have consented.
3. The order of the SEC approving, under HCA, the Plan and all
transactions contemplated by the TCO Plan which require its approval shall not
have been vacated, reversed or stayed.
4. There shall have been no material adverse change to Columbia's
business, properties, financial condition, results of operations or business
prospects between the Confirmation Date and the Effective Date.
5. Any condition to Confirmation described in Section VIII.A that is
waived by Columbia as permitted by Section VIII.C and that, at the time of
such waiver, Columbia elects to have become a condition to the consummation of
the Plan, shall have been satisfied or, if waivable, waived.
6. Reorganized Columbia shall have entered into the New Indenture, the
Working Capital Facility and the Term Loan
-74-
<PAGE> 95
Facility, each of such agreements shall be in effect and the full amount of
each such Facility shall be available for borrowing by Reorganized Columbia.
7. The Stipulation of Dismissal With Prejudice shall have been filed
with and, if necessary, approved by the District Court.
8. Each of Moody's Investors Service, Inc. and Standard & Poor's Rating
Group shall have confirmed that each Issue of the New Indenture Securities,
upon its issuance in accordance with the Plan, shall be rated Investment
Grade, and neither of those rating agencies shall have put Columbia on "credit
watch" with negative implications.
9. The Effective Date shall occur on or before June 28, 1996.
C. WAIVER OF CONDITIONS TO CONFIRMATION OR EFFECTIVE DATE
Each of the conditions set forth in Sections VIII.A and VIII.B may be
waived in whole or in part by Columbia at any time in its discretion, provided
that (i) the condition numbered 2 in Section VIII.A may be waived as a
condition to the Confirmation Date only if Columbia elects to have such
condition become a condition to the Effective Date and may not be waived as a
condition to the Effective Date, (ii) the conditions numbered 4 and 5 in
Section VIII.A may be waived as conditions to the Confirmation Date only if
Columbia elects to have such conditions become conditions to the Effective
Date, (iii) the condition numbered 7 in Section VIII.A and the conditions
numbered 8 and 9 in Section VIII.B may be waived or modified by Columbia only
with
-75-
<PAGE> 96
the consent of the Equity Committee and the Creditors' Committee, (iv) the
condition numbered 6 in Section VIII.A, to the extent such condition requires
consultation with the Creditors' Committee and the Equity Committee, may not
be waived without consulting with the Creditors' Committee and the Equity
Committee and, to the extent such condition requires the consent of the
Creditors' Committee and the Equity Committee, may not be waived without the
consent of the Creditors' Committee and the Equity Committee, and (v) none of
the conditions set forth in Sections VIII.A and VIII.B may be waived without
the Equity Committee and the Creditors' Committee having been given prior
notice thereof and an opportunity to be heard. To be effective, any such
waiver and consent must be in writing and Filed and served upon each of the
appropriate parties. If condition numbered 5 in Section VIII.A has not been
satisfied by December 15, 1995, then Columbia and TCO shall, by December 31,
1995, either (a) waive such condition to Confirmation and/or the Effective
Date, as appropriate, or (b) refuse to waive such condition, in which case, if
the Initial Accepting Producer Settlement Agreement set forth in the TCO Plan
terminates, Columbia may revoke the Plan. The failure of a condition to have
been satisfied may be asserted by Columbia regardless of the circumstances
giving rise to such failure (including any action or inaction by Columbia or
TCO). Columbia's failure to exercise any of the foregoing rights shall not be
deemed a waiver of any other rights and each such right shall be deemed an
ongoing right, which may be asserted at any time.
-76-
<PAGE> 97
D. EFFECT OF NON-OCCURRENCE OF CONDITIONS TO EFFECTIVE DATE
Each of the conditions to the Effective Date set forth in the Plan must
be satisfied or duly waived by Columbia or other appropriate parties in
accordance with the Plan by June 28, 1996. If the Confirmation Order is
vacated, whether prior to or subsequent to the Effective Date, the Plan,
including the discharge of Claims pursuant to section 1141 of the Bankruptcy
Code, and the assumptions or rejections of executory contracts or unexpired
leases pursuant to Section VII.A, unless modified, supplemented or amended in
accordance with the provisions of Chapter 11 of the Bankruptcy Code so that
the Confirmation Order is reinstated or a new Confirmation Order is entered,
shall be null and void ab initio in all respects. In the event the
Confirmation Order is so vacated, nothing contained in the Plan shall
(i) constitute a waiver or release of any Claim by or against, or any
Interests in, Columbia or TCO, (ii) prejudice in any manner the rights of
Columbia or TCO or (iii) constitute an admission against Columbia or TCO.
E. FAILURE OF PLAN TO BECOME EFFECTIVE
In the event that any of the conditions set forth in Section VIII.B
hereof do not occur by June 28, 1996 and are not timely waived in accordance
with Section VIII.C hereof, Columbia shall have the right to withdraw the Plan
and the Plan, including the discharge of Claims and all settlements of Claims
in connection with the Plan, shall be null and void in all respects without
any further action by any party or approval by the Bankruptcy Court or any
other court and nothing contained in the Plan shall (i)
-77-
<PAGE> 98
constitute a waiver or release of any Claim by or against, or any Interests
in, Columbia, (ii) prejudice in any manner the rights of Columbia or any of
the Creditors or (iii) constitute an admission against Columbia or any of the
Creditors.
IX. CONFIRMABILITY AND SEVERABILITY
OF THE PLAN AND CRAMDOWN
A. CONFIRMABILITY AND SEVERABILITY OF THE PLAN
Columbia and the Plan must satisfy the confirmation requirements of
section 1129 of the Bankruptcy Code. Subject to Section XII.B hereof,
Columbia reserves the right, in its sole discretion, to modify, revoke,
supplement or withdraw the Plan, in whole or in part. Subject to Section
XII.B hereof, a determination by the Bankruptcy Court that the Plan is not
confirmable pursuant to section 1129 of the Bankruptcy Code shall not limit or
affect Columbia's ability to modify or supplement the Plan to satisfy the
confirmation requirements of said section 1129.
B. CRAMDOWN
Columbia reserves the right to seek confirmation of the Plan under
section 1129(b) of the Bankruptcy Code if any impaired Class does not accept
the Plan pursuant to section 1126 of the Bankruptcy Code.
X. DISCHARGE, RELEASES, SETTLEMENT OF CLAIMS AND INJUNCTION
A. DISCHARGE OF CLAIMS AND TERMINATION OF INTERESTS
Except as otherwise expressly provided in the Plan or in the Confirmation
Order, the Confirmation Order operates as a
-78-
<PAGE> 99
discharge, pursuant to section 1141(d) of the Bankruptcy Code, as of the
Effective Date, of all debts of, Claims against and Interests in Columbia that
arose prior to the Confirmation Date including, without limitation, any Claims
for interest accrued on Claims from the Petition Date. Without limiting the
generality of the foregoing, on the Effective Date, Columbia shall be
discharged from any debt that arose prior to the Confirmation Date and from
all debts of the kind specified in sections 502(g), 502(h) or 502(i) of the
Bankruptcy Code, whether or not (i) a proof of Claim based on such debt was
Filed pursuant to section 501 of the Bankruptcy Code, (ii) a Claim based on
such debt is an Allowed Claim pursuant to section 502 of the Bankruptcy Code
or (iii) the Holder of a Claim based on such debt has voted to accept the
Plan.
As of the Confirmation Date, except as otherwise specifically provided in
the Plan or Confirmation Order, all Persons shall be precluded from asserting
against Columbia, Reorganized Columbia, or their respective successors or
assigns, or the properties of any of them, any other or further Claims, debts,
rights, causes of action, liabilities or equity interests based upon any act,
omission, transaction or other activity of any kind or nature that occurred
prior to the Confirmation Date. In accordance with the foregoing, except as
specifically provided in the Plan or Confirmation Order, the Confirmation
Order shall be a judicial determination of discharge of all such Claims and
other debts and liabilities against Columbia, pursuant to sections 524 and
1141 of the Bankruptcy Code, and such discharge
-79-
<PAGE> 100
shall void any judgment obtained against Columbia at any time, to the extent
that such judgment relates to a discharged Claim.
Nothing contained in the Plan or the Confirmation Order shall be
construed as discharging, releasing or relieving Columbia, Reorganized
Columbia, or any other party, in any capacity, from any liability with respect
to the Retirement Plan to which such party is subject under any law or
regulatory provision; provided, however, that Columbia shall not be precluded
from amending, modifying, or terminating the Retirement Plan following the
Effective Date in accordance with then-existing provisions of applicable law.
Except as otherwise provided, Columbia's obligations incurred pursuant to
the Columbia Omnibus Settlement shall survive the entry of the Confirmation
Order and shall remain extant until the entry of a final decree by the
Bankruptcy Court concluding the Reorganization Case.
B. INJUNCTION
As of the Confirmation Date, except as provided in the Plan or the
Confirmation Order, all Persons that have held, currently hold or may hold a
Claim or other debt or liability that is discharged pursuant to the terms of
the Plan are permanently enjoined from taking any of the following actions on
account of any such discharged Claims, debts or liabilities, other than
actions brought to enforce any rights or obligations under the Plan: (i)
commencing or continuing in any manner any action or other proceeding against
Columbia, Reorganized Columbia or their respective properties; (ii) enforcing,
attaching, collecting or
-80-
<PAGE> 101
recovering in any manner any judgment, award, decree or order against
Columbia, Reorganized Columbia or their respective properties; (iii) creating,
perfecting or enforcing any lien or encumbrance against Columbia, Reorganized
Columbia or their respective properties; (iv) asserting a setoff, right of
subrogation or recoupment of any kind against any debt, liability or
obligation due to Columbia, Reorganized Columbia or their respective
properties; and (v) commencing or continuing, in any manner or in any place,
any action that does not comply with or is inconsistent with the provisions of
the Plan or the Confirmation Order.
As noted in Section X.A, nothing in the Plan or the Confirmation Order
shall be construed as discharging, releasing or relieving Columbia,
Reorganized Columbia or any other party, in any capacity, from any liability
with respect to the Retirement Plan to which such party is subject under any
law or regulatory provision. Accordingly, nothing contained in the Plan or
the Confirmation Order shall be construed as enjoining the PBGC or the
Retirement Plan from enforcing any liability with respect to the Retirement
Plan to which such party is subject under any law or regulatory provision as a
result of the Plan's or the Confirmation Order's provisions concerning the
discharge, release and settlement of Claims. Notwithstanding the foregoing,
nothing contained in the Plan shall preclude Reorganized Columbia from
exercising its right to amend, modify or terminate the Retirement Plan in
accordance with applicable law.
-81-
<PAGE> 102
C. LIMITATION OF LIABILITY
Columbia, Reorganized Columbia, their affiliates and their respective
directors, officers, employees, agents, representatives and Professionals
(acting in such capacity), and the Creditors' Committee, the Equity Committee
and their respective members, their agents and Professionals (acting in such
capacity), and their respective heirs, executors, administrators, successors
and assigns and the Equity Committee's invitees, shall neither have nor incur
any liability to any Person for any act taken or omitted to be taken in
connection with or related to the formulation, preparation, dissemination,
implementation, confirmation or consummation of the Plan, the Disclosure
Statement or any contract, instrument, release or other agreement or document
created or entered into, or the offer, issuance, sale or purchase of
securities to be issued under the Plan, or any other act taken or omitted to
be taken in connection with the Plan or the Reorganization Case, provided,
however, that the foregoing provisions of this Section X.C shall have no
effect on the liability of any Person that would otherwise result from any
such act or omission to the extent that such act or omission is determined in
a Final Order to have constituted gross negligence or willful misconduct.
D. RELEASES
On the Effective Date, Columbia and Reorganized Columbia and all Holders
of Claims will release unconditionally and are hereby deemed to release
unconditionally (a) each of Columbia's officers, directors, shareholders,
employees, consultants,
-82-
<PAGE> 103
financial advisors, attorneys, accountants and other representatives, each of
their respective successors, executors, administrators, heirs and assigns, (b)
the Creditors' Committee and, solely in their capacity as members or
representatives of the Creditors' Committee, each member, consultant,
financial advisor, attorney, accountant or other representative of the
Creditors' Committee, and each of their respective successors, executors,
administrators, heirs and assigns, (c) the Equity Committee and, solely in
their capacity as members, invitees or representatives of the Equity
Committee, each member, invitee (including its professionals), consultant,
financial advisor, attorney, accountant or other representative of the Equity
Committee, and each of their respective successors, executors, administrators,
heirs and assigns, (d) the Official Committee of Unsecured Creditors and the
Official Committee of Customers of TCO appointed in the TCO Proceeding
(collectively, the "TCO Committees") and, solely in their capacity as members
or representatives of the TCO Committees, each member, consultant, financial
advisor, attorney, accountant or other representative of the TCO Committees,
each of their respective successors, executors, administrators, heirs, and
assigns and (e) TCO, Reorganized TCO, CNR and each of their respective
officers, directors, shareholders, consultants, financial advisors, attorneys,
accountants or other representatives, and each of their respective successors,
executors, administrators, heirs and assigns (the entities referred to in
clauses (a), (b), (c), (d) and (e) are collectively referred to as the
"Releasees"), from
-83-
<PAGE> 104
any and all claims, obligations, suits, judgments, damages, rights, causes of
action or liabilities whatsoever, whether known or unknown, foreseen or
unforeseen, existing or hereafter arising, in law, equity or otherwise, based
in whole or in part upon any act or omission, transaction, event or other
occurrence taking place on or prior to the Effective Date in any way relating
to the Releasees, Columbia, TCO, the TCO Proceeding, the Reorganization Case,
the TCO Plan or the Plan, including, without limitation, the Intercompany
Claims and all claims arising from or related to the transactions which are
the subject of the Intercompany Claims as set forth in Section X.E, and the
Confirmation Order will enjoin the prosecution by any Person, whether
directly, derivatively or otherwise, of any claim, debt, right, cause of
action or liability which was or could have been asserted against the
Releasees, except as otherwise provided herein, provided, however, that, with
respect to any Claim which may be asserted by a Rejecting Class 4 Claimant,
such releases shall not be effective until its Claim has been paid in
accordance with the Plan.
E. INTERCOMPANY CLAIMS
As part of the Columbia Omnibus Settlement, which is incorporated herein,
the Intercompany Claims Litigation is being settled upon confirmation of the
TCO Plan. A vote to accept the Plan shall constitute consent to the
settlement of the Intercompany Claims Litigation. On or prior to the
Effective Date, as set forth in Section IV.A and Section VIII.B, the
Stipulation of Dismissal With Prejudice shall have been Filed
-84-
<PAGE> 105
with and, if necessary, approved by the District Court. As of the Effective
Date, except for the prosecution of the Motion to Unseal Judicial Records,
filed with the District Court by the customer's committee appointed in the TCO
Proceeding, the Intercompany Claims and all claims arising from or related to
the transactions which are the subject of the Intercompany Claims shall be
settled and released in their entirety in accordance with Section X.D.
F. BORROWED MONEY CLAIMS
Payment of Allowed Class 3.1 and Class 3.2 Claims under the Plan shall
constitute full satisfaction and release of any claims of Holders of such
Claims to Securities Action Claims arising from or relating to their
securities giving rise to Borrowed Money Claims.
XI. RETENTION OF JURISDICTION
Notwithstanding the entry of the Confirmation Order and the occurrence of
the Effective Date, the Bankruptcy Court shall retain such jurisdiction over
the Reorganization Case after the Effective Date as is legally permissible,
including jurisdiction to:
1. Allow, disallow, determine, liquidate, classify, estimate, or
establish the priority or secured or unsecured status of, any Claim, including
the resolution of any request for payment of any Administrative Claim, the
resolution of any disputes concerning any Disbursing Agent Agreement and the
resolution of any and all objections to the allowance or priority
-85-
<PAGE> 106
of Claims and of post-petition interest on such Claims (including any
Administrative Claim and any Priority Tax Claim);
2. Grant or deny any application for allowance of compensation or
reimbursement of expenses authorized pursuant to the Bankruptcy Code or the
Plan, for periods ending on or before the Effective Date;
3. Resolve any matters related to the assumption or rejection of any
executory contract or unexpired lease to which Columbia is a party or with
respect to which Columbia may be liable and to hear, determine and, if
necessary, Allow any Claim arising therefrom;
4. Resolve any determinations which may be requested by Columbia or
Reorganized Columbia of unpaid or potential tax liability or any matters
relating thereto under sections 505 and 1146(d) of the Bankruptcy Code,
including tax liability or such related matters for any taxable year or
portion thereof ending on or before the Effective Date;
5. Resolve any issues relating to distributions to Holders of Allowed
Claims pursuant to the provisions of the Plan, including the redemption or
resetting of rates and other matters with respect to the DECS and the New
Preferred Stock and assertion of set-off rights by or against Columbia;
6. Decide or resolve any motions, adversary proceedings, contested or
litigated matters and any other matters and grant or deny any applications
that may be pending on the Effective Date, that arise in or relate to the
Reorganization Case or the Plan, including, any determination concerning the
Allowed amount, if
-86-
<PAGE> 107
any, of the Securities Action Claims of Rejecting Class 4 Claimants;
7. Enter such orders as may be necessary or appropriate to implement or
consummate the provisions of the Plan and all contracts, instruments,
releases, indentures and other agreements or documents created in connection
with or referred to in the Plan or the Disclosure Statement;
8. Resolve any cases, controversies, suits or disputes that may arise
in connection with the consummation, interpretation or enforcement of the Plan
or any Person's obligations under or in connection with the Plan, including
determinations relating to the enforceability of the Columbia Customer
Guaranty and any disputes regarding compensation for those post-Effective Date
services referenced in Section XII.A, except that such retention of
jurisdiction shall not apply to any cases, controversies, suits or disputes
that may arise in connection with FERC regulatory matters;
9. Modify the Plan before, on or after the Effective Date pursuant to
section 1127 of the Bankruptcy Code or modify the Disclosure Statement or any
contract, instrument, release, indenture or other agreement or document
created in connection with the Plan or the Disclosure Statement, or remedy any
defect or omission or reconcile any inconsistency in any Bankruptcy Court
order, the Plan, the Disclosure Statement or any contract, instrument,
release, indenture or other agreement or document created in connection with
the Plan or the Disclosure Statement,
-87-
<PAGE> 108
in such manner as may be necessary or appropriate to consummate the Plan, to
the extent authorized by the Bankruptcy Code;
10. Issue injunctions, enter and implement other orders or take such
other actions as may be necessary or appropriate to restrain interference by
any Person with consummation or enforcement of the Plan;
11. Enter and implement such orders as are necessary or appropriate if
the Confirmation Order is for any reason modified, stayed, reversed, revoked
or vacated and as may be necessary or appropriate between the Confirmation
Date and the Effective Date;
12. Determine any other matters that may arise in connection with or
relate to the Plan, the Disclosure Statement, the Confirmation Order, any
Claim or any contract, instrument, release, indenture or other agreement or
document created in connection with the Plan or the Disclosure Statement,
except as otherwise provided herein;
13. Resolve any disputes or any other matters relating to the Securities
Action Claims; and
14. Enter a final decree closing the Reorganization Case.
XII. MISCELLANEOUS PROVISIONS
A. DISSOLUTION OF THE CREDITORS' COMMITTEE AND THE EQUITY COMMITTEE
The Creditors' Committee and the Equity Committee may continue in
existence until the Effective Date for the principal purposes of participating
in the reconciliation and resolution of Disputed Claims and in overseeing the
implementation of the Plan, provided, however, that the Creditors' Committee
may continue in
-88-
<PAGE> 109
existence after the Effective Date, and the Professionals retained by the
Creditors' Committee may continue to be employed after the Effective Date, to
represent the Creditors' interests solely with respect to any redemption of
the New Preferred Stock or the DECS or the resetting of the dividend rates of
the New Preferred Stock and the DECS and the establishment of certain terms of
the DECS, and shall be dissolved immediately following the conclusion of those
events. The Creditors' Committee may, after the Effective Date, in its
discretion dissolve upon notice to Reorganized Columbia.
The members of and the Professionals retained by the Creditors' Committee
shall not be entitled to compensation or reimbursement of expenses for any
services rendered after the Effective Date, except for services performed by
the Creditors' Committee and the Professionals retained by the Creditors'
Committee after the Effective Date as described in the preceding paragraph.
The members of and the Professionals retained by each of the Creditors'
Committee and the Equity Committee are entitled to seek compensation or
reimbursement of expenses for services rendered and expenses incurred in
connection with any applications for allowance of compensation and
reimbursement of expenses pending on the Effective date or Filed and served
after the Effective Date pursuant to Section VI.B.1.
The members of and the Professionals retained by each of the Creditors'
Committee and the Equity Committee must, in order to receive compensation and
reimbursement of expenses incurred with
-89-
<PAGE> 110
respect to services permitted after the Effective Date in accordance with this
Section XII.A, submit monthly bills to Reorganized Columbia for such services
and Reorganized Columbia shall pay all reasonable costs and expenses of the
members of and the Professionals retained by each of the Creditors' Committee
and the Equity Committee. Any dispute regarding compensation for such post-
Effective Date services shall be determined by the Bankruptcy Court.
On the Effective Date, or such later date as provided herein, the
Creditors' Committee and Equity Committee shall dissolve and the members of
those Committees as such shall be released and discharged from all rights and
duties arising from or related to the Reorganization Case. Except as
otherwise provided herein, the Professionals retained by the Creditors'
Committee and Equity Committee and the members thereof shall not be entitled
to compensation or reimbursement of expenses for any services rendered after
the Effective Date.
B. MODIFICATION OF THE PLAN
1. GENERAL
Subject to the restrictions on modifications set forth in section 1127 of
the Bankruptcy Code and the restrictions set forth in the Plan, Columbia
reserves the right to alter, amend, supplement or modify the Plan before its
substantial consummation.
2. AMENDMENTS OF CERTAIN PROVISIONS
Columbia shall not amend, without the prior consent of each of the
Creditors' Committee and the Equity Committee: (i) the
-90-
<PAGE> 111
Pricing Formulae, (ii) the conditions to the Confirmation Date and Effective
Date set forth in Sections VIII.A and VIII.B, respectively, and (iii) the
treatment proposed in the Plan for Holders of Class 3.1 and Class 3.2.
C. REVOCATION OF THE PLAN
Columbia reserves the right to revoke or withdraw the Plan prior to the
Confirmation Date. If Columbia revokes or withdraws the Plan, or if
Confirmation does not occur, then the Plan shall be null and void ab initio in
all respects, and nothing contained in the Plan shall: (i) constitute a
waiver or release of any claims by or against, or any interests in, Columbia
or TCO, (ii) prejudice in any manner the rights of Columbia or TCO or (iii)
constitute an admission against Columbia or TCO.
D. SEVERABILITY OF PLAN PROVISIONS
If any term or provision of the Plan is held by the Bankruptcy Court
prior to or at the time of Confirmation to be invalid, void or unenforceable,
the Bankruptcy Court shall have the power to alter and interpret such term or
provision to make it valid or enforceable to the maximum extent practicable,
consistent with the original purpose of the term or provision held to be
invalid, void or unenforceable, and such term or provision shall then be
applicable as so altered or interpreted. In the event of any such holding,
alteration, or interpretation, the remainder of the terms and provisions of
the Plan may, at Columbia's option, remain in full force and effect and not be
deemed affected, impaired or invalidated by such holding, alteration or
interpretation. However, Columbia reserves the
-91-
<PAGE> 112
right not to proceed to Confirmation or consummation of the Plan if any such
ruling occurs. The Confirmation Order shall constitute a judicial
determination and shall provide that each term and provision of the Plan, as
it may have been altered or interpreted in accordance with the foregoing, is
valid and enforceable pursuant to its terms.
E. SUCCESSORS AND ASSIGNS
The rights, benefits and obligations of any Person named or referred to
in the Plan shall be binding on, and shall inure to the benefit of, any heir,
executor, administrator, successor or assign of such Person. From and after
the Voting Deadline, any heir, executor, administrator, successor or assign of
any Creditor that has voted to accept the Plan shall be bound by the Plan and
the treatment of such Creditor hereunder.
F. SERVICE OF DOCUMENTS ON COLUMBIA OR REORGANIZED COLUMBIA
Any pleading, notice or other document required by the Plan to be served
on or delivered to Columbia or Reorganized Columbia shall be sent by first
class U.S. mail, postage prepaid to:
The Columbia Gas System, Inc.
20 Montchanin Road
Wilmington, Delaware 19807-0020
Attention: Tejinder S. Bindra
Edmond M. Ianni
with copies to:
Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004-2696
Attention: Lewis Kruger
Robin E. Keller
-92-
<PAGE> 113
Cravath, Swaine & Moore
825 Eighth Avenue
New York, New York 10019-7475
Attention: John E. Beerbower
Gregory M. Shaw
Young, Conaway, Stargatt & Taylor
11th Floor - Rodney Square North
P.O. Box 391
Wilmington, Delaware 19899-0391
Attention: James L. Patton, Jr.
G. PAYMENT AND WITHHOLDING OF TAXES
Except as otherwise specifically provided in the Plan, all distributions
made pursuant to the Plan shall, where applicable, be subject to information
reporting to appropriate governmental authorities and to withholding of taxes.
-93-
<PAGE> 114
CONFIRMATION REQUEST
Columbia hereby requests Confirmation of the Plan pursuant to Section
1129(a) or Section 1129(b) of the Bankruptcy Code (in the event the Plan is
not accepted by each of those Classes of Claims and Interests entitled to
vote).
Dated: June 13, 1995
Respectfully submitted,
THE COLUMBIA GAS SYSTEM, INC.
By: /s/ Oliver G. Richard III
--------------------------
Oliver G. Richard III
Chairman and Chief Executive
Officer
-94-
<PAGE> 115
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
_________________________________x
In re: : Chapter 11
:
The Columbia Gas System, Inc. : Case No. 91-803 (HSB)
:
Debtor. :
_________________________________x
DISCLOSURE STATEMENT PURSUANT TO SECTION 1125
OF THE BANKRUPTCY CODE FOR THE FIRST AMENDED
PLAN OF REORGANIZATION OF THE COLUMBIA GAS
SYSTEM, INC. DATED JUNE 13, 1995
Respectfully Submitted,
STROOCK & STROOCK & LAVAN
Lewis Kruger
Robin E. Keller
Seven Hanover Square
New York, New York 10004-2594
(212) 806-5400
CRAVATH, SWAINE & MOORE
John F. Hunt
John E. Beerbower
825 Eighth Avenue
New York, New York 10019-7475
(212) 474-1000
YOUNG, CONAWAY, STARGATT & TAYLOR
James L. Patton, Jr.
11th Floor - Rodney Square North
P.O. Box 391
Wilmington, Delaware 19899-0381
(302) 571-6600
Co-Counsel for The Columbia Gas
System, Inc.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED BY THE BANKRUPTCY COURT FOR
CIRCULATION TO CREDITORS OR FOR USE IN THE SOLICITATION OF VOTES ON THE FIRST
AMENDED PLAN OF REORGANIZATION OF THE COLUMBIA GAS SYSTEM, INC.
<PAGE> 116
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
I. SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
B. Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1. The Debtors and their Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2. The Problems that Led to the Chapter 11 Petitions . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3. The Debtors' Business Operations, Financial Performance and Prospects . . . . . . . . . . . . . . . . 10
a. Columbia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
b. TCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4. Obstacles to Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5. The Cornerstone of the Columbia and TCO Plans: The Columbia Omnibus Settlement . . . . . . . . . . . 19
6. Proposed Resolution or Treatment of Other Major Controversies in Columbia's Chapter 11 Proceedings . 21
a. Intercompany Claims Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
b. Post-Petition Interest and Related Claims by
Unsecured Columbia Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
c. Securityholder Lawsuits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
d. Assumption of Certain Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7. Amendment to the Certificate of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
C. Distributions Under The Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
D. Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
II. OVERVIEW OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A. Reorganized Columbia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
B. Summary of Description of Classes and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
TABLE OF SUMMARY DESCRIPTION OF CLASSES AND THEIR DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1. Unclassified Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2. Secured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. Unsecured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. Securities Action Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5. Intercompany Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6. Assumed Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7. Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
III. BUSINESSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A. Columbia's Historic Corporate Structure and Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Columbia Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
</TABLE>
<PAGE> 117
<TABLE>
<S> <C> <C>
a. Exploration and Production (E&P) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
b. Interstate Transmission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
c. Local Distribution Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
d. Columbia Gas System Service Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
e. Other Energy Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
B. Public Utility Holding Company Act Regulation and System Financing; SEC Approval Of The Plan . . . . . . . . . 6
1. Regulation of Columbia by the SEC Under the HCA; External and Internal Columbia Financing . . . . . . 6
a. Regulatory Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
b. System External and Internal Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2. HCA Jurisdiction Over the Terms of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
IV. SUMMARY OF SIGNIFICANT CLAIMS IN COLUMBIA'S CHAPTER 11 CASE AND THEIR SETTLEMENTS OR PROPOSED RESOLUTIONS . . . . . . 1
A. Borrowed Money Claims and the Negotiations and Settlement of Such Claims . . . . . . . . . . . . . . . . . . . 1
B. The Intercompany Claims Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1. Stipulation and Order Concerning Prosecution of the Intercompany Claims . . . . . . . . . . . . . . . 4
2. Intercompany Claims Litigation Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
a. Allegations of Equitable Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
b. Allegations Seeking Recharacterization of Debt as Equity . . . . . . . . . . . . . . . . . . 6
c. Allegations of Fraudulent Conveyances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
d. Allegations of Voidable Reduction in Capital . . . . . . . . . . . . . . . . . . . . . . . . 7
e. Allegations of Preference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3. Response of Columbia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4. Pre-Trial Intercompany Claims Litigation
Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5. The Intercompany Claims Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6. Summary of the TCO Creditors' Committee Position . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7. Summary of Columbia's Analysis of the Intercompany Claims . . . . . . . . . . . . . . . . . . . . . . 15
8. Settlement of the Intercompany Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
C. The IRS Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
1. The IRS Pre-Petition Claims and Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2. The IRS Administrative Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
D. Status and Treatment of Securities
Claims and Derivative Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
1. Procedural History of The Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2. Summary of Securities Action
Allegations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3. Summary of Relevant Public Disclosures by
Defendants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4. Trends in Columbia's Stock Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5. The June 19, 1991, Announcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6. Proposed Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
(ii)
<PAGE> 118
<TABLE>
<S> <C> <C>
7. Derivative Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
E. The Columbia Omnibus Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
F. Other Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
V. DESCRIPTION OF THE COLUMBIA CHAPTER 11 PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A. Commencement of the Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. First Day Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Columbia's Retention of Professionals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
B. Debtor in Possession Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
C. Formation of Committees / Retention of Professionals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
D. Meetings with the Equity and Creditors'
Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
E. Administrative Fee Order/Appointment of Fee
Examiner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
F. Significant Proceedings in the Chapter 11 Case
and Status of Related Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1. Cash Collateral Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2. Sale of Columbia Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3. Investment Guidelines Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4. Approval of Tax Allocation Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5. LESOP Claims and LESOP Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
a. Columbia's Thrift Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
b. Columbia's Amendment to the Thrift Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
c. Procedural History of LESOP Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
d. Proposed Disposition of LESOP Action Claims . . . . . . . . . . . . . . . . . . . . . . . . . 24
6. Agreement With Banks Regarding Funds Subject
to Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7. Extension of Exclusive Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8. Extension of Time to Remove Actions and File
Proofs of Claim on Behalf of Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9. Surety Bond Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10. Recapitalization of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
11. Amendment of Employment Agreements With
Senior Officers and Assumption of
Retention Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
12. Employee Retention and Release Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13. Data Room . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
14. Loan to Columbia's Thrift Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15. Columbia's Long-Term Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
16. Shareholder Rights Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
G. Procedures Relating to Filing and Determination
of Claims Process and Bar Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
1. Bar Date/Claims Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2. Claims Objection Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3. Claims Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
H. Miscellaneous Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
1. Mountaineer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
2. Kuntz Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
(iii)
<PAGE> 119
<TABLE>
<S> <C> <C>
VI. PLAN TREATMENT OF CLAIMS AND SUMMARY OF OTHER PLAN PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A. Classification and Treatment of Claims and Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. Unclassified Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
a. Administrative Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(i) Professional Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(ii) Post-Petition Operational Claims . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(iii) Assumed Executory Contract Claims . . . . . . . . . . . . . . . . . . . . . . . . . 3
(iv) U.S. Trustee's Fee Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(v) Miscellaneous Administrative Claims . . . . . . . . . . . . . . . . . . . . . . . . 5
b. Priority Tax Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2. Classes of Claims and Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
a. Class 1 - DIP Facility Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
b. Class 2 - Non-Borrowed Money Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
c. Class 3.1 Claims - Borrowed Money Convenience Claims . . . . . . . . . . . . . . . . . . . . 11
d. Class 3.2 - Borrowed Money Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
e. Class 4 - Securities Action Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
f. Class 5 Claims - Intercompany Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
g. Class 6 - Assumed Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(i) Class 6.1 - Indemnity Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(ii) Class 6.2 - Pension Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(iii) Class 6.3 - Shawmut Guaranty Claim . . . . . . . . . . . . . . . . . . . . . . . . . . 23
h. Class 7 - Interests in Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
B. Transactions On the Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
C. New Indenture and New Indenture Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
D. New Preferred Stock and DECS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
E. Reorganized Columbia or Third Party as Disbursing Agent For Claims . . . . . . . . . . . . . . . . . . . . . . 27
F. Delivery of Distributions; Unclaimed Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
1. Delivery of Distributions on Unclassified Claims and Claims in Classes 1, 2, 4 and 6 . . . . . . . . 27
2. Delivery of Distributions to Holders of Classes 3.1 and 3.2 Claims . . . . . . . . . . . . . . . . . 28
a. Ledger Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
b. Surrender of Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
c. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
d. Distributions of Cash, New Indenture Securities, New Preferred Stock and DECS . . . . . . . . 30
e. Cash in Lieu of Fractional Shares; Rounding of New Indenture Securities . . . . . . . . . . . 31
3. Unclaimed Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4. Means of Cash Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5. Setoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
(iv)
<PAGE> 120
<TABLE>
<S> <C> <C>
6. Continuation of Certain Retirement, Workers' Compensation and Long-Term Disability Benefits . . . . . 36
G. Continued Corporate Existence and Vesting of Assets in Reorganized Columbia . . . . . . . . . . . . . . . . . 37
H. Corporate Governance, Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
1. Certificate of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2. Directors and Officers of Reorganized Columbia . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3. Corporate Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4. LESOP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5. Waivers, Releases and Abandonment of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
I. Bar Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
1. Bar Date for Objections to Non-Administrative Claims . . . . . . . . . . . . . . . . . . . . . . . . 41
2. Bar Dates for Professional Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3. Non-Ordinary Course Administrative Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
J. Rejection of Executory Contracts and Unexpired Leases; Additional Bar Dates . . . . . . . . . . . . . . . . . 42
1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
2. Tax Allocation Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3. Bar Date for Rejection Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4. Executory Contracts and Unexpired Leases Entered Into and Other Obligations Incurred After the
Petition Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
K. Conditions Precedent to Confirmation and Consummation of the Plan . . . . . . . . . . . . . . . . . . . . . . 43
1. Conditions to Confirmation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
2. Conditions to Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
3. Waiver of Conditions to Confirmation or Effective Date . . . . . . . . . . . . . . . . . . . . . . . 47
4. Effect of Non-Occurrence of Conditions to Effective Date . . . . . . . . . . . . . . . . . . . . . . 48
5. Working Capital Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6. Term Loan Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
L. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
1. Dissolution of Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
2. Discharge, Termination and Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
3. Jurisdiction of the Bankruptcy Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
4. Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
5. Modification of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
6. Revocation of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7. Severability of Plan Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
8. Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
VII. RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A. Conditional Nature of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
B. Lack of Established Market for the New Indenture Securities, DECS and New Preferred Stock; Volatility and
Other Risks Affecting Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
C. Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
(v)
<PAGE> 121
<TABLE>
<S> <C> <C>
D. Business Factors and Competitive Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
E. Liabilities Assumed by Columbia and the Uncertainties Associated with the Non-Settling Securities Action
Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
F. Uncertainties Associated with the TCO Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
G. Environmental Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
H. Redemption of the DECS and New Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
I. Holding Company Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
VIII. FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A. Tax consequences to Columbia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Discharge of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Deductibility of Plan Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
B. Tax Consequences To Holders of Claims and Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1. Trade Creditors and Others Receiving only Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. Creditors Whose Claims Are Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. Holders of Class 3.2 Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
a. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
b. Tax Consequences of the Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4. Holders of Class 4 Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5. Certain Other Tax Considerations for Holders of Claims . . . . . . . . . . . . . . . . . . . . . . . 9
a. Receipt of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
b. Accrued Market Discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
c. Original Issue Discount ("OID") . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
d. Future Stock Gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
e. Future Sales of New Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
f. Defeasance of New Indenture Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
g. Tax Treatment of DECS (and New Preferred Stock, where noted) . . . . . . . . . . . . . . . . 15
h. Disposition of New Preferred Stock and DECS Pursuant to Redemption Option. . . . . . . . . . 20
i. Backup Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6. Holders of Class 7 Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7. Proposed Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8. Importance of Obtaining Professional Tax Assistance . . . . . . . . . . . . . . . . . . . . . . . . . 21
IX. VOTING PROCEDURES AND CONFIRMATION REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A. Confirmation Hearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
B. Confirmation Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2. Best Interests Test . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3. Feasibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. The Plan Must Comply with the Applicable Provisions of the
Bankruptcy Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
a. Classification of Claims and Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
b. Mandatory and Optional Plan Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
c. Post-Petition Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
(vi)
<PAGE> 122
<TABLE>
<S> <C> <C>
d. Compromise of Intercompany Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5. Columbia Must Comply with the Applicable Provisions of the
Bankruptcy Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6. Alternatives to the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
a. Cramdown Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
b. Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
C. Voting Procedures and Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
1. Voting Requirements - Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
X. REORGANIZED COLUMBIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A. Business of Columbia Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
B. Financial Projections; Recapitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Principal Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
a. Columbia and TCO Plan Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
b. Financing Assumptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
c. Business, Regulatory and General Economic Assumptions. . . . . . . . . . . . . . . . . . . . . . . 9
d. Tax Assumptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3. Projections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
C. Best Interests Test Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
D. Pricing of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
E. Securities To Be Issued Pursuant To The Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2. Indenture Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3. Equity DECS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4. Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5. New Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6. Applicability of Federal and Other Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
a. Issuance of Securities Under the Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
b. Transfers of New Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
c. Certain Transactions by Stockbrokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7. HCA Provisions Applicable to Securities To Be Issued Pursuant to the Plan. . . . . . . . . . . . . . . . . 41
8. Future Stock Issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
F. Other Post-Reorganization Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
1. Term Loan Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
2. Working Capital Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3. Other Credit Facilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
G. Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
1. Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
2. Officers of Columbia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
a. Overview of Columbia's Senior Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
b. Changes in Senior Management of Columbia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
H. Amendment to Certificate of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
X. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
</TABLE>
(vii)
<PAGE> 123
I. SUMMARY
A. INTRODUCTION
On the Petition Date,(1) Columbia and TCO, one of Columbia's wholly-owned
subsidiaries, each filed a voluntary petition for reorganization under
Chapter 11 of the Bankruptcy Code. On January 18, 1994, TCO Filed, with
Columbia as co-sponsor, a plan of reorganization and accompanying Disclosure
Statement which were amended on April 17, 1995 and further amended on June 13,
1995 (the "TCO Plan" and the "TCO Disclosure Statement", respectively). On
April 17, 1995, Columbia Filed a plan of reorganization and accompanying
Disclosure Statement and on June 13, 1995, Columbia Filed its First Amended
Plan of Reorganization (the "Plan", and together with the TCO Plan, the
"Plans") and this Disclosure Statement.
This Disclosure Statement is submitted by Columbia in connection with its
solicitation of acceptances of the Plan. This Disclosure Statement will be
supplemented by a report of the SEC to be issued in accordance with Section 11
of the HCA. That report should be read in conjunction with this Disclosure
Statement.
IN THE EVENT OF ANY CONFLICT OR INCONSISTENCY BETWEEN THE PLAN AND THIS
DISCLOSURE STATEMENT, OR ANY SCHEDULE OR EXHIBIT HERETO, THE PLAN SHALL
CONTROL.
- - --------------------
(1) Terms not otherwise defined in this Disclosure Statement shall have the
meanings ascribed to them in the Columbia Plan, or in subsequent sections
of this Disclosure Statement, or in the Bankruptcy Code and/or the
Federal Rules of Bankruptcy Procedure.
I-1
<PAGE> 124
The following Executive Summary is intended to highlight key aspects of
the Columbia Reorganization Case and the proposed Plan and is not intended in
any way to substitute for a complete review of the Plan and the balance of
this Disclosure Statement. ALL HOLDERS OF CLAIMS AGAINST, AND EQUITY
INTERESTS IN, COLUMBIA ARE ENCOURAGED TO READ THE PLAN AND THIS DISCLOSURE
STATEMENT IN THEIR ENTIRETY.
Columbia's and TCO's Chapter 11 filings were precipitated by a
combination of events which adversely affected TCO's operations and financial
viability, and consequently the liquidity of Columbia, a holding company, and
its seventeen operating subsidiaries, including TCO (collectively referred to
as the "System"). The Chapter 11 cases have, in turn, been closely tied to
each other as TCO's creditors have sought recoveries from Columbia to
supplement the values available in the TCO estate. Columbia, after
consultation with the Creditors' Committee and the Equity Committee, believes
that it is in the best interests of both estates, in that values will be
maximized and the reorganization process expedited, for Columbia to retain
ownership of TCO and to recapitalize its own debt and equity structure in
conjunction with a recapitalization of TCO and funding of payments to TCO's
creditors.
Thus, important elements of the Plan relate to the proposed refinancing
of TCO by Columbia and other concessions by Columbia embodied in the "Columbia
Omnibus Settlement" (described infra) which will facilitate the reorganization
of TCO. The Plan
I-2
<PAGE> 125
contemplates concurrent implementation of the Plan and the TCO Plan.
The overall goals of the Plans are to (i) pay Columbia's Creditors 100%
of their Allowed Claims (and, in most cases, post-petition interest thereon),
(ii) maximize the value of the recoveries to TCO's creditors by settling
ongoing litigation, (iii) alter the debt and equity structure of Columbia and
TCO to permit them to emerge from their respective Chapter 11 cases with
modernized and viable capital structures and (iv) preserve and ultimately
enhance shareholder value. In addition, the Plans preserve Columbia's and
TCO's basic business operations which have proven to be viable and financially
sound notwithstanding the filing of the Chapter 11 petitions.
The Plan provides for payment in full of all liquidated Allowed Claims of
Creditors of Columbia. Holders of Allowed Borrowed Money Claims, representing
substantially all of the third-party Claims against Columbia generally will
receive, in settlement and satisfaction of their Claims for principal and pre-
petition interest, together with post-petition interest thereon, a combination
of cash, to the extent available in accordance with the terms of the Plan, and
new debt and equity securities of Columbia having aggregate principal amounts
and Liquidation Values which, when added to the cash, if any, to be
distributed to the Holders of such Claims, will equal the amount of their
Allowed Claims plus post-petition interest thereon. As described in Section X
below, Columbia believes that the
I-3
<PAGE> 126
Creditors' Committee, the Equity Committee and their respective financial
advisors agree with Columbia and its financial advisor, Salomon Brothers Inc
("Salomon") that the methodologies for pricing the securities to be issued
pursuant to the Plan will result in such securities having a fair market
value, subject to market fluctuations and other factors described in Section
VII, "Risk Factors," that approximates the amount of such Allowed Claims and
post-petition interest, less the cash, if any, to be distributed in respect of
such Claims.
Other Creditors will receive cash in the amount of their Allowed Claims,
except as described below, or, in some cases, will have obligations assumed by
Columbia under the Plan. Finally, Holders of Securities Action Claims
asserted in or arising from the Securities Action (described below) who file a
Supplemental Proof of Claim or, if the Supplemental Bar Date Order is not
entered, submit a Questionnaire and otherwise qualify under the terms of the
Offer of Settlement described in Section VI.A.2.e., will be paid the proposed
Settlement Amount (of approximately $18 million) offered by the Plan, unless
such Holders, whether individually or in the aggregate, reject that Offer of
Settlement, in which case such Holders may continue to litigate their Claims
against Columbia following the Effective Date in the Bankruptcy Court.
Rejecting Claimants will be paid by Reorganized Columbia the Allowed amount of
such Securities Action Claims, if and when such Claims are Allowed, in Common
Stock or, at Columbia's option, in cash.
I-4
<PAGE> 127
Columbia Stockholders will retain their equity interests in Columbia and
are asked to vote to accept the Plan and, in particular, are asked to approve
amendments to the certificate of incorporation of Columbia which, among other
things, will prohibit the issuance of non-voting equity securities as required
by section 1123(a)(6) of the Bankruptcy Code, delete present restrictions on
Common Stock dividends and amounts of debt applicable while any preferred
stock of Columbia (the "Preferred Stock") is outstanding, provide that the
Board of Directors may determine the specific rights, powers and preferences
of each series of Preferred Stock and the limitations thereon at the time of
its issuance and increase the amount of Columbia's authorized Preferred Stock.
The Plan further provides that a vote for the Plan constitutes an express
acceptance of the settlement of the Intercompany Claims as set forth in the
Plan.
The TCO Plan does not provide for payment in full of all claims of TCO's
creditors, but does provide for, among other things, Columbia's guaranty of
payments by TCO to third-party creditors as provided in the TCO Plan, in
consideration for (i) the retention by Columbia of TCO's equity, (ii)
settlement of the Intercompany Claims Litigation (described in Section IV.B
below) and (iii) the resolution of numerous other disputes affecting both
Columbia's and TCO's reorganization efforts. The TCO Plan provides for prompt
payment in cash of over $1 billion to holders of allowed third-party claims
against TCO on the
I-5
<PAGE> 128
effective date of the TCO Plan, embodies agreements over disputed claims and
other issues which TCO believes are acceptable to most, if not all, of its
creditors and ensures the availability of substantial resources to pay allowed
claims against TCO that are not settled as of such effective date.
In the event the Plan is not confirmed, it is likely that litigation over
the Intercompany Claims will continue, inevitably consuming much time and
resources. In that event, no assurances can be given as to when Columbia will
emerge from bankruptcy or how Columbia's Creditors and Stockholders will be
treated under any other plan of reorganization that might be proposed.
The requirements for Confirmation, including the vote of certain classes
of Claims and Interests to accept the Plan and certain statutory findings that
must be made by the Bankruptcy Court, are set forth in Section IX under the
caption "Voting Procedures and Confirmation Requirements." Confirmation of
the Plan and the occurrence of the Effective Date are subject to a number of
significant conditions. Although Columbia believes that satisfaction of those
conditions should be feasible, there can be no assurance that they will be
satisfied. See Section VII, "Risk Factors."
B. EXECUTIVE SUMMARY
1. THE DEBTORS AND THEIR BUSINESSES
Columbia is a Delaware holding company with seventeen operating
subsidiaries engaged in various aspects of the natural
I-6
<PAGE> 129
gas and oil industry. The operating companies are engaged in the exploration,
production, purchase, marketing, storage, transmission and distribution of
natural gas and other energy operations such as electric power generation and
propane distribution. A more complete description of Columbia's business is
set forth in Section III.A below, and its financial statements are included in
the Annual Report on Form 10-K for 1994 attached hereto as Exhibit 2 (the
"Columbia Annual Report"), and in the Quarterly Report on Form 10-Q for the
first quarter ending March 31, 1995 attached hereto as Exhibit 3 (the
"Columbia Quarterly Report")(2) . Columbia is a registered public utility
holding company under the HCA and, pursuant to the HCA, the Plan and
Columbia's external and intercompany financing activities, including certain
transactions contemplated by the TCO Plan, and certain of its intercompany
contractual relationships and various other matters, are regulated by the SEC.
TCO is one of two interstate pipeline companies owned by Columbia. TCO
owns and operates an approximately 19,000 mile natural gas transmission
pipeline network and related extensive underground gas storage fields that
serve parts of thirteen states in the Northeastern, Mid-Atlantic, Midwestern
and Southeastern regions and the District of Columbia. TCO's customers are
various affiliated and unaffiliated gas
- - --------------------
(2) If the mailing of this Disclosure Statement is after August 14, 1995, the
second quarter 10-Q will be mailed.
I-7
<PAGE> 130
distribution companies, gas marketers, producers and end users of gas
("Customers"). Its rates, charges, services and facilities are subject to
regulation by FERC, primarily pursuant to the Natural Gas Act, 15 U.S.C.
Section Section 17, et seq. ("NGA"). Prior to November 1, 1993, TCO operated
as a "merchant" of gas, purchasing gas from producers and other pipeline
suppliers and reselling it to distribution companies and large industrial
users. Since November 1, 1993, following a fundamental change in the gas
industry brought about by FERC under its Order No. 636, TCO no longer conducts
any significant gas merchant activities and is presently almost entirely
engaged in the business of transporting and storing gas for its Customers.
Columbia has provided debt and equity financing for all its operating
subsidiaries, including TCO, and has been the principal vehicle for raising
funds in the capital markets for the System. Columbia has generally
reinvested in its operating subsidiaries the net proceeds of its equity and
debt issues, as well as cash flows from its subsidiaries in excess of its own
debt service requirements.
Prior to June 1985, Columbia made loans to TCO on an unsecured basis and,
at the time of the filing of the Chapter 11 petitions, Columbia held unsecured
obligations of TCO aggregating $351 million, including accrued interest.
Loans made by Columbia to TCO after June 1985 were secured by first mortgage
liens on substantially all TCO's assets. At the time of the filing of the
Chapter 11 petitions, Columbia held secured
I-8
<PAGE> 131
obligations of TCO aggregating approximately $1.34 billion in principal
amount. Pre- and post-petition interest accrued through December 31, 1995 on
such secured obligations is projected to be approximately $644 million.
Columbia has not made additional loans to TCO since the Petition Date, and TCO
has made no payments to Columbia on its loans since such date.
2. THE PROBLEMS THAT LED TO THE CHAPTER 11 PETITIONS
Columbia's and TCO's Chapter 11 filings were precipitated by a
combination of events which adversely affected TCO's physical operations and
financial viability and which, in turn, caused a liquidity shortfall for
Columbia. Most notable were (i) federal legislative and regulatory actions,
instituted years after TCO's gas purchase contracts were entered into, that
significantly impacted TCO's ability to sell the gas it had contracted to buy
and to recover its costs from its Customers and (ii) TCO's continuing
contractual obligations to purchase gas at prices above those at which it was
able to market gas. These problems were exacerbated by record-setting warm
weather, which caused spot market prices for gas to plunge, created excess
transportation capacity and precluded taking additional gas into storage, thus
making an unexpected and persistent oversupply of bargain-priced gas available
to TCO's Customers. As a result, TCO's ability to market its gas was severely
undercut, substantially reducing both sales volumes and revenues.
I-9
<PAGE> 132
After completing studies in early June 1991 that revealed the magnitude
of TCO's gas supply management problems, Columbia announced on June 19, 1991
that the present value of losses associated with TCO's above-market priced gas
purchase contracts could exceed $1 billion, that a substantial portion of that
amount would be charged to income in the second quarter of 1991 and that the
dividend on Columbia's Common Stock was being suspended.
Columbia immediately initiated negotiations with banks in an effort to
reestablish lines of credit that were interrupted by the June 19 announcement,
and TCO promptly proposed a comprehensive producer settlement plan with gas
producers ("Producers") that offered to buy out Producers' contracts and
settle other contractual disputes for a pro rata share of $600 million of TCO
debt obligations. Progress was made in both areas of negotiation. However,
agreements could not be concluded before TCO's and Columbia's available cash
resources were substantially exhausted, forcing both to seek Chapter 11
protection at the end of July 1991.
3. THE DEBTORS' BUSINESS OPERATIONS, FINANCIAL PERFORMANCE AND
PROSPECTS
a. COLUMBIA
Since the filing of its Chapter 11 petition, Columbia's operating units
have performed soundly overall. See the Columbia Annual Report and the
Columbia Quarterly Report attached as Exhibits 2 and 3, respectively, to this
Disclosure Statement. These positive operating results demonstrate the
I-10
<PAGE> 133
financial health and viability of Columbia's basic business units. While
Columbia has maintained its core business operations and instituted some new
programs and capital expenditures, certain aspects of its operations have been
restricted by the Chapter 11 proceedings. As a debtor-in-possession under the
jurisdiction of the Bankruptcy Court, Columbia cannot engage in transactions
outside the ordinary course of business without obtaining Bankruptcy Court
approval. Although Columbia arranged the DIP Facility, it has been otherwise
unable to access the capital markets. It also has incurred substantial
bankruptcy-related expenses, including Professional fees. Accordingly,
Columbia believes that it will be in a position to improve its financial
results upon emergence from the Chapter 11 proceedings.
In addition, Columbia believes that its reorganization, as proposed in
the Plan, will enhance Columbia's financial position following emergence. The
Plan includes the issuance to existing Columbia Creditors, subject to
adjustment as described herein, of up to $3.0 billion principal amount of New
Indenture Securities and $200 million aggregate Liquidation Value of DECS and
$200 million aggregate Liquidation Value of New Preferred Stock. As more
fully described in Sections VI and X herein, Columbia has the option to
redeem, in whole or in part, at any time on or prior to the 120th day
following the Effective Date, first the DECS and then (or concurrently) the
New Preferred Stock issued to the Holders of Borrowed Money Claims. In order
I-11
<PAGE> 134
to fund such redemption, Columbia may issue other debt or equity securities.
Columbia's recapitalization will also include (i) the distribution of
cash in an amount to be determined and (ii) the arrangement of unsecured bank
financing of up to $1.15 billion, consisting of a Working Capital Facility of
up to $700 million and a Term Loan Facility of up to $450 million (together,
the "Bank Facilities"). A portion of the Bank Facilities is expected to be
used by Columbia to fund payments to TCO in connection with its reorganization
and a portion may be used by Columbia to fund cash payments to Columbia's
Creditors. The Bank Facilities will also be available to fund the future
needs of other Columbia subsidiaries. If the Term Loan Facility is obtained,
and if borrowings thereunder are available at an all-in cost equal to or lower
than the weighted average cost of borrowing through the issuance of New
Indenture Securities, Reorganized Columbia will provide the lesser of (i) $350
million and (ii) the then available amount of such facility to the Holders of
Borrowed Money Claims in respect of their Claims. A more detailed description
of Columbia's projected financial performance, proposed capitalization and
prospects is set forth in Section X.B, "Financial Projections;
Recapitalization."
b. TCO
Subsequent to the filing of its Chapter 11 petition, TCO rejected, as
permitted by the Bankruptcy Code, over 4,800 gas purchase contracts. The
Producer counterparties to those
I-12
<PAGE> 135
contracts filed claims for rejection damages and other pre-petition
contractual amounts in excess of $13 billion. Rejection of the above-
market-price contracts enabled TCO to purchase market-priced gas which
bolstered its sales to competitive levels in the interim between its
Chapter 11 filing and its withdrawal from the merchant business in the fall of
1993 (in accordance with FERC Order No. 636). Since that time, TCO's
transportation and storage service businesses have prospered. Accordingly,
TCO has recorded substantial operating profits and projects an accumulated
cash balance as of December 31, 1995 of approximately $1.4 billion in excess
of operating cash needs, reserves and Customer refunds.
Under Order No. 636, pipelines such as TCO have the right to recover from
their customers various costs resulting from the mandated transition from
merchants to transporters. However, FERC has determined that, with minor
exceptions, TCO is not eligible to recover costs arising from its rejection of
Producers' gas supply contracts. The ultimate level of TCO's other
recoverable transition costs has been the subject of controversies with its
Customers, controversies which largely will be resolved upon consummation of
the TCO Plan.
The largest claims against the TCO estate for borrowed money are held by
Columbia and are secured by substantially all TCO's assets. This indebtedness
bears interest at rates substantially higher than those being earned by TCO on
its excess cash because of legal limitations on TCO's temporary
I-13
<PAGE> 136
investments imposed by the Bankruptcy Code. As a result, the growth in TCO's
secured interest obligations (the status of which had been challenged by the
Intercompany Claims) has exceeded its interest earnings on its cash available
for debt service by an amount exceeding $450 million when projected to
December 31, 1995.
4. OBSTACLES TO REORGANIZATION
In contrast to the situation of many other Chapter 11 cases, the
reorganization of Columbia and TCO has not been hampered by unprofitable or
marginal business operations. Rather, in Columbia's case, the achievement of
reorganization under Chapter 11 has been delayed pending achievement of a
reorganization of TCO and by the protracted litigation of the Intercompany
Claims and the time-consuming resolution of other Claims and related issues.
The reorganization cases are linked principally because Columbia requires
resumption of payments due to it on its claims against TCO in order to meet
its own debt service requirements. Validation of those claims has been
delayed pending resolution of the Intercompany Claims Litigation.
In TCO's case, achievement of reorganization has been delayed by (1) the
dispute and eventual settlement of the Claims of the IRS against TCO and
Columbia, (2) extensive litigation over the amount and priority of claims for
refunds by Customers and of TCO's right to recover Order No. 636 transition
costs from Customers (the "FERC Receivables"), which litigation has
I-14
<PAGE> 137
proceeded both before FERC and the Bankruptcy Court, (3) the Intercompany
Claims Litigation and (4) the size and complexity of the disputed Claims filed
against TCO by Producer-creditors.
There have been prolonged, extensive negotiations with the IRS over its
pre-petition Claims against Columbia and TCO exceeding $550 million,
principally for pre-petition income taxes, plus penalties and interest. These
Claims were finally resolved by a settlement agreement, reducing the Claims to
approximately $112 million (plus post-petition interest), that was approved by
the Joint Committee on Taxation of the United States Congress on June 30, 1994
and by Order of the Bankruptcy Court dated October 12, 1994.
The litigation surrounding the Customer claims and FERC Receivables has
been prolonged and contentious. After lengthy, complex negotiations with a
group of over 100 Customers and state regulatory and consumer agencies, a
consensual settlement with a substantial majority of TCO's Customers,
negotiated in early 1995, has been submitted to FERC for approval and is
embodied in TCO's proposed treatment of Customers under the TCO Plan. While
Customers have the right to oppose their treatment under the TCO Plan and may
continue to litigate Claims against TCO following TCO's emergence from Chapter
11, the proposed Customer Settlement is expected to be accepted by
substantially all the Customers, and, therefore, is expected to resolve
another of the principal obstacles to reorganization.
I-15
<PAGE> 138
After 2-1/2 years of pre-trial procedures, the Intercompany Claims
asserted by the Official Committee of Unsecured Creditors of TCO (the "TCO
Creditors' Committee") and the Official Committee of Customers of TCO (the
"TCO Customers' Committee"), were tried before District Judge Farnan in
September and October 1994. The Plan, in conjunction with the TCO Plan,
embodies a settlement of the Intercompany Claims Litigation with the
plaintiffs (the TCO Creditors' and Customers' Committees), and it is a
condition to consummation of both the Columbia and TCO Plans that a
Stipulation of Dismissal With Prejudice of the Intercompany Claims Litigation
shall have been filed with and, if necessary, approved by the District Court.
Columbia and TCO have also devoted substantial efforts to the resolution
of disputed Producer claims. The Producer counterparties to the rejected gas
purchase contracts filed claims for rejection damages in excess of
$13 billion, an amount which, TCO believes, based on its own analysis and its
review of the Bankruptcy Court-appointed Claims Mediator's Initial Report and
Recommendations on Generic Issues for Natural Gas Claims dated October 13,
1994 and the Supplement to the Initial Report dated February 17, 1995
(collectively, the "Claims Mediator's Report"), is significantly greater than
the actual allowable level of those claims. Producer-creditors also Filed
other claims based on pre-filing contractual disputes, including disputes
relating to pricing and take-or-pay obligations, in
I-16
<PAGE> 139
amounts well in excess of TCO's estimates of its liabilities with respect to
such disputes.
The estimation procedures established by the Bankruptcy Court in order to
liquidate Producer claims call for the completion of recalculation forms by
Producers, followed by audits and contract-specific objections. In connection
with the Claims Mediator's Report, Mr. Normandin, the Claims Mediator,
generated and distributed to Producers forms for the recalculation of their
claims. Mr. Normandin extended the date for submission of recalculation forms
until June 30, 1995, and has deferred until further notice the continuation of
the claims estimation process to allow individual Producers to consider
whether to accept the proposed allowed amounts for their claims set forth in
TCO's Plan.
From the early months of these Chapter 11 cases, Columbia and TCO have
endeavored to identify and settle their differences with Producer-creditors
through extensive meetings and discussions. However, a broadly consensual
recalculation of contract rejection and certain other Producer claims has
become possible only since the issuance of the Claims Mediator's Report.
Following the issuance of that report and in order to end protracted
litigation with Producer-creditors, TCO made offers to settle the claims of
certain of the largest Producers, and commenced a process of negotiation of
those settlement offers and related TCO Plan issues with such Producers and
with the TCO Creditors' Committee. As a result, TCO, Columbia and
I-17
<PAGE> 140
holders of what TCO believes to be in excess of 80% of the aggregate amount of
Producer claims (the "Initial Accepting Producers") entered into a settlement
agreement dated as of April 14, 1995 (the "Producer Settlement Agreement"),
which is embodied in the TCO Plan. On April 27, 1995, TCO and Columbia filed
a motion with the Bankruptcy Court seeking an order approving the Producer
Settlement Agreement, and a hearing on that motion has been scheduled for June
15 and 16, 1995.
Under the Producer Settlement Agreement, the Initial Accepting Producers
will receive between 68.875% and 72.5% of their allowed claims, or slightly
more, depending upon the aggregate amount of Producer claims that are
ultimately allowed. The Producer Settlement Agreement provides for the claims
of the Initial Accepting Producers to be allowed in a total amount of $1.327
billion, with a maximum payout of $962.3 million. The Producer Settlement
Agreement has also resulted in the development of a set of schedules proposing
settlement values under the TCO Plan for all other disputed Producer claims,
acceptance of which would resolve disputes as to the allowable levels of those
claims, which, together with a related agreement on payout and risk sharing,
would substantially resolve the largest category of disputed claims in the TCO
case. Although some Producers may not accept their proposed settlement values
set forth in the TCO Plan and elect instead to continue to dispute their
claims following the effective date of the TCO
I-18
<PAGE> 141
Plan, the existence of those dissenters will not preclude TCO's
reorganization, so long as other TCO Plan conditions are met.
5. THE CORNERSTONE OF THE COLUMBIA AND TCO PLANS: THE COLUMBIA
OMNIBUS SETTLEMENT
Columbia and TCO believe that litigated resolutions of the inter-related
Intercompany Claims and Producer claims against TCO would take several more
years and that such litigation is not in the best interests of their estates.
Columbia is therefore proposing an omnibus settlement (the "Columbia Omnibus
Settlement") in order to facilitate and expedite the emergence of both
Columbia and TCO from Chapter 11, and allow payments to be made to thousands
of creditors whose Claims are liquidated and Allowed. The Columbia Omnibus
Settlement provides that, in consideration of, among other things, (i) the
retention by Columbia of the equity of Reorganized TCO, (ii) the settlement of
litigation over the liquidation of the Producer claims of the Initial
Accepting Producers, of Customer claims and of certain other disputed claims
and (iii) a settlement and release of the claims raised or which could have
been raised in the Intercompany Claims Litigation and other claims and
disputes between TCO's creditors and Columbia and various other claims and
disputes between TCO's creditors and TCO:
(i) Columbia will assist TCO in monetizing the TCO Plan which
provides for value (the "TCO Distributable Value") to be distributed to
TCO creditors (including Columbia) of approximately $3.9 billion (in the
event of 100% acceptance by Producers and other creditors of the
I-19
<PAGE> 142
settlement offers proposed in the TCO Plan), which distribution, in the
case of creditors other than Columbia will be substantially in cash;
(ii) Columbia will provide a guaranty of the Customer Settlement
Proposal reached by TCO with its Customers;
(iii) Columbia will not receive any cash distribution with respect
to its secured claim against TCO but instead will receive new secured
debt securities of Reorganized TCO (secured by substantially all TCO's
assets) for a portion of its secured claim and will contribute the
balance of such secured claim to Reorganized TCO's equity;
(iv) Columbia will consent to the assumption by Reorganized TCO of
certain pre-petition environmental claims of governmental agencies and
certain other claims; and
(v) Columbia will guaranty payment of distributions to TCO's
creditors as provided under the TCO Plan (excluding assumed obligations).
These considerations cannot be collectively expressed as a precise dollar
amount, but reflect significant consideration from Columbia to the TCO estate
to terminate the Intercompany Claims Litigation and other disputes in the TCO
proceedings which have delayed the reorganization of both Columbia and TCO. On
the other hand, the Columbia Omnibus Settlement will provide substantial
benefits to Columbia in addition to the retention of ownership of TCO, by
resolving numerous contentious disputes
I-20
<PAGE> 143
with Customers and Producers affecting the economic value of the TCO estate on
terms which Columbia believes to be fair and reasonable, and permitting both
Columbia and TCO to emerge from bankruptcy as promptly as possible, to pay
their creditors, and to pursue ongoing business objectives free of the burdens
and constraints of Chapter 11.
6. PROPOSED RESOLUTION OR TREATMENT OF OTHER MAJOR CONTROVERSIES
IN COLUMBIA'S CHAPTER 11 PROCEEDINGS
a. INTERCOMPANY CLAIMS LITIGATION
Columbia agrees to provide funding for the TCO Distributable Value on the
terms set forth in the TCO Plan, in consideration for, among other things,
settlement of the Intercompany Claims and retention of the equity of
Reorganized TCO.
b. POST-PETITION INTEREST AND RELATED CLAIMS BY
UNSECURED COLUMBIA CREDITORS
Columbia has not made any payments with respect to its outstanding pre-
petition obligations since the filing of its Chapter 11 petition. The
Creditors' Committee asserted that unsecured Creditors are entitled to post-
petition interest on their obligations, as well as interest on missed interest
payments compounded at various times and at rates which are in some cases
significantly in excess of the non-default interest rate provided for in the
applicable contracts. In addition, the Creditors' Committee claimed that some
unsecured Creditors are entitled to the payment of a call penalty or pre-
payment premium in connection with the restructuring of their pre-petition
I-21
<PAGE> 144
indebtedness. The Equity Committee, on the other hand, questioned the extent
of the Creditors' entitlement to post-petition interest, their entitlement to
interest on overdue interest payments and the rates and compounding used in
calculating that post-petition interest and interest on missed interest
payments. In addition, the Equity Committee argued that the Creditors are not
entitled to payment of call penalties or prepayment premiums on their debt
Claims.
After discussions with both the Equity Committee and the Creditors'
Committee, Columbia proposed a compromise resolution of the allowance and
calculation of post-petition interest on unsecured Claims. The specific
method of calculating post-petition interest for the various types of
indebtedness for borrowed money is set forth in Exhibit G to the Plan. The
proposed payments do not include any pre-payment or similar premiums.
Columbia believes that its compromise proposal represents a fair
resolution of competing positions, litigation of which would be prolonged,
costly and uncertain of outcome. Acceptance of their treatment by Holders of
Claims for Borrowed Money will facilitate the prompt payment in full of their
Claims. In addition, payment of the Borrowed Money Claims under the Plan will
result in the waiver and release, by the Holders of such Claims of (i) any and
all Securities Action Claims relating to the securities giving rise to such
Borrowed Money Claims and
I-22
<PAGE> 145
(ii) the assertion of any inter-creditor subordination provisions.
c. SECURITYHOLDER LAWSUITS
After the announcement on June 19, 1991 by Columbia's Board of Directors
regarding its proposed charge to second quarter earnings and suspension of its
dividend, the Securities Action, comprised of seventeen complaints purporting
to be class actions, was filed in the District Court against Columbia, various
of its current and former officers and directors, and certain of its
underwriters and its accountants. These actions, which have been
consolidated, allege that from February 28, 1990 through June 18, 1991, the
defendants disseminated materially false and misleading statements regarding
Columbia's financial condition and failed to disclose material facts which
rendered other statements misleading, thereby artificially inflating the
market price of Columbia's Common Stock and publicly traded debt securities.
The complaints allege violations of the Securities Act of 1933, the Securities
Exchange Act of 1934 and the Florida State Securities Act, negligent
misrepresentations and common law fraud and deceit. Upon the filing of
Columbia's bankruptcy case, the Securities Action was automatically stayed as
to Columbia pursuant to section 362 of the Bankruptcy Code; and on November
30, 1994, any further proceedings in the Securities Action were stayed until
the entry of a final judgment on the Intercompany Claims Litigation.
I-23
<PAGE> 146
Under the Plan, if appropriate levels of acceptance are obtained, Holders
of Securities Action Claims that qualify under the terms of the Offer of
Settlement set forth in the Plan, timely File a Supplemental Proof of Claim
or, if the Supplemental Bar Date Order is not entered, submit the
Questionnaire and accept the Offer of Settlement proposed in the Plan, will be
paid by Columbia and the other Contributors the Settlement Amount provided for
therein on the terms more fully described in Section VI.A.2.e, "Class 4 -
Securities Action Claims." Reorganized Columbia shall object to and/or seek
estimation of the Claims of Holders of Securities Action Claims that timely
file a Supplemental Proof of Claim or submit a Questionnaire, but reject
Columbia's Offer of Settlement, either individually or in the aggregate, or do
not qualify under the terms of the Offer of Settlement, or if the Offer of
Settlement is withdrawn. Such Claimants shall have their Claims determined by
the Bankruptcy Court after the Effective Date and those Claims, if and when
Allowed, will be paid by Reorganized Columbia in Common Stock or, at
Columbia's option, in cash.
The Plan further provides that Holders of Securities Action Claims who
fail to timely File a Supplemental Proof of Claim or submit a Questionnaire
will be barred from distributions and their Claims against Columbia, and
claims against third parties who have indemnification Claims against Columbia,
will be discharged under the Plan. All Holders of Securities Action Claims
who accept the Offer of Settlement and receive
I-24
<PAGE> 147
distributions thereunder will release all Securities Action Claims such
Holders may have against Columbia, the other Contributors and the other
defendants in the Securities Action.
There can be no certainty, however, that all, or even a sufficient number
of Securities Action Claimants will accept the Offer of Settlement, and the
magnitude of Columbia's liability for such Claims is not presently known.
Although Columbia believes its defenses to such Claims are strong and valid,
an adverse litigated outcome could have a material adverse effect on the
Holders of Common Stock after the Effective Date. However, Columbia does not
believe any likely outcome will adversely affect its viability, or the
feasibility of the Plan.
d. ASSUMPTION OF CERTAIN CLAIMS
Claims, if any, arising from Columbia's obligations to indemnify its
officers, directors and agents and the officers, directors, employees and
agents of its subsidiaries, including TCO, Claims relating to Columbia's
Retirement Plan, including the Retirement Plan's Claims for minimum
contributions required by ERISA and the Claims Filed by the PBGC with regard
to the Retirement Plan, and Columbia's guaranty to Shawmut Bank of Boston,
N.A. ("Shawmut") for certain obligations of Columbia Gas of Ohio, Inc.
("Columbia Ohio") under the lease for Columbia Ohio's headquarters in
Columbus, Ohio, as well as timely Filed indemnification Claims of non-debtor
defendants in the Securities Action, will be unaffected by the Plan.
Indemnity Claims under the Canada Sale Agreement and Columbia's indemnity
I-25
<PAGE> 148
agreement with the Reliance Group (each of which is described in Section
VI.A.1.a.(v) under the caption "Miscellaneous Administrative Claims") will be
assumed by Reorganized Columbia and paid in the ordinary course of business.
7. AMENDMENT TO THE CERTIFICATE OF INCORPORATION
The Columbia Plan includes an amendment and restatement of Columbia's
certificate of incorporation. The proposed amendments represent a
streamlining and modernization of Columbia's charter as well as certain
additional changes.
The principal differences between the proposed amendments and the current
certificate of incorporation are: (i) the inclusion of a prohibition on the
issuance of non-voting equity securities as required by section 1123(a)(6) of
the Bankruptcy Code; (ii) the deletion of present restrictions on Common Stock
dividends and amounts of debt applicable while Preferred Stock is outstanding;
(iii) the addition of a provision allowing the Board of Directors to determine
the specific rights, powers and preferences of each series of Preferred Stock
and the limitations thereon at the time of its issuance; (iv) a provision for
the continuation of a staggered Board of Directors elected by holders of
Common Stock even if directors are elected by the holders of Preferred Stock;
(v) an increase in the number of authorized shares of Preferred Stock to
20 million shares and (iv) a reduction in the par value of the Preferred Stock
from fifty dollars ($50) to ten dollars ($10) per share.
I-26
<PAGE> 149
A more complete description of proposed amendments to Columbia's
certificate of incorporation is set forth in Section X.H under the caption
"Amendment to the Certificate of Incorporation."
Stockholders who vote to approve the Plan will, by such vote and without
further action, approve the amendments to the certificate of incorporation
described above.
C. DISTRIBUTIONS UNDER THE PLAN
The Plan provides for:
(1) Payment in cash in full of all Allowed Unclassified Claims,
consisting principally of administrative claims and tax claims entitled
to priority under section 507(a)(8) of the Bankruptcy Code, on the
Effective Date or, in the case of the IRS's Claims, over a period of up
to six years. Payment of post-petition interest on the Allowed
Unclassified Claims will also be made where appropriate, and Holders of
Unclassified Claims will not be entitled to vote on the Plan.
(2) Payment on the Effective Date in cash in full of Claims under
the DIP Facility. Claims under the DIP Facility are unimpaired and
Holders of such Claims will not be entitled to vote on the Plan.
(3) Cash payment on the Effective Date in full of all Allowed Non-
Borrowed Money Claims, consisting of all Claims not included in any other
Class under the Plan, such as pre-petition Claims for uncashed checks,
intercompany
I-27
<PAGE> 150
payables and other trade payables, which are estimated to total
approximately $1.0 million (excluding post-petition interest). Holders
of Allowed Claims in this Class shall be paid post-petition interest
calculated (i) with respect to such Claims evidenced by a written
agreement, at the non-default contractual interest rate set forth therein
or (ii) if no such rate is set forth therein or if such Claim is not
evidenced by a written agreement, at 6% per annum. Non-Borrowed Money
Claims are not impaired by the Plan and will not be entitled to vote on
the Plan.
(4) Borrowed Money Claims, consisting of Claims arising under
Columbia's 1961 Indenture, Claims under pre-petition bank lending
facilities, Claims under the LESOP Debentures issued in connection with
the LESOP, including Claims under the LESOP Guaranty, Claims under the
Rate Swap Agreement and Claims under certain other pre-petition borrowing
arrangements, including Commercial Paper, Bid Notes and Auction Notes,
exceeding $20,000 in principal amount as of the Record Date are treated
as one Class of Claims and Borrowed Money Claims not exceeding $20,000
principal amount as of such date are treated as a separate Class.
Holders of all such Allowed Claims shall be entitled to post-petition
interest calculated as provided in Exhibit G to the Plan. The Plan
provides for payment of each such Allowed Claim and related post-petition
interest in full with each holder of a Claim exceeding $20,000 in
I-28
<PAGE> 151
principal amount as of the Record Date receiving its proportionate share
(generally based on the proportion of such Allowed Claim to all Allowed
Claims in such Class) of cash, if any, each Issue of New Indenture
Securities to be issued by Reorganized Columbia (except that Holders of
Claims entitled to receive New Indenture Securities having an aggregate
principal amount not exceeding $70,000 will receive only Issue A New
Indenture Securities) and the DECS and New Preferred Stock to be issued
by Reorganized Columbia (subject to adjustment to avoid the issuance of
fractional shares of DECS and New Preferred Stock and non-round lots of
any Issue of New Indenture Securities). Each holder of such a Claim not
exceeding $20,000 in principal amount as of the Record Date will receive
cash.
The DECS and the New Preferred Stock issued to the Holders of
Borrowed Money Claims will be redeemable by Columbia on the terms and
conditions described more fully in Exhibit 4 to this Disclosure
Statement. In summary, Columbia, at its option, may redeem the DECS and
then (or concurrently) the New Preferred Stock in whole or in part, at
any time on or prior to the 120th day following the Effective Date
(provided that Columbia may not redeem less than all of either class of
securities if, after giving effect to such redemption, less than $50
million in Liquidation Value of such class of securities would be
outstanding). Upon any such redemption, each Holder of
I-29
<PAGE> 152
DECS and New Preferred Stock to be redeemed will receive, in exchange for
such equity securities, cash in an amount equal to the sum of (i) the
Liquidation Value of such DECS and New Preferred Stock and (ii) all
accrued and unpaid dividends thereon (if such redemption occurs after the
90th day following the Effective Date).
Borrowed Money Claims not exceeding $20,000 in principal amount as
of the Record Date are unimpaired and Holders of such Claims will not be
entitled to vote on the Plan. Borrowed Money Claims in excess of $20,000
in principal amount as of the Record Date are impaired and Holders of
such Claims will be entitled to vote on the Plan.
(5) As stated in Section B.6.C. above, Holders of Securities Action
Claims that qualify under the terms of the Offer of Settlement and timely
File a Supplemental Proof of Claim or submit a Questionnaire will have
the option to accept or reject the Offer of Settlement. Such Holders
that vote to accept the Offer of Settlement will be paid by Columbia and
the other Contributors the Settlement Amount provided for therein and
described in Section VI.A.2.e, "Class 4 - Securities Action Claims."
Columbia will prosecute its objection to and/or request for estimation of
the Claims of Rejecting Class 4 Claimants, including non-qualifying
Claimants, after the Effective Date in the Bankruptcy Court, and such
Claimants will be
I-30
<PAGE> 153
paid the Allowed amount of their Claims, if and when such Claims are
Allowed, in Common Stock or, at Columbia's option, in cash. The
Securities Action Claims are impaired and all Holders of such Claims will
be entitled to vote on whether to accept the Plan and the Offer of
Settlement embodied therein.
(6) The Columbia Omnibus Settlement and the Plan include
consideration from Columbia to TCO and its creditors to settle the
Intercompany Claims. Class 5, consisting of the Intercompany Claims, is
unimpaired.
(7) The Stockholders will continue to own their interests in
Reorganized Columbia, but are deemed to be impaired by the Plan and will
be entitled to vote on such Plan.
(8) As stated in Section B.6.d above, Class 6.2 Claims consisting
of various indemnity, pension and guaranty-type obligations of Columbia,
will be assumed by Reorganized Columbia and paid in the ordinary course
of business, and will be unaffected by the Plan.
D. CONDITIONS
The Confirmation and effectiveness of the Plan are subject to certain
conditions. Those conditions include, among other things, that (i) the TCO
Plan shall have been (or is concurrently) confirmed and the order with respect
to such Confirmation shall not have been vacated, reversed or stayed, and such
Plan shall have become (or concurrently becomes)
I-31
<PAGE> 154
effective; (ii) the SEC shall have approved, under the HCA, the Columbia Plan
and the transactions under the TCO Plan requiring its approval, and the
related order shall not have been vacated, reversed or stayed; (iii) Moody's
Investors Service, Inc. and Standard & Poor's Ratings Group shall have
confirmed that the New Indenture Securities, upon their issuance, will be
rated Investment Grade; (iv) TCO and Columbia will have received a
satisfactory ruling from the Internal Revenue Service to the effect that the
payments made by TCO under the TCO Plan that are attributable to the breach,
termination or rejection of gas purchase contracts are deductible when paid by
TCO for federal income tax purposes; provided that, if such ruling has not
been received by December 15, 1995, then the settlement with the Initial
Accepting Producers shall terminate on December 31, 1995, unless prior to
December 31, 1995 either (a) Columbia and TCO waive the receipt of such ruling
as a condition to Confirmation or the Effective Date, as appropriate, or (b)
the Initial Accepting Producers agree, in writing, to an extension of the time
within which the IRS ruling must be obtained; (v) Holders of Securities Action
Claims representing at least 75% of the Maximum Proof of Claim Amount
(described in Section VI.A.2.g) shall have accepted the Offer of Settlement
proposed in the Plan; (vi) a Stipulation of Dismissal With Prejudice of the
Intercompany Claims Litigation, conditioned only upon the completion of
payment of all distributions payable on the effective date of the TCO Plan,
shall have been filed with and,
I-32
<PAGE> 155
if necessary, approved by the District Court; (vii) Reorganized Columbia will
have entered into the New Indenture, the Working Capital Facility and the Term
Loan Facility; and (viii) the Effective Date shall have occurred on or before
June 28, 1996. For a complete description of all of the conditions to the
Plan and, if applicable, the circumstances under which they may be waived, see
Section VI.K, "Conditions Precedent to Confirmation and Consummation of the
Plan."
E. CONCLUSION
The Plan provides for termination of bankruptcy proceedings pending for
nearly four years and payment in full of all pre-petition liquidated Allowed
Claims of Creditors of Columbia, together with post-petition interest, while
at the same time preserving the basic business operations of Columbia and its
subsidiaries which have proved to be financially sound overall. Columbia
believes that resolution of its own and TCO's bankruptcy proceedings on the
terms set forth in the Plan and the TCO Plan provides the most expeditious
path out of Chapter 11, and will result in the preservation and ultimately the
enhancement of values for shareholders. Columbia's Creditors and Stockholders
are urged to vote for acceptance of the Plan as a prompt, cost-effective and
balanced solution for all concerned.
I-33
<PAGE> 156
II. OVERVIEW OF THE PLAN
THE FOLLOWING IS A BRIEF OVERVIEW OF CERTAIN MATERIAL PROVISIONS OF
THE PLAN. THIS OVERVIEW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
PROVISIONS OF THE PLAN, A COPY OF WHICH IS ATTACHED HERETO AS EXHIBIT 1.
ADDITIONALLY, SECTION VI, "PLAN TREATMENT OF CLAIMS AND SUMMARY OF OTHER PLAN
PROVISIONS," OF THIS DISCLOSURE STATEMENT CONTAINS A DETAILED NARRATIVE
DESCRIPTION OF THE TREATMENT OF CLAIMS UNDER AND MECHANICS FOR IMPLEMENTATION
OF THE PLAN.
A. REORGANIZED COLUMBIA
Under the Plan, Reorganized Columbia will continue to operate as a
public utility holding company under the HCA, and will retain ownership of the
stock of its various subsidiaries, including TCO. Aside from those changes
specifically identified in Section X.G, "Reorganized Columbia - Management,"
the Plan does not provide for any further changes to Columbia's current
management.
B. SUMMARY OF DESCRIPTION OF CLASSES AND DISTRIBUTIONS
The Plan proposes the payment of the Allowed amounts of all Claims in
full, together with, in most cases, appropriate post-petition interest, in
cash or, in the case of Borrowed Money Claims in excess of $20,000 in principal
amount as of the Record Date, in a combination of New Indenture Securities,
with maturities ranging from five to thirty years, shares of New Preferred
Stock and DECS and, if available, cash. Qualifying Holders of Securities
Action Claims that timely File Supplemental Proofs of Claim or, if the
Supplemental Bar Date Order is not entered, provide Questionnaires, will have
the option to accept or reject an Offer of Settlement. If such
II-1
<PAGE> 157
Holders reject the Offer of Settlement, whether individually or in the
aggregate, or, if Holders of an insufficient amount of such Claims accept the
Offer of Settlement, they will be Rejecting Class 4 Claimants and may continue
to litigate their Claims after the Effective Date in the Bankruptcy Court, and
will be paid by Reorganized Columbia the Allowed amounts of such Securities
Action Claims, if and when such Claims are Allowed, in Common Stock or, at
Columbia's option, in cash, or any combination of the foregoing, in an amount
equivalent to, as of the date of distribution, the Allowed amounts of such
Claims. The Plan further provides that the current Holders of Common Stock
will retain their holdings.
The following table summarizes each category of Claims and Interests
and indicates, where appropriate, the classification of Claims and Interests
and the estimated amount at which Claims in each Class will be Allowed. As the
Plan contemplates the payment in full of all Allowed Claims, the distribution
for each Class thereunder is one hundred percent.
The estimated Claims amounts in the following table assume an
Effective Date of December 31, 1995.(1) Such amounts
- - --------------------
(1) Unless otherwise specified, all references to the Effective Date in this
Disclosure Statement and calculations based thereon assume an Effective
Date of December 31, 1995. The actual Effective Date may differ from the
assumed Effective Date set forth herein for a variety of substantive and
scheduling reasons, including the ultimate date set by the Bankruptcy
Court for the Confirmation hearing and the date upon which conditions to
the Effective Date have been satisfied or, if waivable, waived. See
Section VI.K.2, "Conditions to the Effective Date."
II-2
<PAGE> 158
constitute Columbia's present estimates of the amounts of such Claims upon
resolution of all Disputed Claims. The estimated amounts separately state the
principal portions of the Claim (which in most cases is the pre-petition Claim
amount, including pre-petition interest) and, where appropriate, estimates of
accrued post-petition interest on pre-petition indebtedness through the
Effective Date, calculated as provided in the Plan.
By far the largest percentage of all Claims Filed against Columbia's
Estate are claims for principal, interest and other amounts due for Borrowed
Money Claims. Columbia and its advisors have worked with the Creditors'
Committee and the Equity Committee and their advisors and the representatives
of and advisors to various Creditors in an effort to resolve discrepancies in
the amounts of those Claims. The method of calculating post-petition interest
on the Borrowed Money Claims, as set forth in Exhibit G to the Plan, has been
determined by Columbia after extensive discussion with the Creditors' Committee
and the Equity Committee, and is to be approved by the Bankruptcy Court as part
of the Confirmation of the Plan, if not previously approved. Columbia believes
that, except as to the Securities Action Claims, there are no material disputes
over the amount at which Claims are to be Allowed.
Claims in Class 3.2 and Class 4 and Interests in Class 7 are, or are
deemed, impaired under the Plan. All other Classes are unimpaired and, thus,
will not vote on the Plan.
II-3
<PAGE> 159
Annexed to this Disclosure Statement as Exhibit 6 is the Payout
Analysis of Plan Dated June 12, 1995 (the "Payout Analysis"). The Payout
Analysis sets forth the estimated level of distributions under the Plan in
respect of all Claims, classified and unclassified, and is premised upon the
treatment of Claims described herein, as well as the fulfillment of the
numerous assumptions set forth in this Disclosure Statement.
TABLE OF SUMMARY DESCRIPTION OF CLASSES AND THEIR DISTRIBUTIONS
<TABLE>
<CAPTION>
DESCRIPTION AND ESTIMATION DESCRIPTION OF
OF CLAIMS AND INTERESTS DISTRIBUTION UNDER THE PLAN
-------------------------- ---------------------------
<S> <C>
1. UNCLASSIFIED CLAIMS
PROFESSIONAL CLAIMS: Claims for unpaid fees Each Holder of an Allowed Professional Claim
and expenses of Professionals and amounts will receive cash in the amount of such
for compensation allowed under sections Claim on the later of the Effective Date or
330(a) and 503(b) of the Bankruptcy Code. the tenth day after the Claim is Allowed.
Post-petition interest will be payable, to
ESTIMATED PAYMENTS: the extent Allowed by the Bankruptcy Court,
$4.8 million on amounts held back by order of the
Bankruptcy Court with respect to interim fee
DISTRIBUTION: 100% applications. Professional Claims are
unimpaired.
POST-PETITION OPERATIONAL CLAIMS: Claims Each Post-Petition Operational Claim will be
incurred by Columbia in the ordinary course assumed by Reorganized Columbia and paid in
of its business post-petition, including tax the ordinary course of business according to
obligations, trade vendor and supplier the terms of the transaction giving rise to
obligations and post-petition obligations such Claim. Post-Petition Operational
under contracts and leases. Claims are unimpaired.
ESTIMATED PAYMENTS:
Not applicable
DISTRIBUTION: 100%
ASSUMED EXECUTORY CONTRACT CLAIMS: Claims Each Holder of an Allowed Assumed Executory
arising from the assumption by Columbia of Contract Claim will receive cash in the
pre-petition executory contracts, including, amount of such Claim, together with post-
if the Bankruptcy Court shall approve, the petition interest at the non-default
Tax Allocation Agreement (defined in Section contractual rate, if one is provided, and
otherwise at the
</TABLE>
II-4
<PAGE> 160
<TABLE>
<S> <C>
IV.C), and unexpired leases pursuant to rate of 6% per annum, or as otherwise
section 365(b)(1) of the Bankruptcy Code. provided by the Bankruptcy Court.
Distribution will be made on the Effective
Date or such earlier or later time as may be
ESTIMATED PAYMENTS: authorized by the Bankruptcy Court. Any
Pre-Petition Claims: $ 23.9 million Assumed Executory Contract Claim that is
Post-Petition Interest: $ 5.3 million Allowed after the Effective Date will
receive cash in the amount of such Claim,
together with such interest, within thirty
DISTRIBUTION: 100% days after the end of the Calendar Quarter
in which such Claim is Allowed. Assumed
Executory Contract Claims are unimpaired.
U.S. TRUSTEE'S FEE CLAIMS: The quarterly The U.S. Trustee's Fee Claims which remain
statutory fees owed to the United States unpaid and outstanding as of the Effective
Trustee. Date will be paid in full in cash. The U.S.
Trustee's Fee Claims are unimpaired.
ESTIMATED PAYMENTS: $5,000
DISTRIBUTION: 100%
MISCELLANEOUS ADMINISTRATIVE CLAIMS: All Miscellaneous Administrative Claims that
Administrative Claims not included in the have been liquidated prior to the Effective
previous categories of Unclassified Claims, Date shall be paid in full in cash on the
including (i) contingent indemnification Effective Date. Any Miscellaneous
Claims of officers, directors, employees and Administrative Claims that remain
agents of Columbia, TCO or other unliquidated as of the Effective Date will
subsidiaries of Columbia, (ii) post-petition be assumed by Reorganized Columbia and paid
personal injury Claims, (iii) indemnity as they come due, as otherwise agreed by the
Claims under the Canada Sale Agreement in relevant Person or as directed by the
favor of the purchaser of the stock of Bankruptcy Court. If the indemnity Claims
Columbia Canada and (iv) indemnity Claims under the Canada Sale Agreement are assumed,
under Columbia's indemnity agreement with the present Kotaneelee Escrow will be
the Reliance Group. adjusted in accordance with the provisions
of the Canada Sale Agreement. Miscellaneous
ESTIMATED PAYMENTS: Administrative Claims that have been
$470,000 liquidated prior to the Effective Date shall
receive post-petition interest at the non-
DISTRIBUTION: 100% default contractual rate, if one is
provided, and otherwise at the rate of 6%
per annum, or as otherwise provided by the
Bankruptcy Court.
</TABLE>
II-5
<PAGE> 161
<TABLE>
<S> <C>
Miscellaneous Administrative Claims are
unimpaired.
PRIORITY TAX CLAIMS: Claims attributable to Each Holder of an Allowed Priority Tax Claim
income taxes, property taxes and any other will receive cash in the aggregate amount of
taxes entitled to priority in payment such Claim and post-petition interest
pursuant to section 507(a)(8) of the thereon calculated at the appropriate
Bankruptcy Code. statutory rate, if one is provided, and
otherwise at the rate of 6% per annum, or as
ESTIMATED PAYMENTS: otherwise provided by the Bankruptcy Court,
Pre-Petition Claims: $111.9 million on the Effective Date, if then allowed, or
Post-Petition Interest: $24.6 million if not then allowed, within thirty days from
the date on which such Claim becomes
DISTRIBUTION: 100% Allowed; provided, however, that with
respect to any such Claim of the IRS for
federal income taxes pursuant to the IRS
Settlement Agreement (i) Columbia will pay
such Claim in equal quarterly installments
commencing three months from the Effective
Date over the course of six years as
measured from the date such Claim was first
assessed, or such earlier date as may be
determined by Reorganized Columbia (except
that the first quarterly installment will be
paid in three equal monthly installments
commencing on the Effective Date) with
interest at the rate set forth in Section
D.7 of the IRS Closing Agreement and (ii)
Columbia will, on the Effective Date, be
reimbursed by TCO for any portion of the
Claim allocable to TCO under the Tax
Allocation Agreement and in turn will
reimburse its other subsidiaries for any
sums due to such subsidiaries under the Tax
Allocation Agreement. Priority Tax Claims
are unimpaired.
2. SECURED CLAIMS
The DIP Facility Claim will be paid in full
CLASS 1: DIP FACILITY CLAIM: The Claim of on the Effective Date and the DIP Facility
Chemical Bank as agent under the DIP will terminate by its terms on the Effective
Facility. Date. Any Deficiency Claim will be treated
as a "superpriority" Administrative Expense
ESTIMATED PAYMENTS: Claim. The DIP Facility Claim is unimpaired.
$48,000
DISTRIBUTION: 100%
3. UNSECURED CLAIMS Each Holder of an Allowed Class 2 Claim will
receive, on the Effective Date, cash in an
CLASS 2: UNSECURED NON-BORROWED MONEY amount equal to the Allowed amount of such
CLAIMS: All Unsecured Claims that are not Claim, together with post-petition interest
otherwise classified under the Plan, at the non-default contractual rate, if one
including Unsecured Claims for uncashed is provided, and otherwise at the rate of 6%
checks, intercompany payables and other per annum, or as otherwise determined by the
trade payables.
</TABLE>
II-6
<PAGE> 162
<TABLE>
<S> <C>
ESTIMATED PAYMENTS: Bankruptcy Court. Class 2 Claims are
Pre-Petition Claims: $1.0 million unimpaired.
(net of setoffs)
Post-Petition Interest: $0.3 million
DISTRIBUTION: 100%
CLASS 3.1: UNSECURED BORROWED MONEY Each Holder of a Class 3.1 Claim will
CONVENIENCE CLAIMS: Unsecured Borrowed receive, on the Effective Date, payment in
Money Claims that would be classified as full in cash of the aggregate of the Allowed
Class 3.2 Claims but for the fact that such amount of its Claim and post-petition
Claims did not exceed $20,000 in principal interest thereon calculated in accordance
amount as of the Record Date. Columbia with the paragraph of Exhibit G attached to
believes all such Claims to be Debenture the Plan applicable to such Claim as if such
Claims. Claim were a Class 3.2 Claim. Class 3.1
Claims are unimpaired.
ESTIMATED PAYMENTS:
Included in Estimated Payments for
Debenture Claims in Class 3.2
DISTRIBUTION: 100%
CLASS 3.2: UNSECURED BORROWED MONEY CLAIMS: Each Holder of an Allowed Class 3.2 Claim
All Borrowed Money Claims that, as of the shall receive, on the Effective Date,
Record Date, were for an amount in excess of payment in full of the aggregate of the
$20,000 in principal amount, consisting of Allowed amount of its Claim and post-
the following: petition interest thereon calculated in
accordance with the paragraph of Exhibit G
attached to the Plan applicable to such
a. DEBENTURE CLAIMS: All Claims Claim. Payment will be effected by
arising under the Debentures. distributing to or for the benefit of each
such Holder its Pro Rata Share of each of
ESTIMATED PAYMENTS: (i) the Cash Consideration, if any, (ii)
Pre-Petition Claims: $926.7 million each Issue of New Indenture Securities
Post-Petition Interest: $432.9 million (except that Holders of Claims entitled to
receive New Indenture Securities aggregating
less than $70,000 (in principal amount) will
b. $500 MILLION CREDIT AGREEMENT CLAIMS: receive only one Issue (Issue A) of New
All Claims (other than Auction Note Indenture Securities), and (iii) shares of
Claims) arising under the $500 Million DECS having an aggregate Liquidation Value
Credit Agreement. of $200 million and (iv) shares of New
Preferred Stock having an aggregate
ESTIMATED PAYMENTS: Liquidation Value of $200 million; subject
Pre-Petition Claims: $101 million to adjustment to avoid issuance of
Post-Petition Interest: $31.5 million fractional shares of DECS and New Preferred
Stock and non-round lots of New Indenture
c. $750 MILLION CREDIT AGREEMENT CLAIMS: Securities of any Issue. The DECS and the
All Claims arising under the $750 New Preferred Stock issued to the Holders of
Million Credit Agreement. Class 3.2 Claims will be redeemable by
Columbia, at its option, in whole or in
part, at any time on or prior to the 120th
day following the Effective Date. Upon any
such
</TABLE>
II-7
<PAGE> 163
<TABLE>
<S> <C>
ESTIMATED PAYMENTS: redemption, each holder of DECS and New
Pre-Petition Claims: $ 404.5 million Preferred Stock will receive, in exchange
Post-Petition Interest: $ 138.2 million for such equity securities so redeemed, cash
in an amount equal to the sum of (i) the
Liquidation Value of such DECS and New
Preferred Stock and (ii) if such redemption
d. COMMERCIAL PAPER CLAIMS: All Claims occurs after the 90th day following the
arising under the Commercial Paper. Effective Date, all accrued and unpaid
dividends thereon. To the extent the DECS
ESTIMATED PAYMENTS: and New Preferred Stock are not redeemed
Pre-Petition Claims: $ 268 million within the 120-day period, the dividends
Post-Petition Interest: $ 89.5 million thereon will be reset and certain other
terms will be established. Class 3.2 Claims
are impaired.
e. BID NOTE CLAIMS: All Claims arising
under the Bid Notes.
ESTIMATED PAYMENTS:
Pre-Petition Claims: $ 76.6 million
Post-Petition Interest: $26.3 million
f. AUCTION NOTE CLAIMS: All Claims arising
under the Auction Notes.
ESTIMATED PAYMENTS:
Pre-Petition Claims: $ 45.4 million
Post-Petition Interest: $ 15.6 million
g. MEDIUM TERM NOTE CLAIMS: All Claims
arising under the Medium Term Notes.
ESTIMATED PAYMENTS:
Pre-Petition Claims: $ 471.3 million
Post-Petition Interest: $ 225.7 million
h. LESOP CLAIMS: All Claims of holders of
the LESOP Debentures, including claims
arising under the LESOP Guaranty.
ESTIMATED PAYMENTS:
Pre-Petition Claims: $ 87 million
Post-Petition Interest: $ 39.5 million
i. RATE SWAP CLAIMS: All Claims arising
under the Rate Swap Agreement.
ESTIMATED PAYMENTS:
Pre-Petition Claim: $ 3.2 million
Post-Petition Interest: $ 0.8 million
DISTRIBUTION ON ALL CLASS 3.2 CLAIMS:
100%
</TABLE>
II-8
<PAGE> 164
<TABLE>
<S> <C>
4. SECURITIES ACTION CLAIMS Columbia is making an Offer of Settlement
pursuant to which Columbia and the other
Contributors shall contribute a Settlement
CLASS 4: SECURITIES ACTION CLAIMS: All Amount of up to $18 million (as the same may
Securities Action Claims, the Holders of be adjusted pursuant to the Plan) to settle
which have complied with the Supplemental the Securities Action Claims. The Offer of
Bar Date Order, or, if the Supplemental Bar Settlement provides a range of recoveries
Date Order is not entered, have provided the for Complying Class 4 Claimants who (i)
Questionnaire. purchased shares of Common Stock or debt or
securities on or after March 1, 1990; and
(ii) retained such shares or securities
ESTIMATED PAYMENTS: continuously at least until March 31, 1991;
$18 million and either (x) sold such securities at a
loss on or after March 31, 1991 but not
DISTRIBUTION: 100% later than June 18, 1991 or (y) continued to
hold such securities until at least June 19,
1991. Holders of Securities Action Claims
not satisfying these criteria shall receive
nothing under the Offer of Settlement. If
the proposed Settlement Amount is not enough
to satisfy the minimum amount of the range
of proposed recoveries, the Settlement
Amount may be increased to an amount
sufficient to satisfy such minimum amount by
the issuance of Common Stock by Columbia or,
alternatively, Columbia may withdraw the
Offer of Settlement. Qualifying Class 4
Claimants may choose not to accept the Offer
of Settlement by not voting to accept the
Plan. However, Columbia may withdraw the
Offer of Settlement if Holders entitled to
receive 25% or more of the Settlement Amount
do not accept the Plan. Complying Class 4
Claimants that are not Qualifying Class 4
Claimants, Qualifying Class 4 Claimants that
do not vote to accept the Plan, and all
Qualifying Class 4 Claimants if Class 4 does
not accept the Plan or Columbia withdraws
the Offer of Settlement, will be treated as
Rejecting Class 4 Claimants. Reorganized
Columbia shall object to and/or seek the
estimation of the Claims of Rejecting Class
4 Claimants and such Claimants shall
litigate their Claims in the Bankruptcy
Court. Rejecting Class 4 Claimants will be
paid by Reorganized Columbia the Allowed
amount of their Claims, if and when such
Claims are Allowed, in Common Stock or, at
Columbia's option, in cash, or any
combination of the foregoing, in an amount
equal to the Allowed
</TABLE>
II-9
<PAGE> 165
<TABLE>
<S> <C>
amount of such Claims. Class 4 Claims are
impaired.
5. INTERCOMPANY CLAIMS
CLASS 5: INTERCOMPANY CLAIMS: All Claims On the Effective Date, pursuant to the
asserted against Columbia and CNR on behalf Columbia Omnibus Settlement, the
of TCO in the Intercompany Claims Litigation Intercompany Claims shall be settled and
and any Claims or causes of action against discharged in full. Class 5 Claims are
Columbia or CNR arising out of the same or unimpaired.
similar facts or circumstances.
6. ASSUMED CLAIMS
CLASS 6.1: Indemnity Claims of Officers and Each Holder of a Class 6.1 Claim that is
Directors: All claims of officers, Allowed on the Effective Date will receive,
directors, employees and agents of Columbia, on the Effective Date, cash in an amount
TCO or Columbia's other subsidiaries, to the equal to the Allowed amount of such Claim.
extent proceeds from Columbia's D&O All Indemnity Claims which are not Allowed
Insurance policies are inadequate or on the Effective Date shall survive and be
unavailable to satisfy such Claims, arising unaffected by the Confirmation Order and
from liabilities for which Columbia has an will be assumed and paid by Reorganized
indemnity obligation under Columbia's Columbia if and when due and payable. Class
certificate of incorporation or otherwise. 6.1 Claims are unimpaired.
ESTIMATED PAYMENTS:
Not applicable
DISTRIBUTION: 100%
CLASS 6.2: Pension Claims: All Claims On the Effective Date, Reorganized Columbia
relating to Columbia's Retirement Plan, will assume its obligations to the
including the Retirement Plan's Claims, if Retirement Plan, including all obligations
any, for minimum funding contributions imposed by ERISA. The Claims in Class 6.2
required by ERISA and the three Claims filed shall survive and be unaffected by the
by the PBGC against Columbia with regard to Confirmation Order. Class 6.2 Claims are
the Retirement Plan. unimpaired.
ESTIMATED PAYMENTS:
Not applicable
DISTRIBUTION: 100%
CLASS 6.3: Shawmut Guaranty Claim: The Shawmut guaranty Claim shall survive and
Columbia's secondary obligations to Shawmut be unaffected by the Confirmation Order and
Bank, N.A. for certain of the obligations of will be assumed and paid by Reorganized
Columbia Gas of Ohio, Inc. for payments Columbia if and when due and payable. The
under the lease for the latter's Class 6.3 Claim is unimpaired.
headquarters located in Ohio.
</TABLE>
II-10
<PAGE> 166
<TABLE>
<S> <C>
ESTIMATED PAYMENTS:
Not applicable
DISTRIBUTION: 100%
7. INTERESTS
CLASS 7: INTERESTS: All Interests in Common All Interests shall survive. Class 7
Stock. Interests may be affected by the Plan as a
result of the issuance of shares of DECS and
the possible issuance of additional shares
of Common Stock. Class 7 Interests are
deemed impaired.
</TABLE>
II-11
<PAGE> 167
III. BUSINESSES
A. COLUMBIA'S HISTORIC CORPORATE STRUCTURE AND OPERATION
1. GENERAL
Columbia was incorporated in Delaware in 1926 following the merger of
Columbia Gas and Electric Company and Ohio Fuel Corporation. Columbia became
a registered public utility holding company in 1938 under the HCA and,
pursuant to regulation under the HCA, divested its electric utilities in 1946,
thereby resulting in a single, integrated natural gas system.
The post-World War II demand for natural gas led to Columbia's expansion
of its pipeline system from Appalachia to the Southwest and of its exploration
and underground storage programs. Today, Columbia is one of fourteen public
utility holding companies registered under the HCA and one of three integrated
natural gas systems so registered.
Columbia today has eighteen subsidiaries, all but one of which are
wholly-owned, comprising one of the largest natural gas systems in the United
States. Columbia's subsidiaries are engaged in the three principal segments
of the natural gas business -- exploration and production, interstate
transmission and local distribution -- as well as other energy ventures such
as cogeneration, propane marketing and non-regulated gas marketing.
Throughout most of this century, the System has grown in response to
increasing demand for natural gas and market and regulatory changes in the
industry. The System is a
III-1
<PAGE> 168
major supplier of natural gas in the United States. A leader in the industry,
Columbia, through its subsidiaries, has developed new energy ventures such as
cogeneration plants (producing electricity and thermal energy from natural
gas-fueled generating systems for manufacturing and consumer needs),
established one of the country's first natural gas market centers in response
to a changing domestic energy market, is recommissioning part of North
America's largest liquefied natural gas facility at Cove Point, Maryland, and
is utilizing new technologies such as natural gas vehicles, appliances and
horizontal drilling. Columbia also has pursued environmental conservation and
safety, as exemplified by the environmental assessment and remediation
programs of TCO and Columbia Gulf Transmission Company ("Columbia Gulf") along
their approximately 24,000-mile pipeline system and conservation measures at
the Cove Point facility of Columbia LNG Corporation ("Columbia LNG").
2. COLUMBIA BUSINESSES
The operations of Columbia's subsidiaries are briefly summarized below.
a. EXPLORATION AND PRODUCTION (E&P)
Two Columbia subsidiaries, Columbia Gas Development Corporation
("Columbia Gas Development") and CNR, explore for, develop, acquire and
produce natural gas and oil in the United States. These companies hold
interests in more than two million net acres of gas and oil leases and have
proved oil and gas
III-2
<PAGE> 169
reserves in excess of 750 billion cubic feet of gas equivalent. These "E&P"
operations are focused in the Appalachian, Arkoma, Permian, and Williston
basins, both onshore and offshore in the Gulf Coast areas of Texas and
Louisiana, and in Utah and California. Columbia's E&P subsidiaries own more
than 6,100 net natural gas and oil wells. In 1994, these companies produced
66.7 billion cubic feet of natural gas and 3.6 million barrels of crude oil.
b. INTERSTATE TRANSMISSION
Columbia owns two interstate natural gas transmission companies, TCO and
Columbia Gulf, which operate an approximately 24,000 mile pipeline network
that extends from offshore in the Gulf of Mexico to New York and the eastern
seaboard. They serve, directly or through local retail distribution companies
("LDCs"), more than eight million customers in fifteen Northeastern, Middle
Atlantic, Midwestern and Southern states and the District of Columbia.
Additionally, TCO operates one of the nation's largest underground natural gas
storage systems.
By virtue of FERC Order No. 636, which took effect in 1993, TCO and
others in the pipeline industry have had to restructure their operations,
becoming primarily transporters, rather than merchants, of natural gas.
c. LOCAL DISTRIBUTION COMPANIES
Columbia's five distribution LDC subsidiaries provide natural gas service
to more than 1.9 million residential, commercial and industrial customers in
Ohio, Pennsylvania,
III-3
<PAGE> 170
Virginia, Kentucky and Maryland. With more than 29,000 miles of distribution
pipelines, these companies serve major markets such as: Columbus, Lorain,
Parma, Springfield and Toledo in Ohio; Gettysburg, York and a part of
Pittsburgh in Pennsylvania; Lynchburg, Staunton, Portsmouth and Richmond
suburbs in Virginia; Ashland, Frankfort and Lexington in Kentucky; and
Cumberland and Hagerstown in Maryland. In 1994, these five LDCs provided
approximately 513 billion cubic feet of natural gas to their customers.
d. COLUMBIA GAS SYSTEM SERVICE CORPORATION
Columbia Gas System Service Corporation (the "Service Corporation"), a mutual
service company approved by the SEC under the HCA, cost-effectively provides a
broad range of managerial, specialized and other business services to support
the operations of Columbia and its subsidiaries. These services include
electronic data processing, risk management, accounting, legal, financial,
environmental, tax, human resources, auditing and other services for Columbia
and its subsidiaries. Through economies of scale and efficiency, the Service
Corporation is able to service the diverse and specialized needs of Columbia
System businesses.
e. OTHER ENERGY OPERATIONS
Columbia companies are also engaged in other energy businesses which are
highlighted below.
Columbia Energy Services Corporation is the System's non-regulated
affiliate which markets natural gas and provides an
III-4
<PAGE> 171
array of supply and fuel management services to distribution companies,
independent power producers and other large end users both on and off
Columbia's transmission and distribution pipeline systems.
Columbia Propane Corporation and Commonwealth Propane, Inc. sell propane
at wholesale and retail to more than 68,000 customers in Virginia,
Pennsylvania, Ohio, Maryland, North Carolina, Kentucky, New York and West
Virginia.
Columbia LNG, an approximately 92%-owned subsidiary of Columbia, in
partnership with a subsidiary of Potomac Electric Power Company, has started
construction of a FERC-approved natural gas peaking facility at the Cove
Point, Maryland facility referred to above. Peaking and related services are
expected to start in late 1995 to meet the peak demands for natural gas in the
mid-Atlantic area.
TriStar Ventures Corporation ("TriStar") develops new business
opportunities in power generation and other energy-related markets. Its
primary focus is the development, ownership and operation of natural gas-
fueled cogeneration and independent power projects. Its cogeneration projects
include interests in a 117 megawatt facility at the B.F. Goodrich
manufacturing plant in Pedricktown, New Jersey, a 44 megawatt facility at
International Paper's Anitech plant in Binghamton, New York, a 46 megawatt
facility at the Progresso Foods plant in Vineland, New Jersey and an 85
megawatt facility in Rumford, Maine.
III-5
<PAGE> 172
Columbia Coal Gasification Corporation ("Coal Gasification") owns more
than 500 million tons of coal reserves in the Appalachian area. Approximately
fifty percent of the total reserves are leased to other companies for
development.
B. PUBLIC UTILITY HOLDING COMPANY ACT REGULATION AND SYSTEM FINANCING;
SEC APPROVAL OF THE PLAN
1. REGULATION OF COLUMBIA BY THE SEC UNDER THE HCA; EXTERNAL AND
INTERNAL COLUMBIA FINANCING
a. REGULATORY FRAMEWORK
As noted above, Columbia is a public utility holding company, registered
and regulated by the SEC under the HCA. The HCA provides an extensive
regulatory framework which limits the business activities of the System to the
operation of utility companies (defined under the HCA to be the local retail
distribution companies) and such nonutility businesses as are reasonably
incidental or economically necessary or appropriate to the utility operations.
On an ongoing basis, the HCA requires prior approval by the SEC for issuances
or acquisitions of securities by Columbia or any of its public utility
subsidiaries and for acquisitions of securities by any of its non-public
utility subsidiaries.
The HCA also establishes controls over certain transactions among System
companies, prohibits upstream loans to a parent company and establishes
procedures for approval of a subsidiary mutual service company to provide
services to affiliates generally at cost according to strict cost accounting
and allocation standards.
III-6
<PAGE> 173
Sections 6 and 7 of the HCA govern the issuance by Columbia and any
Columbia subsidiary of its own securities, including the securities to be
issued by Columbia under the Plan or in connection therewith. Sections 9 and
10 of the HCA govern Columbia's acquisition of securities of its subsidiaries.
From time to time Congress has considered proposals either to repeal the HCA
in its entirety or to modify it substantially.
b. SYSTEM EXTERNAL AND INTERNAL FINANCING
Substantially all outside funding of the System historically has been
implemented through public equity and debt offerings by Columbia and
borrowings by Columbia from banks and the transfer of the proceeds to Columbia
subsidiaries through purchases of securities from those subsidiaries. Because
Columbia itself represents the aggregate of the diversified credits of its
subsidiaries, historically it had enjoyed ready and cost-efficient access to
the financial markets.
With minor exceptions, all System subsidiaries obtain their long-term
capital and are financed short-term through the issuance and sale to Columbia
of common stock and the issuance and sale to Columbia of unsecured installment
promissory notes (or, in the case of TCO after 1985, mortgage bonds secured by
substantially all its assets) on terms that approximate the terms of long-term
debt instruments issued by Columbia. As with Columbia's issuance of long-term
debt securities, the issuance and purchase of subsidiary installment
promissory notes are regulated under the HCA and subject to approval by the
SEC. The
III-7
<PAGE> 174
rate on new intercompany installment promissory notes has been based on a
published market rate for comparable utility issues.
Funds for inventory purchases and other short-term working capital needs
of Columbia's subsidiaries are obtained from a short-term financing vehicle
(the "System Money Pool") administered by the Service Corporation under which
subsidiaries with temporary excess funds loan those funds to subsidiaries in
the System (other than TCO) in need of funds. To the extent that the funds
deposited in the System Money Pool are insufficient to meet the needs of
borrowing subsidiaries, Columbia deposits funds in the System Money Pool and
such funds become available for borrowing by the subsidiaries requiring short-
term working capital. The interest rates on short-term loans to the
subsidiaries from the System Money Pool historically have been based on the
weighted average costs for Columbia's short-term transactions. Since the
filing of Columbia's bankruptcy petition, the interest rate utilized for the
System Money Pool for borrowings and deposits has been the yield on excess
funds invested in money market instruments.
Columbia anticipates that, upon consummation of the Columbia Plan, it
will resume and, for the foreseeable future, continue the financing of the
operations of the System subsidiaries in a manner similar to that described
above for the pre-Petition Date period.
III-8
<PAGE> 175
2. HCA JURISDICTION OVER THE TERMS OF THE PLAN
Under Section 11(f) of the HCA, the Plan must be approved by the SEC
after public notice and opportunity for hearing, and, under Section 11(g) of
the HCA, a report by the SEC on the Plan (or an abstract of such report), made
after opportunity for hearing, must be distributed to Columbia's Stockholders
and Creditors in order to solicit their acceptances of the Plan.
While pursuant to HCA Rule 49(c), SEC review of reorganization plans of
non-utility subsidiaries of registered holding companies such as TCO is not
required, several of the transactions which are or may be necessary in order
to consummate the TCO Plan (as distinguished from the TCO Plan itself) require
approvals by the SEC under the HCA. Specifically, (i) the acquisition by
Columbia of securities of TCO in satisfaction of its existing Secured Claims
against TCO requires approval under Sections 9 and 10 and (ii) any issuance of
Common Stock or other securities of Columbia pursuant to the Plan or the TCO
Plan and Columbia's guaranties in respect of payments to Creditors under the
TCO Plan require approval under Sections 6, 7 and 12. In each case, public
notice and an opportunity for a hearing before the SEC by interested parties
are required.
In accordance with section 11(f) of the HCA, on May 4, 1995, Columbia
filed an Application-Declaration on Form U-1 with the SEC seeking approval of
the Plan and Columbia's participation in the TCO Plan and seeking
authorization to
III-9
<PAGE> 176
disseminate this Disclosure Statement, along with the SEC's report (the
"Application"). In the Application, Columbia requested that the SEC issue its
Notice with respect to Columbia's Application no later than June 23, 1995.
Columbia will supplement this Disclosure Statement when a report has been
issued by the SEC under Section 11(g) of the HCA with respect to the Plan.
Columbia has no reason to believe that the Plan will not be approved by
the SEC. Similarly, neither Columbia nor TCO has any reason to believe that
the TCO Plan transactions which require approval by the SEC will not be so
approved.
III-10
<PAGE> 177
IV. SUMMARY OF SIGNIFICANT CLAIMS IN COLUMBIA'S CHAPTER 11 CASE AND THEIR
SETTLEMENTS OR PROPOSED RESOLUTIONS
A. BORROWED MONEY CLAIMS AND THE NEGOTIATIONS AND SETTLEMENT OF SUCH
CLAIMS
The majority of the Claims Filed against Columbia are unsecured Claims
for amounts due under various short-term and long-term borrowing arrangements,
including: (i) Debenture Claims and Medium Term Note Claims under the 1961
Indenture, (ii) Claims under the $500 million Credit Agreement, (iii) Claims
under the $750 Million Credit Agreement, (iv) Commercial Paper Claims, (v)
Auction Note Claims, (vi) Bid Note Claims, (vii) Claims under the Rate Swap
Agreement, and (viii) Claims by the Holders of the LESOP Debentures issued in
connection with the LESOP, including claims under the LESOP Guaranty. A more
detailed description of the nature, amount and treatment of these Borrowed
Money Claims is contained in Section VI.A, "Classification and Treatment of
Claims and Interests."
During the course of Columbia's Reorganization Case, Columbia and its
Professionals have held regular discussions with the Equity Committee and the
Creditors' Committee, individual Creditors, and their respective professional
advisors regarding the quantification and treatment of the Borrowed Money
Claims against Columbia. The discussions with the Columbia Committees have
related to, inter alia, (i) the scope of the entitlement of the Holders of
Borrowed Money Claims to distributions in respect of post-Chapter 11 petition
interest, (ii) their entitlement to call premiums or pre-payment
IV-1
<PAGE> 178
penalties, in the case of certain issues of Debentures and Medium Term Notes,
(iii) the method of satisfaction of the Borrowed Money Claims, and (iv) the
structure and terms of various securities of Reorganized Columbia to be
distributed to the Borrowed Money Creditors under the Plan.
The Bankruptcy Code (consistently with pre-Bankruptcy Code federal
insolvency law) requires solvent Chapter 11 debtors to compensate impaired
creditors for the use of their funds during the pendency of bankruptcy
proceedings. This requirement is reflected in section 726(a)(5) of the
Bankruptcy Code which provides for the payment of post-petition interest at
the "legal rate" in cases of liquidations of debtors' estates where proceeds
exceed the amounts required to pay all "allowed" claims (that is, claims for
principal and pre-petition interest and other claims which have been allowed
under section 502 of the Bankruptcy Code), as well as in case law reflecting
an equitable obligation for solvent debtors to compensate creditors for their
delay in payment. Given that Columbia is a solvent debtor, the Plan provides
that distributions to its Creditors will include amounts in respect of post-
petition interest together with interest on interest. As to the appropriate
rate of such post-petition interest, the weight of existing authority
indicates that, with respect to contractual claims, such rate should normally
be based on the rate provided in the underlying contract or, if none is
provided, at the applicable state statutory rate.
IV-2
<PAGE> 179
While acknowledging the obligation of Columbia as a solvent debtor to pay
post-petition interest to impaired Creditors, the Equity Committee took the
position that the Bankruptcy Court has the ability to apply different interest
rates, in appropriate circumstances, that distributions of post-petition
interest should be limited to simple interest from the date of the filing of
the Chapter 11 petition to the date of distributions under the Plan at the
Federal Judgment Interest Rate on the Petition Date, with interest on interest
payable where the underlying contract provides therefor and was executed after
mid-1989, and that the Holders are not entitled to call premiums and/or
liquidated damages. In contrast, the Creditors' Committee took the position
that such distributions should be measured by the contractual provisions
relating to interest and to interest on interest applicable to each such
tranche (or, absent any contractual provision, by the New York legal rate of
interest) and that, as to certain tranches, post-petition interest should be
compounded whether or not compounding was called for by contract or applicable
law and, in addition, that certain tranches should be entitled to call
premiums and/or liquidated damages.
In order to facilitate an agreement among the parties, and to avoid the
potentially significant delay and expense of litigation, Columbia proposed a
compromise approach which, after further discussions with the respective
Committees and further refinement, is now embodied in the Plan. Under this
IV-3
<PAGE> 180
approach, assuming a December 31, 1995 Effective Date, distributions in
respect of post-petition interest and interest on interest shall be made on
Allowed Borrowed Money (Classes 3.1 and 3.2) Claims in the manner set forth on
Exhibit G to the Plan and described in Section VI.A.2.d, "Class 3.2-Borrowed
Money Claims." No distributions will be made in respect of call premiums or
prepayment penalties.
B. THE INTERCOMPANY CLAIMS LITIGATION
1. STIPULATION AND ORDER CONCERNING PROSECUTION OF THE
INTERCOMPANY CLAIMS
On February 4, 1992, the Bankruptcy Court approved a stipulation (the
"Stipulation") among Columbia, TCO and the TCO Creditors' Committee assigning
to the TCO Creditors' Committee the right to investigate and prosecute, on
behalf of the TCO estate, the Intercompany Claims, including all Claims
against Columbia or CNR relating to transactions occurring prior to the
Petition Date that may give rise to actions under sections 510(c), 544, 545,
547, 548, 550(a) and 550(b) of the Bankruptcy Code or under applicable non-
bankruptcy law for fraudulent conveyance, equitable subordination, illegal
dividend, corporate waste, alter ego, piercing the corporate veil, preference,
invalidation of unperfected liens or security interests and breach of
fiduciary duty.
The Stipulation allowed the claims to be pursued without conflict by the
TCO creditors that potentially had the most to gain from the litigation and
provided that TCO would cooperate with the TCO Creditors' Committee in the
investigation and
IV-4
<PAGE> 181
prosecution of all Intercompany Claims. The order approving the Stipulation
reserved to TCO and Columbia the right to include settlement of the litigation
in any plan(s) of reorganization. Settlement negotiations were conducted
prior to the filing of a complaint, but did not produce a settlement.
2. INTERCOMPANY CLAIMS LITIGATION PROCEEDINGS
On March 18, 1992, the TCO Creditors' Committee Filed a Complaint against
Columbia and CNR asserting the Intercompany Claims (the "Intercompany
Complaint") and Filed a proof of claim against Columbia based upon the
Intercompany Claims, which are summarized below.
a. ALLEGATIONS OF EQUITABLE SUBORDINATION
The Intercompany Complaint asserted that from 1985 to the filing of TCO's
bankruptcy petition in 1991, Columbia had used its position as sole
stockholder of TCO to gain for itself an unfair advantage over TCO's
unaffiliated creditors by maintaining TCO in an undercapitalized or insolvent
condition while Columbia removed valuable assets from TCO and repositioned
itself as a secured creditor in TCO's remaining assets so that Columbia would
be at the head of the creditor line in the event of a TCO bankruptcy. Among
the transactions challenged as part of the equitable subordination case were
the transfer of TCO's oil, gas and coal properties to CNR in exchange for the
return of TCO stock; the payment by TCO of $130 million in dividends to
Columbia; the use of new secured debt to Columbia to pay principal and
interest on TCO's pre-1985 unsecured debt owed to
IV-5
<PAGE> 182
Columbia; and the increase in TCO's secured debt to Columbia prior to
bankruptcy. The Intercompany Complaint alleged that these actions had
conferred an unfair advantage on Columbia over TCO's other creditors and
caused injury to TCO and its creditors. As a remedy for this conduct, the
Intercompany Complaint sought the equitable subordination of Columbia's claims
against the TCO estate to the claims of TCO's other creditors.
b. ALLEGATIONS SEEKING RECHARACTERIZATION OF DEBT AS EQUITY
The Intercompany Complaint also asserted that Columbia's secured advances
to TCO from 1985 through 1991 should be recharacterized as equity
contributions because those loans were made by an insider at a time when TCO
was undercapitalized or had inadequate equity capital such that no
disinterested lender would have been willing to lend a like amount of funds to
TCO on similar terms. The Intercompany Complaint asserted that Columbia's use
of secured debt to finance TCO in these circumstances inequitably shifted the
risk of loss from Columbia to TCO's other creditors.
c. ALLEGATIONS OF FRAUDULENT CONVEYANCES
The Intercompany Complaint further asserted that the transfer of TCO's
oil, gas and coal properties to CNR, the payment of dividends to Columbia
after July 31, 1988, the payment of principal and interest on TCO's prior
unsecured debt to Columbia after July 31, 1988, and the untimely perfection of
certain of Columbia's liens during that period constituted
IV-6
<PAGE> 183
fraudulent conveyances under applicable state and federal law. The
Intercompany Complaint alleged that those transfers were made with the intent
to hinder, delay or defraud TCO's creditors; that TCO was insolvent or engaged
in business with unreasonably small capital at the time of those transfers;
and that TCO did not receive fair consideration.
d. ALLEGATIONS OF VOIDABLE REDUCTION IN CAPITAL
The Intercompany Complaint further alleged that TCO's capital was
impaired as a result of the transfer of TCO's oil, gas and coal properties to
CNR and that, therefore, that transfer was avoidable under applicable state
and federal law. That claim was withdrawn at trial.
e. ALLEGATIONS OF PREFERENCES
The Intercompany Complaint also asserted that TCO's payments of principal
and interest on its unsecured debt to Columbia and the untimely perfection by
Columbia of certain liens on TCO real estate between July 31, 1990, and the
Petition Date, were transfers made on account of antecedent debts when TCO was
insolvent which enabled Columbia to receive more than it would have received
in a liquidation of TCO under Chapter 7, and thus voidable preferences under
section 547 of the Bankruptcy Code.
IV-7
<PAGE> 184
3. RESPONSE OF COLUMBIA
Columbia's response to the Intercompany Complaint was, among other
things, that:
(i) with respect to the fraudulent conveyance claims, such
transfers were made for legitimate business reasons and fair consideration,
TCO was solvent and sufficiently capitalized at all relevant times and did not
act to hinder, delay or defraud its creditors, that dividends were paid in
accordance with Delaware Corporation Law and that TCO had sufficient earnings
and/or surplus to pay such dividends to Columbia;
(ii) with respect to the preference claims, that TCO was
solvent at the time the payments were made; that the loans were obtained and
the payments were made in the ordinary course of TCO's business; that the
loans were repaid in accordance with their regular payment terms; and TCO's
payments of principal and interest on Columbia's unsecured debt were not
voidable preferences under section 547 of the Bankruptcy Code;
(iii) with respect to claims for equitable subordination and
recharacterization of Columbia's debt as equity, when TCO encountered severe
business problems in 1985, Columbia could have either supported TCO or allowed
it to enter bankruptcy; the decision by Columbia to support TCO and avert its
bankruptcy immensely benefitted TCO and its creditors, especially Producers
that received payments made by TCO from 1985 to 1987 of approximately $1
billion to reform TCO's large
IV-8
<PAGE> 185
Southwest Producer contracts with prices above the prevailing market price,
including approximately $800 million paid primarily pursuant to TCO's Producer
Price Reduction Purchase Plan (the "PPRPP") and more than $1.6 billion in
above-market payments for gas; supporting TCO with unsecured debt or equity
was foreclosed by Columbia's duties to its equity and debt securityholders and
thus secured debt was the only means of providing TCO with financial support;
TCO was solvent and adequately capitalized during the relevant period; all of
TCO's dividends were legally paid, reasonable and appropriate; through
Columbia's support, TCO continued to operate successfully until record warm
weather arrived in early 1990; TCO paid all its obligations as they came due
(including those owed to Producers and Columbia alike); TCO did not prepay
unsecured debt or in any way convert it to secured debt; Columbia's conduct
was neither inequitable nor injurious to TCO's other creditors; and any
alleged advantage to Columbia over other creditors in bankruptcy is derived
from its unique position--unlike other creditors, Columbia provided new
financing to TCO and did so at a time when TCO's financial position was
precarious; the allegation regarding recharacterization of debt as equity is
not a separate claim under the Bankruptcy Code and, in any event,
recharacterization would be improper because it benefitted creditors when TCO
incurred the debt and Columbia received SEC approval to finance TCO on a
secured basis after public notice; in addition, only initial
undercapitalization, which is not
IV-9
<PAGE> 186
alleged in the Intercompany Complaint, could support a claim for
recharacterization, and the Intercompany Complaint also fails to adequately
allege facts that could support a finding of injury or unfair advantage as is
required under section 510(c) of the Bankruptcy Code.
4. PRE-TRIAL INTERCOMPANY CLAIMS LITIGATION
PROCEEDINGS
On April 13, 1992, the Bankruptcy Court entered a scheduling order with
respect to discovery and procedures relating to the Intercompany Claims.
Hundreds of thousands of document pages were produced to the TCO Creditors'
Committee by TCO, Columbia and CNR, and depositions of two dozen former or
current employees of TCO and Columbia were taken. In addition, approximately
a dozen expert witnesses were deposed by the parties.
On May 8 and 14, respectively, the TCO Creditors' Committee filed A
Demand for Jury Trial and a Motion to Withdraw the Jurisdictional Reference,
which requests were denied by the District Court as well as by the United
States Court of Appeals for the Third Circuit.
In May through June 1992, the Equity Committee and the Creditors'
Committee both intervened in the Intercompany Claims Litigation as defendant-
intervenors and answered the Intercompany Complaint jointly, and TCO's
Customers' Committee intervened as a plaintiff-intervenor and Filed a
complaint substantially similar to the Intercompany Complaint.
IV-10
<PAGE> 187
On June 30, 1992, Columbia Filed an objection to the TCO Creditors'
Committee's proof of claim filed on behalf of TCO against Columbia, which was
consolidated with the Intercompany Complaint pursuant to a consent order
signed on July 31, 1992.
In June 1992, Columbia and CNR Filed a Motion for Partial Judgment on the
Pleadings and Partial Summary Judgment (the "Summary Judgment Motion") as to
the equitable subordination, recharacterization and certain other claims in
the Intercompany Complaint. The parties (including the intervening
committees) briefed the Summary Judgment Motion extensively, first in 1992 and
then, based upon the factual record developed during discovery, again in 1993.
The Summary Judgment Motion was denied shortly before trial without opinion.
On May 13, 1994, the Bankruptcy Court made a sua sponte motion to the
District Court for withdrawal of the jurisdictional reference of the
Intercompany Claims Litigation. On May 25, 1994, the District Court granted
the Bankruptcy Court's sua sponte motion and withdrew the jurisdictional
reference of the Intercompany Claims Litigation.
5. THE INTERCOMPANY CLAIMS TRIAL
Trial before the Honorable Joseph H. Farnan commenced in the District
Court on September 12, 1994. The trial was completed on October 25, 1994.
The Columbia Creditors' and Equity Committees participated in trial
preparation and defense and the preparation of post-trial submissions.
IV-11
<PAGE> 188
During the trial the TCO Creditors' Committee called three fact witnesses
(as adverse witnesses) and six expert witnesses and offered 677 exhibits in
support of TCO's Claims against Columbia. In their defense, Columbia and CNR
called four fact witnesses and seven expert witnesses and offered 184 exhibits
in opposition to the evidence presented by the TCO Creditors' Committee. Each
side designated portions of depositions in support of its position. All of
the fact witnesses testifying at trial or by deposition were present or former
officers of Columbia or TCO.
Following the trial, both sides submitted proposed findings of fact,
reply findings of fact, proposed conclusions of law, and post-trial argument.
These post-trial written submissions were completed on December 20, 1994.
Judge Farnan had announced that he would issue his decision around June 1,
1995. However, Columbia and the TCO Creditors' Committee have asked Judge
Farnan to defer his decision pending further proceedings on the consensual
settlement of the Intercompany Claims contained in the proposed reorganization
plans, which decision will be moot if the Plans are consummated.
6. SUMMARY OF THE TCO CREDITORS' COMMITTEE POSITION
The TCO Creditors' Committee contends that it established at trial that
between 1985 and 1991 Columbia was carrying out a plan to use its control over
TCO to gain for itself an inequitable advantage over TCO's general unsecured
creditors. The TCO Creditors' Committee contends that the evidence showed
IV-12
<PAGE> 189
(i) that Columbia formulated this plan in late 1984 and early 1985 when TCO
was experiencing severe financial problems, including the possibility that it
might soon be forced into bankruptcy; (ii) that Columbia recognized that, as
stockholder and unsecured creditor of TCO, it had little chance of holding on
to its investment in TCO if TCO went into bankruptcy at that time; and (iii)
that to avoid the loss of its investment and gain a priority over TCO's other
creditors, Columbia devised and implemented a plan to forestall an immediate
TCO bankruptcy and maintain Columbia's control over TCO while Columbia removed
assets from TCO and repositioned itself as a secured creditor in TCO's
remaining assets, thereby shifting the risk of loss to TCO's other creditors
in case TCO failed.
The TCO Creditors' Committee contends that the evidence further showed
that Columbia's plan included (i) the removal of TCO's valuable oil, gas and
coal properties for the benefit of Columbia through the transfer of those
assets to CNR in exchange for the return of shares of TCO's own stock which
had no value to TCO; and (ii) the removal of an additional $130 million from
TCO through the payment of dividends by TCO to Columbia when TCO was
undercapitalized and needed additional cash. The TCO Creditors' Committee
contends that the evidence also showed that TCO borrowed additional secured
debt from Columbia to pay those dividends, and that Columbia's equity interest
was thereby in effect converted into secured debt having a priority over TCO's
unsecured creditors.
IV-13
<PAGE> 190
In addition, the TCO Creditors' Committee contends that the evidence at
trial showed that Columbia made several changes in its practices with respect
to TCO's financial structure between 1985 and 1991 for the purpose of
improving Columbia's claim position in the event of a TCO bankruptcy,
including (i) leaving TCO severely undercapitalized from 1985 through 1991 so
as to minimize Columbia's equity investment at risk in TCO without reducing
its ownership and control; (ii) the institution of a new policy in 1985 of
meeting all of TCO's financing requirements from 1985 onwards exclusively with
secured debt from Columbia in an attempt to gain a secured claim on all of
TCO's remaining assets; and (iii) the conversion of over $300 million of
Columbia's pre-1985 unsecured loans to TCO into secured loans by having TCO
borrow new secured debt from Columbia to repay the prior unsecured debt,
thereby elevating Columbia's claim in bankruptcy over that of TCO's other
unsecured creditors.
The TCO Creditors' Committee contends that the evidence showed that
Columbia's conduct was inequitable and, unless remedied by the District Court,
would result in an unfair advantage for Columbia in the distribution of the
TCO estate and a corresponding injury to TCO's other creditors.
The TCO Creditors' Committee contends that the evidence at trial also
showed that a number of these transactions could be set aside as fraudulent
conveyances or voidable preferences. Thus, the TCO Creditors' Committee
contends that the evidence
IV-14
<PAGE> 191
established (i) that the transfer of TCO's oil, gas and coal properties to CNR
was both an intentional fraudulent conveyance and a constructive fraudulent
conveyance under section 548 of the Bankruptcy Code and Delaware fraudulent
conveyance law; (ii) that the dividends paid to Columbia in the three years
prior to TCO's bankruptcy were fraudulent conveyances under Delaware law;
(iii) that the new liens given to Columbia in connection with the conversion
of TCO's pre-1985 unsecured debt to Columbia into secured debt in the three
years prior to bankruptcy were fraudulent conveyances under Delaware law; and
(iv) that the liens acquired by Columbia in connection with the conversion of
TCO's pre-1985 unsecured debt to Columbia into secured debt in the one year
prior to bankruptcy and those liens that Columbia failed to perfect on a
timely basis prior to the preference period were voidable preferences under
section 547 of the Bankruptcy Code.
7. SUMMARY OF COLUMBIA'S ANALYSIS OF THE INTERCOMPANY CLAIMS
Columbia believes that the TCO Creditors' Committee failed to show at
trial (i) that any transfers by TCO to Columbia were improper or inequitable
or that any such transfers (or liens) constituted fraudulent conveyances or
voidable preferences; (ii) that the secured financing of TCO by Columbia (or
any other conduct of Columbia) was improper or inequitable or that Columbia
obtained any unfair advantage thereby; (iii) that TCO accelerated any payments
to Columbia on unsecured debt or that any unsecured debt was converted to
secured debt; (iv) that the
IV-15
<PAGE> 192
secured financing by Columbia of TCO injured or unfairly disadvantaged any
group of actual or potential creditors of TCO; or (v) that TCO was initially
undercapitalized.
Columbia also believes that the credible evidence at trial demonstrates
that the two-part plan developed by TCO and Columbia in response to TCO's
problems in 1985 was a reasonable and bona fide attempt to solve TCO's
problems permanently, which in large part succeeded until adverse regulatory
and market developments followed by unprecedented warm weather in 1990-91 led
to TCO's Chapter 11 filing. The evidence presented at trial also shows that
(i) TCO's problems in 1985 and the attendant increase in its debt/equity ratio
were a result of adverse business developments unrelated to Columbia's
conduct; (ii) all financing of TCO was approved by the SEC, after public
notice and opportunity for objection; (iii) TCO repaid unsecured debt only as
it came due; (iv) TCO had sufficient net cash flow from operations to fund all
of its debt and dividend payments to Columbia; (v) TCO's payment of principal
and interest to Columbia was in the ordinary course of business and pursuant
to the terms of loans made in the ordinary course of business that had been
approved by the SEC; (vi) providing TCO with unsecured debt or equity in
connection with the large debt incurred to buy-out Producer contracts in 1985
would have been inconsistent with Columbia's duties to its own creditors and
shareholders; and (vii) all TCO's dividends were proper.
IV-16
<PAGE> 193
Most important, Columbia contends that the trial record demonstrates that
Columbia's continued funding of TCO greatly benefitted TCO's creditors, since
it enabled TCO (i) to continue operating and fulfilling TCO's obligations to
outside creditors (including the purchase of gas from Producers at prices
above spot market prices) and (ii) to substantially reduce potential Producer
claims against the TCO estate by the payment of approximately $850 million
over two years to Producers under the PPRPP, the continued performance of the
long-term gas contracts from 1986 through mid-1991, and the expenditure of
more than $200 million for buy-outs (and buy-downs) of long-term contracts
after 1986.
Finally, Columbia believes that the credible evidence demonstrates that
the CNR transfer was not a fraudulent conveyance because TCO was in fact
solvent and had sufficient capital available to it at the time of the transfer
(and immediately thereafter) and the transfer was not made with fraudulent
intent, but was made to further long-standing substantial and legitimate
business purposes that were shared and effectuated by many other pipelines,
including ensuring that unregulated properties were maintained in a separate
unregulated company where they could be managed and developed more efficiently
free from regulatory constraints.
8. SETTLEMENT OF THE INTERCOMPANY CLAIMS
The outcome of the numerous legal and factual issues raised by the
Intercompany Claims Litigation is not without doubt, and
IV-17
<PAGE> 194
the potential recovery by the TCO Creditors' Committee could, at least in
theory, reach the billion-dollar level. In addition, any decision by the
trial court would likely be subject to costly and time-consuming appeals. The
appeals could result in a reversal and a new trial that would only further
delay resolution of these Claims and the payment of TCO's creditors. The
settlement and release of these Claims pursuant to the Columbia Omnibus
Settlement allows TCO's creditors an opportunity to receive substantial cash
payments upon the Effective Date and permits TCO and Columbia the opportunity
to emerge from bankruptcy proceedings without further extended delay.
C. THE IRS CLAIMS
1. THE IRS PRE-PETITION CLAIMS AND SETTLEMENT
On or about March 13, 1992, the IRS timely filed four duplicative proofs
of claim against Columbia as well as identical claims against TCO, each in the
amount of $553,728,311.39 (the "IRS Claims"). The IRS Claims asserted claims
for income taxes, plus penalties and interest, for the taxable years ending
1980, 1981, 1983, 1987, 1988 and 1990 and for excise taxes (Form 720) for the
period ended June 30, 1991 and protective claims for pension excise taxes.
The IRS Claims asserted that (i) $11,667,918.33 constituted a secured claim by
virtue of a set-off of refunds due for the taxable years 1979, 1982 and 1989,
(ii) $461,884,205.75 constituted an unsecured
IV-18
<PAGE> 195
priority Claim and (iii) $80,176,187.31 constituted a general unsecured Claim.
Columbia disputed both the amount and priority of the IRS Claims and
engaged in extensive negotiations, along with TCO, over the IRS Claims.
Ultimately Columbia and its subsidiaries, including TCO, entered into the IRS
Settlement Agreement with respect to the IRS Claims.
The principal federal income tax issues raised by the IRS Claims
consisted of: (i) IRS objections to the treatment by TCO as deductible
expenses of approximately $850 million in payments made by TCO to Producers
under the PPRPP and for other similar payments to Producers from 1985 to 1987
in order to obtain price and take-or-pay reductions and for other contract
reformation costs under gas purchase contracts which TCO had with such
Producers; (ii) TCO's ability to deduct in certain tax years expenses that had
previously been included in the valuation of its book and tax LIFO inventory
layer; and (iii) as to TCO as well as other members of the Columbia
consolidated tax group (the "Columbia Group"), questions relating to the
deductibility of software development costs incurred during the taxable years
1985 to 1990.
The IRS Closing Agreement was approved by the Joint Committee on Taxation
of the United States Congress on June 30, 1994 and was approved by an order of
the Bankruptcy Court dated October 12, 1994. The IRS settlement reduced the
IRS Claims for the Columbia Group as a whole from approximately $554 million
to
IV-19
<PAGE> 196
$111,902,703.00 plus post-petition interest (of approximately $24.6 million
projected to December 31, 1995) to be calculated pursuant to the IRS
Settlement Agreement, and the Bankruptcy Court's order approving the
settlement allowed the IRS Claims, as compromised pursuant to the IRS
Settlement Agreement, to be priority Claims under section 507(a)(8) against
both Columbia and TCO. It is anticipated that future tax benefits arising
from deductions permitted the Columbia Group in 1991 through 1995 pursuant to
the IRS Settlement Agreement (the "turnarounds") will reduce the effective
cost of the settlement to approximately $68.2 million, including post-petition
interest through December 31, 1995.
The consolidated income tax regulations provide that each member of the
Columbia Group is severally liable for the entire consolidated tax liability
of the Columbia Group. However, Columbia and TCO intend to allocate the tax
savings and costs from the IRS settlement in accordance with the Tax
Allocation Agreement dated as of December 31, 1990, among Columbia and its
subsidiaries (the "Tax Allocation Agreement") which is to be assumed by both
Columbia and TCO pursuant to their respective Plans. As a result, TCO, as the
taxpayer primarily responsible for generating the tax liabilities, will fund
the payment to the IRS, including post-petition interest, and receive its
allocable share of the turnarounds. Net refunds allocable to Columbia and its
non-debtor subsidiaries which have been offset by the IRS against its Claim
will be paid by TCO to those Persons as a cure
IV-20
<PAGE> 197
cost under the Tax Allocation Agreement. It is estimated that, under the IRS
Settlement Agreement and in accordance with the Tax Allocation Agreement, TCO
will owe the IRS $134.6 million plus post-petition interest of approximately
$29.6 million, and that other members of the Columbia Group will be
collectively entitled to a refund of approximately $22.7 million plus post-
petition interest of approximately $5.0 million. After taking into account
various turnarounds for the period 1991 through 1995, the net cost of the
settlement to TCO is approximately $76.8 million, including interest through
December 31, 1995 and the net result to other members of the Columbia Group is
a refund of approximately $8.6 million, including interest through December
31, 1995.
At the time the Bankruptcy Court approved the IRS Settlement Agreement,
it also approved an agreement among Columbia, TCO and TCO's Creditors'
Committee providing that in the event the Bankruptcy Court failed to approve
the allocation of post-petition interest to TCO pursuant to the Tax Allocation
Agreement or otherwise, Columbia and/or its non-debtor subsidiaries would be
obligated to make that payment to the IRS.
2. THE IRS ADMINISTRATIVE CLAIMS
On May 24, 1995, the IRS filed an administrative Claim for federal income
taxes in the amount of $87,844,798.69 (including interest of $13,879,916.69
through May 28, 1995) against Columbia for its taxable year ending December
31, 1992. This Claim arose in connection with an audit of the Columbia
Group's
IV-21
<PAGE> 198
federal income tax returns for the taxable years ending December 31, 1991 and
December 31, 1992. The audit of the tax return for the 1991 year resulted in
a net refund to the Columbia Group of $730,548.00. The issues discussed below
were also raised in that year.
The principal federal income tax issues raised by the 1992 IRS
administrative Claim are the deductibility by Columbia of approximately $174
million of accrued interest expense on its outstanding debt obligations and
the deductibility by Columbia of approximately $10.8 million and by TCO of
approximately $13.5 million of professional fees incurred in the course of
their bankruptcy proceedings. Columbia believes that its position on these
and the other federal income tax issues raised in the IRS administrative Claim
are strong, and it is currently in the process of challenging the proposed IRS
adjustments to its taxable income. However, there is no way of predicting
what the outcome of these challenges will be.
Under the consolidated income tax regulations, each member of the
Columbia Group is severally liable for the entire consolidated tax liability
of the Group. It is expected that TCO will be required to bear its allocable
share of any income tax deficiency resulting from the IRS administrative
Claim, including related interest and penalties, either as a direct obligation
or pursuant to its obligations under the Tax Allocation Agreement.
IV-22
<PAGE> 199
D. STATUS AND TREATMENT OF SECURITIES
CLAIMS AND DERIVATIVE LITIGATION
1. PROCEDURAL HISTORY OF THE ACTIONS
Commencing on or about June 20, 1991, following the announcement on
June 19, 1991, by Columbia's Board of Directors regarding the suspension of
the dividend, the likelihood of a substantial charge to second quarter
earnings and the possibility of a bankruptcy filing, sixteen complaints
purporting to be class actions were filed in the District Court against
Columbia, various of its current and former officers and directors, certain of
its underwriters (Morgan Stanley & Co., Inc., Donaldson, Lufkin & Jenrette and
The First Boston Corporation) and its accountants, Arthur Andersen LLP
(formerly known as Arthur Andersen & Co.) (together, the "Defendants"). A
seventeenth complaint was filed on January 28, 1992. All of these actions,
which constitute the Securities Action, were eventually consolidated under the
caption In re Columbia Gas Securities Litigation, Consol. C.A. No. 91-357.
On or about June 21, 1991, three derivative shareholder suits (the
"Derivative Actions"), were filed in the Court of Chancery of the State of
Delaware and consolidated under the caption In Re Columbia Gas System, Inc.
Derivative Litigation. The complaints in those actions name individual
members of the Board of Directors as defendants and Columbia as a nominal
defendant. The complaints generally allege that the individual members of the
Board of Directors breached their fiduciary duties to Columbia by failing to
make required disclosures,
IV-23
<PAGE> 200
thereby causing Columbia to be subjected to federal securities law
liabilities.
As of the Petition Date, no class had been certified with respect to the
Securities Action. The Securities Action was automatically stayed as to
Columbia pursuant to section 362 of the Bankruptcy Code. That litigation was
also stayed by agreement as to all other defendants, which agreement was
repeatedly extended until October 31, 1994. The Derivative Actions were
stayed pursuant to section 362 of the Bankruptcy Code.
Pursuant to an order of the Bankruptcy Court fixing a bar date for filing
proofs of claim against Columbia, approximately 29 individual proofs of claim
were Filed against Columbia based upon allegations described in the complaints
filed in the Securities Action, including Claims filed by the LESOP Thrift
Plan Trustee on account of shares of Common Stock held by the Thrift Plan.
Three related proofs of claim on behalf of purported classes of shareholders
and debentureholders allegedly injured during the claim period were also Filed
against Columbia. In addition, various officers, directors, underwriters of
Common Stock and others Filed Claims against Columbia for indemnification
relating to the Securities Action.
On or about October 31, 1994, counsel for class action plaintiffs in the
Securities Action filed with the District Court (i) a consolidated amended
class action complaint (the "Class Action Complaint"), which, because of the
automatic stay,
IV-24
<PAGE> 201
did not include Columbia as a defendant, and (ii) a motion for class
certification. In addition, counsel for the class action plaintiffs Filed in
the Bankruptcy Court (i) a motion to withdraw the reference from the
Bankruptcy Court to the District Court of all matters relating to the
securities-related proofs of claim previously Filed in the Bankruptcy Court
and (ii) a motion for class certification.
The Class Action Complaint alleges that from February 28, 1990, through
June 18, 1991, Defendants disseminated materially false and misleading
statements regarding Columbia's financial condition and failed to disclose
material facts which rendered other statements misleading, thereby
artificially inflating the market price of Columbia's Common Stock and debt
securities, causing plaintiffs to purchase such securities at artificially
inflated prices. The Class Action Complaint alleges violations of
sections 11, 12(2), 15 and 18 of the Securities Act of 1933, 15 U.S.C.
Sections 77k, 771 and 77o; sections 10(b), 20(a) and Rule 10b-5 of the
Securities Exchange Act of 1934, 15 U.S.C. Sections 78j(b), 78n and
78t(a); and the Florida State Securities Acts, as well as negligent
misrepresentation, and common law fraud and deceit.
On November 1, 1994, Columbia Filed a motion (the "Supplemental Bar Date
Motion") in the Bankruptcy Court seeking to establish supplemental bar date
procedures for individual Claims against Columbia based upon the subject
matter of the Securities Action, so as to permit Columbia and the other
IV-25
<PAGE> 202
bankruptcy participants to assess the scope and potential magnitude of those
Claims in connection with the preparation of a plan of reorganization.
On November 15, 1994, the Securities Action, previously pending before
Judge Latchum of the District Court, was transferred to Judge Farnan of that
Court. On November 30, 1994, Judge Farnan issued an order (the "Stay Order")
staying, pursuant to 11. U.S.C. Sections 362 and 105, further
proceedings in the Securities Action until the entry of a final judgment on
the Intercompany Claims.
By letter dated February 13, 1995, counsel for Columbia requested that
Judge Farnan modify the Stay Order to allow Columbia's Supplemental Bar Date
Motion to be heard so that Columbia could obtain the information necessary
regarding its potential liability in order to finalize its reorganization
proposals. Counsel for class action plaintiffs opposed that request by letter
dated February 17, 1995.
On April 10, 1995, counsel for class action plaintiffs filed a motion
requesting that Judge Farnan lift the Stay Order, however, no order has been
issued with respect to that motion.
2. SUMMARY OF SECURITIES ACTION ALLEGATIONS.
The Class Action Complaint generally alleges misrepresentations,
omissions and the failure by Defendants to adequately disclose the financial
burden arising from TCO's then existing, above-market priced gas supply
contracts and Columbia's general financial condition and prospects, and in
IV-26
<PAGE> 203
particular, the potential financial exposure arising from the long-term, high
priced non-market sensitive gas supply contracts entered into by TCO prior to
1982.
Following the Natural Gas Wellhead Decontrol Act of 1989, TCO performed
various studies that purported to analyze or estimate the costs that would be
associated with "buying out" or "buying down" various contracts to market
levels. In estimating buy-down costs, those studies attempted to calculate
the present value of the expected payments under those contracts for the
purchase of gas in excess of the projected spot market prices, referred to as
"excess gas costs". Those studies also reflected assumptions as to the
percentage of the "excess gas costs" so calculated that would be required as
payment to Producers for the reformation of their contracts.
The Class Action Complaint (referenced herein by paragraph number)
alleges that Columbia should have disclosed that the results of an early buy-
down analysis performed by low-level TCO personnel in April 1990:
"arrived at a net present value ("NPV"), discounted at 10%, of the
Company's excess gas cost exposure from the ten Southwest producers of
$832 million (of which Coleve represented $334 million). Assuming, inter
alia, a $.20 on the dollar settlement value to renegotiate these
contracts, the April 1990 Study arrived at a 20% of NPV discounted costs
to the Company of $166 million to buy-down the applicable contracts."
(Paragraph 151).
Similarly, the Class Action Complaint alleges that Columbia should have
disclosed that a further study performed in May of
IV-27
<PAGE> 204
1990 "arrived at a revised 'Total Settlement Cost' of $186 million"
(Paragraph 153) and concluded that:
"[I]n order for Columbia to be competitive, measures to reduce gas
purchase cost must be taken to ensure WACOG recovery and resume the
purchase of gas under market responsive contracts."
(Paragraph 155).
In fact, Columbia's May 15, 1990, Form 10-Q had reported that:
"Recent factors, including increased gas available under some older high
cost contracts coupled with the anticipated effects of deregulation and
Columbia Transmission's decline in sales volumes, have made it evident
that a few Southwest producer contracts not previously renegotiated may
present future marketability problems if not renegotiated. Columbia
Transmission is in the process of investigating the feasibility of such
reformations, the magnitude of costs which might be incurred and the
long-term desirability of reformations."
The Class Action Complaint attacks that disclosure on the grounds that
allegedly:
"GAAP required the Company not only to reserve the $500 million plus
discussed above, it further required Columbia Gas to disclose the high
end of any material loss contingency (i.e. $1.165 billion from the May
1990 Study) as well as all assumptions underlying the findings of the
Study. Columbia Gas not only failed to disclose the $1.165 billion
figure, it also did not disclose the assumptions underlying the May 1990
Study, which the Individual Defendants knew or recklessly disregarded at
the time were based upon, inter alia, materially inflated and
insupportable sales and spot gas price projections."
(Paragraph 173).
The Class Action Complaint also identifies a draft study prepared by TCO
dated October 25, 1990, and alleges that Defendants failed to disclose the
risks that study revealed. (See Paragraphs 194-206, Paragraphs 225-242).
IV-28
<PAGE> 205
The Complaint further alleges that defendants should have disclosed
details of an April 1991 study, which allegedly "determined a gross excess gas
cost exposure of $1.1 billion, discounted 10% to an NPV of $800 million,
compared to gross exposure of $858.9 and 10% NPV exposure of $617.9 million in
the October study, with the increase attributed to lower spot prices and
greater contract deliverabilities" (Paragraphs 313), as well as the
conclusions of subsequent studies and revisions completed on May 13, May 28,
June 11 and June 14, 1991. (Paragraphs 321-323, 331-333).
The Class Action Complaint repeats throughout the allegation that TCO was
"unreasonably optimistic" with regard to its gas cost studies and other
internal studies and projections. Many other allegations contend that
statements made by Defendants casting Columbia's financial condition in a
positive light, understated or misrepresented Columbia's alleged serious
financial problems.
For example, the Class Action Complaint alleges that with regard to Gas
Inventory Charge (GIC) payments TCO was eligible to recover pursuant to the
1989 Global Settlement with its Customers, statements in Columbia's May 15,
1991, 10-Q were misleading for reporting that the GIC test "may not" be met
when Columbia allegedly knew that it could not be met:
"The statement that Columbia Gas 'may not be able to meet the test of
price comparability with other pipelines' in order to be eligible to
collect its GIC was false and misleading when made. Internal Company
communications . . . demonstrate that the Individual Defendants knew or
recklessly disregarded at least as early as June, 1990 and
IV-29
<PAGE> 206
were again advised in December, 1990, that the Company would not meet its
eligibility criteria to qualify to collect the GIC in 1991."
(Paragraph 327).
Similarly, the Class Action Complaint alleges that the declaration of an
increased dividend in January 1991 was misleading:
"On January 16, 1991 the Company announced in a PR Newswire release (the
'January 1991 Release') that its board of directors had authorized an
increase in its quarterly dividend from $.55 to $.58. Consistent with
the Company's previous false and misleading material statements about its
positive business and financial prospects, the January 1991 Release
trumpeted the fact that this was the second consecutive year of dividend
rate increases, raising the annual dividend from $2.20 in 1990 to $2.32
in 1991, and continuing an unbroken stream of dividend payments going
back 43 years."
(Paragraph 258).
Likewise, the Class Action Complaint alleges that Columbia's Chairman of
the Board of Directors, John Croom, made false and misleading statements in a
February 6, 1991, press release when he reported that:
"Although the weather has severely impacted earnings in the short-term
and interrupted the earnings rebound begun in 1989, the Corporation has
not changed its long range positive outlook or its goals and objectives."
(Paragraph 266).
In addition, the Class Action Complaint contends that Defendants violated
Generally Accepted Accounting Principles, Statement of Financial Accounting
Standards and Financial Accounting Standards Board Interpretation rules
through the alleged improper amortization of certain accounts and the
IV-30
<PAGE> 207
alleged failure to recognize and disclose certain risks. (See
Paragraphs 170-174, 215-223).
Finally, the Class Action Complaint alleges that Defendants improperly
did not disclose that on May 15, 1991, Columbia's Chief Financial Officer,
Robert Oswald, allegedly told the Board of Directors that:
"The severity of the situation has not been disclosed pending the
completion of our analysis and plans for correction. Until additional
disclosures are made, going to the public capital markets is difficult if
not impossible. . . . We will face the strong likelihood of a credit
downgrading, the degree of which will be dependent on the credibility of
our proposed solutions."
(Paragraph 324).
However, Columbia did announce on May 15, 1991, that:
"Columbia Transmission has concluded that actions beyond the
previously announced renegotiations of certain producer contracts
are necessary. The parameters of the problem and the costs and
feasibility of various possible responses, including seeking
regulatory changes in the merchant function, are under intense study
in light of current and prospective market conditions and the impact
of final deregulation," and continued that their problems "may limit
the Corporation's ability to access the financial markets".
3. SUMMARY OF RELEVANT PUBLIC DISCLOSURES BY
DEFENDANTS
In Columbia's Form 10-K and Annual Report for the fiscal year ending
December 31, 1989, filed March 16, 1990, Columbia reported that "[i]n the
future, essentially all of Transmission's gas supply will come from
producers", and that "Transmission is continually assessing its gas supply
contracts in an effort to provide the necessary flexibility to meet the
changing marketplace."
IV-31
<PAGE> 208
On May 15, 1990, Columbia filed its Form 10-Q for the first quarter of
1990, reporting that Columbia had had disappointing earnings of $47.6 million
due to warm weather, and also stated:
"Columbia Transmission continually assesses whether its gas supply
contracts are responsive to market conditions. Recent factors, including
increased gas available under some older high cost contracts coupled with
the anticipated effects of deregulation and Columbia Transmission's
decline in sales volumes, have made it evident that a few Southwest
producer contracts not previously renegotiated may present future
marketability problems if not renegotiated. Columbia Transmission is in
the process of investigating the feasibility of such reformations, the
magnitude of the costs which might be incurred and the long-term
desirability of reformations."
Filed on August 14, 1990, the Second Quarter Form 10-Q reported
lackluster performance due to lower seasonal demands and warm weather. It
also repeated the First Quarter Form 10-Q's statement that TCO was continually
assessing the feasibility and desirability of reforming those older, high-cost
Producer contracts that may present future marketability problems.
On September 28, 1990, in a press release announcing its settlement for
$32 million of its long term gas supply contract with Coleve, Columbia stated
that it had concluded it was "desirable" to "seek contract reformations" and
that "whether the effort will be successful cannot be ascertained at this
time".
On November 7, 1990, Columbia issued a press release stating that
"Columbia Transmission is continually assessing whether its gas supply
contracts are responsive to the market and is attempting to renegotiate
certain Southwest producer
IV-32
<PAGE> 209
contracts and, in some cases, to resolve related litigation." The release
noted that the $32 million settlement announced on September 28, 1990, had
involved "one such contract." The release acknowledged that the cost of
resolving TCO's other negotiations could be as high as $180 million and that
this would exceed reserves by up to $150 million. The release stated that TCO
did not expect the cost to exceed that amount.
On November 13, 1990, Columbia filed its Third Quarter Form 10-Q, which
stated that:
"[e]arlier this year, the Company announced that recent factors,
including increased gas available under some older high-cost contracts,
the anticipated effects of gas deregulation legislation passed in 1989
which will remove all remaining controls on pricing and Columbia
Transmission's dramatic decline in sales volumes in the late 1980s
(primarily due to large customers switching from sales to transportation
service), made it evident that several of the Southwest [producer]
contracts . . . will present future marketability problems if not
renegotiated. . . ."
"The cost of these renegotiations, if incurred, is not expected by
the Company to exceed current reserves of approximately $30 million
by more than $150 million. Although most of the costs are not
expected to be recovered in rates, approximately $22 million is
expected to be recovered in the fourth quarter of 1990 from revenues
earned under Columbia Transmission's gas inventory charge. . . .
The incurrence of these costs in the estimated amounts should not
have a material adverse effect on the consolidated financial
position of the Company. However, due to the uncertainties inherent
in the situation, it is impossible to predict the ultimate outcome
or the timing of the renegotiation efforts."
Columbia repeated the disclosures of its Third Quarter 10-Q in a
Registration Statement and Prospectus for the sale of Common Stock it filed on
December 6, 1990.
IV-33
<PAGE> 210
On February 6, 1991, a Form 8-K filed by Columbia noted that "[t]he
transmission segment's storage inventory is currently 90 billion cubic feet
over planned levels, more than at any time in the company's history, reducing
its ability to purchase gas under its producer contracts" and that, "[b]ecause
of continued warm weather, a decline in spot market prices and availability of
pipeline transportation capacity, TCO has reduced its estimated sales level
for the contract year 1991 to about 150 Bcf, which is some 100 Bcf below
original estimate." Furthermore, the press release warned that "the lingering
effects of 1990's warm weather coupled with continued warm weather thus far in
1991 have reduced Columbia's earnings outlook for 1991" and that "spot market
prices for gas are significantly below earlier projections". In addition, the
Form 8-K stated that "recoupable TOP [take or pay] obligation of up to
$100 million may be incurred in 1991", and that "spot market prices for gas
are significantly below earlier projections which will reduce revenues of
Columbia oil and gas operations."
On March 13, 1991, Columbia filed its 1990 Form 10-K and Annual Report.
In his message to shareholders, Croom reported that the record warm
temperatures of 1990 that were continuing in 1991 "have substantially reduced
gas demand, held wellhead prices at depressed levels by extending the
nationwide supply surplus and created numerous operating problems." "As a
result", Croom continued, "1990 earnings are disappointing and
IV-34
<PAGE> 211
well below anticipated levels." Croom stated that the warm weather, "along
with wellhead price and production levels in the oil and gas segment,
decisions in pending Transmission and Distribution rate cases and negotiations
with producers to restructure gas purchase contracts to make them market
sensitive will affect earnings in 1991." Croom further stated the weather had
"significantly reduced sales volumes and, in turn, purchases from producers.
Columbia's Management currently expects that recoupable take-or-pay
obligations of up to $100 million may be incurred in 1991." The annual report
noted that while "$22 million of . . . costs were recovered under the 'GIC' in
1990", "[m]anagement cannot estimate to what extent, if any, the remaining
costs will be recovered in rates."
On April 17, 1991, Columbia held its annual shareholders meeting and
filed an accompanying Form 8-K. At that meeting, Croom repeated that "[t]he
depressed gas prices and the continuing impact of the warm weather on
transmission operation make it unlikely that 1991's earnings will be as high
as 1990's earnings", which themselves had been disappointing. At the same
shareholders meeting, Columbia Chief Financial Officer Oswald said that
because of the warm weather, TCO's results would continue to be affected for
the next year or more.
In that Form 8-K, Croom also warned that "low gas prices and increased
availability of transportation capacity provided the transmission segment's
customers ready access to cheaper gas supplies and greatly reduced its sales
volumes. These
IV-35
<PAGE> 212
conditions demonstrated the inherent risks of a closely-regulated merchant
function and have caused us to re-evaluate the advisability of maintaining
Transmission's sales service in its current form." In addition, he stated
that "contractual obligations with some producers will require prepayments
which will increase borrowing costs."
On April 19, 1991, Prudential Securities reported that Columbia
management had met with securities analysts in New York the previous day to
"explain the substantial and surprising deterioration that has taken place in
the company's intermediate-term earnings prospects as a result of the record
warm weather that has plagued this very weather-sensitive company." According
to Prudential Securities, Columbia's management stated that "if spot prices
did not recover, actions in addition to the partial buy-down program announced
in late 1990 would probably be required."
On May 1, 1991, Columbia announced first quarter earnings of
$49.8 million. The release quoted Croom as saying that the past 15 months'
warm weather was "likely to depress transmission's financial performance for
the next year or more." Croom further warned:
"[T]ransmission ended the heating season with a significant excess of
natural gas in storage which will increase carrying costs, Croom said.
To bring gas supplies into balance with anticipated demand, transmission
has been negotiating temporary but costly settlements with producers and
customers to implement new supply and storage agreements. In spite of
these efforts, Croom said that transmission still expects to incur take-
or-pay liabilities during 1991.
IV-36
<PAGE> 213
"Croom said that if spot market gas prices remain depressed for an
extended period of time, regulatory and other actions, in addition
to the renegotiations of producer contracts . . . will be required
to reduce transmission's merchant gas prices to marketable levels.
"Absent increased sales, high gas supply management costs will
continue to be incurred. If gas prices continue at low levels, as
we are currently projecting, meaningful changes in the merchant
function are critical to the successful future financial performance
of Columbia's transmission segment."
On May 15, 1991, Columbia filed its First Quarter 1991 Form 10-Q, for the
quarter ending March 31, 1991. The filing stated:
"In the third quarter of 1990, Columbia Transmission announced that it
would attempt to renegotiate certain high-cost gas supply contracts.
Using recently revised gas price projections, Columbia Transmission's
cost of gas is now projected to be higher than generally anticipated gas
price levels, even assuming the successful completion of the announced
renegotiations. Consequently, gas sales are projected to be insufficient
to avoid future gas supply management costs. In addition, Columbia
Transmission may not be able to meet the tests of price comparability
with other pipelines which is required to permit it to collect its gas
inventory charge to reimburse it for gas supply management costs.
Therefore, Columbia Transmission has concluded that actions beyond the
previously announced renegotiations of certain producer contracts are
necessary. The parameters of the problem and the costs and feasibility
of various possible responses, including seeking regulatory changes in
the merchant function, are under intense study in light of current and
prospective market conditions and the impact of final deregulation."
The First Quarter 1991 Form 10-Q estimated that "actions to minimize
supply management costs" and "higher carrying costs due to the excess storage
position" would cost TCO $30 million in the summer of 1991. "Despite these
efforts," the Form 10-Q continued, "Columbia Transmission may incur
approximately
IV-37
<PAGE> 214
$65 million of recoupable take-or-pay liabilities in 1991." To manage its
1991 cash requirements, Columbia would seek "additional sales of commercial
paper and borrowings under its bank credit facilities, issuance of senior
debt, reductions in capital expenditures, proceeds from the potential sale of
its Canadian properties . . ., and other potential sources of cash or
reductions in spending." The Form 10-Q reported that "matters discussed
herein including those discussed under 'Supply Matters' . . . may limit the
Corporation's ability to access the financial markets."
4. TRENDS IN COLUMBIA'S STOCK PRICE
From early 1990 through May 1991, despite Columbia's numerous disclosures
of specific information regarding the subjects of the Class Action Complaint's
allegations, Columbia's Common Stock experienced relatively small daily price
fluctuations. The movement in Columbia's share prices followed the market
generally and pipeline industry trends. Columbia shares traded in the mid-$40
per share range from March through August 1990. The price rose to the
low-$50's in September 1990 and reached the mid-$50's in early November 1990.
The price returned to the mid-$40's in December 1990, where it stayed until
mid-April 1991. Thereafter, the price dropped to the high-$30's then stayed
in the high-$30's and low $40's until mid-June 1991. When the disclosures
occurred in May that the previously announced TCO contract buy-down program
might be insufficient, that TCO's merchant function may have to be
IV-38
<PAGE> 215
reassessed and that intense studies were underway to consider TCO's problems
and possible solutions, Columbia's stock price barely changed.
5. THE JUNE 19, 1991, ANNOUNCEMENT
On June 19, 1991, Columbia issued a press release, which stated, inter
alia, that the Board had voted to suspend the dividend on its Common Stock.
The release explained that:
"The present value of losses associated with the pipeline subsidiary's
above-market priced gas contracts could exceed $1 billion. It is
anticipated that a substantial portion of these losses will be charged to
income in the second quarter."
"Columbia System Chairman John H. Croom said corporate officers are
meeting with bank lenders today seeking to reestablish the System's
credit facilities on revised terms in view of the pipeline subsidiaries'
financial difficulties. In addition, Columbia Transmission is launching
a comprehensive effort to renegotiate all of its above-market gas
purchase contracts. The program contemplates offering producers up to
$600 million of Columbia Transmission obligations to fairly compensate
them for restructuring their contracts. . . ."
"'[T]oday's action is a result of the Board's determination that in view
of recent developments, including management's conclusions during the
course of its studies regarding likely spot market prices over the next
several years, it is no longer in the best interests of the System to
have Columbia Transmission attempt to deal with the producers on any
basis which does not clearly provide a permanent resolution of all the
high-cost contract problems,' Croom said. . . ."
"Croom cautioned that the Columbia System's failure to reestablish
and continuously maintain adequate lines of credit with its banks or
the failure of producers to respond promptly and favorably to
Columbia Transmission's efforts to restructure its contracts could
force the System, the pipeline subsidiary, or both to seek
protection from creditors under the bankruptcy laws."
IV-39
<PAGE> 216
This announcement contained significant new information reflecting recent
developments. In particular, the announcement disclosed (i) the decision of
Columbia's Board of Directors that Columbia would no longer support TCO absent
a comprehensive solution to the producer contract problem; (ii) the adoption
of a plan to attempt to renegotiate all of those contracts at one time at an
expected cost of $600 million; (iii) the expectation of a substantial charge
to earnings; and (iv) the existence of a liquidity problem giving rise to the
possibility of a bankruptcy filing. Columbia's share price fell $14 on
June 19, 1991.
6. PROPOSED SETTLEMENT
Columbia disputes the assertion that there is any liability on the part
of Columbia or other Defendants in the Securities Action with respect to any
Claims asserted with respect thereto or any claims based upon the same or
similar allegations giving rise to the Securities Action. Columbia believes
that its public disclosures adequately and accurately described the
information that could and should have been made available to the market. In
fact, Columbia contends that several of the particular purported disclosures
and accounting charges that the Securities Action Complaint asserts should
have been made would, if made, have been improper, false and highly
misleading. In particular, Columbia believes that the Complaint improperly
characterizes the calculations of "excess gas costs" in buy-down studies
prepared in connection with anticipated contract
IV-40
<PAGE> 217
renegotiations and erroneously labels the results as "loss contingencies."
Moreover, Columbia disputes the allegations that any identifiable drop in
the prices of its securities occurred during the class period as a result of
the disclosure of information that should or even could have been disclosed
earlier. In fact, the relative stability of the Columbia share price through
the series of announcements of the business problems demonstrates the extent
of the market's knowledge and understanding of Columbia's business prospects.
As described in Section III of this Disclosure Statement, Columbia and
TCO are regulated entities about which extensive information is publicly
available. They are engaged in businesses that are subject to regular
scrutiny and reporting by sophisticated and specialized securities analysts.
The significant drop in price on June 19, 1991, reflected the market's
reaction to the new information that could not have been previously
disclosed--primarily the Board's determination that TCO's contracts must all
be renegotiated and the prospect of a bankruptcy filing.
Periodically throughout the Reorganization Case, Columbia has discussed
the possibility of settlement of the Securities Action with counsel
representing the as-yet uncertified class action plaintiffs. Those settlement
discussions have proved fruitless to date, notwithstanding the willingness of
Columbia and its D&O Insurance carriers to contribute to such a
IV-41
<PAGE> 218
settlement, if it results in a global release of Columbia and its officers and
directors. In addition, to date Columbia has been unable to reach an
agreement with plaintiffs' counsel regarding the procedures for the
Supplemental Bar Date.
Consequently, in order to resolve these outstanding disputes and expedite
the reorganization of Columbia, the Plan incorporates the Offer of Settlement
to Qualifying Class 4 Claimants (i) who purchased shares of common stock or
debt securities of Columbia on or after March 1, 1990; and (ii) retained such
shares or securities continuously at least until March 31, 1991 and either (x)
sold such securities on or after March 31, 1991 but not later than June 18,
1991 and received for the sale of such shares or securities an amount less
than such Claimant paid for such shares or securities or (y) continued to hold
such securities until at least June 19, 1991. The Offer of Settlement by
Columbia and the other Contributors offers an aggregate amount up to
$18 million, subject to certain adjustments, to resolve all Securities Action
Claims of Qualifying Class 4 Claimants against Columbia, the other
Contributors and the other Defendants in the Securities Action who have
asserted indemnification Claims against Columbia.
Because it is unknown how many Qualifying Class 4 Claimants purchased
securities and held or sold such securities during the relevant periods, it is
difficult to estimate the total amount of damages that would arise if
liability were to be established through litigation. Thus, Columbia has
sought an order
IV-42
<PAGE> 219
establishing a Supplemental Bar Date by which adequate information must be
supplied by any Person asserting a Securities Action Claim against Columbia or
that has a claim against any party that has asserted a timely Claim for
indemnification against Columbia with respect to Securities Action Claims. In
the event Columbia is unable to obtain timely approval of the Supplemental Bar
Date through the procedures currently pending before the Bankruptcy and/or
District Courts, Columbia will utilize its Plan, and the balloting procedures
to be established by order of the Bankruptcy Court, to establish a procedure
and deadline for obtaining adequate information, in the form of a
questionnaire (the "Questionnaire"), about the Claims of Holders of Securities
Action Claims who wish to assert such Claims against Columbia and those
Persons who hold indemnification Claims against Columbia. The information to
be requested on the Questionnaire is the same information Columbia has sought
to elicit by the Supplemental Bar Date Order.
All Claimants that File Supplemental Proofs of Claim by the Supplemental
Bar Date, or, if the Supplemental Bar Date Order is not entered, submit a
Questionnaire will become Complying Class 4 Claimants. Claimants that timely
file a satisfactory Supplemental Proof of Claim or submit a Questionnaire but
decline the Offer of Settlement or, are not Qualifying Class 4 Claimants, will
be treated as Rejecting Class 4 Claimants. Claimants that fail to file timely
and satisfactory Supplemental Proofs of Claim on or before the Supplemental
Bar Date or, if
IV-43
<PAGE> 220
the Supplemental Bar Date Order is not entered, fail to provide the
Questionnaires, will have their Claims discharged, barred and released as to
Columbia and third parties that have asserted indemnification Claims against
Columbia without receiving distributions under the Plan.
The amount each Qualifying Class 4 Claimant will be offered will depend
upon the type of security purchased, the dates of purchase and sale and the
total number of Qualifying Class 4 Claimants who accept the Offer of
Settlement. The distribution amounts being offered to Claimants satisfying
the requirements for participation, described below, are as follows:
(1) Complying Class 4 Claimants that purchased shares of Common Stock on
or after March 1, 1990, but not later than September 30, 1990, or on
or after May 15, 1991, but not later than June 18, 1991, and held
such shares continuously until at least June 19, 1991, will receive
not less than $.50 but not more than $1.00 per share so purchased.
Qualifying Class 4 Claimants that purchased shares of Common Stock
on or after October 1, 1990, but not later than May 14, 1991, and
held such shares continuously until at least June 19, 1991 will
receive not less than $1.50 but no more than $3.00 per share so
purchased.
(2) Complying Class 4 Claimants that purchased Columbia debt securities
on or after March 1, 1990, but not later than September 30, 1990, or
on or after May 15,
IV-44
<PAGE> 221
1991, but not later than June 18, 1991, and held such debt
securities continuously until June 19, 1991, will receive not less
than $.50 nor more than $1.00 for each $100 principal amount of debt
so purchased. Qualifying Class 4 Claimants that purchased Columbia
debt securities on or after October 1, 1990, but not later than May
14, 1991, and held such debt securities continuously until at least
June 19, 1991, will receive not less than $1.50 but no more than
$3.00 for each $100 principal amount of debt so purchased.
(3) Complying Class 4 Claimants that purchased shares of Columbia Common
Stock on or after March 1, 1990, and sold such shares on or after
March 31, 1991, but not later than June 18, 1991, will receive not
less than $.10 but no more than $.20 per share purchased.
(4) Complying Class 4 Claimants that purchased Columbia debt securities
on or after March 1, 1990, and sold such debt securities on or after
March 31, 1991, but no later than June 19, 1991, will receive not
less than $.10 but not more than $.20 per $100 principal amount of
debt so purchased.
After the receipt and processing of all Supplemental Proofs of Claim
Filed in connection with the Securities Action Claims by the Supplemental Bar
Date, Columbia will calculate the aggregate amount that would be payable to
the Qualifying Class 4 Claimants pursuant to the Offer of Settlement were each
IV-45
<PAGE> 222
Qualifying Class 4 Claimant to be paid the Maximum Offer Amount. If the
Maximum Proof of Claim Amount is $18 million or less, then the Settlement
Amount will be the Maximum Proof of Claim Amount and each Qualifying Class 4
Claimant will receive the Maximum Offer Amount offered to such Qualifying
Class 4 Claimant. If the Maximum Proof of Claim Amount exceeds $18 million
but does not exceed $36 million, then the Settlement Amount shall be $18
million and each Qualifying Class 4 Claimant shall receive an amount equal to
the Maximum Offer Amount multiplied by a fraction, the numerator of which is
$18 million and the denominator of which is the Maximum Proof of Claim Amount.
If the Maximum Proof of Claim Amount exceeds $36 million, then Columbia
may, at its option, either:
(1) increase the Settlement Amount to the amount which is one-half of
the Maximum Proof of Claim Amount, in which case each Qualifying
Class 4 Claimant shall receive the minimum settlement amount,
provided, however, that Columbia may elect to pay, to each
Qualifying Class 4 Claimant pro-rata, all or any part of that
portion of the Settlement Amount that exceeds $18 million in the
form of shares of Common Stock, the amount not paid in cash having a
Stock Value on the date of distribution equal to such excess; or
IV-46
<PAGE> 223
(2) withdraw the Offer of Settlement in which case all Qualifying
Class 4 Claims shall be treated as Rejecting Class 4 Claims.
The Offer of Settlement is conditioned upon acceptance of the Plan by
offerees accounting for at least 75% of the Maximum Proof of Claim Amount.
Columbia may waive this condition.
Upon and as a condition of distribution, all Class 4 Claimants will
provide a full release of all Claims against the Contributors as a condition
of receipt of the distribution.
Rejecting Class 4 Claimants include: (i) each Claimant that Files a
Supplemental Proof of Claim or submits a Questionnaire but declines the Offer
of Settlement, and, (ii) each Claimant that is not a Qualifying Class 4
Claimant. Rejecting Class 4 Claimants also comprise all Class 4 Claimants if
(i) Class 4 rejects the Plan, (ii) less than the required levels of acceptance
of the Offer of Settlement are obtained, or (iii) Columbia withdraws the Offer
of Settlement. Reorganized Columbia will object to and/or seek estimation of
the Claims of Rejecting Class 4 Claimants and Rejecting Class 4 Claimants
shall have their Securities Action Claims determined by the Bankruptcy Court.
Reorganized Columbia will pay the Allowed amounts of such Claims, if and when
such Claims are Allowed, in Common Stock (valued for such purposes at the
Stock Value as of the date of distribution) or, at Columbia's option, in cash,
or any combination of the foregoing. Reorganized Columbia will
IV-47
<PAGE> 224
assume any timely Filed, proper indemnification Claims of non-Contributor
Defendants.
Pursuant to section 1141(d) of the Bankruptcy Code, potential claims for
which proper, timely proofs of Claim are not Filed will be discharged as to
Columbia. In addition, Columbia will seek an order enjoining any Person
failing to have Filed a Supplemental Proof of Claim or Questionnaire from
asserting a Securities Action Claim against any officer or director of
Columbia or any other party that had asserted a Claim for indemnification
against Columbia with respect to Securities Action Claims.
7. DERIVATIVE CLAIMS
The claims alleged in the Derivative Actions are property of the Estate
under section 541 of the Bankruptcy Code. On March 15, 1995, Columbia's Board
of Directors formed a Special Litigation Committee of the Board (the "SLC")
comprised of directors who are not Defendants in the Securities Action, to
determine whether the continuous prosecution of the Derivative Actions is in
the best interests of Columbia. On or about April 13, 1995, the SLC retained
the law firms of (i) the Offices of Stephen P. Lamb and (ii) Ballard Spahr
Andrews & Ingersoll as special counsel to commence an investigation and assess
the value of the contingent asset represented by the derivative claims, and by
order dated May 3, 1995, the Bankruptcy Court approved Columbia's nunc pro
tunc retention of the special counsel. Once the SLC has completed its review,
it will submit
IV-48
<PAGE> 225
its determination to the Board, which determination shall be binding on the
Board. The determination of the SLC is expected to be available in August
1995, and when available, the Plan and this Disclosure Statement will be
supplemented appropriately.
E. THE COLUMBIA OMNIBUS SETTLEMENT
As described in Section I, in order to facilitate the emergence of both
Columbia and TCO from Chapter 11, Columbia is proposing the Columbia Omnibus
Settlement, under which Columbia will, inter alia, assist TCO to monetize the
TCO Plan in order to provide distributions, substantially in the form of cash,
to TCO Creditors under the TCO Plan, in consideration for, among other things,
(i) the retention by Columbia of the equity of Reorganized TCO, (ii) the
settlement of litigation over the liquidation of Producer claims, Customer
claims and certain other disputed claims and (iii) a settlement and release of
the claims raised or which could have been raised in the Intercompany Claims
Litigation.
Specifically, the Columbia Omnibus Settlement allows Columbia to retain
ownership of TCO and will end litigation over the Intercompany Claims, and as
consideration therefor provides that: (a) Columbia will assist TCO in
monetizing the TCO Plan which is estimated to provide for value to be
distributed to TCO's creditors of approximately $3.9 billion (in the event of
100% acceptance by Producers and other creditors of the settlement offers
proposed in the TCO Plan), which distribution, in the case of third party
creditors will be substantially in
IV-49
<PAGE> 226
cash; (b) Columbia will not receive any cash distribution with respect to its
Secured Claim against TCO but, instead, will receive new secured debt
securities of Reorganized TCO for a portion of such Claim and contribute the
balance of such Claim to Reorganized TCO's equity; (c) Columbia will agree to
the assumption by Reorganized TCO of certain pre-petition environmental claims
of governmental agencies and certain other claims; (d) Columbia will guarantee
distributions to be made to TCO's creditors as provided under the TCO Plan
(excluding assumed obligations); and (e) Columbia will provide a guaranty of
the Customer Settlement Proposal (the "Columbia Customer Guaranty").
Pursuant to the Columbia Customer Guaranty, Columbia has agreed to
guarantee the financial integrity of the Customer Settlement Proposal and the
payment of distributions to accepting Customers. Specifically, Columbia has
agreed (i) that the Customer Settlement Proposal will not be "retraded" with
TCO's Customer-creditors so as to reduce the financial benefits of the
settlement to them, (ii) that the financial benefits of the Customer
Settlement Proposal will not be adversely affected by virtue of any subsequent
settlement reached with other parties in either the TCO's or Columbia's
bankruptcy proceeding, and (iii) that Columbia and TCO will include the
Customer Settlement Proposal and the Columbia Customer Guaranty in their
respective plans of reorganization. However, the foregoing guaranty does not
apply to any modification imposed on the
IV-50
<PAGE> 227
Customer Settlement Proposal or on the TCO Plan or the Columbia Plan
incorporating the Customer Settlement Proposal by the action of any judicial
or regulatory authority.
The Columbia Omnibus Settlement provides substantial benefits to Columbia
in addition to the retention of ownership of TCO, including the resolution of
contentious disputes with TCO's Producers and Customers affecting the economic
value of the TCO estate on terms which Columbia believes are fair and
reasonable, the facilitation of the emergence of Columbia and TCO from
bankruptcy and a potentially substantial tax benefit to the System through
deductions of payments to Producers and Customers on Columbia's consolidated
federal income tax return. Columbia believes that the Columbia Omnibus
Settlement is in the best interests of both Columbia's Estate and TCO's estate
and that it will permit them to emerge from their respective Chapter 11
proceedings and turn their full attention and resources to the management of
their ongoing businesses.
F. OTHER CLAIMS
The remaining pre-petition Claims against Columbia include unsecured
Claims for uncashed dividend checks, proxy fees, Board of Directors' fees,
expenses and pension or other retirement benefit payments, intercompany
payables and other trade payables. Pursuant to the Plan, all of these
unsecured Claims will be paid in full by Columbia on the Effective Date, plus
post-petition interest at the non-default contractual interest rate set forth
in a written agreement, if any, or if no such
IV-51
<PAGE> 228
rate is set forth or if such Claim is not evidenced by a written agreement, at
the rate of 6% per annum.
IV-52
<PAGE> 229
V. DESCRIPTION OF THE COLUMBIA CHAPTER 11 PROCEEDINGS
A. COMMENCEMENT OF THE CASE
On the Petition Date, Columbia Filed a voluntary petition under Chapter
11 of the Bankruptcy Code and its Reorganization Case remains pending before
the Bankruptcy Court. Columbia has continued as a debtor-in-possession
pursuant to sections 1107 and 1108 of the Bankruptcy Code since the Petition
Date.
1. FIRST DAY ORDERS
On or about the Petition Date, the Bankruptcy Court issued numerous
"first day orders" which covered various issues including, inter alia,
authorization for joint administration of Columbia's and TCO's bankruptcy
proceedings; authorization to invest excess cash in accordance with court-
approved investment guidelines; and approval of debtor-in-possession financing
on an interim basis pending a final hearing.
In addition, on August 2, 1991, the Bankruptcy Court entered an order
authorizing Columbia to continue financing its non-debtor subsidiaries by
transferring cash to such subsidiaries in accordance with Columbia's pre-
petition practice and in accordance with orders of the SEC previously issued
under the HCA.
2. COLUMBIA'S RETENTION OF PROFESSIONALS
On the Petition Date, the Bankruptcy Court issued an order approving
Columbia's retention of Cravath, Swaine & Moore, as special corporate counsel,
Stroock & Stroock & Lavan, as bankruptcy counsel, Young, Conaway, Stargatt &
Taylor, as local
V-1
<PAGE> 230
bankruptcy counsel, and Arthur Andersen LLP, as accountants. The Bankruptcy
Court approved Columbia's retention of Salomon as financial advisor on October
22, 1991.
In addition to the above Professionals, Columbia subsequently received
authorization to retain various other Professionals, consultants, experts and
non-bankruptcy counsel to provide advice and services to Columbia with regard
to various matters.
B. DEBTOR IN POSSESSION FINANCING
Following its Chapter 11 filing, Columbia received approval from the
Bankruptcy Court and the SEC for the DIP Facility. The initial DIP Facility,
secured by subsidiaries' common stock and debt securities held by Columbia,
permitted Columbia to make available borrowings or letter of credit issuances
of up to $275 million from a syndicate of banks led by Manufacturers Hanover
Trust Company (succeeded by merger by Chemical Bank). The DIP Facility was
designed to supplement the use of internally generated funds for general
corporate purposes and to provide financing for Columbia subsidiaries not
involved in the bankruptcy proceedings.
Columbia has since gradually reduced the borrowing capacity under the DIP
Facility to $25 million in letter of credit issuances (with commensurate cost
savings) as internally generated funds, including cash surpluses, have been
sufficient to meet current and projected financial needs. Letters of credit
with an aggregate stated amount of $13 million are
V-2
<PAGE> 231
currently outstanding under the DIP Facility, and will be replaced in
accordance with the terms of the Plan as of the Effective Date.
C. FORMATION OF COMMITTEES / RETENTION OF PROFESSIONALS
On August 12, 1991, the U.S. Trustee appointed the Creditors' Committee.
In addition, the U.S Trustee appointed the Equity Committee on October 18,
1991.
The following are the members of, and professional advisors to, each
Columbia Committee:
1. Columbia's Official Creditors' Committee:
Members:
Teachers Insurance & Annuity Association
Marine Midland Bank
Metropolitan Life Insurance Co.
Merrill, Lynch, Pierce, Fenner & Smith
Morgan Guaranty Trust Company of New York
Bankers Trust Company
Provident Life & Accident Insurance Company
Counsel:
Milbank, Tweed, Hadley and McCloy
1 Chase Manhattan Plaza
New York, NY 10005
(212) 530-5000
Morris, Nichols, Arsht & Tunnell
1201 North Market Street
P.O. Box 1347
Wilmington, DE 19899
(302) 658-9200
V-3
<PAGE> 232
Financial Advisors:
Barr Devlin Associates Incorporated
450 Park Avenue
New York, NY 10022
New Harbor Incorporated
885 Third Avenue
New York, NY 10022
2. Columbia's Official Equity Committee:
Members:
Robert F. Baker
General Conference Corp. of Seventh Day
Adventists
David H. Goodman
Kenneth E. Lehman
Carl Stern
First Fidelity Bank, N.A.
Marion E. Vaughn
Invitees:
CALPERS
Ohio State Teachers Retirement System
Counsel:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, NY 10019
(212) 424-8000
Cooch and Taylor
824 Market Street
P.O. Box 1680
Wilmington, DE 19899
(302) 652-3641
Financial Advisors:
Smith Barney Inc.
388 Greenwich Street
New York, NY 10013
V-4
<PAGE> 233
D. MEETINGS WITH THE EQUITY AND CREDITORS'
COMMITTEES
Throughout Columbia's Reorganization Case, representatives of Columbia
have met regularly with representatives of both the Equity Committee and the
Creditors' Committee to discuss the System's ongoing business operations, the
various matters which have come before the Bankruptcy Court, the
quantification and resolution of Claims against Columbia and the elements,
strategy and timing for Plans of Reorganization for Columbia and TCO.
Extensive discussions with the Columbia Committees occurred regarding, inter
alia, (i) the calculation and payment of post-petition interest on the
Borrowed Money Claims against Columbia and the allowability of pre-payment
premiums or call penalties on Columbia's Debentures and Medium Term Notes;
(ii) the structure and terms of various reorganization plans for Columbia and
TCO; (iii) the tax effects of such various reorganization structures; (iv) the
feasibility of various capital structures for a Reorganized Columbia; (v) the
Intercompany Claims Litigation and the impact of such litigation on Columbia
and its Reorganization, including issues relating to the solvency of Columbia
and TCO; and (vi) proceedings relating to the liquidation and appropriate
treatment of Producer and Customer claims against TCO. For a further
description of the negotiations regarding Columbia's Borrowed Money Claims and
other plan-related discussions with the Committees, see Section IV.A,
"Borrowed Money Claims and the Negotiations and Settlement of Such Claims."
V-5
<PAGE> 234
E. ADMINISTRATIVE FEE ORDER/APPOINTMENT OF FEE
EXAMINER
On motion of Columbia and TCO dated October 18, 1991, the Bankruptcy
Court entered the Administrative Fee Order, establishing procedures for
interim compensation and reimbursement of expenses of all Professionals. The
Bankruptcy Court appointed Professional Fee Examiners, Inc. as the Fee
Examiner to assist the Bankruptcy Court in reviewing fee applications in
Columbia's and TCO's cases which are in excess of $75,000. To date, the Fee
Examiner has Filed reports relating to the first two interim fee periods: the
Petition Date through March 31, 1992 (the "First Fee Period"); and April l,
1992 through November 30, 1992 (the "Second Fee Period"). A hearing on the
interim fee applications covered by the First Fee Period was held on June 13,
1994, at which time an order approving fees for that period was entered. No
hearing has yet been scheduled regarding the Second Fee Period.
F. SIGNIFICANT PROCEEDINGS IN THE CHAPTER 11 CASE
AND STATUS OF RELATED CLAIMS
1. CASH COLLATERAL ORDER
As of the Petition Date, the total principal amount of secured debt owed
to Columbia by TCO on Columbia's secured Claim against TCO was approximately
$1.3 billion, secured by substantially all the assets of TCO. The secured
indebtedness consists of (i) approximately $410 million of principal amount
and approximately $3 million of pre-petition interest arising under the
Inventory Loan Agreement, secured by a lien on TCO's
V-6
<PAGE> 235
stored gas inventory (the "Inventory Collateral") and (ii) first mortgage
indebtedness in the approximate amount of $930 million in principal plus pre-
petition interest of $29 million outstanding under the TCO Indenture of
Mortgage and Deed of Trust pursuant to which TCO issued First Mortgage Bonds
to Columbia, secured by substantially all TCO's non-storage inventory assets
and property (the "Mortgage Collateral"). All present and future proceeds of
the Inventory Collateral and the Mortgage Collateral, to the extent held or
received by TCO, constitute "cash collateral" as defined in section 363 of the
Bankruptcy Code.
On or about the Petition Date, TCO Filed a motion with the Bankruptcy
Court seeking an emergency order authorizing it to use cash collateral
pursuant to section 363 of the Bankruptcy Code, and granting adequate
protection to Columbia. On August 23, 1991, the Bankruptcy Court entered a
final order (retroactively effective as of the Petition Date) authorizing TCO
to use Columbia's cash collateral and granting Columbia replacement liens and
security interests in TCO's post-petition assets, to the extent such pre-
petition liens and security interests were valid, perfected and not avoidable
as of the Petition Date and to the extent the value of the collateral securing
Columbia's secured claims diminished after the Petition Date as a result of
TCO's use of the cash collateral. Columbia's post-petition liens and security
interests were expressly subordinated to (i) TCO's debtor-in-possession
V-7
<PAGE> 236
financing facility; (ii) post-petition liens held by purchasers of winter
service gas from TCO under certain winter service agreements; (iii) other pre-
petition liens on inventory, if valid; (iv) claims of the trustee under the
Inventory Loan Agreement for compensation, reimbursement and indemnification;
and (v) the unpaid expenses of members of the TCO Creditors' Committee and the
unpaid fees and expenses incurred by all the professionals retained by TCO and
the TCO Creditors' Committee in TCO's bankruptcy proceeding to the extent
allowed by the Bankruptcy Court.
2. SALE OF COLUMBIA CANADA
On November 25, 1991, Columbia and Anderson Exploration Ltd. ("Anderson")
executed an agreement (the "Canada Sale Agreement") pursuant to which Columbia
agreed to sell to Anderson all the issued and outstanding shares of Columbia
Canada, a wholly-owned oil and gas exploration and production subsidiary of
Columbia operating in Canada. Anderson agreed, pursuant to the Canada Sale
Agreement, inter alia, to pay Columbia an aggregate consideration of $109.3
million (Cdn.) (the "Purchase Price"), plus or minus an adjustment for changes
in working capital subsequent to the Columbia Canada balance sheet dated June
30, 1991.
The Canada Sale Agreement also contained certain obligations on the part
of Columbia after the sale. Columbia assumed responsibility for certain
litigation that is currently pending against Columbia Canada including a
number of civil
V-8
<PAGE> 237
suits (the "Specified Litigation") and three separate suits concerning the
properties located in the Kotaneelee Production area (the "Kotaneelee
Litigation"). Columbia has the right to conduct both the Specified Litigation
and the Kotaneelee Litigation to conclusion and has assumed certain
indemnification obligations with respect to the two types of litigation. In
the case of the Specified Litigation, the indemnification pertaining thereto
(the "Specified Litigation Indemnification") covers only the identified cases
pending at the closing of the Canada Sale Agreement (the "Canada Closing") and
any liability to employees terminated prior to that date.
With regard to the indemnification pertaining to the Kotaneelee
Litigation (the "Kotaneelee Litigation Indemnification"), the indemnity
extends to any actions filed within the later of six years following the
Canada Closing or thirty months after the termination of the litigation
pending at the Canada Closing or litigation arising out of matters pending at
such Closing. In the case of the Kotaneelee Litigation Indemnification,
Columbia has the right to bind Columbia Canada to settlement agreements.
Judgments resulting in a change in the nature of the interest held by Columbia
Canada or even in a forfeiture of the interest could be rendered. Under both
the Specified Litigation Indemnification and the Kotaneelee Litigation
Indemnification, Columbia agreed to indemnify Anderson for all litigation
expenses, costs, damages and losses
V-9
<PAGE> 238
incurred as a result of any litigation covered under the indemnifications.
Columbia's maximum liability to Anderson for these post-sale obligations
is limited to the Purchase Price plus interest thereon at the rate of seven
percent (7%) per year compounded annually (hereinafter referred to as the
"Aggregate Indemnification Obligation"). Columbia's post-sale obligations to
Anderson are secured under the terms of a "Security Agreement" pursuant to
which approximately $30 million (Cdn.) of the sales proceeds was deposited
with Montreal Trust Company, a Canadian trust company, in an escrow account
(the "Kotaneelee Escrow") in which interest earned will accumulate. The
Canada Sale Agreement provides that an additional $25 million (Cdn.) is to be
added to the Kotaneelee Escrow upon Confirmation of the Plan, and that letters
of credit may be substituted for cash in the Kotaneelee Escrow. Under the
Canada Sale Agreement, the Kotaneelee Escrow may be reduced if Columbia
maintains investment grade ratings on its long-term unsecured debt of Baa2 or
better and BBB or better by Moody's Investor's Service, Inc. and Standard &
Poor's Ratings Group, respectively, on its debt for any six-month period
following the Effective Date. Columbia expects to replace the Kotaneelee
Escrow with a letter of credit as permitted under the Canada Sale Agreement.
On December 31, 1991, the Bankruptcy Court approved the Canada Sale
Agreement (the "Canada Order"). Pursuant to the Canada Order, Columbia's
post-sale obligations to Anderson were
V-10
<PAGE> 239
granted administrative expense Claim status against Columbia and its Estate.
Except for the (i) administrative expense claims of Chemical Bank under the
DIP Facility, (ii) unpaid fees and disbursements allowed pursuant to order of
the Bankruptcy Court to Professionals retained pursuant to sections 327 and
1103 of the Bankruptcy Code up to a maximum of $7.5 million (exclusive of
compensation previously awarded whether or not paid) and (iii) quarterly fees
required to be paid to the U.S. Trustee pursuant to 28 U.S.C. Section
1930(a)(6), Anderson's administrative expense Claim has priority over all
other administrative expense Claims of the kind specified in sections 726(b),
364(c), 507(b) and 503(b) of the Bankruptcy Code, regardless of whether such
competing administrative expense Claim(s) of parties other than Anderson arise
in connection with Columbia's Reorganization Case, a superseding Chapter 7
case, or in any subsequent case or proceeding filed by or against Columbia
under the provisions of the Bankruptcy Code. The Canada Order also provides
that Anderson's Claims against Columbia or its Estate shall not be estimated
under the provisions of section 502(c) of the Bankruptcy Code, or disallowed
under the provisions of section 502 of the Bankruptcy Code, in Columbia's
Reorganization Case, any superseding chapter 7 case, or in any subsequent case
or proceeding filed by or against Columbia under the provisions of the
Bankruptcy Code. If Anderson's Claims are estimated, Anderson's Claims shall
be estimated in the full amount of the Purchase Price plus accrued interest as
described above, and
V-11
<PAGE> 240
shall be estimated solely for purposes of determining the feasibility of any
proposed plan of reorganization. For a discussion of the treatment of Claims
against Columbia arising under the Canada Sale Agreement, see Section VI.A,
"Classification and Treatment of Claims and Interests."
3. INVESTMENT GUIDELINES LITIGATION
On the Petition Date, Columbia and TCO sought and obtained Bankruptcy
Court approval of their use of guidelines for the investment of all their
respective cash (the "Investment Guidelines Order"). The Bankruptcy Court
expressly held that, although Columbia's and TCO's investments were not
limited to ones insured or guaranteed by the government of the United States,
they did not need to obtain bonds from the entities with which such funds were
to be deposited or invested and that compliance with the guidelines was
"adequate and sufficient compliance with the requirements of section 345(b) of
the Bankruptcy Code...."
On August 14, 1991, the U.S. Trustee Filed a motion for reconsideration
of the Investment Guidelines Order, which was denied by the Bankruptcy Court
after conducting a hearing on October 3, 1991. Subsequently, on October 15,
1991, the U.S. Trustee appealed the Investment Guidelines Order to the
District Court, and this appeal was subsequently taken to the Court Appeals
for the Third Circuit.
On August 29, 1994, the Third Circuit issued its decision (i) affirming
the District Court's decision except to the extent
V-12
<PAGE> 241
that it ruled on Columbia's and TCO's investments in repurchase agreements and
(ii) remanding the matter to the District Court for further proceedings
consistent with the opinion. In its opinion, the Third Circuit suggested to
the District and Bankruptcy Courts that they implement the statutory
guidelines of section 345(b) of the Bankruptcy Code in a gradual manner so as
not to have an unduly adverse impact on the TCO and Columbia Estates.
The District Court remanded the matter to the Bankruptcy Court for
further proceedings. As of the date hereof, no further proceedings have
occurred. In order to come into compliance with the Third Circuit's decision,
Columbia and TCO, in consultation with the U.S. Trustee, have transferred
essentially all their investments into government-backed securities and other
similar government insured or guaranteed investments as their prior non-
conforming investments have matured and continue to mature.(1)
4. APPROVAL OF TAX ALLOCATION PROCEDURES
Under Section 12 of the HCA and rule 45(a) promulgated thereunder, no
System company may extend credit to another,
- - --------------------
(1) On October 22, 1994, President Clinton signed into law the Bankruptcy
Reform Act of 1994 which, among other things, amends section 345(b) of
the Bankruptcy Code so as to insert the phrase "unless the court for
cause orders otherwise" at the end of section 345(b). This amendment
allows the court to approve investments other than those permitted by
section 345(b) for just cause, thereby effectively overruling the Third
Circuit's August 29, 1994 decision in In re Columbia Gas System, Inc.
The relevant section of the Bankruptcy Reform Act, however, only applies
prospectively to cases filed after its effective date.
V-13
<PAGE> 242
including extensions of credit which may result from the allocation of
consolidated taxes, without prior approval from the SEC. Pursuant to rule
45(c) under the HCA, a registered holding company which files a consolidated
federal income tax return is required to secure the approval of the SEC for
the allocation of the liabilities and benefits arising from such return among
the consolidated companies unless there is in effect a tax agreement approved
by the SEC providing for such allocation.
Columbia and its subsidiaries entered into the Tax Allocation Agreement
prior to the Petition Date which provides for the allocation of the benefits
and liabilities arising from their consolidated tax returns in a manner
consistent with the requirements of rule 45(c). The Tax Allocation Agreement
provides for apportionment of the consolidated tax in accordance with the
"separate return tax" method. The Tax Allocation Agreement specifically
provides that each loss-company (i.e., a company having, after intercompany
eliminations, a negative separate return tax) will receive current cash
payment in an amount equal to its negative separate return tax, rather than
receive the amount of that tax benefit in a subsequent year when it has
taxable income. The Tax Allocation Agreement also provides that each profit-
company (i.e., a company having, after intercompany eliminations, a positive
separate return tax) will pay amounts equal to its separate return tax
liability. The Tax Allocation Agreement also provides (consistently with rule
V-14
<PAGE> 243
45(c)) that no subsidiary company shall be required, as a result of the
allocation method provided in the Tax Allocation Agreement, to pay more than
its separate return tax.
The Tax Allocation Agreement also provides that: "Any parent corporation
gain or loss realized from its sale of its interest in subsidiaries'
securities will be assigned to parent corporation and will not be allocated to
other members."
On November 27, 1991, Columbia and TCO Filed a joint motion with the
Bankruptcy Court seeking authorization to pay federal income taxes (including
estimated federal income taxes) for 1991 and to allocate the System's 1991
consolidated tax liability in accordance with the Tax Allocation Agreement.
On December 12, 1991, the Bankruptcy Court issued an order granting the
authorization but expressly noted that its authorization did not constitute an
assumption of the Tax Allocation Agreement nor create a rule of construction
or legal presumption with respect to the effect or validity of the Tax
Allocation Agreement. Thereafter, on April 13, 1992 and April 1, 1993, the
Bankruptcy Court issued similar orders authorizing Columbia and TCO to pay
federal income taxes (including estimated federal income taxes) for 1992 and
1993, respectively, and to allocate the System's consolidated tax liability
for those years in accordance with the Tax Allocation Agreement. These orders
also provided that the Bankruptcy Court's authorization did not constitute an
assumption of the Tax Allocation Agreement.
V-15
<PAGE> 244
Pursuant to the Plan, Columbia will assume the Tax Allocation
Agreement;
and pursuant to the TCO Plan, TCO also will assume the Tax Allocation
Agreement. Columbia believes that assumption of the Tax Allocation Agreement
is prudent and in the best interests of its Estate.
5. LESOP CLAIMS AND LESOP ACTION
a. COLUMBIA'S THRIFT PLAN
Columbia adopted, effective September 1, 1958, the Employees' Thrift Plan
of Columbia Gas System, as Amended and Restated Effective July 1, 1994 (the
"Thrift Plan") for eligible employees of its subsidiaries (including TCO)
which elect to participate in the Thrift Plan. The Thrift Plan is a qualified
plan under section 401(a) of the Internal Revenue Code of 1986, 26 U.S.C.
Section 401(a) as amended (the "IRC"). Columbia has no employees covered
under the Thrift Plan, but TCO and 15 non-debtor subsidiaries of Columbia are
contributing employers.
Prior to October 1991, the assets of the Thrift Plan were held in a trust
established under an Agreement and Declaration of Trust by and between
Columbia and Bankers Trust Company, as amended December 20, 1989 and March 14,
1990 (the "Trust). The assets of the Trust are not part of the bankruptcy
estates of either Columbia or TCO. Fidelity Management Trust Company is now
trustee for all Trust assets, except that the Thrift Plan Trustee is trustee
of the Columbia Common Stock Fund and another fund ("Fund E") described below.
V-16
<PAGE> 245
Effective April 1, 1990, the Thrift Plan was amended to include the LESOP
for the purpose of pre-funding approximately 11.5 years of Employer Matching
Contributions to the Thrift Plan. At that time the LESOP Trust borrowed
$91,750,000 through the public offering of the LESOP Debentures. The proceeds
of the LESOP Debentures were used by the LESOP Trust to acquire 2,000,000
shares of Common Stock at a price of $45.875 per share. The LESOP Debentures
mature on November 30, 2001 and bear interest at an annual rate of 9.875%
payable, together with installments of principal, semi-annually on May 31st
and November 30th of each year.
In order to establish the LESOP, the Thrift Plan was amended to meet the
requirements of the IRC and U.S. Treasury Regulations ("Treasury
Regulations"). The provisions of the Thrift Plan regarding employer matching
contributions ("Employer Matching Contributions") were amended, effective
April 1, 1990, to provide that whenever an acquisition loan (i.e., a LESOP
Debenture) is outstanding, the participating employers shall make
contributions ("LESOP Debt Service Contributions") in such amounts as will
enable the Thrift Plan Trustee to make current payments on such acquisition
loans. Any dividends paid to the Trust on shares of Common Stock also were to
be applied toward repayments of LESOP Debentures.
The shares of Common Stock purchased with the proceeds of the LESOP
Debentures were placed in Fund E and, in accordance with Treasury Regulations,
were released from Fund E on a pro
V-17
<PAGE> 246
rata basis as principal and interest on the LESOP Debentures were repaid by
the Thrift Plan Trustee from contributions received from contributing Columbia
subsidiaries. Holders of the LESOP Debentures generally have no recourse
against the assets held in the Trust, including the Common Stock purchased
with the proceeds of the LESOP Debentures, however, they have certain rights
to any LESOP Debt Service Contributions, any assets purchased with such cash
contributions, and any earnings attributable to such contributions (or to
assets purchased therewith). Further, upon termination of the LESOP by
Columbia any unallocated shares of Common Stock in Fund E are to be sold in
the market or to Columbia and the proceeds used to pay amounts due under the
LESOP Debentures.
As each semi-annual LESOP Debenture repayment was made, the shares of
Common Stock released were allocated to participants' accounts based on those
shares' current fair market value. If such current fair market value of the
shares of Common Stock released was less than the amount required for the
Employer Matching Contributions, the employers were required to make
additional contributions to the Thrift Plan in the amount of such difference.
As a registered public utility holding company under the HCA, Columbia
and its subsidiaries may not guarantee the payment of a security without
approval of the SEC. The SEC issued an order authorizing the LESOP Guaranty,
but did not authorize the subsidiaries to guarantee the debt payment.
V-18
<PAGE> 247
b. COLUMBIA'S AMENDMENT TO THE THRIFT PLAN
At the time the LESOP was established, Columbia projected that the LESOP
Debt Service Contributions made by the contributing employers and the
dividends on the shares of Common Stock held, which would be used by the
Thrift Plan Trustee to make LESOP Debenture payments, would result in shares
of Common Stock being allocated to the participants' accounts with sufficient
fair market value to satisfy approximately 80% of the annual, required
Employer Matching Contributions. However, this projection assumed that,
during the term of the LESOP Debentures, the fair market value of Common Stock
would not decline substantially below its original purchase price and that
dividends would continue to be paid which could be applied toward debt-service
on the LESOP Debentures. Instead, in June 1991, dividends were suspended and
the Common Stock substantially declined in value. As a result, while the
LESOP Debt Service Contributions would remain constant based on a leveraged
purchase price of $45.875 per share, the shares of Common Stock that would be
released under the LESOP provisions would only be credited to the
participants' accounts at their current fair market value, which has been
substantially less than $45.875 since June 1991.
As described above, if the LESOP provisions were continued without change
or modification, employer contributions would have been required to the Thrift
Plan in an amount sufficient for both the LESOP Debt Service Contributions and
Employer
V-19
<PAGE> 248
Matching Contributions required under the terms of the Thrift Plan. The
annual contribution requirement would be almost twice the amount of the
Employer Matching Contributions that would otherwise be required under the
terms of the Thrift Plan.
TCO, as a debtor-in-possession, was stayed from making LESOP Debt Service
Contributions under the Thrift Plan and the "First Day Orders" issued on or
about the Petition Date by the Bankruptcy Court permitted it to pay only for
the current benefit provided by employee services. Accordingly, the allocable
debt service burden to non-debtor subsidiaries, which continued to be
participating employers, was further increased.
On October 16, 1991, the Board of Directors concluded that terminating
the LESOP portion of the Thrift Plan would be prudent and beneficial since
neither (i) the continuation of LESOP Debt Service Contributions by the
contributing employers nor (ii) withdrawal of subsidiaries from the Thrift
Plan and establishment of a new plan without a LESOP would be desirable or
economic. The disruption -- temporary or otherwise -- of a benefit for over
8,000 participating employees of 16 subsidiaries which would result from
withdrawal and institution of a new plan was viewed as being particularly
undesirable.
The Board of Directors authorized the termination of the LESOP provisions
in the Thrift Plan subject to the approval of the Bankruptcy Court.
Pursuant to such authorization, Columbia's thrift plan committee, which
is the Thrift Plan's named fiduciary and plan
V-20
<PAGE> 249
administrator and consists of representatives from senior management of
Columbia, TCO and other major subsidiaries of Columbia (the "Thrift Plan
Committee"), met on October 17, 1991 and amended the Thrift Plan, effective
July 31, 1991, to provide for the termination of the provisions of the Thrift
Plan related to the LESOP.
The Equity Committee objected to that termination on the grounds that the
market value of Common Stock was depressed and sale of the shares held by
LESOP at that time would be imprudent and uneconomical. Accordingly, the
termination was postponed and, on December 10, 1991, the Executive Committee
of the Board of Directors of Columbia adopted amendments to the Thrift Plan to
permit, upon authorization of the Thrift Plan Committee, the sale of
unallocated shares of Common Stock from the LESOP Trust in order to pay the
debt service due on November 30, 1991, which was then in default. The Thrift
Plan Committee subsequently authorized that sale.
On May 29, 1992, an announcement was made that no further payments of
principal or interest would be made on the LESOP Debentures until Columbia
emerged from bankruptcy and that at that time, it was anticipated that upon
emergence all Creditors of Columbia would be paid in full, including interest
on overdue interest. No further debt service payments on the LESOP Debentures
have been made since that announcement. Since December 1991, participating
employers have paid monthly contributions in an amount equal to their
obligation to make
V-21
<PAGE> 250
Employer Matching Contributions under the Thrift Plan, with the LESOP
provisions suspended. The contributions are used by the Thrift Plan Trustee
to purchase Common Stock on the open market which is then allocated to
employee accounts.
c. PROCEDURAL HISTORY OF LESOP ACTION
The LESOP Indenture Trustee Filed a proof of claim dated February 25,
1992 in the Reorganization Case based on the LESOP Guaranty. Nearly a year
later, in March 1993, the LESOP Indenture Trustee Filed a complaint against
Columbia in the Bankruptcy Court alleging tortious interference with contract
and breach of duty. The LESOP Indenture Trustee alleged that Columbia
contravened the Thrift Plan by directing the Thrift Plan Trustee to use
contributions from participating employers to service employees' Thrift Plan
accounts rather than allocating those amounts to pay debt service on the LESOP
Debentures. The LESOP Indenture Trustee sought to compel Columbia to direct
the Thrift Plan Trustee to reallocate the Common Stock purchased on the open
market and allocated to employee accounts and future employer Thrift Plan
contributions to LESOP Debt Service Contributions before being applied to
Employer Matching Contributions. The LESOP Indenture Trustee alleged in its
complaint that Columbia has interfered with the obligations of the Trust
created under the LESOP and that Columbia has breached its duty to comply with
the terms of the Thrift Plan.
V-22
<PAGE> 251
On or about May 14, 1993, Columbia filed a motion for summary judgment on
the following grounds: (i) the LESOP Indenture Trustee's cause of action was
preempted under ERISA; (ii) the LESOP Indenture Trustee's remedies were
limited to its unsecured claim against Columbia under the LESOP Guaranty; and
(iii) the relief requested by LESOP Indenture Trustee, in effect, violated the
automatic stay.
In a Memorandum Opinion and Order dated March 24, 1994, the Bankruptcy
Court denied Columbia's motion for summary judgment on all grounds. On April
22, 1994, Columbia filed a Motion seeking leave to appeal that order. By an
Order dated May 20, 1994, the District Court granted Columbia's Motion for
leave to appeal. On May 12, 1995, the District Court issued its decision
upholding the Bankruptcy Court's denial of Columbia' s motion for summary
judgment.(2)
The LESOP Indenture Trustee has advised Columbia that it disputes its
proposed treatment under the Plan, since it believes that, if it prevailed on
its LESOP Action Claim, it might be entitled to an administrative expense
Claim for unpaid principal and interest due since the Petition Date, as well
as recovery of its attorneys' fees incurred post-petition. It has
- - --------------------
(2) In May 1994, the LESOP Indenture Trustee filed a motion for a preliminary
injunction with the District Court for an order directing that the May
1994 contributions by participating employers to employees' Thrift Plan
accounts and all future employer contributions be allocated first to pay
debt service on the outstanding LESOP Debentures. Columbia opposed that
request as being groundless, and the District Court denied the LESOP
Indenture Trustee's motion on May 27, 1994.
V-23
<PAGE> 252
also indicated that it is not satisfied with the compromise proposed by
Columbia for satisfaction of post-petition interest on the LESOP Guaranty
Claim.
d. PROPOSED DISPOSITION OF LESOP ACTION CLAIMS
Columbia disputes the LESOP Indenture Trustee's assertion that there is
any liability of Columbia in the LESOP Action. Columbia believes that it had
the right to amend the Thrift Plan and to suspend debt service payments
without notice to or authorization of the LESOP Indenture Trustee or the
holders of LESOP Debentures. Columbia also believes that the recourse of
holders of LESOP Debentures is limited to their claims under the Columbia
LESOP Guaranty. Moreover, the only relief the LESOP Indenture Trustee has
requested in the LESOP Action is that Columbia make payments of principal and
interest due on the LESOP Debentures. Since the Plan provides for the payment
in full of the LESOP Claims on the Effective Date, together with post-petition
interest, the LESOP Action will be rendered moot and the LESOP Indenture
Trustee will have no claim against Columbia that is separate and
distinguishable from its discharged Class 3.2 Claims. Accordingly, the Plan
provides for the dismissal of the LESOP Action on the Effective Date.
On the Effective Date each Allowed Class 3.2 Claim arising under the
LESOP Debentures and the LESOP Guaranty shall be paid in full, together with
post-petition interest calculated in accordance with Exhibit G to the Plan.
Reorganized Columbia shall implement the termination of the LESOP provisions
of the
V-24
<PAGE> 253
Thrift Plan and shall purchase the shares of Common Stock held by the Thrift
Plan Trustee in Fund E for cash at a price per share to the average of the
closing prices of a share of Common Stock on the New York Stock Exchange on
each of five consecutive trading days ending on the fifth trading day prior to
the Effective Date. The Thrift Plan Trustee, in turn, shall distribute such
purchase price to the LESOP Indenture Trustee in accordance with the LESOP
Indenture and the Thrift Plan. Any principal and post-petition interest, as
calculated in accordance with Exhibit G, remaining unpaid on the LESOP
Debentures after application of the purchase price in connection with
Reorganized Columbia's repurchase of shares of Common Stock held by the Thrift
Plan Trustee in Fund E will be paid with a Pro-Rata Share, subject to
adjustment as described herein, of (w) the Cash Consideration, if any, (x) the
aggregate principal amount of each Issue of New Indenture Securities, (y) the
aggregate Liquidation Value of the New Preferred Stock and (z) the aggregate
Liquidation Value of the DECS, or, if the principal amount of the remaining
unpaid amount on the LESOP Debentures as of the Record Date is not greater
than $20,000 in principal amount, will be paid in all cash as a Class 3.1
Claim. Accordingly, upon acceptance of the Plan by Holders of Class 3.2
Claims, the LESOP Action Litigation shall be deemed dismissed with prejudice
on the Effective Date. For a discussion of the treatment of the LESOP
Guaranty and the LESOP Action under the
V-25
<PAGE> 254
Plan, see Section VI.A, "Classification and Treatment of Claims and
Interests".
6. AGREEMENT WITH BANKS REGARDING FUNDS SUBJECT
TO SETOFF
On December 17, 1992, the Bankruptcy Court approved a Stipulation and
Order, dated December 14, 1992, among Columbia, Morgan Guaranty Trust Company
of New York ("Morgan") and Mellon Bank, N.A. ("Mellon") regarding the
investment of certain funds which Columbia deposited pre-petition in certain
bank accounts with Morgan and Mellon (the "Setoff Stipulation"). The funds on
deposit with Morgan and Mellon are subject to setoff against pre-petition
debts owed by Columbia under Columbia's $500 Million and $750 Million Credit
Agreements. As of the Petition Date, Columbia had on deposit with Morgan the
amount of $580,061.27 (the "Morgan Funds") and with Mellon the amount of
$2,333,477.73 (the "Mellon Funds"). As of the Petition Date, Columbia was
indebted to Morgan in an amount in excess of the Morgan Funds and to Mellon in
an amount in excess of the Mellon Funds. Pursuant to section 553(a) of the
Bankruptcy Code, the Morgan Funds and the Mellon Funds (collectively, the
"Combined Funds") were subject to setoff by Morgan and Mellon, respectively.
Pursuant to the Setoff Stipulation, Columbia, Morgan and Mellon agreed
that the Combined Funds shall be invested in interest-bearing obligations,
with earned interest to be paid to Columbia from the date on which such
investment is made. Columbia, Mellon and Morgan further agreed that, for the
V-26
<PAGE> 255
convenience of investing the Combined Funds, the Mellon Funds would be
transferred to Morgan and combined with the Morgan Funds for investment by
Morgan. Finally, the parties agreed that Morgan's and Mellon's setoff rights
are preserved, that Morgan succeeds to all of Mellon's setoff rights upon
transferring the Mellon Funds to Morgan and that Morgan is granted a first
priority lien in investments of the Combined Funds and proceeds thereof, other
than interest thereon which will be distributed to Columbia on a current
basis. Pursuant to the Plan, Morgan's right of setoff shall be recognized,
the amounts payable to Morgan and Mellon duly credited against their Claims,
and the balance of accrued interest remitted to Columbia.
7. EXTENSION OF EXCLUSIVE PERIODS
During the course of Columbia's Reorganization Case, the Bankruptcy Court
has granted Columbia numerous extensions of the periods during which it has
the exclusive right to file a plan of reorganization and to solicit
acceptances thereof (the "Exclusive Periods"). Most recently, on May 18,
1995, the Bankruptcy Court entered an order extending Columbia's Exclusive
Periods to October 16, 1995 and December 18, 1995, respectively.
8. EXTENSION OF TIME TO REMOVE ACTIONS AND FILE
PROOFS OF CLAIM ON BEHALF OF CREDITORS
During the course of Columbia's Reorganization Case, the Bankruptcy Court
has extended numerous times the time periods within which Columbia may File
applications to remove related proceedings to the Bankruptcy Court and to File
proofs of claim
V-27
<PAGE> 256
on behalf of Creditors who failed to do so. Currently, those time periods, as
last extended, have not expired.
9. SURETY BOND AGREEMENT
By motion dated January 29, 1992, Columbia sought an order of the
Bankruptcy Court providing that claims of up to $20 million which may arise
under two pre-petition indemnity agreements (the "Surety Indemnity
Agreements") between Columbia and, respectively, (i) Reliance Insurance
Company, United Pacific Insurance Company and Planet Insurance Company and
(ii) Reliance Insurance Company of New York and United Pacific Insurance
Company of New York (collectively, the "Sureties"), will be accorded
subordinated super-priority administrative claim status under
section 364(c)(i) of the Bankruptcy Code. The Surety Indemnity Agreements
govern the issuance and terms of bonds issued by the Sureties on behalf of
Columbia's non-debtor subsidiaries. Such surety bonds are required with
respect to many aspects of the subsidiaries' operations. An order granting
the requested relief was entered by the Bankruptcy Court on February 19, 1992.
Upon a motion by Columbia, on October 16, 1992, the Bankruptcy Court
entered an order authorizing Columbia to assume the Surety Indemnity
Agreements and to pay all arrearages thereunder. For a discussion of the
treatment of the Claims of the Sureties under the Plan, see Section VI.A,
"Classification and Treatment of Claims and Interests".
V-28
<PAGE> 257
10. RECAPITALIZATION OF SUBSIDIARIES
Due to special business requirements or changed financial needs, the
capital structures of certain non-debtor operating subsidiaries of Columbia
have been restructured since the Petition Date. With the approval of the
Bankruptcy Court and the approval of the SEC under the HCA, Columbia has
recapitalized Columbia Gas Development, TriStar, Columbia Gulf, Columbia Coal
Gasification and Columbia LNG.
11. AMENDMENT OF EMPLOYMENT AGREEMENTS WITH
SENIOR OFFICERS AND ASSUMPTION OF
RETENTION AGREEMENTS
In order to offer certain senior management employees of the System
incentives to remain as employees until Confirmation of plans of
reorganization for TCO or Columbia, as applicable, Columbia moved for, and on
October 19, 1993, the Bankruptcy Court approved the extension and amendment of
existing employment agreements (the "Extension Agreements") between Columbia
and six key senior executives, (ii) an employment agreement between Columbia
and R. Larry Robinson, President of TCO and (iii) Columbia's assumption of
thirty-one key employee retention agreements with employees at TCO and other
subsidiaries of Columbia (the "Retention Agreements").
The Extension Agreements, as revised and approved by the Bankruptcy
Court, run from July 19, 1993 until Confirmation of a plan of reorganization
for Columbia or TCO as applicable, except for the Extension Agreement of C.
Ronald Tilley, Chief Executive Officer of Columbia Ohio, which extends his
employment through
V-29
<PAGE> 258
July 18, 1995. In addition, the Extension Agreements, as revised, provide,
inter alia, that in the event the officer covered thereby remains employed by
any of Columbia's affiliates or subsidiaries at the date of Confirmation of a
Columbia or TCO plan of reorganization (as appropriate), the officer will
receive a retention payment equal to his annual compensation at the time of
Confirmation. However, if the officer is terminated, other than for cause,
prior to Confirmation, he will be entitled to a severance payment equal to one
year's salary plus a continuation of employee benefits for a twelve-month
period.
The Retention Agreements provided that if the key employees covered
remained employed with TCO, or one of Columbia's subsidiaries or affiliates,
through July 14, 1994, they would receive a retention award, ranging in amount
from 50% to 100% of the employee's annual salary. Upon the expiration of the
Retention Agreements in 1994, the retention awards were paid to the covered
employees.
12. EMPLOYEE RETENTION AND RELEASE PROGRAM
On October 18, 1993, the Bankruptcy Court granted a motion Filed by
Columbia for an order of the Bankruptcy Court authorizing Columbia to
undertake and assume the costs associated with implementation of an employee
retention and release program (the "Retention Program") with respect to
certain employees whose job functions would become surplus to
V-30
<PAGE> 259
the needs of Columbia's subsidiaries over the next thirty-six months.
The Retention Program provides that qualifying employees whose jobs are
being eliminated but whose services are still required for a certain period of
time will receive a payment, upon their release, calculated on the basis of
two weeks' salary and benefits for every full year of service, to be made
either in lump sum or in the form of salary and benefits continuation for the
requisite time period. However, if the affected employees depart prior to
their respective release dates, they will be ineligible to receive the
retention payment.
13. DATA ROOM
Upon petition by the TCO Creditors' Committee, the Bankruptcy Court in
March 1994 approved procedures for the establishment of a data room to make
business information available to third parties which might have an interest
in acquiring TCO. In accordance with those procedures, a data room was
established the following month in Charleston, West Virginia. Although six
companies initially requested admission, only four became qualified and
reviewed the information available in the data room after paying the required
$50,000 entrance fee. The participants concluded their review by June 20,
1994, and the data room closed in accordance with Bankruptcy Court-approved
procedures. None of the data room entrants submitted to Columbia or TCO any
proposal for acquiring TCO or its assets. As reported in Columbia's prior
public
V-31
<PAGE> 260
disclosures, management believes that the value that the TCO Plan places on
TCO reflects its full value.
By letter dated August 19, 1994, Dimeling, Schreiber and Park
("Dimeling") submitted to the Chairman of the Board of Columbia a proposal for
the reorganizations of Columbia and TCO whereby Dimeling and an investor group
would invest $500 million in newly issued Common Stock of Columbia, and, in
return, receive the right to move an initial slate of directors for
Reorganized Columbia. Dimeling's proposal also contemplated the sale of the
distribution segment assets of Columbia to co-sponsors of the Dimeling
proposal for approximately $1.4 billion and the use of the cash proceeds
therefrom to pay (i) Producers $1.3 billion in settlement of all their claims,
(ii) all priority and other unsecured claims against TCO in full and (iii) all
unsecured Claims against Columbia in full, in cash.
After a careful review and analysis of Dimeling's proposal, Columbia,
with the assistance of its financial advisors, determined that Dimeling's
proposal was inadequate, not feasible and thus not in the best interests of
Columbia, TCO and their respective estates.
14. LOAN TO COLUMBIA'S THRIFT PLAN
On March 8, 1995, the Bankruptcy Court granted a motion Filed by Columbia
with the Bankruptcy Court seeking authority to make an interest-free loan to
Columbia's Thrift Plan to allow all participants therein (except those who are
current and
V-32
<PAGE> 261
former employees of TCO)(3) or their beneficiaries immediate access to
those Thrift Plan funds which were frozen as a result of the seizure on August
11, 1994 of the Confederation Life Insurance Company ("Confederation Life") by
its insurance regulators.
Under the Thrift Plan, participants may invest their savings in various
investment options, including a Money Market/Investment Contract Fund (the
"Fund") offered by Fidelity Investments of Boston, M.A. which may hold, among
other financial assets, guaranteed investment contracts. The only such
contract now held in the Fund was issued by Confederation Life (the "CL
Contract") in the amount of $6.5 million. On August 12, 1994, Canadian and
Michigan regulators seized the assets of Confederation Life due to its
financial condition. As a result, a new segregated subaccount was created by
the Fund to hold the CL Contract, thereby freezing approximately 17% of the
Fund's investments. As a result, 2,423 Thrift Plan participants cannot access
their funds in this subaccount.
In order to alleviate hardships on participants who hold investments in
the frozen CL Contract, Columbia determined, as many other similarly situated
employers have also done, to make a loan to the Thrift Plan. The proposed
loan to the Thrift Plan is approximately $4.3 million which, for
administrative
- - --------------------
(3) On or about February 10, 1995, TCO also filed a motion with the
Bankruptcy Court seeking entry of an order authorizing TCO to make a
separate loan to the Thrift Plan so as to allow TCO plan participants
access to the funds frozen in the Confederation Life account.
V-33
<PAGE> 262
convenience, represents the apportionment for Columbia's subsidiaries (other
than TCO) of the accumulated value of the frozen investment in the CL Contract
(including accrued interest) as of the time Confederation Life's assets were
seized. As is believed to be customary for these types of transactions, the
proposed loan would be interest-free and unsecured. Repayment of the proposed
loan would be made only from the proceeds to be received from the liquidation
and rehabilitation of Confederation Life, state guaranty funds, litigation
proceeds received for the benefit of participants, and other sources in
connection with the CL Contract. Columbia intends to waive repayment of the
loan to the extent the loan exceeds the ultimate recovery of proceeds from the
CL Contract and related sources.
On April 17, 1995, the SEC issued an order under the HCA authorizing
Columbia's proposed loan to the Thrift Plan.
15. COLUMBIA'S LONG-TERM INCENTIVE PLAN
On March 15, 1995, the Bankruptcy Court granted a motion Filed by
Columbia seeking an order authorizing it to resume its long-term stock
incentive plan for key employees (the "Incentive Plan").
The Incentive Plan was adopted by Columbia's Board of Directors on
September 18, 1985 and approved by Stockholders on May 28, 1986. The
Incentive Plan originally authorized the issuance of up to 1.5 million shares
in the aggregate of Columbia's Common Stock. The purpose of the Incentive
Plan was
V-34
<PAGE> 263
to address the need to provide long-term incentives to those officers and
employees of Columbia's subsidiaries who, in the opinion of the Compensation
Committee of the Board of Directors of Columbia, make substantial
contributions to Columbia and its subsidiaries by their ability, loyalty and
efforts. Six years of awards were made pursuant to the Incentive Plan. The
Incentive Plan, however, was voluntarily suspended by Columbia in 1991 prior
to the Petition Date. Currently, there are approximately 165,000 shares of
Common Stock that have not been previously awarded under the Incentive Plan.
The Incentive Plan terminates by its own terms on September 18, 1995.
Thus, Columbia is now authorized to resume distributions under the Plan
to the thirty-two System employees who are potentially eligible participants
in the Incentive Plan.
16. SHAREHOLDER RIGHTS PLAN
In early 1995, Columbia's Board of Directors approved the adoption of a
Shareholder Rights Plan (the "Rights Plan"), subject to shareholder approval
of certain amendments of Columbia's certificate of incorporation related
thereto (the "Charter Amendments") and the approvals described below. The
Board of Directors also directed the officers of Columbia to initiate
applications for required HCA and Bankruptcy Court approvals. The Board of
Directors approved the Rights Plan in order to protect shareholder values for
Columbia's Stockholders. The Rights Plan was designed to require any Person
interested in
V-35
<PAGE> 264
acquiring ten percent or more of the Common Stock to offer full value for the
Common Stock.
On February 1, 1995, Columbia sought SEC approval under the HCA for the
adoption and implementation of the Rights Plan, the Charter Amendments and the
solicitation in Columbia's 1995 proxy statement of the shareholder approval
required under Delaware Law of the Charter Amendments. Columbia also filed a
motion with the Bankruptcy Court for authorization to adopt the Rights Plan
and for the Charter Amendments, subject to required approvals of the SEC and
the approval of the Charter Amendments by Columbia's Stockholders.
The SEC authorized the solicitation of required shareholder approval at
Columbia's 1995 annual shareholders meeting on April 28, 1995. While a
majority of the shares voted at that meeting were voted favorably to the
Rights Plan, the vote fell short of the majority of all outstanding shares
required by Delaware law. The application to the SEC for approval of the
Rights Plan and the related motion to the Bankruptcy Court have been
withdrawn.
G. PROCEDURES RELATING TO FILING AND DETERMINATION
OF CLAIMS PROCESS AND BAR DATE
1. BAR DATE/CLAIMS AGENT
On December 13, 1991, the Bankruptcy Court entered an order (the "Bar
Order") establishing March 18, 1992 as the Bar Date by which proofs of claim
must be Filed by all Persons subject to certain enumerated exceptions, that
have or may have a Claim against Columbia. Creditors were required to file a
proof of claim by the Bar Date for Claims which arose prior to the
V-36
<PAGE> 265
Petition Date but did not fall within one of the enumerated exceptions. These
exceptions included: (i) Claims listed on Columbia's Schedules of Liabilities,
if (A) the Claimant agrees with the amount, (B) the Claim is not listed as
disputed, contingent, or unliquidated and the (C) the claimant agrees with the
classification of the Claim; (ii) Claims previously Allowed by the Bankruptcy
Court; (iii) Holders of outstanding shares of Common Stock of Columbia whose
Claims are based solely upon ownership of such stock; (iv) Holders of public
debt securities with maturity dates after July 30, 1991 whose Claims are based
solely upon ownership of such debt securities; (v) Claims arising solely from
pre-petition amounts owing under a non-residential real property lease not
rejected or assumed by Columbia; and (vi) Claims of state and federal
environmental agencies.
An order clarifying the Bar Order and confirming that Holders of
Commercial Paper need not File proofs of claim in respect of their Claims
based solely upon ownership of Commercial Paper was entered by the Bankruptcy
Court on March 16, 1992.
The Bankruptcy Court also authorized Columbia to employ Poorman-Douglas
Corporation ("Poorman-Douglas") as the official Claims agent for purposes of
receipt and docketing of Claims.(4)
- - --------------------
(4) However, with respect to the Borrowed Money Claims, pursuant to
Columbia's motion seeking an order authorizing procedures to maintain
records of Holders of Borrowed Money Claims, discussed in Section G.3
below, such Claims must be reflected in the records of appropriate
designated transfer agents as specified in that motion.
V-37
<PAGE> 266
Notice of the Bar Date and proof of claim forms were disseminated to
Columbia's Creditors and Stockholders on or about January 3, 1992.
2. CLAIMS OBJECTION PROCEDURES
Since the Petition Date, approximately 7,629 proofs of claim, amounting
to approximately $2.974 billion as docketed, have been Filed against
Columbia's Estate. Of those, approximately 7,000 proofs of claim were Filed
by Stockholders, debentureholders, or Commercial Paper Holders based solely
upon ownership of the equity or debt securities issued by Columbia.
By order of the Bankruptcy Court dated July 29, 1992, Columbia obtained
authority to File procedural objections to Claims and to settle smaller
Claims. On August 18, 1992, Columbia Filed its First Omnibus Objection to
Claims seeking to expunge, reduce or reclassify thousands of Claims. On
January 12, 1993, the Bankruptcy Court issued an order expunging, disallowing,
reducing and/or reclassifying approximately 7,100 Claims Filed against
Columbia. This resulted in the removal of more than $174 million in Claims
against Columbia. On May 11, 1993, the Bankruptcy Court entered a
Supplemental Order which expunged, disallowed or reclassified additional
Claims that were the subject of the First Omnibus Objection. On March 24,
1995, Columbia Filed its Second Omnibus Objection to Claims seeking to expunge
approximately one hundred Claims Filed against Columbia.
V-38
<PAGE> 267
Columbia will continue to analyze and formulate objections, if necessary, to
the remaining Claims against Columbia, in order to resolve disputes not
otherwise settled under the Columbia Plan.
3. CLAIMS TRADING
Throughout its Reorganization Case, Columbia has received numerous
notices regarding private transfers of Claims pursuant to Bankruptcy Rule
3001. Poorman-Douglas, Columbia's Claims Agent, has been recording these
transfers on Columbia's official claims register. To the extent Columbia and
Poorman-Douglas have been notified of transfers and such transfers have been
approved by the Bankruptcy Court, only the transferees of record of these
Claims will receive notices of hearings on this Disclosure Statement and the
Columbia Plan as well as ballots for voting upon the Plan, and only such
transferees will receive distributions under the Plan. If a transfer of any
Claim is not noticed or approved by the Bankruptcy Court, Columbia's Plan will
not recognize such transfer.
With respect to the recordation of Borrowed Money Claims and any
transfers of such Claims, on April 3, 1995, Columbia Filed a motion with the
Bankruptcy Court seeking an order authorizing procedures to maintain records
of Holders of Borrowed Money Claims (the "Recordation Motion"). Pursuant to
the Recordation Motion, for purposes of recognizing Borrowed Money Claims, the
names, addresses and Claim amounts of Holders of Borrowed Money Claims must be
reflected in the records of the appropriate designated transfer agents
specified in the
V-39
<PAGE> 268
Recordation Motion, and a transferee of a Borrowed Money Claim will not be
recognized as the valid Holder thereof unless such transfer has been properly
noticed to the appropriate designated transfer agent. An order approving the
Recordation Motion was entered by the Bankruptcy Court on April 18, 1995.
H. MISCELLANEOUS LITIGATION
1. MOUNTAINEER
On or about May 19, 1994, Mountaineer Gas Company ("Mountaineer") Filed
in the Bankruptcy Court motions (i) to file a late proof of claim (the
"Extension Motion") and (ii) for relief from the automatic stay to liquidate
such claim (the "Stay Motion"; and together with the Extension Motion, the
"Mountaineer Motions"). By these motions, Mountaineer sought to File a proof
of claim in connection with a civil action styled, Frank H. Fidler, III and
Cheryl M. Fidler v. Pennzoil Company and Mountaineer Gas Company, Civil Action
No. 93C-244l (the "Asbestos Litigation"). The Asbestos Litigation, filed in
the Circuit Court of Kanawha County, West Virginia on April 3, 1993, asserts
that Mountaineer is the successor corporation to Columbia Gas of West
Virginia, Inc., a former wholly-owned subsidiary of Columbia ("Columbia West
Virginia"), and is liable for injuries the plaintiff allegedly sustained as a
result of his exposure to asbestos while employed by Columbia Gas of West
Virginia, Inc. from about 1968 to 1974.
Specifically, Mountaineer sought to File a proof of claim for
indemnification as a third-party beneficiary under a
V-40
<PAGE> 269
contract, dated February 23, 1984, between Columbia and Mountaineer's parent
company, Allegheny and Western Energy Corporation, for the purchase and sale
of Columbia Gas of West Virginia, Inc. (the "Stock Purchase Agreement"). In
addition to its request to File its indemnification claim after the Bar Date,
Mountaineer sought relief from the automatic stay so that it may File certain
third-party claims against Columbia in the Asbestos Litigation and pursue its
indemnification rights, if any, under the Stock Purchase Agreement relating to
the Asbestos Litigation.
After a hearing on the Mountaineer Motions on August 16, 1994, the
Bankruptcy Court (i) allowed Mountaineer to File a late proof of claim
relating to the Asbestos Litigation and (ii) denied Mountaineer's Stay Motion.
Pursuant to that decision, on or about November 9, 1994, Mountaineer Filed a
contingent, unliquidated proof of claim against Columbia based upon Columbia's
alleged indemnification obligations under the Stock Purchase Agreement in
connection with the Asbestos Litigation. Columbia intends to File an
objection to such Claim in the near future.
2. KUNTZ LITIGATION
As part of its First Omnibus Objection to Claims, Columbia objected to,
and the Bankruptcy Court subsequently disallowed, the four duplicate claims
Filed by Mr. Kuntz in the amount of $100,000 for emotional distress allegedly
arising from a gas pipeline explosion in Columbus, Ohio which occurred in
1988.
V-41
<PAGE> 270
Mr. Kuntz pursued an appeal of the Bankruptcy Court's order disallowing his
Claims up to the Third Circuit. On February 22, 1995, the Third Circuit
entered an order affirming such disallowance and awarding costs to Columbia.
V-42
<PAGE> 271
VI. PLAN TREATMENT OF CLAIMS AND SUMMARY OF OTHER PLAN PROVISIONS
A. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS
All Claims and Interests are placed in the Classes set forth below except
that, in accordance with section 1123(a)(1) of the Bankruptcy Code,
Administrative Claims and Priority Tax Claims have not been classified. The
treatment of various Claims against and Interests in Columbia are generally
described below. This description is not intended to supersede the Plan and,
for the precise treatment of Claims and Interests, reference should be made to
the Plan.
As further described below, the Plan provides for the payment, on the
Effective Date, of substantially all Claims that are then Allowed, in full,
together with post-petition interest calculated in accordance with the Plan.
1. UNCLASSIFIED CLAIMS
a. ADMINISTRATIVE CLAIMS
Administrative Claims include Claims for costs and expenses of
administration of the Reorganization Case Allowed under sections 503,
507(a)(1) and 507(b) of the Bankruptcy Code. Administrative Claims are
unimpaired and consist of the following:
(i) PROFESSIONAL CLAIMS
Professional Claims consist of all Claims for unpaid fees and expenses of
attorneys, accountants, and other Professional advisors retained pursuant to
Bankruptcy Court order by Columbia, the Creditors' Committee and the Equity
Committee.
VI-1
<PAGE> 272
Professionals not retained pursuant to Bankruptcy Court order, including
Professionals retained by the Indenture Trustee, may also seek payment of fees
and expenses if they can show, pursuant to an application made to the
Bankruptcy Court, that they made a "substantial contribution" to the
Reorganization Case. A Bar Date will be set for the filing of such
"substantial contribution" applications. See Section VI.I.2., "Bar Dates for
Professional Claims."
Each Holder of an Allowed Professional Claim will be paid in full by
Columbia (unless Columbia and the Holder of such Claim agree to less favorable
treatment) on the later of (i) the Effective Date and (ii) the tenth day after
the date on which an order allowing such Professional Claim becomes a Final
Order. Most Professionals retained in the Reorganization Case are being paid
currently 90% of requested fees and 100% of requested expense reimbursements,
which amounts, as well as the remaining 10% of requested fees, are subject to
Bankruptcy Court approval. Professionals may request that Columbia be
required to pay, subject to Bankruptcy Court approval, post-petition interest
on requested fees that have been reserved. Columbia has not determined
whether it will consent to pay such post-petition interest and reserves its
rights to object to any such requests. Any Allowed post-petition interest
approved by Final Order will be paid at the same time as the underlying Claim.
Columbia estimates that the Allowed Professional Claims which are to be
paid on or after the Effective Date will
VI-2
<PAGE> 273
aggregate approximately $4.8 million, without regard to any post-petition
interest which may be Allowed and paid thereon.
(ii) POST-PETITION OPERATIONAL CLAIMS
Post-Petition Operational Claims consist of all Administrative Claims
that have arisen in the ordinary course of Columbia's business during the
pendency of the Reorganization Case. Post-Petition Operational Claims
include, but are not limited to, Administrative Claims of governmental units
for taxes, trade vendor and supplier payment obligations and obligations under
contracts and leases.
Post-Petition Operational Claims unpaid as of the Effective Date will be
assumed and paid by Reorganized Columbia as the same come due in the ordinary
course.
(iii) ASSUMED EXECUTORY CONTRACT CLAIMS
All of Columbia's executory contracts that have not been expressly
assumed or rejected by order of the Bankruptcy Court as of the Confirmation
Date and that are listed on Exhibit E to the Plan will be assumed or rejected
or otherwise dealt with as set forth on such Exhibit. Among those contracts
that Columbia will, subject to Bankruptcy Court approval, assume is the Tax
Allocation Agreement. See Section V.F.4, "Approval of Tax Allocation
Procedures." All executory contracts that have not been expressly rejected
will be assumed.
In accordance with the provisions of the Bankruptcy Code, Columbia is
required to cure any defaults arising from or in connection with the pre-
petition executory contracts and
VI-3
<PAGE> 274
unexpired leases which it assumes. In the case of Columbia, most of those
contracts relate to Columbia's operations, including financial services,
public relations services and other professional services. Such obligations
are denominated as Assumed Executory Contract Claims.
Assumed Executory Contract Claims that are or become Allowed on or before
the Effective Date will be paid in cash on the Effective Date or upon such
earlier or later date as may be authorized by the Bankruptcy Court. Any
Assumed Executory Contract Claim that becomes an Allowed Claim after the
Effective Date will be paid in cash within thirty days after the end of the
Calendar Quarter in which such Claim becomes Allowed.
Holders of Assumed Executory Contract Claims shall also be entitled to
the payment of post-petition interest for the period from the date payment was
required to be made under the contract to and including the day prior to the
date of payment calculated (i) with respect to any executory contract
evidenced by a written agreement that sets forth a non-default interest rate,
at the non-default contractual interest rate set forth therein and (ii) in all
other cases, at the rate of six (6%) per annum, or as otherwise provided by
the Bankruptcy Court. Post-petition interest on such Claims shall be paid at
the same time as payment is made on the underlying Claim.
Columbia estimates that Allowed Assumed Executory Contract Claims and
post-petition interest thereon will aggregate approximately $29.2 million, of
which approximately $27.7
VI-4
<PAGE> 275
million represents amounts payable under the Tax Allocation Agreement to
subsidiaries of Columbia, other than TCO, and for which Columbia will, under
the Tax Allocation Agreement, be entitled to be reimbursed by TCO on the
Effective Date.
(iv) U.S. TRUSTEE'S FEE CLAIMS
Pursuant to 28 U.S.C. Section 1930(a)(6), Columbia, as a Chapter 11
debtor, is required to pay certain fees to the U.S. Trustee on a quarterly
basis during the pendency of the Reorganization Case. Such fees are based
upon quarterly distributions made by Columbia but in no event may such
quarterly fees exceed $5,000. Throughout the course of the Reorganization
Case, Columbia has remitted such quarterly fees to the U.S. Trustee on a
timely basis. Columbia estimates that there will be $5,000 of U.S. Trustee's
Fee Claims outstanding on the Effective Date. Such Claims will be paid in
full in cash on the Effective Date.
(v) MISCELLANEOUS ADMINISTRATIVE CLAIMS
Miscellaneous Administrative Claims consist of all Administrative Claims
other than Professional Claims, Post-Petition Operational Claims, Assumed
Executory Contract Claims and U.S. Trustee's Fee Claims. Miscellaneous
Administrative Claims include the following:
Contingent indemnification Claims of officers, directors, employees and
agents of Columbia and its subsidiaries. In accordance with its
certificate of incorporation, by-laws and other agreements, Columbia is
required to indemnify the officers, directors, employees and agents of
Columbia and
VI-5
<PAGE> 276
its subsidiaries, including TCO. Columbia believes that there are no
such Claims. It is possible that certain indemnity Claims Columbia
believes are pre-petition indemnity Claims classified as Class 6.1
Claims, could be deemed to be Administrative Claims under applicable law.
Indemnity Claims arising under the Canada Sale Agreement. These Claims
arise pursuant to the Canada Sale Agreement in favor of Anderson, the
purchaser of the stock of Columbia's former wholly-owned oil and gas
production company, Columbia Canada. See Section V.F.2, "Sale of Columbia
Canada." An initial escrow of approximately Cdn$30 million was
established by Columbia as the Kotaneelee Escrow. The Kotaneelee Escrow
may be adjusted or replaced, depending on certain conditions, in
accordance with the provisions of the Canada Sale Agreement. At its
option, Columbia may replace the Kotaneelee Escrow with a letter of
credit for which Columbia estimates that it will incur approximately
$470,000 in fees. If Anderson's Claim has been liquidated by the
Effective Date, Columbia will pay in cash the full amount of the Allowed
Claim. The Kotaneelee Escrow is subject to reduction depending on the
outcome of the underlying Kotaneelee Litigation.
Indemnity Claims under Columbia's Indemnity Agreements with the Reliance
Group. The Reliance Group has issued
VI-6
<PAGE> 277
performance bonds on behalf of Columbia pursuant to a number of
agreements. See Section V.F.9, "Significant Proceedings in the Chapter
11 Case and Status of Related Claims- Surety Bond Agreements." Indemnity
Claims arising under the agreements with the Reliance Group will, if
liquidated on the Effective Date, be paid on the Effective Date, in full
in cash, and, if not so liquidated, be assumed by Reorganized Columbia.
Indenture Trustee and Bank Agent Fees. Fees and costs incurred by the
Indenture Trustee, the Bank Agent and the LESOP Indenture Trustee for
administrative services provided by them in the ordinary course in
accordance with the 1961 Indenture, the $500 Million Credit Agreement and
the $750 Million Credit Agreement and the LESOP Indenture, respectively.
Columbia has paid such ordinary course fees during the Reorganization
Case. As a result, Columbia believes that no such Claims will be
outstanding as of the Effective Date. Fees and expenses incurred by the
Indenture Trustee, the Bank Agent and the LESOP Indenture Trustee for
services provided in connection with collection efforts during the
Reorganization Case are not treated as Administrative Claims unless
applications for payment of such fees and costs are approved by the
Bankruptcy Court pursuant to section 503(b) of the Bankruptcy Code.
VI-7
<PAGE> 278
All remaining Miscellaneous Administrative Claims that are unpaid as of
the Effective Date will be paid on the Effective Date in full in cash or as
otherwise agreed to or provided for by Bankruptcy Court order.
Any Miscellaneous Administrative Claim liquidated prior to the Effective
Date shall be entitled to receive, in cash, post-petition interest from the
date liquidated to and including the date prior to the distribution date
calculated (i) with respect to any Miscellaneous Administrative Claim
evidenced by a written agreement that sets forth a non-default interest rate,
at the non-default interest rate set forth therein and (ii) in all other
cases, at the rate of 6% per annum, or as otherwise provided by the Bankruptcy
Court.
b. PRIORITY TAX CLAIMS
Priority Tax Claims consist of all Claims for the payment of taxes
entitled to priority in payment pursuant to section 507(a)(8) of the
Bankruptcy Code and Holders of such Claims shall be entitled to any post-
petition interest allowed by the appropriate statute imposing such tax at a
rate of interest set forth in such statute, or, if no rate is set forth in
such statute, at the rate of 6% per annum, or as otherwise provided by the
Bankruptcy Court, provided, however, that the rate of interest to be paid with
respect to the Claim of the IRS will be governed by Section D.7 of the IRS
Closing Agreement. Pursuant to the IRS Order, TCO is obligated to the IRS for
approximately $111.9 million, including $24.6 million of post-petition
VI-8
<PAGE> 279
interest due thereon through December 31, 1995, unless the Bankruptcy Court
concludes that TCO is not responsible for post-petition interest. To the
extent that TCO is not obligated to pay post-petition interest or fails to pay
all or any portion of the principal amount of the IRS Claim, Columbia will be
obligated to make the payment. See Section IV.C, "Summary of Significant
Claims in Columbia's Chapter 11 Case and Their Settlements or Proposed
Resolutions - The IRS Claims." Columbia reserves the right to File an
amendment to its Schedule of Liabilities to reflect certain state tax Claims
as to which no proofs of claim have been Filed, at the amount of the liability
recognized by Columbia, in order to avoid litigation over the dischargeability
of such sums.
Allowed Priority Tax Claims and any post-petition interest due thereon
will be paid in cash on the Effective Date, if then Allowed, or, if thereafter
Allowed, within thirty days from the date on which such Claim becomes an
Allowed Claim. However, Allowed Priority Claims that are the subject of the
IRS Order will be paid in cash in equal quarterly installments beginning on
the date which is three months after the Effective Date and ending on the last
quarterly date which is not later than the sixth anniversary of the date of
assessment of such Claims, provided that the first quarterly installment will
be paid in three equal monthly segments beginning on the Effective Date. Each
monthly or quarterly installment shall be paid together with interest on such
installment accrued to the date of
VI-9
<PAGE> 280
payment, at the rate set forth in Section D.7 of the IRS Closing Agreement.
Reorganized Columbia may, nevertheless, pay such IRS Claims in full or in part
at any time on and after the Effective Date without premium or penalty.
Allowed Priority Tax Claims are unimpaired.
2. CLASSES OF CLAIMS AND INTEREST
a. CLASS 1 - DIP FACILITY CLAIM
The DIP Facility Claim consists of the Claim, if any, arising under the
DIP Facility. The DIP Facility Claim will be paid in full in cash on the
Effective Date, if then Allowed, or if not then Allowed, within ten days after
such Claim becomes an allowed Claim. The DIP Facility terminates by its terms
as of the Effective Date. Any Deficiency Claim arising from the DIP Facility
will be treated as a "superpriority" administrative expense claim in
accordance with section 364(c) of the Bankruptcy Code and the order approving
the DIP Facility. Columbia estimates that the DIP Facility Claim will total
approximately $48,000.
The Class 1 Claim is unimpaired.
b. CLASS 2 - NON-BORROWED MONEY CLAIMS
Class 2 consists of all Claims which are not treated in any other Class
under the Plan. These Claims consist primarily of, among other things,
uncashed dividend, interest and other checks, miscellaneous insurance Claims,
proxy and other fees, intercompany payables, other trade payables and the pre-
petition unpaid fees of the Indenture Trustee, Bank Agent and LESOP
VI-10
<PAGE> 281
Indenture Trustee. Holders of Allowed Class 2 Claims will be entitled to
receive post-petition interest from the Petition Date to and including the day
prior to the date of distribution calculated (i) with respect to any Non-
Borrowed Money Claim evidenced by a written agreement that sets forth a non-
default interest rate, at the non-default contractual interest rate set forth
therein and (ii) in all other cases, at the rate of 6% per annum, or as
otherwise provided by the Bankruptcy Court.
On the Effective Date, Columbia will pay all Allowed Class 2 Claims in
cash in full plus any post-petition interest Allowed thereon.
Columbia estimates that the Allowed Class 2 Claims (net of set-offs) and
post-petition interest thereon will aggregate approximately $ 1.3 million.
Class 2 Claims are unimpaired.
c. CLASS 3.1 CLAIMS - BORROWED MONEY CONVENIENCE CLAIMS
Class 3.1 consists of Borrowed Money Claims the principal amount of
which, as of June 1, 1995, did not exceed $20,000 and that would, but for such
monetary limitation, be classified in Class 3.2. Holders of Allowed Class 3.1
Claims will be entitled to post-petition interest in an amount to be
determined as if such Claims were Class 3.2 Claims.
On the Effective Date, Allowed Class 3.1 Claims and the post-petition
interest due thereon shall be paid in cash. Columbia is unable at this time
to estimate the number of Class 3.1 Claims but believes that for a relatively
small amount of
VI-11
<PAGE> 282
cash it will be able to satisfy a large number of small Claims. Columbia
believes that all Class 3.1 Claims are based on Debentures.
Class 3.1 Claims are unimpaired.
d. CLASS 3.2 - BORROWED MONEY CLAIMS
Class 3.2 consists of Claims the principal amount of which, as of June 1,
1995, exceeded $20,000 and which arise from Debentures, Medium Term Notes, the
$500 Million Credit Agreement, the $750 Million Credit Agreement, the
Commercial Paper, the Bid Notes, the Auction Notes, the Rate Swap Agreement
and the LESOP Guaranty. The amounts at which these Claims are treated as
Allowed and the distributions thereon in respect of post-petition interest are
set forth in Exhibit G to the Plan.
The amounts of Allowed Class 3.2 Claims will be the sum of the principal
amount of the indebtedness in question together with pre-petition interest (or
earned discount), if any. Such pre-petition interest, in most instances, will
be calculated as provided in the applicable debt instrument.
Amounts in respect of post-petition interest will be calculated in the
manner set forth in Exhibit G to the Plan.
Each Allowed Class 3.2 Claim shall be paid, together with post-petition
interest, by the delivery to the Holder thereof of its Pro Rata Share of (i)
the Cash Consideration, if any, (ii) the aggregate principal amount of each
Issue of New Indenture Securities, (iii) shares of New Preferred Stock having
an aggregate Liquidation Value of $200 million and (iv) shares of
VI-12
<PAGE> 283
DECS having an aggregate Liquidation Value of $200 million, subject, however,
to the payment by Columbia of cash in lieu of fractional shares and the
payment of smaller Claims in First Issue Securities. See Section VI.F.2.e,
"Cash in Lieu of Fractional Shares; Rounding of New Indenture Securities."
The amount of Cash Consideration, if any, will be determined by Columbia
prior to the Effective Date taking into account the cash that Columbia
projects will be available to it on the Effective Date, the cash Columbia
estimates will be required post-Effective Date for its and its subsidiaries'
working capital and liquidity needs, and the cash Columbia estimates will be
required by it to fulfill its obligations under the Plan and under the
Columbia Omnibus Settlement. Columbia intends to obtain a Term Loan Facility
which will become available upon Columbia's emergence from Chapter 11. If the
Term Loan Facility is obtained and is available for borrowing on the Effective
Date and if borrowings thereunder are available at an all-in cost (determined
without regard to future changes in relevant Term Loan Facility reference
rates) equal to or lower than the weighted average cost of borrowing through
the issuance of New Indenture Securities (assuming each Issue thereof is
issued in the same principal amount), Reorganized Columbia will provide as
Cash Consideration and for purposes of payments required for cash in lieu of
fractional shares and for fractional New Indenture Security entitlements the
lesser of $350 million and the then available amount of such Term Loan
VI-13
<PAGE> 284
Facility. Once the amount of Cash Consideration, if any, is determined, and
after taking into account distributions represented by shares of New Preferred
Stock and shares of DECS, the balance of the distribution owed to Holders of
Allowed Class 3.2 Claims shall be in the form of New Indenture Securities
divided among the respective Issues thereof substantially equally, with no
Issue (with the possible exception of First Issue Securities which will be the
only Issue distributed to Holders of Allowed Class 3.2 Claims of less than
$70,000) having an aggregate principal amount which is more than 150% of the
aggregate principal amount of any other Issue, subject, however, to changes to
New Indenture Security entitlements as described in Section VI.F.2.e. See
also Section X.D, "Reorganized Columbia - Pricing of Securities," for a
discussion of the basis for pricing of the New Indenture Securities, New
Preferred Stock and DECS.
The DECS and New Preferred Stock shall be subject to redemption by
Reorganized Columbia at its discretion during the 120-day period following the
Effective Date, subject to certain limitations, including the requirement that
no DECS or New Preferred Stock may be redeemed after giving effect to such
redemption there will remain outstanding DECS or New Preferred Stock having a
Liquidation Value, in either case, of less than $50 million and no New
Preferred Stock may be redeemed so long as any shares of DECS remain
outstanding. Any DECS or New Preferred Stock not redeemed within such 120 day
period shall
VI-14
<PAGE> 285
have their dividend rates reset and, in the case of the DECS, certain other
terms shall be established. Details concerning the redemption provisions and
resetting changes may be found in Exhibit 4, to which reference is made.
Columbia estimates that Allowed Class 3.1 Claims and Allowed Class 3.2
Claims will aggregate approximately $2.4 billion and, as of the Effective
Date, Holders of such Claims shall be entitled to post-petition interest of
approximately $994 million. The estimated amounts of each category of such
Allowed Claims are as follows:
<TABLE>
<CAPTION>
Estimated Claim Amounts
-----------------------
(in millions)
Pre- Post-
Petition Petition
Basis of Claim Claim Interest Total
- - -------------- -------- --------- -----
<S> <C> <C> <C>
Debentures $ 926.7 $ 432.9 $1,359.6
$500 Million
Credit Agreement 101.0 31.5 132.5
$750 Million
Credit Agreement 404.5 138.2 542.7
Commercial Paper 268.0 89.5 357.5
Bid Notes 76.6 26.3 102.9
Auction Notes 45.4 15.5 60.9
Medium Term 471.3 225.7 697.0
Notes
LESOP Guaranty 87.0 39.5 126.5
Rate Swap Claims 3.2 0.8 4.0
----------- ----------- --------
TOTAL: $2,383.7 $ 999.9 $3,383.6
</TABLE>
VI-15
<PAGE> 286
The amounts to be distributed under the Plan to Holders of Debenture
Claims, Medium Term Note Claims, Claims arising under the $500 Million Credit
Agreement, Claims arising under the $750 Million Credit Agreement and the
LESOP Guaranty could possibly be diminished by the legal and other fees and
expenses sought by the Indenture Trustee, the Bank Agent and the LESOP
Indenture Trustee for bankruptcy-related services. The Indenture Trustee has
advised Columbia that it will seek payment of such fees through an application
to be made pursuant to section 503(b) of the Bankruptcy Code which, if
approved, will cause such fees to be treated as an Administrative Claim and
result in no diminution in distributions to Holders of Debenture Claims and
Medium Term Note Claims. However, if such application is denied, the
Indenture Trustee has advised Columbia that it will seek to exercise its lien
rights under Section 10.01 of the 1961 Indenture and have an amount equal to
its fees and expenses withheld from distributions to be made to Holders of
Debenture Claims and Medium Term Note Claims. The Indenture Trustee has
advised Columbia that it estimates that its fees and expenses total
approximately $500,000. The Indenture Trustee, the Bank Agent and the LESOP
Indenture Trustee have further advised Columbia that they believe that the
costs they have incurred with respect to the Reorganization Case are
"collection costs" under the 1961 Indenture, the $500 Million Credit Agreement
and the $750 Million Credit Agreement and the LESOP Indenture, respectively,
and, as such, are properly treated as
VI-16
<PAGE> 287
Administrative Claims, whether or not an application pursuant to section
503(b) of the Bankruptcy Code is approved.
Columbia disputes the right of the Bank Agent, the Indenture Trustee and
the LESOP Indenture Trustee to obtain from the Estate any fees or costs
incurred for services provided with respect to post-Petition Date collection
activities undertaken during the Reorganization Case other than through an
application approved by the Bankruptcy Court pursuant to section 503(b) of the
Bankruptcy Code.
Class 3.2 Claims are impaired.
e. CLASS 4 - SECURITIES ACTION CLAIMS
Class 4 consists of all Securities Action Claims the Holders of which
have timely complied with the Supplemental Bar Date Order or, alternatively,
if the Supplemental Bar Date Order is not entered, have provided the
Questionnaire in compliance with the order of the Bankruptcy Court approving
the Questionnaire. Columbia has sought entry of the Supplemental Bar Date
Order in order to require each Holder of a Securities Action Claim or a like
claim against a party that has asserted indemnification Claims against
Columbia to File a Supplemental Proof of Claim which will provide certain
information to determine the amount and validity of the Claim. Should the
Supplemental Bar Date Order not be entered prior to the commencement of
solicitations of acceptances to the Plan, Columbia intends to seek Bankruptcy
Court approval of the Questionnaire which will require a Holder to provide
VI-17
<PAGE> 288
substantially the same information sought in the Supplemental Proof of Claim.
Columbia contemplates that notice of the Supplemental Bar Date Order or,
alternatively, should the Supplemental Bar Date Order not be entered, the
Questionnaire, shall be served upon all those Persons who Filed Securities
Action Claims against Columbia and certain third parties entitled to
indemnification from Columbia as well as other Persons whose names and
addresses are known to Columbia or may be readily determined who: (i) are
current holders of Common Stock or Borrowed Money Instruments; (ii) were
record holders of Common Stock or Borrowed Money Instruments during the
purported claim period; and (iii) were nominee holders of Common Stock or
Borrowed Money Instruments on various dates during the purported claim period,
including as of the Petition Date.
A Holder of a Securities Action Claim that fails to File a Supplemental
Proof of Claim by the Supplemental Bar Date established by the Supplemental
Bar Date Order or, alternatively, fails to submit a correctly completed
Questionnaire, as required by the order of the Bankruptcy Court approving the
Questionnaire, shall be forever barred from asserting any Securities Action
Claim against Columbia or Reorganized Columbia.
Pursuant to the Plan, Qualifying Class 4 Claimants will have the option
to accept the Offer of Settlement, which contains the following elements:
VI-18
<PAGE> 289
1. Columbia and the Contributors shall contribute up to an
aggregate of $18 million, subject to change as described below,
as the Settlement Amount;
2. Complying Class 4 Claimants whose Claims are based on ownership
of shares of Columbia Common Stock shall be entitled to
receive: (i) between $.50 and $1.00 for each share purchased on
or after March 1, 1990 but not later than September 30, 1990 or
on and after May 15, 1991 but not later than June 18, 1991 and
held until at least June 19, 1991; (ii) between $1.50 and $3.00
for each share purchased on or after October 1, 1990 but not
later than May 14, 1991 and held until at least June 19, 1991;
and (iii) between $.10 and $.20 for each share purchased on or
after March 1, 1990 and sold on or after March 31, 1991 but not
later than June 18, 1991;
3. Complying Class 4 Claimants whose Claims are based on ownership
of debt securities of Columbia shall be entitled to receive (i)
between $.50 and $1.00 for each $100 principal amount of debt
purchased on or after March 1, 1990 but not later than
September 30, 1990 or on and after May 15, 1991 but not later
than June 18, 1991 and held until at least June 19, 1991; (ii)
between $1.50 and $3.00 for each $100 principal amount of debt
purchased on or after October 1, 1990 but not later than May
14, 1991 and held until at least June 19, 1991; and (iii)
between $.10 and $.20 for each $100 principal amount of debt
purchased on or after March 1, 1990 and sold on or after March
31, 1991 but not later than June 18, 1991; and
4. In consideration of the payments to be received pursuant to the
Offer of Settlement, all Holders of Class 4 Claims receiving
such distributions will release all claims such Holders may
have against any of the Contributors and any other defendants
in the Securities Action.
The Settlement Amount to be actually paid to Holders of Class 4 Claims
pursuant to the Offer of Settlement will be determined following the
Supplemental Bar Date or, alternatively, if the Supplemental Bar Date Order is
not entered, following the receipt of the Questionnaires. Such
VI-19
<PAGE> 290
Settlement Amount will be a function of the Maximum Proof of Claim Amount. If
the Maximum Proof of Claim Amount is equal to or less than $18 million, then
each Qualifying Class 4 Claimant shall receive the maximum amount offered to
it under the Offer of Settlement and Settlement Amount will be reduced
accordingly. If the Maximum Proof of Claim Amount is between $18 million and
$36 million, the Settlement Amount will remain at $18 million but the amounts
to be paid to each Qualifying Class 4 Claimant will be reduced from the
maximum amount offered to the minimum amount offered in proportion to the
amount by which the Maximum Proof of Claim Amount exceeds $18 million and is
less than $36 million.
If the Maximum Proof of Claim Amount exceeds $36 million, Columbia may
increase the Settlement Amount to the extent necessary to permit each
Qualifying Class 4 Claimant to receive the minimum settlement amount to which
it is entitled pursuant to the Offer of Settlement, provided that payment of
such increased amount may, at Reorganized Columbia's option, be either in the
form of cash, shares of Columbia Common Stock of equivalent value, or any
combination of the foregoing. Alternatively, Columbia may withdraw the Offer
of Settlement in which case all Holders of Class 4 Claims shall be Rejecting
Class 4 Claimants.
Columbia may also choose to withdraw the Offer of Settlement if
Qualifying Class 4 Claimants holding Claims representing 25% or more of the
Maximum Settlement Amount reject
VI-20
<PAGE> 291
the Offer of Settlement by failing to vote for the Plan. Columbia further has
the option, in such a situation, to withdraw the Plan from consideration.
All Holders of Class 4 Claims not voting in favor of the Plan, all
Holders of Class 4 Claims not included in the Offer of Settlement and all
Holders of Class 4 Claims if Class 4 rejects the Plan or Columbia withdraws
the Offer of Settlement shall be Rejecting Class 4 Claimants.
Columbia shall object to and/or seek the estimation of the Claims of
Rejecting Class 4 Claimants and such Claimants shall have their Securities
Action Claims determined by the Bankruptcy Court. Rejecting Class 4 Claimants
shall have their Claims paid on the Effective Date, if then Allowed, or if not
then Allowed, within thirty days from the date such Claims become Allowed, in
Common Stock of equivalent value or, at Reorganized Columbia's discretion, in
cash or any combination of cash and such Common Stock.
Class 4 Claims are impaired.
f. CLASS 5 CLAIMS - INTERCOMPANY CLAIMS
Class 5 consists of the Intercompany Claims. On the Effective Date,
pursuant to the Columbia Omnibus Settlement and the confirmed TCO Plan, the
Intercompany Claims shall be settled and discharged in full. Pursuant to the
Columbia Omnibus Settlement, Columbia has agreed, among other things, to
assist TCO to monetize the TCO Plan in order to provide distributions,
substantially in the form of cash, to TCO Creditors under the
VI-21
<PAGE> 292
TCO Plan in consideration for, among other things, the retention by Columbia
of the equity in Reorganized TCO and the settlement and release of the
Intercompany Claims. For additional information concerning the Intercompany
Claims and the Columbia Omnibus Settlement, see Section IV.B, "The
Intercompany Claims Litigation," and Section IV.E, "The Columbia Omnibus
Settlement."
Class 5 is unimpaired.
g. CLASS 6 - ASSUMED CLAIMS
(i) CLASS 6.1 - INDEMNITY CLAIMS
Class 6.1 consists of the pre-petition claims of the officers, directors,
employees and agents of Columbia, TCO or Columbia's other subsidiaries, to the
extent insurance proceeds from Columbia's D&O Insurance are inadequate or
unavailable to satisfy such claims, arising from liabilities assessed against
such officers, directors, employees and agents for which Columbia has an
indemnity obligation under the terms of Columbia's certificate of
incorporation or otherwise.
Each Class 6.1 Claim shall be paid in cash (i) on the Effective Date, if
then Allowed, and (ii) if not then Allowed, in the ordinary course by
Reorganized Columbia after such Claim is Allowed.
Columbia estimates that, as of the Effective Date, it shall not be
required to make any payments in respect of Allowed Class 6.1 Claims.
Class 6.1 Claims are unimpaired.
VI-22
<PAGE> 293
(ii) CLASS 6.2 - PENSION CLAIMS
Class 6.2 consists of all Claims Filed by the PBGC related to the
Retirement Plan, including the Retirement Plan's Claims, if any, for minimum
funding contributions required by ERISA and the three proofs of claim Filed by
the PBGC with regard to the Retirement Plan.
Under the Plan, as of the Effective Date, Reorganized Columbia will
assume its obligations under the Retirement Plan, including all obligations
imposed by ERISA. The Claims in Class 6.2 shall survive and remain unaffected
by the Plan.
Columbia believes that, as of the Effective Date, no payments in respect
of the Allowed Class 6.2 Claim will be required.
Class 6.2 Claims are unimpaired.
(iii) CLASS 6.3 - SHAWMUT GUARANTY CLAIM
Class 6.3 consists of Columbia's guaranty to Shawmut Bank, N.A. of
certain of the lease obligations with respect to the Columbus, Ohio
headquarters of its subsidiary, Columbia Gas of Ohio, Inc.
Under the Plan, Columbia's secondary obligations to Shawmut Bank, N.A.
shall be unaffected. Columbia believes that, as of the Effective Date, no
payments in respect of the Allowed Class 6.3 Claim will be required.
The Class 6.3 Claim is unimpaired.
VI-23
<PAGE> 294
h. CLASS 7 - INTERESTS IN COMMON STOCK
Class 7 consists of all Interests of the Stockholders in Common Stock.
The Equity Committee believes that Class 7 Interests are impaired under
the Plan as a result of the issuance of DECS and possibly of additional shares
of Common Stock.
The Class 7 Interests shall be deemed impaired under, and shall be
entitled to vote on, the Plan.
B. TRANSACTIONS ON THE EFFECTIVE DATE
The following transfers and transactions shall take place on the
Effective Date:
1. Reorganized Columbia shall take or cause to be taken all actions
which are necessary or appropriate to effect:
(a) filing with the Secretary of State of the State of Delaware a
revised certificate of incorporation substantially in the form of Exhibit
A attached to the Plan and the Designation Certificates with respect to
the New Preferred Stock and DECS in the form attached as Exhibits C and
D, respectively, to the Plan.
(b) issuance of shares of the New Preferred Stock and the DECS.
(c) issuance of the New Indenture Securities.
2. Reorganized Columbia shall enter into the New Indenture.
3. Reorganized Columbia shall enter into one or more Disbursing Agent
Agreements.
VI-24
<PAGE> 295
4. If not previously entered into, Reorganized Columbia shall enter
into the Working Capital Facility and the Term Loan Facility, unless Columbia
waives this condition to the Effective Date.
5. Reorganized Columbia shall make all cash payments required to be
made under the Plan on the Effective Date to Holders of Allowed Claims other
than Class 3.1 Claims and 3.2 Claims.
6. Reorganized Columbia shall deliver to the appropriate Disbursing
Agent or Disbursing Agents all consideration required to be paid on the
Effective Date to Holders of Allowed Class 3.1 Claims and 3.2 Claims.
7. The Disbursing Agent or Disbursing Agents shall make all
distributions required to be made pursuant to the Plan to Holders of Allowed
Class 3.1 and 3.2 Claims subject to the receipt of the Surrender Instruments
or compliance by such Holders with the requirements of the Plan related
thereto.
8. The Setoff Funds (exclusive of any interest earned and accrued
thereon) shall be distributed in accordance with the terms of the Setoff Order
and the interest earned and accrued on the Setoff Funds shall be distributed
to Reorganized Columbia.
9. Unless Columbia withdraws the Offer of Settlement as permitted by
the Plan, the Settlement Amount shall be distributed to the Qualifying Class 4
Claimants in accordance with the terms of its Offer of Settlement.
VI-25
<PAGE> 296
10. Reorganized Columbia shall adjust or replace the Kotaneelee Escrow
in accordance with the provisions of the Canada Sale Agreement.
11. The Stipulation of Dismissal With Prejudice shall have been filed
with and, if necessary, approved by the District Court. To the extent not
previously resolved, the Motion to Unseal Judicial Records, filed with the
District Court by the customer's committee appointed in the TCO Proceeding,
shall not be dismissed.
12. The LESOP shall be terminated and Columbia shall purchase from the
LESOP Thrift Plan Trustee the Columbia Common Stock held by it in Fund E of
the LESOP Trust.
13. Reorganized Columbia shall take any and all further actions
necessary or appropriate to effectuate the Plan.
C. NEW INDENTURE AND NEW INDENTURE SECURITIES
Holders of Allowed Class 3.2 Claims shall receive, as part of the payment
on their Claims, New Indenture Securities issued pursuant to the New
Indenture. The terms and conditions of the New Indenture are described in
Section X.E.2, "Securities To Be Issued Pursuant To The Plan - Indenture
Securities."
D. NEW PREFERRED STOCK AND DECS
Holders of Allowed Class 3.2 Claims shall also receive, as part of the
payment on their Claims, shares of New Preferred Stock and DECS. The terms
and conditions of the New Preferred Stock and DECS are described in,
respectively, Section X.E.5, "Securities To Be Issued Pursuant To The Plan -
New Preferred
VI-26
<PAGE> 297
Stock", and Section X.E.3, "Securities to be Issued Pursuant to the Plan -
Equity DECS."
E. REORGANIZED COLUMBIA OR THIRD PARTY AS DISBURSING AGENT
FOR CLAIMS
The Plan allows Reorganized Columbia or one or more third-parties, as
Reorganized Columbia may in its sole discretion employ, to act as Disbursing
Agent. A Disbursing Agent, other than Reorganized Columbia, shall make all
distributions required to be made in respect of Allowed Class 3.1 and Class
3.2 Claims. Columbia intends to act as Disbursing Agent for all remaining
Classes of Claims.
F. DELIVERY OF DISTRIBUTIONS; UNCLAIMED DISTRIBUTIONS
1. DELIVERY OF DISTRIBUTIONS ON UNCLASSIFIED CLAIMS AND CLAIMS IN
CLASSES 1, 2, 4 AND 6
Distributions to each Holder of an Allowed Unclassified Claim, Class 1
Claim, Class 2 Claim, Class 4 Claim and Class 6 Claim shall be made (i) at the
address set forth on the proof of claim or amendment thereto Filed by such
Holder, (ii) in lieu of the address set forth in clause (i), at the address
set forth in any written notice of address change received by the Disbursing
Agent after the Effective Date, or (iii) at the address of such Holder
reflected in the Schedule of Liabilities if no proof of claim has been Filed
and the relevant Disbursing Agent has not received a written notice of a
change of address.
VI-27
<PAGE> 298
2. DELIVERY OF DISTRIBUTIONS TO HOLDERS OF CLASSES 3.1 AND 3.2
CLAIMS
a. LEDGER CLOSING DATE
Distributions to Holders of Allowed Class 3.1 and 3.2 Claims will be made
by the Disbursing Agent at the direction of Reorganized Columbia. The
Disbursing Agent shall make the distributions at the address maintained by the
designated transfer agents in accordance with the Recordation Order.
In order to have distributions made in an orderly fashion, on the Ledger
Closing Date the transfer ledgers or registers and any other records
determining ownership maintained by the designated transfer agents in
accordance with the Recordation Order will be closed, and for distribution
purposes, there shall be no further changes in the record holders of any of
the Borrowed Money Instruments and the Borrowed Money Claim arising therefrom
or in connection therewith.
b. SURRENDER OF INSTRUMENTS
Holders of the following Surrender Instruments must surrender them to the
Person indicated below in order to receive a distribution under the Plan:
<TABLE>
<CAPTION>
Entity to Which
Surrender Instrument Surrendered
-------------------- ---------------
<S> <C>
Auction Notes Columbia
Bid Notes Columbia
Debentures Indenture Trustee
Notes issued pursuant Bank Agent
to the $500 Million Credit
Agreement (other than
the Auction Notes)
</TABLE>
VI-28
<PAGE> 299
<TABLE>
<S> <C>
Notes issued pursuant to Bank Agent
the $750 Million Credit
Agreement
</TABLE>
Following the Confirmation Date but prior to the Effective Date, Holders of
Surrender Instruments will receive detailed instructions concerning the time,
place and method of such surrenders.
To the extent that a Holder is not the record holder of a relevant
Surrender Instrument as of the Ledger Closing Date, such Holder must deliver
to the specified Person to which such Surrender Instrument must be
surrendered, together with the relevant Surrender Instrument, documents
reasonably satisfactory to Reorganized Columbia evidencing succession of title
from the record holder thereof. In the event that any Surrender Instrument
which must be surrendered has been lost, destroyed, stolen or mutilated, the
Holder thereof may instead execute and deliver an affidavit of loss and
indemnity with respect thereto in form that is customarily utilized for such
purposes and that is reasonably satisfactory to Reorganized Columbia, together
with, if Reorganized Columbia so requests, a bond in form and substance
(including, without limitation, amount) reasonably satisfactory to Reorganized
Columbia.
Holders of Borrowed Money Claims not evidenced by Surrender Instruments
need not surrender any instruments.
c. CANCELLATION
All Surrender Instruments shall be canceled and, as of the Effective
Date, all Borrowed Money Instruments, the $500 Million
VI-29
<PAGE> 300
Credit Agreement, the $750 Million Credit Agreement, the 1961 Indenture, the
Rate Swap Agreement, the Commercial Paper Master Note representing the
Commercial Paper, the LESOP Indenture and any other instrument or document
evidencing any Claims in Class 3.1 or Class 3.2 shall be terminated, null and
void and of no further force and effect.
d. DISTRIBUTIONS OF CASH, NEW INDENTURE SECURITIES, NEW
PREFERRED STOCK AND DECS
On the Effective Date, Reorganized Columbia shall deliver to the
appropriate Disbursing Agents for Allowed Class 3.1 and Class 3.2 Claims (i)
the Cash Consideration, if any, (ii) the cash required to pay Allowed Class
3.1 Claims, (iii) the cash necessary to make payments required with respect to
fractional shares and to permit the issuance of New Indenture Securities in
denominations of integral multiples of $1,000 only, (iv) one duly issued
certificate, registered in the name of each of the appropriate Disbursing
Agents, for, in the aggregate, the number of shares of DECS to be issued under
the Plan to Holders of Allowed Class 3.2 Claims and (v) one duly issued
certificate, registered in the name of each of the appropriate Disbursing
Agents, for, in the aggregate, the number of shares of New Preferred Stock to
be issued under the Plan to Holders of Allowed Class 3.2 Claims. On the
Effective Date, Reorganized Columbia shall deliver to The Depository Trust
Company or its nominee, for the account of the appropriate Disbursing Agents,
one or more duly issued and authenticated New Indenture Securities for each
Issue to be issued under the Plan, payable
VI-30
<PAGE> 301
to The Depository Trust Company or its nominee. On the Effective Date, or
from time to time thereafter upon compliance with the provisions requiring the
surrender of the Surrender Instruments, the Disbursing Agent shall make all
the appropriate distributions in respect of Allowed Class 3.1 Claims and
Allowed Class 3.2 Claims.
e. CASH IN LIEU OF FRACTIONAL SHARES; ROUNDING OF NEW
INDENTURE SECURITIES
No fractional shares of New Preferred Stock or DECS shall be issued under
the Plan. In lieu thereof, Reorganized Columbia will pay to any Person
entitled to receive any such fractional share cash in an amount equal to the
Liquidation Value of such fractional share as of the Effective Date.
New Indenture Securities shall be issued solely in denominations of
$1,000 or integral multiples thereof.
Any Holder of an Allowed Class 3.2 Claim entitled to receive New
Indenture Securities aggregating less than $70,000 in principal amount shall
receive (i) First Issue Securities to the extent of that portion of its
entitlement that is an integral multiple of $1,000 and (ii) cash or a First
Issue Security for the balance, as set forth in the final paragraph of this
Section.
Any Holder of an Allowed Class 3.2 Claim entitled to receive New
Indenture Securities aggregating $70,000 or more in principal amount shall
receive (i) for that portion of its entitlement that is an integral multiple
of $7,000, equal principal amounts of each Issue of New Indenture Securities,
VI-31
<PAGE> 302
(ii) First Issue Securities to the extent of the balance of its entitlement
that is an integral multiple of $1,000 and (iii) cash or a First Issue
Security for the balance, as set forth in the final paragraph of this Section.
With respect to any balance described in clause (ii) of the third
paragraph or clause (iii) of the fourth paragraph of this Section, (i) if such
balance is $500 or less, such amount shall be paid in cash and (ii) if such
balance is more than $500, such amount shall be paid, at Reorganized
Columbia's option, in cash or by the issuance of a First Issue Security in the
principal amount of $1,000, in which latter case, Reorganized Columbia shall
deduct from the Cash Consideration, if any, to which such Holder is entitled,
the amount by which $1,000 exceeds the amount required to be paid to such
Holder in accordance with such clauses (ii) or (iii).
3. UNCLAIMED DISTRIBUTIONS
An Unclaimed Distribution shall be (A) any distribution made to the
Holder of an Allowed Claim pursuant to the Plan including, in the case of any
check or other instrument, the proceeds thereof, that (i) is returned to
Reorganized Columbia or the applicable Disbursing Agent as undeliverable or
because delivery thereof is not accepted, or (ii) in the case of a
distribution made in the form of a check, is not presented for payment within
six months after it is sent to the payee thereof and (B) any distribution to
be made to the Holder of an Allowed Claim pursuant to the Plan in respect of a
Surrender Instrument
VI-32
<PAGE> 303
if such Surrender Instrument is not surrendered to the appropriate Person or
the provisions of the Plan with respect to the surrender thereof are not
otherwise complied with within six months after the Effective Date.
Any Unclaimed Distribution in the form of cash shall, until such time as
such Unclaimed Distribution becomes deliverable, be paid over by the
appropriate Disbursing Agent to Reorganized Columbia, which shall hold such
cash and may commingle it with its other funds. Unclaimed Distributions in
the form of New Indenture Securities, New Preferred Stock or DECS shall be
held by the applicable Disbursing Agent (through The Depository Trust Company
in the case of New Indenture Securities that are to be issued in non-
certificated form). Reorganized Columbia shall pay and the Disbursing Agent
shall receive and hold any interest and dividends to be paid by Reorganized
Columbia on behalf of any Unclaimed Distributions in the form of New Indenture
Securities, New Preferred Stock or DECS.
Any Holder of an Allowed Claim that does not claim an Unclaimed
Distribution within five years after the Confirmation Date shall not
participate in any further distributions under the Plan and shall be forever
barred from asserting any such Claim against Reorganized Columbia or its
property. At the end of such five year period, the Unclaimed Distributions
consisting of New Indenture Securities, New Preferred Stock, DECS and any
dividends, interest and other property received in exchange for or in respect
of such New Indenture Securities, New Preferred
VI-33
<PAGE> 304
Stock or DECS shall be delivered by the Disbursing Agent (through The
Depository Trust Company in the case of New Indenture Securities that are to
be issued in non-certificated form) to Reorganized Columbia which shall retain
the same as its property, free of any restrictions, and may cancel any such
New Indenture Securities, New Preferred Stock or DECS. Any cash held by any
Disbursing Agent in respect of such Claims shall be delivered by such
Disbursing Agent to Reorganized Columbia and any such cash previously
delivered to and being held by Reorganized Columbia shall be the property of
Reorganized Columbia, free of any restrictions. Nothing contained in the Plan
shall require any Disbursing Agent or Reorganized Columbia to attempt to
locate any Holder of an Allowed Claim other than by reviewing its own or
Reorganized Columbia's records or the records maintained in accordance with
the Recordation Order.
The states' abandoned property laws are preempted when they are in
conflict with federal bankruptcy law. Section 347(b) of the Bankruptcy Code
provides that "any security, money or other property remaining unclaimed at
the expiration of the time allowed in a case under Chapter 9, 11 or 12 of this
title for the presentation of a security or the performance of any other act
as a plan confirmed under section 943(b), 1129, 1173, or 1225 of this title,
as the case may be, becomes the property of the debtor or the entity acquiring
the assets of the debtor
VI-34
<PAGE> 305
under the plan, as the case may be." Accordingly, all Unclaimed Distributions
shall become property of Reorganized Columbia.
4. MEANS OF CASH PAYMENTS
Cash payments made pursuant to the Plan shall be in United States dollars
by check drawn on a domestic bank selected by the Disbursing Agent making such
payment, or, at the option of such Disbursing Agent, by wire transfer from a
domestic bank; provided, however, that cash payments to foreign creditors, if
any, may be made, at the option of such Disbursing Agent, in such funds and by
such means as are necessary or customary in a particular foreign jurisdiction.
All foreign currency costs and wire transfer costs incurred in making
distributions to any Holder of a Claim pursuant to the Plan shall be for the
account of such Holder.
5. SETOFFS
Reorganized Columbia may set off against any Allowed Claim and the
distributions to be made pursuant to the Plan on account of such Claim, the
claims, rights and causes of action of any nature that Columbia or Reorganized
Columbia may hold against the Holder of such Allowed Claim; provided, however,
that neither the failure to effect such a setoff nor the allowance of any
Claim under the Plan shall constitute a waiver or release by Columbia or
Reorganized Columbia of any such claim, right or cause of action that Columbia
or Reorganized Columbia may possess against such Holder.
VI-35
<PAGE> 306
Pursuant to the Setoff Order, Morgan Guaranty Trust Company of New York
currently holds the Setoff Funds which Columbia estimates will total, as of
the Effective Date, approximately $2.8 million. On the Effective Date, the
Morgan Guaranty Trust Company of New York shall deliver the Setoff Funds
(exclusive of interest earned and accrued thereon) to the Disbursing Agent
which shall distribute them to Holders of Allowed Class 3.1 Claims and Allowed
Class 3.2 Claims that arise by virtue of the $500 Million Credit Agreement
(other than Auction Notes) and the $750 Million Credit Agreement in partial
satisfaction of their Claims. The remaining amount of the Claims arising from
the $500 Million Credit Agreement and the $750 Million Credit Agreement, after
taking into account such distribution, shall be treated as a Class 3.2 Claim
or, if the amount of such Claim as of June 1, 1995, as so reduced, is not
greater than $20,000, as a Class 3.1 Claim. In accordance with the provisions
of the Setoff Order, interest earned and accrued on the Setoff Funds shall be
distributed by Morgan Guaranty Trust Company of New York to Columbia on the
Effective Date.
6. CONTINUATION OF CERTAIN RETIREMENT, WORKERS' COMPENSATION AND LONG-
TERM DISABILITY BENEFITS
All employee and retiree benefit plans or programs in existence as of the
Petition Date (other than the LESOP), including the Retirement Plan, shall
continue after the Effective Date.
VI-36
<PAGE> 307
G. CONTINUED CORPORATE EXISTENCE AND VESTING OF ASSETS IN REORGANIZED
COLUMBIA
Columbia shall continue to exist after the Effective Date as Reorganized
Columbia, a Delaware corporation, with all the powers of a corporation under
applicable law and without prejudice to any right to alter or terminate such
existence (whether by merger or otherwise) under Delaware law, subject to the
terms and provisions of the Plan and the Confirmation Order. Except as
otherwise provided in the Plan, on or after the Effective Date, all property
of the Columbia Estate, and any property acquired by Columbia or Reorganized
Columbia under any provisions of the Plan, shall vest in Reorganized Columbia,
free and clear of all Claims, liens, charges and other encumbrances. On and
after the Effective Date, Reorganized Columbia may operate its business and
may use, acquire and dispose of property and compromise or settle any claims
against it without supervision or approval by the Bankruptcy Court and free of
any restrictions of the Bankruptcy Code or Bankruptcy Rules, other than those
restrictions expressly imposed by the Plan and the Confirmation Order.
Reorganized Columbia may pay the charges that it incurs on or after the
Effective Date for professional fees, disbursements, expenses or related
support services without application to the Bankruptcy Court.
VI-37
<PAGE> 308
H. CORPORATE GOVERNANCE, DIRECTORS AND OFFICERS
1. CERTIFICATE OF INCORPORATION
Holders of Common Stock will retain their equity interests in Columbia
and are asked to approve amendments to the certificate of incorporation of
Reorganized Columbia which, among other things, will (i) prohibit the issuance
of non-voting equity securities to the extent required by section 1123(a) of
the Bankruptcy Code, (ii) delete current restrictions on Common Stock
dividends and amounts of debt applicable while any Preferred Stock is
outstanding, (iii) provide that the Board of Directors may determine the
specific rights, powers and preferences of each series of Preferred Stock and
the limitations thereon at the time of its issuance, (iv) increase the amount
of Columbia's authorized Preferred Stock and (v) decrease the par value of the
Preferred Stock from $50 per share to $10 per share. See Exhibit A to the
Plan for a copy of the proposed amended and restated certificate of
incorporation. After the Effective Date, Reorganized Columbia may amend its
certificate of incorporation or by-laws as permitted by the Delaware General
Corporation Law.
2. DIRECTORS AND OFFICERS OF REORGANIZED COLUMBIA
Those Persons serving as the directors and officers of Columbia as of the
date hereof will, subject to changes in the ordinary course of business and
except as discussed in Section X.G.2.b, "Reorganized Columbia Gas - Changes in
Senior
VI-38
<PAGE> 309
Management", continue to serve in their same capacities on behalf of
Reorganized Columbia after the Effective Date.
3. CORPORATE ACTION
Upon the Effective Date, adoption by Reorganized Columbia of an amended
and restated certificate of incorporation and other matters contemplated by or
provided for under the Plan involving the corporate structure of Columbia or
Reorganized Columbia or corporate action to be taken by or required of either
Columbia or Reorganized Columbia shall be deemed to have occurred and be
effective and upon the filing of the amended and restated certificate of
incorporation as required by Delaware law, all actions required or
contemplated in order to consummate the Plan shall be authorized and approved
in all respects without any requirement of further action by Stockholders or
directors of Columbia or Reorganized Columbia.
4. LESOP
On the Effective Date, the LESOP shall be terminated and Reorganized
Columbia, in accordance with the terms of the LESOP Trust, shall purchase the
shares of Columbia Common Stock held by the LESOP Thrift Plan Trustee in Fund
E of the LESOP Trust for cash at a price per share equal to the weighted
average of the trading prices of a all trades on the New York Stock Exchange
of shares of Common Stock during the five consecutive trading days ending on
the trading day prior to the Effective Date. Such cash purchase price shall
be delivered by Reorganized Columbia to the LESOP Indenture Trustee, which
shall
VI-39
<PAGE> 310
distribute such purchase price pro rata to the Holders of the LESOP
Debentures. For purposes of the Plan, each Holder's Claim shall be reduced by
an amount equal to its pro rata share of the proceeds of the sale of the
Common Stock. Such amount shall be applied, first, to any post-petition
interest to which such Holder is entitled as calculated in accordance with the
Plan and then to reduce the principal amount of the Holder's LESOP Claim. The
remaining principal amount of such Holder's Claim, after taking into account
such distribution, shall be treated as a Class 3.2 Claim or, if the principal
amount of such Claim as of June 1, 1995, as so reduced, is not greater than
$20,000, as a Class 3.1 Claim.
5. WAIVERS, RELEASES AND ABANDONMENT OF CLAIMS
The claims alleged in the Derivative Action are assets of the Estate.
Columbia's Board of Directors has appointed a Special Litigation Committee of
the Board to determine whether the Derivative Action should be dismissed. The
Special Litigation Committee has retained counsel to assist it in its
investigation. Once the Special Litigation Committee has completed its
investigation and submitted its determinations, which determinations shall be
binding on the Board, the Plan and the Columbia Disclosure Statement shall be
amended to describe such determinations and proposed treatment of the
Derivative Action.
VI-40
<PAGE> 311
I. BAR DATES
1. BAR DATE FOR OBJECTIONS TO NON-ADMINISTRATIVE CLAIMS
Any non-Administrative Claim which was not Filed at least thirty days
prior to the date of the hearing on this Disclosure Statement may be objected
to by Columbia, Reorganized Columbia, the Creditors' Committee or the Equity
Committee. Any such objections must be made by the later of (i) the Effective
Date or (ii) sixty days after a proof of claim with respect to such Claim has
been Filed. Any such Claim that has not been objected to on or prior to such
date shall be an Allowed Claim in the appropriate Class.
2. BAR DATES FOR PROFESSIONAL CLAIMS
Professionals or other entities requesting compensation or reimbursement
of expenses for "substantial contribution" to the Reorganization Case shall
File and serve on Reorganized Columbia, the U.S. Trustee and the Fee Examiner
an application for final allowance of compensation and reimbursement of
expenses no later than thirty days after the Effective Date. Objections to
such applications must be Filed and served on Reorganized Columbia, the U.S.
Trustee, the Fee Examiner and the requesting party no later than sixty days
after the Effective Date. Payment of such professional fees shall be subject
to approval by the Bankruptcy Court following a hearing.
3. NON-ORDINARY COURSE ADMINISTRATIVE CLAIMS
Columbia intends to File a Motion seeking an order establishing the
sixtieth day following the Effective Date as
VI-41
<PAGE> 312
the bar date for the Filing of any motion seeking the allowance of an
Administrative Claim other than Professional Claims, for services rendered
prior to the Effective Date, Post-Petition Operational Claims, Assumed
Executory Contract Claims, U.S. Trustee Fee Claims and indemnification Claims
of officers, directors, employees and agents of Columbia and its subsidiaries.
J. REJECTION OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES; ADDITIONAL
BAR DATES
1. GENERAL
All executory contracts that have not been so expressly rejected shall be
assumed. Exhibit E annexed to the Plan briefly describes all of Columbia's
executory contracts and states Columbia's intention with respect to assumption
or rejection thereto.
2. TAX ALLOCATION AGREEMENT
Under the Plan, Columbia will, subject to Bankruptcy Court approval,
assume the Tax Allocation Agreement on the Effective Date. See Section V.F.4,
"Approval of Tax Allocation Procedures."
3. BAR DATE FOR REJECTION DAMAGES
If the rejection of an executory contract or unexpired lease pursuant to
the Plan or the Confirmation Order gives rise to an Unsecured Claim or
Administrative Claim by the other party or parties to such contract or lease,
such Claim will be forever barred and will not be enforceable against
Columbia, Reorganized Columbia or its successors, or the properties of any of
them,
VI-42
<PAGE> 313
unless a request for payment, with respect to Administrative Claims, or a
proof of claim, with respect to other Claims, is Filed and served on
Reorganized Columbia within the later of (i) the time period established by
the Bankruptcy Court in its Final Order authorizing such rejection or (ii)
thirty days after the Effective Date. Objections to any request for payment
or proof of claim shall be filed not later than seventy days after the
Effective Date.
4. EXECUTORY CONTRACTS AND UNEXPIRED LEASES ENTERED INTO AND OTHER
OBLIGATIONS INCURRED AFTER THE PETITION DATE
Executory contracts and unexpired leases entered into and other
obligations incurred by Columbia after the Petition Date (unless an order of
the Bankruptcy Court has been entered authorizing rejection of such contracts
or leases) shall survive and remain unaffected by the Plan or entry of the
Confirmation Order.
K. CONDITIONS PRECEDENT TO CONFIRMATION AND CONSUMMATION OF THE PLAN
1. CONDITIONS TO CONFIRMATION
The Bankruptcy Court shall not enter the Confirmation Order unless and
until each of the following conditions has been satisfied or, to the extent
permitted, duly waived by Columbia:
1. The Bankruptcy Court has entered or shall concurrently enter an
order, pursuant to section 1129 of the Bankruptcy Code, confirming the TCO
Plan.
VI-43
<PAGE> 314
2. The Plan shall have been approved by the SEC under the HCA and the
SEC shall have approved all transactions contemplated by the TCO Plan which
require its approval.
3. There shall have been no material adverse change to Columbia's
business, properties, financial condition, results of operations or business
prospects between the Plan Mailing Date and the Confirmation Date.
4. No material environmental liability Claim shall have been Filed by
any Person including, without limitation, any state or federal environmental
or regulatory agency, asserting actual or potential liability against
Columbia, other than Claims Filed pursuant to consensual settlement agreements
between Columbia and such state or federal environmental or regulatory agency
or other governmental Person.
5. TCO and Columbia shall have received a ruling from the IRS, in form
and substance satisfactory to TCO and Columbia, to the effect that payments
made by TCO under the TCO Plan that are attributable to the breach,
termination or rejection of gas purchase contracts are deductible when paid by
TCO for Federal income tax purposes.
6. The Plan shall not have been amended, modified, waived, supplemented
or withdrawn, in whole or in part, without (a) the prior consent of Columbia,
after consultation with the Creditors' Committee and the Equity Committee, and
(b) the consent of the Creditors' Committee and the Equity Committee for
VI-44
<PAGE> 315
certain provisions as further discussed in Section VI.L.5, "Miscellaneous -
Modification of the Plan."
7. Each of Moody's Investor's Service, Inc. and Standard & Poor's
Ratings Group shall have issued a provisional or similar rating to the effect
that each Issue of the New Indenture Securities, upon its issuance in
accordance with the Plan, shall be rated Investment Grade.
8. Qualifying Class 4 Claimants holding Securities Action Claims
entitling them to receive at least 75% of the Maximum Proof of Claim Amount
have accepted the Offer of Settlement.
2. CONDITIONS TO EFFECTIVE DATE
The Plan shall not be consummated and the Effective Date shall not occur
unless and until each of the following conditions has been satisfied or, to
the extent permitted, duly waived by Columbia:
1. The Confirmation Order shall not have been vacated, reversed or
stayed.
2. The Bankruptcy Court shall have confirmed the TCO Plan and the order
with respect to such confirmation shall not have been vacated, reversed or
stayed. The TCO Plan shall have become or shall concurrently become effective
on terms consistent with the Plan and without any amendments to which Columbia
shall not have consented.
3. The order of the SEC approving, under the HCA, the Plan and all
transactions contemplated by the TCO Plan which
VI-45
<PAGE> 316
require its approval shall not have been vacated, reversed or stayed.
4. There shall have been no material adverse change to Columbia's
business, properties, financial condition, results of operations or business
prospects between the Confirmation Date and the Effective Date.
5. Any condition to Confirmation that is waived by Columbia and that,
at the time of such waiver, Columbia elects to have become a condition to the
consummation of the Plan, shall have been satisfied or, if waivable, waived.
6. Reorganized Columbia shall have entered into the Working Capital
Facility, the Term Loan Facility and the New Indenture, each of such
agreements shall be in effect and the full amount of each such Facility shall
be available for borrowing by Reorganized Columbia.
7. The Stipulation of Dismissal With Prejudice shall have been filed
with and, if necessary, approved by the District Court.
8. Each of Moody's Investors Service, Inc. and Standard & Poor's Rating
Group shall have confirmed that each Issue of New Indenture Securities, upon
its issuance in accordance with the Plan, shall be rated Investment Grade, and
neither of those rating agencies shall have put Columbia on "credit watch"
with negative implications.
9. The Effective Date shall occur on or before June 28, 1996.
VI-46
<PAGE> 317
3. WAIVER OF CONDITIONS TO CONFIRMATION OR
EFFECTIVE DATE
Each of the conditions to Confirmation or to the Effective Date may be
waived in whole or in part by Columbia at any time in its discretion, provided
that (i) the condition to Confirmation concerning authorization or approval
under the HCA may be waived only if Columbia elects to have such condition
become a condition to the Effective Date and may not be waived as a condition
to the Effective Date, (ii) the conditions to Confirmation concerning material
environmental liability Claims and a ruling from the IRS may be waived only if
Columbia elects to have the conditions waived become conditions to the
Effective Date, (iii) the conditions to Confirmation concerning the
modification of the Plan and the issuance of a provisional or similar
Investment Grade ratings and the conditions to the Effective Date concerning
the last date by which the Effective Date must occur and the receipt of
confirmation regarding Investment Grade ratings may only be waived by Columbia
if consented to by the Equity Committee and the Creditors' Committee, (iv) to
the extent the condition to Confirmation concerning amendments, modifications,
waivers, supplements or withdrawals requires consultation with the Creditors'
Committee and Equity Committee, such condition may not be waived without
consulting the Creditors' Committee and Equity Committee and, to the extent
such condition requires the consent of the Creditors' Committee and the Equity
Committee, such condition may not be waived without the consent of the
Creditors' Committee and the
VI-47
<PAGE> 318
Equity Committee, and (v) none of the conditions to Confirmation and the
Effective Date may be waived without the Equity Committee and the Creditors'
Committee having been given notice and an opportunity to be heard. To be
effective, any such waiver and consent must be in writing, Filed and served
upon the appropriate parties. If the condition to Confirmation concerning a
ruling from the IRS has not been satisfied by December 15, 1995, then Columbia
and TCO shall, by December 31, 1995, either (a) waive such condition to
Confirmation and/or the Effective Date or (b) refuse to waive such condition,
in which case, if the Initial Producer Settlement Agreement set forth in the
TCO Plan terminates, Columbia may revoke the Plan. Columbia's failure to
exercise any of the foregoing rights shall not be deemed a waiver of any other
rights, and each such right shall be deemed an ongoing right, which may be
asserted at any time.
4. EFFECT OF NON-OCCURRENCE OF CONDITIONS TO EFFECTIVE DATE
Each of the conditions to the Effective Date must be satisfied or duly
waived by Columbia or other appropriate parties pursuant to the Plan by June
28, 1996. If the Confirmation Order is vacated and not amended or modified in
accordance with the provisions of the Bankruptcy Code so that the Confirmation
Order is reinstated or a new Confirmation Order is entered, the Plan,
including the discharge of Claims pursuant to section 1141 of the Bankruptcy
Code, and the assumptions or rejections of executory contracts or unexpired
leases as
VI-48
<PAGE> 319
described in Exhibit E annexed to the Plan, shall be null and void ab initio
in all respects. In the event the Confirmation Order is so vacated, nothing
contained in the Plan shall (i) constitute a waiver or release of any Claim by
or against, or any Interests in, TCO or Columbia, (ii) prejudice in any manner
the rights of TCO or Columbia or (iii) constitute an admission against TCO or
Columbia.
5. WORKING CAPITAL FACILITY
A condition to the Plan's Effective Date is Reorganized Columbia's entry
into the Working Capital Facility. The Working Capital Facility is discussed
in Section X.F.2, "Working Capital Facility."
6. TERM LOAN FACILITY
A further condition to the Plan's Effective Date is Reorganized
Columbia's entry into the Term Loan Facility. The Term Loan Facility is
discussed in Section X.F.1, "Term Loan Facility."
L. MISCELLANEOUS
1. DISSOLUTION OF COMMITTEES
On the Effective Date the Equity Committee will be dissolved. The
Creditors' Committee shall continue in existence following the Effective Date
for the sole purpose of representing the Creditors' interests with respect to
any redemption of the New Preferred Stock and the DECS or the resetting of the
dividend rates of the New Preferred Stock and the DECS and the establishment
of certain terms of the DECS and
VI-49
<PAGE> 320
shall be dissolved immediately following the conclusion of those events. Upon
the dissolution of each of the Equity Committee and the Creditors' Committee,
the members of each Committee as such will be released and discharged from all
rights and duties arising from or related to the Reorganization Case. The
Professionals retained by the Creditors' Committee and the Equity Committee
and the members thereof will not be entitled to compensation or reimbursement
of expenses for any services rendered after the Effective Date, except for (i)
the services rendered by Professionals retained by the Creditors' Committee
solely with respect to matters related to the redemption or the resetting of
the terms of the New Preferred Stock and the DECS as described above and (ii)
services rendered and expenses incurred in connection with any applications
for allowance of compensation and reimbursement of expenses pending on the
Effective Date or Filed and served after the Effective Date.
2. DISCHARGE, TERMINATION AND INJUNCTION
Section X of the Plan sets forth provisions releasing and discharging
Columbia from Claims and other obligations arising prior to the Confirmation
Date and enjoining the prosection of such Claims and obligations. Section V.D
of the Plan provides for the release of all security interests in property of
Columbia, except as otherwise provided in the Plan.
VI-50
<PAGE> 321
3. JURISDICTION OF THE BANKRUPTCY COURT
Section XI of the Plan specifies certain matters with respect to which
the Bankruptcy Court will retain jurisdiction after the Effective Date to the
extent legally permissible. In particular, the Bankruptcy Court's retention
of jurisdiction will include, without limitation, the resolution of Claims,
including the Securities Action Claims of Rejecting Class 4 Claimants, and any
disputes arising over the distributions under the Plan.
4. LIMITATION OF LIABILITY
The Plan limits the liability of Columbia, Reorganized Columbia, their
affiliates and their respective directors, officers, employees, agents,
representatives and professionals (acting in such capacity), and the
Creditors' Committee, the Equity Committee and their respective members and
professionals (acting in such capacity), the Equity Committee's invitees
(including its professionals), and their respective heirs, executors,
administrators, successors and assigns, with respect to their actions or
omissions in connection with the Reorganization Case, the Plan, this
Disclosure Statement and related transactions. However, this limitation of
liability does not extend to any act or omission which is determined to have
constituted gross negligence or willful misconduct.
5. MODIFICATION OF THE PLAN
Subject to the restrictions on modifications set forth in section 1127 of
the Bankruptcy Code, Columbia reserves the right
VI-51
<PAGE> 322
to alter, amend or modify the Plan before its substantial consummation.
However, Columbia may not amend, without the prior consent of each of the
Creditors' Committee and the Equity Committee: (i) the Pricing Formulae, (ii)
the conditions to the Confirmation Date and the Effective Date set forth in
the Plan and (iii) the treatment proposed in the Plan for Holders of Class 3.1
and Class 3.2 Claims.
6. REVOCATION OF THE PLAN
Columbia reserves the right to revoke or withdraw the Plan prior to the
Confirmation Date. If Columbia revokes or withdraws the Plan, or if
Confirmation does not occur, then the Plan will be null and void in all
respects, and nothing contained in the Plan will (i) constitute a waiver or
release of any Claims by or against, or any Interests in, Columbia or TCO (ii)
prejudice in any manner the rights of Columbia or TCO or (iii) constitute an
admission against Columbia or TCO.
7. SEVERABILITY OF PLAN PROVISIONS
If, at or prior to Confirmation of the Plan, any term or provision of the
Plan is held by the Bankruptcy Court to be invalid, void or unenforceable, the
Bankruptcy Court will have the power to alter and interpret such term or
provision to make it valid or enforceable to the maximum extent practicable,
consistent with the original purpose of the term or provision held to be
invalid, void or unenforceable, and such term or provision shall then be
applicable as altered or interpreted. In the event of any such holding,
alteration or interpretation,
VI-52
<PAGE> 323
the remainder of the terms and provisions of the Plan may, at Columbia's
option, remain in full force and effect and not be deemed affected, impaired
or invalidated by such holding, alteration or interpretation. However,
Columbia reserves the right not to proceed to Confirmation or consummation of
the Plan if any such ruling occurs. The Confirmation Order will constitute a
judicial determination and shall provide that each term and provision of the
Plan, as it may have been altered or interpreted in accordance with the
foregoing, is valid and enforceable pursuant to its terms.
8. RELEASES
Section X.D of the Plan provides for releases by Columbia and Reorganized
Columbia of, among other Persons, Columbia's officers, directors, shareholders
and employees, the Creditors' and Equity Committees and each of their members
and invitees, the TCO Committees and TCO and Reorganized TCO. No releases,
however, shall be effective with respect to any Claims which may be asserted
by Rejecting Class 4 Claimants until their Allowed Claims have been paid in
accordance with the Plan. Section X.F of the Plan further provides that
Holders of Allowed Class 3.1 and Class 3.2 Claims receiving payment on their
Claims under the Plan shall be deemed to have released any Securities Action
Claims arising from or related to securities that gave rise to their Borrowed
Money Claims.
VI-53
<PAGE> 324
9. SUCCESSORS AND ASSIGNS
The rights, benefits and obligations of any Person named or referred to
in the Plan will be binding on, and will inure to the benefit of, any heir,
executor, administrator, successor or assign of such Person.
VI-54
<PAGE> 325
VII. RISK FACTORS
The following is a summary of certain material risks associated with the
Plan and the securities to be issued, or retained by existing Holders,
pursuant to that Plan. Each Creditor entitled to vote on the Plan and each
Stockholder should carefully consider the risk factors enumerated or referred
to below, as well as all the information contained in this Disclosure
Statement, including the exhibits hereto, in determining whether to vote to
accept or reject the Columbia Plan.
A. CONDITIONAL NATURE OF THE PLAN
There are a number of significant conditions to the Confirmation and
effectiveness of the Plan. Those conditions include, among other things, the
conditions that (i) the TCO Plan, the Confirmation and effectiveness of which
are also subject to many significant conditions, shall have been, or shall
concurrently be, confirmed by an order of the Bankruptcy Court and such order
shall not have been vacated, reversed or stayed; (ii) the Plan shall have been
approved by the SEC under the HCA and the SEC shall have approved all
transactions contemplated by the TCO Plan which require its approval, and the
order embodying those approvals shall not have been vacated, reversed or
stayed; (iii) there shall have been no material adverse change to Columbia's
business, properties, financial condition, results of operations or business
prospects between
VII-1
<PAGE> 326
the Plan Mailing Date and the Effective Date; (iv) TCO and Columbia shall have
received a ruling from the IRS, in form and substance satisfactory to TCO and
Columbia, to the effect that payments made by TCO under the TCO Plan that are
attributable to the breach, termination or rejection of gas purchase contracts
are deductible by TCO for federal income tax purposes, provided, that, if such
ruling has not been received by December 15, 1995, then the settlement with
the Initial Accepting Producers shall terminate on December 31, 1995, and
Columbia may revoke the Plan, unless prior to December 31, 1995 either (a) TCO
and Columbia waive the receipt of such ruling as a condition to Confirmation
or the Effective Date, as appropriate, or (b) the Initial Accepting Producers
agree, in writing, to an extension of the time within which the IRS ruling
must be obtained; (v) Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group shall have confirmed that the New Indenture Securities, upon
their issuance, will be rated Investment Grade, and they shall not have put
Columbia on "credit watch" with negative implications; (vi) Columbia shall
have entered into the Working Capital Facility and the Term Loan Facility and
the full amounts of each such facility shall be available for borrowing by
Columbia; (vii) Qualifying Class 4 Claimants holding Securities Action Claims
representing at least 75% in value of the Maximum Proof of Claim Amount (as
defined in Section VI.A.2.e) shall have accepted the Offer of Settlement
proposed
VII-2
<PAGE> 327
in the Plan; (viii) a Stipulation of Dismissal With Prejudice of the
Intercompany Claims Litigation, conditioned only upon the completion of
payment of all distributions payable on the effective date of the TCO Plan,
shall have been filed with and, if necessary, approved by the District Court;
and (ix) the Effective Date shall have occurred on or before June 28, 1996.
For a complete description of all of the conditions to the Confirmation and
the effectiveness of the Plan, see Section VI.K, "Conditions Precedent to
Confirmation and Consummation of the Columbia Plan." Each of the conditions
to Confirmation and the Effective Date may be waived by Columbia, provided
however, that (i) none of the conditions to Confirmation or the Effective Date
may be waived without the Equity Committee and the Creditors' Committee having
been given notice thereof and an opportunity to be heard, (ii) the consent of
both those Committees is required to waive the conditions described in clauses
(v) and (ix) above, (iii) the condition described in clause (ii) above may not
be waived with respect to the Effective Date, and (iv) Columbia may not change
the Pricing Formulae, the conditions to Confirmation or the Effective Date, or
the treatment of Class 3.1 and 3.2 Claims, without the consent of the
Creditors' and Equity Committees.
While Columbia believes that each of the conditions to Confirmation and
the Effective Date (and to the confirmation and effectiveness of the TCO Plan)
should be capable of being
VII-3
<PAGE> 328
satisfied (or, if appropriate, amended or waived) by June 28, 1996,
satisfaction of many of those conditions is beyond the control of Columbia.
Accordingly, no assurances can be given that the Plan will be confirmed and
become effective or that Confirmation and the Effective Date will occur by any
particular date. In the event that the Effective Date does not occur by June
28, 1996, the terms of TCO's settlements with its Customers and with certain
Producers (which are subject to termination by the creditors that are parties
thereto if the Effective Date does not occur by that date), as well as changes
in the securities and other financial markets, or in Columbia's or TCO's
financial condition and results of operations, may materially affect the
feasibility, timing or other elements of the Plan. Further, if the effective
date of the TCO Plan does not occur by January 31, 1996, TCO has agreed to
make supplemental interest payments to certain creditors, including Producers,
commencing as of January 31, 1996 and accruing through the effective date of
that Plan.
B. LACK OF ESTABLISHED MARKET FOR THE NEW INDENTURE SECURITIES, DECS
AND NEW PREFERRED STOCK; VOLATILITY AND OTHER RISKS AFFECTING VALUE
There is no existing market for the New Indenture Securities, the DECS or
the New Preferred Stock. The New Indenture Securities will not be listed on
any exchange and the DECS or the New Preferred Stock will not be listed on any
exchange unless they are still outstanding 120 days after the
VII-4
<PAGE> 329
Effective Date. In addition, there can be no assurance that an active market
therefor will develop or as to the degree of price volatility in any such
particular market. Accordingly, no assurance can be given that a holder of
the securities to be issued pursuant to the Plan will be able to sell such
securities in the future or as to the price at which such a sale may occur.
If such markets were to exist, such securities could trade at prices higher or
lower than par, depending upon many factors, including prevailing interest
rates, general bond market and economic conditions, markets for similar
securities, general industry conditions and the performance of, and investor
expectations for, Reorganized Columbia. Furthermore, Columbia's right to call
the DECS and New Preferred Stock for 120 days following the Effective Date and
to effect such call without the payment of accrued dividends for 90 days
following the Effective Date could cause such securities to trade at prices
lower than par.
It is currently contemplated that the DECS and the New Preferred Stock
not redeemed by Columbia on or before the 120th day following the Effective
Date will be traded on the New York Stock Exchange. However, the DECS and the
New Preferred Stock will be issued to certain pre-petition Creditors, some of
whom may prefer to liquidate their investment rather than to hold such
securities. Further, an investment in the DECS and the New Preferred Stock
will be less liquid than might otherwise be
VII-5
<PAGE> 330
expected if Columbia redeems a significant amount, but not all, of the DECS or
the New Preferred Stock within the 120 day period following the Effective Date
as it is permitted to do pursuant to the terms of those securities. However,
Columbia may not redeem less than all of either class of such securities
during that 120 day period if, after giving effect to the redemption, less
than $50 million in Liquidation Value of the DECS or the New Preferred Stock,
as applicable, would be outstanding. Additionally, Columbia may not redeem
any of the New Preferred Stock if any of the DECS would remain outstanding
after such redemption.
The objective of the Pricing Formulae pursuant to which the New Indenture
Securities, DECS and New Preferred Stock to be issued in respect of the
Class 3.2 Borrowed Money Claims is for the fair market value of such
securities, when added to the cash, if any, to be distributed to the Holders
of such Claims, to approximate the amount of their Allowed Claims, plus post-
petition interest thereon. However, there can be no assurance that these
formulae will result in such securities having such a fair market value
because any attempt to estimate the fair market value of securities prior to
their initial issuance is inherently subject to uncertainties and
contingencies that are difficult to predict. The actual fair market value of
such securities on and subsequent to the Effective Date can be expected to
fluctuate with changes in the U.S. Treasury markets,
VII-6
<PAGE> 331
the securities markets generally, economic conditions, the financial
conditions and prospects of Reorganized Columbia and other factors, including
the development of a fully distributed trading market, all of which generally
influence the value of securities. The actual price at which such securities
trade subsequent to the Effective Date may vary materially from the amount of
the Claims in respect of which they are issued. See Section X.D, "Pricing of
Securities."
C. PROJECTIONS
The financial projections included in this Disclosure Statement are
dependent upon the successful implementation of Columbia's business plan and
the reliability of the other assumptions contained therein. See Section X.B,
"Financial Projections; Recapitalization." Those projections reflect numerous
assumptions, including Confirmation and consummation of the Plan in accordance
with its terms, the anticipated future performance of Reorganized Columbia,
industry performance, general business and economic conditions, future gas
prices and other matters, most of which are beyond the control of Columbia.
In addition, unanticipated events and circumstances occurring subsequent to
the preparation of the projections may affect the actual financial results of
Reorganized Columbia. Therefore, the actual results achieved throughout the
periods covered by the projections will vary from the projected results.
These
VII-7
<PAGE> 332
variations may be material. See Section X.B, "Reorganized Columbia --
Financial Projections; Recapitalization."
D. BUSINESS FACTORS AND COMPETITIVE CONDITIONS
The rate-regulated and nonregulated markets in which Columbia conducts
business continue to evolve. These changes and trends are discussed in the
Columbia Annual Report which is attached hereto as Exhibit 2. Most notably,
consumers are being offered additional choices with regard to how and from
whom they purchase services. This increasing capability of customers to
choose provides both opportunities and risks to Columbia. The risk is one of
increasing gas-on-gas and gas versus inter-fuel competition. In addition,
Columbia, just like any other business entity, is affected by macroeconomic
factors such as the general level of economic activity and interest and
inflation rates.
E. LIABILITIES ASSUMED BY COLUMBIA AND THE UNCERTAINTIES ASSOCIATED
WITH THE NON-SETTLING SECURITIES ACTION CLAIMS
Columbia will assume certain liabilities pursuant to the Plan, including
obligations, if any, to indemnify its officers, directors and agents and the
officers, directors, employees and agents of its subsidiaries, including TCO
and the liabilities described in Section F below. Columbia does not expect
that any of these assumed liabilities will result in significant costs to
Columbia. Also, Columbia expects that a significant portion of any
indemnification obligations it might have to officers and
VII-8
<PAGE> 333
directors would be covered by the insurance policies maintained by Columbia
for that purpose.
Under the Plan, Qualifying Class 4 (Securities Action) Claimants must
elect whether or not to accept the Offer of Settlement made to Class 4
Claimants, and whether or not to accept the Plan. Reorganized Columbia will
object to and/or seek estimation of the Claims of Rejecting Class 4 Claimants.
Such Claimants shall have their Claims determined by the Bankruptcy Court
after the Effective Date and their Claims, if and when Allowed, will be paid
by Reorganized Columbia pursuant to the terms of the Plan. Columbia believes
that it has meritorious defenses to the allegations made in the Securities
Action. In addition, Columbia proposes to pay any Rejecting Class 4
Claimants' Allowed Claims in Common Stock or, at its option, in cash.
Nonetheless, no assurances can be given as to the outcome of the
Securities Action or as to the magnitude of any liability of Columbia to the
rejecting Securities Action Claimants and to officers, directors, employees
and agents of Columbia and its subsidiaries with respect to Columbia's
indemnification obligations or as to the availability of insurance proceeds to
fulfill such obligations. Liabilities arising under the Securities Action
could be substantial if the litigation outcome was adverse to Columbia and
could have a materially adverse impact on the Holders of Common Stock of
Columbia.
VII-9
<PAGE> 334
F. UNCERTAINTIES ASSOCIATED WITH THE TCO PLAN
The Columbia Omnibus Settlement embodied in the Plans is expected to
facilitate and expedite the emergence of both Columbia and TCO from Chapter 11
prior to the resolution of certain claims against TCO, including those of
dissenting Producers and Customers under the TCO Plan. As a result, however,
the total amount distributable under the TCO Plan, and guaranteed by Columbia,
to dissenting Producers and Customers and certain other Creditors may not be
known until several years after the Effective Date and such amount may be
substantially in excess of projections or expectations. TCO and Columbia have
reserved the right to pay certain excess amounts to dissenting Producers and
certain other creditors in Common Stock of Columbia or other property, in each
case having a fair market value on the distribution date equal to the required
payment.
As described in Section IV.E. under the caption "The Columbia Omnibus
Settlement," Columbia has agreed pursuant to the Columbia Customer Guaranty,
to guaranty the payment of distributions to accepting Customers and to
guaranty the financial integrity of the Customer Settlement Proposal. Based
on the status of discussions between TCO and its Customer-creditors, Columbia
reasonably believes that (a) the Customer Settlement Proposal should be
accepted by substantially all TCO's Customers and should be feasible to
effectuate and (b) the
VII-10
<PAGE> 335
liability to dissenting Customers, if any, should not be material.
However, substantial recoveries by dissenting Producers, dissenting
Customers and other non-settling creditors of TCO, the level of which is
uncertain at this time, could result in a material liability, which could in
turn adversely affect shareholder value.
G. ENVIRONMENTAL LIABILITIES
Columbia's subsidiaries are subject to extensive federal, state and local
laws and regulations relating to environmental matters. Moreover, pursuant to
the TCO Plan, TCO will assume environmental obligations to governmental
agencies, including obligations to the Environmental Protection Agency (the
"EPA") embodied in an agreement approved by the Bankruptcy Court in November
1994 and obligations under agreements reached with two state environmental
agencies concerning TCO's environmental remediation programs that also were
approved by the Bankruptcy Court.
The eventual total cost of full future environmental compliance for the
System is difficult to estimate due to, among other things: (1) the
possibility of as yet unknown contamination, (2) the possible effect of future
legislation and new environmental agency rules, (3) the possibility of future
litigation, (4) the possibility of future designations as a potential
responsible party by the EPA and the difficulty of
VII-11
<PAGE> 336
determining liability, if any, in proportion to other responsible parties,
(5) possible insurance and rate recoveries and (6) the effect of possible
technological changes relating to future remediation. However, reserves have
been established based on information currently available which resulted in a
total recorded net liability of $146.7 million for the System at December 31,
1994, which includes the low end of a range for certain expenditures for the
transmission segment. As new issues are identified, additional liabilities
will be recorded.
It is Columbia's continued intent to address environmental issues in
cooperation with regulatory authorities in such a manner as to achieve
mutually acceptable compliance plans. However, there can be no assurance that
fines and penalties will not be incurred.
Columbia expects a substantial portion of environmental assessment and
remediation costs to be recoverable through rates. Although significant
charges to earnings could be required prior to rate recovery, Columbia does
not believe that environmental expenditures should have a material adverse
effect on its financial position, based on known facts, existing laws and
regulations and the period over which expenditures are required.
The foregoing notwithstanding, no assurances can be given as to the total
cost of full future environmental compliance for
VII-12
<PAGE> 337
the System or as to whether reserves established therefor will be sufficient.
H. REDEMPTION OF THE DECS AND NEW PREFERRED STOCK
In response to requests by the Creditors' Committee that Columbia assist
Holders of Class 3.2 Claims who desire to dispose of the equity securities to
be distributed to them pursuant to the Plan, Columbia will issue to Holders of
such Claims DECS and New Preferred Stock that are redeemable by Columbia, at
its option, in whole or in part, at any time on or before the 120th day
following the Effective Date. However, there is no obligation on the part of
Columbia to so redeem the DECS and New Preferred Stock. Accordingly, if
Columbia does not exercise its option to redeem the DECS and New Preferred
Stock, Holders of Class 3.2 Claims who wish to dispose of the DECS and New
Preferred Stock distributed to them under the Plan will have to make such
dispositions on the open market.
I. HOLDING COMPANY STRUCTURE
Columbia will continue to be structured as a holding company,
substantially all of the operations of which will be conducted through
subsidiaries. As such, Columbia will rely principally on dividends and
payment of principal and interest on intercompany debt from its subsidiaries
for the funds necessary for, among other things, the payment of principal of
and interest on the New Indenture Securities. In addition, any right of the
holders of the New Indenture Securities, DECS and
VII-13
<PAGE> 338
the New Preferred Stock or Common Stock to participate in the assets of any
subsidiary upon such subsidiary's liquidation or recapitalization will be
effectively subordinated to the claims of such subsidiary's creditors and
holders of preferred stock (if any), except to the extent that Columbia is
itself recognized as a creditor of such subsidiary. See "Description of
Securities to be Issued Pursuant to The Plan--New Indenture Securities" in
Exhibit 4 to this Disclosure Statement.
VII-14
<PAGE> 339
VIII. FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The following discussion is a summary of certain significant federal
income tax consequences of the Columbia Plan to Columbia and to the Holders of
Claims and Interests and is based upon laws, regulations, rulings and
decisions now in effect, all of which are subject to change, possibly with
retroactive effect. The federal income tax consequences to the Holders of
Claims may vary based on the particular circumstances of each Holder, and this
summary does not address aspects of federal income taxation applicable to
Holders that are subject to special treatment for federal income tax purposes,
including, but not limited to, financial institutions, tax exempt entities,
insurance companies and foreign persons. Moreover, the federal income tax
consequences of certain aspects of the Plan are uncertain due to a lack of
definitive legal authority. No ruling has been obtained or will be requested
from the IRS with respect to any of the federal income tax aspects of the Plan
(other than the deductibility of certain payments made by TCO under the TCO
Plan and other than possibly rulings relating to certain ERISA issues) and no
opinion of counsel has been obtained by Columbia with respect thereto. This
summary does not address, nor has any opinion of counsel been obtained, with
respect to any of the resulting state or local income tax consequences. Each
Holder of a Claim is therefore strongly urged to consult with its own tax
advisor regarding the federal, state and local income and other tax
consequences to it of the Plan.
VIII-1
<PAGE> 340
A. TAX CONSEQUENCES TO COLUMBIA
1. GENERAL
Columbia and its subsidiaries, including TCO, file a consolidated income
tax return under the provisions of sections 1502 and 1504 of the Internal
Revenue Code of 1986, as amended (the "IRC"). U.S. Treasury Regulations
provide that Columbia, as parent of the consolidated group, is the group's
agent for purposes of filing the group's federal income tax returns, paying
the tax due, and in general for dealing with the IRS. In addition, U.S.
Treasury Regulations provide that every member of the consolidated group is
jointly and severally liable for any tax incurred during the time that such
member joined in the filing of the consolidated return.
2. DISCHARGE OF INDEBTEDNESS
Under the IRC, a taxpayer generally must include in gross income the
amount of any cancellation of indebtedness income ("COD income") which is
realized during the taxable year. COD income generally equals the difference
between the amount of the taxpayer's indebtedness outstanding (as measured by
the greater of the amount of the Allowed Claim or the amount, if any, claimed
as a tax deduction with respect to such indebtedness) and the value of the
consideration exchanged therefor. Since the Plan provides for the payment in
full, or assumption by Columbia, of all Allowed Claims (plus accrued interest
thereon), Columbia will not realize any COD income as a result of the Plan.
VIII-2
<PAGE> 341
3. DEDUCTIBILITY OF PLAN PAYMENTS
Columbia intends to deduct, for federal income tax purposes, all payments
of accrued interest under the Plan to the extent they exceed the amounts
previously deducted on its federal income tax returns. Columbia also intends
to deduct such other payments made under the Plan as it determines can be
deducted under applicable federal income tax laws. There is no assurance that
the IRS may not attempt to challenge, and may not succeed in challenging, any
deductions claimed by Columbia as a result of the Plan.
B. TAX CONSEQUENCES TO HOLDERS OF CLAIMS AND INTERESTS
1. TRADE CREDITORS AND OTHERS RECEIVING ONLY CASH
A Holder that receives only cash pursuant to the Plan will generally be
required to recognize income, gain or loss equal to the difference between the
Holder's basis in the Claim and the amount of consideration allocable thereto
(other than consideration allocable to accrued interest, as discussed in
Section 5.a below). The character of any recognized gain or loss will depend
upon the status of the Holder, the nature of the Claim in its hands, and its
holding period.
2. CREDITORS WHOSE CLAIMS ARE ASSUMED
Holders whose Claims are assumed by Reorganized Columbia generally should
not recognize income or loss upon the assumption of their Claims under the
Plan. Taxable income may be recognized, however, if such Holders receive or
are considered to receive interest, as discussed in Section 5.a below, damages
or
VIII-3
<PAGE> 342
other income in connection with the assumption, or if the assumption is
considered to involve a modification of the Claim for tax purposes.
3. HOLDERS OF CLASS 3.2 CLAIMS
a. GENERAL
The federal income tax consequences of the Plan to Holders of Class 3.2
Claims will depend in large part on whether the exchange of a Class 3.2 Claim
for Cash Consideration, if any, New Indenture Securities, shares of New
Preferred Stock, and DECS will be treated, in whole or in part, as a
"recapitalization" of Columbia within the meaning of IRC section 368(a)(1)(E).
If the exchanges contemplated by the Plan are made pursuant to such a
recapitalization, then an exchanging Holder generally will not recognize gain
or loss for income tax purposes (except to the extent of any "boot" and any
consideration attributable to accrued but unpaid interest, as further
described in paragraph 5.a below). If an exchange is not made pursuant to a
recapitalization, then an exchanging Holder will recognize gain or loss on
such exchange. This discussion assumes that each Holder of a Class 3.2 Claim
holds the Claim, and will hold any New Indenture Securities, New Preferred
Stock or DECS received under the Plan, as capital assets under IRC Section
1221.
In order for an exchange contemplated by the Plan to constitute a tax-
free recapitalization, the Claim exchanged by a Holder must be a "security"
for federal income tax purposes, and the Holder must receive stock and/or
"securities" in exchange.
VIII-4
<PAGE> 343
The term "security" is not defined in the IRC or the regulations issued
thereunder, and has not been clearly defined by court decisions. In general,
a debt instrument constitutes a "security" if it represents a participating,
continuing interest in the issuer, rather than merely the right to a cash
payment. Thus, the term of the debt instrument is usually regarded as a
significant factor in determining whether it is a security. The IRS has ruled
that a debt instrument with a maturity of ten years or more is treated as a
security. However, under the case law, debt instruments with maturities
ranging between five and ten years are often held to be securities.
For purposes of this discussion, it is assumed that the Debentures and
the Medium Term Notes constitute "securities" within the meaning of the
provisions of the Code governing reorganizations, but that all other Class 3.2
Claims ("Other Class 3.2 Claims") do not. It is also assumed that all New
Indenture Securities constitute "securities". However, the IRS may contend
that certain Issues of New Indenture Securities, particularly those having a
maturity of five or possibly even seven years, may not constitute
"securities". If any Issue of New Indenture Securities were not treated as
"securities", they would be treated as "boot" in the manner described
immediately below.
b. TAX CONSEQUENCES OF THE EXCHANGE
Exchange of Debentures or Medium Term Notes. The exchange of the
Debentures or Medium Term Notes for Cash Consideration, if
VIII-5
<PAGE> 344
any, New Indenture Securities, New Preferred Stock and DECS should be treated
as a recapitalization within the meaning of IRC section 368(a)(1)(E). If the
exchange is treated in that manner, the federal income tax consequences to the
Holders of the Debentures and Medium Term Notes (other than Holders who
receive only cash in lieu of partial or fractional interests in the New
Indenture Securities, New Preferred Stock and DECS, and not including amounts
received in respect of Class 4 Claims, as discussed in Section 4 below) would
be as follows:
(i) Subject to the discussion below as to accrued but unpaid
interest, a Holder would not recognize loss on the exchange, but would
recognize gain to the extent of the lesser of (a) the amount of gain realized
from the exchange and (b) the sum of the Cash Consideration, if any, and the
excess, if any, of the principal amount of the New Indenture Securities
received over the principal amount of the portion of the Claim that the Holder
is deemed to have exchanged therefor (such Cash Consideration and excess
principal amount being hereinafter referred to as "boot"). The amount of gain
realized, if any, would be equal to the excess of (a) the sum of the Cash
Consideration, if any, the issue price of the New Indenture Securities, and
the fair market value of the New Preferred Stock and DECS received, over (b)
such Holder's adjusted tax basis in the Debentures or Medium Term Notes
surrendered in the exchange.
(ii) Subject to the discussion below as to accrued market discount,
any such gain recognized on the exchange would
VIII-6
<PAGE> 345
be capital gain, and such capital gain would be long-term capital gain if such
Holder held the Debentures or Medium Term Notes for more than one year as of
the Effective Date.
(iii) Except for the consideration treated as received in exchange
for accrued but unpaid interest as discussed below: (a) a Holder should have
an aggregate tax basis in the New Indenture Securities, New Preferred Stock
and DECS equal to such Holder's adjusted tax basis in the Debentures or Medium
Term Notes exchanged therefor, reduced by the amount of any boot received and
increased by any gain recognized on the exchange, and (b) the holding period
of the New Indenture Securities, New Preferred Stock and DECS should include
the holding period of the Debentures or Medium Term Notes. The holding period
for any boot received should commence on the day immediately following the
Effective Date.
(iv) A Holder receiving cash in lieu of fractional, partial or de
minimis interests in New Indenture Securities, New Preferred Stock or DECS
will be treated as having received such New Indenture Securities, New
Preferred Stock or DECS and having exchanged them for cash in a transaction
which, in the case of the New Indenture Securities, would constitute a
retirement of such New Indenture Securities and, in the case of the New
Preferred Stock and DECS, would be a transaction subject to section 302 of the
IRC and related provisions. Any such exchange should generally result in
capital gain or loss measured by the difference between the cash received for
the fractional, partial
VIII-7
<PAGE> 346
or de minimis interest and the Holder's adjusted tax basis for such interest.
Exchange of Other Class 3.2 Claims. Based on the assumptions set forth
above, the exchange by Holders of Other Class 3.2 Claims for their respective
shares of the Cash Consideration, if any, New Indenture Securities, New
Preferred Stock and DECS would be treated as a taxable exchange under IRC
section 1001. If the exchange were treated in that manner, then the federal
income tax consequences to the Holders of such Claims would be as follows:
(i) Subject to the discussion below as to accrued but unpaid
interest, a Holder would recognize gain or loss on the exchange in an amount
equal to the difference between (a) the sum of the Cash Consideration, if any,
the issue price of the New Indenture Securities and the fair market value of
the New Preferred Stock and DECS as of the Effective Date, and (b) such
Holder's adjusted tax basis in its Other Class 3.2 Claim.
(ii) Subject to the discussion below as to accrued market discount,
any such gain or loss should be capital gain or loss, and such capital gain or
loss should be long-term capital gain or loss if such Holder held the Other
Class 3.2 Claim for more than one year as of the Effective Date.
(iii) A Holder's tax basis in the New Preferred Stock and DECS would
be equal to the fair market value of the Preferred Stock and DECS,
respectively, as of the Effective Date and the Holder's tax basis in the New
Indenture Securities would be equal
VIII-8
<PAGE> 347
to the issue price of such securities. The holding period of the New
Preferred Stock, DECS and New Indenture Securities would begin on the day
immediately following the Effective Date.
4. HOLDERS OF CLASS 4 CLAIMS.
The tax consequences to the Holder of a Class 4 Claim are not entirely
clear and will depend, in part, on the specific nature of the Claim, whether
the Claim relates to the acquisition of Debentures or Interests, whether the
Holder still holds the Debentures or Interests at the time that distributions
under the Plan are made with respect to the Claim, whether the Debentures or
Interests were held as capital assets and whether the Holder receives any
shares of Common Stock or other debt or equity securities of Columbia with
respect to such Holder's Claim. Holders of Class 4 Claims are advised to
consult their tax advisors with respect to the tax treatment of amounts they
receive in respect of their Class 4 Claims.
5. CERTAIN OTHER TAX CONSIDERATIONS FOR HOLDERS OF CLAIMS
a. RECEIPT OF INTEREST
Holders of Claims not previously required to include in their taxable
income any accrued but unpaid interest on a Claim will be treated as receiving
taxable interest to the extent that any consideration they receive under the
Plan is allocable to such interest. Holders who previously included in their
taxable income any accrued but unpaid interest on a Claim may be entitled to
recognize a deductible loss to the extent that such interest is not actually
paid under the Plan. A Holder's tax basis in the
VIII-9
<PAGE> 348
New Indenture Securities, New Preferred Stock and DECS treated as received in
exchange for any accrued but unpaid interest will be equal to the fair market
value of such New Indenture Securities, New Preferred Stock and DECS,
respectively, as of the Effective Date. The holding period for such New
Indenture Securities, New Preferred Stock and DECS will begin on the day
immediately following the Effective Date. Columbia will file information
returns reflecting the fact that the consideration received by such Holders
under the Plan includes accrued interest.
b. ACCRUED MARKET DISCOUNT
A debt instrument that is purchased or acquired for less than its stated
redemption price at maturity will have "market discount" for federal income
tax purposes unless such discount is less than a specified de minimis amount.
The same rule applies to the purchase or acquisition of a debt instrument with
original issue discount, as discussed below, for less than its "adjusted issue
price". (The "adjusted issue price" is generally the issue price of the debt
instrument increased by the original issue discount includable in income by
all of the instrument's previous holders and decreased by all payments on the
instrument other than payments of "qualified stated interest," as defined
under Section 5.c below.) A Holder of a Claim with market discount must treat
any gain recognized with respect to the principal amount of such Claim as
ordinary income to the extent of the Claim's accrued market discount. Also,
if the accrued market discount on a "security" (as determined for tax purposes)
VIII-10
<PAGE> 349
surrendered in the exchange exceeds the gain recognized on such security under
the Plan, such excess accrued market discount will be allocated between the
New Indenture Securities, New Preferred Stock and DECS in proportion to their
fair market values. The accrued market discount allocated to the New
Indenture Security will be treated as accrued market discount subject to the
rules discussed below. The accrued market discount allocated to the New
Preferred Stock or DECS will be treated as ordinary income when the Holder
disposes of such stock (or the Common Stock into which the DECS may be
converted) in a taxable transaction.
Unless the holder of debt having market discount elects to include such
market discount in income as it accrues, gain on the retirement or disposition
of such market discount debt issued after July 18, 1984 will be ordinary
income to the extent of the cumulative amount of market discount that has
accrued during such holder's holding period ("accrued market discount"). The
amount of accrued market discount is calculated either by using a straight
line method or a constant interest method. Such holder may also be required
to defer the deduction for all or a portion of the interest expense on any
indebtedness incurred or maintained to carry the debt until its maturity or
disposition in a taxable transaction. A holder of debt having market discount
may instead elect to include such market discount in income currently as it
accrues, in which case no deferral of the deduction for interest expense will
be required.
VIII-11
<PAGE> 350
c. ORIGINAL ISSUE DISCOUNT ("OID")
Under the IRC, a holder of a debt instrument which has OID must include a
portion of the OID in gross income on a constant yield basis in each taxable
year or portion thereof in which the holder holds the debt instrument even if
the holder has not received a cash payment in respect of such OID. The IRC
defines OID as the difference between the issue price and the stated
redemption price at maturity of a debt instrument (assuming the difference
exceeds a de minimis amount). The stated redemption price at maturity is
generally the total of all payments due the holder of the instrument, other
than interest payments based on a fixed rate or certain floating rates and
payable unconditionally at fixed intervals of one year or less during the
entire term of the instrument ("qualified stated interest"). The issue price
of a debt instrument depends on the circumstances surrounding its issuance.
The issue price of a debt instrument that is issued for property and publicly
traded or is issued in exchange for publicly traded property is generally the
fair market value of the debt instrument when issued. The fair market value
generally is the price at which the debt instrument trades on the first
trading day after issuance. Debt instruments issued for property not subject
to the foregoing rule generally are considered to have an issue price equal to
their stated principal amount if they bear "adequate stated interest" (within
the meaning of the OID rules).
VIII-12
<PAGE> 351
A holder acquiring a debt instrument in a reorganization exchange may
exclude all of the OID on such debt instrument from such holder's taxable
income if it is acquired at a "premium" (that is, if the adjusted tax basis in
the acquired debt instrument exceeds all payments due on the instrument after
the acquisition date, other than payments of qualified stated interest) and
may exclude a part of the OID on such debt instrument from such holder's
taxable income if it is acquired at an "acquisition premium" (that is, if the
adjusted tax basis in the acquired debt instrument exceeds its adjusted issue
price but is less than its stated redemption price at maturity).
Columbia believes that none of the New Indenture Securities to be issued
under the Plan should bear OID because all Issues of New Indenture Securities
issued under the Plan (i) will bear adequate stated interest, and (ii) are
expected to trade on the first trading day at their respective par values.
If, however, the New Indenture Securities trade at less than their respective
par values, OID may arise to the extent of the difference between the fair
market value of the New Indenture Securities and their stated principal
amount. The rules and regulations governing the calculation of OID are
complex; Holders of New Indenture Securities are therefore urged to consult
their tax advisors with regard to the tax consequences to them of owning such
securities. If the New Indenture Securities were issued with OID, Columbia
would report to each Holder the amount of OID includable in income in each
taxable year.
VIII-13
<PAGE> 352
d. FUTURE STOCK GAINS
Generally, a holder of Preferred Stock or DECS received under the Plan in
satisfaction of a Claim will recognize gain or loss on the sale or other
taxable disposition of the Preferred Stock or DECS in an amount equal to the
difference between the amount realized from such sale or other disposition and
the holder's adjusted tax basis for such Preferred Stock or DECS. The amount
of such gain, if any, will be treated as ordinary income to the extent of (i)
accrued market discount carried over in the exchange, as described above or
(ii) any bad debt or ordinary loss deduction taken by such holder with respect
to such Claim less any amount included in such holder's gross income on the
satisfaction of such Claim pursuant to the Plan. Any remaining gain or loss
will, under existing laws, generally constitute capital gain or loss, and will
be long-term if the Preferred Stock or DECS have been held for one year or
more.
e. FUTURE SALES OF NEW DEBT
Generally, a holder of New Indenture Securities will recognize gain or
loss upon the sale, retirement or other taxable disposition of the New
Indenture Securities in an amount equal to the difference between the amount
realized from such sale, retirement or other disposition and such holder's
adjusted tax basis for such New Indenture Securities. A holder's basis for
its New Indenture Securities will initially be determined as provided above.
Thereafter, a holder's basis will be increased by the amount of any OID that
the holder includes in its income
VIII-14
<PAGE> 353
while it holds the New Indenture Securities and decreased by the amount of
payments, other than qualified stated interest payments, received by the
holder with respect to the New Indenture Securities. Under existing laws,
gain or loss on a disposition of the New Indenture Securities generally will
(except to the extent of any accrued OID or accrued market discount)
constitute capital gain or loss, and will be long-term if the New Indenture
Securities have been held for one year or more.
f. DEFEASANCE OF NEW INDENTURE SECURITIES
As more fully described in Section X.E.2, "Indenture Securities",
Columbia, at its option, may terminate (a) all its obligations in respect of
the New Indenture Securities and the New Indenture (Legal Defeasance Option)
or (b) its obligations to comply with certain restrictive covenants therein,
provided certain conditions are met. If Columbia were to exercise its Legal
Defeasance Option, such exercise may be treated for federal income tax
purposes as a taxable exchange of the New Indenture Securities for new
securities on the date the cash or other obligations are deposited with the
trustee to effect such defeasance. If the transaction were treated as a
taxable exchange, a holder may recognize gain or loss in respect of the New
Indenture Securities as described in Section 5.e above.
g. TAX TREATMENT OF DECS (AND NEW PREFERRED STOCK, WHERE NOTED)
Stock having terms closely resembling those of the DECS has not been the
subject of any regulation, ruling or judicial
VIII-15
<PAGE> 354
decision currently in effect. Although the IRS may take contrary positions,
the likely federal income tax consequences associated with the ownership and
disposition of the DECS (and New Preferred Stock, where noted) are as follows:
Dividends. Dividends paid on the DECS (and New Preferred Stock) out of
Columbia's current or accumulated earnings and profits will be taxable as
ordinary income and will qualify for the 70 percent intercorporate dividends-
received deduction subject to the minimum holding period (generally at least
46 days) and other applicable requirements. Under certain circumstances, a
corporate holder may be subject to the alternative minimum tax with respect to
the amount of its dividends-received deduction.
A corporation that receives an "extraordinary dividend," as defined in
section 1059(c) of the IRC, is required under certain circumstances to reduce
its stock basis by the non-taxed portion of such dividend. Generally,
quarterly dividends not in arrears paid to an original holder of the DECS (or
New Preferred Stock) will not constitute extraordinary dividends under section
1059(c). In addition, under section 1059(f), any dividend with respect to
"disqualified preferred stock" is treated as an "extraordinary dividend."
However, while the issue is not free from doubt due to the lack of authority
directly on point, the DECS (and New Preferred Stock) are not expected to
constitute "disqualified preferred stock."
VIII-16
<PAGE> 355
Redemption Premium. Under certain circumstances, section 305(c) of the
IRC requires that any excess of the redemption price of preferred stock over
its issue price be includable in income, prior to receipt, as a constructive
dividend. While the issue is not free from doubt due to a lack of authority
addressing the issue, assuming that the issue price (fair market value) of the
DECS and the New Preferred Stock equals its stated face amount, section 305(c)
should not currently apply to stock with terms such as those of the DECS (or
Preferred Stock).
Adjustment of Dividend Rate/Setting of Redemption and Conversion Rates.
As more fully described in Section X.E.3, "Equity DECS" (and X.E.5, "New
Preferred Stock"), the dividend rate on any shares of DECS (or New Preferred
Stock) that are not redeemed within 120 days following the Effective Date will
be adjusted with respect to dividends that accrue following that date. In
addition, the applicable redemption and conversion rates of the DECS will be
set on the 121st day following the Effective Date. While the issue is not
free from doubt due to a lack of authority directly on point, the adjustment
of the dividend rate and the setting of the applicable redemption and
conversion rates should not be treated as a taxable transaction to the holders
of the DECS (and New Preferred Stock).
Redemption or Mandatory or Optional Conversion into Common Stock. Gain
or loss generally will not be recognized by a holder upon the redemption of
the DECS for shares of Common Stock or the conversion of DECS into shares of
Common Stock if no cash is
VIII-17
<PAGE> 356
received. Income may be recognized, however, to the extent cash or Common
Stock is received in payment of accrued and unpaid dividends in arrears. Such
income would probably be characterized as dividend income, although some
uncertainty exists as to the appropriate characterization of payments in
satisfaction of undeclared accrued and unpaid dividends. In addition, a
holder who receives cash in lieu of a fractional share will be treated as
having received such fractional share and having exchanged it for cash in a
transaction subject to Section 302 of the IRC and related provisions. Such
exchange should generally result in capital gain or loss measured by the
difference between the cash received for the fractional share interest and the
holder's basis in the fractional share interest.
Generally, a holder's basis in the Common Stock received upon the
redemption or conversion of the DECS (other than shares of Common Stock taxed
upon receipt) will equal the adjusted tax basis of the redeemed or converted
DECS plus the amount of gain recognized, minus the amount of cash received,
and the holding period of such Common Stock will include the holding period of
the redeemed or converted DECS.
Special rules, as discussed above, may apply to certain gain recognized
upon the sale or other taxable disposition of the DECS or of the Common Stock
received upon redemption or conversion of the DECS.
VIII-18
<PAGE> 357
Adjustment of Common Equivalent Rate(1) or Optional Conversion Rate.
Certain adjustments (or failures to make adjustments) to the Common Equivalent
Rate, in the case of mandatory conversions, or the Optional Conversion Rate,
in the case of optional conversions, to reflect Columbia's issuance of certain
rights, warrants, evidences of indebtedness, securities or other assets to
holders of Common Stock may result in a constructive distribution taxable as
dividends to the holders of the DECS, which may constitute (and cause other
dividends to constitute) "extraordinary dividends" to corporate holders. See
"Dividends."
Conversion of DECS after Dividend Record Date. If a holder of DECS
exercises such holder's right to convert DECS into shares of Common Stock
after a dividend record date but before payment of the dividend, then such
holder generally will be required to pay Columbia an amount equal to the
portion of such dividend attributable to the current quarterly dividend period
upon conversion, which amount would increase the basis of the Common Stock
received. The holder would recognize the dividend payment as income.
- - --------------------
(1) Capitalized terms used herein but not defined shall have the meanings
ascribed to them in Section X of this Disclosure Statement.
VIII-19
<PAGE> 358
h. DISPOSITION OF NEW PREFERRED STOCK AND DECS PURSUANT TO
REDEMPTION OPTION.
A Holder of a Class 3.2 Claim who receives cash in exchange for shares of
New Preferred Stock and DECS pursuant to the exercise by Columbia of the
Redemption Option will be treated as having exchanged them for cash in a
transaction subject to section 302 of the IRC and related provisions. Such
holder should recognize gain or loss measured by the difference between the
amount of cash received in the exchange (other than any cash received in
respect of accrued but unpaid dividends) and such holder's adjusted tax basis
in the New Preferred Stock and DECS, respectively. Except as discussed in
Section 5.d above (or as to any cash received in respect of accrued but unpaid
dividends), any such gain or loss generally should be treated as capital gain
or loss.
i. BACKUP WITHHOLDING
Interest paid to a holder of New Indenture Securities and dividends paid
to a holder of New Preferred Stock or DECS will ordinarily not be subject to
withholding of federal income taxes. Withholding of such tax at a rate of 31
percent may be required, however, by reason of certain events (such as the
failure of a holder to supply the issuer or its agent with such holder's
taxpayer identification number). Such "backup" withholding may also apply to
a holder who is otherwise exempt from backup withholding if such holder fails
properly to document his exempt status. If dividends and interest are subject
to backup withholding, the amount of tax withheld in each year is reflected
VIII-20
<PAGE> 359
as a credit in the holder's tax return for such year (and may be refunded if
such holder's federal income tax liability has been otherwise satisfied).
Each holder of a Claim who receives New Indenture Securities, New Preferred
Stock or DECS will be asked to provide and certify such holder's correct
taxpayer identification number.
6. HOLDERS OF CLASS 7 INTERESTS
The Holders of Class 7 Interests should have no tax consequences as a
result of the retention of their shares of Common Stock under the Columbia
Plan (except to the extent that they may hold, and receive consideration with
respect to, Class 4 Claims, as discussed in Section B.4 above).
7. PROPOSED LEGISLATION
On May 3, 1995, legislation was introduced into Congress that would amend
portions of IRC Sections 302 and 1059, and would subject to tax amounts
received in certain redemption transactions which otherwise would be eligible
for the dividends received deduction. It does not appear that this
legislation was intended to apply to the tax treatment of the DECS or New
Preferred Stock, as described above. However, it is not possible to predict
whether and, if so, in what form any such legislation will be enacted into law
and, if enacted, whether it would affect such tax treatment.
8. IMPORTANCE OF OBTAINING PROFESSIONAL TAX ASSISTANCE
The foregoing is intended to be a summary only and not a substitute for
careful tax planning with a tax professional. The
VIII-21
<PAGE> 360
federal, state and local income and other tax consequences of the Plan are
complex and, in some cases, uncertain. Such consequences may also vary based
on the particular circumstances of each Holder of a Claim. Accordingly, each
Holder is strongly urged to consult with its own tax advisor regarding the
federal, state and local income and other tax consequences to it of the Plan.
VIII-22
<PAGE> 361
IX. VOTING PROCEDURES AND CONFIRMATION REQUIREMENTS
A. CONFIRMATION HEARING
The Bankruptcy Code requires the Bankruptcy Court, after notice, to
hold a hearing (the "Confirmation Hearing") on whether the Plan and its
proponent have fulfilled the Confirmation requirements of section 1129 of
the Bankruptcy Code. The Confirmation Hearing has been scheduled for
_______________ at _____ a.m. before the Honorable Helen S. Balick, United
States Bankruptcy Court for the District of Delaware, 824 Market Street,
Wilmington, Delaware 19801. The Confirmation Hearing may be adjourned from
time to time by the Bankruptcy Court without further notice, except for an
announcement of the adjourned date made at the Confirmation Hearing. Any
objection to Confirmation of the Plan must be made in writing and specify
in detail the name and address of the objector, all grounds for the
objection, and the amount and proposed treatment of the Claim held by the
objector. Any such objections must be Filed and served upon the Persons
designated in the notice of the Confirmation Hearing, including Columbia.
B. CONFIRMATION REQUIREMENTS
In order to confirm the Plan, the Bankruptcy Code requires that the
Bankruptcy Court make a series of findings concerning that Plan and
Columbia's compliance with the requirements of Chapter 11, including, in
relevant part, that:
(i) the Plan complies with the applicable provisions of the
Bankruptcy Code;
IX-1
<PAGE> 362
(ii) the Bankruptcy Court approves, after notice and a hearing,
Columbia's Disclosure Statement as containing adequate information as
required pursuant to section 1125 of the Bankruptcy Code;
(iii) the proponent of the Plan has complied with the relevant
provisions of the Bankruptcy Code;
(iv) the proponent of the Plan has proposed that Plan in good
faith and not by any means forbidden by law;
(v) any payments made or to be made for services or for costs and
expenses in or in connection with the Reorganization Case or the Plan
have been approved by or are subject to the approval of the Bankruptcy
Court as reasonable;
(vi) the proponent of the Plan has disclosed (a) the identity and
affiliations of any individual proposed to serve, after Confirmation,
as a director or officer of Reorganized Columbia (and the appointment
or continuance in such office of such individual is consistent with the
interests of Creditors and equity securityholders and with public
policy) and (b) the identity of any insider that will be employed or
retained by Reorganized Columbia and the nature of any compensation for
such insider;
(vii) any governmental regulatory commission with jurisdiction,
after Confirmation of the Plan, over Columbia's rates has approved any
rate change provided for
IX-2
<PAGE> 363
in that Plan, or such rate change is expressly conditioned on such
approval;
(viii) the Plan is in the "best interests" of all the Holders of
Claims or Interests in an impaired Class by providing to such Holders
on account of their respective Claims or Interests, property of a
value, as of the Effective Date, that is not less than the amount that
such Holder would receive or retain in a Chapter 7 liquidation, unless
each Holder of a Claim or Interest in such Class has accepted the Plan;
(ix) the Plan has been accepted by the requisite majorities of
Holders of Claims or Interests in each impaired Class of Claims or
Interests or, if accepted by at least one but not all of such Classes,
is "fair and equitable," and does not discriminate unfairly as to any
non-accepting Class, as required by the so-called "cramdown"
provisions of section 1129(b) of the Bankruptcy Code;
(x) the Plan is feasible and Confirmation is not likely to be
followed by the liquidation or the need for further financial
reorganization of Columbia;
(xi) all fees and expenses payable under 28 U.S.C. Section 1930,
as determined by the Bankruptcy Court at the hearing on Confirmation of
the Plan, have been paid, or the Plan provides for the payment of such
fees on the Effective Date; and
IX-3
<PAGE> 364
(xii) the Plan provides for the continuation after the Effective
Date of all retiree benefits, as defined in section 1114 of the
Bankruptcy Code, at the level established at any time prior to
Confirmation pursuant to sections 1114(e)(1)(B) or 1114(g) of the
Bankruptcy Code, for the duration of the period that Columbia has
obligated itself to provide such benefits.
1. ACCEPTANCE
Under the Bankruptcy Code, all impaired Classes of Claims and Interests
are entitled to vote to accept or reject the Plan. Pursuant to section
1126 of the Bankruptcy Code, the Plan will be accepted by an impaired Class
of Claims if Holders of two-thirds in dollar amount and a majority in
number of Claims of that Class vote to accept that Plan. Only the votes of
those Holders of Claims who actually vote (and are entitled to vote) to
accept or reject the Plan count in this tabulation. The Plan will be
accepted by an impaired Class of Interests if Holders of two-thirds of the
amount of outstanding shares in such Class vote to accept the Plan. As
with Claims, only those Holders of Interests who actually return a ballot
voting for or against the Plan count in this tabulation. Pursuant to
section 1129(a)(8) of the Bankruptcy Code, all the impaired Classes of
Claims and Interests must accept the Plan in order for the Plan to be
confirmed on a consensual basis (and at least one such impaired Class must
accept the Plan without including acceptance by an insider in that
determination). However, under the cramdown
IX-4
<PAGE> 365
provisions of section 1129(b) of the Bankruptcy Code, only one impaired
Class of Claims (determined without including the acceptance by any
insider) needs to accept the Plan if the other conditions to cramdown are
met.
The Plan has two Classes of Claims which are impaired (Classes 3.2. and
4), which Classes are unsecured and are entitled to vote on the Plan.
The Plan provides for one Class of Interests (Class 7), which Class is
deemed impaired and is entitled to vote on the Plan.
2. BEST INTERESTS TEST
Notwithstanding acceptance of the Plan by each impaired Class, section
1129(a)(7) of the Bankruptcy Code requires that the Bankruptcy Court
determine that such Plan is in the best interests of each Holder of a Claim
or Interest in any such impaired Class if any Holder in such Class has
voted against the Plan. Accordingly, if an impaired Class under the Plan
does not unanimously accept that Plan, the "best interests" test requires
that the Bankruptcy Court find that the Plan provides to each member of
such impaired Class a recovery on account of the member's Claim or Interest
that has a value, as of the Effective Date, at least equal to the value of
the distribution that each such member would receive if Columbia were then
liquidated under Chapter 7 of the Bankruptcy Code.
To estimate what members of each impaired Class of Claims or Interests
would receive if Columbia were liquidated as part of a
IX-5
<PAGE> 366
Chapter 7 case, the Bankruptcy Court must analyze the recoverable values
achievable and the nature and amount of liabilities to be satisfied if the
Reorganization Case is converted to a Chapter 7 case under the Bankruptcy
Code and Columbia's assets are liquidated by a Chapter 7 trustee. See
Section X.C, "Best Interests Test." Columbia believes that its Plan meets
the "best interests" test by providing value to impaired Classes that is at
least equal to and may be greater than that which they would receive in a
Chapter 7 liquidation of Columbia, since the Plan provides for the payment
in full of all impaired Claims.
3. FEASIBILITY
Section 1129(a)(11) of the Bankruptcy Code requires a finding that
Confirmation of the Plan is not likely to be followed by the liquidation,
or the need for further financial reorganization, of Columbia or any
successor to Columbia (unless such liquidation or reorganization is
proposed in its Plan, which is not the case for Columbia). For purposes of
determining whether its Plan meets this requirement, Columbia and its
financial advisors have analyzed the ability of Columbia to meet its
obligations under the Plan. As part of this analysis, Columbia, in
consultation with Salomon, has prepared the Projections, which together
with the material assumptions on which they are based, are set forth in
Section X.B, "Financial Projections; Recapitalization." Based upon the
Projections, Columbia and its financial advisors believe that its
IX-6
<PAGE> 367
reorganization under the Plan will meet the feasibility requirements of
section 1129(a)(11) of the Bankruptcy Code.
4. THE PLAN MUST COMPLY WITH THE APPLICABLE PROVISIONS OF THE
BANKRUPTCY CODE
Section 1129(a)(1) of the Bankruptcy Code requires that the Plan comply
with the applicable provisions of the Bankruptcy Code. Columbia and its
bankruptcy counsel believe that the Plan complies with all applicable
provisions of the Bankruptcy Code, including all provisions of section
1129(a) not otherwise specifically discussed herein.
a. CLASSIFICATION OF CLAIMS AND INTERESTS
Section 1122 of the Bankruptcy Code sets forth the requirements
relating to classification of claims. Section 1122(a) provides that claims
or interests may be placed in a particular class only if they are
substantially similar to the other claims or interests in that class.
Columbia and its bankruptcy counsel believe that all Classes under its Plan
satisfy the requirements of section 1122(a). Columbia's unsecured
Creditors have been classified according to the following criteria:
CLASS 2. Non-Borrowed Money Claims. This Class consists of all
pre-petition Claims that are not treated in any other Class under the Plan.
This Class is primarily comprised of pre-petition Claims for uncashed
dividends, proxy fees, directors' fees and expenses, intercompany payables
and all other trade-payable type Claims against Columbia. These Claims
IX-7
<PAGE> 368
will be paid on the Effective Date in cash, in full, plus post-petition
interest.
CLASS 3.1. Borrowed Money Convenience Claims. This Class
consists of all pre-petition Borrowed Money Claims that are for an amount
that is not more than $20,000 in principal amount as of the Record Date.
This Class constitutes a convenience class as contemplated by section
1122(b) of the Bankruptcy Code, whereby all smaller Borrowed Money Claims
are to be paid in cash, in full, on the Effective Date. This
classification is justified by administrative convenience and fairness to
Holders of very small Claims. Specifically, it permits such Creditors to
be paid in cash thereby avoiding the administrative burden and costs
attendant to issuing such Creditors small strips of the debt and equity
securities to be issued to the remainder of the Holders of Borrowed Money
Claims in order to satisfy their Claims.
CLASS 3.2. Other Borrowed Money Claims. This Class consists of
all Borrowed Money Claims not falling within the Class 3.1 convenience
class. The Class 3.2 Claims are further subclassified for descriptive and
convenience of reference purposes only. Columbia is treating all the
Holders of Class 3.2 Claims in a like manner: all are being paid in full
and will receive the same form of distribution, namely, a Pro Rata Share,
based on the amounts of their respective Claims (together with post-petition
interest), of a certain combination of Cash Consideration, seven
Issues of New Indenture Securities (except
IX-8
<PAGE> 369
that Holders of Claims entitled to receive New Indenture Securities
having an aggregate principal amount not exceeding $70,000 will receive
only Issue A New Indenture Securities), New Preferred Stock and DECS,
subject to adjustment to avoid the issuance of fractional shares of DECS
and New Preferred Stock and non-round lots of any Issue of New Indenture
Securities.
CLASS 4. The Securities Action Claims. This Class consists of
all properly Filed Securities Action Claims. The Claims are properly
classified as they are the only Class of Claims against Columbia that are
disputed and unliquidated. Moreover, they arise from a distinct set of
legal principles and, as Claims for damages arising from the purchase or
sale of securities, are subject to the specific subordination provisions of
section 510(b) of the Bankruptcy Code. Columbia has proposed, as part of
the Plan, a comprehensive settlement offer to the Holders of Securities
Action Claims that timely File a Supplemental Proof of Claim or provide the
Questionnaire and otherwise qualify under the terms of the Offer of
Settlement to settle all of the Securities Action Claims. Such settlement
proposal includes an Offer of Settlement by Columbia and the remaining
Contributors in an aggregate amount of up to $18 million, in exchange for a
full release by the Holders of properly filed Securities Action Claims of
all Securities Action Claims against the Contributors and all other
Defendants in the Securities Action. Claimants that File Supplemental
Proofs of Claim or Questionnaires but reject Columbia's Offer of
IX-9
<PAGE> 370
Settlement, either individually or as a Class, or are not Qualifying Class
4 Claimants, or, if Columbia withdraws its Offer of Settlement, will be
treated as Rejecting Class 4 Claimants. Reorganized Columbia will object
to and/or seek estimation of the Claims of Rejecting Class 4 Claimants and
such Claimants may continue to litigate their Claims in the Bankruptcy
Court after the Effective Date. Rejecting Class 4 Claimants will be paid
by Reorganized Columbia the Allowed amount of such Claims, if and when such
Claims are Allowed, in Common Stock or, at Columbia's option, in cash, or
any combination of the foregoing, in an amount equal to, as of the date of
distribution, the Allowed amount of such Claims. Class 4 Claims are
impaired and Holders of such Claims will be entitled to vote on whether to
accept or reject the Plan and the Offer of Settlement embodied therein.
CLASS 5. Intercompany Claims. Class 5 consists of the
Intercompany Claims. The Columbia Omnibus Settlement includes
consideration from Columbia to TCO to settle the Intercompany Claims and
other Claims which have been or might be asserted by the TCO estate and its
creditors against Columbia. Upon approval of the Columbia Omnibus
Settlement as part of Columbia's and TCO's Plans, the Intercompany Claims
shall be deemed to be satisfied in full.
CLASS 6. Assumed Claims. Class 6, which is subclassified
into Classes 6.1, 6.2 and 6.3, includes similar indemnity or guaranty-type
or contingent obligations of
IX-10
<PAGE> 371
Reorganized Columbia, which obligations Reorganized Columbia has agreed to
assume on the Effective Date. These assumed Claims include: (i) the
indemnity Claims of officers, directors, agents and employees of Columbia
and its subsidiaries relating to liabilities that may be assessed against
them to the extent applicable insurance proceeds are inadequate to satisfy
such Claims; (ii) the Claims relating to the Retirement Plan and (iii) the
Claims of Shawmut for certain obligations of Columbia to guarantee Columbia
Ohio's headquarters lease.
Columbia believes the classifications of unsecured Claims set forth in
its Plan are appropriate in classifying substantially similar Claims
together, and do not discriminate unfairly in the treatment of those
Classes. In fact, the classifications are intended to enhance
administrative convenience, recognize and accommodate distinct legal
entitlements of various types of unsecured Claims, and effectuate
reasonable settlements of disputes that are beneficial to the Estate and
fair to all of Columbia's Creditors.
b. MANDATORY AND OPTIONAL PLAN PROVISIONS
Section 1123 of the Bankruptcy Code specifies both mandatory and
optional provisions that a plan shall or may contain. In general, section
1123(a) mandates that a plan shall designate classes of claims and
interests (excluding administrative and priority claims identified in
section 507); specify any class of claims or interests that is not
impaired; specify the treatment
IX-11
<PAGE> 372
of classes of claims or interests that are impaired; provide the same
treatment for each claim or interest in a particular class, unless the
holder thereof agrees to a less favorable treatment; provide adequate means
for the plan's implementation including (as provided in the Plan) the
retention by the debtor of all of the property of the estate and the
satisfaction or modification of liens; provide for the inclusion in the
debtor's charter of a provision prohibiting the issuance of non-voting
equity securities; and contain only provisions that are consistent with the
interests of creditors and equity securityholders and with public policy
with respect to the manner of selection of any officer, director or trustee
under the plan. Columbia and its bankruptcy counsel believe that the Plan
complies in all respects with the relevant requirements of section 1123(a).
Section 1123(b) provides that a plan may impair or leave unimpaired any
class of claims or interests; provide for the assumption, rejection or
assignment of executory contracts or unexpired leases not previously
rejected; provide for the settlement or adjustment of any claims belonging
to the debtor or the estate; and include any other appropriate provision
not inconsistent with the applicable provisions of title 11.
The Plan avails itself of many of the optional provisions of section
1123(b), and does so, in the opinion of Columbia and its bankruptcy
counsel, in compliance with applicable standards of law. With respect to
all executory contracts and unexpired leases not previously assumed or
rejected and which have not
IX-12
<PAGE> 373
terminated after the Petition Date by their own terms or by operation of
law, the Plan specifies the proposed treatment to be accorded to those
contracts. Notably, the Plan contains important provisions for the
settlement or adjustment of Claims against Columbia and its Estate,
including the settlement of disputes relating to the calculation and
allowance of post-petition interest on pre-petition Claims, and the
resolution of litigable issues with the creditors of the TCO estate.
c. POST-PETITION INTEREST
As a general rule, the Bankruptcy Code provides for the disallowance of
claims for unmatured interest on pre-petition unsecured claims against the
estate. 11 U.S.C. Section 502(b)(2). However, it is well-established in
case law that a solvent debtor in a Chapter 11 proceeding is required to
pay post-petition interest on its unsecured debt. In reaching this
conclusion, courts have followed several lines of reasoning. One line of
case law holds that, based upon equitable principles, there is a "solvent-
debtor" exception to the general rule prohibiting post-petition interest on
unsecured claims, which permits unsecured creditors of a solvent debtor to
recover post-petition interest on pre-petition claims, subject to the
general equitable power of the bankruptcy court to approve the calculation
and allowance of such interest.
Another line of case law holds that in order for a plan to meet the
"best interests" test set forth in section 1129(a)(7) of the Bankruptcy
Code for dissenting, impaired creditors,
IX-13
<PAGE> 374
compliance with the statutory Chapter 7 distribution priorities set forth
in section 726 of the Bankruptcy Code is required, which in turn requires
payment of interest on creditor claims before distributions can be made to
equityholders.
Recent legislative modifications to section 1124 of the Bankruptcy Code
embodied in the Bankruptcy Reform Act of 1994, have also validated the
concept that in order for a plan of reorganization for a solvent debtor to
be "fair and equitable", unsecured claims are entitled to be paid in full,
including post-petition interest, before equityholders may participate in
any recovery. While the Bankruptcy Reform Act of 1994, including the
amendment to section 1124, is applied only prospectively to cases filed
after its effective date and therefore technically does not apply to the
Columbia Reorganization Case, some courts have nevertheless applied the
reasoning of the Bankruptcy Reform Act to bankruptcy cases filed before its
effective date. See, e.g., In re Artha Management, Inc., 174 B.R. 671
(Bankr. S.D.N.Y. 1994).
The Plan includes payment of post-petition interest on Creditors'
Claims. The amount of post-petition interest has been discussed with the
Equity Committee, the Creditors' Committee, and individual Holders of
Borrowed Money Claims, and represents, in Columbia's view, full and fair
satisfaction of Creditors' claims for post-petition interest. See Section
IV.A, "Borrowed Money Claims and the Negotiations and Settlement of
IX-14
<PAGE> 375
Such Claims", for a more complete discussion of the resolution and the
positions of the parties on this issue.
d. COMPROMISE OF INTERCOMPANY CLAIMS
Practically from the inception of Columbia's and TCO's Chapter 11
cases, there has been intense, costly litigation over the claims of TCO's
creditors, asserted by the TCO Creditors' Committee and joined by the TCO
Customers' Committee, to recoveries of additional value for themselves from
Columbia's Estate, over and above the enterprise value of TCO. Both
through the Intercompany Claims Litigation itself, and through numerous
discovery demands and various motions to the Bankruptcy Court, the TCO
Creditors' Committee has sought to enhance the recoveries of TCO's
creditors by:
-- opposing extensions of Columbia's and TCO's exclusive periods
for filing plans of reorganization, asserting their intention
to file a liquidating plan for TCO, and demanding that
Columbia "bid" for TCO in some type of public auction
(notwithstanding the absence of any third-party offer for TCO
arising out of the data room proceedings requested by the TCO
Creditors' Committee (see discussion in Section V.F.14));
-- Continually disputing Columbia's going-concern valuation of
TCO without defining to what extent that valuation was
deficient or improper;
-- Asserting and prosecuting the Intercompany Claims;
IX-15
<PAGE> 376
-- Opposing the allocations of liability to TCO under the IRS
Settlement Agreement and TCO's Settlement with the EPA.(1)
Columbia has had to weigh the interests of its Creditors and
Stockholders in a prompt and viable reorganization of Columbia and TCO
against the Intercompany Claims asserted by TCO's Creditors' Committee in
developing a global restructuring proposal for Columbia and TCO which
fairly values the rights and interests of all parties.
The Columbia Omnibus Settlement provides the foundation upon which both
Columbia and TCO can reorganize and emerge from Chapter 11 as healthy,
viable companies:
-- 100% recoveries for Columbia's Creditors;
-- with investment grade debt and stabilized shareholder values
for Columbia; and
-- substantial recoveries for all creditors of TCO, rendering
them whole or substantially whole on their claims
notwithstanding the insolvency of TCO's estate.
Columbia and its bankruptcy counsel believe that both the letter and
spirit of Chapter 11 validate the compromises and
- - ----------------------
(1) On November 16, 1994, the Bankruptcy Court approved three
settlements by TCO with various governmental environmental
agencies which include the U.S. Environmental Protection
Agency, the Kentucky Natural Resources and Environmental
Protection Cabinet and the Pennsylvania Department of
Environmental Resources. These settlements address TCO's
environmental remediation obligations under Federal law and
the laws of the Commonwealths of Kentucky and Pennsylvania.
IX-16
<PAGE> 377
settlements contained in the Plan, and that they are reasonable, legally
justified, equitable, and in the best interests of Columbia, its Creditors
and Stockholders.
5. COLUMBIA MUST COMPLY WITH THE APPLICABLE PROVISIONS OF THE
BANKRUPTCY CODE
Section 1129(a)(2) of the Bankruptcy Code requires that Columbia, as
the proponent of the Plan, comply with the applicable provisions of the
Bankruptcy Code. Columbia believes that, as the proponent of its Plan, it
has complied with, and continues to comply with, the applicable provisions
of the Bankruptcy Code.
Section 1125(b) of the Bankruptcy Code requires that acceptance or
rejection of a plan may not be solicited from a holder of a claim or
interest after the commencement of the case unless the plan or a summary
of the plan and a written disclosure statement (which has been approved,
after notice and hearing, by the Bankruptcy Court as containing adequate
information) are transmitted to such holder. The court may approve a
disclosure statement without a valuation of the debtor or an appraisal of
the debtor's assets.
Columbia intends to solicit acceptances of its Plan only after the
Bankruptcy Court has approved the adequacy of information in this
Disclosure Statement. On May 19, 1995, the Bankruptcy Court entered an
order scheduling a hearing on the Disclosure Statement for July 18, 1995,
and approving notice and publication procedures relating thereto. In
addition, as described in more detail in Section III.B.2, "HCA Jurisdiction
IX-17
<PAGE> 378
Over the Terms of the Plan", Columbia has submitted its Plan and this
Disclosure Statement for approval to the SEC in accordance with
Section 11(f) of the HCA, including authorization to distribute this
Disclosure Statement.
Section 1126 of the Bankruptcy Code and related Bankruptcy Rules govern
issues relating to voting on and acceptance or rejection of a plan.
Section 1126(a) provides that "the holder of a claim or interest allowed
under section 502 of this title may accept or reject a plan."
Substantially all Claims against Columbia, other than Securities Action
Claims, have been Allowed, or are not disputed at this time, and thus, are
entitled to vote, if impaired, in the stated amount of those Claims.
Consequently, Columbia and its bankruptcy counsel believe that the Plan
complies or will comply with sections 1125 and 1126 of the Bankruptcy Code.
6. ALTERNATIVES TO THE PLAN
a. CRAMDOWN REQUIREMENTS
The Bankruptcy Code provides for Confirmation of the Plan even if it is
not accepted by all impaired Classes, as long as at least one impaired
Class of Claims has accepted it (without counting the acceptances of
insiders). These so-called "cramdown" provisions are set forth in section
1129(b) of the Bankruptcy Code. The Plan may be confirmed under the
cramdown provisions if, in addition to satisfying the other requirements of
section 1129 of the Bankruptcy Code, it (i) is "fair and
IX-18
<PAGE> 379
equitable" and (ii) "does not discriminate unfairly" with respect to each
Class of Claims or Interests that is impaired under, and has not accepted,
such Plan.
If necessary, the Plan may be confirmed over the dissent of any Class
of unsecured Claims so long as one impaired Class of Unsecured Claims
accepts that Plan.
(i) THE PLAN MUST BE FAIR AND EQUITABLE
With respect to a dissenting Class of unsecured Creditors, the "fair
and equitable" standard requires, among other things, that the Plan contain
one of two elements. It must provide either that each unsecured Creditor
in the Class receive or retain property having a value, as of the Effective
Date, equal to the Allowed amount of its Claim, or that no Holder of
Allowed Claims or Interests in any junior Class may receive or retain any
property on account of such Claims or Interests. The strict requirement as
to the allocation of full value to dissenting Classes before junior Classes
can receive a distribution is known as the "absolute priority rule." The
Plan meets the requirements of the absolute priority rule since each
unsecured Creditor, including the non-settling Securities Action Claimants,
will be paid in full and will therefore be receiving property under the
Plan of a value, as of the Effective Date, equal to the Allowed amount of
its Claim.(2)
- - -----------------------
(2) The "fair and equitable" standard also applies to
dissenting classes of secured claims, however, other than
the DIP Facility Claim which is being paid in full, in
cash, on the Effective Date, there are no Classes of
secured Claims under the Plan.
IX-19
<PAGE> 380
In addition, the "fair and equitable" standard has also been
interpreted to prohibit any class senior to a dissenting class from
receiving under a plan more than one hundred percent of its Allowed Claims.
The Plan complies with that requirement with respect to all Claims of
Creditors and the Holders of Interests.
(ii) THE PLAN MUST NOT DISCRIMINATE UNFAIRLY
As a further condition to approving a cramdown, the Bankruptcy Court
must find that the Plan does not "discriminate unfairly" in its treatment
of dissenting Classes. The Plan contains classifications of impaired
Claims which Columbia believes are reasonable, appropriate and fair. See
Section IX.4.a, "Classification of Claims and Interests."
Columbia reserves the right to seek to confirm the Plan pursuant to the
cramdown provisions, and may, if necessary, modify the Plan in order to
comply with such cramdown requirements.
b. LIQUIDATION
See Section X.C, "Best Interests Test Analysis".
C. VOTING PROCEDURES AND REQUIREMENTS
1. VOTING REQUIREMENTS - GENERALLY
Pursuant to the Bankruptcy Code, only Holders of Claims against or
Interests in Columbia that are Allowed pursuant to section 502 of the
Bankruptcy Code and that are "impaired" under the terms and provisions of
the Plan are entitled to vote to accept or reject that Plan. If Columbia
or any other party-in-interest has objected to a Claim or Interest, the
Holder of such
IX-20
<PAGE> 381
Claim will not be entitled to vote on the Plan unless the Bankruptcy Court
has entered a Final Order allowing such Claim or Interest or unless
otherwise permitted to vote by the Bankruptcy Court. In addition, any
Holder of a Claim that is listed on the Schedule of Liabilities as
contingent, disputed or unliquidated and has not Filed a proof of claim
prior to the Bar Date, will not be entitled to vote such Claim with regard
to the Plan.
Columbia intends to file with the Bankruptcy Court one or more motions
seeking an order, among other matters, establishing dates and procedures
relating to (i) the solicitation of acceptances and rejections to the Plan,
and (ii) the form of the Questionnaire and provisions for acceptance or
rejection by the holders of Securities Action Claims of the Offer of
Settlement. By this motion, Columbia may also seek the Bankruptcy Court's
approval to temporarily allow certain Disputed Claims for voting purposes
only on the Plan.
Pursuant to the Bankruptcy Code, a Class is "impaired" if the legal,
equitable, or contractual rights attached to the Claims or Interests of
that Class are modified, other than by (i) curing defaults and reinstating
maturity or (ii) by payment in full in cash. Classes of Claims and
Interests that are not impaired are not entitled to vote on the Plan, are
conclusively presumed to have accepted that Plan and will not receive a
ballot. The classification of Claims and Interests under the Plan is
summarized, together with notations as to whether each
IX-21
<PAGE> 382
Class of Claims or Interests is impaired or unimpaired, in Sections II and
VI of this Disclosure Statement.
IF YOU HAVE A CLAIM OR INTEREST THAT IS IMPAIRED UNDER THE PLAN
ENTITLING YOU TO VOTE AND YOU DID NOT RECEIVE A BALLOT, RECEIVED A DAMAGED
BALLOT, OR LOST YOUR BALLOT, PLEASE CONTACT POORMAN - DOUGLAS AT ________
_____. VOTING ON THE PLAN BY A HOLDER OF ANY IMPAIRED CLAIM OR INTEREST
ENTITLED TO VOTE ON THAT PLAN IS IMPORTANT. IF YOU HOLD CLAIMS IN MORE
THAN ONE CLASS, YOU MAY RECEIVE MORE THAN ONE BALLOT. YOU SHOULD COMPLETE,
SIGN AND RETURN EACH BALLOT YOU RECEIVE.
In most cases, each ballot enclosed with this Disclosure Statement has
been encoded with the amount of your Claim for voting purposes. If your
Claim is or may become a Disputed Claim this amount may not be the amount
ultimately Allowed for purposes of distribution in the Class to which your
Claim has been attributed.
PLEASE FOLLOW THE DIRECTIONS CONTAINED ON THE ENCLOSED BALLOT
CAREFULLY. TO BE COUNTED, YOUR BALLOT MUST BE RECEIVED BY 5:00 P.M.,
PACIFIC STANDARD TIME, ON _____________, 1995, AT THE ADDRESS SET FORTH ON
THE ENCLOSED PRE-ADDRESSED ENVELOPE. [ALTERNATIVELY, CREDITORS MAY FAX
THEIR BALLOTS TO COLUMBIA'S BALLOT TABULATION CENTER C/O POORMAN-DOUGLAS
CORPORATION AT ____________________, BUT SUCH FAX MUST BE RECEIVED BY 5:00
P.M., PACIFIC STANDARD TIME, ON ____________, 1995. A HARD COPY OF ANY
BALLOT WHICH IS FAXED MUST BE RECEIVED AT THE ADDRESS SET FORTH ON THE
ENCLOSED PRE-ADDRESSED ENVELOPE WITHIN TWENTY-FOUR
IX-22
<PAGE> 383
(24) HOURS OF THE FAX OF THE BALLOT HAVING BEEN RECEIVED AT COLUMBIA'S
BALLOT TABULATION CENTER.] IT IS OF THE UTMOST IMPORTANCE TO COLUMBIA THAT
YOU VOTE PROMPTLY TO ACCEPT THE PLAN.
Votes cannot be transmitted orally. Accordingly, you are urged to
return your signed and completed ballot(s) promptly.
Any ballot received that is not duly executed shall be an invalid
ballot and shall not be counted for purposes of determining acceptance or
rejection of the Plan. Any ballot cast by other than a Holder of a
Securities Action Claim that does not indicate whether the Holder of the
Claim or Interest is voting to accept or reject the Plan will be counted as
a vote to accept the Plan. A vote may be disregarded if the Bankruptcy
Court determines, after notice and a hearing, that such acceptance or
rejection was not solicited or procured in good faith or in accordance with
the provisions of the Bankruptcy Code or if a Claim was voted in bad faith.
IX-23
<PAGE> 384
X. REORGANIZED COLUMBIA
A. BUSINESS OF COLUMBIA GAS
Following the Effective Date, Columbia, a Delaware holding company, and
its seventeen operating subsidiaries will continue to operate the businesses
of the System. A description of the System's businesses is set forth in
Section III.A. above. While no fundamental changes in those businesses are
anticipated in connection with Confirmation of the Plan and the occurrence of
the Effective Date, Columbia believes that it will be in a position to improve
its financial results upon emergence from the Chapter 11 proceedings. Upon
emergence from Chapter 11, Reorganized Columbia will no longer require
Bankruptcy Court approval for transactions considered to be outside the
ordinary course of business and management will no longer be required to focus
substantial time and effort on the Chapter 11 proceedings, resolution of
related disputes and the development of a plan of reorganization. In
addition, Reorganized Columbia is expected to have improved access to the
capital markets and will no longer be burdened with the substantial expenses,
including professional fees, incurred in connection with the Chapter 11
proceedings. For certain projected financial information with respect to
Reorganized Columbia, see Section X.B, "Financial Projections;
Recapitalization."
X-1
<PAGE> 385
B. FINANCIAL PROJECTIONS; RECAPITALIZATION
1. INTRODUCTION
As a condition to Confirmation of the Plan, the Bankruptcy Code requires,
among other things, that the Bankruptcy Court determine that Confirmation is
not likely to be followed by the liquidation or the need for further financial
reorganization of the debtor. See "Voting Procedures and Confirmation
Requirements -- Confirmation Requirements" in Section IX. For purposes of
determining whether the Plan satisfies this feasibility standard, the
management of Columbia analyzed the ability of Reorganized Columbia to meet
obligations under its Plan with sufficient liquidity and capital resources to
conduct its businesses. In this regard, the management of Columbia developed
and periodically refined Columbia's business plan and prepared certain
projections of Columbia's operating profit, free cash flow, and certain other
items, for the five-year period (the "Projection Period") from fiscal year
1995 through 1999. Such projections, as adjusted to reflect certain
subsequent events, the terms of the Plan, and various additional assumptions
(the "Projections"), are summarized below.
The Projections should be read in conjunction with the assumptions,
qualifications, and explanations set forth herein and the historical
consolidated financial statements and related notes thereto contained in the
Columbia Annual
X-2
<PAGE> 386
Report and the Columbia Quarterly Report attached hereto as Exhibits 2 and 3,
respectively.
Columbia does not publish its business plans and strategies or make
external projections or forecasts of its anticipated financial position or
results of operations. Accordingly, Columbia (including Reorganized Columbia)
does not anticipate that it will, and disclaims any obligation to, furnish
updated business plans or projections to Holders of Claims or Interests prior
to the Effective Date, except as may be necessary to meet legal requirements
for Confirmation of the Plan, or to Stockholders or debtholders after the
Effective Date, or to include such information in documents required to be
filed with the SEC or otherwise make such information public.
2. PRINCIPAL ASSUMPTIONS
The Projections are based on and assume the successful implementation of
Columbia's business plan. Columbia's current business plan, reviewed by its
Bankruptcy Court-approved financial advisors, was presented confidentially to
the Equity Committee and the Creditors' Committee. From time to time as
adjustments have been made thereto, Columbia has furnished representatives of
the Creditors' Committee and the Equity Committee detailed information
relating to its business plan, including its underlying assumptions, and
computations of projected financial results.
Both Columbia's business plan and the Projections reflect numerous
assumptions, including various assumptions
X-3
<PAGE> 387
with respect to the anticipated future performance of Columbia, industry
performance, general business and economic conditions and other matters, most
of which are beyond the control of Columbia. In addition, unanticipated
events and circumstances may affect the actual financial results of Columbia.
THEREFORE, WHILE THE PROJECTIONS ARE PRESENTED WITH SOME SPECIFICITY, THE
ACTUAL RESULTS ACHIEVED THROUGHOUT THE PROJECTION PERIOD WILL LIKELY VARY FROM
THE PROJECTED RESULTS, AND THESE VARIATIONS MAY BE MATERIAL. ACCORDINGLY, NO
REPRESENTATION CAN BE, OR IS BEING MADE, WITH RESPECT TO THE ACCURACY OF THE
PROJECTIONS OR THE ABILITY OF COLUMBIA TO ACHIEVE THE PROJECTED RESULTS. See
Section VII, "Risk Factors," for a discussion of certain factors that may
affect the future financial performance of Columbia and of various risks
associated with the securities of Reorganized Columbia to be issued pursuant
to the Plan.
While the management of Columbia believes that the assumptions underlying
the Projections for the Projection Period, when considered on an overall
basis, are reasonable in light of current circumstances, no assurance can be,
or is being, given that the assumptions underlying the Projections are
accurate or that the results embodied in the Projections will be realized. As
indicated below, the business plan on which the Projections are based assumes,
among other things: that the nature of the System's operations does not
change in any significant manner; no significant acquisition or disposition of
assets or
X-4
<PAGE> 388
businesses of the System occurs during the Projection Period; no significant
new regulatory schemes are adopted which require major changes in the business
of the System; applicable regulatory bodies set rates at levels which allow
Columbia and its subsidiaries to recover their costs and a reasonable return
on rate base; and certain anticipated levels of oil and gas prices are
achieved.
The Projections are also based on certain assumptions regarding the
amount of cash and the principal amount of New Indenture Securities to be
issued to the Holders of Class 3.2 Claims pursuant to the Columbia Plan and
the financial terms of those securities, the DECS, the New Preferred Stock and
the Bank Facilities. Those assumptions are illustrative only. The actual
amount of cash, if any, and the actual principal amount of New Indenture
Securities issued to Holders of those Claims and the financial terms of the
New Indenture Securities, the DECS, the New Preferred Stock and the Bank
Facilities may differ substantially from those reflected in the Projections.
Furthermore, based on recent market interest rates, the dividend rates for the
DECS, the New Preferred Stock, any Refunding DECS (as defined below) and any
Refunding Preferred Stock (as defined below) and the interest rates for the
New Indenture Securities and the Bank Facilities may be lower than the rates
for such securities reflected in the Projections. Any resulting cost savings,
however, could accrue at least in part to the benefit of the System's
customers through reduced rate case requirements,
X-5
<PAGE> 389
and therefore, the impact on the System's earnings from any such savings
cannot be quantified.
COLUMBIA STOCKHOLDERS AND CREDITORS ENTITLED TO VOTE ON THE PLAN MUST
MAKE THEIR OWN DETERMINATIONS AS TO THE REASONABLENESS OF SUCH ASSUMPTIONS AND
THE RELIABILITY OF THE PROJECTIONS IN REACHING THEIR DETERMINATIONS OF WHETHER
TO ACCEPT OR REJECT THE PLAN.
Additional information relating to the principal assumptions used in
preparing the Projections is set forth below.
a. COLUMBIA AND TCO PLAN ASSUMPTIONS
(i) The Effective Date of each of the TCO Plan and the Plan is December
31, 1995; and on that date each of those Plans is consummated on substantially
the terms described in the TCO Disclosure Statement and this Disclosure
Statement, respectively. Payouts by each of TCO and Columbia are $3.9 billion
and $3.6 billion, respectively.
(ii) On the Effective Date, Columbia, in respect of Class 3.1 and 3.2
Claims (x) pays $900 million in cash, (y) issues $200 million Liquidation
Value of DECS and $200 million Liquidation Value of New Preferred Stock and
(z) issues $2.1 billion in principal amount of New Indenture Securities.
(iii) Cash payments in the aggregate amount of approximately $237 million
are made by Columbia to TCO and Columbia's Creditors (other than Holders of
Class 3.1 and 3.2 Claims) on the Effective Date pursuant to the Columbia
X-6
<PAGE> 390
Plan, excluding for this purpose amounts received by Columbia from TCO in
respect of Columbia's claims against TCO that are immediately reinvested in
TCO.
(iv) All Holders of Securities Action Claims to whom the Offer of
Settlement proposed in the Plan is made accept that offer, and those Holders
of Securities Action Claims to whom no Offer of Settlement is made do not have
their Claims Allowed.
(v) All Producers accept their settlement values set forth in the TCO
Plan; and all Customers accept the settlement embodied in that Plan.
(vi) No payments are made by Columbia or TCO during the Projection Period
in respect of other obligations assumed by Columbia or TCO pursuant to the
Plan or the TCO Plan, other than (x) to the extent set forth below,
environmental obligations, (y) obligations incurred in the ordinary course of
business under assumed contracts and (z) payments to be made pursuant to the
IRS Settlement Agreement over the six-year period following the Effective Date
as described in Section VI.1.b, "Priority Tax Claims."
b. FINANCING ASSUMPTIONS
(i) The holders of DECS receive cumulative dividends at a rate of 8.75%
per annum. Columbia redeems all the DECS after the 90th day following the
Effective Date and on or prior to the 120th day following that date at a
redemption price equal to their Liquidation Value plus any accrued dividends
thereon with the proceeds of securities having
X-7
<PAGE> 391
terms identical to those of the DECS, other than those terms providing for
resetting the dividend rate applicable thereto and establishing certain
financial terms thereof on or about the 120th day following their issuance
(the "Refunding DECS"). On the fifth anniversary of the Effective Date, each
share of Refunding DECS is mandatorily converted into one share of Common
Stock on the same terms applicable to the DECS as described in Section X.E.3,
"Equity DECS." Refunding DECS are not converted into Common Stock at the
option of the holders or redeemed by Columbia prior to that date.
(ii) The holders of New Preferred Stock are entitled to receive
cumulative dividends at a rate of 8.75% per annum. Columbia redeems all the
New Preferred Stock after the 90th day following the Effective Date and on or
prior to the 120th day following that date at a redemption price equal to
their Liquidation Value plus any accrued dividends thereon with the proceeds
of securities having terms identical to those of the New Preferred Stock,
other than the term providing for resetting the dividend rate applicable
thereto (the "Refunding Preferred Stock"). The Refunding Preferred Stock is
not redeemed by Columbia and remains outstanding throughout the Projection
Period.
(iii) The weighted average coupon rate of the New Indenture Securities is
8.5% per annum. No principal of the New Indenture Securities is paid during
the Projection Period.
X-8
<PAGE> 392
(iv) Dividends on the Common Stock of $0.50 per share per annum commence
in the first quarter of 1996 with subsequent increases of $0.10 per annum
during the Projection Period. The only issuance of Common Stock after the
Effective Date and prior to the end of the Projection Period is the resale in
1996 of the approximately 1.4 million shares of Common Stock to be repurchased
from the LESOP Trust on the Effective Date.
(v) The average aggregate outstanding balance under the Term Loan
Facility and the Working Capital Facility during the Projection Period is
approximately $530 million and the average interest rate on such balance is
7.5% per annum.
c. BUSINESS, REGULATORY AND GENERAL ECONOMIC ASSUMPTIONS
(i) Average annual inflation during the Projection Period ranges from
2.5% to 3% based on the gross domestic product implicit price deflator.
(ii) The nature of the System's operations does not change in any
significant manner. No significant acquisition or disposition of assets or
businesses of the System occurs during the Projection Period.
(iii) An additional non-cash charge for environmental matters and higher
operating expenses at TCO is incurred in 1995. TCO, which has not implemented
a general rate increase since 1991, implements such a case before year-end
1996. Compensatory returns are realized beginning in 1996
X-9
<PAGE> 393
and beyond in the rate-regulated transmission and distribution segments as a
result of the recovery in rates of investments made to serve Columbia's new
and existing customers. In that regard, it is assumed that applicable state
and federal regulatory bodies set rates at levels which allow Columbia and its
regulated subsidiaries to recover their costs, giving effect to general
inflation, and a reasonable return on rate base, in a manner consistent with
past practice. No significant new regulatory schemes are adopted which
require major changes in the business of the System or any of its component
parts. TCO completes a phased market expansion in the 1997-1999 timeframe;
and Columbia's distribution companies add approximately 35,000 new customers
annually.
(iv) Oil and gas operating income increases result primarily from higher
forecasted energy commodity prices and, to a lesser extent, higher production
volumes. The average annual West Texas Intermediate oil price and gas price
located at the Henry Hub in Louisiana for 1995 are $18.50/Bbl and $1.65/MMbtu,
respectively. Thereafter, the price of both fuels increases throughout the
Projection Period in response to projections for rising domestic demand and
resource depletion. Other energy operation results improve as a result of the
planned expanded operations of Columbia Energy Services' market center in
Pittsburgh, Pennsylvania and from additional investments in power plants and
other new markets by TriStar.
X-10
<PAGE> 394
(v) Columbia's long-term debt-to-equity ratio decreases from
approximately 62% at the end of 1995 to approximately 54% by the end of 1999.
(vi) System capital expenditures approximate $500 million per year during
the Projection Period with both transmission and distribution operations
making significant new investments to replace and upgrade existing facilities.
(vii) TCO's expenditures for environmental assessment and remediation
average approximately $20 million per year during the Projection Period. A
substantial portion of these costs is recovered through customer rates and/or
insurance proceeds.
d. TAX ASSUMPTIONS
(i) The System's 1995 Net Operating Loss ("NOL") of approximately $1.2
billion is partially monetized in 1996 by obtaining a refund of taxes
previously paid in tax years 1992, 1993 and 1994. The remaining NOL is
monetized in the future as it is used to offset operating income and the
minimum tax credits that are created are utilized to offset a portion of the
Columbia Group's regular tax liability. A refund from the settlement of the
1991-92 tax audit is received in 1997.
X-11
<PAGE> 395
3. PROJECTIONS
Pro forma financial statements in the form of Projected Condensed Income
Statements, Projected Condensed Cash Flow Statements and Projected Condensed
Balance Sheets are set forth below. Those financial statements also include
actual condensed financial information for 1994.
X-12
<PAGE> 396
COLUMBIA GAS SYSTEM
FIVE-YEAR BUSINESS PLAN
PROJECTED CONDENSED INCOME STATEMENTS
($ MILLIONS)
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues 2,833.4 2,957.8 3,255.5 3,571.9 3,745.1 3,933.5
Operating Expenses:
Products Purchased 976.7 1,088.4 1,223.0 1,409.6 1,477.4 1,560.2
Operation and Maintenance 1,012.8 1,082.2 1,086.6 1,128.9 1,171.5 1,216.0
Depreciation and Depletion 261.7 275.7 295.5 315.0 326.0 339.4
Taxes Other than Income 209.0 220.0 229.3 245.3 259.0 273.7
---------- ---------- ---------- ---------- ---------- ----------
Total Operating Expenses 2,460.2 2,666.3 2,834.4 3,098.8 3,233.9 3,389.3
---------- ---------- ---------- ---------- ---------- ----------
Operating Income 373.2 291.5 421.1 473.1 511.2 544.2
Other Income (Deductions):
Interest Income and Other, Net 46.1 22.3 23.0 18.5 14.7 17.1
Interest Expense and Related Charges (14.8) (978.3) (205.4) (195.8) (196.2) (200.2)
Reorganization Items, Net (12.3) (374.4) -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total Other Income (Deducts) 19.0 (1,330.4) (182.4) (177.3) (181.5) (183.1)
---------- ---------- ---------- ---------- ---------- ----------
Income before Income Taxes 392.2 (1,038.9) 238.7 295.8 329.7 361.1
Income Taxes 146.0 (356.8) 89.6 110.8 121.2 133.7
---------- ---------- ---------- ---------- ---------- ----------
Income before Extraordinary Charges 246.2 (682.1) 149.1 185.0 208.5 227.4
Extraordinary Items (net) -- 288.1 -- -- -- --
Change in Accounting (5.6) -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Net Income 240.6 (394.0) 149.1 185.0 208.5 227.4
Preferred Dividend Payments -- -- 35.0 35.0 35.0 35.0
---------- ---------- ---------- ---------- ---------- ----------
Earnings on Common Stock 240.6 (394.0) 114.1 150.0 173.5 192.4
========== ========== ========== ========== ========== ==========
Primary Earnings per Share $ 4.76 $ (7.79) $ 2.30 $ 2.93 $ 3.34 $ 3.67
(DECS converted at $30/share)
Fully Diluted Earnings per Share
(DECS converted at $25/share) $ 4.76 $ (7.79) $ 2.25 $ 2.86 $ 3.26 $ 3.58
</TABLE>
X-13
<PAGE> 397
COLUMBIA GAS SYSTEM
FIVE-YEAR BUSINESS PLAN
PROJECTED CONDENSED BALANCE SHEETS
($ MILLIONS)
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Property, Plant, and Equipment 4,081.0 4,329.7 4,466.9 4,707.4 4,926.9 5,133.1
Investments and Other Assets 306.4 208.9 176.7 103.5 113.4 123.2
Current Assets:
Cash 1,481.8 1.0 1.0 1.0 1.0 1.0
Accounts Receivable 561.4 516.6 479.0 449.8 475.5 469.7
Gas Inventory 230.3 225.8 225.3 223.8 222.9 223.1
Other Current Assets 211.6 446.1 437.0 403.7 380.4 354.2
---------- ---------- ---------- ---------- ---------- ----------
Total Current Assets 2,485.1 1,189.5 1,142.3 1,078.3 1,079.8 1,048.0
Deferred Charges 292.4 298.7 292.1 288.7 289.5 287.5
---------- ---------- ---------- ---------- ---------- ----------
Total Assets 7,164.9 6,026.8 6,078.0 6,177.9 6,409.6 6,591.8
========== ========== ========== ========== ========== ==========
Capitalization:
Equity 1,468.0 1,474.0 1,598.3 1,717.8 1,855.8 2,008.0
Long Term Debt 4.3 2,432.3 2,265.4 2,232.8 2,308.6 2,326.7
---------- ---------- ---------- ---------- ---------- ----------
Total Capitalization 1,472.3 3,906.3 3,863.7 3,950.6 4,164.4 4,334.7
Current Liabilities:
Short-Term Debt 1.2 300.0 300.0 300.0 300.0 300.0
Rate Refunds Payable 92.2 76.6 39.3 45.5 45.6 46.2
Other Current Liabilities 766.5 621.2 742.5 759.1 775.4 785.4
---------- ---------- ---------- ---------- ---------- ----------
Total Current Liabilities 859.9 997.8 1,081.8 1,104.6 1,121.0 1,131.6
Liabilities Subject to Chapter 11 Proceedings 3,988.9 -- -- -- -- --
Other Non-Current Liabilities 843.8 1,122.7 1,132.5 1,122.7 1,124.2 1,125.5
---------- ---------- ---------- ---------- ---------- ----------
Total Capitalization and Liabilities 7,164.9 6,026.8 6,078.0 6,177.9 6,409.6 6,591.8
========== ========== ========== ========== ========== ==========
</TABLE>
X-14
<PAGE> 398
COLUMBIA GAS SYSTEM
FIVE-YEAR BUSINESS PLAN
PROJECTED CONDENSED CASH FLOW SHEETS
($ MILLIONS)
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cash from Operations:
Net Income 240.6 (394.0) 149.1 185.0 208.5 227.4
Depreciation and Depletion 261.7 275.7 295.5 315.0 326.0 339.4
Deferred Income Taxes (non-current) 72.2 274.7 19.3 (2.1) 9.8 10.0
Reorganization Items, Net 16.9 (1,515.6) -- -- -- --
Other (net) (41.9) 47.3 (2.9) (4.3) (9.1) (6.7)
Change in Working Capital 23.3 (343.0) 144.4 118.1 (29.8) (0.7)
----------- ----------- ----------- ----------- ----------- -----------
Net Cash from Operations 572.8 (1,654.9) 605.4 611.7 505.4 569.4
Investment Activities:
Capital Expenditures 433.6 465.7 428.7 515.0 512.0 513.6
Other 1.3 (25.2) -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net Investment Activities 434.9 440.5 428.7 515.0 512.0 513.6
----------- ----------- ----------- ----------- ----------- -----------
Net Cash before Financing Activities 137.9 (2,095.4) 176.7 96.7 (6.6) 55.8
Financing Activities:
Debt Financing 3.5 650.0 (167.0) (32.4) 75.8 18.1
Equity Financing -- (35.4) 35.5 -- -- --
Dividend Payments -- -- (45.2) (64.3) (69.2) (73.9)
---------- ----------- ----------- ----------- ----------- -----------
Net Financing Activities 3.5 614.6 (176.7) (96.7) 6.6 (55.8)
----------- ----------- ----------- ----------- ----------- -----------
Change in Cash and Equivalents 141.4 (1,480.8) -- -- -- --
=========== =========== ========== =========== =========== ===========
Supplemental Cash Flow Disclosures:
Interest Paid 0.8 995.8 208.3 198.0 199.6 203.2
Income Taxes Paid 38.8 77.2 (102.1) 43.6 88.8 102.3
- - -----------------------------------------------------------------------------------------------------------------------------------
Supplemental Schedule of 1995 Noncash Financing
Activity:
- - -----------------------------------------------------------------------------------------------------------------------------------
Extinguishment/Retirement of Historical (2,382.0)
Indebtedness
- - -----------------------------------------------------------------------------------------------------------------------------------
Interest Expense not Paid in Cash (96.1)
- - -----------------------------------------------------------------------------------------------------------------------------------
Issuance of New Long-Term Debt 2,078.1
- - -----------------------------------------------------------------------------------------------------------------------------------
Issuance of DECS 200.0
- - -----------------------------------------------------------------------------------------------------------------------------------
Issuance of Preferred Stock 200.0
----------
- - -----------------------------------------------------------------------------------------------------------------------------------
Total --
------------
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
X-15
<PAGE> 399
C. BEST INTERESTS TEST ANALYSIS
As described above in Section IX.B under the caption "Best Interests
Test," if any Interest Holder or any Claim Holder voting in an impaired or
deemed impaired Class rejects the Plan, the Bankruptcy Court must determine
whether that Plan satisfies the "best interests" test. To meet that test, the
Columbia Plan must provide value to dissenting impaired Interest and Claim
Holders which is not less than the value which would be distributed to such
Holders in a Chapter 7 liquidation.
Columbia believes that its Creditors and Interest Holders will receive or
retain value as of the Effective Date (or thereafter in the case of Claims
that are not liquidated as of the Effective Date) under the Plan that is at
least equal to, and is likely to be greater than, the value such Creditors and
Interest Holders would receive under a Chapter 7 liquidation as all Allowed
Claims are being paid in full under the Plan.
In the case of a hypothetical liquidation of Columbia, the liquidation
values available to Holders of Interests and Claims would for the following
reasons, likely be less than, or not greater than, the values available under
the Plan. A Chapter 7 Trustee would be obligated to sell the assets of the
System. It is not known, in that scenario, whether the System could be sold
intact, or would be broken up and sold in pieces. Analysis and marketing of
such a transaction or transactions would be complex, costly, and, in all
X-16
<PAGE> 400
likelihood, time-consuming. It is not known what form of consideration would
flow to Claim and Interest Holders as a result of such dispositions, but there
is certainly a risk that less cash, higher-risk securities, and lower or more
volatile shareholder values might derive from such transactions, in comparison
to the consideration being paid under the Plan.
The value available for distribution under the Plan would be reduced by
(i) the costs, fees, and expenses of the liquidation, as well as other
administrative expenses of Columbia's Chapter 7 case, and (ii) unpaid
administrative claims of the Reorganization Case, including tax liabilities in
respect of gain arising from the disposition of assets, which could be
substantial. Columbia's costs of liquidation in a Chapter 7 case would
include the compensation of a trustee, as well as counsel and other
professionals retained by such trustee, asset disposition expenses, applicable
taxes, litigation costs, claims arising from the operation of the System
during the pendency of the Chapter 7 case, and all unpaid administrative
claims incurred by Columbia during the Reorganization Case that are allowed in
Chapter 7 cases. Additional costs might be incurred in securing required
approvals under the HCA and from FERC and state regulatory authorities in
connection with the liquidation. The liquidation itself could accelerate the
payment of substantial claims that would otherwise be payable in the ordinary
course of business.
X-17
<PAGE> 401
Pursuant to the Plan, all administrative, priority and secured Claims are
paid in full in cash, as are all non-Borrowed Money Claims and small Borrowed
Money Claims. As to "impaired" Classes of Claims, the Plan also provides for
payment in the following manner: (a) Holders of Class 3.2 Claims (Borrowed
Money Claims in excess of $20,000 in principal amount as of the Record Date)
will receive a combination of cash, if available therefor in accordance with
the Plan, each Issue of New Indenture Securities (or, in the case of Holders
of such Claims entitled to receive New Indenture Securities having an
aggregate principal amount not exceeding $70,000, solely Issue A of the New
Indenture Securities), DECS and New Preferred Stock with an aggregate
principal amount or Liquidation Value, which, when added to the cash, if any,
to be distributed, is equal to the amount of such Claims (plus post-petition
interest and interest on missed interest payments as provided in the Plan),
(b) if Class 4 accepts the Plan, Qualifying Class 4 Claimants that accept the
Offer of Settlement will receive the settlement amounts provided for in the
Plan in cash or, in certain instances, cash and Common Stock, and Rejecting
Class 4 Claimants, as well as Complying Class 4 Claimants that are not
Qualifying Class 4 Claimants, will be paid the Allowed amounts of their
Claims, if and when their Claims are Allowed, in Common Stock or, at
Columbia's option, cash and (c) Holders of Interests will continue to hold
such Interests.
X-18
<PAGE> 402
In addition, the Plan embodies a proposed resolution in respect of (a)
the amounts to be paid to Holders of Borrowed Money Claims in respect of post-
petition interest and interest on missed interest payments and (b) the amounts
to be paid to Holders of Securities Action Claims in respect of those Claims.
In a Chapter 7 liquidation, settlements of the Borrowed Money Claims and
Securities Action Claims might not be consummated (resulting in continuing
litigation) or, if consummated, might not realize as great a value as is
offered under the Plan to Creditors.
In summary, Columbia believes that a Chapter 7 liquidation of Columbia
could result in substantial diminution in the value to be realized by Holders
of Interests and Claims, as compared to the proposed provisions of the Plan,
because of, among other factors, (i) the possibility that a liquidation sale
of Columbia would not realize the full going concern value of Columbia's
assets, or result in the issuance of similar amounts of cash, Investment Grade
securities and equity securities to Creditors, (ii) additional administrative
expenses involved in the appointment of a liquidating trustee, as well as
attorneys, financial advisors, accountants and other professionals to assist
such trustee, (iii) additional expenses and substantial tax liabilities, some
of which would be entitled to priority in payment, which would arise by reason
of the liquidation, and (iv) the substantial delay before Holders of Interests
and Claims would receive any
X-19
<PAGE> 403
distribution in respect of their Interests and Claims. Consequently, Columbia
believes that the Plan, which provides for the payment in full of all Class
3.2 Borrowed Money Claims, the payment of the settlement values set forth
therein in respect of the Securities Action Claims and the continuation of
Columbia's businesses, will provide payment of an amount and an ultimate
return to Holders of Claims and Interests, respectively, that is at least
equal to that which would be provided by a Chapter 7 liquidation.
D. PRICING OF SECURITIES
The securities to be issued pursuant to the Plan will be priced based on
the Pricing Formulae set forth in Exhibit 5 to this Disclosure Statement. The
Pricing Formula for determining the interest rate for each Issue of New
Indenture Securities is based on the spread of (x) average yields of baskets
of debt securities selected in accordance with Exhibit 5 over (y) the yields
on and interpolations of yields for U.S. treasury securities having similar
maturities during a specified period ending on a specified date shortly before
the Effective Date, adjusted to account for certain factors, as described in
Exhibit 5. Each security in each basket will be selected because it is
comparable to the New Indenture Securities. Factors involved in determining
comparability to the New Indenture Securities include the industry of the
issuer of the securities, the rating of the securities and the terms of the
securities.
X-20
<PAGE> 404
The dividend rate for the New Preferred Stock will be determined based on
the interest rate for the Issue G New Indenture Securities, adjusted to
account for the ratings of the New Preferred Stock and the New Indenture
Securities by Standard & Poor's Ratings Group and Moody's Investors' Service,
Inc.
The issue price of the DECS will be the weighted average of the market
prices of trades of the Common Stock during the five consecutive trading days
ending on the fifth trading day before the Effective Date. The dividend rate
for the DECS will be determined based on the anticipated yield of the Common
Stock upon emergence, adjusted to account for the date Columbia selects as the
Regular DECS Redemption Date.
Under the Plan, it is intended that Holders of Borrowed Money Claims will
receive new debt and equity securities of Columbia having aggregate principal
amounts and/or Liquidation Values which, when added to the cash available
under the Plan, if any, to be distributed to the Holders of such Claims, will
equal the amount of their Allowed Claims plus post-petition interest thereon.
Columbia believes that the Creditors' Committee and its financial advisors and
the Equity Committee and its financial advisors agree with Columbia and
Salomon that the methodologies used to price the securities to be issued
pursuant to the Plan on the Effective Date should result in such securities
having a fair market value that approximates the amount of such
X-21
<PAGE> 405
Allowed Claims and post-petition interest, less the cash, if any, to be
distributed in respect of such Claims. However, there can be no assurance
that these methodologies will result in such securities having such a fair
market value because any attempt to estimate the fair market value of
securities prior to their initial issuance is inherently subject to
uncertainties and contingencies that are difficult to predict. The actual
fair market value of such securities on and subsequent to the Effective Date
can be expected to fluctuate with changes in the U.S. Treasury markets, the
securities markets generally, economic conditions, the financial conditions
and prospects of Reorganized Columbia and other factors, including the
development of a fully distributed trading market, all of which generally
influence the value of securities. The actual price at which such securities
trade subsequent to the Effective Date may vary materially from the amount of
the Claims in respect of which they are issued.
E. SECURITIES TO BE ISSUED PURSUANT TO THE PLAN
1. INTRODUCTION
As of the Effective Date, Columbia will issue (i) New Indenture
Securities in an aggregate principal amount of up to $3.0 billion, subject to
adjustment as described in Section VI.A.2.d to reflect the actual amount of
cash, if any, distributed pursuant to the Plan in respect of Borrowed Money
Claims, pursuant to the New Indenture dated as of the Effective Date, between
Columbia and [ ], as Trustee
X-22
<PAGE> 406
(the "New Indenture Trustee"), which New Indenture will be qualified under the
Trust Indenture Act of 1939, and (ii) $200 million Liquidation Value each of
DECS and New Preferred Stock. As described below under the caption "Other
Post-Reorganization Debt," Columbia also expects to enter into the Term Loan
Facility and the Working Capital Facility on the Effective Date.
Set forth below are brief descriptions of the key features of the New
Indenture Securities, the New Preferred Stock, the DECS and the Common Stock
issuable upon conversion or redemption of the DECS. More complete
descriptions of those securities (including definitions of certain capitalized
terms) are set forth in Exhibit 4 hereto, which all Holders of Claims against,
and Interests in Columbia are encouraged to read in its entirety.
2. INDENTURE SECURITIES
The New Indenture Securities will be issued in seven Issues, each Issue,
with the possible exception of Issue A, in an aggregate initial principal
amount which is no more than 150% of the principal amount of any other Issue
of New Indenture Securities, with the respective maturities set forth below.
X-23
<PAGE> 407
<TABLE>
<CAPTION>
Issue Maturity
----- --------
<S> <C>
Issue A 5 years
Issue B 7 years
Issue C 10 years
Issue D 12 years
Issue E 15 years
Issue F 20 years
Issue G 30 years
</TABLE>
Each New Indenture Security will bear interest from the Effective Date,
payable semi-annually on dates to be determined, for each Issue of New
Indenture Securities, by Columbia prior to the Effective Date, to the
registered holder thereof at the close of business on the applicable record
date therefor. The rate of interest to be borne by each Issue of the New
Indenture Securities will be determined prior to the Effective Date in
accordance with the Pricing Formula for the New Indenture Securities as
described above in this Section X under the caption "Pricing of Securities."
Principal of each Issue of New Indenture Securities will be payable on
the maturity date thereof set forth above. The New Indenture Securities will
be issued only in denominations of $1,000 or any integral multiple thereof.
New Indenture Securities will be issued only in book-entry form, will not be
exchangeable for New Indenture Securities in certificated form at the option
of the Holder and, except in certain limited circumstances, will not otherwise
be issuable in definitive form.
X-24
<PAGE> 408
Issue A, Issue B and Issue C New Indenture Securities may not be
redeemed. After year 10, Issue D and Issue E New Indenture Securities may be
redeemed at the option of Columbia at par. Issue F New Indenture Securities
may be redeemed at the option of Columbia after year 10 at a premium of the
principal amount equal to the coupon of such New Indenture Securities in
year 1 declining ratably to zero in year 15. Issue G New Indenture Securities
may be redeemed at the option of Columbia after year 10 at a premium of the
principal amount equal to the coupon of such Securities in year 1 declining
ratably to zero in year 20.
The New Indenture contains customary affirmative covenants; and the
supplement to the New Indenture relating to the New Indenture Securities
contains a covenant requiring Columbia, for the four-year period following the
Effective Date, to either hold specified amounts of TCO secured debt or retire
certain Columbia funded debt. The New Indenture also contains limitations on
the ability of Columbia's Significant Subsidiaries (as defined under
Regulation S-X of the SEC) to incur long-term debt owed to third parties and
issue preferred stock to third parties and a negative pledge with respect to
Columbia, subject, in each case, to specified exceptions, including exceptions
for current asset financings and natural resource production loans. The New
Indenture does not include any financial covenants or any limitations on the
amount of unsecured debt that can be incurred by Columbia.
X-25
<PAGE> 409
The New Indenture contains the following Events of Default: (i) default
in payments of the New Indenture Securities; (ii) failure to comply with
covenants; (iii) failure to discharge or otherwise provide for final, non-
appealable judgments for the payment of money exceeding $50 million in
uninsured liability; and (iv) certain events of insolvency with respect to
Columbia; all subject, as applicable, to customary grace periods.
Columbia may, at any time, terminate (i) all its obligations under the
New Indenture Securities and the New Indenture ("Legal Defeasance Option") or
(ii) its obligations to comply with certain restrictive covenants, provided
that Columbia irrevocably deposits in trust with the New Indenture Trustee
money or U.S. government obligations for the payment of principal of and
interest on the New Indenture Securities to maturity or redemption, as the
case may be. The conditions to defeasance shall be that (i) no default exists
or occurs, (ii) Columbia obtains a certificate from a firm of nationally
recognized independent accountants that the deposited U.S. government
obligations will be sufficient to pay principal of and interest on the New
Indenture Securities to be defeased when due and (iii) in the case of the
Legal Defeasance Option, 91 days pass after the deposit is made and no event
of bankruptcy with respect to Columbia is continuing at the end of the 91-day
period.
X-26
<PAGE> 410
The New Indenture Securities will be general unsecured senior obligations
of Columbia.
3. EQUITY DECS
The DECS will constitute shares of convertible Preferred Stock and rank
on a parity with the New Preferred Stock and prior to Common Stock, in each
case as to payment of dividends and distribution of assets upon liquidation.
Each share of DECS will be issued at a price equal to the weighted average of
the trading prices of all trades on the New York Stock Exchange (the "NYSE")
of shares of Common Stock for the five consecutive trading days ending on the
fifth trading day prior to the Effective Date (the "Liquidation Value").
The holders of DECS will be entitled to receive, when, as and if
dividends on the DECS are declared by the Board of Directors, out of funds
legally available therefor, cumulative preferential dividends from the
Effective Date, payable quarterly in arrears on the dates that are on or about
the dates that are 90 days, 180 days, 270 days and 360 days following the
Effective Date (and each anniversary of the foregoing dates), accruing at the
rate per share per annum that is determined prior to the Effective Date in
accordance with the Pricing Formula for the DECS; provided, however, that (x)
such rate per share per annum expressed in basis points shall be increased by
100 basis points per share per annum effective as of the 120th day following
the Effective Date, and (y) dividends with respect to the 90-day
X-27
<PAGE> 411
period immediately following the Effective Date will not be paid until the
120th day following the Effective Date. Dividends are payable in cash or, in
connection with certain redemptions by Columbia, in shares of Common Stock.
Accumulated unpaid dividends will not bear interest.
On the Mandatory Conversion Date (the fifth anniversary of the Effective
Date), each outstanding share of DECS will convert automatically into shares
of Common Stock at the Common Equivalent Rate in effect on such date and shall
have the right to receive an amount in cash equal to all accrued and unpaid
dividends on such DECS to the Mandatory Conversion Date, subject to the right
of Columbia to redeem the DECS (i) on or prior to the 120th day following the
Effective Date and (ii) on or after the Regular DECS Redemption Date and prior
to the Mandatory Conversion Date, as described below, and subject to the
conversion of the DECS at the option of the holder at any time after the 120th
day following the Effective Date and prior to the Mandatory Conversion Date.
The Common Equivalent Rate will initially be an amount equal to the product of
(i) one and (ii) the quotient (the "DECS Factor") obtained by dividing (x) the
Liquidation Value of a share of DECS by (y) the weighted average of the
trading prices of all trades on the NYSE of shares of Common Stock for the
five consecutive trading days ending on the fifth trading date prior to the
120th day following the Effective Date; provided, however, that if any event
that results in an adjustment of the Common Equivalent
X-28
<PAGE> 412
Rate occurs after the Effective Date and prior to the end of such five trading
day period, the Special Factor will be appropriately adjusted.
Because the price of the Common Stock is subject to market fluctuations,
the value of the Common Stock received by a holder of DECS upon mandatory
conversion may be more or less than the Liquidation Value for the DECS.
The DECS will be redeemable by Columbia, in whole or in part, at any time
and from time to time (i) on or prior to the 120th day following the Effective
Date and (ii) on or after the Regular DECS Redemption Date (the fourth
anniversary of the Effective Date or the date that is one month prior to the
fifth anniversary of the Effective Date, as determined by Columbia prior to
the Effective Date) and prior to the Mandatory Conversion Date; provided,
however, that Columbia may not so redeem any DECS on or prior to the 120th day
following the Effective Date if, after giving effect to such redemption, the
aggregate Liquidation Value of the DECS outstanding would be less than $50
million, unless after giving effect thereto no DECS would be outstanding.
Upon any such redemption that occurs on or prior to the 120th day following
the Effective Date, each holder of DECS will receive, in exchange for each
share of DECS so called, cash in amount equal to the sum of (x) the
Liquidation Value thereof and (y) if such redemption occurs after the 90th day
following the Effective Date, all accrued and unpaid dividends thereon to the
date fixed for
X-29
<PAGE> 413
redemption. Upon any such redemption that occurs on or after the Regular DECS
Redemption Date, each holder of DECS will receive, in exchange for each share
of DECS so called, a number of shares of Common Stock (the "Optional Call
Number") equal to the lesser of (i) the Call Price of the DECS in effect on
the date of redemption divided by the Current Market Price of the Common Stock
determined as of the date which is one trading day prior to the public
announcement of the call for redemption and (ii) the sum of (x) the Common
Equivalent Rate plus (y) an amount determined by dividing the Premium-Accrued
Dividend Amount (as defined below) by the Current Market Price of the Common
Stock determined as of the date which is one trading day prior to the public
announcement of the call for redemption.
The Call Price of each share of DECS will be the sum of (i) the Base Call
Price, (ii) if the Regular DECS Redemption Date is the fourth anniversary of
the Effective Date, a premium equal to the annual dividend on the DECS
applicable as of the 120th day following the Effective Date, for the first
month following the Effective Date, declining ratably to 1/30th of such annual
dividend, for the month that is two months prior to the Mandatory Conversion
Date, and zero, for the month immediately preceding the Mandatory Conversion
Date, and (iii) all accrued and unpaid dividends thereon to the date fixed for
redemption (the sum of the amounts referred to in clauses (ii) and (iii) being
referred to as the "Premium-Accrued Dividend Amount").
X-30
<PAGE> 414
The Base Call Price of each share of DECS will be an amount equal to the
product of the Liquidation Value thereof and the DECS Factor. The public
announcement of any such call for redemption shall be made prior to the
mailing of the notice of such call to holders of DECS.
The opportunity for equity appreciation afforded by an investment in the
DECS is less substantial than the opportunity for equity appreciation afforded
by an investment in the Common Stock because, in addition to the right to
redeem the DECS during the first 120 days following the Effective Date,
Columbia may, at its option, redeem the DECS at any time on or after the
Regular DECS Redemption Date and prior to the Mandatory Conversion Date, and
may be expected to do so prior to the Mandatory Conversion Date if the market
price of the Common Stock exceeds the Optional Conversion Price. In such
event, holders of the DECS will receive less than one share of Common Stock
for each share of DECS. However, because holders of DECS called for
redemption will have the option to surrender DECS for conversion at the
Optional Conversion Price up to the close of business on the redemption date
(and may be expected to do so if the market price of the Common Stock exceeds
the Optional Conversion Price), a holder that elects to convert will receive a
number of shares determined on the basis of the Optional Conversion Rate
(subject to adjustment as described herein) for each share of DECS. Because
the Optional Call Number will be determined on the basis of the
X-31
<PAGE> 415
market price of the Common Stock prior to the announcement of the call, the
value per share of the shares of Common Stock to be delivered may be more or
less than the value thereof on the date of delivery.
Each of the DECS will be convertible, in whole or in part, at the option
of the holders thereof, at any time after the 120th day following the
Effective Date and prior to the Mandatory Conversion Date, unless previously
redeemed, into a number of shares of Common Stock that equals the product of
(i) .8333 and (ii) the DECS Factor (the "Optional Conversion Rate") (the
dollar equivalent thereto per share of Common Stock is referred to as the
"Optional Conversion Price"), subject to adjustment as described below. The
right to convert DECS called for redemption will terminate immediately prior
to the close of business on the redemption date.
The Common Equivalent Rate for mandatory conversions and the Optional
Conversion Rate for optional conversions are both subject to adjustment in the
event of certain stock dividends or distributions, subdivisions, splits,
combinations, issuances of certain rights or warrants or distributions of
certain assets with respect to the Common Stock, as well as in the event of
certain mergers or other business combinations to which Columbia is a party.
The liquidation preference of each share of the DECS is an amount equal
to the sum of (i) the Liquidation Value
X-32
<PAGE> 416
thereof and (ii) all accrued and unpaid dividends thereon to the date of
liquidation, dissolution or winding up.
The holders of DECS shall not have voting rights except as required by
law and except as follows: (i) if dividends on the DECS are in arrears and
unpaid for six quarterly dividend periods, the holders of the DECS (voting
separately as a class with holders of all other series of Preferred Stock
ranking on a parity with the DECS upon which like voting rights have been
conferred and are exercisable) will be entitled to vote, on the basis of one
vote for each share of the DECS, for the election of two directors of
Columbia, (such directors to be in addition to the number of directors
constituting the Board of Directors immediately prior to the accrual of such
right), and (ii) the holders of DECS will have voting rights with respect to
certain alterations of Columbia's certificate of incorporation.
Shares of DECS redeemed for or converted into Common Stock or otherwise
acquired by Columbia will assume the status of authorized but unissued
Preferred Stock and may thereafter be reissued in the same manner as other
authorized but unissued Preferred Stock.
Columbia will apply to the NYSE for listing of any of the DECS not called
by Columbia and still outstanding after the 120th day following the Effective
Date.
4. COMMON STOCK
Subject to the rights of the holders of any Preferred Stock then
outstanding, holders of Common Stock (including
X-33
<PAGE> 417
that stock issuable upon conversion of, or in connection with certain
redemptions of, the DECS) are entitled to one vote per share on all matters to
be voted on by Stockholders of Columbia, other than the election of directors.
Voting for directors is cumulative; each Stockholder has votes equal to the
number of shares of Common Stock the Stockholder owns multiplied by the number
of directors to be elected and all votes can be cast for one nominee or
divided among more than one.
Subject to the rights of the holders of Preferred Stock, holders of
Common Stock are entitled to receive such dividends, if any, as may be
declared from time to time by the Board of Directors of Columbia in its
discretion out of funds legally available therefor. Upon any liquidation or
dissolution of Columbia, holders of the Common Stock are entitled to receive
pro rata all assets remaining available for distribution to stockholders after
payment of all liabilities and provision for the liquidation of any shares of
any Preferred Stock at the time outstanding. The Common Stock has no
preemptive or other subscription rights, and there are no conversion rights or
redemption or sinking fund provisions with respect to such stock.
5. NEW PREFERRED STOCK
The New Preferred Stock will constitute shares of Preferred Stock with a
Liquidation Value of $25 per share and rank on a parity with the DECS and
prior to the Common
X-34
<PAGE> 418
Stock, in each case as to payment of dividends and distribution of assets upon
liquidation.
The holders of New Preferred Stock will be entitled to receive, when, as
and if dividends on the New Preferred Stock are declared by the Board of
Directors out of funds legally available therefor, cumulative preferential
cash dividends from the Effective Date, payable quarterly in arrears on the
dates that are on or about 90 days, 180 days, 270 days and 360 days following
the Effective Date (and each anniversary of the foregoing dates), accruing at
the rate per share per annum that is determined prior to the Effective Date in
accordance with the Pricing Formula for the New Preferred Stock; provided,
however, that (x) effective as of the 120th day following the Effective Date,
such rate per share per annum (expressed in basis points) shall be the rate
per share per annum that is determined in accordance with the Pricing Formula
for the New Preferred Stock (and, for this purpose only, a recalculation of
the interest rate on the Issue G New Indenture Securities (on which the
original dividend rate for the New Preferred Stock will be based)) shortly
before the 120th day following the Effective Date plus 100 basis points and
(y) dividends with respect to the 90-day period immediately following the
Effective Date will not be paid until the 120th day following the Effective
Date. Accumulated unpaid dividends will not bear interest.
X-35
<PAGE> 419
The New Preferred Stock will be redeemable by Columbia, in whole or in
part, at any time and from time to time (i) on or prior to the 120th day
following the Effective Date, and (ii) on or after the fifth anniversary of
the Effective Date; provided, however, that Columbia may not so redeem any New
Preferred Stock on or prior to the 120th day following the Effective Day, if
after giving effect to such redemption, either (x) the aggregate Liquidation
Value of the New Preferred Stock outstanding would be less than $50 million,
unless after giving effect thereto, no New Preferred Stock would be
outstanding or (y) any DECS would be outstanding. Upon any such redemption,
each holder of New Preferred Stock will receive, in exchange for each share of
New Preferred Stock so called, cash in an amount equal to the sum of (i) the
Liquidation Value thereof and (ii) if such redemption occurs after the 90th
day following the Effective Date, all accrued and unpaid dividends thereon to
the date fixed for redemption.
The New Preferred Stock is not subject to mandatory redemption by
Columbia and is not convertible into or exchangeable for any other securities.
The liquidation preference of each share of New Preferred Stock is an
amount equal to the sum of (i) the Liquidation Value therefor and (ii) all
accrued and unpaid dividends thereon to the date of liquidation, dissolution
or winding up.
X-36
<PAGE> 420
The holders of New Preferred Stock shall not have voting rights except as
required by law and except as follows: (i) if dividends on the New Preferred
Stock are in arrears and unpaid for six quarterly dividends periods, the
holders of the New Preferred Stock (voting separately as a class with holders
of all other series of Preferred Stock ranking on a parity with the New
Preferred Stock upon which like voting rights have been conferred and are
exercisable) will be entitled to vote, on the basis of one vote for each share
of New Preferred Stock, for the election of two directors of Columbia, (such
directors to be in addition to the number of directors constituting the Board
of Directors immediately prior to the accrual of such right) and (ii) the
holders of New Preferred Stock will have voting rights with respect to certain
alterations of Columbia's certificate of incorporation.
Columbia will apply to the NYSE for listing of any of the New Preferred
Stock not called by Columbia and still outstanding after the 120th day
following the Effective Date.
6. APPLICABILITY OF FEDERAL AND OTHER SECURITIES LAWS
Certain Holders of Claims will receive securities under the Plan.
Section 1145 of the Bankruptcy Code creates certain exemptions from the
registration and licensing requirements of federal and state securities laws
with
X-37
<PAGE> 421
respect to the distribution of securities pursuant to a plan of
reorganization.
a. ISSUANCE OF SECURITIES UNDER THE PLAN
Section 1145 of the Bankruptcy Code exempts the issuance of securities
under a plan of reorganization from registration under the Securities Act of
1933 and under state securities laws if three principal requirements are
satisfied: (i) the securities must be issued "under a plan" of reorganization
by the debtor or its successor or under a plan of an affiliate participating
in a joint plan of reorganization with the debtor; (ii) the recipients of the
securities must hold a claim against the debtor, an interest in the debtor or
a claim for an administrative expense against the debtor; and (iii) the
securities must be issued entirely in exchange for the recipient's claim
against or interest in the debtor, or "principally" in such exchange and
"partly" for cash or property. Although the issuance of the New Indenture
Securities, DECS and New Preferred Stock under the Plan satisfies the
requirements of section 1145(a)(1) of the Bankruptcy Code and, therefore, is
exempt from registration under federal and state securities laws, under
certain circumstances subsequent transfers of such securities may be subject
to registration requirements under such securities laws.
X-38
<PAGE> 422
b. TRANSFERS OF NEW SECURITIES
The securities to be issued pursuant to the Plan may be freely
transferred by most recipients thereof, and all resales and subsequent
transactions in the new securities are exempt from registration under federal
and state securities laws, unless the holder is an "underwriter" with respect
to such securities. Section 1145(b) of the Bankruptcy Code defines four types
of "underwriters":
(i) Persons who purchase a claim against, an interest in, or a claim for
administrative expense against the debtor with a view to
distributing any security received in exchange for such a claim or
interest;
(ii) Persons who offer to sell securities offered under a plan for the
holders of such securities;
(iii) Persons who offer to buy such securities from the holders of such
securities, if the offer to buy is (x) with a view to distributing
such securities or (y) made under a distribution agreement; and
(iv) a Person who is an "issuer" with respect to the securities, as the
term "issuer" is defined in section 2(11) of the Securities Act of
1933. Under section 2(11) of the Securities Act of 1933, an
"issuer" includes any Person directly or indirectly controlling or
controlled by the issuer, or any Person under direct or indirect
common control with the issuer.
X-39
<PAGE> 423
To the extent that Persons deemed to be "underwriters" receive securities
pursuant to the Plan, resales by such Persons would not be exempted by section
1145 of the Bankruptcy Code from registration under the Securities Act of 1933
or other applicable law. Persons deemed to be underwriters, however, may be
able to sell such securities without registration, subject to the provisions
of Rule 144 or Rule 148 under the Securities Act of 1933, both of which permit
the public sale of securities received pursuant to the Plan by "underwriters",
subject to the availability to the public of current information regarding the
issuer and to volume limitations and certain other conditions.
Whether or not any particular Person would be deemed to be an
"underwriter" with respect to any security to be issued pursuant to the Plan
would depend upon various facts and circumstances applicable to that Person.
Accordingly, Columbia expresses no view as to whether any Person would be an
"underwriter" with respect to any security to be issued pursuant to that Plan.
GIVEN THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION OF WHETHER A
PARTICULAR PERSON MAY BE AN UNDERWRITER, COLUMBIA MAKES NO REPRESENTATION
CONCERNING THE RIGHT OF ANY PERSON TO TRADE IN THE NEW INDENTURE SECURITIES,
DECS OR NEW PREFERRED STOCK TO BE DISTRIBUTED PURSUANT TO THE PLAN. COLUMBIA
RECOMMENDS THAT POTENTIAL RECIPIENTS OF THE NEW INDENTURE SECURITIES, DECS OR
NEW PREFERRED STOCK CONSULT
X-40
<PAGE> 424
THEIR OWN COUNSEL CONCERNING WHETHER THEY MAY FREELY TRADE SUCH SECURITIES.
c. CERTAIN TRANSACTIONS BY STOCKBROKERS
Under section 1145(a)(4) of the Bankruptcy Code, stockbrokers are
required to deliver a copy of this Disclosure Statement (and supplements
hereto, if any, if ordered by the Bankruptcy Court) at or before the time of
delivery of securities issued under the Plan to their customers for the first
forty days after the Effective Date. This requirement specifically applies to
trading and other aftermarket transactions in such securities.
7. HCA PROVISIONS APPLICABLE TO SECURITIES TO BE ISSUED PURSUANT
TO THE PLAN
The HCA prohibits the acquisition by any Person of 5% or more of the
voting securities of a registered public utility holding company, such as
Columbia, unless the acquisition has been approved by the SEC under the HCA.
It also requires that any Person that owns, controls or holds with power to
vote, 10% or more of the voting securities of a public utility holding company
register with the SEC as a holding company under the HCA. The DECS and the
New Preferred Stock will not be voting securities for those purposes upon
their issuance. However, in the event holders of DECS and New Preferred Stock
became entitled to elect directors following a default in the payment of
dividends thereon, those securities would become voting securities and would
be included in any calculation pursuant to the above-
X-41
<PAGE> 425
described provisions of the HCA and SEC approval and/or registration is
required in connection with the acquisition or holding thereof to the extent
described above. Furthermore, the Common Stock issuable upon redemption or
conversion of the DECS is a voting security for purposes of the HCA.
8. FUTURE STOCK ISSUANCES
In addition to (i) the DECS and New Preferred Stock to be issued pursuant
to the Plan, (ii) other securities that may be issued by Columbia to provide
funds to redeem some or all the DECS and New Preferred Stock within the 120-
day period following the Effective Date and (iii) the equity securities that
might be issued pursuant to the Plan or the TCO Plan, Columbia will be
authorized to issue additional shares of capital stock from time to time
following the Effective Date. There will be no specific restrictions on such
issuances, subject to the availability of authorized and unissued shares of
Common Stock or Preferred Stock, as applicable, therefor. Under Delaware law,
in the absence of fraud in the transaction, the judgment of the directors as
to the value of consideration received upon the issuance of a corporation's
capital stock is conclusive. In addition, as permitted by Delaware law, under
Columbia's certificate of incorporation existing Stockholders will not have
preemptive rights to purchase additional shares of Columbia capital stock upon
any issuance of such shares authorized by the Board of Directors.
X-42
<PAGE> 426
F. OTHER POST-REORGANIZATION DEBT
In addition to the New Indenture Securities described above under the
caption "Securities to be Issued Pursuant to the Plan--New Indenture
Securities," the principal indebtedness of Columbia anticipated to be
outstanding following the Effective Date is described below.
1. TERM LOAN FACILITY
Columbia is currently seeking to arrange the Term Loan Facility,
consisting of one or more senior unsecured term credit facilities in an
aggregate principal amount of up to $450 million, effective as of the
Effective Date. Amounts available to be borrowed under the Term Loan Facility
would be applied to make payments in respect of Claims of Creditors'
obligations of Columbia under the Columbia Omnibus Settlement, and for general
corporate purposes. Amounts borrowed under the Term Loan Facility will rank
pari passu with all other senior unsecured obligations of Columbia, including
the New Indenture Securities.
The specific terms of the Term Loan Facility, including, without
limitation, interest rates, repayment terms, conditions to borrowings,
representations and warranties, covenants and events of default will be
negotiated by Columbia and prospective providers of the Term Loan Facility.
No assurances can be given that the Term Loan Facility will be arranged
or as to the amount thereof. The failure of Columbia to arrange the Term Loan
Facility or a reduction
X-43
<PAGE> 427
in the principal amount thereof would result in a reduction in the amount of
cash available to satisfy Claims of Creditors and a corresponding increase in
the amount of New Indenture Securities distributed to such Creditors pursuant
to the Columbia Plan. Although entry into the Term Loan Facility is a
condition to the effectiveness of the Plan, such condition may be waived by
Columbia.
2. WORKING CAPITAL FACILITY
Columbia is currently seeking to arrange the Working Capital Facility,
consisting of one or more senior unsecured revolving credit facilities in an
aggregate principal amount of up to $700 million, effective as of the
Effective Date. It is expected that the Working Capital Facility would be
available (i) to provide working capital for Columbia and its subsidiaries and
(ii) for the issuance of commercial and standby letters of credit to be issued
for the account of Reorganized Columbia in the ordinary course of its
business. Amounts borrowed under the Working Capital Facility will rank pari
passu with all other senior unsecured obligations of Columbia, including the
New Indenture Securities.
The specific terms of the Working Capital Facility, including, without
limitation, interest rates, repayment terms, conditions to borrowings,
representations and warranties, covenants and events of default will be
negotiated by Columbia and prospective providers of the Working Capital
Facility.
X-44
<PAGE> 428
No assurances can be made that the Working Capital Facility can be
arranged or as to the principal amount thereof. The failure of Columbia to
arrange the Working Capital Facility or a reduction in the principal amount
thereof could have an adverse impact on Columbia's ability to achieve the
financial projections contained herein under "Financial Projections;
Recapitalization." Although entry into the Working Capital Facility is a
condition to the effectiveness of the Plan, such condition may be waived by
Columbia.
3. OTHER CREDIT FACILITIES
In addition to the foregoing credit facilities, from and after the
Effective Date, Columbia may, from time to time, enter into other credit
facilities on such terms as Columbia determines to be appropriate, subject to
any applicable limitations on indebtedness contained in Columbia's other debt
instruments.
G. MANAGEMENT
1. BOARD OF DIRECTORS
Columbia's Board of Directors is divided into three classes of directors.
During each annual meeting of Stockholders, members of one class, on a
rotating basis, are elected for a term of three years. The following is a
table of the Persons who are the current directors of Columbia and who will
continue to be the directors on the Effective Date, except as noted below, and
certain biographical information relating to each Person identified:
X-45
<PAGE> 429
<TABLE>
<CAPTION>
Shares of
Name & Principal Year First End of Stock Owned
Occupation Age Elected Curr. Term Beneficially
---------------- --- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Richard F. Albosta 58 1995 1998 0
Consultant since October, 1994.
Chairman, President and CEO of
Ensearch Environmental Corporation
(January 1994 to October 1994);
President and CEO since 1986 and
Chairman since 1990 of Ebasco
Services, Inc.
Robert H. Beeby 63 1993 1996 1,000
Chairman of the Board of Service
America Corporation since 1992.
Former President and CEO of Frito-
Lay, Inc. (1989 to 1991) and Pepsi-
Cola International (1984 to 1988).
Director of Church & Dwight Co.,
Inc. and Applied Extrusion
Technologies, Inc.
Wilson K. Cadman 67 1993 1997 0
Private Investor since 1992. Former
Chairman, President and CEO, Kansas
Gas & Electric Co. and retired Vice
Chairman of Western Resources, Inc.
Director of El Paso Electric Co.,
Inc. and Clark/Bardes Companies.
James P. Heffernan 49 1993 1997 0
Managing Director and President of Whitman
Heffernan Rhein & Co., Inc., since 1987.
CEO and Director of Danielson Holding
Corporation, since 1990 and Director of
its subsidiary, Danielson Trust Company,
since 1993. Director and President of
Herman's Holdings, Inc. and Director of
its subsidiary, Herman's Sporting Goods,
Inc. since 1993.
Malcolm T. Hopkins 66 1982 1996 5,512
Private investor since 1984. Retired Vice
Chairman, CFO and Director of the former
St. Regis Corporation. Director of
Metropolitan Series Fund, Inc. and MetLife
Portfolios, Inc.; MAPCO, Inc.; KinderCare
Learning Centers, Inc., EMCOR, Inc.; and
U.S. Home Corporation. Trustee of The
Biltmore Funds.
Malcolm Jozoff 55 1995 1998 1,000
Chairman and CEO of Lenox, Incorporated,
since 1993. Self employed Management
Consultant on marketing and strategic
planning; (July 1992 to October 1993);
previously Group Vice President, The
Procter & Gamble Co. and President -
Health Care Products, Procter & Gamble,
USA. Director of Chemtrak, Inc.
William E. Lavery 64 1985 1996 750
President Emeritus and Professor, Virginia
Polytechnic Institute and State
University; President from 1975 to 1987.
Director of First Union Corporation of
Virginia and Shenandoah Life Insurance Co.
</TABLE>
X-46
<PAGE> 430
<TABLE>
<CAPTION>
Shares of
Name & Principal Year First End of Stock Owned
Occupation Age Elected Curr. Term Beneficially
---------------- --- ---------- ---------- ------------
<S> <C> <C> <C> <C>
George P. MacNichol, III(1/) 71 1971 1995 600
Private Investor since 1979. Retired
Officer and Director of Libbey-Owens-Ford
Company and retired Director of Fifth
Third Bank of Toledo, N.A.
George E. Mayo 62 1994 1995 500
Chairman of the Board and President of the
Midland Life Insurance Company since 1980.
President Midland Financial Services since
Dec. 29, 1994. Chairman of the Board of
U.S. Health Corporation. Director of
Compuserve, Inc.; HBO & Co. of Atlanta;
Huntington Bancshares Inc.; and Borror
Corporation.
Douglas E. Oleson 56 1995 1998 0
President and CEO of Battelle Memorial
Institute, since 1987.
Ernesta G. Procope 65 1979 1997 1,161
President and CEO of E.G. Bowman Co.,
Inc., since 1953. Director of Avon
Products, Inc. and Chubb Corporation.
James R. Thomas, II 69 1990 1997 300
Private investor, since 1983.
Retired President and CEO of Carbon
Industries, Inc. Director of One
Valley Bank, N.A., Camcare, Inc.,
and Shoney's, Inc.
William R. Wilson 67 1987 1996 5,000
Private investor, since 1992.
Retired Chairman of the Board and
CEO of Lukens Inc. Director of Acme
Metals Incorporated, Provident
Mutual Life Insurance Company, and
L.F. Driscoll Co.
Oliver G. Richard III 42 1995 1996 10,000
Chairman, Chief Executive Officer
and President of Columbia (effective
April 28, 1995). Former Chairman of
New Jersey Resources Corporation
since 1992; former President and CEO
since 1991. Former President and
CEO of New Jersey Natural Gas
Company; President and CEO of
Northern Natural Gas Company (1989
to 1991). Senior Vice President and
subsequently Executive Vice
President of Enron Gas Pipeline
Group; Vice President and General
Counsel of Tenngasco, a subsidiary
of Tenneco Corporation (1985 to
1987); and FERC Commissioner (1982
to 1985). Director of National
Westminster Bank USA, Monmouth
College and Monmouth Medical Center.
</TABLE>
- - ----------------------------------
(1/) It is expected that Mr. MacNichol will retire from the Board
after he reaches the mandatory retirement age for directors
of Columbia in August, 1995.
X-47
<PAGE> 431
For the year 1994, directors each received a retainer of $25,000 and a
meeting fee of $1,000 per meeting. Those directors on the audit,
compensation, finance, corporate governance and ad hoc committees of the Board
received a meeting fee of $1,000 per committee meeting. Directors serving on
the executive committee of the Board also received a $6,000 retainer and a
meeting fee of $800 per meeting. The Board held eleven meetings in 1994 and
each incumbent director attended at least 75% of the total number of meetings
of the Board and Board committees on which he or she served. No officer
received any compensation for services as a director while also serving as an
officer of Columbia.
Columbia offers medical coverage to non-employee directors and pays the
premium associated with their participation. Columbia also reimburses its
non-employee directors for the cost of Medicare Part B, if applicable. Non-
employee directors may elect to defer compensation for distribution at a later
date. Deferred amounts of compensation accrue interest at the rate for six-
month U.S. Treasury Bills and may be paid in a lump sum or in annual
installments over ten years. Deferred amounts will be automatically paid in a
lump sum following certain specific changes in control of Columbia.
Each non-employee director who has served on the Board for a minimum of
five years and who retires after attaining the age of 70 or becomes disabled,
will receive annual
X-48
<PAGE> 432
retirement payments equal to the amount of the annual retainer for Board
service at the time of retirement. These payments will cease at the death of
the director unless the director elected an actuarial equivalent option. In
the event of certain specified changes in the control of Columbia, a director
(regardless of years of service on the Board) may elect a lump-sum payment
equal to the present value of the retainer at the time of the election
multiplied by the number of years of such director's service on the Board,
with a minimum of ten years.
2. OFFICERS OF COLUMBIA
a. OVERVIEW OF COLUMBIA'S SENIOR MANAGEMENT
The following is a table indicating the Persons who currently are and
expected to serve as executive officers of Columbia, as of the Effective Date,
their principal capacities, 1994, 1995 and 1996 base salaries(2/), the
1993 bonus paid in 1994, the 1994 bonus paid in 1995, other
- - ----------------------------------
(2/) Columbia calculates its management's base salaries on a fiscal
calendar year which begins on April 1st of each year. The
salaries listed for the years 1994 and 1995 have been adjusted to
conform to a calendar year basis. The base salaries for the calendar
year 1996 reflect the salaries effective as of April 1, 1995. At this
time, it is too early to estimate what the projected base salaries
will be for the fiscal year beginning April 1, 1996 for members of
Columbia's management.
X-49
<PAGE> 433
compensation for 1994(3/), and stock options granted or to be granted in 1995.
<TABLE>
<CAPTION>
1993 1994
BASE BASE BASE BONUS BONUS
SALARY SALARY SALARY PAID PAID OTHER 1995
FOR 1994 FOR 1995 FOR 1996 IN 1994 IN 1995 COMP. 1994 STOCK
NAME TITLE $ $ $ $ $ $ OPTIONS
---- ----- -------- -------- -------- ------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Oliver G. Richard, Chairman of the N/A 750,000 750,000 N/A N/A N/A 15,000 (4/)
III Board, President and
CEO (effective April
28, 1995)
Daniel L. Bell, Jr. Senior Vice 299,200 308,150 310,400 29,260 42,196 17,908 5,000
President, Chief
Legal Officer and
Secretary
Peter M. Schwolsky Senior Vice N/A 285,000 285,000 N/A N/A N/A 7,500 (6/)
President(5/)
Michael W. O'Donnell Senior Vice 286,025 310,150 315,300 26,000 53,046 92,031* 5,000
President and Chief
Financial Officer
Richard A. Casali Vice President 137,861 141,438 142,120 5,000 6,969 62,464* -0-
Richard E. Lowe Vice President and 169,700 178,850 181,000 8,080 20,688 107,868* 2,000
Controller
Larry J. Bainter Treasurer 167,250 176,275 178,400 7,965 20,388 107,655* 2,000
Tejinder S. Bindra Assistant Secretary 143,997 150,294 151,682 10,320 23,381 115,674* -0-
Joyce K. Hayes Assistant Secretary 128,753 134,202 135,441 9,267 20,877 106,584* -0-
</TABLE>
* Includes payment under Retention Agreement (defined and described in
Section V.F.11).
Prior to the Petition Date, the Board of Directors established various
incentive compensation programs for Columbia's executives. These programs
include an annual incentive compensation plan, the Incentive Plan (defined and
described in Section V.F.15), a performance share program,
- - ----------------------------------
(3/) Other compensation reflects Columbia's contributions to the Thrift
Plan. For a description of the Thrift Plan, see Section
V.F.5.a, "LESOP Claims and LESOP Action -- Columbia's Thrift Plan."
(4/) Contingent stock grant of 10,000 shares issued May 1, 1995 and 5,000
shares to be issued December 31, 1995.
(5/) As of June 5, 1995. Mr. Schwolsky will be become Chief Legal
Officer of Columbia later this year.
(6/) Stock options of 5,000 shares were granted on June 5, 1995. Also, a
grant 2,500 shares of contingent stock is to be awarded on
September 5, 1995.
X-50
<PAGE> 434
benefits plans and miscellaneous arrangements. In 1991, due to the reduction
in the dividend on Common Stock and Columbia's filing for bankruptcy,
Columbia's incentive compensation programs were suspended. This suspension
has been continued to date for the performance share program.
The annual incentive compensation plan was adopted in 1987 and provides
key employees with the opportunity to receive cash awards for attaining
specific goals which contribute directly to the present and future financial
health of Columbia. The amounts of these annual awards are determined by the
compensation committee of the Board of Directors. The amount for the awards
based on performance in 1994 were determined and awarded in March 1995.
The Incentive Plan provides additional incentives to officers and other
key employees through the granting of incentive stock options, nonqualified
stock options, stock appreciation rights and/or contingent stock awards. As
previously stated, the Incentive Plan was resumed during 1995 and will
terminate by its terms in September 1995.
The performance share program was implemented in 1990 and provides for the
payment of contingent stock awards to senior executives if specific pre-
determined financial targets are attained in future years. This program is
currently suspended. Since this program is part of the Incentive Plan, it
will terminate in September 1995.
Columbia also maintains thrift, retirement, medical, dental, long-term
disability, life insurance and other benefit plans of
X-51
<PAGE> 435
general applicability. Federal regulations establish limits on the benefits
which may be paid under thrift and retirement plans qualified under the IRC.
To maintain compliance, Columbia caps benefits under the qualified plans at
the required levels. To provide comparable benefits to more highly
compensated employees, Columbia has established a thrift restoration plan and
pension restoration plan, both of which are nonqualified and unfunded.
However, the pension restoration plan may be funded through a trust
arrangement at the election of the beneficiary once a threshold liability of
$100,000 has been reached.
A noncontributory defined benefit pension plan is maintained for all
employees of Columbia's participating subsidiaries who are at least 21 years
of age. The annual benefit (payable monthly) under the pension plan is based
on the average annual compensation and number of years of credited service.
Final average compensation is calculated using base compensation paid to the
employee for the highest 36 months of the last 60 months prior to retirement.
An employment agreement, effective July 19, 1991 and which expired on July
18, 1993, was entered into with Mr. Bell in order to retain his services. A
new employment agreement with Mr. Bell was entered into effective July 19,
1993 and the Bankruptcy Court approved the agreement on October 20, 1993.
That employment agreement provides for a payment equal to one year's base
salary if he remains employed as of the Confirmation Date.
X-52
<PAGE> 436
The employment agreement also provides that Mr. Bell may treat his
employment as terminated without cause if one of the following occurs: (i) a
reduction in the employee's fixed salary or other benefits to which such
employee is entitled (other than a reduction affecting all employees
generally); (ii) a liquidation, dissolution, consolidation or merger, or
transfer of all or substantially all of Columbia's assets (other than a
transaction in which the successor corporation has a net worth equal to or
greater than Columbia's and assumes the agreement and all of its obligations
and undertakings); (iii) a change in the control of Columbia (as defined in
the agreement) or a material reduction in the employee's rank or
responsibilities. In the event of such an election by Mr. Bell to treat the
agreement as terminated, or in the event of a termination by Columbia not
permitted by the agreement, Mr. Bell is entitled to receive, in lieu of the
above-referenced payment, his salary and specified benefits for a period of
twelve months (or an equivalent lump sum in the event of a change of control).
Mr. John H. Croom, who also entered into a similar employment agreement
with Columbia in 1993, began receiving payments under his employment agreement
effective May 1, 1995 after he was succeeded as Chairman of the Board of
Directors, Chief Executive Officer and President by Mr. Oliver G. Richard III.
b. CHANGES IN SENIOR MANAGEMENT OF COLUMBIA
At the 1993 shareholders' meeting, John H. Croom, Columbia's former
Chairman of the Board, Chief Executive Officer and
X-53
<PAGE> 437
President announced that he would be retiring when Columbia's Chapter 11
bankruptcy proceedings were sufficiently advanced to allow new management to
lead Reorganized Columbia. Following the 1993 shareholder's meeting, the
Board of Directors established a committee of Columbia's outside directors to
conduct a search for a highly qualified replacement for Mr. Croom. As a
result of its extensive search, the executive search committee, at the Board's
March 15, 1995 meeting, announced its recommendation that the Board elect
Oliver G. Richard III as the Chairman of the Board, Chief Executive Officer
and President of Columbia. The Board accepted the recommendation and elected
Mr. Richard to these positions effective as of the close of business on April
28, 1995.
Mr. Richard, 42, has a very distinguished record. In 1992, he was elected
Chairman of the New Jersey Resources Corporation where he had served as
President and Chief Executive Officer since 1991. He also served as President
and Chief Executive Officer of New Jersey Natural Gas Company, New Jersey
Resources Corporation's principal operating company. Mr. Richard was also
previously with Enron Corporation where he was President and Chief Executive
Officer of Northern Natural Gas Company from 1989 to 1991 and, from 1987 to
1989, Senior Vice President and then Executive Vice President of Enron Gas
Pipeline Group. Prior to such time, from 1985 to 1987, he served as Vice
President and General Counsel of Tenngasco, a subsidiary of Tenneco
Corporation, and, from 1982 to 1985, he was a Commissioner of FERC.
X-54
<PAGE> 438
Columbia has entered into an employment agreement with Mr. Richard
pursuant to which he is to receive a base salary of $750,000 per year, subject
to increases by the Board of Directors. Mr. Richard owns 10,000 shares of
Common Stock. He also was awarded grants of 5,000 shares per year on December
31 of the years 1995, 1996, and 1997, on the condition that he is employed by
Columbia as of those dates. In addition, subject to necessary approvals, on
the thirtieth day after the Effective Date, Mr. Richard will receive options
to purchase, at the then prevailing market price, 100,000 shares of Common
Stock. If such options cannot be issued as of such date, but are issued
later, Mr. Richard is to receive a cash payment equal to the excess, if any,
of the exercise price over the fair market value of the shares of Common Stock
on the thirtieth day following the Effective Date.
The employment agreement also provides that Columbia will compensate Mr.
Richard for certain items he will forfeit as a result of his termination of
his employment with New Jersey Resources Corporation. Such compensation did
not exceed $60,000. In addition to being eligible to participate in all of
Columbia's incentive compensation plans and employee benefit programs provided
to other senior executives of Columbia, Mr. Richard may receive upon
retirement, supplemental pension payments to make up the difference, if any,
between Columbia's pension benefits and those he would have received from New
Jersey Resources Corporation.
X-55
<PAGE> 439
The employment agreement further provides for Mr. Richard to be paid
severance benefits if his employment is terminated without cause. Such
severance benefits include payment of Mr. Richard's base salary, incentive
compensation and fringe benefits for the remainder of the first year in
addition to 24 months of salary, incentive compensation and fringe benefits.
If Mr. Richard's employment is terminated due to a change in control of
Columbia (as defined in the agreement), the period of his severance benefits
is increased to thirty-six months, but the amount paid to Mr. Richard, which
would constitute "parachute payments" under the IRC, will be limited to the
extent necessary to avoid the imposition of an excise tax.
Columbia has also entered into an employment agreement with Mr. Peter M.
Schwolsky, who was elected Senior Vice President of Columbia effective June 5,
1995. Mr. Schwolsky will become Chief Legal Officer later this year. Under
the employment agreement, Mr. Schwolsky is to receive a base salary of
$285,000 per year, subject to increases by the Board of Directors. He was
also awarded a grant of 2,500 shares of Common Stock effective September 5,
1995 and an option to purchase 5,000 shares as of June 5, 1995. In addition
to being eligible to participate in all of Columbia's incentive compensation
plans and employee benefit programs provided to other senior executives of
Columbia, Mr. Schwolsky may receive upon retirement, supplemental pension
payments to make up the difference, if any, between Columbia's pension
benefits and
X-56
<PAGE> 440
those he would have received from his prior employer, New Jersey Resources
Corporation.
H. AMENDMENT TO CERTIFICATE OF INCORPORATION
Pursuant to section 303 of the Delaware General Corporation Law and
section 1123(a) of the Bankruptcy Code, Columbia intends to amend and restate
its certificate of incorporation. Columbia's Restated Certificate of
Incorporation will become effective upon filing with the Delaware Secretary of
State on or after the Effective Date. Columbia will remain incorporated under
the laws of the State of Delaware. A form of the Restated Certificate of
Incorporation is attached as Exhibit A to the Plan, which is attached as
Exhibit 1 to this Disclosure Statement. The Restated Certificate of
Incorporation represents a streamlining and modernization of Columbia's
current certificate of incorporation, with the additional changes outlined
below. The following discussion is qualified in its entirety by reference to
the Restated Certificate of Incorporation.
The Restated Certificate of Incorporation prohibits the issuance of non-
voting equity securities as required by section 1123(a)(6) of the Bankruptcy
Code, subject to further amendment of the Restated Certificate of
Incorporation as permitted by applicable law.
The Restated Certificate of Incorporation also decreases the par value of
Preferred Stock from 50 dollars ($50) to ten dollars ($10) and increases the
number of authorized shares of Preferred Stock to 20 million shares. It is
anticipated that
X-57
<PAGE> 441
approximately 16 million shares of DECS and New Preferred Stock having the
terms described herein under the caption "Securities to be Issued pursuant to
the Plan" will be issued on the Effective Date in order to effectuate the
Columbia Plan.
In addition, the Restated Certificate of Incorporation differs from the
current certificate of incorporation as it deletes the restrictions on Common
Stock dividends and amounts of debt applicable while any Preferred Stock is
outstanding. It also deletes specific provisions regarding Preferred Stock
voting rights, dividend rights and liquidation rights and permits the Board of
Directors to determine the specific rights, powers and preferences of each
series of Preferred Stock, and the limitations thereon, at the time of such
series' issuance. The Restated Certificate of Incorporation also (i) provides
for continuation of a classified Board of Directors for directors elected by
holders of Common Stock even if directors are elected by the holders of
Preferred Stock and (ii) recognizes that the terms of the Preferred Stock may
be set by resolutions adopted by the Board of Directors pursuant to ARTICLE
FOURTH as proposed to be amended.
Similar amendments with respect to Preferred Stock (other than the
increase in the number of authorized shares of such stock) were put to
Columbia's Stockholders at its 1995 annual meeting in order to permit
implementation of the Shareholder Rights Plan adopted by the Board of
Directors, subject to the approval of such amendments by shareholders and
approval of the Rights Plan and such amendments by the SEC under the HCA and
the
X-58
<PAGE> 442
Bankruptcy Court. As described in Section V.F.16, requisite Stockholder
approval was not obtained and the application for HCA approvals and the motion
for Bankruptcy Court approval were withdrawn. The amendments relating to
Preferred Stock proposed in the Plan are nevertheless necessary in order to
implement those provisions of the Plan which call for the issuance of New
Preferred Stock and DECS to Holders of Borrowed Money Claims and are otherwise
desirable from the point of view of future financing flexibility. The Board
of Directors, however, has no present intention with respect to a possible
"shareholder rights plan" and, in any event, no such plan could become
effective absent approval by the SEC pursuant to the HCA.
Stockholders who vote to approve the Plan, by such vote, and without
further action, will also have voted to approve the amendments to the
certificate of incorporation described above.
X-59
<PAGE> 443
XI. CONCLUSION
For all of the reasons contained in this Disclosure Statement, the Debtor
believes that Confirmation and consummation of the Plan is preferable to any
other reasonable alternative. Consequently, Columbia urges all Holders of
Claims entitled to vote and all Stockholders to accept the Plan by duly
completing and returning their ballots in accordance with the procedures
approved by the Bankruptcy Court.
Dated: Wilmington, Delaware
June 13, 1995
Respectfully submitted,
THE COLUMBIA GAS SYSTEM, INC.
By: /s/ OLIVER G. RICHARD III
---------------------------
Oliver G. Richard III
Chairman and Chief Executive
Officer
XI-1
<PAGE> 444
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
- - ----------------------------------X
In re: : Chapter 11
: Case No. 91-804 (HSB)
COLUMBIA GAS TRANSMISSION :
CORPORATION, :
:
Debtor. :
- - ----------------------------------X
SECOND AMENDED PLAN OF REORGANIZATION
OF COLUMBIA GAS TRANSMISSION CORPORATION
Respectfully Submitted,
Stroock & Stroock & Lavan
Lewis Kruger
Robin E. Keller
Seven Hanover Square
New York, New York 10004-2696
(212) 806-5400
Cravath, Swaine & Moore
John F. Hunt
John E. Beerbower
825 Eighth Avenue
New York, New York 10019-7475
(212) 474-1000
Young, Conaway, Stargatt & Taylor
James L. Patton, Jr.
11th Floor - Rodney Square North
P.O. Box 391
Wilmington, Delaware 19899-0391
(302) 571-6600
Co-Counsel For Debtor.
Dated: June 13, 1995
<PAGE> 445
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C> <C>
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
I. DEFINED TERMS, RULES OF INTERPRETATION,
COMPUTATION OF TIME AND GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
A. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1. "Accepting Producer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. "Accepting Producer Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. "Accepting 3.2 Claimant" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. "Actual Target Producer Distribution" . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. "Additional Distribution" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6. "Administrative Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
7. "Administrative Fee Order" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
8. "Administrative Recoupment Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
9. "Affiliate Tax Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
10. "Allowance Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
11. "Allowed" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
12. "Assumed Executory Contract Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
13. "Avoidance Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
14. "Bankruptcy Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
15. "Bankruptcy Court" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
16. "Bankruptcy Rules" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
17. "Bar Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
18. "Bar Date Order" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
19. "BG&E Case" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
20. "BG&E Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
21. "Business Day" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
22. "Calendar Quarter" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
23. "Cash Collateral Orders" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
24. "Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
25. "Claimholder" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
26. "Claims Estimation Procedures" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
27. "Class" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
28. "Closing Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
29. "CNR" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
30. "Columbia" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
31. "Columbia Committees" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
32. "Columbia Customer Guaranty" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
33. "Columbia Guaranty" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
34. "Columbia Omnibus Settlement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
35. "Columbia Secured Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
36. "Columbia Transmission Investment Corporation" . . . . . . . . . . . . . . . . . . . . . 10
37. "Columbia Unsecured Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
38. "Confirmation" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
39. "Confirmation Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
40. "Confirmation Order" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
41. "Creditor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
42. "Creditors' Committee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
43. "Customer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
44. "Customers' Committee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
45. "Customer Regulatory Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
<PAGE> 446
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C> <C>
46. "Customer Settlement Proposal" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
47. "Deficiency Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
48. "DIP Facility" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
49. "Disclosure Statement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
50. "Disputed" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
51. "Dissenting 3.2 Claimant" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
52. "Distribution Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
53. "District Court" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
54. "East Lynn Condemnation Award" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
55. "East Lynn Condemnation Obligation" . . . . . . . . . . . . . . . . . . . . . . . . . . 13
56. "East Lynn Property" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
57. "Effective Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
58. "Environmental Claims" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
59. "EPA Order" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
60. "Estate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
61. "Fee Examiner" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
62. "FERC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
63. "FERC Gas Tariff" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
64. "FERC Interest" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
65. "FERC Interest Order" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
66. "File" or "Filed" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
67. "Final Allowance Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
68. "Final Order" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
69. "Final FERC Order" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
70. "First Mortgage Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
71. "General Unsecured Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
72. "GRI" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
73. "GRI Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
74. "Holdback Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
75. "Initial Accepting Producer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
76. "Initial Accepting Producer Settlement Agreement" . . . . . . . . . . . . . . . . . . . 16
77. "Initial Distribution Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
78. "Intercompany Claims" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
79. "Intercompany Claims Litigation" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
80. "Interests" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
81. "Inventory Financing Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
82. "Inventory Loan Agreements" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
83. "Investment Guidelines" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
84. "IRS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
85. "IRS Order" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
86. "IRS Settlement Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
87. "Kentucky Environmental Orders" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
88. "Lowest Intermediate Balance Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . 18
89. "Miscellaneous Administrative Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . 18
90. "1990 Rate Case" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
91. "1990 Rate Case Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
92. "1990 Rate Case Settlement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
93. "NGA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
94. "Omnibus FERC Motion" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
95. "Omnibus FERC Motion Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
96. "Original Settlement Values" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
-ii-
<PAGE> 447
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C> <C>
97. "PBGC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
98. "Pennsylvania Environmental Order" . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
99. "Petition Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
100. "Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
101. "Plan Mailing Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
102. "Post-Petition Operational Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
103. "Priority Tax Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
104. "Producer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
105. "Producer Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
106. "Professional" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
107. "Professional Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
108. "Projected Target Producer Distribution" . . . . . . . . . . . . . . . . . . . . . . . . 20
109. "Recoupment Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
110. "Refund Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
111. "Refund Dispute" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
112. "Refund Obligation" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
113. "Rejecting Producer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
114. "Releasees" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
115. "Reorganization Case" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
116. "Reorganized TCO" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
117. "RIA Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
118. "Schedule of Liabilities" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
119. "Section 4(e) Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
120. "Secured Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
121. "Secured Tax Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
122. "Service Contract" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
123. "Setoff" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
124. "Settlement Value" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
125. "Stipulation of Dismissal with Prejudice" . . . . . . . . . . . . . . . . . . . . . . . 24
126. "Subordinated Tax Claims" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
127. "Supplemental Interest Payment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
128. "Target Distribution Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
129. "Tax Allocation Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
130. "TCO" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
131. "TCO Committees" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
132. "TCO Obligation" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
133. "Trust Fund Decision" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
134. "Unclaimed Distribution" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
135. "Unsecured Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
136. "Unsecured Creditor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
137. "U.S. Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
138. "U.S. Trustee's Fee Claims" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
139. "Voting Deadline" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
140. "WACOG" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
141. "Waiver Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
B. Rules of Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
C. Computation of Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
D. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
II. UNCLASSIFIED CLAIMS AND
CLASSES OF CLAIMS AND INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
A. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
-iii-
<PAGE> 448
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C> <C>
B. Unclassified Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
1. Administrative Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
a. Professional Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
b. Post-Petition Operational Claims . . . . . . . . . . . . . . . . . . . . . . . . . 29
c. Assumed Executory Contract Claims . . . . . . . . . . . . . . . . . . . . . . . . . 30
d. U.S. Trustee's Fee Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
e. Miscellaneous Administrative Claims . . . . . . . . . . . . . . . . . . . . . . . . 30
f. Administrative Recoupment Claims. . . . . . . . . . . . . . . . . . . . . . . . . . 31
2. Priority Tax Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3. East Lynn Condemnation Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
C. Classes of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
1. Class 1 Claims - Secured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
a. Class 1.1 - DIP Facility Claim . . . . . . . . . . . . . . . . . . . . . . . . . . 31
b. Class 1.2 - Secured Producer Claims . . . . . . . . . . . . . . . . . . . . . . . . 32
c. Class 1.3 - Other Secured Claims . . . . . . . . . . . . . . . . . . . . . . . . . 32
2. Class 2.1 Claim - Columbia Secured Claim . . . . . . . . . . . . . . . . . . . . . . . . 32
3. Class 3 Claims - Unsecured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
a. Class 3.1 - Unsecured Claims of $25,000 or Less . . . . . . . . . . . . . . . . . . 32
b. Class 3.2 - Unsecured Customer Claims and GRI Claims . . . . . . . . . . . . . . . 32
c. Class 3.3 - Producer Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
d. Class 3.4 - General Unsecured Claims . . . . . . . . . . . . . . . . . . . . . . . 33
e. Class 3.5 - Columbia Unsecured Claim . . . . . . . . . . . . . . . . . . . . . . . 33
4. Class 4 Claims - Assumed Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
a. Class 4.1 - Environmental Claims . . . . . . . . . . . . . . . . . . . . . . . . . 33
b. Class 4.2 - Certain Condemnation Claims . . . . . . . . . . . . . . . . . . . . . . 34
c. Class 4.3 - Pension Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
d. Class 4.4 - Surety Bond Related Claims . . . . . . . . . . . . . . . . . . . . . . 34
e. Class 4.5 - Affiliate Tax Claims . . . . . . . . . . . . . . . . . . . . . . . . . 34
D. Class of Interests
Class 5 Interests - Common Stock of TCO . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
III. TREATMENT OF CLAIMS AND INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
A. Treatment of Unclassified Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
1. Administrative Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
a. Professional Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
b. Post-Petition Operational Claims . . . . . . . . . . . . . . . . . . . . . . . . . 35
c. Assumed Executory Contracts Claims . . . . . . . . . . . . . . . . . . . . . . . . 35
d. U.S. Trustee's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
e. Miscellaneous Administrative Claims . . . . . . . . . . . . . . . . . . . . . . . . 36
f. Administrative Recoupment Claims . . . . . . . . . . . . . . . . . . . . . . . . . 37
2. Priority Tax Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3. East Lynn Condemnation Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
B. Treatment of Classified Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
1. Class 1 Claims - Secured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
a. Class 1.1 - DIP Facility Claim . . . . . . . . . . . . . . . . . . . . . . . . . . 38
b. Class 1.2 - Secured Producer Claims . . . . . . . . . . . . . . . . . . . . . . . . 38
c. Class 1.3 - Other Secured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . 39
2. Class 2.1 - Columbia Secured Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
3. Class 3 Claims - Unsecured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
a. Settlement Values and Allowance Amounts . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
-iv-
<PAGE> 449
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C> <C>
b. Class 3.1 - Unsecured Claims of $25,000 or Less . . . . . . . . . . . . . . . . . . 44
c. Class 3.2 - Unsecured Customer Claims and GRI Claims . . . . . . . . . . . . . . . 44
d. Class 3.3 - Producer Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
e. Class 3.4 - General Unsecured Claims . . . . . . . . . . . . . . . . . . . . . . . 52
f. Class 3.5 - The Columbia Unsecured Claim . . . . . . . . . . . . . . . . . . . . . 53
4. Class 4 Claims - Other Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
a. Class 4.1 - Environmental Claims . . . . . . . . . . . . . . . . . . . . . . . . . 54
b. Class 4.2 - Certain Condemnation Claims . . . . . . . . . . . . . . . . . . . . . . 55
c. Class 4.3 - Pension Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
d. Class 4.4 - Surety Bond Related Claims . . . . . . . . . . . . . . . . . . . . . . 55
e. Class 4.5 - Affiliate Tax Claims . . . . . . . . . . . . . . . . . . . . . . . . . 55
C. Treatment of Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
1. Class 5 Interests - Common Stock of TCO . . . . . . . . . . . . . . . . . . . . . . . . 56
IV. PROVISIONS GOVERNING DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
A. Transactions On the Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
B. Distributions on Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
C. Reorganized TCO As Disbursing Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
D. Delivery of Distributions; Unclaimed Distributions . . . . . . . . . . . . . . . . . . . . . . 59
1. Delivery of Distributions in General . . . . . . . . . . . . . . . . . . . . . . . . . 59
2. Unclaimed Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
E. Means of Cash Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
F. Setoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
G. Limit on Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
H. Continuation of Certain Retirement, Workers' Compensation and Long-Term Disability Benefits . . 62
V. MEANS FOR IMPLEMENTATION OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
A. Continued Corporate Existence and Vesting of Assets in Reorganized TCO . . . . . . . . . . . . 62
B. Corporate Governance, Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . 63
1. Certificate of Incorporation and By-Laws . . . . . . . . . . . . . . . . . . . . . . . . 63
2. Directors and Officers of Reorganized TCO . . . . . . . . . . . . . . . . . . . . . . . 63
3. Corporate Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
C. Preservation of Rights of Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
D. The Claims Estimation Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
E. Release of Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
F. TCO's Funding Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
G. Columbia Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
VI. BAR DATES; PROCEDURES FOR ESTABLISHING ALLOWED CLAIMS
AND FOR RESOLVING DISPUTED CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
A. Bar Date for Objections to Certain Non-Administrative Claims . . . . . . . . . . . . . . . . . 66
1. Claims Subject to the Claims Estimation Procedures . . . . . . . . . . . . . . . . . . . 66
2. Other Non-Administrative Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
B. Bar Dates for Certain Administrative Claims . . . . . . . . . . . . . . . . . . . . . . . . . 67
1. Professional Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
</TABLE>
-v-
<PAGE> 450
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C> <C>
2. Administrative Claims Arising from Rejection of Executory Contracts or Unexpired Leases . 68
3. Non-Ordinary Course, Non-Assumed Administrative Claims . . . . . . . . . . . . . . . . . 68
C. Authority to Prosecute Objections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
VII. TREATMENT OF EXECUTORY CONTRACTS AND
UNEXPIRED LEASES; ADDITIONAL BAR DATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
A. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
B. Payments Related to Assumption of Executory Contracts and Unexpired Leases . . . . . . . . . . 70
C. Bar Date for Rejection Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
D. Executory Contracts and Unexpired Leases Entered Into and Other Obligations Incurred After the
Petition Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
VIII. CONDITIONS PRECEDENT TO CONFIRMATION
AND CONSUMMATION OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
A. Conditions to Confirmation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
B. Conditions to Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
C. Waiver of Conditions to Confirmation or Effective Date . . . . . . . . . . . . . . . . . . . . 75
D. Effect of Vacating Confirmation Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
E. Failure of the Plan to Become Effective . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
IX. CONFIRMABILITY AND SEVERABILITY
OF THE PLAN AND CRAMDOWN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
A. Confirmability and Severability of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . 78
B. Cramdown . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
X. DISCHARGE, RELEASES, SETTLEMENT OF CLAIMS AND INJUNCTION . . . . . . . . . . . . . . . . . . . . . . 79
A. Discharge of Claims and Termination of Interests . . . . . . . . . . . . . . . . . . . . . . . 79
B. Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
C. Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
D. Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
E. Intercompany Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
XI. RETENTION OF JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
XII. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
A. Dissolution of the Creditors' Committee and the Customers' Committee . . . . . . . . . . . . . 89
B. Modification of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
C. Revocation of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
D. Severability of Plan Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
E. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
F. Service of Documents on TCO or Reorganized TCO . . . . . . . . . . . . . . . . . . . . . . . . 93
G. Payment and Withholding of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
CONFIRMATION REQUEST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
</TABLE>
-vi-
<PAGE> 451
<TABLE>
<S> <C> <C>
EXHIBIT A - Affidavit of John H. Croom
EXHIBIT B - Calculation of Post-Petition Interest on
the Columbia Secured Claim
EXHIBIT C - Waiver Agreement
EXHIBIT D - Holdback Amount Formula and Spreadsheet
EXHIBIT E - Customer Settlement Proposal
EXHIBIT F - Amended and Restated Certificate
of Incorporation
EXHIBIT G - Initial Accepting Producer Settlement
Agreement
SCHEDULE I - Original Settlement Values
SCHEDULE II - Allowance Amounts
SCHEDULE III - Settlement Values on Plan Mailing Date
SCHEDULE IV - Customer Regulatory Claim Schedule
</TABLE>
-vii-
<PAGE> 452
INTRODUCTION
Columbia Gas Transmission Corporation ("TCO") proposes the following
plan of reorganization (the "Plan") (amending the Amended Plan of
Reorganization dated April 17, 1995) providing for the resolution of TCO's
outstanding Creditor Claims and equity Interests. The Columbia Gas System,
Inc. ("Columbia"), the sole shareholder of TCO, has been authorized by its
Board of Directors to support the Plan and to enter into the Columbia Omnibus
Settlement (as defined herein), subject to the necessary approvals of the
Bankruptcy Court having jurisdiction over Columbia's Chapter 11 case and of the
United States Securities and Exchange Commission pursuant to the Public Utility
Holding Company Act of 1935, and any other regulatory approvals which Columbia
may be required to obtain. See affidavit of John H. Croom dated April 17, 1995
which is annexed to the Plan as Exhibit A hereto. In addition, the Customer
Settlement Proposal is subject to the approval of the FERC.
For a discussion of TCO's history, businesses, properties, results of
operations and projections for future operations and for a summary and analysis
of the Plan and related matters, reference should be made to the Second Amended
Disclosure Statement pursuant to section 1125 of the Bankruptcy Code for the
Second Amended Plan of Reorganization of Columbia Gas Transmission Corporation
(the "Disclosure Statement") Filed by TCO with the Bankruptcy Court. TCO and,
subject to the approvals described above, Columbia are the proponents of the
Plan within the meaning of section 1129 of the Bankruptcy Code.
<PAGE> 453
ALL HOLDERS OF CLAIMS AGAINST TCO SHOULD READ THE PLAN AND THE
DISCLOSURE STATEMENT IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR REJECT THE
PLAN.
I. DEFINED TERMS, RULES OF INTERPRETATION,
COMPUTATION OF TIME AND GOVERNING LAW
A. DEFINED TERMS
As used in the Plan, the capitalized terms below have the following
meanings. Any term used in the Plan that is not defined herein, but that is
used in the Bankruptcy Code or the Bankruptcy Rules, shall have the meaning
assigned to that term in the Bankruptcy Code or the Bankruptcy Rules.
1. "ACCEPTING PRODUCER" means any Producer that accepts the
Settlement Value proposed for its Producer Claim or executes an agreement
which settles and compromises its Producer Claim, subject to approval of the
Bankruptcy Court.
2. "ACCEPTING PRODUCER PERCENTAGE" means the percentage which
the aggregate of the Original Settlement Values proposed for the Claims of
Accepting Producers is of the aggregate of all Original Settlement Values
proposed by TCO under the Plan.
3. "ACCEPTING 3.2 CLAIMANT" means, if Class 3.2 votes to accept
the Plan, a holder of a Class 3.2 Claim that either (i) votes in favor of the
Plan (and accordingly, by the terms of the ballot by which such vote is cast,
agrees to be bound by the Waiver Agreement) or (ii) does not vote for the Plan
but, prior to the Effective Date, executes a written Waiver Agreement.
4. "ACTUAL TARGET PRODUCER DISTRIBUTION" means the amount
derived by (a) multiplying (i) the aggregate of the Allowed amounts of Producer
Claims in Class 3.3 by (ii) the Target
- 2 -
<PAGE> 454
Distribution Percentage and (b) adding the aggregate of the Allowed amounts of
Producer Claims in Classes 1.2 and 3.1.
5. "ADDITIONAL DISTRIBUTION" means one half of the amount, if
any, by which the Actual Target Producer Distribution is exceeded by the
Projected Target Producer Distribution.
6. "ADMINISTRATIVE CLAIM" means a Claim for costs and expenses
of administration allowed under sections 503, 507(a)(1), 507(b) or 1114(e)(2)
of the Bankruptcy Code, as more fully described in Section II.B.1,
"Administrative Claims."
7. "ADMINISTRATIVE FEE ORDER" means the Administrative Order
under sections 105(a) and 331 of the Bankruptcy Code Establishing Procedures
for Interim Compensation and Reimbursement of Expenses for all Professionals
entered in the Reorganization Case by the Bankruptcy Court on November 15,
1991.
8. "ADMINISTRATIVE RECOUPMENT CLAIM" means a Recoupment Claim
described in Section II.B.1.f.
9. "AFFILIATE TAX CLAIM" means a Claim of Columbia or any of
its subsidiaries for any amount owed by TCO under the Tax Allocation Agreement.
10. "ALLOWANCE AMOUNT" has the meaning set forth in Section
III.B.3.a.
11. "ALLOWED" when used with respect to a Claim, means a Claim
against TCO:
a. which has been scheduled as undisputed, not
contingent and liquidated in the Schedule of Liabilities, and as to which no
proof of Claim or objection has been timely Filed;
- 3 -
<PAGE> 455
b. as to which a proof of Claim has been timely Filed
and either:
i. no objection thereto has been timely Filed;
or
ii. the Claim has been allowed (but only to the
extent allowed) by an order of the
Bankruptcy Court;
c. which, in the case of the Columbia Secured Claim, the
Columbia Unsecured Claim, Customer Claims, unliquidated General Unsecured
Claims, and Producer Claims, has been allowed under the provisions of the Plan;
or
d. which is a Professional Claim for which a fee award
amount has been approved by Final Order of the Bankruptcy Court.
12. "ASSUMED EXECUTORY CONTRACT CLAIM" means a Claim described
in Section II.B.1.c hereof.
13. "AVOIDANCE CLAIM" means a claim, other than an Intercompany
Claim, which a trustee, debtor in possession or appropriate party-in-interest
may assert under sections 542, 544, 545, 547, 548, 549, 550 or 551 of the
Bankruptcy Code.
14. "BANKRUPTCY CODE" means title 11 of the United States Code,
Sections 101 et seq., as now in effect or hereafter amended.
15. "BANKRUPTCY COURT" means the United States Bankruptcy Court
for the District of Delaware or, if such court ceases to exercise jurisdiction
over the Reorganization Case, the court or adjunct thereof that exercises
jurisdiction over the Reorganization Case.
- 4 -
<PAGE> 456
16. "BANKRUPTCY RULES" means, collectively, the Federal Rules of
Bankruptcy Procedure and the Local Bankruptcy Rules for the District of
Delaware, as now in effect or as the same may from time to time hereafter be
amended.
17. "BAR DATE" means any applicable date by which proofs of
Claim must have been or, in the future, must be, Filed, as established by the
Bar Date Order, the Plan, or the Confirmation Order.
18. "BAR DATE ORDER" means, collectively, the orders of the
Bankruptcy Court establishing bar dates by which proofs of Claim must have
been, or in the future must be, Filed, including the Order Establishing Bar
Date for Filing Proofs of Claim entered by the Bankruptcy Court on December 13,
1991.
19. "BG&E CASE" means the case on remand to FERC from the United
States Court of Appeals for the District of Columbia Circuit styled Baltimore
Gas & Electric Co. v. FERC, D.C. Cir. No. 88-1779 involving TCO's obligation to
refund to Customers certain costs billed to them by TCO.
20. "BG&E CLAIM" means a Claim of a Customer for refund of
recoveries of certain costs billed to TCO by its pipeline suppliers collected
by TCO from its Customers, and which are the subject of the BG&E Case.
21. "BUSINESS DAY" means any day which is not a Saturday, a
Sunday or a day which in Wilmington, Delaware, Charleston, West Virginia or New
York, New York is a legal holiday or a day on which banking institutions are
authorized or required by law or other government action to close.
- 5 -
<PAGE> 457
22. "CALENDAR QUARTER" means a three (3) month period ending on
any March 31, June 30, September 30 or December 31; provided that the first
Calendar Quarter shall be deemed to be the period commencing on the Effective
Date and ending on the first day that is (x) the last day of such a three (3)
month period and (y) more than sixty days after the Effective Date.
23. "CASH COLLATERAL ORDERS" means the final orders of the
Bankruptcy Court, dated July 31, 1991 and August 23, 1991, which respectively
authorize TCO to use the cash collateral pledged by TCO to Columbia pursuant to
the Inventory Loan Agreement and the Indenture and Deed of Trust securing the
First Mortgage Bonds and grant to Columbia and certain other secured parties
certain replacement liens and security interests in TCO's assets.
24. "CLAIM" means, as against TCO,
a. a right to payment, whether or not such right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or unsecured; or
b. a right to an equitable remedy for breach of
performance if such breach gives rise to a right to payment, whether or not
such right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured or unsecured.
25. "CLAIMHOLDER" means the holder of a Claim and, when used in
conjunction with a Class or type of Claim, means a holder of a Claim in such
Class or of such type.
- 6 -
<PAGE> 458
26. "CLAIMS ESTIMATION PROCEDURES" means the procedures
established by orders of the Bankruptcy Court dated August 27, 1992 and October
9, 1992, to liquidate disputed, contingent or unliquidated Claims of Producers,
as the same may be amended from time to time by the Bankruptcy Court.
27. "CLASS" means a class of Claims or Interests.
28. "CLOSING AGREEMENT" means the Department of the Treasury -
Internal Revenue Service Agreement As To Final Determination of Tax Liability,
which is attached as Exhibit A to the IRS Settlement Agreement.
29. "CNR" means Columbia Natural Resources, Inc., a Texas
corporation.
30. "COLUMBIA" means The Columbia Gas System, Inc., a Delaware
corporation.
31. "COLUMBIA COMMITTEES" shall have the meaning set forth in
Section X.D.
32. "COLUMBIA CUSTOMER GUARANTY" means Columbia's guaranty of
the payment of distributions on account of Refund Claims to Accepting 3.2
Claimants and of the financial integrity of the Customer Settlement Proposal.
Specifically, Columbia has agreed (i) that the Customer Settlement Proposal
will not be "retraded" with the Customers so as to reduce the financial
benefits of the settlement to them, (ii) that the financial benefits of the
Customer Settlement Proposal will not be adversely affected by virtue of any
subsequent settlement reached with other parties in either TCO's or Columbia's
bankruptcy proceedings, and (iii) that Columbia and TCO will include the
Customer Settlement Proposal
- 7 -
<PAGE> 459
and Columbia's guaranty in their respective plans of reorganization. The
foregoing guaranty does not apply to any modification imposed on the Customer
Settlement Proposal or on a Plan incorporating the Customer Settlement
Proposal, by the action of any judicial or regulatory authority.
33. "COLUMBIA GUARANTY" has the meaning set forth in Section V.G.
34. "COLUMBIA OMNIBUS SETTLEMENT" means Columbia's agreement,
conditioned on the Plan becoming effective without any modification that is not
consented to by Columbia, to facilitate the prompt emergence of TCO and
Columbia from their respective Chapter 11 proceedings by (i) assisting TCO to
monetize the Plan which is estimated to provide for value to be distributed to
TCO Creditors of approximately $3.9 billion (in the event of 100% acceptance of
Original Settlement Values), which distribution, in the case of third party
Creditors, will be substantially in cash; (ii) providing a guaranty of payment
of distributions to TCO's Creditors as provided under the Plan (excluding
assumed obligations); (iii) providing the Columbia Customer Guaranty; (iv)
consenting to the assumption by Reorganized TCO of certain pre-petition
environmental Claims of governmental agencies and certain other Claims, and (v)
accepting new secured debt securities of Reorganized TCO (rather than cash) for
a portion of the Columbia Secured Claim and contributing the balance of the
Columbia Secured Claim to Reorganized TCO's equity, in consideration for (a)
the retention by Columbia of the equity of Reorganized TCO, (b) the settlement
of litigation over the
- 8 -
<PAGE> 460
liquidation of the Producer Claims of the Initial Accepting Producers, of
Customer Claims and of certain other Disputed Claims, and (c) a settlement of
the Claims raised or which could have been raised in the Intercompany Claims
Litigation among Columbia, CNR, TCO, the Creditors' Committee and the
Customers' Committee and all other Claims and disputes between TCO's Creditors
and Columbia arising out of or related to TCO's Reorganization Case and various
other Claims and disputes between TCO's Creditors and TCO as provided herein
(other than Claims arising in the normal course of business subsequent to the
Petition Date between Creditors and TCO or Columbia).
35. "COLUMBIA SECURED CLAIM" means, as of the Effective Date,
the aggregate of:
a. (i) the unpaid principal as of the Petition Date
owing in respect of the First Mortgage Bonds, (ii) the unpaid principal and
accrued and unpaid interest owing as of the Petition Date in respect of the
Inventory Financing Agreement, and (iii) the interest on all of such unpaid
principal and interest from the Petition Date to the Effective Date, calculated
in the manner described in Exhibit B;
b. all amounts to which Columbia is entitled under the
Cash Collateral Orders, including post-petition interest as Allowed by the
Bankruptcy Court; and
c. all amounts to which Columbia is entitled for
reasonable fees, costs and charges approved by the Bankruptcy Court under
Section 506 of the Bankruptcy Code.
- 9 -
<PAGE> 461
36. "COLUMBIA TRANSMISSION INVESTMENT CORPORATION" has the
meaning set forth in Section IV.A.4.
37. "COLUMBIA UNSECURED CLAIM" means Columbia's Claims against
TCO for the repayment of principal and interest arising under and related to
unsecured loans made by Columbia to TCO under certain promissory notes and
revolving credit notes, as more specifically set forth in Columbia's proof of
Claim numbered 11442, Filed on March 17, 1992.
38. "CONFIRMATION" means the entry of the Confirmation Order.
39. "CONFIRMATION DATE" means the date on which the Bankruptcy
Court enters the Confirmation Order on its docket.
40. "CONFIRMATION ORDER" means the order of the Bankruptcy Court
confirming the Plan pursuant to section 1129 of the Bankruptcy Code.
41. "CREDITOR" means
a. an entity that has a Claim against TCO that arose at
the time of or before the Petition Date; or
b. an entity that has a Claim against the Estate of a kind
specified in sections 502(g), 502(h) or 502(i) of the Bankruptcy Code.
42. "CREDITORS' COMMITTEE" means the Official Committee of
Unsecured Creditors appointed in the Reorganization Case pursuant to section
1102 of the Bankruptcy Code.
43. "CUSTOMER" means any entity that purchases or has purchased
natural gas or services from TCO pursuant to the FERC Gas Tariff or agreements
entered into in connection therewith.
- 10 -
<PAGE> 462
44. "CUSTOMERS' COMMITTEE" means the Official Committee of
Customers of TCO appointed in the Reorganization Case pursuant to section 1102
of the Bankruptcy Code.
45. "CUSTOMER REGULATORY CLAIM" means a Claim of a Customer
arising under or in connection with the FERC Gas Tariff or any of the services
provided by TCO pursuant to the jurisdiction of FERC, including, but not
limited to, any Refund Claim. Most Customer Regulatory Claims are listed in
Appendix M, Schedule 1 of the Customer Settlement Proposal and on Schedule IV
hereto (excluding certain other post- petition Refund Obligations provided for
in the Customer Settlement Proposal, which include flowthrough of certain
pipeline excess deferred income tax refunds, general rate refunds, refunds to
be received from Wyoming Interstate Company, Ltd., and miscellaneous
pre-petition refunds received by TCO post-petition).
46. "CUSTOMER SETTLEMENT PROPOSAL" means the terms and
agreements embodied in the Stipulation and Agreement dated April 17, 1995,
filed by TCO with the FERC, a copy of which is annexed hereto as Exhibit E.
47. "DEFICIENCY CLAIM" means the amount, if any, by which the
Allowed amount of a Secured Claim, exclusive of any post-petition interest,
exceeds the value of the collateral securing such Secured Claim as determined
by the Bankruptcy Court.
48. "DIP FACILITY" means the Amended and Restated Secured
Revolving Credit Agreement, dated as of April 2, 1992, between TCO and Chemical
Bank, as successor to Manufacturers Hanover Trust Company, as amended from time
to time.
- 11 -
<PAGE> 463
49. "DISCLOSURE STATEMENT" has the meaning set forth in the
"Introduction" to this Plan.
50. "DISPUTED" when used with respect to a Claim, means a Claim
against TCO that is not an Allowed Claim and that has not been barred or
otherwise disallowed or discharged. If an objection is timely Filed and
relates to the allowance of only a portion of a Claim, such Claim shall be a
Disputed Claim to the extent of the portion of such Claim to which such
objection relates.
51. "DISSENTING 3.2 CLAIMANT" means, if Class 3.2 votes to
accept the Plan, any holder of a Class 3.2 Claim that is not an Accepting 3.2
Claimant, and, if Class 3.2 rejects the Plan, any holder of a Class 3.2 Claim.
52. "DISTRIBUTION DATE" means the first date upon which (a) the
holders of Allowed Class 3.3 Claims representing at least eighty (80%) percent
of the total amount of such Claims shall have been paid all of the amounts
payable on the Effective Date to such holders hereunder and (b) at least eighty
(80%) percent of the total amounts payable on the Effective Date hereunder with
respect to the holders of Allowed General Unsecured Claims shall have been
paid.
53. "DISTRICT COURT" means the United States District Court for
the District of Delaware or, if such court ceases to exercise jurisdiction over
the Intercompany Claims Litigation, the court that exercises jurisdiction over
the Intercompany Claims Litigation.
- 12 -
<PAGE> 464
54. "EAST LYNN CONDEMNATION AWARD" means the funds received by
TCO for the damages arising from the condemnation of the East Lynn Property by
the United States government and held in trust by TCO on behalf and for the
benefit of CNR, in such form as such funds are from time to time invested,
together with all income earned on such funds while so held, net of applicable
taxes, if any, payable by TCO in respect of such award or such income.
55. "EAST LYNN CONDEMNATION OBLIGATION" means the obligation of
TCO set forth in Section II.B.3.
56. "EAST LYNN PROPERTY" means the real estate that was the
subject of a taking by eminent domain by the United States of America in the
cases styled United States v. 16,286.08 Acres of Land Situate in Wayne County,
West Virginia (Case No. CA77-3324-H) and United States v. 298.25 Acres of Land
Situate in Wayne County, West Virginia (Case No. CA75-0061-H).
57. "EFFECTIVE DATE" means the first Business Day that is more
than ten (10) days after the Confirmation Date and on which (a) no stay of the
Confirmation Order is in effect and (b) all conditions to the Effective Date
set forth in Section VIII.B have been satisfied or, if waivable, waived.
58. "ENVIRONMENTAL CLAIMS" has the meaning set forth in Section
II.C.4.a.
59. "EPA ORDER" has the meaning set forth in Section
III.B.4.a.
- 13 -
<PAGE> 465
60. "ESTATE" means the estate created for TCO in the
Reorganization Case pursuant to section 541 of the Bankruptcy Code.
61. "FEE EXAMINER" means the fee examiner appointed by the
Bankruptcy Court pursuant to the Court's January 8, 1992 Order Retaining
Examiner on Fees and Expenses.
62. "FERC" means the Federal Energy Regulatory Commission.
63. "FERC GAS TARIFF" means the documents filed by TCO with, and
in force from time to time pursuant to procedures established by, FERC setting
forth the rates at and the conditions under which TCO renders natural
gas-related services to its Customers.
64. "FERC INTEREST" means interest calculated in accordance with
the provisions of Section 154.67 of the FERC's Regulations, 18 C.F.R. Section
154.67.
65. "FERC INTEREST ORDER" means the FERC order dated June 23,
1994, 67 FERC 61,384 (1994) providing that TCO must pay FERC Interest on
flowthrough refunds from the dates that TCO collected those refunds until TCO
deposited such refunds into the RIA Account and that TCO must pay interest
actually earned on such refunds after the date of their deposit in the RIA
Account.
66. "FILE" OR "FILED" means file or filed in the Reorganization
Case with the Bankruptcy Court, or in the case of proofs of Claim, (a) file or
filed with Poorman-Douglas Corporation, the claims agent designated by order of
the Bankruptcy Court, or (b) deemed so filed pursuant to section 1111(a) of the
Bankruptcy Code.
- 14 -
<PAGE> 466
67. "FINAL ALLOWANCE DATE" means the first date upon which all
Producer Claims have become Allowed, or disallowed by a Final Order, or
withdrawn.
68. "FINAL ORDER" means an order or judgment of the Bankruptcy
Court, or other court of competent jurisdiction, entered on the docket in the
Reorganization Case, which has not been reversed, vacated or stayed, and as to
which the time to appeal or seek certiorari, has expired with no appeal or
petition for certiorari having been timely taken or filed, or as to which any
appeal that has been or may be taken or any petition for certiorari that has
been or may be filed has been resolved by the highest court to which the order
or judgment was appealed or from which certiorari was sought.
69. "FINAL FERC ORDER" means a FERC order as to which (a) no
request for rehearing has been filed on the day after the last date for filing
a request for rehearing, or (b) if requests for rehearing are filed, a FERC
order has been entered ruling on all pending requests for rehearing, as to
which the time for filing any further requests for rehearing has passed without
further rehearing requests having been filed.
70. "FIRST MORTGAGE BONDS" means those certain bonds, designated
Series A, B, D, E and F, issued by TCO pursuant to and secured by the Indenture
of Mortgage and Deed of Trust dated August 30, 1985, made by TCO in favor of
Wilmington Trust Company as Trustee.
71. "GENERAL UNSECURED CLAIM" means any Unsecured Claim that is
not a Producer Claim or a Customer Regulatory Claim,
- 15 -
<PAGE> 467
including Subordinated Tax Claims and including Claims arising prior to the
Petition Date from the sale of goods or the rendering of services to TCO in the
ordinary course of its business including, without limitation, all Claims of
upstream pipelines (other than a Claim arising from exit fees paid or to be
paid to upstream pipelines pursuant to any agreement for the termination of
upstream pipeline service contracts).
72. "GRI" means the Gas Research Institute.
73. "GRI CLAIM" means any pre-petition Claim of GRI for monies
collected by TCO from Customers on behalf of GRI.
74. "HOLDBACK AMOUNT" means the amount, if any, by which the
amount equal to the Target Distribution Percentage of the aggregate of all
Allowed Producer Claims in Class 3.3 exceeds the amount equal to the Initial
Distribution Percentage of such Claims.
75. "INITIAL ACCEPTING PRODUCER" means a Producer that has
executed the Initial Accepting Producer Settlement Agreement.
76. "INITIAL ACCEPTING PRODUCER SETTLEMENT AGREEMENT" means the
Producer Agreement to Settle Claims subject to Plan of Reorganization, dated as
of April 14, 1995, a copy of which is annexed hereto as Exhibit G.
77. "INITIAL DISTRIBUTION PERCENTAGE" means 68.875%, the
percentage derived by multiplying the Target Distribution Percentage by ninety
five (95%) percent.
78. "INTERCOMPANY CLAIMS" means the claims and causes of action
asserted against Columbia and CNR in the Intercompany Claims Litigation and any
claims and causes of action against
- 16 -
<PAGE> 468
Columbia or CNR arising out of the same or similar facts and circumstances.
79. "INTERCOMPANY CLAIMS LITIGATION" means the litigation
against Columbia and CNR on behalf of TCO by the Creditors' Committee and the
Customers' Committee in the complaints styled and numbered Columbia Gas
Transmission Corporation v. The Columbia Gas System, Inc. and Columbia Natural
Resources, Inc., Adv. No. A92-35, filed on March 19, 1992 and May 26, 1992,
pending before the United States District Court for the District of Delaware.
80. "INTERESTS" means the rights of Columbia as the sole holder
of all of the issued and outstanding common stock of TCO.
81. "INVENTORY FINANCING AGREEMENT" means that certain Inventory
Financing Agreement dated June 19, 1985 between Columbia and TCO, as the same
may have been amended from time to time.
82. "INVENTORY LOAN AGREEMENTS" means the Inventory Financing
Agreement and the related Security Agreement dated as of June 19, 1985, between
TCO and Wilmington Trust Company, as the same may have been amended from time
to time.
83. "INVESTMENT GUIDELINES" means the guidelines for investment
of TCO's cash, cash equivalents, deposit accounts and other short-term
investments promulgated by TCO as restricted by the order of the Third Circuit
Court of Appeals dated August 29, 1994.
84. "IRS" means the United States Internal Revenue Service.
- 17 -
<PAGE> 469
85. "IRS ORDER" means the order of the Bankruptcy Court dated
October 12, 1994 approving the IRS Settlement Agreement.
86. "IRS SETTLEMENT AGREEMENT" means that certain Stipulation
and Order of Settlement of Proofs of Claim Filed by the IRS, dated October 12,
1994, by and between TCO and the IRS.
87. "KENTUCKY ENVIRONMENTAL ORDERS" has the meaning set forth in
Section III.B.4.a.
88. "LOWEST INTERMEDIATE BALANCE AMOUNT" means the approximately
$3.3 million determined under the Trust Fund Decision to be distributable as
trust funds after application of the "lowest intermediate balance" principle,
together with interest thereon calculated in accordance with the FERC Interest
Order.
89. "MISCELLANEOUS ADMINISTRATIVE CLAIM" means a Claim described
in Section II.B.1.e.
90. "1990 RATE CASE" means TCO's general rate case under Section
4(e) of the NGA, FERC Docket No. RP90-108, which went into effect, subject to
refund, on November 1, 1990.
91. "1990 RATE CASE CLAIM" means any pre- or post-petition
Claim, whether or not listed on the Schedule of Liabilities and whether or not
Filed, of a Customer arising from the 1990 Rate Case or which is the subject of
or has been settled by the terms of the 1990 Rate Case Settlement.
92. "1990 RATE CASE SETTLEMENT" means the settlement of the 1990
Rate Case among TCO and certain other parties thereto, approved by FERC on
October 15, 1992.
- 18 -
<PAGE> 470
93. "NGA" means the Natural Gas Act, 15 U.S.C. Sections 717-717W
(1988).
94. "OMNIBUS FERC MOTION" means the motion Filed by TCO on
August 23, 1991 entitled "Motion for Order Authorizing Columbia Gas
Transmission Corporation to Comply with its Federal Energy Regulatory
Commission Gas Tariff and Orders and Regulations of the Federal Energy
Regulatory Commission."
95. "OMNIBUS FERC MOTION CLAIM" means any GRI Claim and any
pre-petition Claim of a Customer for a regulatory refund that is the subject of
the Omnibus FERC Motion.
96. "ORIGINAL SETTLEMENT VALUES" means the Settlement Values
proposed for all Producer Claims which are set forth on Schedule I hereto.
97. "PBGC" means the Pension Benefit Guaranty Corporation.
98. "PENNSYLVANIA ENVIRONMENTAL ORDER" has the meaning set
forth in Section III.B.4.a.
99. "PETITION DATE" means July 31, 1991.
100. "PLAN" means this Second Amended Plan Of Reorganization of
TCO and all exhibits, attachments and schedules annexed hereto or referenced
herein, as the same may be amended, modified or supplemented with the prior
consent of Columbia.
101. "PLAN MAILING DATE" means that date set by order of the
Bankruptcy Court as the date for the mailing of the Plan to Creditors for
purposes of voting thereon.
102. "POST-PETITION OPERATIONAL CLAIM" means a Claim described in
Section II.B.1.b.
- 19 -
<PAGE> 471
103. "PRIORITY TAX CLAIM" means a Claim described in Section
II.B.2.
104. "PRODUCER" means an entity that has made a first sale of
natural gas, as that term is defined in the Natural Gas Policy Act of 1978,
under a contract for the sale of natural gas to TCO.
105. "PRODUCER CLAIM" means a Claim of a Producer which, in any
way, arises under, is related to, or is asserted in connection with a contract
for the sale of natural gas to TCO.
106. "PROFESSIONAL" means any professional employed in the
Reorganization Case pursuant to sections 327 or 1103 of the Bankruptcy Code and
any professional seeking compensation or reimbursement of expenses pursuant to
sections 330(a) and 503(b)(4) of the Bankruptcy Code.
107. "PROFESSIONAL CLAIM" means a Claim described in Section
II.B.1.a.
108. "PROJECTED TARGET PRODUCER DISTRIBUTION" means the total
amount projected to be distributed to holders of Producer Claims which is
$1,180,516,388.15.
109. "RECOUPMENT CLAIM" means the right of any Customer to recoup
from TCO or Reorganized TCO any Refund Claim, and the right of any Customer to
set off the WACOG surcharges against pre-petition Claims.
110. "REFUND CLAIM" means any pre-petition Claim, whether or not
listed on the Schedule of Liabilities and whether or not Filed, of a Customer
arising from any Refund Obligation, including, without limitation, any 1990
Rate Case Claim, any Omnibus FERC Motion Claim, any Section 4(e) Claim and any
Claim
- 20 -
<PAGE> 472
which is the subject of the BG&E Case. The amount of any such Claim shall
include (i) in the case of any Claim that is attributable to funds which, prior
to the Petition Date, were transferred to TCO by third parties for payment to
the holder of such Claim (which funds may have included interest paid by such
third party to TCO) and which have been determined to be trust funds, interest
as prescribed by FERC from the date such funds were transferred to TCO until
the Petition Date, and thereafter, with respect only to the approximately $3.3
million which under the Trust Fund Decision was determined to be distributable
as trust funds after application of the "lowest intermediate balance"
principle, in accordance with the FERC Interest Order, (ii) in the case of any
Claim attributable to any funds so transferred to TCO for such purpose
subsequent to the Petition Date, interest on the amount so transferred at the
rate income is actually earned by TCO on such funds, (iii) in the case of any
other such Claim attributable to funds transferred to or collected by TCO prior
to the Petition Date which are not trust funds, interest as prescribed by FERC
to the Petition Date, and (iv) in the case of any Claim attributable to any
funds transferred to TCO subsequent to the Petition Date; but not subject to
the FERC Interest Order, with applicable FERC Interest.
111. "REFUND DISPUTE" means any right or claim of any Customer or
GRI with respect to any pre-petition Refund Obligation including, but not
limited to, (i) any right to appeal from or otherwise seek modification of the
Trust Fund Decision or
- 21 -
<PAGE> 473
otherwise seek more favorable treatment of its Omnibus FERC Motion Claims (and
any interest due thereon) than that provided in the Trust Fund Decision, (ii)
any right or Claim in respect of any 1990 Rate Case Claim, (iii) any right to
assert a Refund Claim which is the subject of the BG&E Case, (iv) any Claim or
right in respect of any other Refund Claim other than as provided in the Plan,
(v) any right of Setoff or recoupment in respect of any Customer Claim, (vi)
any claim or right to compel assumption, rejection or enforcement of its
pre-petition Service Contracts except as otherwise provided herein and (vii)
any right or claim against Columbia in respect of or arising from any Refund
Claim.
112. "REFUND OBLIGATION" means any obligation on the part of TCO
arising prior to the Petition Date to make refunds, including applicable
interest thereon, to Customers pursuant to regulations or orders of FERC, or
any order of a court of competent jurisdiction on appeal of an order of FERC,
or the terms of the FERC Gas Tariff. Refund Obligations include the GRI Claim.
113. "REJECTING PRODUCER" means any Producer that is not an
Accepting Producer.
114. "RELEASEES" has the meaning set forth in Section X.D.
115. "REORGANIZATION CASE" means the case commenced under Chapter
11 of the Bankruptcy Code bearing number 91-804 pending in the Bankruptcy Court
with respect to TCO.
116. "REORGANIZED TCO" means TCO (i) on the Effective Date to the
extent and for the purpose of performing those acts which
- 22 -
<PAGE> 474
are required under the Plan to be performed by Reorganized TCO on the Effective
Date and (ii) after the Effective Date.
117. "RIA ACCOUNT" means the restricted investment arrangement
account established by TCO on March 2, 1993 pursuant to an order of the
Bankruptcy Court dated January 6, 1993.
118. "SCHEDULE OF LIABILITIES" means the schedule of assets and
liabilities Filed by TCO under section 521(1) of the Bankruptcy Code, as
amended from time to time.
119. "SECTION 4(E) CLAIM" means any pre-petition Refund
Obligations arising pursuant to TCO's general rate filings under section 4(e)
of the NGA, but shall not include any 1990 Rate Case Claim.
120. "SECURED CLAIM" means a pre-petition Claim that is secured
by a lien on property in which the Estate has an interest or that is subject to
Setoff under section 553 of the Bankruptcy Code to the extent of the value of
the interest of the holder of such Claim in the Estate's interest in such
property or to the extent of the amount subject to Setoff, as applicable, as
determined pursuant to section 506(a) of the Bankruptcy Code.
121. "SECURED TAX CLAIM" means a Secured Claim held by a taxing
authority.
122. "SERVICE CONTRACT" means a pre-petition agreement between
TCO and a Customer pursuant to which TCO provides or has provided sales,
transportation, storage or related services to such Customer pursuant to the
relevant provisions of the FERC Gas Tariff, any certificate of public
convenience and necessity or any other agreement.
- 23 -
<PAGE> 475
123. "SETOFF" means any right of a creditor to offset a mutual
debt owing by such creditor to a debtor against a claim of such creditor and
any right of a debtor to offset a mutual debt owing by such debtor to a
creditor against a claim of such debtor, including, without limitation, such
rights under Section 553 of the Bankruptcy Code.
124. "SETTLEMENT VALUE" has the meaning set forth in Section
III.B.3.a.
125. "STIPULATION OF DISMISSAL WITH PREJUDICE" has meaning set
forth in Section IV.A.5.
126. "SUBORDINATED TAX CLAIMS" means the Claims of state taxing
authorities for non-pecuniary tax penalties which were Allowed and equitably
subordinated to all Unsecured Claims, pursuant to an order of the Bankruptcy
Court dated May 6, 1994.
127. "SUPPLEMENTAL INTEREST PAYMENT" means, when applied to any
distribution to be made to a Creditor under the Plan, an amount of interest
calculated as follows:
If the Distribution Date occurs after January 31,
1996, an amount equal to an accrual for the period from and
including January 1, 1996 to but excluding the Distribution
Date, on the amount of each such distribution at a rate per
annum equal to the annualized rate realized by TCO on funds
invested by it pursuant to the Investment Guidelines during
such period.
128. "TARGET DISTRIBUTION PERCENTAGE" means seventy-two and
one-half (72.5%) percent.
- 24 -
<PAGE> 476
129. "TAX ALLOCATION AGREEMENT" means the Tax Allocation
Agreement dated December 31, 1990, among Columbia and its subsidiaries,
including TCO, interpreted and applied in a manner consistent with its
interpretation and application prior to the Petition Date.
130. "TCO" means Columbia Gas Transmission Corporation, a
Delaware corporation, the debtor and debtor in possession in the Reorganization
Case.
131. "TCO COMMITTEES" means, collectively, the Creditors'
Committee and the Customers' Committee.
132. "TCO OBLIGATION" has the meaning set forth in Section V.F.
133. "TRUST FUND DECISION" means the decision of the United
States Court of Appeals for the Third Circuit styled The Official Committee of
Unsecured Creditors of the Columbia Gas Transmission Corporation v. The
Columbia Gas System, Inc., Columbia Gas Transmission Corporation, et al., 997
F.2d 1039 (3d Cir. 1993), with respect to the payment by TCO of certain refunds
to certain of its Customers and payments by TCO to GRI.
134. "UNCLAIMED DISTRIBUTION" has the meaning set forth in
Section IV.D.2.
135. "UNSECURED CLAIM" means a Claim that is not a Secured Claim,
an unclassified Claim described in Section II.B or a Claim in Class 4.
136. "UNSECURED CREDITOR" means a holder of an Unsecured Claim.
- 25 -
<PAGE> 477
137. "U.S. TRUSTEE" means the Office of the United States Trustee.
138. "U.S. TRUSTEE'S FEE CLAIMS" means the Claims described in
Section II.B.1.d.
139. "VOTING DEADLINE" means the deadline for voting to accept or
reject the Plan established by order of the Bankruptcy Court.
140. "WACOG" means the weighted average cost of gas purchased by
TCO for resale to its Customers.
141. "WAIVER AGREEMENT" means an agreement, in the form annexed
hereto as Exhibit C, pursuant to which a Customer or GRI agrees to accept the
treatment provided for in the Plan for Accepting 3.2 Claimants and in
consideration of such treatment agrees (i) to the full settlement,
satisfaction, discharge and termination of all of its Refund Claims and Refund
Disputes and to accept the treatment provided in the Customer Settlement
Proposal for all of its Refund Claims and Refund Disputes, (ii) to the
withdrawal, with prejudice, of the Customers' Committee's complaint and
intervention in and its participation in any appeal or other proceeding in
connection with the Intercompany Claims Litigation, as well as the release of
such Accepting 3.2 Claimant's rights or interests in any judgment or other
recovery on account of the Intercompany Claims, (iii) to the withdrawal, with
prejudice, of any appeal of the Bankruptcy Court's denial of approval of the
1990 Rate Case Settlement and (iv) not to oppose recovery by Reorganized TCO
from Customers of certain sums, as more fully described in Exhibit C.
- 26 -
<PAGE> 478
B. RULES OF INTERPRETATION
For purposes of the Plan: (i) whenever from the context it is
appropriate, each term, whether stated in the singular or the plural, shall
include both the singular and the plural; (ii) any reference in the Plan to a
contract, instrument, release, indenture or other agreement or document being
in a particular form or on particular terms and conditions means that such
document shall be substantially in such form or substantially on such terms and
conditions; (iii) any reference in the Plan to a document or exhibit Filed or
to be Filed means such document or exhibit, as it may have been or may be
amended, modified or supplemented; (iv) unless otherwise specified, all
references in the Plan to sections, articles and exhibits are references to
sections, articles, schedules and exhibits of or to the Plan; (v) the words
"herein" and "hereto" refer to the Plan in its entirety rather than a
particular portion of the Plan; (vi) captions and headings to articles and
sections are inserted for convenience of reference only and are not intended to
be a part of or to affect the interpretation of the Plan; and (vii) the rules
of construction set forth in section 102 of the Bankruptcy Code shall apply.
C. COMPUTATION OF TIME
In computing any period of time prescribed or allowed by the Plan,
the provisions of Bankruptcy Rule 9006(a) shall apply.
- 27 -
<PAGE> 479
D. GOVERNING LAW
EXCEPT TO THE EXTENT THAT THE BANKRUPTCY CODE OR BANKRUPTCY RULES ARE
APPLICABLE, AND SUBJECT TO THE PROVISIONS OF ANY CONTRACT, INSTRUMENT, RELEASE,
INDENTURE OR OTHER AGREEMENT OR DOCUMENT ENTERED INTO IN CONNECTION WITH THE
PLAN, AND THE APPLICABILITY OF FEDERAL LAWS AS TO MATTERS WHICH ARE SUBJECT TO
FERC'S JURISDICTION, THE RIGHTS AND OBLIGATIONS ARISING UNDER THE PLAN SHALL BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF DELAWARE, WITHOUT GIVING EFFECT TO CONFLICTS-OF-LAW PRINCIPLES WHICH
WOULD APPLY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF DELAWARE OR THE
UNITED STATES OF AMERICA.
II. UNCLASSIFIED CLAIMS AND
CLASSES OF CLAIMS AND INTERESTS
A. GENERAL
Administrative Claims, Priority Tax Claims and the East Lynn
Condemnation Obligation, as described below in Section II.B.(3), have not been
classified and the holders thereof are not entitled to vote on the Plan.
To the extent that a proof of Claim asserts more than one Claim, each
such Claim shall be treated as a separate Claim under the Plan, and where such
Claims may be classified in different Classes, such Claims shall be deemed for
purposes of this Plan to be distinct Claims entitled to be voted in their
respective Classes subject, however, to the following condition. If any
Creditor holds more than one Claim in any Class, all of the Claims held on the
Petition Date by that Creditor in that Class
- 28 -
<PAGE> 480
shall be aggregated and the Creditor's aggregate Claim shall be accorded the
treatment appropriate for a Claim of such type and amount.
A Claim is classified in a particular Class only to the extent that
the Claim qualifies within the description of that Class and is classified in
one or more other Classes to the extent that any remainder of the Claim
qualifies within the description of such other Class or Classes. A Claim is
also classified in a particular Class for the purpose of receiving
distributions pursuant to the Plan only to the extent that such Claim is an
Allowed Claim in that Class and has not been paid, released or otherwise
satisfied.
B. UNCLASSIFIED CLAIMS
1. ADMINISTRATIVE CLAIMS
Administrative Claims consist of those Claims more fully described
below:
a. PROFESSIONAL CLAIMS
Professional Claims consist of all Administrative Claims for unpaid
fees and expenses of Professionals and amounts for compensation allowed under
sections 330(a) and 503(b) of the Bankruptcy Code.
b. POST-PETITION OPERATIONAL CLAIMS
Post-Petition Operational Claims consist of all Administrative
Claims, other than Environmental Claims included in Class 4.1, in respect of
liabilities incurred by TCO in the ordinary course of business during the
pendency of the Reorganization Case, including, but not limited to,
- 29 -
<PAGE> 481
Administrative Claims of governmental units for taxes, Refund Claims
attributable to rates and charges for services rendered by TCO after the
Petition Date and FERC-mandated post-petition interest thereon, trade vendor
and supplier payment obligations and obligations under contracts and leases.
c. ASSUMED EXECUTORY CONTRACT CLAIMS
Assumed Executory Contract Claims consist of all obligations of TCO
to cure defaults arising from or in connection with the assumption of
pre-petition executory contracts and unexpired leases by TCO, under the Plan or
otherwise, pursuant to section 365(b)(1) of the Bankruptcy Code.
d. U.S. TRUSTEE'S FEE CLAIMS
The U.S. Trustee's Fee Claims consist of the fees TCO is required to
pay pursuant to 28 U.S.C. Section 1930(a)(6).
e. MISCELLANEOUS ADMINISTRATIVE CLAIMS
Miscellaneous Administrative Claims consist of all Administrative
Claims other than Professional Claims, Post-Petition Operational Claims,
Assumed Executory Contract Claims, U.S. Trustee's Fee Claims, and
Administrative Recoupment Claims, including, but not limited to, Claims which
are (i) contingent indemnification Claims of officers, directors and employees
of TCO, including indemnification Claims by (a) employees in connection with
pre- and post-petition personal injury and property damage actions brought
against them by third parties and (b) officers and directors in connection with
pre-petition stockholder class actions and other securities law actions, (ii)
post-petition personal injury and property damage Claims and
- 30 -
<PAGE> 482
(iii) Claims arising pursuant to performance bonds issued on behalf of TCO
post-petition.
f. ADMINISTRATIVE RECOUPMENT CLAIMS.
Administrative Recoupment Claims consist of all Recoupment Claims of
Dissenting 3.2 Claimants that are entitled to administrative priority by virtue
of the Stipulation and Order Regarding Motions for an Order Authorizing
Recoupment, or, In the Alternative Directing Payments Into Escrow, dated
October 13, 1993, and the Stipulation and Order Regarding Motion For An Order
Modifying the Automatic Stay to Permit Set-offs of WACOG Surcharges, or, in The
Alternative, Directing Payment Into Escrow, dated October 20, 1993.
2. PRIORITY TAX CLAIMS
Priority Tax Claims consist of all Claims for the payment of taxes
entitled to priority in payment pursuant to section 507(a)(8) of the Bankruptcy
Code.
3. EAST LYNN CONDEMNATION OBLIGATION
The East Lynn Condemnation Obligation consists of TCO's obligation to
turn over the East Lynn Condemnation Award to CNR.
C. CLASSES OF CLAIMS
1. CLASS 1 CLAIMS - SECURED CLAIMS
a. CLASS 1.1 - DIP FACILITY CLAIM
Class 1.1 consists of the Secured Claim of Chemical Bank as agent
under the DIP Facility.
- 31 -
<PAGE> 483
b. CLASS 1.2 - SECURED PRODUCER CLAIMS
Class 1.2 consists of all Claims of Producers that supplied gas to
TCO pre-petition to the extent that such Producers assert that such Claims are
secured by statutory liens.
c. CLASS 1.3 - OTHER SECURED CLAIMS
Class 1.3 consists of all Secured Claims not included in Classes 1.1,
1.2 or 2.1, and includes Setoff Claims permitted under section 553 of the
Bankruptcy Code.
2. CLASS 2.1 CLAIM - COLUMBIA SECURED CLAIM
Class 2.1 consists of the Columbia Secured Claim.
3. CLASS 3 CLAIMS - UNSECURED CLAIMS
a. CLASS 3.1 - UNSECURED CLAIMS OF $25,000 OR LESS
Class 3.1 consists of all Unsecured Claims (other than any Customer
Regulatory Claim the holder of which does not execute a Waiver Agreement prior
to the Effective Date) which are Allowed in an amount that does not exceed
$25,000 or which are Allowed in an amount in excess of $25,000 and the holders
of which have elected on their ballots to voluntarily reduce the Allowed amount
of their Claims to $25,000.
b. CLASS 3.2 - UNSECURED CUSTOMER CLAIMS AND GRI CLAIMS
Class 3.2 consists of all GRI Claims and all Customer Regulatory
Claims not included in Class 3.1.
c. CLASS 3.3 - PRODUCER CLAIMS
Class 3.3 consists of all Producer Claims not included in Class 3.1
or Class 1.2.
- 32 -
<PAGE> 484
d. CLASS 3.4 - GENERAL UNSECURED CLAIMS
Class 3.4 consists of all General Unsecured Claims not included in
any other Class.
e. CLASS 3.5 - COLUMBIA UNSECURED CLAIM
Class 3.5 consists of the Columbia Unsecured Claim.
4. CLASS 4 CLAIMS - ASSUMED CLAIMS
a. CLASS 4.1 - ENVIRONMENTAL CLAIMS
Class 4.1 consists of all pre- and post-petition environmental
compliance and remediation obligations owed to state and federal environmental
enforcement and regulatory agencies, including, without limitation, those
obligations of TCO arising under the Order Approving Administrative Order on
Consent for Removal Actions and Toxic Substance Control Act and Consent
Agreement between TCO and the United States Environmental Protection Agency
approved by order of the Bankruptcy Court on November 16, 1994 (the "EPA
Order"), that certain Consent Order and Agreement, dated October 6, 1994 by and
between TCO and the Commonwealth of Pennsylvania, Department of Environmental
Resources, approved by order of the Bankruptcy Court dated November 16, 1994
(the "Pennsylvania Environmental Order") and two certain Agreed Orders by and
between TCO and the Commonwealth of Kentucky, Natural Resources and
Environmental Protection Cabinet both dated October 24, 1994 and approved by
order of the Bankruptcy Court dated November 16, 1994 (the "Kentucky
Environmental Orders"). Non-consensual pre-petition environmental penalty
liabilities asserted by entities other than the Commonwealth of Pennsylvania,
the Commonwealth of Kentucky or
- 33 -
<PAGE> 485
the United States Environmental Protection Agency and settled in the
above-referenced orders are not included in this Class.
b. CLASS 4.2 - CERTAIN CONDEMNATION CLAIMS
Class 4.2 consists of condemnation awards payable pursuant to the
Bankruptcy Court's December 18, 1992 Order Authorizing TCO to Pay Condemnation
Awards Adjudicated Post-Petition Where No Bond Has Been Posted.
c. CLASS 4.3 - PENSION CLAIMS
Class 4.3 consists of all Claims Filed by the PBGC relating to
pension plans in existence as of the Petition Date, including all Claims with
respect to the Retirement Income Plan for the Columbia Gas System Companies
(the "Retirement Plan"). The Claims relating to the Retirement Plan include
the Retirement Plan's Claims, if any, for minimum funding contributions
required by the Employee Retirement Income Security Act of 1974, as amended,
("ERISA") and the three Claims Filed by the PBGC with regard to the Retirement
Plan.
d. CLASS 4.4 - SURETY BOND RELATED CLAIMS
Class 4.4 consists of all contingent Claims arising under or related
to Claims Filed by Columbia in connection with TCO's obligation to reimburse
Columbia for any payments Columbia is or may be required to make on behalf of
TCO under or in connection with surety bonds issued for TCO's benefit.
e. CLASS 4.5 - AFFILIATE TAX CLAIMS
Class 4.5 consists of all Affiliate Tax Claims remaining after
payment of all Assumed Executory Contract Claims.
- 34 -
<PAGE> 486
D. CLASS OF INTERESTS
CLASS 5 INTERESTS - COMMON STOCK OF TCO
Class 5 consists of Columbia's Interests.
III. TREATMENT OF CLAIMS AND INTERESTS
A. TREATMENT OF UNCLASSIFIED CLAIMS
1. ADMINISTRATIVE CLAIMS
a. PROFESSIONAL CLAIMS
Each holder of an Allowed Professional Claim will receive cash equal
to the amount of such Claim and such post-petition interest, if any, allowed by
the Bankruptcy Court (unless TCO and the holder of such Claim agree to other
treatment) on the later of (i) the Effective Date, or (ii) the tenth day after
the date on which an order allowing such Claim becomes a Final Order.
b. POST-PETITION OPERATIONAL CLAIMS
Each Post-Petition Operational Claim that is unpaid as of the
Effective Date will be assumed and paid by Reorganized TCO pursuant to the
terms and conditions of the particular transaction giving rise to such Claim,
without any further action on the part of the holder of such Claim.
c. ASSUMED EXECUTORY CONTRACTS CLAIMS
Each Assumed Executory Contract Claim that is or becomes Allowed on
or before the Effective Date will be paid in full in cash on the Effective Date
or upon such earlier or later date as may be authorized by order of the
Bankruptcy Court. TCO will, subject to the approval of the Bankruptcy Court,
assume the Tax Allocation Agreement. To the extent that the Tax Allocation
- 35 -
<PAGE> 487
Agreement allocates to TCO the obligation to pay post-petition interest on
amounts included in the Priority Tax Claim or to reimburse Columbia or any
other subsidiary of Columbia for any refunds and interest accrued on such
refunds which Columbia or any other subsidiary of Columbia would have been
entitled to receive under the Tax Allocation Agreement but were used by TCO to
offset the Priority Tax Claims against it, such post-petition interest will be
paid and such reimbursement will be made by TCO as an Assumed Executory
Contract Claim. Any Assumed Executory Contract Claim that becomes an Allowed
Claim after the Effective Date will be paid in full in cash on the thirtieth
day after the end of the Calendar Quarter in which such Claim becomes an
Allowed Claim or in accordance with such other terms as may be agreed upon by
TCO and the holder of such Claim or as provided by an order of the Bankruptcy
Court. Payment will be made net of any Setoff of moneys owed by the holder of
such Claim to TCO.
d. U.S. TRUSTEE'S FEES
U.S. Trustee's Fee Claims that are unpaid as of the Effective Date
will be paid in full in cash on the Effective Date.
e. MISCELLANEOUS ADMINISTRATIVE CLAIMS
Each Miscellaneous Administrative Claim that is unpaid as of the
Effective Date will be assumed and paid by Reorganized TCO as it becomes due
and payable or as otherwise agreed to or directed by the Bankruptcy Court.
- 36 -
<PAGE> 488
f. ADMINISTRATIVE RECOUPMENT CLAIMS
Administrative Recoupment Claims will be treated as set forth in the
discussion of the treatment of Class 3.2 in Section III.B.3.c.
2. PRIORITY TAX CLAIMS
Each Priority Tax Claim will be paid, to the extent Allowed, in full,
in cash, on the Effective Date, if then Allowed, or, if not then Allowed, on
the thirtieth day after the date on which it becomes on Allowed Claim, except
that, pursuant to Section 1129(a)(9)(C) of the Bankruptcy Code, the Claims of
the IRS that are the subject of the IRS Order will be paid in installments over
a period not to exceed six years from the date of assessment of such Claims,
together with interest at the rate set forth in Section D.7 of the Closing
Agreement. The full amount of such Claims will be paid in cash in equal
quarterly installments, beginning on the date which is three months after the
Effective Date and ending on the last quarterly date which does not exceed six
years from the date of assessment of such Claims, except that the first
quarterly installment shall be paid in three equal monthly installments
beginning on the Effective Date. Each monthly or quarterly installment shall
be paid together with interest on such installment accrued to the date of
payment at the rate set forth in Section D.7 of the Closing Agreement.
Notwithstanding the foregoing, however, Reorganized TCO, with the prior consent
of Reorganized Columbia, shall have the right to pay the Claims of the IRS, or
any remaining balance of such Claims, in full or in part at any time on or
after the
- 37 -
<PAGE> 489
Effective Date, without premium or penalty. Payments on the Priority Tax
Claims of the IRS made by Columbia or Reorganized Columbia shall, pursuant to
the IRS Settlement Agreement, reduce the Priority Tax Claims of the IRS against
TCO or Reorganized TCO in accordance with the terms of the IRS Order.
3. EAST LYNN CONDEMNATION OBLIGATION
On the Effective Date, the East Lynn Condemnation Award will be
delivered to CNR.
B. TREATMENT OF CLASSIFIED CLAIMS
1. CLASS 1 CLAIMS - SECURED CLAIMS
a. CLASS 1.1 - DIP FACILITY CLAIM
The Class 1.1 Claim will be paid in full on the Effective Date, if
then Allowed, or if not then Allowed, then on or before the tenth day after
such Claim becomes an Allowed Claim. On the Effective Date, the DIP Facility
will terminate by its terms. Any Deficiency Claim will be treated as an
Administrative Claim in accordance with Section 364(c) of the Bankruptcy Code.
The Class 1.1 Claim is unimpaired.
b. CLASS 1.2 - SECURED PRODUCER CLAIMS
On the Effective Date, TCO shall pay to each holder of a Class 1.2
Claim that is then Allowed, cash in an amount equal to the lesser of (i) the
Allowed amount of such Claim and (ii) the value of such holder's collateral as
determined by the Bankruptcy Court. Any Class 1.2 Claim that is not Allowed as
of the Effective Date but that becomes an Allowed Claim after the Effective
Date shall be paid in cash in an amount equal to the lesser of (i) the Allowed
amount of such Claim and (ii) the value
- 38 -
<PAGE> 490
of such holder's collateral as determined by the Bankruptcy Court on the
thirtieth day after the end of the Calendar Quarter in which such Claim becomes
an Allowed Claim. Any Deficiency Claim will be treated as an Unsecured Claim
in the appropriate category of Class 3.
Class 1.2 Claims are unimpaired.
c. CLASS 1.3 - OTHER SECURED CLAIMS
On the Effective Date, TCO shall satisfy each Class 1.3 Claim that is
then Allowed by, at TCO's option, (i) paying each holder of such Allowed Claim
cash in an amount equal to the lesser of (x) the Allowed amount of such Claim
and (y) the value of such holder's collateral as determined by the Bankruptcy
Court, (ii) reinstating the maturity of the obligation giving rise to such
Allowed Claim and curing all defaults in connection therewith in accordance
with the provisions of section 1124 of the Bankruptcy Code, or (iii) permitting
Setoff of such Allowed Claim against any obligation the holder of such Claim
may have to TCO. Any Class 1.3 Claim that becomes an Allowed Claim after the
Effective Date will, on the thirtieth day after the end of the Calendar Quarter
in which such Claim becomes an Allowed Claim, receive the treatment described
in the preceding sentence. Any Deficiency Claim will be treated as an
Unsecured Claim in the appropriate category of Class 3.
Class 1.3 Claims are unimpaired.
2. CLASS 2.1 - COLUMBIA SECURED CLAIM
The Columbia Secured Claim shall be Allowed as Filed, provided that
all other distributions which, under the Plan, are
- 39 -
<PAGE> 491
required to be made to Creditors on the Effective Date are in fact made as
provided for.
On the Effective Date, Columbia shall receive in respect of the
Columbia Secured Claim, newly issued debt securities of Reorganized TCO (which
will be secured by substantially all of the assets of Reorganized TCO) having a
principal amount calculated to provide Reorganized TCO with an appropriate
funded debt-to-equity ratio as of the Effective Date, and the right to retain
the presently outstanding common stock of Reorganized TCO, with the remainder
of the Columbia Secured Claim to be contributed to the capital of Reorganized
TCO. The terms of such debt securities will be as jointly proposed by TCO and
Columbia, subject to approval by the SEC and the Bankruptcy Court, on or before
the Effective Date.
The Class 2.1 Claim is impaired.
3. CLASS 3 CLAIMS - UNSECURED CLAIMS
a. SETTLEMENT VALUES AND ALLOWANCE AMOUNTS
A dollar amount (a "Settlement Value") has been proposed under the
Plan for each Producer Claim as set forth on Schedule III. The Settlement
Values set forth on Schedule III are listed both by contract number and by the
name of the Producer. The Settlement Values have been determined as set forth
below:
(i) The Settlement Value proposed for each Producer Claim which
is an Allowed Claim as of the Plan Mailing Date is the Allowed amount
of the Claim as of that date and accordingly is deemed accepted by
the holder thereof without any further action on its part.
- 40 -
<PAGE> 492
(ii) The Settlement Value proposed for each Producer Claim which
is not an Allowed Claim on the Plan Mailing Date is an amount which
TCO, in light of all the relevant facts, believes constitutes a fair
and equitable compromise at which the Claim should be Allowed.
(iii) In the case of the Initial Accepting Producers, the
Settlement Values proposed have been individually negotiated with
those Producers, taking into account all known factors likely to
affect the ultimate allowance of such Claims.
TCO shall have the right, with the consent of the Creditors'
Committee, to decrease, or after consultation with the Creditors' Committee, to
increase the Settlement Values offered to Producers (other than Initial
Accepting Producers) relative to the Original Settlement Values offered to
Producers (other than Initial Accepting Producers) which are set forth on
Schedule I. The Original Settlement Values set forth on Schedule I are listed
both by contract number and by the name of the Producer.
Each Producer that accepts the Settlement Value proposed for its
Claim will be deemed to have agreed to an Allowed Claim in that amount, subject
to Bankruptcy Court approval, in Class 3.1 or Class 3.3, as appropriate. As of
the Effective Date, a Producer that accepts the proposed Settlement Value for
its Producer Claim will be deemed to have waived and released any right of
Setoff, any lien, and any other Claim against TCO or TCO's property in respect
of such Producer Claim, and TCO shall be deemed to have released all rights of
Setoff, all Avoidance Claims and all other claims which TCO may have against
such Producer or its property in respect of such Producer Claim,
- 41 -
<PAGE> 493
subject to Bankruptcy Court approval of such Producer's Settlement Value.
If a holder of a Producer Claim accepts its Settlement Value, but its
Settlement Value is not approved by the Bankruptcy Court, such holder shall be
treated as a Rejecting Producer in Class 3.3 unless TCO and such Producer agree
on a modified Settlement Value that is approved by the Bankruptcy Court. If a
holder of an Unsecured Producer Claim that TCO proposes be in Class 3.1 does
not accept its proposed Settlement Value, such Claim will be a Class 3.1 Claim
to the extent that such Claim is Allowed in an amount of $25,000 or less and
otherwise will be a Class 3.3 Claim. Any holder of a Producer Claim that does
not accept its Settlement Value will have the Allowance of its Claim determined
by litigation before the Claims Mediator or the Bankruptcy Court, as
appropriate, or by a settlement approved by the Bankruptcy Court.
Additionally, a dollar amount (an "Allowance Amount") has been
proposed under the Plan for each General Unsecured Claim that is not an Allowed
Claim as of the Plan Mailing Date. The Allowance Amounts are set forth on
Schedule II. The Allowance Amounts proposed for each such General Unsecured
Claim is the amount at which TCO, in light of all the relevant facts known to
it, believes and consents that the Claim should be Allowed.
Each holder of an unliquidated General Unsecured Claim that accepts
the Allowance Amount proposed for its Claim shall have an Allowed Claim in that
amount, subject to Bankruptcy Court approval, in Class 3.1 or Class 3.4, as
appropriate. As of the
- 42 -
<PAGE> 494
Effective Date, a holder of a General Unsecured Claim that accepts the
Allowance Amount for its General Unsecured Claim will be deemed to have waived
and released any right of Setoff, any lien, and any other Claim against TCO or
TCO's property in respect of such General Unsecured Claim, and TCO shall be
deemed to have released all rights of Setoff, all Avoidance Claims and all
other claims which TCO may have against such holder or its property in respect
of such General Unsecured Claim, subject to Bankruptcy Court approval of such
holder's Allowance Amount. If the holder of an unliquidated General Unsecured
Claim that TCO proposes be in Class 3.1 does not accept its Allowance Amount,
such Claim will be a Class 3.1 Claim to the extent that such Claim is Allowed
in an amount of $25,000 or less and otherwise will be a Class 3.4 Claim. Any
holder of an unliquidated General Unsecured Claim that does not accept its
Allowance Amount will have the Allowance of its Claim determined by litigation
before the Bankruptcy Court or by a settlement approved by the Bankruptcy
Court.
If the Plan is not consummated, any voluntary reduction in a Claim
made by a Claimholder by acceptance of a Settlement Value, or an Allowance
Amount, or otherwise, in order to receive the treatment provided for Class 3.1,
Class 3.3 or Class 3.4, as applicable, may be nullified at the option of the
Claimholder by written notice to TCO in accordance with such procedures as
shall be approved by the Bankruptcy Court.
- 43 -
<PAGE> 495
b. CLASS 3.1 - UNSECURED CLAIMS OF $25,000 OR LESS
TCO shall pay to each holder of a Class 3.1 Claim cash in an amount
equal to one hundred (100%) percent of the Allowed amount of such Claim, on the
Effective Date, if the Claim is then Allowed, or, if not then Allowed, then on
the thirtieth day after the end of the Calendar Quarter during which such Claim
becomes an Allowed Claim. The foregoing is subject, in the case of any
Customer Regulatory Claim, to the provisions of the fourth paragraph of Section
III.B.3.c. with respect to the method of payment of such Claims other than in
cash, including, but not limited to, distributions in the form of a credit to a
rate mechanism. For purposes of Claims in Class 3.1, Claims which have been
purchased by a factoring company from the original holder of the Claim have
been treated individually and therefore, the aggregate of such proposed Allowed
amounts for a factoring company may exceed $25,000.
Additionally, TCO expressly waives the enforcement of subordination
with respect to all Subordinated Tax Claims and the Creditors' Committee has
consented to such waiver by TCO. Thus, each Subordinated Tax Claim shall be
treated as a Class 3.1 or a Class 3.4 Claim, depending upon the Allowed amount
of such Claim.
Class 3.1 Claims are unimpaired.
c. CLASS 3.2 - UNSECURED CUSTOMER CLAIMS AND GRI CLAIMS
If Class 3.2 votes to accept the Plan, and if there is a
Final FERC Order approving the Customer Settlement Proposal, each Accepting 3.2
Claimant shall have an Allowed Refund Claim in
- 44 -
<PAGE> 496
an amount equal to the amount set forth for such Claimholder on the schedules
attached to the Customer Settlement Proposal and shall receive on the Effective
Date, (i) that to which such Claimholder is entitled under the Trust Fund
Decision and any Final Orders made in furtherance or implementation thereof,
including, without limitation, any Final Orders regarding the allocation of the
Lowest Intermediate Balance Amount, with post-petition interest in accordance
with the FERC Interest Order, (ii) eighty (80%) percent of the pre-petition
amount and one hundred (100%) percent of the post-petition amount due to such
Claimant with interest as provided in the 1990 Rate Case Settlement in full
satisfaction of the 1990 Rate Case Claims, (iii) such Claimholder's allocable
share of $52.5 million in settlement of all BG&E Claims, and (iv) an amount
equal to eighty (80%) percent of each Claimant's remaining Customer Regulatory
Claim. In addition, TCO shall pay, within forty-five days after the Effective
Date, a lump-sum payment of $1.3 million to the current members of the
Customers' Committee as of the date of this Plan, which payment shall be shared
pro rata among such Committee members. TCO shall also pay, within the same
period, $225,000 to UGI Utilities, Inc. ("UGI"), a former member of the
Customers' Committee, representing one half of the expenses incurred by UGI
while serving on the Customers' Committee. Such payments to the Customers'
Committee and UGI shall be made solely from post-Effective Date income of
Reorganized TCO.
Each Dissenting 3.2 Claimant will be entitled to pursue its Refund
Disputes by litigation in any appropriate forum and shall
- 45 -
<PAGE> 497
receive in respect of its Allowed Class 3.2 Claim (i) that to which such
Claimholder may become entitled under Final Orders resolving such Claimholder's
Recoupment Claim (including Administrative Recoupment Claims), if any, and (ii)
that to which such Claimholder is entitled under the Trust Fund Decision and
any Final Orders made in furtherance or implementation thereof, including any
Final Orders regarding the allocation of the Lowest Intermediate Balance Amount
and/or the determination of the amount of post- petition interest due, or both;
and shall receive a distribution in cash in an amount equal to the Target
Distribution Percentage of the Allowed amount of its Class 3.2 Claim remaining
after application of any sums paid pursuant to clauses (i) and (ii) above. See
Section IV.B, "Distributions on Claims." In no event shall a Dissenting 3.2
Claimant's Claim be deemed Allowed, and in no event shall any distribution be
made to a Dissenting 3.2 Claimant, until all Refund Disputes relating to such
Dissenting 3.2 Claimant have been resolved by Final Orders.
Distributions to each Dissenting 3.2 Claimant shall be made (i) if
recoupment or Setoff relating to the Refund Disputes is Allowed by Final Order,
on the thirtieth day after the end of the Calendar Quarter in which such Final
Order is entered and such holder's Claim is Allowed and (ii) with respect to
final resolutions of such Dissenting 3.2 Claimant's other Refund Disputes, as
to which no recoupment or Setoff is authorized, on the thirtieth day after the
end of the Calendar Quarter in which all such Refund Disputes are resolved.
See Section IV.B, "Distribution on Claims."
- 46 -
<PAGE> 498
Distributions to be made to an Accepting Class 3.2 Claimant shall be
made in accordance with the distribution provisions of the Customer Settlement
Proposal. Distributions to Dissenting 3.2 Claimants shall be distributed in
cash at such time as provided in this Section III.B.3.c, or over such period of
time and in such form as may be appropriate under the Confirmation Order or
relevant FERC orders. If, at an Accepting Claim 3.2 Claimant's option, as set
forth in the Customer Settlement Proposal, such distribution is made in other
than cash, including, but not limited to, distributions in the form of a credit
to a rate mechanism, Reorganized TCO shall retain the cash which would
otherwise be distributed to such holder under the Plan.
TCO may, in its discretion, petition the Bankruptcy Court for an
order estimating, for voting and distribution purposes, the Claims of
Dissenting 3.2 Claimants which are the subject of the BG&E Case and any other
Disputed Claims.
If Class 3.2 rejects the Plan, or if the Plan is not consummated, any
acceptance of the Waiver Agreement may, at the option of the holder of the
Claim, be considered null and void by written notice to TCO.
Pursuant to the Columbia Customer Guaranty, Columbia shall guaranty
the treatment afforded Accepting Class 3.2 Claimants, if Class 3.2 accepts the
Plan and the Plan becomes Effective.
Class 3.2 Claims are impaired.
- 47 -
<PAGE> 499
d. CLASS 3.3 - PRODUCER CLAIMS
If all Producers in Class 3.3 accept the Original Settlement Values
proposed for their Producer Claims and such Original Settlement Values are
approved by the Bankruptcy Court, each holder of an Allowed Class 3.3 Claim
shall be paid, in cash, on the Effective Date, an amount equal to the Target
Distribution Percentage of its Allowed Claim, together with a Supplemental
Interest Payment thereon, if applicable. Otherwise, each holder of a Class 3.3
Claim which is Allowed as of the Effective Date shall be paid, in cash, on the
Effective Date, an amount equal to the Initial Distribution Percentage of its
Allowed Claim, together with a Supplemental Interest Payment thereon, if
applicable.
Rejecting Producers may continue to litigate their Claims under the
Claims Estimation Procedures or before the Bankruptcy Court. Each Rejecting
Producer shall be paid an amount equal to the Initial Distribution Percentage
of its Allowed Claim, together with a Supplemental Interest Payment thereon, if
applicable, on the thirtieth day after the end of the Calendar Quarter during
which such Claim becomes Allowed, provided, however, if on such day, there is
pending an appeal (a) by such Rejecting Producer from the order Allowing such
Rejecting Producer's Claims, or (b) by Reorganized TCO or any other party from
the order Allowing such Rejecting Producer's Claim and Reorganized TCO or such
other party has obtained a stay pending appeal of such order, such distribution
shall be made on the thirtieth day after the earlier of the termination of the
stay
- 48 -
<PAGE> 500
pending appeal or the entry of a Final Order Allowing such Rejecting Producer's
Claim.
On the thirtieth day after the end of the Calendar Quarter during
which the Final Allowance Date occurs, except as provided in the following
paragraph, Reorganized TCO shall distribute to each holder of an Allowed Class
3.3 Claim the following:
(a) if the Actual Target Producer Distribution does not exceed
$1,180,516,388.16,
(i) the Target Distribution Percentage multiplied by the
amount of such holder's Allowed Class 3.3 Claim, less
any amounts, other than amounts constituting a
Supplemental Interest Payment, previously paid to
such holder in respect of its Class 3.3 Claim;
(ii) such holder's pro rata share (based on the
respective amounts of Allowed Class 3.3 Claims) of
the Additional Distribution; and
(iii) if applicable, a Supplemental Interest Payment with
respect to each of the foregoing;
(b) if the Actual Target Producer Distribution exceeds
$1,180,516,388.16 but does not exceed $1,185 million,
(i) the Target Distribution Percentage multiplied by the
amount of such holder's Allowed Class 3.3 Claim,
less any amounts, other than amounts constituting a
Supplemental Interest Payment, previously paid to
such holder in respect of its Class 3.3 Claim; and
- 49 -
<PAGE> 501
(ii) if applicable, a Supplemental Interest Payment with
respect to the foregoing; and
(c) if the Actual Target Producer Distribution exceeds $1,185
million,
(i) such holder's pro-rata share (based on the
respective amounts of Allowed Class 3.3 Claims) of
the Holdback Amount, if any, remaining after
reducing the Holdback Amount by one half of the
amount by which the Actual Target Producer
Distribution exceeds $1,185 million; and
(ii) if applicable, a Supplemental Interest Payment with
respect to the foregoing.
A spreadsheet and a formula are attached hereto as Exhibit D which represents
the consensual allocation of the Holdback Amount by and among TCO and
Reorganized TCO and the holders of Allowed Class 3.3 Claims based upon a
mutually acceptable methodology negotiated between TCO and the Creditors'
Committee.
If, prior to the Final Allowance Date, Reorganized TCO determines in
its good faith judgment, in light of the remaining unliquidated Rejecting
Producers' Claims, that the Holdback Amount which will be paid to holders of
Allowed Class 3.3 Claims exceeds $25 million, Reorganized TCO shall make one
interim distribution of the Holdback Amount in excess of $25 million to all
holders of Allowed Class 3.3 Claims pro rata (based on the respective amounts
of Allowed Class 3.3 Claims), subject to a maximum distribution for any such
holder equal to the Target Distribution Percentage of such holder's Allowed
Class 3.3 Claim.
- 50 -
<PAGE> 502
If such an interim distribution is made by Reorganized TCO, the distribution to
be made with respect to each Allowed Class 3.3 Claim relating to the Final
Allowance Date will be adjusted so that the sum of the amount of such
distribution and the amount of the interim distribution made pursuant to this
paragraph shall equal the amount that would have been distributed with respect
to such Claim under the preceding paragraph if no interim distribution were
made.
If the Distribution Date occurs after January 31, 1996, each holder
of an Allowed Class 3.3 Claim shall be entitled to receive Supplemental
Interest Payment(s) on its distribution(s) on its Allowed Class 3.3 Claim as
provided in this Section III.B.3.d.
Claims of Rejecting Producers shall be liquidated through litigation
under the Claims Estimation Procedures or before the Bankruptcy Court, as
appropriate, or by a settlement approved by the Bankruptcy Court.
If the order of the Bankruptcy Court approving the settlement of the
Intercompany Claims Litigation is not a Final Order, upon receipt, not subject
to disgorgement, by an Initial Accepting Producer or group thereof of the
Initial Distribution Percentage of its Allowed Class 3.3 Claim, the residual
economic interest, if any, of such Initial Accepting Producer or group thereof
in its Allowed Class 3.3 Claim shall be deemed to be transferred to and vested
in Reorganized Columbia, subject only to Reorganized Columbia's obligation to
account to such Initial Accepting Producer or group thereof for, and to pay, any
- 51 -
<PAGE> 503
remaining distributions on such Allowed Class 3.3 Claim under the terms of the
Plan.
All distributions to holders of Allowed Class 3.3 Claims shall be
made in cash, except that Reorganized TCO, with the prior consent of Columbia,
shall have the option to pay any amount due to any Rejecting Producer in excess
of the Target Distribution Percentage of the Original Settlement Value proposed
for its Claim, in the form of readily marketable publicly traded securities of
Reorganized Columbia having a fair market value equal to the distribution that
Reorganized TCO has elected not to pay in cash. The fair market value of such
securities shall be determined based upon the last New York Stock Exchange
trading day prior to the date of distribution to such Rejecting Producer and,
in the case of Columbia common stock, such fair market value shall be deemed to
be the midpoint between the high and the low price for Columbia common stock as
reported on the consolidated tape of the New York Stock Exchange on such last
trading day.
Class 3.3 Claims are impaired.
e. CLASS 3.4 - GENERAL UNSECURED CLAIMS
Each holder of an Allowed Class 3.4 Claim shall be paid an amount
equal to the Target Distribution Percentage of its Allowed Claim, together with
a Supplemental Interest Payment thereon if the Distribution Date occurs after
January 31, 1996, on the Effective Date, if the Claim is then Allowed and, if
not then Allowed, on the thirtieth day after the end of the Calendar Quarter
during which such Claim becomes Allowed, provided, however, if on such day,
there is pending an appeal (a) by such a
- 52 -
<PAGE> 504
Claimholder from the order Allowing such Claimholder's Claims, or (b) by
Reorganized TCO or any other party from the order Allowing such Claimholder's
Claim and Reorganized TCO or such other has obtained a stay pending appeal of
such order, such distribution shall be made on the thirtieth day after the
earlier of the termination of the stay pending appeal or the entry of a Final
Order Allowing such Claimholder's Claim.
All distributions to holders of Allowed Class 3.4 Claims shall be
made in cash, except that Reorganized TCO, with prior consent of Columbia,
shall have the option to pay any amount due to any holder of a General
Unsecured Claim that does not accept the Allowance Amount proposed for its
Claim, in excess of the Target Distribution Percentage of the Allowance Amount
proposed for its Claim, in the form of readily marketable publicly traded
securities of Reorganized Columbia having a fair market value equal to the
distribution that Reorganized TCO has elected not to pay in cash. The fair
market value of such securities shall be determined based upon the last New
York Stock Exchange trading day prior to the date of distribution to such
Claimholder and, in the case of Columbia common stock, such fair market value
shall be deemed to be the midpoint between the high and the low price for
Columbia common stock as reported on the consolidated tape of the New York
Stock Exchange on such last trading day.
Class 3.4 Claims are impaired.
f. CLASS 3.5 - THE COLUMBIA UNSECURED CLAIM
The Columbia Unsecured Claim shall be Allowed as Filed.
- 53 -
<PAGE> 505
On the Effective Date, Reorganized Columbia shall be paid, in cash,
an amount equal to the Initial Distribution Percentage of its Allowed Claim,
together with a Supplemental Interest Payment thereon, if applicable. On the
thirtieth day after the end of the Calendar Quarter during which the Final
Allowance Date has occurred, Reorganized Columbia shall be paid, in cash, an
amount equal to the same final distribution percentage of its Allowed Claim as
(a) all holders of Allowed Class 3.3 Claims have received on their Allowed
Claims or (b) all holders of Allowed Class 3.4 Claims have received on their
Allowed Claims, whichever is lower, less any amounts previously received by
Reorganized Columbia in respect of the Columbia Unsecured Claim, other than any
Supplemental Interest Payments, together with a Supplemental Interest Payment
thereon, if applicable. If the Distribution Date occurs after January 31,
1996, Columbia shall be entitled to receive Supplemental Interest Payment(s) on
its distribution(s) on the Columbia Unsecured Claim.
The Class 3.5 Claim is impaired.
4. CLASS 4 CLAIMS - OTHER CLAIMS
a. CLASS 4.1 - ENVIRONMENTAL CLAIMS
Claims in Class 4.1 shall survive and be unaffected by entry of the
Confirmation Order. All Class 4.1 Claims shall be assumed by Reorganized TCO
and paid if and when due and payable, either in the course of Reorganized TCO's
business or in accordance with such agreements or stipulations as may be
entered into with the relevant governmental environmental authority,
- 54 -
<PAGE> 506
including, without limitation, the EPA Order, the Pennsylvania Environmental
Order and the Kentucky Environmental Orders.
Class 4.1 Claims are unimpaired.
b. CLASS 4.2 - CERTAIN CONDEMNATION CLAIMS
Claims in Class 4.2 shall survive and be unaffected by entry of the
Confirmation Order. Class 4.2 Claims will be satisfied when and if due in the
ordinary course of Reorganized TCO's business.
Class 4.2 Claims are unimpaired.
c. CLASS 4.3 - PENSION CLAIMS
On the Effective Date, Reorganized TCO will assume its obligations
relating to all pension plans in existence as of the Petition Date, including
all obligations imposed by ERISA with regard to the Retirement Plan, and will
satisfy any and all Claims in Class 4.3 as they arise.
Class 4.3 Claims are unimpaired.
d. CLASS 4.4 - SURETY BOND RELATED CLAIMS
Claims in Class 4.4 shall survive and be unaffected by entry of the
Confirmation Order. Class 4.4 Claims will be satisfied when and if due in the
ordinary course of Reorganized TCO's business.
Class 4.4 Claims are unimpaired.
e. CLASS 4.5 - AFFILIATE TAX CLAIMS
Claims in Class 4.5 shall survive and be unaffected by entry of the
Confirmation Order. Class 4.5 Claims will be satisfied when and if due in the
ordinary course of Reorganized TCO's business.
- 55 -
<PAGE> 507
Class 4.5 Claims are unimpaired.
C. TREATMENT OF INTERESTS
1. CLASS 5 INTERESTS - COMMON STOCK OF TCO
Columbia shall receive no distribution in respect of its Interests.
Class 5 Interests are impaired.
IV. PROVISIONS GOVERNING DISTRIBUTIONS
A. TRANSACTIONS ON THE EFFECTIVE DATE
The following transfers and transactions shall take place on the
Effective Date:
1. Columbia shall deliver to Reorganized TCO cash and
securities, if any, to the extent required by Reorganized TCO to fund the
distributions to be made to Creditors under the Plan, as contemplated by the
Columbia Omnibus Settlement.
2. Reorganized TCO shall make the distributions required under
the Plan to be made on the Effective Date to the holders of Allowed Claims.
3. Reorganized TCO shall issue and deliver to Columbia new
secured debt securities of Reorganized TCO, as provided in Section III.B.2,
"Class 2.1 Claim - Columbia Secured Claim," in respect of the Class 2.1 Claim.
4. If it is not already dissolved, Columbia Transmission
Investment Corporation ("CTIC") shall be dissolved. Funds in the RIA Account
shall be distributed to Accepting Class 3.2 Claimants in the manner provided in
the Customer Settlement Proposal, and the RIA Account shall be dissolved. Any
remaining funds held by CTIC shall be distributed to Reorganized TCO.
- 56 -
<PAGE> 508
5. A Stipulation of Dismissal with Prejudice of the
Intercompany Claims Litigation which is conditioned only upon the completion of
payment by Reorganized TCO of all distributions payable on the Effective Date
and which, to the extent not previously resolved, shall not dismiss the
Customers' Committee's Motion to Unseal Judicial Records (the "Stipulation of
Dismissal with Prejudice"), shall have been filed with and, if necessary,
approved by the District Court.
B. DISTRIBUTIONS ON CLAIMS
Under the Plan, except as otherwise provided, or pursuant to orders
of the Bankruptcy Court, distributions to holders of Claims that are Allowed
Claims as of the Effective Date will be made by Reorganized TCO in cash or
securities on the Effective Date. Under the Plan, distributions to holders of
Claims that are not Allowed Claims as of the Effective Date will be made by
Reorganized TCO in cash or securities on the thirtieth day after the end of the
Calendar Quarter during which such Claim becomes Allowed. Under the Plan,
distributions to holders of Classes 3.3 and 3.5 Claims will be made as provided
in Section III.B.3.d, "Class 3.3 - Producer Claims" and Section III.B.3.f,
"Class 3.5 - The Columbia Unsecured Claim."
Except with respect to those amounts to be distributed to holders of
Allowed Class 3.3, Class 3.4 and Class 3.5 Claims on the Effective Date, any
payment, distribution or other action that is required under the Plan to be
made or taken on the Effective Date, or any other date, shall be deemed to have
been made or taken on the Effective Date or such other date, as
- 57 -
<PAGE> 509
applicable, if made or taken on or within ten (10) Business Days of the
Effective Date or such other date, as the case may be. TCO and Reorganized TCO
shall each use its best efforts to complete distributions due to be made on the
Effective Date as soon as reasonably possible once such distributions are
commenced. Distributions to be made on the Effective Date to holders of
Allowed Class 3.3, Class 3.4 and Class 3.5 Claims shall be commenced and
completed within a period of three (3) Business Days commencing on and
including the Effective Date. In the event that the distribution to be made on
the Effective Date to any holder of an Allowed Class 3.3 Claim, Class 3.4 Claim
or Class 3.5 Claim is not completed within three (3) Business Days, then each
such Claimholder shall receive supplemental interest on such distribution in
cash for the period from the third Business Day after the Effective Date
through and including the day immediately preceding the date upon which such
distribution is made at a rate per annum equal to the annualized rate realized
by TCO on funds invested by it pursuant to the Investment Guidelines during the
period for which such interest is calculated. Such interest shall be paid at
the same time as TCO or Reorganized TCO makes the distribution to such
Claimholder which is required to be made under the Plan on the Effective Date.
- 58 -
<PAGE> 510
C. REORGANIZED TCO AS DISBURSING AGENT
Reorganized TCO shall make all of the distributions required to be
made in respect of Allowed Claims under the Plan.
D. DELIVERY OF DISTRIBUTIONS; UNCLAIMED DISTRIBUTIONS
1. DELIVERY OF DISTRIBUTIONS IN GENERAL
Distributions to each holder of an Allowed Claim shall be made (i) at
the address set forth on the proof of Claim Filed by such holder, (ii) at the
address set forth in any written notice of address change delivered to TCO or
Reorganized TCO after the date of Filing of any related proof of Claim or (iii)
at the address of such holder reflected in the Schedule of Liabilities if no
proof of Claim has been Filed and neither TCO nor Reorganized TCO has received
a written notice of a change of address.
2. UNCLAIMED DISTRIBUTIONS
An Unclaimed Distribution shall be any distribution made to the
holder of an Allowed Claim pursuant to the Plan including, in the case of any
check or other instrument, the proceeds thereof, that (i) is returned to
Reorganized TCO, as undeliverable or because delivery thereof is not accepted,
or (ii) in the case of a distribution made in the form of a check or other
instrument, is not negotiated.
Any Unclaimed Distribution shall, until such time as such Unclaimed
Distribution becomes deliverable, be retained by Reorganized TCO which may
commingle such funds with its other funds; provided, however, that any holder
of an Allowed Claim that does not claim an Unclaimed Distribution within the
later of
- 59 -
<PAGE> 511
five (5) years after the entry of the Confirmation Order or two (2) years after
such check or other instrument was issued by Reorganized TCO shall not
participate in any further distributions under the Plan, and shall be forever
barred from asserting any such Claim against Reorganized TCO or its property.
Any cash held for distribution on account of such holder's Claim and any
accumulated income thereon shall be property of Reorganized TCO, free of any
restrictions thereon. Nothing contained in the Plan shall require Reorganized
TCO to attempt to locate any holder of an Allowed Claim other than by reviewing
its records.
Within thirty (30) days after the end of each Calendar Quarter,
Reorganized TCO shall distribute all such previously Unclaimed Distributions
that became deliverable during the preceding Calendar Quarter.
E. MEANS OF CASH PAYMENTS
Cash payments made pursuant to the Plan shall be in United States
dollars by check drawn on a domestic bank selected by TCO or Reorganized TCO,
or by wire transfer from a domestic bank, at the option of TCO or Reorganized
TCO; provided, however, that cash payments (i) in excess of $1,000,000 to
Creditors who make a request in writing and provide wire instructions to TCO at
least ten (10) days in advance of the Effective Date shall be made by wire
transfer by TCO or Reorganized TCO and (ii) to foreign Creditors, if any, may
be made, at the option of TCO or Reorganized TCO, in such funds and by such
means as are necessary or customary in a particular foreign jurisdiction.
- 60 -
<PAGE> 512
F. SETOFFS
Subject, in the case of Accepting Class 3.2 Claimants, to the
applicable provisions of the Customer Settlement Proposal, and as to other
Creditors, the provisions relating to accepted Settlement Values and Allowance
Amounts set forth in Section III.B.3.a. of the Plan, Reorganized TCO may set
off against any Allowed Claim and the distributions to be made pursuant to the
Plan on account of such Claim, the claims, rights and causes of action of any
nature that TCO or Reorganized TCO may hold against the holder of such Allowed
Claim; provided, however, that neither the failure to effect such a Setoff nor
the allowance of any Claim hereunder shall constitute a waiver or release by
TCO or Reorganized TCO of any such claim, right or cause of action that TCO or
Reorganized TCO may possess against such holder.
G. LIMIT ON DISTRIBUTIONS
Anything to the contrary contained in the Plan notwithstanding, no
holder of a Claim shall receive under the Plan more than the Allowed amount of
such Claim, plus any post-petition interest to which such Claimholder may be
entitled pursuant to the Plan, the Customer Settlement Proposal, or any order
of the Bankruptcy Court. All payments and distributions to be made under the
Plan shall be made without interest, penalty or late charge arising subsequent
to the Petition Date, except as expressly provided by the Plan.
- 61 -
<PAGE> 513
H. CONTINUATION OF CERTAIN RETIREMENT, WORKERS' COMPENSATION AND
LONG-TERM DISABILITY BENEFITS
Notwithstanding anything to the contrary herein contained, all
employee and retiree benefit plans or programs in existence as of the Petition
Date shall continue after the Effective Date.
V. MEANS FOR IMPLEMENTATION OF THE PLAN
A. CONTINUED CORPORATE EXISTENCE AND VESTING OF ASSETS IN REORGANIZED
TCO
TCO shall continue to exist after the Effective Date as Reorganized
TCO, a Delaware corporation, with all the powers of a corporation under
applicable law and without prejudice to any right to alter or terminate such
existence (whether by merger or otherwise) under Delaware law, subject to the
terms and provisions of this Plan and the Confirmation Order. Except as
otherwise provided in the Plan, on or after the Effective Date, all property of
the Estate, and any property acquired by TCO or Reorganized TCO under any
provisions of the Plan, shall vest in Reorganized TCO, free and clear of all
Claims, liens, charges and other encumbrances. On and after the Effective
Date, Reorganized TCO may operate its business and may use, acquire and dispose
of property and compromise or settle any claims against it without supervision
or approval by the Bankruptcy Court and free of any restrictions of the
Bankruptcy Code or Bankruptcy Rules, other than those restrictions expressly
imposed by the Plan and the Confirmation Order. Without limiting the
foregoing, Reorganized TCO may pay the charges that it incurs on or after the
Effective Date for professional fees, disbursements, expenses or related
support services without application to the Bankruptcy Court.
- 62 -
<PAGE> 514
B. CORPORATE GOVERNANCE, DIRECTORS AND OFFICERS
1. CERTIFICATE OF INCORPORATION AND BY-LAWS
Upon the Effective Date, the certificate of incorporation and the
by-laws of Reorganized TCO shall be unchanged except that the certificate of
incorporation shall be amended to prohibit the issuance of non-voting equity
securities to the extent required by section 1123(a) of the Bankruptcy Code.
On the Effective Date, Reorganized TCO will file an amended and restated
certificate of incorporation with the Secretary of State of Delaware in
accordance with section 103 of the Delaware General Corporation Law, a copy of
which is annexed hereto as Exhibit F.
2. DIRECTORS AND OFFICERS OF REORGANIZED TCO
Those persons serving as the directors and officers of TCO as of the
date hereof will, subject to changes in the ordinary course of business,
continue to serve in their same capacities on behalf of Reorganized TCO after
Confirmation.
3. CORPORATE ACTION
Upon the Effective Date, adoption by Reorganized TCO of the amendment
to the certificate of incorporation and the other matters contemplated by or
provided for under the Plan involving the corporate structure of TCO or
Reorganized TCO or corporate action to be taken by or required of either TCO or
Reorganized TCO shall be deemed to have occurred and be effective and all
actions required or contemplated in order to consummate the Plan shall be
authorized and approved in all respects without any requirement of further
action by stockholders or directors of TCO or Reorganized TCO.
- 63 -
<PAGE> 515
C. PRESERVATION OF RIGHTS OF ACTION
Except as provided elsewhere in the Plan or in any contract,
instrument, release, indenture or other agreement or document entered into or
created in connection with the Plan, in accordance with section 1123(b) of the
Bankruptcy Code, Reorganized TCO shall retain and may enforce any claims,
rights and causes of action that either TCO or its Estate may hold against any
entity and shall retain the right to prosecute all adversary proceedings
asserting Avoidance Claims that are pending before the Bankruptcy Court as of
the Effective Date. All other Avoidance Claims will be released. All
Intercompany Claims shall be settled and released as of the Effective Date
pursuant to the Stipulation of Dismissal with Prejudice. Reorganized TCO or
its successors may pursue such retained claims, rights or causes of action, as
appropriate, in accordance with the best interests of Reorganized TCO. As to
Customers who vote in favor of the Plan or who execute a Waiver Agreement prior
to the Effective Date, all claims, rights and causes of action that either TCO
or its Estate may hold relating to refunds, collections, or Setoff, will be
settled, released or preserved as provided in the Customer Settlement Proposal.
As to Customers who vote in favor of the Plan or who execute a Waiver Agreement
prior to the Effective Date, all Avoidance Claims will be released that either
TCO or its Estate may hold against such Customers. TCO expressly preserves the
right to pursue any rights, claims or causes of action, whether or not the
subject of this Plan or the Customer Settlement Proposal, against Dissenting
Customers.
- 64 -
<PAGE> 516
D. THE CLAIMS ESTIMATION PROCEDURES
Following the Effective Date, all Disputed Claims subject to the
Claims Estimation Procedures will be liquidated in accordance with the Claims
Estimation Procedures, before the Bankruptcy Court, as appropriate, or by a
settlement approved by the Bankruptcy Court. After the Effective Date,
Reorganized TCO shall continue to participate in the Claims Estimation
Procedures.
E. RELEASE OF LIENS
Except as otherwise provided in the Plan or in any contract,
instrument, release, indenture or other agreement or document created in
connection with the Plan, on the Effective Date, all mortgages, deeds of trust,
liens or other security interests against the property or assets of the Estate
shall be deemed discharged and satisfied, and all the right, title and interest
of any holder of any such mortgage, deed of trust, lien or other security
interest shall revert to Reorganized TCO and its successors and assigns. The
new debt securities issued by Reorganized TCO in payment of the Columbia
Secured Claim will be secured by the lien on the assets of Reorganized TCO in
favor of Wilmington Trust Company (or any successor thereto) for the benefit of
Columbia.
F. TCO'S FUNDING OBLIGATIONS
TCO and Reorganized TCO shall be obligated to fund all distributions
required to be made under the Plan, on the Effective Date or otherwise, to all
holders of Allowed Claims.
- 65 -
<PAGE> 517
G. COLUMBIA GUARANTY
Columbia and Reorganized Columbia shall guaranty the full and prompt
payment by TCO or Reorganized TCO of any and all distributions required to be
made by TCO or Reorganized TCO under the Plan, other than payments in respect
of Post-Petition Operational Claims and Class 4 Claims (the "Columbia
Guaranty"). Columbia's or Reorganized Columbia's provision of the funding
required of it pursuant hereto may be in the form of a direct cash capital
investment in TCO or Reorganized TCO, a loan to TCO or Reorganized TCO, or such
other form as may be determined by TCO or Reorganized TCO and Columbia or
Reorganized Columbia. Columbia or Reorganized Columbia may utilize for such
purposes the distributions made to it and, with their respective consents, its
affiliates under the Plan, including the distributions in respect of the
Columbia Unsecured Claim and the East Lynn Condemnation Obligation.
VI. BAR DATES; PROCEDURES FOR ESTABLISHING ALLOWED CLAIMS
AND FOR RESOLVING DISPUTED CLAIMS
A. BAR DATE FOR OBJECTIONS TO CERTAIN NON-ADMINISTRATIVE CLAIMS
1. CLAIMS SUBJECT TO THE CLAIMS ESTIMATION PROCEDURES
All objections by TCO and all other parties-in-interest to Producer
Claims which are the subject of the Claims Estimation Procedures shall be
governed by the provisions of the Claims Estimation Procedures or by other
orders of the Bankruptcy Court relating to such Claims.
- 66 -
<PAGE> 518
2. OTHER NON-ADMINISTRATIVE CLAIMS
Any non-Administrative Claim which was not Filed at least thirty (30)
days prior to the date of the hearing on the Disclosure Statement may be
objected to by TCO or Reorganized TCO, or the TCO Committees by the later of
(i) the Effective Date or (ii) sixty (60) days after a proof of Claim with
respect to such Claim has been Filed. Any such Claim that has not been
objected to on or prior to such date shall be an Allowed Claim in the
appropriate Class.
B. BAR DATES FOR CERTAIN ADMINISTRATIVE CLAIMS
1. PROFESSIONAL CLAIMS
Professionals or other entities requesting compensation or
reimbursement of expenses pursuant to sections 327, 328, 330, 331, 503(b) or
1103 of the Bankruptcy Code for services rendered before the Effective Date
(including compensation requested pursuant to section 503(b)(4) of the
Bankruptcy Code by any Professional or other entity for making a "substantial
contribution" in the Reorganization Case) shall File and serve on Reorganized
TCO, the U.S. Trustee, and the Fee Examiner an application for final allowance
of compensation and reimbursement within such time period as the Bankruptcy
Court shall fix in the Confirmation Order or in any other order and provided
further, that any Professional or other entity that fails to timely file an
application for final allowance of compensation and reimbursement of expenses
shall be forever barred from asserting such Claims against TCO and Reorganized
TCO, TCO and Reorganized TCO shall be discharged from such Claims and neither
TCO nor
- 67 -
<PAGE> 519
Reorganized TCO shall be obligated to pay such Claims; provided, however, that
any Professional who may receive compensation or reimbursement of expenses
pursuant to the Administrative Fee Order or other such order of the Bankruptcy
Court may continue to receive such compensation and reimbursement of expenses
for services rendered before the Effective Date. Objections to applications of
Professionals or other entities for compensation or reimbursement of expenses
must be Filed and served on Reorganized TCO, the U.S. Trustee, the Fee
Examiner, and the requesting party within such time period as the Bankruptcy
Court shall fix in the Confirmation Order or in any other order.
2. ADMINISTRATIVE CLAIMS ARISING FROM REJECTION OF EXECUTORY
CONTRACTS OR UNEXPIRED LEASES
Bar dates for Administrative Claims arising from the rejection of
executory contracts or unexpired leases shall be established as set forth in
Section VII.C.
3. NON-ORDINARY COURSE, NON-ASSUMED ADMINISTRATIVE CLAIMS
TCO shall file a motion seeking an order of the Bankruptcy Court
establishing sixty (60) days after the date that the Confirmation Order is
signed as the bar date for the filing of any motion seeking Allowance of an
Administrative Claim excluding any
(a) Administrative Claims of Professionals and
other entities requesting compensation or reimbursement of
expenses pursuant to sections 327, 328, 330, 331, 503(b) or
1103 of the Bankruptcy Code for services rendered before the
Effective Date,
- 68 -
<PAGE> 520
(b) Post-Petition Operational Claims,
(c) Assumed Executory Contract Claims,
(d) U.S. Trustee's Fee Claims,
(e) Administrative Recoupment Claims,
(f) contingent indemnification Claims of
officers, directors and employees of TCO,
(g) Class 4 Claims, and
(h) payments to be made to UGI and the current
members of the Customers' Committee pursuant to Section
III.B.3.c. of the Plan.
C. AUTHORITY TO PROSECUTE OBJECTIONS
Subject to the Bar Dates and other limitations set forth in this
Section VI and in Section VII.C, after the Effective Date, Reorganized TCO
shall have the authority to File objections, and shall have authority to
settle, compromise, withdraw or litigate to judgment objections to Claims Filed
by it, subject to the approval of the Bankruptcy Court. Reorganized TCO shall
File all such objections to Claims (other than Producer Claims) within one
hundred twenty (120) days after the Effective Date. The Creditors' Committee
and the Producers shall also have the right after the Effective Date to File
objections to the Producer Claims held by Rejecting Producers, to File
objections to any proposed compromise or settlement of the Claim of any
Producer and to settle, compromise, withdraw or litigate to judgment and to
participate in appeals from any such objections, subject to appropriate
approvals of the Bankruptcy Court.
- 69 -
<PAGE> 521
VII. TREATMENT OF EXECUTORY CONTRACTS AND
UNEXPIRED LEASES; ADDITIONAL BAR DATES
A. GENERAL
Except as otherwise provided in the Plan or in any contract,
instrument, release, indenture, or other agreement or document entered into in
connection with the Plan, on the Effective Date, (i) all of TCO's executory
contracts which have not been expressly assumed or rejected by order of the
Bankruptcy Court as of the Confirmation Date and which are listed on Exhibit 3
attached to the Disclosure Statement shall be assumed or rejected or otherwise
dealt with as set forth on said Exhibit 3 and (ii) all other executory
contracts that have not been so expressly assumed shall be rejected. The
treatment of executory contracts between TCO and its Customers shall be
consistent with the treatment provided for in Article XII of the Customer
Settlement Proposal.
B. PAYMENTS RELATED TO ASSUMPTION OF EXECUTORY CONTRACTS AND UNEXPIRED
LEASES
Any monetary amounts by which any executory contract or unexpired
lease to be assumed pursuant to the Plan is in default will be satisfied,
pursuant to section 1123(a)(5)(G) of the Bankruptcy Code, by payment of the
defaulted amount in cash on the Effective Date, or on such other terms as are
agreed to by TCO and the parties to such executory contract or unexpired lease.
In the event of a dispute regarding (i) the amount of any cure payments, (ii)
the ability of Reorganized TCO to provide "adequate assurance of future
performance" (within the meaning of section 365 of the Bankruptcy Code) under
the contract or lease
- 70 -
<PAGE> 522
to be assumed or (iii) any other matter pertaining to assumption, the cure
payments required by section 1123(a)(5)(G) of the Bankruptcy Code will be made
following the entry of a Final Order resolving the dispute and approving the
assumption.
C. BAR DATE FOR REJECTION DAMAGES
If the rejection of an executory contract or unexpired lease pursuant
to the Plan or the Confirmation Order gives rise to an Unsecured Claim or
Administrative Claim by the other party or parties to such contract or lease,
such Claim will be forever barred and will not be enforceable against TCO,
Reorganized TCO or its successors, or the properties of any of them, unless,
with respect to an Administrative Claim, a request for payment, or, with
respect to any other Claim, a proof of Claim, is Filed and served on
Reorganized TCO within the later of (i) the time period established by the
Bankruptcy Court in its Final Order authorizing such rejection or (ii) the
thirtieth day after the Effective Date. Objections to any request for payment
or proof of Claim shall be Filed not later than the sixtieth day after the
Effective Date.
D. EXECUTORY CONTRACTS AND UNEXPIRED LEASES ENTERED INTO AND OTHER
OBLIGATIONS INCURRED AFTER THE PETITION DATE
Executory contracts and unexpired leases entered into and other
obligations incurred by TCO after the Petition Date (unless an order of the
Bankruptcy Court has been entered authorizing rejection of such contracts or
leases) shall survive and remain unaffected by the Plan or entry of the
Confirmation Order.
- 71 -
<PAGE> 523
VIII. CONDITIONS PRECEDENT TO CONFIRMATION
AND CONSUMMATION OF THE PLAN
A. CONDITIONS TO CONFIRMATION
The Bankruptcy Court shall not enter the Confirmation Order unless
and until each of the following conditions has been satisfied or, to the extent
permitted, duly waived by TCO, with the prior consent of Columbia, pursuant to
Section VIII.C:
1. The Bankruptcy Court has entered an order, pursuant to
section 1129 of the Bankruptcy Code, confirming a Plan of Reorganization for
Columbia which provides for Columbia to fulfill the terms of the Columbia
Omnibus Settlement and the Columbia Guaranty and for the financing of
Reorganized TCO on terms reasonably satisfactory to Columbia and TCO.
2. Any authorization or approval required under the Public
Utility Holding Company Act of 1935 with respect to Columbia or Reorganized TCO
of the transactions contemplated by the Plan or by the Plan of Reorganization
for Columbia has been obtained.
3. There shall have been no material adverse change to TCO's or
Columbia's business, properties, financial condition, results of operations or
business prospects between the Plan Mailing Date and the Confirmation Date.
4. No material environmental liability Claim shall have been
Filed by any entity including, without limitation, any state or federal
environmental or regulatory agency, asserting actual or potential liability
against TCO, other than Claims Filed pursuant to consensual settlement
agreements between TCO and such
- 72 -
<PAGE> 524
state or federal environmental or regulatory agency or other governmental
entity.
5. Subject to Section VIII.C hereof, TCO and Columbia shall
have received a ruling from the IRS, in form and substance satisfactory to TCO
and Columbia, to the effect that payments made by TCO under the Plan that are
attributable to the breach, termination or rejection of gas purchase contracts
are deductible in the year paid by TCO for Federal income tax purposes.
6. The Confirmation Order shall approve the settlement, in
accordance with the Plan, of the Refund Disputes with Accepting 3.2 Claimants,
and the 1990 Rate Case Settlement (as amended by the Customer Settlement
Proposal), and approve the Customer Settlement Proposal and TCO's
implementation thereof and the Confirmation Order shall not have been vacated,
reversed or stayed. FERC shall have entered a Final FERC Order approving the
Customer Settlement Proposal.
7. The Bankruptcy Court shall have entered an order approving
the Initial Accepting Producers Settlement Agreement and such order shall not
have been vacated, reversed or stayed and the Initial Accepting Producers
Settlement Agreement shall not have been terminated pursuant to Paragraph 14
thereof or Section VIII hereof.
8. The Plan shall not have been amended, modified, waived,
supplemented or withdrawn, in whole or in part, without the prior consent of
Columbia, and without the prior consent of (i) the Creditors' Committee, if
such revisions would (a) change the Original Settlement Values set forth on
Schedule I, (b)
- 73 -
<PAGE> 525
change the amount, timing or composition of distributions to Classes 3.1, 3.3
or 3.4, (c) change the conditions to Confirmation or to the Effective Date or
(d) otherwise materially affect the treatment of Unsecured Creditors, other
than Customers, under the Plan, or (ii) the Customers' Committee, if such
revisions would (a) change the amount, timing or composition of distributions
to Class 3.2, (b) change the conditions to Confirmation or to the Effective
Date, or (c) otherwise materially affect the treatment of Accepting Class 3.2
Claimants under the Plan.
9. The Accepting Producer Percentage shall be not less than ninety
(90%) percent.
B. CONDITIONS TO EFFECTIVE DATE
The Plan shall not be consummated and the Effective Date shall not
occur unless and until each of the following conditions has been satisfied or,
to the extent permitted, duly waived by TCO with the prior consent of Columbia
pursuant to Section VIII.C:
1. The order of the Bankruptcy Court confirming Columbia's Plan
of Reorganization shall not have been vacated, reversed or stayed, and
Columbia's Plan of Reorganization shall have become effective on terms
consistent with the Plan.
2. The Confirmation Order shall not have been vacated, reversed
or stayed.
3. There shall have been no material adverse change to TCO's or
Columbia's business, properties, financial condition,
- 74 -
<PAGE> 526
results of operations or business prospects between the Confirmation Date and
the Effective Date.
4. The Effective Date and the Distribution Date shall have
occurred on or before June 28, 1996.
5. The Stipulation of Dismissal with Prejudice of the
Intercompany Claims Litigation shall have been filed with and, if necessary,
approved by the District Court.
6. Each of the conditions to Confirmation that was made a
condition to the Effective Date has been satisfied or, if waivable, waived.
C. WAIVER OF CONDITIONS TO CONFIRMATION OR EFFECTIVE DATE
Each of the conditions set forth in Sections VIII.A and VIII.B may,
with the prior consent of Columbia, be waived in whole or in part by TCO at any
time in its discretion except that (i) the condition numbered 2 in Section
VIII.A may be waived only if TCO and Columbia elect to have such condition
become a condition to the Effective Date and may not be waived as a condition
to the Effective Date, (ii) the conditions numbered 5 and 9 in Section VIII.A
may be waived only if TCO and Columbia elect to have such conditions become
conditions to the Effective Date provided that conditions numbered 5 and 9 may
not be waived as a condition to the Effective Date without the Official
Committee of Equity Holders appointed in Columbia's reorganization case having
been given notice and an opportunity to be heard, (iii) the condition numbered
9 in Section VIII.A may be waived only with the prior consent of the Initial
Accepting
- 75 -
<PAGE> 527
Producers, (iv) the condition numbered 6 in Section VIII.A. may be waived only
with the prior consent of the Sponsoring Parties (as defined in the Customer
Settlement Proposal) and (v) the condition numbered 4 in Section VIII.B may be
waived only with the prior consent of the Creditors' Committee and the
Customers' Committee and only if each of the Initial Accepting Producers do not
elect to terminate the Initial Accepting Producer Settlement Agreement in
accordance with Section 14(a)(v) thereof. Accepting Class 3.2 Claimants are
not bound to support the Plan if the Effective Date and the entry of a Final
FERC Order approving the Customer Settlement Proposal fail to occur on or
before June 30, 1996. If the condition numbered 5 in Section VIII.A. has not
been satisfied by December 15, 1995, the Initial Accepting Producer Settlement
Agreement shall terminate on December 31, 1995, unless prior to December 31,
1995 either (a) Columbia and TCO waive such condition to Confirmation and/or
the Effective Date, as appropriate, or (b) the Initial Accepting Producers
agree, in writing, to an extension of the time within which the condition must
be satisfied.
To be effective, any such waiver and consent must be in writing and
Filed and served upon each of the appropriate parties. The failure of a
condition to have been satisfied may be asserted by TCO or Columbia, as the
case may be, regardless of the circumstances giving rise to the failure of such
condition to be satisfied (including any action or inaction by TCO or
Columbia). The failure by TCO, or Columbia, as the case may be, to exercise
any of the foregoing rights shall not be deemed a
- 76 -
<PAGE> 528
waiver of any other rights and each such right shall be deemed an ongoing
right, which may be asserted at any time.
D. EFFECT OF VACATING CONFIRMATION ORDER
If the Confirmation Order is vacated, whether prior to or subsequent to the
Effective Date, the Plan, including the discharge of Claims pursuant to section
1141 of the Bankruptcy Code, and the assumptions or rejections of executory
contracts or unexpired leases pursuant to Section VII.A, unless modified,
supplemented or amended in accordance with the provisions of Chapter 11 of the
Bankruptcy Code so that the Confirmation Order is reinstated or a new
Confirmation Order is entered provided, however, that such modification,
supplement or amendment is not materially adverse with respect to any Unsecured
Creditor, shall be null and void in all respects. In the event the
Confirmation Order is so vacated, nothing contained in the Plan shall (i)
constitute a waiver or release of any Claim by or against, or any Interests in,
TCO or Columbia, (ii) prejudice in any manner the rights of TCO, Columbia or
any of the Creditors, or (iii) constitute an admission against TCO, Columbia or
any of the Creditors.
E. FAILURE OF THE PLAN TO BECOME EFFECTIVE
In the event that any of the conditions set forth in Section VIII.B.
hereof do not occur by June 28, 1996 and are not timely waived in accordance
with Section VIII.C. hereof, the Creditors' Committee, the Customers'
Committee, Columbia or TCO shall each have the right in its discretion to
withdraw its support for the Plan upon notice thereof to each of the other
- 77 -
<PAGE> 529
foregoing parties and without necessity of any Court approval. In the event
any such party exercises its right to withdraw, then the Plan, including the
discharge of Claims and all settlements of Claims in connection with the Plan,
shall be null and void in all respects without any further action by any party
or approval by the Bankruptcy Court or any other court and nothing contained in
the Plan shall (i) constitute a waiver or release of any Claim by or against,
or any Interests in, TCO or Columbia, (ii) prejudice in any manner the rights
of TCO, Columbia, the Creditors' Committee, the Customers' Committee, or any of
the Creditors or (iii) constitute an admission against TCO, Columbia, the
Creditors' Committee, the Customers' Committee, or any of the Creditors.
IX. CONFIRMABILITY AND SEVERABILITY
OF THE PLAN AND CRAMDOWN
A. CONFIRMABILITY AND SEVERABILITY OF THE PLAN
TCO and the Plan must satisfy the confirmation requirements of
section 1129 of the Bankruptcy Code. TCO and Columbia reserve the right to
modify, supplement, revoke or withdraw the Plan pursuant to Sections XII.B or
XII.C. However, TCO and Columbia may not modify the Customer Settlement
Proposal or the Initial Accepting Producers Settlement Agreement absent consent
by all parties whose consent is required to modify such agreement. A
determination by the Bankruptcy Court that the Plan is not confirmable pursuant
to section 1129 of the Bankruptcy Code shall not limit or affect TCO's ability,
subject to the provisions and
- 78 -
<PAGE> 530
limitations contained herein, to modify the Plan to satisfy the confirmation
requirements of said section 1129.
B. CRAMDOWN
TCO reserves the right to seek confirmation of the Plan pursuant to
section 1129(b) of the Bankruptcy Code if any impaired Class does not accept
the Plan pursuant to section 1126 of the Bankruptcy Code.
X. DISCHARGE, RELEASES, SETTLEMENT OF CLAIMS AND INJUNCTION
A. DISCHARGE OF CLAIMS AND TERMINATION OF INTERESTS
Except as otherwise expressly provided in the Plan or in the
Confirmation Order, the discharge, pursuant to section 1141(d) of the
Bankruptcy Code, of all debts of, Claims against and Interests in TCO including
any interest accrued on Claims from the Petition Date, that arose prior to the
Confirmation Date, is effective as of the Effective Date, so long as the
distributions to Creditors which are payable under the Plan on the Effective
Date are made as of the Effective Date as provided in this Plan.
Notwithstanding the foregoing, TCO shall not be discharged from Claims of
Accepting Class 3.2 Claimants arising prior to the Confirmation Date to the
extent those Claims survive as a result of provisions of the Customer
Settlement Proposal. Without limiting the generality of the foregoing, on the
Effective Date, except as otherwise specifically provided in the Plan or
Confirmation Order, TCO shall be discharged from any debt that arose prior to
the Confirmation Date and from all debts of the kind specified in sections
502(g), 502(h) or 502(i) of the Bankruptcy Code, whether or not (i) a proof of
Claim based on
- 79 -
<PAGE> 531
such debt was Filed pursuant to section 501 of the Bankruptcy Code, (ii) a
Claim based on such debt is an Allowed Claim pursuant to section 502 of the
Bankruptcy Code or (iii) the holder of a Claim based on such debt has voted to
accept the Plan.
As of the Confirmation Date, so long as the Effective Date occurs,
except as otherwise specifically provided in the Plan or Confirmation Order,
all entities, including any third party claiming rights under any contract
between TCO and any Creditor, shall be precluded from asserting against TCO,
Reorganized TCO, or the properties of any of them, any other or further Claims,
debts, rights, causes of action, liabilities or equity interests based upon any
act, omission, transaction or other activity of any kind or nature that
occurred prior to the Confirmation Date, provided, however, that the Customers'
Committee expressly reserves its right to pursue a Motion to Unseal Judicial
Records filed in the Intercompany Claims Litigation which is presently sub
judice. The scope of the discharge of Claims of Accepting Class 3.2 Claimants
against TCO is to be determined in accordance with the Customer Settlement
Proposal, which describes Claims which are being settled and released, and
Claims which are preserved by TCO, Reorganized TCO and the Accepting Class 3.2
Claimants, and which shall survive after the Effective Date. Any conflict
between the terms of the Customer Settlement Proposal and the Plan as to issues
addressed by the Customer Settlement Proposal shall be resolved in favor of the
Customer Settlement Proposal.
- 80 -
<PAGE> 532
In accordance with the foregoing, except as specifically provided in
the Plan or Confirmation Order, the Confirmation Order, so long as the
Effective Date occurs, shall be a judicial determination of discharge of all
such Claims and other debts and liabilities against TCO, pursuant to sections
524 and 1141 of the Bankruptcy Code, and such discharge shall void any judgment
obtained against TCO at any time, to the extent that such judgment relates to a
discharged Claim.
Nothing contained in the Plan or the Confirmation Order shall be
construed as discharging, releasing, relieving TCO, Reorganized TCO, or any
other party, in any capacity, from any liability with respect to the Retirement
Plan to which such party is subject under any law or regulatory provision.
B. INJUNCTION
As of the Confirmation Date, so long as the Effective Date occurs,
except as provided in the Plan, any settlement agreement incorporated as part
of the Plan or the Confirmation Order, all entities that have held, currently
hold or may hold a Claim or other debt or liability that is discharged pursuant
to the terms of the Plan are permanently enjoined from taking any of the
following actions on account of any such discharged Claims, debts or
liabilities, other than actions brought to enforce any rights or obligations
under the Plan: (i) commencing or continuing in any manner any action or other
proceeding against TCO, Reorganized TCO or the property of any of them; (ii)
enforcing, attaching, collecting or recovering in any manner any judgment,
award, decree or order against TCO, Reorganized TCO or their
- 81 -
<PAGE> 533
respective properties; (iii) creating, perfecting or enforcing any lien or
encumbrance against TCO, Reorganized TCO, or their respective properties; (iv)
asserting a Setoff, right of subrogation or recoupment of any kind against any
debt, liability or obligation due to TCO, Reorganized TCO, or their respective
properties; and (v) commencing or continuing, in any manner or in any place,
any action that does not comply with or is inconsistent with the provisions of
the Plan or the Confirmation Order.
As noted in Section X.A., nothing in the Plan or the Confirmation
Order shall be construed as discharging, releasing, or relieving TCO,
Reorganized TCO, or any other party, in any capacity, from any liability with
respect to Retirement Plan to which such party is subject under any law or
regulatory provision. Accordingly, nothing contained in the Plan or the
Confirmation Order shall be construed as enjoining the PBGC or the Retirement
Plan from enforcing any liability with respect to the Retirement Plan to which
such party is subject under any law or regulatory provision as result of the
Plan's or the Confirmation Order's provisions for the discharge, release and
Settlement of Claims. Notwithstanding the foregoing, nothing contained in the
Plan shall preclude Reorganized TCO from exercising its right to amend, modify
or terminate the Retirement Plan in accordance with applicable law.
C. LIMITATION OF LIABILITY
TCO, Reorganized TCO, Columbia, their affiliates and their respective
directors, officers, employees, agents,
- 82 -
<PAGE> 534
representatives and professionals (acting in such capacity), and the Creditors'
Committee and the Customers' Committee and their respective members and
Professionals (acting in such capacity), the Official Committee of Equity
Holders appointed in Columbia's reorganization case and the Official Committee
of Unsecured Creditors appointed in Columbia's reorganization case and their
respective members and professionals (acting in such capacity), and their
respective heirs, executors, administrators, successors and assigns, shall
neither have nor incur any liability to any entity for any act taken or omitted
to be taken in connection with or related to the formulation, preparation,
dissemination, implementation, confirmation or consummation of the Plan, the
Disclosure Statement or any contract, instrument, release or other agreement or
document created or entered into, or offer, issuance, sale or purchase of
securities offered or sold under the Plan, or any other act taken or omitted to
be taken in connection with the Plan or the Reorganization Case, provided,
however, that the foregoing provisions of this Section X.C shall have no effect
on the liability of any entity that would otherwise result from any such act or
omission to the extent that such act or omission is determined in a Final Order
to have constituted gross negligence or willful misconduct.
D. RELEASES
On the Effective Date, TCO and Reorganized TCO and all holders of
Claims will release unconditionally and are hereby deemed to release
unconditionally (a) each of TCO's officers, directors, shareholders, employees,
consultants, financial
- 83 -
<PAGE> 535
advisors, attorneys, accountants and other representatives, each of their
respective successors, executors, administrators, heirs and assigns, (b) the
Creditors' Committee and, solely in their capacity as members or
representatives of the Creditors' Committee, each member, consultant, financial
advisor, attorney, accountant or other representative of the Creditors'
Committee, each of their respective successors, executors, administrators,
heirs and assigns, (c) the Customers' Committee and, solely in their capacity
as members or representatives of the Customers' Committee, each member,
consultant, financial advisor, attorney, accountant or other representative of
the Customers' Committee, each of their respective successors, executors,
administrators, heirs and assigns, (d) the Official Committee of Equity Holders
and the Official Committee of Unsecured Creditors in Columbia's reorganization
case (collectively, the "Columbia Committees") and, in their capacity as
members, invitees or representatives of the Columbia Committees, each member,
invitee, consultant, financial advisor, attorney, accountant or other
representative of the Columbia Committees, each of their respective successors,
executors, administrators, heirs and assigns, and (e) Columbia, Reorganized
Columbia, CNR and each of their officers, directors, shareholders, consultant,
financial advisors, attorneys, accountants or other representatives, each of
their respective successors, executors, administrators, heirs and assigns (the
entities referred to in clauses (a), (b), (c), (d) and (e) are collectively
referred to as the "Releasees"), from any and all claims, obligations, suits,
judgments, damages, rights, causes of
- 84 -
<PAGE> 536
action or liabilities whatsoever, whether known or unknown, foreseen or
unforeseen, existing or hereafter arising, in law, equity or otherwise, based
on whole or in part upon any act or omission, transaction, event or other
occurrence taking place on or prior to the Effective Date in any way relating
to the Releasees, TCO, the Reorganization Case or the Plan, including, without
limitation, (x) the Intercompany Claims and all claims arising from or related
to the transactions which are the subject of the Intercompany Claims, provided,
however, that the release referenced in this clause (x) shall not be effective
unless and until the Stipulation of Dismissal with Prejudice becomes effective
pursuant to its terms, and (y) Refund Claims and Refund Disputes and any claims
arising from or related to the transactions that are the subject of such Refund
Claims and Refund Disputes, but excluding (i) any claims relating to
Professional Fees sought by any of the Releasees, (ii) with respect to claims
asserted against TCO or Columbia, any claims arising in the normal course of
business after the Petition Date between TCO's Creditors or TCO and Columbia,
(iii) with respect to claims asserted against CNR, any claims arising in the
normal course of business between TCO's Creditors or TCO and CNR, and (iv) any
Claims preserved pursuant to the Customer Settlement Proposal, and the
Confirmation Order will enjoin the prosecution by any entity, whether directly,
derivatively or otherwise, of any claim, debt, right, cause of action or
liability which was or could have been asserted against the Releasees, except
as otherwise provided herein.
- 85 -
<PAGE> 537
As of the Effective Date, and except as provided in the Customer
Settlement Proposal, in consideration of the various settlements and agreements
contained in the Customer Settlement Proposal, which shall be approved by the
Bankruptcy Court pursuant to the Plan, the Refund Claims and Refund Disputes
held by Customers shall be deemed settled, released and discharged.
The Bankruptcy Court's approval of the Customer Settlement Proposal
shall bind all supporters as defined therein, to the settlement of all
litigation involving Refund Disputes and the Intercompany Claims. Dissenting
3.2 Claimants may elect to continue to litigate the Refund Disputes.
E. INTERCOMPANY CLAIMS
As part of the Columbia Omnibus Settlement which is incorporated
herein, the Intercompany Claims Litigation is being settled. Acceptance of the
Plan shall constitute consent to the settlement of the Intercompany Claims
Litigation. On or prior to the Effective Date, as set forth in Sections
IV.A.5. and VIII.B.5. hereof, the Stipulation of Dismissal with Prejudice of
the Intercompany Claims Litigation shall have been filed with and, if
necessary, approved by the District Court. As of the Effective Date, except
for the prosecution of the Motion to Unseal, the Intercompany Claims and all
claims arising from or related to the transactions which are the subject of the
Intercompany Claims shall be released in their entirety in accordance with
Section X.D. hereof.
- 86 -
<PAGE> 538
XI. RETENTION OF JURISDICTION
Notwithstanding the entry of the Confirmation Order and the
occurrence of the Effective Date, the Bankruptcy Court shall retain such
jurisdiction over the Reorganization Case after the Effective Date as is
legally permissible, including jurisdiction to:
1. Allow, disallow, determine, liquidate, classify, estimate,
or establish the priority or secured or unsecured status of, any Claim,
including the resolution of any request for payment of any Administrative
Claim, and the resolution of any and all objections to the allowance or
priority of Claims (including any Administrative Claim and any Priority Tax
Claim);
2. Grant or deny any application for allowance of compensation
or reimbursement of expenses authorized pursuant to the Bankruptcy Code or the
Plan, for periods ending on or before the Effective Date;
3. Resolve any matters related to the assumption or rejection
of any executory contract or unexpired lease to which TCO is a party or with
respect to which TCO may be liable and to hear, determine and, if necessary,
Allow any Claim arising therefrom;
4. Decide or resolve any matter arising under the Claims
Estimation Procedures;
5. Resolve any determinations which may be requested by TCO or
Reorganized TCO of unpaid or potential tax liability or any matters relating
thereto under sections 505 and 1146(d) of the Bankruptcy Code, including tax
liability or such related
- 87 -
<PAGE> 539
matters for any taxable year or portion thereof ending on or before the
Effective Date;
6. Resolve any matters relating to distributions to holders of
Allowed Claims pursuant to the provisions of the Plan, including the assertion
of set-off rights by or against TCO;
7. Decide or resolve any motions, adversary proceedings,
contested or litigated matters and any other matters and grant or deny any
applications that may be pending on the Effective Date, that arise in or relate
to the Reorganization Case or the Plan;
8. Enter such orders as may be necessary or appropriate to
implement or consummate the provisions of the Plan and all contracts,
instruments, releases, indentures and other agreements or documents created in
connection with or referenced in the Plan or the Disclosure Statement;
9. Resolve any cases, controversies, suits or disputes that may
arise in connection with the consummation, interpretation or enforcement of the
Plan or any entity's obligations under or in connection with the Plan,
including determinations relating to the enforceability of the Columbia
Customer Guaranty, and the Columbia Guaranty and any disputes regarding
compensation for those post-Effective Date services referenced in Section
XII.A. hereof, except that such retention of jurisdiction shall not apply to
any cases, controversies, suits or disputes that may arise in connection with
FERC regulatory matters;
10. Modify the Plan before, on or after the Effective Date
pursuant to section 1127 of the Bankruptcy Code or modify the
- 88 -
<PAGE> 540
Disclosure Statement or any contract, instrument, release, indenture or other
agreement or document created in connection with the Plan or the Disclosure
Statement, or remedy any defect or omission or reconcile any inconsistency in
any Bankruptcy Court order, the Plan, the Disclosure Statement or any contract,
instrument, release, indenture or other agreement or document created in
connection with the Plan or the Disclosure Statement, in such manner as may be
necessary or appropriate to consummate the Plan, to the extent authorized by
the Bankruptcy Code;
11. Issue injunctions, enter and implement other orders or take
such other actions as may be necessary or appropriate to restrain interference
by any entity with consummation or enforcement of the Plan;
12. Enter and implement such orders as are necessary or
appropriate if the Confirmation Order is for any reason modified, stayed,
reversed, revoked or vacated;
13. Determine any other matters that may arise in connection
with or relate to the Plan, the Disclosure Statement, the Confirmation Order,
any Claim or any contract, instrument, release, indenture or other agreement or
document created in connection with the Plan or the Disclosure Statement; and
14. Enter a final decree closing the Reorganization Case.
XII. MISCELLANEOUS PROVISIONS
A. DISSOLUTION OF THE CREDITORS' COMMITTEE AND THE CUSTOMERS' COMMITTEE
The Customers' Committee will continue in existence after the
Effective Date, and the Professionals retained by the
- 89 -
<PAGE> 541
Customers' Committee may continue to be employed after the Effective Date, to
represent Customers' interests (a) with respect to any appeal taken from the
Confirmation Order, (b) by reviewing proposed settlements of Customer
Regulatory Claims held by Dissenting 3.2 Claimants, (c) such other activities
as agreed to by Reorganized TCO in its sole discretion and (d) by overseeing
the implementation of the Customer Settlement Proposal. At the conclusion of
the performance of its duties set forth in clauses (a), (b), (c) and (d), the
Customers' Committee shall dissolve. The Creditors' Committee will continue in
existence after the Effective Date, and the Professionals retained by the
Creditors' Committee may continue to be employed after the Effective Date, to
represent Unsecured Creditors' interests (a) with respect to any appeal taken
from the Confirmation Order or from the order approving the Initial Accepting
Producer Settlement Agreement, (b) by engaging or participating in those
matters referenced in Section VI.C hereof with respect to Producer Claims and
by reviewing proposed settlements of Disputed General Unsecured Claims, (c)
with respect to disputes involving the amount or timing of the distribution of
any Holdback Amount and (d) with respect to such other activities as agreed to
by Reorganized TCO in its sole discretion. At the conclusion of the
performance of its duties as set forth in clauses (a), (b), (c) and (d), the
Creditors' Committee shall dissolve. After the Effective Date, the Creditors'
Committee or the Customers' Committee may, in its discretion, dissolve upon
notice to Reorganized TCO. Upon such
- 90 -
<PAGE> 542
dissolution, the members of the Creditors' Committee or the members of the
Customers' Committee, as applicable, shall be released and discharged from all
rights and duties arising from or related to the Reorganization Case.
The Professionals retained by the Creditors' Committee and the
Customers' Committee and the members thereof shall not be entitled to
compensation or reimbursement of expenses for any services rendered after the
Effective Date, except for (a) services performed by the Creditors' Committee
and the Professionals retained by the Creditors' Committee after the Effective
Date as described in the preceding paragraph, (b) services performed by the
Customers' Committee and the Professionals retained by the Customers' Committee
after the Effective Date with respect to activities as agreed to by Reorganized
TCO in its sole discretion, or (c) services rendered and expenses incurred in
connection with any applications for allowance of compensation and
reimbursement of expenses pending on the Effective Date or Filed and served
after the Effective Date pursuant to Section VI.B.1. The Professionals
retained by the Creditors' Committee and the members of such Committee must
submit monthly bills to Reorganized TCO for such services and Reorganized TCO
shall pay all reasonable costs and expenses of such Committee members and all
reasonable fees and expenses of their Professionals. Any dispute regarding
compensation for such post-Effective Date services shall be determined by the
Bankruptcy Court.
- 91 -
<PAGE> 543
B. MODIFICATION OF THE PLAN
Subject to the restrictions on modifications set forth in section
1127 of the Bankruptcy Code, TCO reserves the right to alter, amend, modify or
supplement the Plan (but not the Customer Settlement Proposal or the Initial
Accepting Producers Settlement Agreement) before its substantial consummation;
provided, however, that no alterations, amendments, modifications or
supplements shall be made without the prior consent of Columbia and any other
parties whose consent is required under Section VIII hereof.
C. REVOCATION OF THE PLAN
TCO reserves the right to revoke or withdraw the Plan, with the prior
consent of Columbia, prior to the Confirmation Date. If TCO revokes or
withdraws the Plan, or if Confirmation does not occur, then the Plan shall be
null and void in all respects, and nothing contained in the Plan shall: (i)
constitute a waiver or release of any Claims by or against, or any Interests
in, TCO or Columbia, (ii) prejudice in any manner the rights of TCO or Columbia
or (iii) constitute an admission against TCO or Columbia.
D. SEVERABILITY OF PLAN PROVISIONS
If any term or provision of the Plan (excluding the Customer
Settlement Proposal and the Initial Accepting Producers Settlement Agreement)
is held by the Bankruptcy Court prior to or at the time of Confirmation to be
invalid, void or unenforceable, the Bankruptcy Court shall have the power to
alter and interpret such term or provision to make it valid or enforceable to
the
- 92 -
<PAGE> 544
maximum extent practicable, consistent with the original purpose of the term or
provision held to be invalid, void or unenforceable, and such term or provision
shall then be applicable as so altered or interpreted. In the event of any
such holding, alteration, or interpretation, the remainder of the terms and
provisions of the Plan may, at TCO's option, with the prior consent of
Columbia, remain in full force and effect and not be deemed affected, impaired
or invalidated by such holding, alteration or interpretation. However, TCO and
Columbia jointly and severally reserve the right not to proceed to Confirmation
or consummation of the Plan if any such ruling occurs. The Confirmation Order
shall constitute a judicial determination and shall provide that each term and
provision of the Plan, as it may have been altered or interpreted in accordance
with the foregoing, is valid and enforceable pursuant to its terms.
E. SUCCESSORS AND ASSIGNS
The rights, benefits and obligations of any entity named or referred
to in the Plan shall be binding on, and shall inure to the benefit of, any
heir, executor, administrator, successor or assign of such entity. From and
after the Voting Deadline, any heir, executor, administrator, successor or
assign of any Creditor who has voted to accept the Plan shall be bound to
accept the Plan and the treatment of such Creditor hereunder.
F. SERVICE OF DOCUMENTS ON TCO OR REORGANIZED TCO
Any pleading, notice or other document required by the Plan to be
served on or delivered to TCO or Reorganized TCO shall be sent by first class
U.S. mail, postage prepaid to:
- 93 -
<PAGE> 545
Columbia Gas Transmission Corporation
1700 MacCorkle Avenue, S.E.
Charleston, West Virginia 25314
Attention: James A. Jarrell
with copies to:
The Columbia Gas System, Inc.
20 Montchanin Road
Wilmington, Delaware 19807
Attention: Tejinder S. Bindra
Edmond M. Ianni
Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004-2696
Attention: Lewis Kruger
Robin E. Keller
Cravath, Swaine & Moore
825 Eighth Avenue
New York, New York 10019-7475
Attention: John F. Hunt
Young, Conaway, Stargatt & Taylor
11th Floor - Rodney Square North
P.O. Box 391
Wilmington, Delaware 19899-0391
Attention: James L. Patton, Jr.
G. PAYMENT AND WITHHOLDING OF TAXES
Except as otherwise specifically provided in the Plan, all
distributions made pursuant to the Plan shall, where applicable, be subject to
information reporting to appropriate governmental authorities and to
withholding of taxes.
- 94 -
<PAGE> 546
CONFIRMATION REQUEST
TCO hereby requests Confirmation of the Plan pursuant to Section
1129(a) of the Bankruptcy Code.
Dated: June 13, 1995
Charleston, West Virginia
Respectfully submitted,
COLUMBIA GAS TRANSMISSION
CORPORATION
By: /s/ James P. Holland
----------------------
James P. Holland
Chairman and Chief
Executive Officer
- 95 -
<PAGE> 547
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
- - ---------------------------------X
:
In re: : CHAPTER 11
:
COLUMBIA GAS TRANSMISSION : CASE NO. 91-804 (HSB)
CORPORATION, :
:
DEBTOR. :
- - ---------------------------------X
DISCLOSURE STATEMENT PURSUANT TO SECTION 1125
OF THE BANKRUPTCY CODE FOR THE SECOND AMENDED PLAN OF
REORGANIZATION OF COLUMBIA GAS TRANSMISSION
CORPORATION DATED JUNE 13, 1995
Respectfully Submitted,
STROOCK & STROOCK & LAVAN
Lewis Kruger
Robin E. Keller
Seven Hanover Square
New York, New York 10004-2594
(212) 806-5400
CRAVATH, SWAINE & MOORE
John F. Hunt
John E. Beerbower
825 Eighth Avenue
New York, New York 10019-7475
(212) 474-1000
YOUNG, CONAWAY, STARGATT & TAYLOR
James L. Patton, Jr.
11th Floor - Rodney Square North
P.O. Box 391
Wilmington, Delaware 19899-0381
(302) 571-6600
Co-Counsel for Debtor.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED BY THE BANKRUPTCY COURT FOR
CIRCULATION TO CREDITORS OR FOR USE IN THE SOLICITATION OF VOTES ON THE SECOND
AMENDED PLAN OF REORGANIZATION OF COLUMBIA GAS TRANSMISSION CORPORATION.
<PAGE> 548
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
B. Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1. The Debtor and its Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. The Problems that Led to the Chapter 11 Petitions . . . . . . . . . . . . . . . . 4
3. TCO's Business Operations and Financial Performance and Prospects . . . . . . . . 7
4. Obstacles to Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
a. Producer Claims Litigation . . . . . . . . . . . . . . . . . . . . . . . . 10
b. Intercompany Claims Litigation . . . . . . . . . . . . . . . . . . . . . . 13
c. Customer Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
d. IRS Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
e. Environmental Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 18
5. Proposed Settlements With Producers and Customers . . . . . . . . . . . . . . . . 19
a. The Producer Settlement Agreement and Settlement Offers . . . . . . . . . . 19
b. The Proposed Customer Settlement . . . . . . . . . . . . . . . . . . . . . 24
c. Other Unsecured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . 26
d. The Columbia Unsecured Claim . . . . . . . . . . . . . . . . . . . . . . . 27
6. The Cornerstone of the TCO Plan: The Columbia Omnibus Settlement . . . . . . . . 27
C. Distributions Under the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
D. Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
II. OVERVIEW OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A. Reorganized TCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
B. Summary of Description of Classes and Distributions . . . . . . . . . . . . . . . . . . . . . 1
TABLE OF SUMMARY DESCRIPTION OF CLASSES AND THEIR DISTRIBUTIONS . . . . . . . . . . . . . . . . . 6
1. Unclassified Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2. Secured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3. Unsecured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4. Assumed Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5. Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
III. BUSINESS ISSUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A. TCO's Pre-Bankruptcy Corporate Structure and Operations; Historical Industry Background . . . 1
B. Events Leading to the Filing of TCO's Reorganization Case . . . . . . . . . . . . . . . . . . 5
1. Gas Shortages and Reversal of Federal Gas Price Policies . . . . . . . . . . . . . . . . 5
2. Emergence of the Gas "Bubble" and the Effect on TCO . . . . . . . . . . . . . . . . . . 7
</TABLE>
(i)
<PAGE> 549
<TABLE>
<CAPTION>
Page
----
<S> <C>
3. The Advent of "Open Access" and "Unbundling" . . . . . . . . . . . . . . . . . . . 10
4. Further Federal Actions Affecting the Cost of Pipeline "Merchant" Gas . . . . . . 11
5. TCO's 1991 "Excess Supply Crisis" . . . . . . . . . . . . . . . . . . . . . . . . 12
IV. CURRENT AND FUTURE OPERATIONS; CUSTOMER AND UPSTREAM PIPELINE ISSUES AND SETTLEMENTS. . . . . . 1
A. TCO's Implementation of Order No. 636 Restructuring. . . . . . . . . . . . . . . . . . . . 1
1. General Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Procedural Status of TCO's Restructuring . . . . . . . . . . . . . . . . . . . . 3
3. Impact on TCO's Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4. Rate Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. Customer Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6. Upstream Pipeline Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7. Transition Cost Recovery Mechanisms . . . . . . . . . . . . . . . . . . . . . . . 14
a. Non-gas costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
b. Gas Costs and GSR Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 14
B. Regulatory Claims and Related Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 16
1. Customer Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2. Upstream Pipeline Supplier Claims . . . . . . . . . . . . . . . . . . . . . . . . 21
3. The Omnibus FERC Motion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4. Customer Contract Issues and Recoupment and Setoff Motions . . . . . . . . . . . . 27
5. The BG&E Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6. Order No. 94 Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7. TCO Rate Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
a. The 1990 Rate Case Settlement . . . . . . . . . . . . . . . . . . . . . . . 35
b. The 1991 Rate Case Settlement . . . . . . . . . . . . . . . . . . . . . . . 37
8. FERC Forum Litigation Generally . . . . . . . . . . . . . . . . . . . . . . . . . 38
C. Customer Settlement Proposal; Treatment of Regulatory and Other Customer
and Pipeline Claims under the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
D. Order No. 636 Implementation and Post-Confirmation Operations Generally. . . . . . . . . . 47
V. SUMMARY OF CLAIMS AND OTHER SIGNIFICANT ISSUES IN THE CHAPTER 11 CASE . . . . . . . . . . . . . 1
A. Producer Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
B. Estimation of Producer Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1. The Establishment of Claims Estimation Procedures . . . . . . . . . . . . . . . . . 2
2. Status of Claims Estimation Procedures . . . . . . . . . . . . . . . . . . . . . . . 6
a. General Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
b. Proceedings Relating to Contract Rejection Claims . . . . . . . . . . . . . . 7
c. Consideration of Non-rejection Producer Claims . . . . . . . . . . . . . . . . 16
</TABLE>
(ii)
<PAGE> 550
<TABLE>
<CAPTION>
Page
----
<S> <C>
3. The Claims Mediator's Initial Report on Generic Issues . . . . . . . . . . . . 17
C. The Settlement With Various Producers . . . . . . . . . . . . . . . . . . . . . . . . . 24
D. Settlement Offers for Remaining Producer Claims . . . . . . . . . . . . . . . . . . . . 26
E. Non-Producer Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
1. State and Local Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2. Accounts Payable/Trade Debt . . . . . . . . . . . . . . . . . . . . . . . . . 36
3. Miscellaneous Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4. Kentucky West Virginia Gas Company Claim . . . . . . . . . . . . . . . . . . . 37
5. IRS and Other Priority Tax Claims; Affiliate Tax Claims . . . . . . . . . . . 39
6. Pension Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7. Environmental Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
F. Miscellaneous Administrative Proceedings . . . . . . . . . . . . . . . . . . . . . . . 54
1. Commencement of the Case . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
2. First Day Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
3. Debtor in Possession Financing . . . . . . . . . . . . . . . . . . . . . . . . 55
4. Formation of Committees and Retention of Professionals . . . . . . . . . . . . 56
5. Extension of Exclusive Period to File Plan of Reorganization . . . . . . . . . 58
6. Motion for a Data Room . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
7. Assumption of Nonresidential Leases . . . . . . . . . . . . . . . . . . . . . 61
8. Cash Collateral Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
9. Appointment of Fee Examiner . . . . . . . . . . . . . . . . . . . . . . . . . 63
10. Procedures Relating to the Filing and Determination of Claims . . . . . . . . 64
a. Bar Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
b. Claims Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
c. Claim Objections Procedures . . . . . . . . . . . . . . . . . . . . . . 66
d. Removal/Filing of Claims . . . . . . . . . . . . . . . . . . . . . . . 66
G. Investment Guidelines Litigation and Other Investment Decisions . . . . . . . . . . . . 68
VI. THE COLUMBIA SYSTEM: PUBLIC UTILITY HOLDING COMPANY
ACT REGULATION, SYSTEM FINANCING, COLUMBIA'S CLAIM
AGAINST TCO AND THE INTERCOMPANY CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A. The Columbia System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. System Companies and Relationships with TCO . . . . . . . . . . . . . . . . . 1
a. Columbia Distribution Companies
(collectively, "CDC") . . . . . . . . . . . . . . . . . . . . . . . . . 1
b. Columbia Gulf Transmission Corporation ("Gulf") . . . . . . . . . . . . 2
c. Columbia Gas Service Corporation ("Columbia Service Corporation") . . . 2
d. Columbia Natural Resources, Inc. ("CNR"), and Columbia Gas
Development Corporation ("CGD") . . . . . . . . . . . . . . . . . . . 3
</TABLE>
(iii)
<PAGE> 551
<TABLE>
<CAPTION>
Page
----
<S> <C>
e. Columbia LNG Corporation ("Columbia LNG") . . . . . . . . . . . . . . . . . . . . . . . . 3
f. TriStar Ventures Corporation and Columbia Energy Services . . . . . . . . . . . . . . . . 3
2. Certain Shared Operation and Maintenance Services within the System . . . . . . . . . . . . . . 4
B. Regulation by the SEC Under the HCA of the Columbia System; HCA Regulation of Chapter 11
Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
C. Regulation by the SEC Under the HCA of External and Internal Columbia System Financings and of
Intra-System Sales and Service Contracts and Asset Transfers . . . . . . . . . . . . . . . . . . . . . . 6
1. System External and Internal Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2. SEC Regulation under the HCA of Intra-System Sales and Service Contracts and Asset Transfers . . 7
D. Claims of Columbia and its Other Subsidiaries against the TCO Estate . . . . . . . . . . . . . . . . . . 8
1. Columbia's Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
a. Secured Claims for Borrowed Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
b. Unsecured Claims for Borrowed Money . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
c. Unsecured Claims Arising Under Contractual Arrangements . . . . . . . . . . . . . . . . . 10
d. Miscellaneous Payable Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2. CNR's Claim for the East Lynn Condemnation Award . . . . . . . . . . . . . . . . . . . . . . . . 11
3. Other Columbia Subsidiaries' Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
E. The Intercompany Claims (Asserted on Behalf of the TCO Estate Against Columbia and CNR) . . . . . . . . . 11
1. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
a. TCO's 1985 Crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
b. Transfer of Natural Resource Properties from TCO to CNR . . . . . . . . . . . . . . . . . 14
(i) Initial Approval of Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(ii) Withdrawal of the Application . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(iii) Resubmittal of the Reorganization . . . . . . . . . . . . . . . . . . . . . . . . 16
(iv) The CNR Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2. The Intercompany Claims Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
a. Stipulation and Order Concerning Prosecution of the Intercompany Claims . . . . . . . . . 17
b. Intercompany Claims Litigation Proceedings . . . . . . . . . . . . . . . . . . . . . . . 18
(i) Allegations of Equitable Subordination . . . . . . . . . . . . . . . . . . . . . 18
(ii) Allegations Seeking Recharacterization of Debt as Equity . . . . . . . . . . . . 19
</TABLE>
(iv)
<PAGE> 552
<TABLE>
<CAPTION>
Page
----
<S> <C>
(iii) Allegations of Fraudulent Conveyances . . . . . . . . . . 19
(iv) Allegations of Voidable Reduction in Capital . . . . . . 20
(v) Allegations of Preferences . . . . . . . . . . . . . . . 20
c. Response of Columbia and CNR . . . . . . . . . . . . . . . . . . 20
3. Intercompany Claims Litigation Pretrial Matters . . . . . . . . . . . . 22
4. The Intercompany Claims Trial . . . . . . . . . . . . . . . . . . . . . 24
5. Summary of Creditors' Committee's Position . . . . . . . . . . . . . . . 25
6. Summary of Columbia's Analysis of the Intercompany Claims . . . . . . . 28
7. Settlement of the Intercompany Claims . . . . . . . . . . . . . . . . . 30
VII. PLAN TREATMENT OF CLAIMS AND SUMMARY OF OTHER PLAN PROVISIONS . . . . . . . . . . . . . . . 1
A. Classification and Treatment of Claims and
Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. Unclassified Claims . . . . . . . . . . . . . . . . . . . . . . . . . . 2
a. Administrative Claims . . . . . . . . . . . . . . . . . . . . . . 2
(i) Professional Claims . . . . . . . . . . . . . . . . . . . 2
(ii) Post-Petition Operational Claims . . . . . . . . . . . . 3
(iii) Assumed Executory Contract Claims . . . . . . . . . . . . 5
(iv) U.S. Trustee's Fee Claims . . . . . . . . . . . . . . . . 7
(v) Miscellaneous Administrative Claims . . . . . . . . . . . 7
(vi) Administrative Recoupment Claims . . . . . . . . . . . . 8
b. Priority Tax Claims . . . . . . . . . . . . . . . . . . . . . . . 9
c. East Lynn Condemnation Obligation . . . . . . . . . . . . . . . . 12
2. Classes of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
a. Class 1 Claims - Secured Claims . . . . . . . . . . . . . . . . . 12
(i) Class 1.1 - The DIP Facility Claims . . . . . . . . . . . 12
(ii) Class 1.2 - Secured Producer Claims . . . . . . . . . . . 13
(iii) Class 1.3 - Other Secured Claims . . . . . . . . . . . . 14
b. Class 2.1 Claim - The Columbia Secured Claim . . . . . . . . . . 15
(i) Interest on Inventory Loan Agreement . . . . . . . . . . 15
(ii) Interest on First Mortgage Bonds - Series A . . . . . . . 16
(iii) Interest on First Mortgage
Bonds - Series B, D, E and F . . . . . . . . . . . . . . . . . . 16
c. Class 3 Claims - Unsecured Claims . . . . . . . . . . . . . . . 18
</TABLE>
(v)
<PAGE> 553
<TABLE>
<CAPTION>
Page
----
<S> <C>
(i) Settlement Values and Allowance Amounts . . . . . . . . . . . . . . 18
(ii) Class 3.1 - Unsecured Claims of $25,000 or Less . . . . . . . . . . 21
(iii) Class 3.2 - Unsecured Customer Refund Claims and GRI Claims . . . . 23
(iv) Remaining Unsecured Claims . . . . . . . . . . . . . . . . . . . . 30
(a) Description of Remaining Unsecured Claims Classes . . . . 30
(b) Treatment of Remaining Unsecured Claims . . . . . . . . . 31
d. Class 4 Claims - Assumed Claims . . . . . . . . . . . . . . . . . . . . . . 39
(i) Class 4.1 Claims - Environmental Claims . . . . . . . . . . . . . . 39
(ii) Class 4.2 Claims - Certain
Condemnation Claims . . . . . . . . . . . . . . . . . . . . . . . . . 40
(iii) Class 4.3 Claims - Pension Claims . . . . . . . . . . . . . . . . . . 41
(iv) Class 4.4 Claims - Surety Bond Related Claims . . . . . . . . . . . 41
(v) Class 4.5 Claims - Affiliate Tax Claims . . . . . . . . . . . . . . . 42
e. Class 5 Interests - Common Stock of TCO . . . . . . . . . . . . . . . . . . 42
B. Mechanism for Quantifying Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
1. Producer Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
2. Disputed General Unsecured Claims . . . . . . . . . . . . . . . . . . . . . . . . 44
C. Transactions on the Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
D. Distributions Under the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
1. Distributions on Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
2. Delivery of Distributions and Unclaimed Distributions . . . . . . . . . . . . . . 48
a. Delivery of Distributions in General . . . . . . . . . . . . . . . . . . . 48
b. Unclaimed Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . 49
3. Means of Cash Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
4. Setoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
E. Settlement of Intercompany Claims Litigation . . . . . . . . . . . . . . . . . . . . . . . 51
F. Settlement of Customer Refund Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . 52
G. Settlement of 1990 Rate Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
H. Procedures For Establishing Allowed Claims And For Resolving Disputed Claims
- Bar Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
1. Bar Dates for Certain Administrative Claims . . . . . . . . . . . . . . . . . . . 54
a. Professional Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
b. Administrative Claims Arising From Rejection of Executory Contracts . . . . 55
c. Non-Ordinary Course, Non-Assumed Administrative Claims . . . . . . . . . . 56
2. Bar Date for Objections to Certain Non-Administrative Claims . . . . . . . . . . . 57
</TABLE>
(vi)
<PAGE> 554
<TABLE>
<CAPTION>
Page
----
<S> <C>
a. Claims Subject to the Claims Estimation Procedures . . . . . . . . . . . . . 57
b. Other Non-Administrative Claims . . . . . . . . . . . . . . . . . . . . . . . 57
3. Authority to Prosecute Objections . . . . . . . . . . . . . . . . . . . . . . . . . 57
4. Liquidation of Claims for Voting . . . . . . . . . . . . . . . . . . . . . . . . . . 58
I. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
1. Conditions to Confirmation and Effectiveness . . . . . . . . . . . . . . . . . . . . 58
a. Conditions to Confirmation . . . . . . . . . . . . . . . . . . . . . . . . . 59
b. Conditions to Effective Date . . . . . . . . . . . . . . . . . . . . . . . . 62
2. Assumption and Rejection of Executory Contracts . . . . . . . . . . . . . . . . . . 63
3. Continued Corporate Existence and Vesting of Assets in Reorganized TCO . . . . . . . 64
4. Corporate Governance, Directors and Officers; Compensation . . . . . . . . . . . . . 64
5. Dissolution of Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
6. Discharge, Termination, and Injunction . . . . . . . . . . . . . . . . . . . . . . . 68
7. Continuation of Retiree Program . . . . . . . . . . . . . . . . . . . . . . . . . . 69
8. Jurisdiction of the Bankruptcy Court . . . . . . . . . . . . . . . . . . . . . . . . 69
9. Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
10. Modification of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
11. Revocation of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
12. Severability of Plan Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . 71
13. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
14. Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
VIII. RISK FACTORS RELATING TO PLAN IMPLEMENTATION AND CREDITOR DISTRIBUTIONS . . . . . . . . . . . 1
A. Conditions to Confirmation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. Satisfaction of Confirmation Requirements of Section 1129/Cram-down . . . . . 1
2. Confirmation of the Columbia Plan . . . . . . . . . . . . . . . . . . . . . . 2
3. SEC Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4. No Material Adverse Changes to Plan Assumptions or Business . . . . . . . . 5
5. No Environmental Liability Claims . . . . . . . . . . . . . . . . . . . . . . 6
6. IRS Ruling on Deductibility of Producer Payments . . . . . . . . . . . . . . 6
7. Approvals of the Customer Settlement Proposal . . . . . . . . . . . . . . . . 7
8. Approval of Initial Accepting Producer Settlement Agreement . . . . . . . . . 9
9. Prohibition of Certain Revisions . . . . . . . . . . . . . . . . . . . . . . 10
10. Acceptance of Settlement Values by Producers . . . . . . . . . . . . . . . . 11
B. Conditions to Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1. Columbia's Plan of Reorganization Shall be Effective . . . . . . . . . . . . 12
</TABLE>
(vii)
<PAGE> 555
<TABLE>
<CAPTION>
Page
----
<S> <C>
2. No Stay of TCO's Confirmation Order . . . . . . . . . . . . . . . . . . . . . 12
3. No Material Adverse Changes to TCO's or Columbia's Business . . . . . . . . . 12
4. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5. Intercompany Claims Litigation . . . . . . . . . . . . . . . . . . . . . . . 13
C. Liquidation of General Unsecured Claims; Claims Allowance Process Generally . . . . 14
D. Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
E. Liabilities Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
IX. TAX ASPECTS OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A. Tax Consequences of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. Tax Consequences to TCO . . . . . . . . . . . . . . . . . . . . . . . . . . 1
a. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
b. Discharge of Indebtedness . . . . . . . . . . . . . . . . . . . . . . 2
c. Deduction for Payments . . . . . . . . . . . . . . . . . . . . . . . . . 4
2. Tax Consequences to the TCO Creditors other
than Columbia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3. Tax Ruling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. Importance of Obtaining Professional Tax
Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
B. Assumption of Tax Allocation Agreement . . . . . . . . . . . . . . . . . . . . . . 7
X. VOTING PROCEDURES AND CONFIRMATION REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . 1
A. Confirmation Hearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
B. Confirmation Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. Best Interests Test . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3. Feasibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. The Plan must Comply with the Applicable Provisions of the
Bankruptcy Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
a. Classification . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
b. Other Plan Provisions . . . . . . . . . . . . . . . . . . . . . . . 14
5. TCO must Comply with the Applicable Provisions of the
Bankruptcy Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6. Any Governmental Regulatory Commission Having
Jurisdiction over TCO's Rates Must Have Approved
Any Rate Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7. Alternatives to the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 19
a. Cramdown Requirements . . . . . . . . . . . . . . . . . . . . . . . . 19
b. Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
C. Voting Procedures and Requirements . . . . . . . . . . . . . . . . . . . . . . . . . 22
1. Voting Requirements - Generally . . . . . . . . . . . . . . . . . . . . . . 22
2. Elections by Certain Creditors . . . . . . . . . . . . . . . . . . . . . . . 26
a. Elections by Holders of Producer Claims . . . . . . . . . . . . . . . . . . . 26
b. Elections by Disputed General Unsecured Claims . . . . . . . . . . . . . . . 26
c. Elections by Holders of Customer Regulatory Claims and GRI Claim . . . . . . 27
</TABLE>
(viii)
<PAGE> 556
<TABLE>
<CAPTION>
Page
----
<S> <C>
d. Elections by Holders of Unsecured Claims with Allowed
Claims in Excess of $25,000 . . . . . . . . . . . . . . . . . . . . . . . . . 28
XI. FINANCIAL PROJECTIONS, PRO FORMA FINANCIAL STATEMENTS, AND LIQUIDATION ANALYSIS . . . . . . . . . . 1
A. Financial Analysis of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
B. Recapitalization Post-Emergence/Feasibility . . . . . . . . . . . . . . . . . . . . . . . 5
C. Financial Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1. Throughput . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2. Successful implementation of Order No. 636 . . . . . . . . . . . . . . . . . . . 11
3. Environmental liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4. Cost of capital financing . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5. Regulatory Lag . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6. Upstream Pipeline Order No. 94 Costs . . . . . . . . . . . . . . . . . . . . . . 13
7. Customer Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8. Majorsville/Heard Storage Facilities . . . . . . . . . . . . . . . . . . . . . . 14
9. Market Expansion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
10. Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
D. Capital Structure and Other Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
E. Pro Forma Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
F. Liquidation Analysis/Best Interests Test . . . . . . . . . . . . . . . . . . . . . . . . 17
1. Estimated Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 18
2. Deductions from Liquidation Fund . . . . . . . . . . . . . . . . . . . . . . . . 22
3. Creation of Additional Claims . . . . . . . . . . . . . . . . . . . . . . . . . 22
4. Timing of the liquidation process . . . . . . . . . . . . . . . . . . . . . . . 24
5. Distributions; absolute priority . . . . . . . . . . . . . . . . . . . . . . . . 25
XII. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
</TABLE>
(ix)
<PAGE> 557
I. SUMMARY
A. INTRODUCTION
On July 31, 1991, Columbia Gas Transmission Corporation ("TCO") (1) and
its parent company, The Columbia Gas System, Inc. ("Columbia"), each filed
voluntary petitions for reorganization under Chapter 11 of title 11 of the
United States Code, 11 U.S.C. Sections 101, et seq. (the "Bankruptcy
Code"). On January 18, 1994, TCO filed its original plan of reorganization dated
January 18, 1994 (the "1994 Plan") and a Disclosure Statement relating thereto
(the "1994 Disclosure Statement"), but did not proceed to schedule hearings on
that plan because of its stated intention to conduct further negotiations with
its creditors regarding their treatment under the 1994 Plan. In recent months,
intensive negotiations with major Producer Creditors and Customer Creditors have
finally culminated in consensual agreements regarding the treatment of Customer
and Producer Claims and the proposed resolution of extensive litigation with
both constituencies. On April 17, 1995, TCO filed its Amended Plan of
Reorganization dated April 17, 1995 and an accompanying Disclosure Statement.
Simultaneously with the filing of this Disclosure Statement, TCO filed
its Second Amended Plan of Reorganization dated June 13, 1995 (the "Plan"),
which documents amend the
- - -------------------
1 Terms not otherwise defined in this Section I shall have the
meanings ascribed to them in the Plan or in subsequent Sections
of this Disclosure Statement, or in the Bankruptcy Code and/or
Bankruptcy Rules.
I-1
<PAGE> 558
documents filed on April 17, 1995, primarily to make certain conforming changes
to the Initial Accepting Producer Settlement Agreement executed on or about
April 14, 1995 (as more fully discussed below), and to reflect comments and
requests for clarification from TCO's and Columbia's Committees and other
parties-in-interest. Columbia is a co-proponent of the Plan, subject to
Bankruptcy Court and other approvals in its own Reorganization Case.
On April 17, 1995, Columbia filed a plan of reorganization and on June
13, 1995, Columbia filed its Amended Plan of Reorganization (the "Columbia
Plan"), which contains a comprehensive structure for the recapitalization of
Columbia. The Columbia Plan embodies the Columbia Omnibus Settlement (more fully
described below) which is integral to TCO's Plan.
TCO believes that most of its significant Producer and Customer
Creditors support the Plan and strongly desire TCO's emergence from Chapter 11
and the effectiveness of this Plan prior to the end of 1995.
This Disclosure Statement is submitted by TCO in connection with its
solicitation of acceptances of the Plan. The following Executive Summary is
intended to highlight key aspects of the Reorganization Case and the proposed
Plan, and is not intended in any way to substitute for a complete review of the
Plan and the balance of this Disclosure Statement.
I-2
<PAGE> 559
B. EXECUTIVE SUMMARY
1. THE DEBTOR AND ITS BUSINESS
TCO owns and operates a 19,000 mile natural gas ("gas") transmission
pipeline network and related extensive underground gas storage fields that serve
parts of thirteen states in the Northeastern, Mid-Atlantic, Midwestern and
Southeastern regions of the United States and the District of Columbia. TCO's
Customers are various affiliated and unaffiliated gas distribution companies,
gas marketers, producers and end users of gas. Its rates, charges, services and
facilities are subject to regulation by the Federal Energy Regulatory Commission
("FERC"), primarily pursuant to the Natural Gas Act, 15 U.S.C. Sections
717, et seq. ("NGA").
TCO is a wholly-owned subsidiary of Columbia, which is a registered
public utility holding company under the Public Utility Holding Company Act of
1935, as amended, 15 U.S.C. Sections 79, et seq. ("HCA").
Columbia's seventeen other operating subsidiaries are engaged in the
exploration, production, marketing, transmission and distribution of natural
gas, other energy ventures such as cogeneration and energy-related business and
other specialized services. Pursuant to the HCA, Columbia's external and
intercompany financing activities, including certain transactions contemplated
by the Plan, and certain of its intercompany contractual relationships and
various other matters are regulated by the Securities and Exchange Commission
("SEC").
I-3
<PAGE> 560
Prior to the mid-1980s, TCO operated principally as a "merchant" of
gas, purchasing gas from Producers and other pipeline companies and reselling it
to distribution companies. Thereafter and until November 1, 1993, consistent
with a series of significant changes occurring in federal regulatory policy,
TCO's "merchant" activities declined and a steadily increasing portion of its
business consisted of transporting gas owned by others and providing gas storage
services for its Customers. Since November 1, 1993, following a fundamental
change in the gas industry brought about by FERC under its Order No. 636, TCO no
longer conducts significant gas merchant activities and is presently almost
entirely engaged in the business of transporting and storing gas for its
Customers.
2. THE PROBLEMS THAT LED TO THE CHAPTER 11 PETITIONS
In 1984-85, TCO and Columbia had attempted to solve permanently TCO's
business problems through a major settlement with TCO's Customers and a massive
buydown of TCO's high-priced, high-volume gas supply contracts. The success of
that effort, however, was hampered by several unexpected market and regulatory
developments over the subsequent years.
In 1986, gas prices declined precipitously, contrary to predictions by
both government and industry. In early 1990, prices on the spot market again
declined sharply and in early 1991, fell below $1.25/mcf. In addition, TCO's
service area experienced six consecutive warmer-than-normal winters, reducing
demand, as well as price, and permitting TCO's Customers to take
I-4
<PAGE> 561
advantage of FERC's new "open access" policy, whereby pipeline capacity was made
available to wholesale and industrial Customers to transport gas purchased from
Producers. The increased availability of transportation allowed Customers to
satisfy much of their weather-reduced demand with spot market purchases,
replacing sales of TCO's own gas.
The resulting business problems of TCO were exacerbated by FERC's
decision to address only one side of the market disequilibrium. FERC relieved
Customers of their commitment to purchase from pipelines, but it did not relieve
pipelines of their obligations to supply Customers' needs or their contractual
obligations to purchase gas from producers. Then, in 1989, the Natural Gas
Wellhead Decontrol Act was enacted, providing for deregulation of natural gas
that had been deemed "forever regulated." As a consequence, TCO contracts that
had previously been considered low-cost sources of supply became potential
financial burdens. In addition, certain producers with contracts that had become
high-priced, as market prices fell, or that were expected to become high-priced
as a result of the 1989 Decontrol Act aggressively engaged in development
activities under those contracts, increasing the volumes of gas TCO would be
required to purchase. TCO was also beset by other disappointing court and
regulatory decisions.
TCO's financial condition and prospects deteriorated in 1991 as the
record warm weather that had begun in early 1990 continued. The spot market had
become TCO's primary competition
I-5
<PAGE> 562
and declines in the current (and projected future) spot market prices undercut
the bases for TCO's revenue projections for 1991 and several years thereafter.
TCO's sales volumes fell to approximately 10% of throughput, and TCO's storage
capacity became severely overburdened. Even some market-responsive contracts
became burdensome as price adjustments lagged behind declining market prices.
In May 1991, Columbia reported that the effects of the warm weather
were likely to depress TCO's financial performance for the next year or more;
that TCO was likely to incur take-or-pay liability in 1991; that actions in
addition to the contract buydown program announced in 1990 would be required to
bring TCO's gas prices to marketable levels; and that, if current low future
price projections continued, meaningful changes in TCO's merchant function would
be critical to its successful future financial performance. On May 15, Columbia
reported that the TCO problems and possible responses were under intense study
in light of changing current and prospective market conditions.
On June 19, 1991, Columbia announced that its Board of Directors had
determined that, in light of the further studies of TCO's problems, Columbia
would continue to support TCO only if a comprehensive approach representing a
permanent solution to the producer contract problem was implemented. Columbia
simultaneously announced a $600 million plan to renegotiate all of TCO's
above-market contracts. Columbia also reported that the present value of the
losses associated with those contracts,
I-6
<PAGE> 563
if not reformed, could exceed $1 billion, a substantial portion of which was
likely to be charged to second quarter income, and that if the contracts could
not be renegotiated or credit lines could not be maintained, Columbia, TCO or
both might be forced to file bankruptcy petitions.
Columbia immediately initiated negotiations with its banks in an effort
to reestablish lines of credit that were interrupted by the June 19
announcement, and TCO promptly proposed a comprehensive producer settlement plan
(the "PSP") offering $600 million to buy out producers' over-market contracts
and settle other contractual disputes. Progress was made in both areas of
negotiation. However, agreements could not be concluded before TCO's and
Columbia's available cash resources were substantially exhausted, forcing both
to seek Chapter 11 protection on July 31, 1991. Further discussion of the
Debtor's business background and the events leading to Chapter 11 is contained
in Section III of this Disclosure Statement.
3. TCO'S BUSINESS OPERATIONS AND FINANCIAL PERFORMANCE
AND PROSPECTS
Subsequent to the filing of its Chapter 11 petition, TCO rejected, as
permitted by the Bankruptcy Code, more than 4,800 gas purchase contracts.
Rejection of the above-market-price contracts enabled TCO to purchase
market-priced gas, allowing TCO to effectively perform its merchant function.
Subsequently, as of November l, 1993, TCO successfully implemented a major
restructuring of its transportation and storage services under
I-7
<PAGE> 564
FERC's Order No. 636. In essence, the implementation of Order No. 636
restructuring requirements effectively eliminated any residual role of pipelines
as merchants of natural gas, and provided specific directives and mechanisms to
pipelines to buy-out or otherwise terminate their gas contract liabilities.
As a result of the successful implementation of restructured operations
as well as the termination of over-market gas contracts, TCO has recorded
substantial operating profits and projects having a cash balance of
approximately $1.4 billion as of December 31, 1995. TCO expects to continue to
operate profitably in the future by providing an array of competitively-priced,
FERC-approved transportation and storage services to current and prospective
Customers.
Regulated natural gas pipelines have the right to recover their costs
associated with complying with the requirements of Order No. 636 from their
Customers, including costs associated with reformation or termination of gas
purchase contracts. However, FERC has determined that, with minor exceptions,
TCO is not eligible to recover costs arising from its rejection of Producers'
gas supply contracts. The ultimate level of TCO's other recoupable transition
costs, which are a significant component of TCO's enterprise value, are
currently the subject of litigation before the FERC, which will be substantially
resolved through the Customer Settlement Proposal more fully discussed in
Section IV.C. below.
I-8
<PAGE> 565
Since the inception of its Reorganization Case, TCO has incurred
substantial reorganization fees which are expected to total approximately $100
million by December 31, 1995. Moreover, the largest Claims against the TCO
Estate for money borrowed are held by Columbia and are secured by substantially
all of TCO's assets. This indebtedness bears interest at rates substantially
higher than those earned by TCO on its excess cash because of limitations on
TCO's temporary investments imposed by the Bankruptcy Code. TCO's secured
interest obligations has exceeded its interest earnings on its cash available
for debt service by an amount exceeding $467 million (excluding interest
earnings on the East Lynn Condemnation Award) when projected to December 31,
1995.
4. OBSTACLES TO REORGANIZATION
In contrast to the situation of many other Chapter 11 debtors,
reorganization of TCO has not been hampered by unprofitable or marginal business
operations. Rather, in TCO's case the achievement of the Chapter 11 objective of
reorganization has been hindered primarily by the enormous size and complexity
of the Disputed Claims filed against it by Producer Creditors, by extensive
litigation over the amount and priority of Customer Refund Claims and TCO's
ability to recover costs from its Customers, and by the litigation against
Columbia brought by the Creditors' Committee (and joined by the Customers'
Committee) on TCO's behalf.
I-9
<PAGE> 566
a. PRODUCER CLAIMS LITIGATION
The Producer counterparties to the rejected gas purchase contracts
filed Claims for rejection damages in excess of $13 billion, which amount TCO
believes, based on its own analysis and its review of the court-appointed Claims
Mediator's Initial Report and Recommendations on Generic Issues for Natural Gas
Contract Claims dated October 13, 1994 and the Supplement to Initial Report and
Recommendations of the Claims Mediator dated February 17, 1995 (collectively,
the "Claims Mediator Report") is many times greater than the actual allowable
level of those Claims. Producers also filed other Claims based on pre-petition
contractual disputes relating to pricing, take-or-pay obligations and other
issues in amounts often significantly in excess of TCO's estimates of its
liabilities with respect to such disputes.
Efforts to liquidate Producer Claims commenced with the initial filing
by TCO in May, 1992 of an Estimation Motion and objections to those Claims. The
objective of TCO's Estimation Motion was, among other things, to establish a
consistent methodology for calculating contract rejection and other Producer
Claims which had been filed based on widely differing underlying assumptions.
The Bankruptcy Court entered a procedural order that provided for (i) the
appointment of the Claims Mediator, (ii) initial resolution of issues generic to
all or large categories of gas supply contract Claims and (iii) subsequent
resolution of issues specific to particular rejected
I-10
<PAGE> 567
gas supply contracts. By agreement confirmed by order of the Bankruptcy Court,
Charles Normandin, Esq. was appointed Claims Mediator, and John Norris, Esq. was
appointed to advise Mr. Normandin with respect to the natural gas law aspects of
the proceedings.
Extensive evidentiary hearings before the Claims Mediator with respect
to generic issues relating to the recalculation of both Contract Rejection
Claims and Non-rejection Claims were conducted over the next two years,
concluding in the first quarter of 1995. Preliminary hearings and discovery also
occurred on TCO's proposal of a market reserves methodology to calculate
Contract Rejection Claims.
In connection with the Claims Mediator Report, Mr. Normandin generated
forms for the recalculation of Producer Claims and distributed them to Producer
Creditors. Mr. Normandin sent out a notice on April 20, 1995, extending the date
for submission of recalculated Claims forms to June 30, 1995, and deferring
until further notice the hearings on TCO's proposed market reserves methodology.
The Producer Settlement Motion (as defined below) requests that the Claims
Estimation Procedures be suspended until the Bankruptcy Court rules on the
Producer Settlement Motion, after which TCO, the Creditors' Committee and the
Claims Mediator be directed to consider what further Claims Estimation
Procedures are needed and, if so, recommend proposed procedures and a schedule
to the Bankruptcy Court.
I-11
<PAGE> 568
It is apparent simply from the application of a discount rate, and the
imposition of the obligation to mitigate, both of which principles are clearly
recognized and mandated in the Claims Mediator Report, that Producers' filed
Claims will be substantially reduced upon recalculation. The major unresolved
issues as to Producer Claims levels include the allowable volumes of proven
undeveloped reserves that may be shown to have been dedicated to the rejected
contracts, certain contract-specific pricing issues (the ultimate determination
of which could materially affect certain Creditors' Claims levels) and the
application of TCO's "market value of reserves" approach to the calculation of
rejection damages.
It is also apparent that litigation over these disputed issues, both
between TCO and Producers and among Producers, will result in a further
prolonged estimation process. As more fully discussed below, TCO and a number of
the largest Producers who have agreed to settle their Claims in connection with
this Plan (the "Initial Accepting Producers"), believe it is in the best
interest of the Estate and its Creditors to set forth the following proposed
structure and mechanisms for resolving Claims, thereby permitting a prompt and
substantial distribution to all settling Creditors. Further discussion of
Producer and other non-Customer Claims is set forth in Section V of this
Disclosure Statement.
I-12
<PAGE> 569
b. INTERCOMPANY CLAIMS LITIGATION
To avoid possible conflicts of interest and with the approval of
Columbia and of the Bankruptcy Court, TCO assigned to its Creditors' Committee
early on in its Chapter 11 Case the right to assert challenges to Columbia's
Claims against TCO and to bring possible avoidance actions under the Bankruptcy
Code against Columbia and other subsidiaries of Columbia. The Creditors'
Committee brought an action (later joined in by the Customers' Committee)
against Columbia and one of its other subsidiaries, Columbia Natural Resources,
Inc. ("CNR"), seeking to recharacterize as equity, or to subordinate, debt
claims held by Columbia against TCO, to reclaim various payments made by TCO to
Columbia in respect of its investments in TCO and to set aside the transfer by
TCO to CNR of various oil, gas and coal properties allegedly made for inadequate
consideration and at a time when TCO allegedly was insolvent or did not have
sufficient capital (the "Intercompany Claims").
On May 13, 1994, Bankruptcy Judge Balick filed a sua
sponte motion to the United States District Court for the District of
Delaware seeking withdrawal of the jurisdictional reference on the Intercompany
Claims, which motion was granted on May 25, 1994. On September 12, 1994,
District Judge Farnan commenced a six-week trial on the Creditors' and
Customers' Committees' complaints, which concluded on October 25, 1994. Judge
Farnan has announced that he would issue his decision around June 1, 1995.
However, Columbia and the TCO Committees which are
I-13
<PAGE> 570
plaintiffs in the Intercompany Claims Litigation have asked Judge Farnan to
defer ruling pending further proceedings on the proposed reorganization plans.
TCO and Columbia have analyzed the extensive record generated in the
trial in valuing the Intercompany Claims and developing their proposed
settlement. Regardless of the parties' views of the ultimate outcome should
Judge Farnan rule, extensive appellate litigation likely would ensue and further
delay the reorganization process. Further discussion of the Intercompany Claims
Litigation is set forth in Section VI of this Disclosure Statement.
c. CUSTOMER DISPUTES
TCO's status as a regulated gas transmission company under the NGA has
brought into the bankruptcy forum creditors' rights issues involving its
Customers which were greatly complicated by public law considerations arising
under the NGA. Both TCO and its Customers have recognized the existence of
issues as to the propriety of treating Refund Claims on a pari passu level with
other pre-petition Unsecured Claims. Customers have asserted trust fund,
recoupment and setoff theories as a basis for elevating their Claims to a
higher payout priority. The litigation surrounding these Claims has also been
prolonged and contentious. However, discussions begun during the last half of
1994 have resulted in a broad-based agreement to resolve Customer regulatory
issues, which agreement has been embodied in a Stipulation which has been
presented to FERC for approval. In
I-14
<PAGE> 571
TCO's view, this agreement significantly benefits TCO's Estate and its other
Creditors by defining the level and priority of TCO's liabilities to its
Customers, and providing certainty to TCO's ability to recover substantial costs
from its Customers.
i. FLOW-THROUGH REFUNDS
Shortly after the commencement of the Reorganization Case, TCO moved
the Bankruptcy Court for permission to honor its obligations under the NGA to
flow through to its Customers refunds received by TCO from upstream pipeline
suppliers.
The Creditors' Committee opposed TCO's motion and asserted that all
Refund Obligations should be treated as Unsecured Claims. The legal issues were
litigated until the Supreme Court of the United States denied the Creditors'
Committee's petition for certiorari, thereby affirming the decision of the
United States Court of Appeals for the Third Circuit, which affirmed the
Bankruptcy Court's conclusions that (i) Refund Obligations to Customers arising
from TCO's post-petition refund collections from upstream pipelines must be
passed on to Customers in accordance with the NGA and (ii) Refund Obligations
arising from TCO's pre-petition refund collections must be passed on to its
Customers but only to the extent of TCO's "lowest intermediate cash balance"
(deemed to be a "trust fund" and calculated at approximately $3.3 million) in
the interval between the collections and the filing of the Chapter 11 petition.
As a result, TCO believes the remainder of such obligations with respect to
pre-petition collections have the status of Unsecured
I-15
<PAGE> 572
Claims; however, Customers have asserted rights to recoup and/or setoff such
amounts, thereby seeking to achieve a one hundred percent recovery of those
Claims from the TCO Estate, possibly with post-petition interest.
ii. THE BALTIMORE GAS AND ELECTRIC CLAIMS
On June 24, 1994, the United States Court of Appeals for the District
of Columbia ruled on a long-standing appeal by Customers of a FERC determination
that TCO is entitled to recover from its Customers charges paid by TCO to its
upstream pipeline suppliers totalling in excess of $122 million in principal
amount, plus interest. The matter was remanded to the FERC for a determination
as to the amount of refunds owed by TCO to its Customers, and such proceedings
have been initiated in accordance with FERC orders on the matter. Customers have
asserted an entitlement to recover the full amount, plus pre-and post-petition
interest, and have asserted recoupment and/or setoff rights entitling them to
one hundred percent recoveries of the BG&E Claims as well.
iii. TCO'S 1990 RATE CASE SETTLEMENT
(NGA SECTION 4(e))
In 1990, TCO filed with FERC proposed higher rate levels and, as
provided by the NGA, on November 1, 1990 began to collect such higher rates from
its Customers subject to an obligation to refund to them with FERC prescribed
interest, any portion of such higher collections determined to be in excess of
"just and reasonable" rates. The pre-petition and post-petition collections
subject to refund total approximately $135 million,
I-16
<PAGE> 573
of which approximately two-thirds relate to pre-petition periods. A settlement
of this rate case has been negotiated and approved by FERC, but the Bankruptcy
Court has denied TCO authority to implement the settlement because of the
pre-petition component. If settlement authority is granted on appeal, it would
establish TCO's refund obligations at approximately $58.5 million for the
pre-and post-petition periods plus FERC-prescribed interest to the date of
payment. Again, Customers have asserted recoupment and/or setoff rights for the
1990 Rate Case refunds.
iv. TCO'S ENTITLEMENTS TO RECOVERIES FROM ITS CUSTOMERS
The levels of recoveries by TCO from its Customers of previously
unrecouped gas and non-gas costs and of costs incurred to terminate its
obligations to upstream pipelines (the "FERC Receivables") are significant and
are the subject of contested proceedings pending before FERC. Further discussion
of Customer Claims, FERC regulatory issues, and the Customer Settlement Proposal
is contained in Section IV of this Disclosure Statement.
d. IRS CLAIM
The Internal Revenue Service filed against TCO and Columbia a priority
income tax liability Claim for approximately $553 million. On October 12, 1994,
the Bankruptcy Court entered an order, which has become final, approving a
settlement agreement between TCO, Columbia (and its other subsidiaries which
comprise the consolidated tax reporting group) and the IRS resolving all
I-17
<PAGE> 574
pre-petition priority tax claim issues. Under the settlement agreement and in
accordance with the Tax Allocation Agreement, which is expected to be assumed by
TCO under the Plan, TCO is obligated to pay the IRS' Allowed Claim of $134.6
million together with interest thereon computed at the rate of 4.5% from July
31, 1991 (or approximately $29.6 million as of December 31, 1995). However,
because of deductions and interest refunds which TCO is entitled to receive in
post-petition years, the net cost to TCO of the IRS settlement is approximately
$76.8 million including interest. Further discussion of the IRS Claim and
Settlement is contained in Section V.E.5 of this Disclosure Statement.
e. ENVIRONMENTAL LIABILITIES
TCO, like most other pipeline companies, is subject to environmental
liabilities arising from its past operations and will incur future costs to
bring all of its operations into compliance with current environmental
protection standards.
On November 16, 1994, the Bankruptcy Court approved three settlements,
between TCO, the EPA, the Kentucky Natural Resources and Environmental
Protection Cabinet and the Pennsylvania Department of Environmental Resources,
which settlements address TCO's environmental assessment and remediation
obligations and/or penalty obligations under Federal law and the laws of
Pennsylvania and Kentucky. These Settlement Agreements are binding on
Reorganized TCO, and contemplate a long-term program of assessment and
remediation, the costs of
I-18
<PAGE> 575
which Reorganized TCO will incur. Further discussion of environmental issues is
contained in Section V.E.7 of this Disclosure Statement.
5. PROPOSED SETTLEMENTS WITH PRODUCERS AND CUSTOMERS
` From the early months of these Chapter 11 Cases, TCO and Columbia have
endeavored to identify and settle their differences with Producer Creditors and
TCO's Customer constituency.
These efforts have included:
- extensive, comprehensive valuations of the TCO Estate
by the Debtors' financial advisors;
- numerous meetings with Producer and Customer groups
wherein TCO explained its views and judgments on
values available to satisfy Creditor Claims, and the
likely allowable magnitude of those claims;
- the Filing of the 1994 Plan; and
- TCO's voluntary deferral of further proceedings on the
1994 Plan pending further discussions with Producers,
mediation sessions in the Claims Estimation
Procedures, and continuing settlement efforts with
Customers.
Substantial progress has been achieved in reaching settlements with Producers
and Customers in recent months.
a. THE PRODUCER SETTLEMENT AGREEMENT AND SETTLEMENT OFFERS
After years of effort to find a common ground for resolving the
calculation of Producer Claims and determining the level of asset values
available to satisfy those Claims, TCO, Columbia, and the Initial Accepting
Producers, representing in the aggregate over 80% in amount of TCO's proposed
Original
I-19
<PAGE> 576
Settlement Values for Producer Claims, have reached a settlement subject to
confirmation of the Plan, which forms the basis for the treatment of Producers
in this Plan. A list of the Initial Accepting Producers and the Original
Settlement Values proposed for their Producer Claims are set forth on Schedule
I-B(1) to the Plan.
TCO, Columbia and the Initial Accepting Producers entered into a
Producer Agreement To Settle Claims Subject to Plan of Reorganization, dated as
of April 14, 1995 (the "Initial Accepting Producer Settlement Agreement"), a
copy of which is annexed to the Plan as Exhibit "G." On April 27, 1995, TCO and
Columbia filed a motion (the "Producer Settlement Motion") with the Bankruptcy
Court seeking an order approving the Initial Accepting Producer Settlement
Agreement. A hearing on the Producer Settlement Motion is scheduled before the
Bankruptcy Court for June 15 and 16, 1995. The Initial Accepting Producer
Settlement Agreement provides for the Initial Accepting Producers' Claims to be
Allowed in a total amount of $1.329 billion, and to be paid, if the Plan is
confirmed, (assuming 100% acceptance of Claims settlement offers by all
Producers) 72.5% or $963.5 million, and in the event of less than 100%
acceptance, not less than 68.875% or $915.3 million.
The Initial Accepting Producer Settlement Agreement and the Original
Settlement Values embodied in the Plan are based on a settlement concept the key
features of which include (i) the proposal of settlement offers to all other
Producers of
I-20
<PAGE> 577
Settlement Values for their Claims derived by TCO in consultation with the
Creditors' Committee, which Settlement Values TCO, the Initial Accepting
Producers and the Creditors' Committee believe to be fair; (ii) a target payout
of 72.5% of Allowed Producer Claims and a guarantee by TCO and Columbia of at
least 95% of such target payout (or 68.875% of Allowed Claims), (iii) some
sharing between Producers and TCO of the risk that non-settling Producers would
achieve Allowed Claims at higher levels than their proposed Original Settlement
Values, and (iv) a guarantee by TCO and Columbia in the Plan that non-settling
Producers would also receive at least the same percentage payout as the settling
Producers on their Allowed Claims when ultimately liquidated.
In the Initial Accepting Producer Settlement Agreement, TCO, Columbia
and the Initial Accepting Producers have agreed to the Allowable amounts of the
Initial Accepting Producers' Claims. Further, each Initial Accepting Producer
has agreed to support TCO's proposed Original Settlement Values (or any other
amount agreed to by TCO and such other (unaffiliated) Producers and approved by
the Bankruptcy Court) for the Allowable amounts of all other Producer Claims,
and to otherwise support the Plan. Each Initial Accepting Producer has also
agreed to support any adjournments requested by TCO, Columbia and the Creditors'
Committee of the ruling on the Intercompany Claims Litigation or of the Claims
Estimation Procedures.
I-21
<PAGE> 578
In consideration of the foregoing agreements, TCO and Columbia agreed
to file plans of reorganization incorporating the terms of the Initial Accepting
Producer Settlement Agreement and to use their best efforts to confirm and
consummate such plans prior to year-end, but in any event not later than June
28, 1996. TCO and Columbia have also agreed not to amend such plans of
reorganization in any way which would be materially and adversely inconsistent
with the Initial Accepting Producer Settlement Agreement.
The Initial Accepting Producer Settlement Agreement may be declared
null and void if it is not approved by an order of the Bankruptcy Court by
October 31, 1995. The Initial Accepting Producer Settlement Agreement may also
terminate at the option of the non-breaching party in certain other
circumstances, including the failure of TCO to consummate the Plan on or before
June 28, 1996, the dismissal of TCO's Reorganization Case, the conversion of
TCO's Reorganization Case to a Chapter 7 proceeding or the failure of TCO to
obtain a ruling from the IRS regarding the deductibility of certain payments to
Producers under the Plan by December 15, 1995, unless TCO and Columbia waive
this condition as a condition to Confirmation and/or the Effective Date prior to
December 31, 1995.
The Plan proposes specific, individual Settlement Values for all
Producer Claims that have not already been settled or Allowed (the "Original
Settlement Values"). These proposed quantifications of Claims for allowance were
developed by TCO in
I-22
<PAGE> 579
consultation with the Creditors' Committee based on a comprehensive methodology
which reflects the application of various assumptions and principles on a
consistent basis for all such Claims, generated with due consideration of the
Claims Mediator Report, and with consideration of significant Claim-specific
issues where appropriate. If all Producers accept their Original Settlement
Values, the Plan assures distributions of nearly $1.2 billion in cash to holders
of Producer Claims.
By accepting the proposed Settlement Values, Producers agree to
compromise certain positions they might otherwise take in order to end
litigation and receive a prompt distribution on what TCO, the Initial Accepting
Producers and the Creditors' Committee believe to be appropriate settlement
levels for their Claims. Effectiveness of the Plan is conditioned, among other
things, on the acceptance by not less than 90% in amount of Producer Claims
(based on the proposed Settlement Values, and including the Initial Accepting
Producers) of their proposed Original Settlement Values.
The Initial Accepting Producer Settlement Agreement resolves numerous
controversies which have arisen in the TCO and Columbia Reorganization Cases and
which have delayed the realization by Creditors of their recoveries from both
Estates, including the Intercompany Claims Litigation. Absent settlement, the
Claims Estimation Procedures and the Intercompany Claims disputes appear likely
to continue to be prolonged, contentious, costly and uncertain of outcome.
I-23
<PAGE> 580
If Producers and other Creditors fail to accept the Plan, they risk
dilution of their payout as a result of the ultimate outcome of continued
litigation with other Creditors and with TCO, as well as substantial delays in
receiving the payout. Further discussion of the treatment of Producer Claims is
set forth in Sections II, V and VII of this Disclosure Statement, and in the
Plan itself.
b. THE PROPOSED CUSTOMER SETTLEMENT
TCO has negotiated with a substantial group of its Customers
(including affiliated companies), and various of their state regulatory agencies
and consumer advocate offices, an agreement embodying a global resolution of
Customers' Claims, and TCO's regulatory recovery claims against Customers. The
Customer Settlement Proposal was presented to the FERC for approval concurrently
with the Filing of the Plan. Initial comments were filed with the FERC by
interested parties on May 17, 1995. Notably no party has opposed approval of the
Customer Settlement Proposal or sought a modification thereof. Reply comments
were filed with the FERC on May 21, 1995. TCO expects that FERC will approve
those aspects of the agreement subject to its jurisdiction, which approval will
in turn be conditioned on Bankruptcy Court approval of those aspects of the
agreement subject to its jurisdiction, and on confirmation of this Plan.
Pursuant to the settlement, disputes over essentially all transition
cost recoveries, including dozens of active FERC
I-24
<PAGE> 581
proceedings are resolved, with the TCO Estate receiving hundreds of millions of
dollars of payments from Customers. In turn, TCO's Plan offers all Customers,
whether or not they participated in the negotiations, the following treatment of
their Claims in bankruptcy:
(i) payment in full of post-petition flow-through refunds when
received by TCO;
(ii) payment in full of their allocable share of the $3.3 million
trust fund balance with interest in accordance with applicable FERC orders;
(iii) payment of their allocable share of eighty percent (80%) of
the pre-petition portion and one hundred percent (100%) of the post-petition
portion, of the 1990 Rate Case settlement;
(iv) payment of a total of $52.5 million in compromise and
settlement of BG&E Claims;
(v) payment of all other pre-petition Refund Claims in cash at the
rate of eighty percent (80%) of the Allowed Claim amounts; and
(vi) payment of $1.3 million to the current members of the
Customers' Committee and UGI Utilities, Inc. ("UGI") in full satisfaction of all
costs incurred in connection with the Reorganization Case from the
post-reorganization income of TCO.
In consideration of the proposed settlement of regulatory issues by
TCO, Accepting 3.2 Claimants must execute a Waiver Agreement providing,
inter alia, for their (i) waiver of all further Claims and termination
of all litigation relating to
I-25
<PAGE> 582
those settled Claims, including recoupment and setoff litigation and their
participation in the Intercompany Claims Litigation and (ii) payment of their
pro-rata portion of the settled amounts of FERC Receivables to TCO as approved
by FERC.
In order for the proposed treatment to be effective, a majority in
number and two-thirds in dollar amount of the Claims of Customers entitled to
vote and who do vote in Class 3.2 must accept their treatment under the Plan,
the Plan must be confirmed, and FERC must have approved the matters submitted to
it relating to the settlement agreement.
Those Customers that refuse to accept the Plan's proposed treatment are
categorized as Dissenting 3.2 Claimants under the Plan and will be entitled to
continue to litigate all issues, but to the extent they fail to obtain a
priority through litigation, will receive the same treatment provided for Class
3.4 Creditors, resulting in payment of 72.5 cents on the dollar on their Allowed
Claims. TCO does not believe that its exposure to Dissenting 3.2 Claimants, if
any, will be material. Further discussion of the treatment of Customer Claims is
set forth in Sections II, IV and VII of this Disclosure Statement, and in the
Plan itself.
c. OTHER UNSECURED CLAIMS
Holders of all other Unsecured Claims (other than Columbia) will be
paid in cash 72.5% of their Allowed Claims, unless such Claims are Allowed in
amounts which do not exceed $25,000 in which case they will receive one hundred
cents on the dollar of
I-26
<PAGE> 583
their Allowed Claims. That portion, if any, of the payment on Disputed Class 3.4
Claims (General Unsecured Claims) in excess of 72.5% of the originally proposed
Allowance Amount may, at TCO's option with Columbia's consent, be paid in
non-cash consideration with an equivalent market value.
d. THE COLUMBIA UNSECURED CLAIM
The Columbia Unsecured Claim shall be Allowed as Filed, and shall
receive the lower of the final distribution percentage received by Allowed Class
3.3 (Producer) Claims and 72.5%. Columbia may utilize all or any portion of the
distribution on its Unsecured Claim to meet its guaranty obligations under the
Plan.
6. THE CORNERSTONE OF THE TCO PLAN: THE COLUMBIA OMNIBUS SETTLEMENT
The Plan is premised on an omnibus settlement proposal by Columbia
providing, in consideration of (a) the retention by Columbia of the equity of
Reorganized TCO, (b) the settlement of litigation over the liquidation of the
Producer Claims of the Initial Accepting Producers, Customer Claims and of
certain other Disputed Claims, and (c) settlement of the claims raised or which
could have been raised in the Intercompany Claims Litigation and various other
claims and disputes between TCO's Creditors, TCO and Columbia, for:
(i) the monetization for the benefit of TCO's Creditors (other
than Columbia) of the amounts necessary to fund the Plan;
I-27
<PAGE> 584
(ii) the guaranty of payment of distributions to TCO's
Creditors as provided under the Plan (excluding assumed obligations);
(iii) the Columbia Customer Guaranty;
(iv) avoidance of the delay in and diminution of Creditors'
recoveries from the Estate consequent to (i) a waiver of TCO's right to
impose a Bar Date on most pre-petition Claims against the Estate by
public environmental enforcement agencies, and (ii) the assumption of
such Claims and certain other pre-and post-petition Claims by
Reorganized TCO; and
(v) satisfaction of a portion of the Columbia Secured Claim
with new secured debt securities of TCO (in lieu of cash) and the
contribution of the balance of that Claim to TCO's equity in order to
facilitate reorganization.
The components of the total consideration paid by TCO and
Columbia cannot be expressed in precise dollar amounts, but Columbia believes
they constitute, in the aggregate, a fair valuation of TCO's Estate, a
reasonable and fair settlement of the Intercompany Claims and all other claims,
disputes and issues related to these cases (except those expressly reserved in
the Plan), and reflect substantial consideration from Columbia to facilitate the
reorganization of both Debtors.
The Plan is also predicated on TCO's and Columbia's belief that
it is in the best interest of both estates that TCO be reorganized without
awaiting final adjudication of the
I-28
<PAGE> 585
Intercompany Claims Litigation and the litigation over Producer Claim amounts.
By offering proposed Settlement Values to all Producers, developed
according to a consistent and comprehensive methodology believed by TCO and its
professional advisors, TCO's Creditors' Committee and over 80% in proposed
Allowed amount of its Producer Claims to fairly reflect the appropriate outcome
of such Claims litigation, the Estate and its Creditors will be saved the
substantial cost of continued litigation, and the prompt emergence of both
Debtors will permit substantial cash distributions to occur.
C. DISTRIBUTIONS UNDER THE PLAN
The Plan, if accepted by Creditors including all Producer
Creditors, provides for:
(a) payments in cash in full on the Effective Date of all Allowed
Priority Claims (other than the IRS Claim which may be paid over time as
permitted by the Bankruptcy Code), all Secured Claims held other than by
Columbia, and administrative expenses;
(b) satisfaction of Columbia's Secured Claims with new secured debt
securities of Reorganized TCO (secured, at Columbia's option, by substantially
all of TCO's assets) and Columbia's retention of Reorganized TCO as a
wholly-owned subsidiary;
(c) cash payment in full on the Effective Date of Allowed Unsecured
Claims of (or voluntarily reduced to) $25,000 or less;
I-29
<PAGE> 586
(d) cash payments or tracker credits on the Effective Date or as
otherwise provided in the Customer Settlement Proposal for the Refund Claims of
Accepting 3.2 Claimants; and
(e) cash payments of approximately 72.5% of all other Unsecured Claims,
including large Contract Rejection and other Producer Claims. Further discussion
of the amount and timing of distributions to Creditors under the Plan is
contained in Section II and VII of this Disclosure Statement, and in the Plan
itself.
D. CONDITIONS
Confirmation of the Plan is subject to certain conditions which must be
satisfied or, if waivable, waived. Further discussion of the conditions is
contained in Sections VII and VIII of this Disclosure Statement. Further, if the
Effective Date has not occurred by January 31, 1996, Creditors in Classes 3.3,
3.4 and 3.5 are entitled to receive a supplemental interest payment, retroactive
to January 1, 1996, accrued through the ultimate Effective Date, on the actual
distributions payable on their Allowed Claims.
E. CONCLUSION
The Plan offers substantial payouts to Producers for the resolution of
outstanding disputes and the buyout of burdensome long-term gas supply
contracts.
In addition, by permitting the effectuation of the Customer Settlement
Proposal, years of contentious, burdensome and costly litigation primarily
relating to the impact on TCO's business
I-30
<PAGE> 587
and its Customers of the gas costs relating to rejected or previously terminated
Producer contracts will come to an end. The Refund Claims of Customers, as
compromised, will be paid, and the TCO Estate will receive the benefit of
certainty as to the recoverability of substantial assets. This settlement
benefits the public interest, as well as facilitating this reorganization and
maximizing the recoveries available to creditors.
The Columbia Omnibus Settlement fully monetizes TCO's going-concern
value and ends litigation over the Intercompany Claims and provides other
economic benefits of a material nature to TCO's Creditors. In addition, it
offers a formulation whereby Columbia's own reorganization can proceed for the
benefit of thousands of public and private Creditors and shareholders.
In sum, the Plan offers a comprehensive solution to the bankruptcy
proceedings which have been pending for nearly four years. It is hoped that the
Plan will be acceptable to all Creditors as a prompt, cost efficient, balanced
and practical financial solution for all concerned.
I-31
<PAGE> 588
II. OVERVIEW OF THE PLAN
THE FOLLOWING IS A BRIEF OVERVIEW OF CERTAIN MATERIAL PROVISIONS OF THE
PLAN. THIS OVERVIEW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PROVISIONS
OF THE PLAN, A COPY OF WHICH IS ATTACHED HERETO AS EXHIBIT 1. ADDITIONALLY,
SECTION VII, "PLAN TREATMENT OF CLAIMS AND SUMMARY OF OTHER PLAN PROVISIONS," OF
THIS DISCLOSURE STATEMENT CONTAINS A DETAILED NARRATIVE DESCRIPTION OF THE
TREATMENT OF CLAIMS AND MECHANICS FOR IMPLEMENTATION UNDER THE PLAN.
A. REORGANIZED TCO
Under the Plan, Reorganized TCO will remain a wholly-owned subsidiary
of Columbia, will continue to operate as a transporter and storer of natural
gas, and will retain ownership of its extensive network of pipelines, storage
and related facilities. The Plan does not provide for changes to TCO's current
management other than in the ordinary course of business. See Section VII.I.4,
"Corporate Governance, Directors and Officers."
B. SUMMARY OF DESCRIPTION OF CLASSES AND DISTRIBUTIONS
The Plan contemplates the distribution to TCO's Creditors of value of
approximately $3.9 billion, a settlement of the Intercompany Claims Litigation,
settlement of Customer Claims, and settlement of litigation over Producer Claims
and certain other matters resolved by the Columbia Omnibus Settlement. All
distributions to Creditors, other than to Columbia in respect of the Columbia
Secured Claim and to certain Rejecting Producers and holders of Disputed General
Unsecured Claims in respect of a portion of their Claims, will be in cash to be
provided by Reorganized TCO with such payments guaranteed by Columbia.
II-1
<PAGE> 589
The Plan proposes a comprehensive settlement with Customers of their
Claims against TCO and of certain of TCO's recovery rights under applicable FERC
regulations. The proposal is consistent with the agreement reached between TCO
and a significant number of its Customers and affected State Public Service
Commissions and Consumer Advocates offices after extended negotiations, and
which has been submitted to FERC for approval.
The Plan proposes a global settlement with Producers as well. A
Settlement Value is proposed for each Producer Claim in the amount that the
Claim was previously Allowed, if applicable, or in the amount at which TCO
agrees the Claim should be Allowed. If a Producer accepts the Settlement Value
proposed for its Claim, such Claim will, subject to Bankruptcy Court approval,
be Allowed at its Settlement Value, in Class 3.1 if the Settlement Value is not
more than $25,000, and if more than $25,000, in Class 3.3 or Class 1.2.
Additionally, an Allowance Amount is proposed for each General
Unsecured Claim in the amount that the Claim was previously Allowed, or if
applicable, or in the amount at which TCO agrees the Claim should be Allowed. If
a holder of a Disputed General Unsecured Claim accepts the Allowance Amount
proposed for its Claim, such Claim will, subject to Bankruptcy Court approval,
be Allowed at its Allowance Amount, in Class 3.1 if the Allowance Amount is not
more than $25,000, and in Class 3.4 if the Allowance Amount is more than
$25,000.
II-2
<PAGE> 590
If the Plan is not consummated, any voluntary reduction made to a
Claim, by acceptance of a Settlement Value, or an Allowance Amount, or
otherwise, may, at the option of the holder of such Claim, be nullified.
The following table summarizes each category of Claims and Interests
and indicates, where appropriate, the classification of Claims and Interests,
the estimated amount at which Claims in each Class will be Allowed, and the
percentage distribution for each Class based on those estimates.
The estimated Claims amounts set forth in the table below are as of an
assumed Effective Date of December 31, 1995.(1) Such amounts constitute TCO's
present estimates of the amounts of such Claims upon resolution of all Disputed
Claims and reflect the Settlement Values for Producer Claims and Allowance
Amounts for unliquidated General Unsecured Claims discussed above. See Section
VII, "Plan Treatment of Claims and Summary of Other Plan Provisions". The
estimated amounts for Secured Claims include, where appropriate, estimates of
accrued post-
- - -------------------
1 All references to the Effective Date in this Disclosure
Statement assume an Effective Date of December 31, 1995.
The actual Effective Date may be different from the assumed
Effective Date set forth herein for a variety of substantive
and scheduling reasons, including the ultimate date set by
the Bankruptcy Court for the Confirmation hearing and the
date upon which conditions to the Effective Date have been
satisfied or, if waivable, waived. See Section VII.I.1.b,
"Conditions to Effective Date". TCO believes that changes
to the Effective Date through June 28, 1996 will not
materially adversely impact on the distributions to
Creditors under the Plan.
II-3
<PAGE> 591
petition interest on pre-petition secured indebtedness through the
Effective Date.
The total amount of all Claims Filed against TCO's Estate is materially
in excess of the total amount of Allowed Claims reflected in the table below and
assumed in the development of the Plan. Many Claims have been Allowed but
virtually all Producer Claims are unliquidated, although the Initial Accepting
Producers have agreed to Settlement Values for their Claims, subject to the
approval of the Bankruptcy Court. Based upon its review of the Claims as Filed
and the impact on Producer Claims of the Claims Mediator Report, TCO believes
that many of the Claims were Filed in amounts that are well in excess of the
amounts that will ultimately be Allowed and that the Disputed Claims are likely
to be Allowed at lower amounts in the ranges projected below.
The estimates of Allowed Claims and distributions reflected in the
table below assume that each Claim for which a Settlement Value is proposed will
be Allowed at its Settlement Value, each Claim for which an Allowance Amount is
proposed will be Allowed at its Allowance Amount, and that all other Claims will
be Allowed at amounts which approximate TCO's adjusted book amounts. However,
the level at which Claims are ultimately Allowed could be greater or less than
those assumed amounts. See Section VIII, "Risk Factors Relating to Plan
Implementation and Creditor Distributions".
II-4
<PAGE> 592
This summary describes distributions to the holders of Claims which are
Allowed as of the Effective Date except where otherwise indicated. Claims which
are not Allowed Claims on the Effective Date will be paid on a quarterly basis
as such Claims become Allowed, except that Professional Claims will be paid by
Reorganized TCO on the tenth day after Allowance and the IRS Claim may be paid
as set forth in the table below, if TCO so elects. A portion of the distribution
for Allowed Producer Claims may be paid on the thirtieth day after the Final
Allowance Date. See Section VII.D.1, "Distributions on Claims".
Class 3.1 Claims and Class 4 Claims are unimpaired and, consequently,
do not vote on the Plan.
Annexed to this Disclosure Statement as Exhibit 2 is the Payout
Analysis Reflecting Emergence at December 31, 1995 (the "Payout Analysis"). The
analysis sets forth the estimated level of distributions under the Plan for all
Claims, classified and unclassified, and is premised upon the treatment of
Claims provided herein, as well as the fulfillment of the numerous assumptions
set forth in this Disclosure Statement.
II-5
<PAGE> 593
TABLE OF SUMMARY DESCRIPTION OF CLASSES AND THEIR DISTRIBUTIONS
<TABLE>
<CAPTION>
DESCRIPTION AND ESTIMATION DESCRIPTION OF DISTRIBUTION
OF CLAIMS AND INTERESTS UNDER THE PLAN
<S> <C>
1. UNCLASSIFIED CLAIMS
PROFESSIONAL CLAIMS: Claims for unpaid fees and Each holder of an Allowed Professional Claim
expenses of Professionals retained during TCO's will receive cash in the amount of such Claim
Reorganization Case. on the later of the Effective Date or the tenth
day after the Claim becomes Allowed. Post-
petition interest will be payable, to the
ESTIMATED CLAIMS AMOUNT: extent Allowed by the Bankruptcy Court, on
$18.5 million amounts held back by order of the Bankruptcy
Court with respect to interim fee applications.
DISTRIBUTION: 100% Professional Claims are unimpaired.
POST-PETITION OPERATIONAL CLAIMS: Claims Each Post-Petition Operational Claim will be
incurred by TCO in the ordinary course of its assumed by Reorganized TCO and paid in the
business post-petition, including post-petition ordinary course of business according to the
Refund Claims and FERC-mandated post-petition terms of the transaction giving rise to such
interest thereon, tax obligations, trade vendor Claim. Post-Petition Operational Claims are
and supplier obligations and obligations under unimpaired.
contracts and leases, but excluding
Environmental Claims included in Class 4.1.
ESTIMATED CLAIMS AMOUNT:
Not applicable
DISTRIBUTION: 100%
ASSUMED EXECUTORY CONTRACT CLAIMS: Claims Each holder of an Allowed Assumed Executory
arising from the assumption by TCO of pre- Contract Claim will receive cash in the amount
petition executory contracts, including the Tax of such Claim on the Effective Date or such
Allocation Agreement, and unexpired leases earlier or later time as may be authorized by
pursuant to section 365(b)(1) of the Bankruptcy the Bankruptcy Court. Any Assumed Executory
Code. Contract Claim that becomes an Allowed Claim
after the Effective Date will be paid in full
in cash on the thirtieth day after the end of
ESTIMATED CLAIMS AMOUNT: the Calendar Quarter in which such Claim
$35.3 million becomes Allowed. Assumed Executory Contract
Claims are unimpaired.
DISTRIBUTION: 100%
U.S. TRUSTEE'S FEE CLAIMS: The quarterly The U.S. Trustee's Fee Claims which remain
statutory fees owed to the United States unpaid and outstanding as of the Effective Date
Trustee. will be paid in full in cash on the Effective
Date. U.S. Trustee's Fee Claims are
ESTIMATED CLAIMS AMOUNT: unimpaired.
$0
</TABLE>
II-6
<PAGE> 594
<TABLE>
<CAPTION>
DESCRIPTION AND ESTIMATION DESCRIPTION OF DISTRIBUTION
OF CLAIMS AND INTERESTS UNDER THE PLAN
<S> <C>
DISTRIBUTION: 100%
MISCELLANEOUS ADMINISTRATIVE CLAIMS: All The Miscellaneous Administrative Claims that
Administrative Claims not included in any other remain unpaid as of the Effective Date will be
category of unclassified Claims, including (i) assumed by Reorganized TCO and paid in the
contingent indemnification Claims of officers, ordinary course of business according to the
directors and employees of TCO, including terms of the transactions or events giving rise
indemnification Claims by (a) employees in to such Claims. Miscellaneous Administrative
connection with pre- and post-petition personal Claims are unimpaired.
injury and property damage actions brought
against them by third parties and (b) officers
and directors in connection with stockholder
class actions, (ii) post-petition personal
injury and property damage Claims, and (iii)
Claims arising pursuant to performance bonds
issued on behalf of TCO post-petition.
ESTIMATED CLAIMS AMOUNT:
Not applicable
DISTRIBUTION: 100%
ADMINISTRATIVE RECOUPMENT CLAIMS: If any Administrative Recoupment Claim shall be
All Recoupment Claims (i.e., Claims of any upheld by a Final Order, the holder of such
Dissenting 3.2 Claimant to recoup from TCO or Claim shall be paid the Allowed amount of such
Reorganized TCO any Refund Claims and the right Administrative Recoupment Claim. Accepting 3.2
of any Dissenting 3.2 Claimant to set off its Claimants, pursuant to the Waiver Agreement,
WACOG surcharges against pre-petition Claims) waive their Administrative Recoupment Claims.
entitled to administrative priority pursuant to Administrative Recoupment Claims are
certain orders of the Bankruptcy Court. unimpaired.
ESTIMATED CLAIMS AMOUNT:
Not applicable (assumes all Customers
are Accepting 3.2 Claimants)
DISTRIBUTION: 100%
PRIORITY TAX CLAIMS: Claims attributable to Each holder of an Allowed Priority Tax Claim
income taxes, property taxes and any other will receive cash in the amount of such Claim,
taxes entitled to priority in payment pursuant on the Effective Date, if then Allowed, or, if
to section 507(a)(8) of the Bankruptcy Code. not then Allowed, on the thirtieth day after
the date on which such Claim becomes Allowed,
ESTIMATED CLAIMS AMOUNT: provided, however, that the IRS Claim shall be
$137.3 million paid in quarterly installments commencing three
months from the Effective Date with interest at
DISTRIBUTION: 100% the rate set forth in the
</TABLE>
II-7
<PAGE> 595
<TABLE>
<CAPTION>
DESCRIPTION AND ESTIMATION DESCRIPTION OF DISTRIBUTION
OF CLAIMS AND INTERESTS UNDER THE PLAN
<S> <C>
Closing Agreement, unless Reorganized TCO, with
the consent of Reorganized Columbia, exercises its
right to prepay such Claim without premium or
penalty. Any portion of any such Claim that
represents an obligation to pay post-petition
interest allocable to TCO under the Tax Allocation
Agreement or for which TCO is required under the
Tax Allocation Agreement to reimburse Columbia or
its other affiliates, will be paid by TCO either
as an Assumed Executory Contract Claim, subject to
the approval of the Bankruptcy Court, or otherwise
as an Affiliate Tax Claim. Priority Tax Claims
are unimpaired.
EAST LYNN CONDEMNATION OBLIGATION: TCO's The East Lynn Condemnation Award will be
obligation to turn over to CNR the delivered to CNR on the Effective Date. The
funds received and held by TCO in trust for CNR for East Lynn Condemnation Obligation is
damages arising from the condemnation of the unimpaired.
East Lynn Property by the United States,
including income earned by TCO on those funds
through the Effective Date.
ESTIMATED CLAIM AMOUNT:
$62.5 million
DISTRIBUTION: 100%
2. SECURED CLAIMS
CLASS 1.1: DIP Facility Claims. Each Class 1.1 Claim will be paid in full on the
Effective Date, if then Allowed, or, if not, on
the tenth day after such Claim becomes Allowed.
ESTIMATED CLAIMS AMOUNT: The DIP Facility will terminate by its terms on
$2.0 million the Effective Date. Any Deficiency Claim will be
treated as an Administrative Claim in accordance
with Section 364(c) of the Bankruptcy Code.
DISTRIBUTION: 100% Class 1.1 Claims are unimpaired.
CLASS 1.2: Secured Producer Claims, Each holder of an Allowed Class 1.2 Claim will
consisting of Claims arising from receive, on the Effective Date, if then
pre-petition gas purchases by TCO to the extent such Allowed, cash equal to the lesser of (i) the
Claims are secured by statutory liens. Allowed amount of the Claim, and (ii) the value
of the collateral as determined by the
Bankruptcy Court. Any Class 1.2 Claim that
ESTIMATED CLAIMS AMOUNT: becomes Allowed after the Effective Date will,
$0 on the thirtieth day after the end of the
Calendar Quarter in which such Claim becomes
DISTRIBUTION: 100% Allowed, receive the treatment
</TABLE>
II-8
<PAGE> 596
<TABLE>
<CAPTION>
DESCRIPTION AND ESTIMATION DESCRIPTION OF DISTRIBUTION
OF CLAIMS AND INTERESTS UNDER THE PLAN
<S> <C>
described in the preceding sentence. Any
resulting Deficiency Claim will be treated in the
appropriate category of Class 3. Class 1.2 Claims
are unimpaired. Class 1.1 Claims are unimpaired.
CLASS 1.3: Other Secured Claims not included Each holder of an Allowed Class 1.3 Claim will
in Classes 1.1, 1.2 or 2.1, receive, on the Effective Date, if then
including setoff Claims Allowed, at the option of TCO, (i) cash in an
permitted under section 553 of the amount equal to the lesser
Bankruptcy Code. of (x) the Allowed
Amount of such Claim and (y) the value of the
ESTIMATED CLAIMS AMOUNT: collateral securing such Claim, (ii)
$163,000 reinstatement of the maturity of such Claim and
the curing of all defaults in connection
DISTRIBUTION: 100% therewith, or (iii) permission to set off such
Claim. Any Class 1.3 Claim that becomes an
Allowed Claim after the Effective Date will, on
the thirtieth day after the end of the Calendar
Quarter in which such Claim becomes Allowed,
receive the treatment described in the
preceding sentence. Any resulting Deficiency
Claim will be treated in the appropriate
category of Class 3. Class 1.3 Claims are
unimpaired.
CLASS 2.1: The Columbia Secured Claim, On the Effective Date, Columbia will receive in
including pre- and post-petition interest at respect of the Columbia Secured Claim,
the appropriate interest rate provided in the (i) newly issued secured debt securities of
relevant loan documents, calculated as provided Reorganized TCO having a principal amount
in Exhibit B to the Plan, and fees, costs and calculated to provide Reorganized TCO with an
charges approved by the Bankruptcy Court under appropriate funded debt-to-equity ratio as of
section 506 of the Bankruptcy Code. the Effective Date and (ii) the right to retain
the stock of TCO, with the remainder of the
Columbia Secured Claim to be contributed to the
ESTIMATED CLAIMS AMOUNT: capital of Reorganized TCO. The Class 2.1
$1,984 million Claim is impaired.
DISTRIBUTION: See Description
of Distribution
</TABLE>
II-9
<PAGE> 597
<TABLE>
<CAPTION>
DESCRIPTION AND ESTIMATION DESCRIPTION OF DISTRIBUTION
OF CLAIMS AND INTERESTS UNDER THE PLAN
<S> <C>
3. UNSECURED CLAIMS
CLASS 3.1: Unsecured Claims (other than any TCO will pay each holder of an Allowed Class
Customer Regulatory Claim the holder of which 3.1 Claim in cash or, in the case of a Customer
does not execute a Waiver Agreement prior to Refund Claim, in cash or by credit to an
the Effective Date) that are Allowed in amounts appropriate rate mechanism, on the Effective
that do not exceed $25,000 or which are Allowed Date, if the Claim is then Allowed, or, if not
in amounts in excess of $25,000 and the holders then Allowed, on the thirtieth day after the
of such Claims have elected on their ballots to end of the Calendar Quarter during which such
voluntarily reduce the Allowed amounts of such Claim becomes Allowed. Class 3.1 Claims are
Claims to $25,000. unimpaired.
ESTIMATED CLAIMS AMOUNT:
$8.4 million
DISTRIBUTION: 100%
CLASS 3.2: GRI Claims and all Customer If Class 3.2 accepts the Plan, each
Regulatory Claims not included in Class 3.1. holder of an Allowed Class 3.2 Claim that votes
This Class excludes Claims for environmental to accept the Plan (and thereby agrees to the
obligations and liabilities owed to Customers Waiver Agreement) or, not having voted for the
which are treated in Class 3.4 (See Page 13 of Plan, prior to the Effective Date executes a
Schedule II.B. of the Plan). The Customer written Waiver Agreement (in either case, an
Regulatory Claims include Claims (i) that are "Accepting 3.2 Claimant"), will receive the
the subject of or are otherwise affected by the following treatment, subject to the applicable
Trust Fund Decision, (ii) that arise from the provisions of the Customer Settlement Proposal
1990 Rate Case, (iii) for asserted refund (i) that to which it is entitled under the
rights which are the subject of the BG&E Case Trust Fund Decision and any Final Orders in
and (iv) for other types of regulatory refunds furtherance thereof, with post-petition
owed to Customers. Class 3.2 Claims include interest in accordance with the FERC Interest
interest in certain instances as and to the Order, (ii) 80% of the pre-petition amount and
extent described in the definition of the term 100% of the post-petition amount to which it is
"Refund Claim" in the Plan. entitled under the 1990 Rate Case Settlement
with interest as provided in the 1990 Rate Case
Settlement in full satisfaction of its 1990
ESTIMATED CLAIMS AMOUNT: Rate Case Claims, (iii) its allocable share of
$175.2 million $52.5 million in settlement of all BG&E Claims
and (iv) an amount equal to 80% of the balance
of its remaining Regulatory Refund Claims. Payment
will be made in cash or over such period of time
DISTRIBUTION: and in such form as may be set forth in the
See Description of Distribution Customer Settlement Proposal or as may be
appropriate under the FERC Gas Tariff or relevant
FERC order. The Waiver Agreement provides for (i)
the full settlement, satisfaction, discharge and
termination by the Customer of
</TABLE>
II-10
<PAGE> 598
<TABLE>
<CAPTION>
DESCRIPTION AND ESTIMATION DESCRIPTION OF DISTRIBUTION
OF CLAIMS AND INTERESTS UNDER THE PLAN
<S> <C>
all of its Disputed Refund Claims as defined in
the Plan, including withdrawal of all of its
Recoupment Claims and the termination, with
prejudice, of all litigation and litigation rights
with respect thereto, (ii) an agreement not to
object to any of the provisions of the Customer
Settlement Proposal, including the recovery by
Reorganized TCO from Customers, in accordance with
the terms of the Customer Settlement Proposal, of
certain Order No. 636 transition costs, including
amounts payable under the Plan in respect of
certain recoverable gas cost Claims, and exit fees
to be paid by TCO to upstream suppliers to obtain
their consent to the termination of transportation
contracts with such pipelines, (iii) agreement to
the withdrawal, with prejudice, of the
intervention by the Customers' Committee in the
Intercompany Claims Litigation and, except for the
Customer Committee's prosecution of its Motion to
Unseal Judicial Records, to the release of any
rights or interests in any judgment or other
recovery on account of the Intercompany Claims,
(iv) withdrawal, with prejudice, of such
Customer's appeal of the Bankruptcy Court's denial
of approval of the 1990 Rate Case Settlement and
(v) the acceptance of the treatment provided for
Accepting 3.2 Claimants in the Customer Settlement
Proposal and as described above. If Class 3.2
votes to accept the Plan, each Class 3.2 Claimant
that does not vote to accept the Plan and does not
execute a written Waiver Agreement prior to the
Effective Date and each holder of a Class 3.2
Claim if the Class does not vote to accept the
Plan (each, a "Dissenting 3.2 Claimant"), will be
entitled to pursue its Claims by litigation in any
appropriate forum and will receive that to which
it may become entitled (i) under Final Orders
resolving its Recoupment Claims and (ii) under the
Trust Fund Decision and Final Orders in
furtherance thereof. To the extent no other
priority is allowed by Final Order of the
Bankruptcy Court, the holder of such Claim shall
receive cash equal to the 72.5% of its Allowed
Claim remaining after application
</TABLE>
II-11
<PAGE> 599
<TABLE>
<CAPTION>
DESCRIPTION AND ESTIMATION DESCRIPTION OF DISTRIBUTION
OF CLAIMS AND INTERESTS UNDER THE PLAN
<S> <C>
of the payments made pursuant to clauses (i) and
(ii) above. Class 3.2 Claims are impaired.
CLASS 3.3: Producer Claims not included in Producers will receive in cash on the Effective
Class 3.1. Date the Target Distribution Percentage [72.5%]
of their respective Allowed Claims if all
ESTIMATED CLAIMS AMOUNT: Producers accept their Original Settlement
$1,625.1 million Values. If there are Rejecting Producers, then
the Producer distributions will be subject to a
holdback of 5%. Accepting Producers will
[68.875%] of their respective Settlement Values on
DISTRIBUTION (ESTIMATE): the Effective Date. Rejecting Producers will
72.5% receive the Initial Distribution Percentage of
their Allowed Claims if and when such Claims are
Allowed. If, after all Claims of Producers have
been Allowed, disallowed, or withdrawn, the Claims
of all Producers have been Allowed in the
aggregate at less than the aggregate of the
Original Settlement Values initially proposed for
them, (i) holders of Allowed Class 3.3 Claims will
receive the Target Distribution Percentage of
their Allowed Claims less any amounts previously
paid to such Producers (excluding any Supplemental
Interest Payments) and (ii) one half of the amount
by which the actual distribution to Producers is
less than the distribution projected for Producers
(had they all accepted their Original Settlement
Values) will be distributed pro-rata to all
holders of Allowed Class 3.3 Claims. If the Claims
of Producers have been Allowed in the aggregate at
more than the aggregate of the Original Settlement
Values proposed for them
</TABLE>
II-12
<PAGE> 600
<TABLE>
<CAPTION>
DESCRIPTION AND ESTIMATION DESCRIPTION OF DISTRIBUTION
OF CLAIMS AND INTERESTS UNDER THE PLAN
<S> <C>
and the sum of the Target Distribution Percentage
of the Allowed Class 3.3 Claims plus the aggregate
of all Allowed Producer Claims in Classes 3.1 and
1.2 is greater than $1.185 billion, an additional
distribution may be made to holders of all Allowed
Class 3.3 Claims, which distribution and, if any
such distribution will be made, the amount of such
distribution, depends upon the total aggregate
Allowed amount of all Producer Claims. If the
Claims of Producers have been Allowed in the
aggregate at more than the aggregate of the
Original Settlement Values proposed for them and
the sum of the Target Distribution Percentage of
the Allowed Class 3.3 Claims plus the aggregate of
all Allowed Producer Claims in Classes 3.1 and 1.2
is less than or equal to $1.185 billion, the
holders of Allowed Class 3.3 Claims will receive
the Target Distribution Percentage of their
Allowed Claims less any amounts previously paid to
such Producers (excluding any Supplemental
Interest Payments). All holders of Allowed Class
3.3 Claims will receive interest on their
distributions if distributions to Producers
commence after January 31, 1996. All Disputed
Class 3.3 Claims will be resolved by litigation
before the Bankruptcy Court, or in the Claims
Estimation Procedures, as appropriate, or by a
settlement approved by the Bankruptcy Court. All
distributions to holders of Allowed Class 3.3
Claims shall be made in cash except that
Reorganized TCO shall have the option, with the
consent of Reorganized Columbia, to pay any
amounts due to any Rejecting Producer in excess of
72.5% of the Original Settlement Value proposed
for such Rejecting Producer's Claim in the form of
securities of Reorganized Columbia having a fair
market value equal to the distribution that
Reorganized TCO has elected not to pay in cash.
Class 3.3 Claims are impaired.
CLASS 3.4: Unsecured Claims that are not Each holder of an Allowed Class 3.4 Claim shall
included in any other Class. be paid 72.5% of its Allowed Claim. All
holders of Allowed Class 3.4 Claims will
receive interest on their distributions if
ESTIMATED CLAIMS AMOUNT: distributions to Creditors commence after
$55.8 million January 31, 1996. Distributions to holders of
Allowed Class 3.4 Claims will be made on the
Effective Date, if the Claims are then Allowed,
or, if not then Allowed, on the thirtieth day
DISTRIBUTION (ESTIMATE): after the end of the Calendar Quarter during which
72.5% such Claim becomes Allowed. All distributions to
holders of Allowed Class 3.4 Claims shall be made
in cash except that Reorganized TCO shall have the
option, with the consent of Reorganized Columbia,
to pay any holder of a Disputed General Unsecured
Claim that does not accept its Allowance
</TABLE>
II-13
<PAGE> 601
<TABLE>
<CAPTION>
DESCRIPTION AND ESTIMATION DESCRIPTION OF DISTRIBUTION
OF CLAIMS AND INTERESTS UNDER THE PLAN
<S> <C>
Amount any amounts due to such holder in excess of
72.5% of the Allowance Amount proposed for such
holder's Claim in the form of securities of
Reorganized Columbia having a fair market value
equal to the distribution that Reorganized TCO has
elected not to pay in cash. Class 3.4 Claims are
impaired.
CLASS 3.5: Columbia Unsecured Claim Reorganized Columbia shall be paid in cash on
its Allowed Class 3.5 Claim an amount equal to
the lesser of (a) the same final distribution
ESTIMATED CLAIM AMOUNT: percentage as holders of Allowed Class 3.3
$351.0 million Claims ultimately receive or (b) the same final
distribution percentage as holders of Allowed
Class 3.4 Claims ultimately receive.
DISTRIBUTION (ESTIMATE): Reorganized Columbia shall be paid the Initial
72.5% Distribution Percentage [68.875%] of its Allowed
Claim on the Effective Date and the balance of the
distribution, if any, on the Final Allowance Date.
Reorganized Columbia will receive interest on its
distribution if distributions to Creditors
commence after January 31, 1996. Reorganized
Columbia may use all or any portion of the
distribution that it receives on its Allowed Class
3.5 Claim to fund its obligations under the
Columbia Omnibus Settlement. The Class 3.5 Claim
is impaired.
4. ASSUMED CLAIMS
CLASS 4.1: Environmental Claims, consisting of All such Environmental Claims shall survive and
all pre- and post-petition environmental be unaffected by the Confirmation Order and
compliance and remediation obligations to State will be assumed and paid by Reorganized TCO if
and Federal environmental enforcement and and when due and payable. Class 4.1 Claims are
regulatory agencies, including Claims under the unimpaired.
EPA Order, the Pennsylvania Environmental Order
and the Kentucky Environmental Orders, but
excluding all other non-consensual pre-petition
environmental penalty liabilities.
ESTIMATED CLAIMS AMOUNT:
Not applicable.
DISTRIBUTION: 100%
</TABLE>
II-14
<PAGE> 602
<TABLE>
<CAPTION>
DESCRIPTION AND ESTIMATION DESCRIPTION OF DISTRIBUTION
OF CLAIMS AND INTERESTS UNDER THE PLAN
<S> <C>
CLASS 4.2: Condemnation awards payable All such obligations shall survive and be
pursuant to the Bankruptcy Court's unaffected by the Confirmation Order and will
December 18, 1992 Order Authorizing TCO to Pay be assumed and paid by Reorganized TCO if
Condemnation and Awards Adjudicated Post-Petition when due and payable. Class 4.2 Claims are
Where No Bond Has Been Posted. unimpaired.
ESTIMATED CLAIMS AMOUNT:
$177,000
DISTRIBUTION: 100%
CLASS 4.3: All Claims Filed by the PBGC On the Effective Date, Reorganized TCO will
relating to pension plans in existence as assume its obligations relating to all pension
of the Petition Date, including all Claims plans in existence as of the Petition Date,
with respect to the Retirement Income Plan for the including all obligations imposed by ERISA
with Columbia Gas System Companies (the "Retirement regard to the Retirement Plan, and will satisfy
Plan"). any and all Claims in Class 4.3 as they arise.
Class 4.3 Claims are unimpaired.
ESTIMATED CLAIMS AMOUNT:
Not applicable.
DISTRIBUTION: 100%
CLASS 4.4: Contingent Claims arising under or Class 4.4 Claims shall survive and be
related to Claims Filed by Columbia in unaffected by the Confirmation Order and will
connection with TCO's obligation to reimburse be assumed and paid by Reorganized TCO if and
Columbia for any payments Columbia is or may be when due and payable. Class 4.4 Claims are
required to make on behalf of TCO under surety unimpaired.
bonds issued for TCO's benefit.
ESTIMATED CLAIMS AMOUNT:
$7,000
DISTRIBUTION: 100%
CLASS 4.5: Claims of Columbia or any of its Claims in Class 4.5 shall survive and be
subsidiaries for any amount owed by TCO under unaffected by the Confirmation Order and will
the Tax Allocation Agreement remaining after be assumed and paid by Reorganized TCO if and
payment of Assumed Executory Contract Claims. when due and payable. Class 4.5 Claims are
unimpaired.
ESTIMATED CLAIMS AMOUNT:
$0
DISTRIBUTION: 100%
</TABLE>
II-15
<PAGE> 603
<TABLE>
<CAPTION>
DESCRIPTION AND ESTIMATION DESCRIPTION OF DISTRIBUTION
OF CLAIMS AND INTERESTS UNDER THE PLAN
<S> <C>
5. INTERESTS
CLASS 5: Columbia's Interests, consisting of Columbia will receive no distribution in
all of the issued and outstanding common stock respect of its Interests. Class 5 Interests
of TCO. are impaired.
</TABLE>
II-16
<PAGE> 604
III. BUSINESS ISSUES
A. TCO'S PRE-BANKRUPTCY CORPORATE STRUCTURE AND OPERATIONS; HISTORICAL
INDUSTRY BACKGROUND
TCO, a wholly owned subsidiary of Columbia, was incorporated in Delaware in
June 1971. The formation of TCO consolidated into one company the business
activities of numerous other Columbia subsidiaries, including wholesale natural
gas sales, storage and transportation. After public notice, the SEC approved the
consolidation, finding that it was "in the public interest."
TCO operates an extensive natural gas pipeline network and storage fields in
the eastern half of the United States. Its principal place of business is in
Charleston, West Virginia. TCO employs approximately 3,000 people in eight
states and the District of Columbia.
Prior to the Petition Date, TCO purchased natural gas in the Southwest,
Mid-Continent, Rocky Mountain and Appalachian producing areas for resale to its
wholesale customers. This merchant business has been substantially eliminated
for TCO and other pipelines as of November 1, 1993 by FERC's Order No. 636,
issued April 8, 1992.
TCO continues to provide interstate natural gas transportation, storage and
related services to hundreds of Customers, including local distribution
companies ("LDCs") (five of which are affiliates), brokers, marketers, producers
and other shippers of natural gas in fifteen states and the District
III-1
<PAGE> 605
of Columbia. TCO's LDC Customers serve more than eight million retail
customers.
TCO also operates a series of underground natural gas storage fields in New
York, Pennsylvania, Ohio and West Virginia, which consist of approximately 3,700
storage wells covering more than 800,000 acres, with total storage capacity of
approximately 600 Bcf.(1)
Prior to the 1980s, the U.S. natural gas industry was structured in a
tripartite form: gas exploration and production, gas pipeline and gas
distribution.(2) Producers sold gas at or close to the wellhead to pipeline
companies. Pipeline companies transported it to other pipelines or to "City
Gates"(3) where they resold it to LDCs. LDCs transported it locally and resold
it to users within their service areas. Thus, pipeline companies were interstate
transporters and wholesale "merchants"; LDCs were local distributors and retail
"merchants." Neither were significant users of gas. Under this structure,
pipeline companies constituted the predominant market
- - -------------------
1 "Bcf" is a volumetric measure representing a billion cubic feet
of natural gas at standard pressure and temperature. Similarly,
"Mcf," where used, represents a thousand cubic feet of natural
gas at standard pressure and temperature.
2 Pipeline companies often owned exploration and production
properties. As a result of regulatory changes in the early
1980s, many pipelines (including TCO) transferred such
properties to separate affiliates.
3 This term refers to the interconnection between a pipeline
company and a local distribution company system.
III-2
<PAGE> 606
for producers and virtually the only source of supply for LDCs.(4)
In 1938, the NGA commenced Federal regulation of the interstate pipeline
segment of the industry by the Federal Power Commission ("FPC," now known as
FERC).(5) The NGA provided for Federal utility-type regulation of the interstate
sale and transportation of gas to ensure "just and reasonable" rates and
required that services and certain facilities be justified by "public
convenience and necessity."
Until the mid-1980s, with minor exceptions, the FPC and then FERC accepted and
continued (i) the function of pipeline companies as wholesale merchants, (ii)
the requirement that a pipeline have sufficient long-term supplies to assure
customers and the FPC or FERC that it could meet its certificated service
obligations to its customers, (iii) the substantial dependence of producers on
pipeline companies as purchasers of their gas production and (iv) the dependence
of LDCs on pipeline companies as wholesale suppliers.
Under the FPC's interpretation of the "just and reasonable" rate standard of
the NGA and the FPC's Purchase Gas Adjustment
- - -------------------
4 Certain gas "systems," including Columbia's, were partially
integrated, i.e., in some instances an affiliate within
the system was the producer, pipeline and/or LDC.
5 On October 1, 1977, pursuant to the provisions of the
Department of Energy Organization Act, Public Law 95-91,
Stat. 565 (Aug. 4, 1977) and Executive Order No. 12009, 42
Fed. Reg. 46267 (Sept. 15, 1977), the FPC ceased to exist
and most of its functions were transferred to FERC.
III-3
<PAGE> 607
("PGA") regulations adopted in the early 1970s,(6) pipeline companies could not
"mark up" the price of gas they purchased from producers and were entitled to
recover only their weighted-average cost of gas plus an amount (which included a
fair return on capital) calculated to compensate the pipeline for the
transmission of the gas from the area of production to the relevant market area.
Under the "public convenience and necessity" standard, pipelines were required
to demonstrate, before expanding facilities or services, that the markets to be
served required additional facility investment or service offerings and that
they had under contract (or could obtain) sufficient gas to utilize the new
facilities and services.
The typical format for contractual relations between gas production companies
and gas pipeline companies was, until the advent of the "spot market" in the
mid-to-late 1980s, the "take-or-pay" contract. The seller obligated itself, long
term, to make gas available from identifiable acreage either up to a stipulated
quantity or to the extent it was deliverable. The purchaser obligated itself to
purchase a fixed percentage of such gas or, upon its failure to do so, to pay
the unit price for the quantities not taken up to the fixed percentage of
deliverability (i.e., the "take-or-pay percentage"). Generally, these
take-or-pay payments could be recouped by applying them
- - -------------------
6 In 1972, the FPC established the PGA mechanism by which pipeline
companies such as TCO could recover or "track" changes in their
cost of purchased gas on a timely basis without the necessity of
filing general rate cases under section 4(e) of the NGA.
III-4
<PAGE> 608
(usually for a limited period) to future purchases of gas in excess of the then
applicable take-or-pay percentage.
B. EVENTS LEADING TO THE FILING OF TCO'S REORGANIZATION CASE
1. GAS SHORTAGES AND REVERSAL OF FEDERAL GAS PRICE POLICIES
With the expansion of the markets for natural gas following World War II,
interstate pipelines' gas purchase costs began to escalate substantially. The
NGA was then construed to require regulation (both price and non-price) of
wellhead sales by producers into interstate transportation systems. While the
FPC in due course departed from a strict utility-type regulation of such
wellhead prices, the price levels that it did impose greatly reduced the
incentives of gas producers to develop new production for, or to commit
production to, interstate sales.
In the 1970s, the nation experienced a severe and extended shortage of natural
gas in the interstate market. The principal cause of this shortage was the low
regulated wellhead prices imposed by the FPC on gas purchased by interstate
pipelines such as TCO. This price regulation artificially depressed interstate
gas prices and resulted in great disparities between the prices for federally
regulated interstate natural gas and the prices of alternate fuels and
intrastate natural gas. This price disparity discouraged both the exploration
for and development of natural gas reserves and the commitment of such reserves
by producers to the interstate market. As these price disparities
III-5
<PAGE> 609
increased, the demand for natural gas far exceeded available supplies,
especially in the interstate market.
The shortage of natural gas supplies in the interstate market caused by
federal regulatory decisions were exacerbated by an increase in demand for
natural gas brought about by the steep rise in oil prices following the
formation of the OPEC cartel.
In 1971, several interstate pipelines instituted curtailment plans, approved
by the FPC, to allocate the shortages of natural gas on their systems. TCO
instituted a curtailment plan commencing in 1972. The level of curtailments grew
each year through the winter of 1976-77, when the coldest winter on record in
the eastern United States forced factories, businesses and schools to close for
brief periods for lack of natural gas for both heating and industrial
production. These closings generated a sense of national crisis, which was
responded to by Congressional legislation and internal measures undertaken by
interstate pipelines.
In 1978, Congress enacted the Natural Gas Policy Act of 1978 ("NGPA"), which
retained the existing regulation of the price of some "old gas," but created
substantially higher maximum lawful prices for "new gas" and certain categories
of old gas. The variations in these higher price levels were intended to
correspond to the relative costs and risks of finding and bringing various types
of undeveloped reserves into production and maintaining production from
depleting reserves.
III-6
<PAGE> 610
The price for some categories of gas was deregulated almost immediately and
other categories were scheduled for phased price deregulation commencing in
1985.
2. EMERGENCE OF THE GAS "BUBBLE" AND THE EFFECT ON TCO
After the NGPA was enacted, exploration and production activities
accelerated. Pipelines were now authorized to pay higher prices that provided
producers with the incentive to find and develop more reserves. Pipelines were
thus able to compete with intrastate markets and contracted for large quantities
of additional new, but higher priced, gas in order to cure existing shortages
and to secure future supplies to meet their public service obligations. Both
private and government analysts projected continuing increases in crude oil and
natural gas prices, and the geologic availability of sufficient domestic gas
supplies was questioned. These projections and the pent-up demand for gas by
consuming markets created a seller's market for new gas supplies. In return for
commitments of new or increased gas supplies, producers were able to obtain the
highest permissible pricing formulae, high take-or-pay levels, and maximum
protection against future contingencies.
The NGPA achieved its objective of eliminating gas shortages within a few
years. Gas supplies available to the interstate market increased substantially,
while high prices operated to reduce the demand for natural gas. Supplies of
natural gas soon exceeded market requirements for gas. On a blended cost basis,
natural gas supplies also became more
III-7
<PAGE> 611
expensive as the proportion of old low-priced supplies decreased in relation to
high-priced supplies. By the end of 1982 the price of crude oil and fuel oil
(which is competitive with natural gas) had declined. Further, because of energy
conservation and a recession in heavy industry, the market for natural gas was
then stagnant.
These phenomena, together with the enormous NGPA-derived increases in the
supply and price of gas, created a surplus of natural gas, called the "bubble."
The bubble was viewed by virtually all observers and commentators in government
and industry as temporary.
In the mid-1980's, most major pipelines found themselves with excess supplies
of gas under contracts with price and take-or-pay levels that were not
responsive to the market. The higher the gas cost reflected in pipeline tariffs,
the less attractive pipeline gas became in the marketplace. The response of the
pipeline industry included attempts to seek relief from FERC through special
marketing programs, requests that FERC declare non-market responsive gas
purchase contracts unlawful under section 5 of the NGA, and in some instances,
court tests as to whether the defense of force majeure excused pipelines
from their expensive take-or-pay obligations. These efforts failed to resolve
the pipeline industry's mounting take-or-pay and excess supply problems.
Some of TCO's Customers and others challenged TCO's attempts to recover the
costs of purchasing gas under its long-
III-8
<PAGE> 612
term contracts. In January 1984, FERC found that TCO had acted improperly in
discharging its duty to provide adequate gas supplies at the lowest reasonable
price. FERC concluded that TCO failed to ensure that over the long term its gas
costs would be competitive with alternate fuel prices in TCO's service
territory. This decision put at risk the recovery by TCO of hundreds of millions
of dollars in gas costs under existing Producer contracts.
In order to avoid continued litigation, TCO commenced settlement discussions
with Customers, FERC staff and others. In June 1985, FERC approved a settlement
(the "PGA Settlement"), among TCO, its Customers and other interested parties
whereby TCO reduced and froze its sales commodity rate for two years, and
Customers agreed to make every effort to purchase specified quantities of gas
from TCO. The PGA Settlement resulted in write-offs for TCO in excess of $400
million in 1985 and 1986, and subjected it to potentially substantial future
losses if its high-priced supply contracts could not be renegotiated.
Later in 1985, TCO undertook a major initiative to reform its large Southwest
Producer contracts with prices above the prevailing market price (the "Producer
Price Reduction Purchase Plan" or "PPRPP"). From 1985 through 1986, TCO paid
approximately $1 billion to Producers, including approximately $800 million paid
primarily pursuant to the PPRPP to Southwest Producers, to reform the price,
take-or-pay and other provisions in its Producer contracts.
III-9
<PAGE> 613
3. THE ADVENT OF "OPEN ACCESS" AND "UNBUNDLING"
Due to changes in the energy marketplace caused by the legislative and
regulatory actions described above, the price of gas purchased by LDCs from
pipelines came to significantly exceed the cost of purchasing gas directly from
producers and paying a pipeline to transport it. But the LDC's were, at least in
part, foreclosed from pursuing alternatives by the Federally-approved
"pipeline-as-merchant" structure of the industry.
Responding to this situation, in October 1985, FERC issued Order No. 436,
which encouraged pipelines to accept blanket certificates to transport gas for
any party, provided that the pipelines offered the service on a
non-discriminatory basis to all potential customers. Such "open access"
transportation was to be available even if it resulted in a displacement of
sales by the transporting pipeline. TCO accepted its open-access transportation
certificate in early 1986, followed shortly thereafter by virtually all other
major interstate pipelines. However, this solution left the pipelines "holding
the bag," as the United States Court of Appeals for the D.C. Circuit put it at
the time, because the pipelines would continue to bear the cost of their
high-priced supply contracts, which they had secured to satisfy their public
service obligations to customers and to avoid future shortages of gas.
After the freeze on TCO's sales rate agreed to in the PGA Settlement ended on
April 1, 1987, controversies about TCO's
III-10
<PAGE> 614
ongoing gas costs and its attempt to recover from Customers a portion of its
PPRPP payments ensued. TCO, its Customers and others eventually reached a
"Global Settlement" in 1989, which resolved these controversies, provided new
and increased services for Customers, and established for TCO a Gas Inventory
Charge ("GIC") in connection with its sales service.(7) The Global Settlement
also provided a mechanism whereby TCO had the opportunity to recover from
Customers an estimated $217 million of its PPRPP payments.
4. FURTHER FEDERAL ACTIONS AFFECTING THE COST OF PIPELINE "MERCHANT" GAS
In July 1989, Congress enacted the Natural Gas Wellhead Decontrol Act of 1989
(the "Decontrol Act"), which deregulated, effective January 1, 1993, the price
of all gas, including categories of gas that were to be forever regulated under
the NGPA. This deregulation made certain alternative pricing formulae in
pipelines' take-or-pay contracts potentially applicable starting in 1993. These
alternative formulae would generally result in higher contract prices and higher
weighted
- - -------------------
7 The purpose of the GIC generally was to provide TCO, under
certain circumstances, with a source of revenue that would
compensate it (at least in part) for its costs in maintain-
ing firm gas supplies to meet its wholesale Customers'
indicated requirements. TCO was given an opportunity to
charge its Customers $.35 per dekatherm for the amount by
which Customer purchases fell below certain levels,
provided that TCO met an annual "comparability test" by
having an average sales commodity rate no higher than those
of certain specified pipelines. Any such revenues could be
used by TCO to offset ongoing gas supply costs. Such
revenues could be retained for a five-year period. Any
amounts remaining thereafter were to be returned to the
Customers.
III-11
<PAGE> 615
average gas costs for TCO. The Decontrol Act also eliminated any need for FERC
authorization for a producer to stop selling gas to one purchaser and to sell
that gas to another purchaser. This made it somewhat easier for customers and
competitors of pipelines to acquire gas directly from producers instead of
pipelines.
5. TCO'S 1991 "EXCESS SUPPLY CRISIS"
Although TCO met the comparability test under the Global Settlement and
collected GIC revenues of approximately $22 million for the contract year ending
October 31, 1990, it was unable to do so for the subsequent twelve-month period
for several reasons. First, the winter of 1989-1990 had, in the aggregate, been
unusually warm across the eastern United States, and the twelve months of 1990
were the warmest in TCO's history. The warm weather continued in 1991, setting
an all-time record for the fifteenth-month period from January 1990 through
March 1991. TCO's sales and earnings were far less than projected as warm winter
weather decreased the demand for gas and spot market prices fell. In February
1991, when spot market prices were expected to be at their annual peak, they
plummeted to unprecedented low levels for the winter heating season.
Second, the lower demand experienced in TCO's service territory during the
1990-1991 winter freed up additional capacity on pipelines, including TCO's,
that was used by Customers to transport gas which they purchased on the spot
market directly from producers and marketers. As a result,
III-12
<PAGE> 616
TCO's sales for the 1990-1991 winter fell to 111 Bcf, half the anticipated sales
level.
Simultaneously, production under several contracts that had not been
renegotiated by TCO in 1985 increased, forcing TCO to take (or pay for)
increasing volumes of high-priced gas. In addition, several other contracts
became uneconomic when spot market prices declined sharply. Consequently, TCO
commenced a contract buydown program in the latter half of 1990. Several
targeted gas supply contracts were successfully reformed pursuant to this
program, but it was only partially completed when price and supply conditions
worsened further in 1991.
The sharp drop in sales and the rise in high-priced supply further increased
TCO's gas supply management costs and its related borrowing requirements. In
response to these business conditions, TCO revised its operating and financial
plans, undertook steps to reduce operating expenses, decreased its planned
capital expenditures, and pursued studies of new rate designs and rate
structures.
During the first quarter of 1991, TCO also undertook various extraordinary
operating steps to protect the integrity of its storage operations and to
minimize its contractual exposure. TCO reached agreement with its Customers and
received FERC approval to waive certain provisions of its rate schedule for gas
storage service provided to its Customers. The waiver permitted Customers to
postpone delivery of approximately 38 Bcf of third-party gas to TCO for
injection into storage from the
III-13
<PAGE> 617
summer of 1991 to the summers of 1992 and 1993. In return TCO agreed to make
equal quantities available to such Customers during the 1991-1992 heating season
and to protect them if spot-market gas prices were higher in the summers of 1992
or 1993 (when they were to purchase replenishment gas).(8)
By late March 1991, a number of natural gas price projections, including those
developed internally for the entire Columbia System, were substantially reduced
for the period 1991-1995 because of the gas surplus caused by continued warm
weather and exploration and drilling reports for 1990 that indicated substantial
increases in activity. Columbia System forecasts in 1990, in line with general
industry forecasts, had predicted a spot market price in January/February 1991
of approximately $2.40 per Mcf with gradual increases in future years. The
actual February 1991 spot price was in the range of $1.40 per Mcf. The new
forecasts predicted spot prices over several subsequent heating seasons at $.85
to $.90 per Mcf lower than the prices forecasted in 1990.
In light of these revised price projections, TCO's merchant gas was projected
to be less competitive than previously anticipated, even assuming the successful
completion of the previously announced Producer renegotiations. Consequently,
gas sales were projected to be insufficient to avoid substantial
- - -------------------
8 This agreement was revised with Bankruptcy Court approval in
March 1992 to provide for the postponed quantities to be
redelivered to TCO in the summer of 1992, thus mitigating the
exposure to TCO for increased costs under the arrangement.
III-14
<PAGE> 618
future gas supply management costs. In addition, TCO projected that it would not
be able to meet the comparability test for collecting GIC revenues.
In mid-to late May 1991, TCO began to finalize its ongoing studies, the costs
associated with such problems and the feasibility of various possible responses,
including seeking regulatory changes in the merchant function and rate
restructuring. These studies were designed to yield fundamental structural
solutions to resolve TCO's gas supply problems and to estimate the amount by
which TCO's potential gas supply costs exceeded predicted spot market prices.
The studies focused on the impact of the substantially reduced forecasts of spot
market prices, the effect of pending deregulation and increases in
deliverability under some contracts.
In early to mid-June 1991, Columbia's management reviewed TCO's
recommendations, which included a proposed buydown of all of its high-cost
purchase contracts to market-based prices. Columbia's Board of Directors was
presented with the financial planning analyses, excess gas cost studies, the
reports of other studies and projects, and management proposals for dealing with
the excess gas cost problem. The Board was informed that, based on the
information available at that time, the present value of the total excess of all
gas costs above predicted spot market prices for the following ten years could
exceed $1 billion. The analyses underlying this estimate were refined throughout
June and July. Following the Petition Date, TCO continued to refine
III-15
<PAGE> 619
the studies, which became known as the Life of Reserve Study (the "LOR Study").
The Board endorsed the recommendation of TCO management to undertake a
comprehensive effort to terminate all of its above-market gas purchase contracts
by offering Producers up to $600 million of short-term TCO obligations under the
PSP.
On June 19, 1991, Columbia announced that a substantial portion of the
projected exposure of nearly $1 billion on above-market priced gas purchase
contracts would likely be charged to income in the second quarter; that TCO was
launching a comprehensive effort to renegotiate or terminate all of its
above-market gas purchase contracts; that Columbia had suspended the dividend on
its common stock; and that it was meeting with bank lenders in an effort to
re-establish its credit facilities on revised terms.
Following the June 19, 1991 announcement, it was no longer possible for
Columbia to issue commercial paper or borrow under its bank credit lines.
Because Columbia only had sufficient cash on hand to fund the operational needs
of its subsidiaries for a short time, it was unable to pay maturing short-term
debt obligations.
During June and July 1991, TCO entered into negotiations with its high-cost
Producers. This time period proved
III-16
<PAGE> 620
insufficient to bring these numerous negotiations to a conclusion.(9)
During this period, Columbia entered into intense negotiations to reestablish
its lines of credit, but an acceptable agreement could not be reached in a
timely manner. As a result of these financial difficulties, on July 31, 1991,
Columbia and TCO filed for protection under Chapter 11 of the Bankruptcy Code in
the United States Bankruptcy Court for the District of Delaware.
- - -------------------
9 TCO's financial problems worsened when the West Virginia
Supreme Court of Appeals, in an otherwise unrelated
decision, ordered that TCO must post a $10 million bond by
July 29, 1991, in order to stay execution pending appeal of
a $29.5 million judgment against it in Bruen v. Columbia
Gas Transmission Corporation. The Bruen judgment was
ultimately invalidated in its entirety by the West Virginia
Supreme Court.
III-17
<PAGE> 621
IV. CURRENT AND FUTURE OPERATIONS; CUSTOMER AND UPSTREAM PIPELINE ISSUES
AND SETTLEMENTS
A. TCO'S IMPLEMENTATION OF ORDER NO. 636 RESTRUCTURING
1. GENERAL OVERVIEW
On April 8, 1992, FERC issued Order No. 636, its final Rule on
Pipeline Service Obligations and Equality of Transportation Services by
Pipelines.(1) FERC stated that this rule, which is often referred to as the
"Restructuring Rule," was the final stage in the transition of the pipeline
industry to one in which pipelines function principally as transporters of gas
purchased by others directly from producers and other suppliers. These
regulatory changes were designed by FERC to increase the competitive structure
of the natural gas industry while maintaining adequate and reliable service to
consumers.
The Restructuring Rule:
(i) required pipelines to "unbundle" their sales, or merchant
function, from their transportation and other functions by moving the point at
which pipeline sales to wholesale customers (if any) take place, the effect of
which has been virtually to eliminate the interstate pipeline merchant service;
- - -------------------
1 Pipeline Service Obligations and Revisions to Regulations
Governing Self-Implementing Transportation; and Regulation
of Natural Gas Pipelines After Partial Wellhead Decontrol,
57 Fed. Reg. 13,267 (April 16, 1992); III FERC Stats. &
Regs. Preambles para. 30,939 (April 8, 1992); order on reh'g,
Order No. 636-A, 57 Fed. Reg. 36,128 (August 12, 1992), III
FERC Stats. & Regs. Preambles para. 30,950 (August 3, 1992)
order denying reh'g, Order No. 636-B, 57 Fed. Reg. 57,911
(December 8, 1992), 61 FERC para. 61,272 (November 27, 1992).
IV-1
<PAGE> 622
(ii) established the principle of equality of pipeline services for
all customers, regardless of whether they buy gas from a pipeline or some other
supplier;
(iii) re-designed gas pipeline rates to the straight fixed variable
("SFV") rate design, under which all fixed costs are included in pipeline demand
rates and all variable costs are included in commodity rates;
(iv) restructured pipelines' contractual relations with upstream
pipelines and with customers, as more fully described below;
(v) provided mechanisms for pipelines to recover their transition
costs, i.e., costs that are the direct result of the implementation of Order No.
636, once they became known and measurable; and
(vi) set forth a timetable for restructuring to be implemented on all
pipeline systems, all leading toward industry-wide implementation by the winter
of 1993-94.
Four types of transition costs were identified in Order No. 636:
(1) Purchased gas costs that would have been recovered from
customers through the PGA provisions of current tariffs, but which are
unrecovered when a pipeline implements the Restructuring Rule and
terminates its PGA;
(2) The cost of facilities or transportation arrangements no
longer necessary or which are uneconomic after they are unbundled upon
restructuring. These costs, known as "stranded costs," include such
things as unused or underutilized gathering facilities and the costs
(including exit fees) associated with the termination of upstream
pipeline transportation contracts which are not needed or desired by
downstream pipeline customers or any other party;
IV-2
<PAGE> 623
(3) The cost of installing new facilities, such as remote
electronic metering, flow control and information systems, that may be
required as part of the implementation of restructured services; and
(4) Gas supply realignment ("GSR") costs that are required to
reform or terminate contracts obligating pipelines to purchase gas
from producers or other suppliers, which contracts are no longer
viable because they are in excess of the pipeline's merchant
requirements or at prices higher than market prices.
2. PROCEDURAL STATUS OF TCO'S RESTRUCTURING
On December 30, 1992, TCO made its compliance filing pursuant to Order
No. 636. FERC issued an initial order on TCO's compliance filing on July 14,
1993 (the "July 14 Order"), accepting, rejecting or requiring modification of
different aspects of TCO's compliance filing.
On August 13, 1993, TCO made a revised Order No. 636 filing to comply
with the July 14 Order. TCO and other parties also filed requests for rehearing
on many aspects of the July 14 Order. On September 29, 1993, FERC issued its
Second Order on Compliance Filings and Order on Rehearing (the "September 29
Order") whereby it accepted TCO's revised compliance proposal, subject to
modification, effective November 1, 1993. On October 5, 1993, TCO appealed
certain aspects of the July 14 and September 29 Orders to the United States
Court of Appeals for the D.C. Circuit. TCO's Creditors' Committee, some of TCO's
Customers and others also appealed these orders. TCO made a second revised Order
No. 636 compliance filing on October 13, 1993 to comply with the September 29th
Order. TCO and other parties also sought rehearing of certain aspects of that
Order.
IV-3
<PAGE> 624
On December 16, 1993, FERC issued its third order in TCO's restructuring
proceedings (the "December 16 Order"). FERC approved TCO's third compliance
filing, with minor modifications, and for the most part denied requests for
rehearing. TCO's fourth compliance filing was accepted and all subsequent
requests for rehearing were denied.
As indicated above, multiple parties-in-interest have filed appeals
from FERC's rulings on TCO's Order No. 636 compliance filings. While FERC has
generally accepted TCO's proposals for implementation of the operational and
rate restructuring elements of Order No. 636, as well as the proposed mechanisms
for transition cost recoveries (with the exception of TCO's proposals for
recovery of GSR costs), FERC has ruled on the merits of TCO's recovery claims
for certain transition cost recoveries. Disputes are pending as to some of those
issues, and reversal or modification of FERC's current rulings, or TCO's
inability to implement those rulings on the terms anticipated by TCO, could
adversely affect TCO's performance in the future. However, TCO believes the
fundamental operational restructuring mandated by Order No. 636 will not be
reversed, and has resolved the major transition cost recovery issues through the
Customer Settlement Proposal more fully described below.
In accordance with FERC's direction, TCO began implementation of
restructured services pursuant to Order No. 636 on November 1, 1993. By order of
the Bankruptcy Court dated October 20, 1993, TCO was authorized (to the extent
such
IV-4
<PAGE> 625
authorization is required) (i) to implement compliance with Order No. 636,
including the execution of new or revised contracts with Customers and the
filing of necessary tariffs and rate schedules; and (ii) to transfer title to
its storage working gas, free and clear of liens, to its Customers (with valid
liens and encumbrances to attach to the proceeds of sale), and to sell
miscellaneous assets on notice to the Creditors' Committee. That order further
provided that execution of new contracts did not constitute an assumption or
rejection of existing pre-petition contracts or an elevation to administrative
priority of Claims arising under those pre-petition contracts; and that no
determination was being made as to the status of Customers' recoupment rights or
whether the existing contracts were superseded or terminated as a result of
Order No. 636.
3. IMPACT ON TCO'S SERVICES
Order No. 636 has had a substantial impact on how TCO does business.
In particular, while the aggregate quantity of gas moved on TCO's system has not
and is not expected to change materially, TCO's business no longer includes any
significant merchant function but instead consists primarily of the storage and
transportation of natural gas owned by others.(2)
FERC has generally accepted TCO's unbundling and service-related
proposals. Thus, TCO has continued to provide firm,
- - -------------------
2 TCO retains a limited merchant service for some of its smallest
Customers, but this accounts for less than 1% of its overall
services.
IV-5
<PAGE> 626
off-peak firm and interruptible transportation services, and firm storage
services post-restructuring, as well as various new transportation, gathering
and storage services.
4. RATE ISSUES
FERC has accepted TCO's compliance filing proposal to unbundle its
rates under the SFV rate design. FERC has also held that TCO is not required to
file a new general rate case as part of its restructuring, although TCO has the
option of making limited or general rate filings to recover certain transition
costs.
Various parties have appeals pending of Order No. 636 and of the FERC
orders relating to the implementation of Order No. 636 on TCO's system. As
discussed below, the Customer Settlement Proposal provides that certain of the
issues raised on appeal are resolved by the Settlement, while other issues may
be pursued by certain parties with any resulting relief to be applied on a
prospective basis with no potential refund exposure to TCO, or collection
recovery exposure to Supporting Parties (as defined in the Customer Settlement
Proposal). While it is possible that certain parties may continue to pursue
issues which could involve potential refund liability on TCO's part, any such
refund liability would be limited to these individual parties. TCO regards such
parties' prospects for prevailing on such issues as remote and, in any event,
does not believe the results will have a material impact on TCO. The Settlement
also contemplates that parties may continue to pursue issues
IV-6
<PAGE> 627
surrounding TCO's recovery of costs paid to Columbia Gulf between the
implementation of Order No. 636 on November 1, 1993 and the termination of the
Contract between TCO and Columbia Gulf as of November 1, 1994 according to its
terms. Certain Customers have asserted that TCO's recovery of the subject costs
should be denied. While it is not possible to predict the outcome of this
reserved issue, TCO believes its recovery of the subject costs will be upheld.
5. CUSTOMER CONTRACTS
Prior to the Filing Date, TCO was a party to numerous executory
contracts with its Customers, covering the provision of services which TCO was
mandated or authorized to provide as a regulated interstate pipeline under the
NGA and FERC rules and regulations. Under Order No. 636, pipelines generally
were required to offer the same capacity entitlements to their customers, on an
unbundled basis, as those customers had received prior to the implementation of
Order No. 636.
However, customers were permitted to convert all or a portion of their
gas purchase entitlement from pipelines to transportation and/or storage
entitlement. Firm transportation customers were further permitted to reduce or
eliminate their contractual transportation entitlement from pipelines, provided
that the pipeline could remarket the reduced capacity to other parties or
mutually agree with customers as to appropriate "exit fees".
IV-7
<PAGE> 628
FERC has also taken steps to provide that pipeline-customer
relationships will be governed more by contracts and less by regulation, such as
by issuing blanket abandonment authorization of pipeline services once a
restructured or new contract has expired or terminated, so that the contracts
themselves will govern the duration of such services. However, in order to
ensure reliability of services to consumers, Order No. 636 provides firm
transportation and storage customers with a contract term of one year or longer
with a right of first refusal, so that, upon expiration of any firm
transportation or storage contract, the customer has the option of continuing
such service from the pipeline by matching any third-party offer for the
services.
In connection with the implementation of Order No. 636, TCO offered
its Customers contracts reflecting the restructured services and regulatory
environment. Many Customers refused to execute new contracts with TCO because of
concerns over the possible impairment of their recoupment, set-off or other
legal claims against TCO in its Bankruptcy Case.
It is obvious that continuation of its business relationships with the
Customers to which it provides ongoing services is of the utmost importance to
TCO's ability to reorganize, pay its Creditors, and operate its business in the
future. As a result, TCO believes it must, in connection with its
reorganization, resolve all issues regarding the status of its contractual
relationships with Customers.
IV-8
<PAGE> 629
As set forth in Section IV.B.4, "Customer Contract Issues and
Recoupment and Setoff Motions", disputes over Customers' rights to full payment
of all regulatory Refund Claims under their existing contracts have generated
extensive litigation before the Bankruptcy Court and the FERC during the course
of these proceedings. The Customer Settlement Proposal, the terms of which are
embodied in the treatment of Class 3.2 of the Amended Plan and more fully set
forth below (See Section IV.C), contains a fair and reasonable resolution of
Customers' recoupment and Setoff rights, avoids the possibility of assumption by
TCO of service contracts not yet amended to conform to Order No. 636 provisions,
with attendant claims for cure costs, and sets the stage for the consensual
execution of new service contracts essential to the stable operations of TCO
post-reorganization, which will preserve substantial value in the estate for
Non-Customer Creditors.
As provided in the Customer Settlement Proposal, TCO shall assume
pursuant to this Plan all service agreements and all other agreements with
Accepting Class 3.2 Claimants, provided that TCO is neither assuming nor
rejecting contracts or service agreements that have been superseded subsequent
to the Petition Date or which have otherwise terminated according to their
provisions. TCO shall continue to provide, post-reorganization, the services it
currently provides under its FERC Gas Tariff, without prejudice to its rights or
the rights of any other party or the FERC to request, protest or require
modification or
IV-9
<PAGE> 630
termination of such services. TCO shall not reject any FERC-approved settlement,
including but not limited to, the Global Settlement and the PGA Settlement,
excluding exit fee agreements (and underlying upstream pipeline contracts)
approved by the Bankruptcy Court and the FERC if those agreements are unwound in
accordance with their terms.
6. UPSTREAM PIPELINE CONTRACTS
As noted above, an important element of restructuring is the
unbundling of upstream pipeline transportation and storage contracts by offering
such contracts to downstream pipeline customers. TCO has or had two types of
such contracts:
(1) market area contracts, whereby the upstream pipelines
deliver gas into various points throughout TCO's system; and
(2) supply area contracts, whereby pipelines directly or
indirectly deliver gas to Columbia Gulf Transmission Company ("Gulf")
in the Southwest, which then transports such gas to TCO.
TCO has retained several of its market area upstream pipeline
contracts will be retained by it. FERC has approved TCO's direct assignment of
most of the capacity under its other market-area upstream pipeline contracts to
its Customers (together with the prospective transition costs attributable to
those contracts), according to the needs of its Customers for upstream pipeline
capacity, subject to bankruptcy law requirements of assumption as a precedent to
assignment. However, only a portion of TCO's largest market area transportation
contract, with Tennessee Gas Pipeline Company ("Tennessee"), could be assigned
to Customers. On November 15,
IV-10
<PAGE> 631
1993, the Bankruptcy Court approved a settlement between TCO and Tennessee
whereby the contract would be partially assigned and the remainder of the
contract would be terminated upon payment by TCO of an exit fee to Tennessee.
The Bankruptcy Court has also approved settlements between TCO and other
market-area upstream pipelines, including Texas Eastern Transmission
Corporation, Panhandle Eastern Pipe Line Company, Texas Gas Transmission
Corporation, and Transcontinental Pipeline Corporation ("Transco") permitting
assumption of certain contracts and termination of others.
All supply area upstream pipeline contracts were offered to TCO's
Customers and other parties on a nondiscriminatory basis. To the extent capacity
under those contracts could not be assigned or remarketed by the upstream
pipeline suppliers, TCO undertook to negotiate appropriate exit fees with the
pipelines, recognizing that if a mutually agreeable exit fee could not be
negotiated, it might be necessary for TCO to reject such upstream pipeline
contracts in order to avoid the retention of a contract (and the associated
cost) which is not required for TCO's long-term operations. Since November 1,
1993, the Bankruptcy Court has approved several exit fee settlements between TCO
and its supply-area upstream pipeline suppliers including Natural Gas Pipeline
Corporation ("NGPL"), Ozark Gas Transmission System ("Ozark"), Wyoming
Interstate Company, Ltd. ("WIC"), Trailblazer Pipeline Company ("Trailblazer"),
and Overthrust Pipeline Company ("Overthrust").
IV-11
<PAGE> 632
All of the settlements are subject to TCO obtaining FERC approval of
the settlements and of TCO's recovery of the full amount of the negotiated exit
fees from its Customers. On June 30, 1994, the Commission approved the Tennessee
Exit Fee settlement. On September 28, 1994, FERC denied requests for rehearing
of its June 30 order. On January 27, 1995 and February 10, 1995, FERC approved
the Transco, WIC, Trailblazer and NGPL settlements. Finally, on May 22, 1995,
FERC approved the Ozark Exit Fee Settlement. On March 14, 1995, the Overthrust
settlement was filed with the Commission. TCO is awaiting approval. Requests for
rehearing of FERC's orders, or appeals to the United States Court of Appeals for
the D.C. Circuit, are pending. All of the proposed settlements are subject to
approval by a Final FERC Order which is not subject to appeal.
TCO's Plan assumptions and the Payout Analysis annexed hereto as
Exhibit 2 do not include any allocation for upstream pipeline contract rejection
costs. As set forth in Section IV.B.2, "Upstream Pipeline Supplier Claims,"
several pipelines have Filed significant contingent Claims for such potential
liabilities, and others could still File such Claims if their contracts are in
fact rejected. If that were to occur, TCO would expect such Claims to assert
liability for demand charges over the remaining life of those contracts, subject
to obligations to discount future liabilities and reflect mitigation, and that
such Claims could exceed $250 million.
IV-12
<PAGE> 633
Annexed to hereto as Exhibit 3 are schedules of the proposed treatment or
disposition of pre-petition executory contracts between TCO and its upstream
pipelines which were in existence as of the Petition Date.
TCO has taken the position, under the authority of Order No. 636, that
any exit fees or contract rejection costs it becomes obligated to pay to
upstream pipelines are recoverable from its Customers as "stranded" transition
costs. Customers and other interested parties have already opposed the recovery
of at least a portion of the exit fees negotiated by TCO and submitted to FERC
for approval, and likewise have stated they would oppose the recoverability of
payments on contract rejection Claims. The proposed Customer Settlement, set
forth more fully below, substantially resolves the exit fee and other Account
No. 858 stranded cost recovery disputes, by providing that all settling
Customers will pay their allocable shares of actual exit fees and stranded 858
costs incurred by TCO, provided that, inter alia, TCO absorb
$11.5 million of upstream pipeline stranded costs and flow through certain
additional refunds expected to be received from TCO's upstream pipelines.(3)
- - -------------------
3 The Customer Settlement Proposal provides that, in the
event an exit fee settlement is voided or does not receive
necessary regulatory approvals, TCO preserves its right to
seek recovery, and customers preserve the right to oppose
TCO's recovery, of all costs incurred by TCO from such
pipelines with the terms of the Customer Settlement
Proposal otherwise remaining intact.
IV-13
<PAGE> 634
7. TRANSITION COST RECOVERY MECHANISMS
a. NON-GAS COSTS
TCO has proposed and FERC has approved a recovery mechanism for
non-gas costs associated with TCO's upstream pipeline contracts, including
unpaid pre-petition demand charges relating to periods subsequent to March 31,
1990, exit fees and costs associated with Contract Rejection Claims, if any.
That mechanism is set forth in the Transportation Cost Recovery Adjustment
("TCRA") provisions of TCO's FERC Gas Tariff. TCO's TCRA, which has been in
effect since the 1989 Global Settlement, is a tracker provision which allows
dollar for dollar recovery of TCO's upstream pipeline transportation costs, to
the extent paid by TCO.
While FERC has accepted the proposed recovery mechanism and permitted
it to be included in TCO's tariff, Customers and other parties retain the right
to question the prudence and eligibility for recovery as transition costs of any
costs which TCO actually seeks to recover, and FERC will not rule on any request
for recovery until it is actually filed. As discussed above, the Customer
Settlement Proposal provides for the recovery of substantially all of TCO's
costs under its upstream pipeline contracts.
b. GAS COSTS AND GSR COSTS
TCO has proposed to recover from its former sales Customers the
balance of unrecovered purchased gas costs associated with its merchant function
for periods prior to its implementation of
IV-14
<PAGE> 635
restructuring (so-called "Account 191 costs"). Such recovery includes liability
associated with gas received by TCO prior to the Petition Date, for which
payments have either not yet been made, or have been challenged as inadequate
under the terms of the contracts.(4) These gas costs will be paid to Producers
in accordance with the various treatments for Producer Claims in the Plan. As
discussed below, the Customer Settlement Proposal provides for TCO's recovery
of a substantial level of such gas costs.
TCO filed two mechanisms for recovery of GSR costs in its Order No.
636 restructuring proceedings, including a portion of the costs that will be
paid to Producers for damages arising from rejection of their gas supply
contracts. These proposals were by far the most controversial elements of TCO's
compliance filing.(5) TCO's Customers, affected state commissions and consumer
advocates vigorously opposed any recovery by TCO of Contract Rejection costs.
- - -------------------
4 Certain of the Producers asserting Claims for unpaid prepetition
gas deliveries have asserted that their Claims are secured by
statutory liens, which status TCO has disputed in an adversary
proceeding pending before the Bankruptcy Court.
5 TCO's primary proposal sought recovery of such costs as GSR
transition costs under FERC Order No. 636-A. To the extent
that any of such GSR costs were determined to be ineligible
for GSR transition cost recovery, TCO proposed to recover a
portion of such costs through FERC Order No. 528, which
requires pipelines to absorb at least 25% of such costs.
Order No. 636-A, FERC's order on rehearing of Order No.
636, made minor modifications to Order No. 636.
IV-15
<PAGE> 636
The July 14 and September 29 Orders effectively denied TCO's right to
recover the large majority of costs relating to the payment of Contract
Rejection Claims. The FERC did acknowledge that TCO was not precluded from
seeking a limited recovery of costs for gas supply contracts rejected by TCO
subsequent to October 31, 1991. However, the vast majority of such contracts
were rejected prior to that date. While TCO and the Creditors' Committee have
appealed those determinations, in light of FERC rulings to date, it is very
unlikely that Reorganized TCO would be able to recover a meaningful portion of
the payments to be made under the Plan to Producers for damages arising from
rejection of their gas supply contracts. In addition to the unfavorable
prospects on the merits, the pursuit of such recoveries would be time consuming,
entail considerable legal expenses, and would threaten the maintenance of a
healthy business relationship among TCO and the Customers upon which its
business depends. The Customer Settlement Proposal resolves the GSR issue as
between TCO and all Supporting Parties as defined therein.
B. REGULATORY CLAIMS AND RELATED LITIGATION
As a federally regulated interstate pipeline, TCO's bankruptcy
proceeding has been complicated by the often conflicting interplay between the
requirements of the Bankruptcy Code, and the regulatory requirements applicable
to TCO's operation of its business in accordance with the requirements and
regulations of the Natural Gas Act and the FERC. In
IV-16
<PAGE> 637
particular, operational and compliance issues have arisen affecting TCO's
relationships with its upstream pipeline suppliers, and even more significantly
its Customers, to whom TCO supplies transportation and storage services and from
whom it receives the major portion of its revenues.
In recognition of the significance of the interests of the Customer
constituency in TCO's case, on September 30, 1991, the U.S. Trustee appointed
the Official Committee of Nonaffiliated Customers (the "Customers' Committee"),
which subsequently retained legal and financial advisors. In addition,
individual Customers and various state regulatory and consumer agencies have
intervened in the Bankruptcy Case since the Petition Date, and have actively
monitored all proceedings.
The regulatory and contractual relationships between TCO, its upstream
pipelines and its Customers have been significantly affected by the impact of
Order No. 636, and TCO's required restructuring. The sections below discuss more
fully the nature and status of the issues, and ultimately the resolutions
achieved. Extensive litigation before the Bankruptcy Court, the FERC and various
levels of appellate courts has ensued during this Case, as TCO, its Customers,
the Creditors' Committee and other interested parties have attempted to define
and adjust their competing interests. The implementation of Order No. 636 added
significantly to the already-present claims of TCO for cost recoveries of
various kinds, totaling significant sums for TCO's Estate, and these collections
were entangled in many
IV-17
<PAGE> 638
respects with the resolution of Customers' Claims in the Bankruptcy Case and the
resolution of upstream pipeline Claims and contracts.
Ultimately, the Customer Settlement Proposal described below was
negotiated by TCO, the Customers' Committee, most of its affiliated and
unaffiliated firm service Customers, and various state regulatory and consumer
agencies as a global mechanism for resolving dozens of pending litigations
affecting the amount and priority of potentially hundreds of millions of dollars
of Claims in TCO's Reorganization Case, and the recoverability of several
hundred millions of dollars in Customer payments. The following sections
describe the major pending Bankruptcy and FERC litigation which will be resolved
by approval of the settlement and confirmation of the Plan, the Customer and
upstream pipeline Claims which are resolved, the nature of the settlement, the
terms of which are set forth in the Customer Settlement Proposal annexed to the
Plan as Exhibit "E", and the proposed treatment of upstream pipeline and
Customer Regulatory Claims under the Plan. The proposed Allowed amounts for
Customer Regulatory Claims are set forth on Schedule IV to the Plan (excluding
certain other post-petition Refund Obligations provided for in the Customer
Settlement Proposal, which include flowthrough of certain pipeline excess
deferred income tax refunds, general rate refunds, refunds to be received from
Wyoming Interstate Company, Ltd., and miscellaneous pre-petition refunds
received by TCO post-petition).
IV-18
<PAGE> 639
1. CUSTOMER CLAIMS
Approximately 450 Claims have been filed relating to or arising from
TCO's contracts with its Customers for sales, transportation, gas storage and
similar services, totaling approximately $550 million as filed plus unliquidated
amounts. Customers have asserted trust fund, recoupment, Setoff and other
theories which could elevate their otherwise pre-petition unsecured claims to
higher priority status, and extensive litigation relating to those matters has
occurred during the Reorganization Case.
Generally, Customer Claims allege several bases for liability against
TCO including, inter alia, Claims for upstream supplier Order
No. 500/528 flow-through refunds (whether or not treated as trust funds),
refunds owed in connection with the 1990 Rate Case, certain tax refunds relating
to storage gas, refunds alleged to be due as a result of FERC's determination on
remand of the D.C. Circuit's ruling in BG&E v. FERC, refunds received by
TCO relating to overcharges to Commonwealth by Transco, refunds resulting from
TCO's GIC mechanism, Winter Service inventory, pre-paid transportation request
fees, transportation and exchange imbalances, and uncashed checks for rate
refunds.
In addition, TCO believes it is entitled to recover significant costs
from its Customers as transition costs under Order No. 636 and on other grounds,
and has asserted its rights in numerous proceedings before the FERC. These
obligations from
IV-19
<PAGE> 640
its Customers include exit fees paid by TCO pursuant to settlements for the
termination of transportation agreements with upstream pipeline suppliers and
other Account No. 858 costs incurred pre- and post-petition by TCO, Account No.
191 costs incurred pre- and post-petition, gas supply-related costs for which
TCO could have sought recovery through its GIC (which was terminated when TCO
implemented Order No. 636), costs associated with certain contracts TCO rejected
in its bankruptcy proceedings and various other costs TCO is authorized to
recover under the regulatory scheme of the Natural Gas Act.
TCO believes that the treatment of Customer Claims, as reflected in
the Customer Settlement Proposal, is acceptable to the vast majority of its
Customers as a resolution both of disputes relating to Customers' Claims against
TCO and the settlement of substantial claims of TCO against the Customers for
recovery of Order No. 636 transition costs and other costs.
Through its Plan, TCO seeks Bankruptcy Court approval of the
settlement of the many issues embodied in the Customer Settlement Proposal also
submitted to the FERC, and will seek approval of the proposed treatment of
Customer Claims embodied in the Plan. TCO proposes to divide Customers' Claims
into three categories: (1) regulatory refund and non-regulatory Refund Claims
totaling $25,000 or less (per Customer), which are treated as convenience class
Claims in Class 3.1; (2) regulatory Refund Claims and the GRI Claims in excess
of $25,000 which are
IV-20
<PAGE> 641
treated in Class 3.2; and (3) non-regulatory Refund Claims in excess of $25,000
which are treated in Class 3.4.
2. UPSTREAM PIPELINE SUPPLIER CLAIMS
Claims relating to or arising from TCO's contracts with its upstream
pipeline suppliers for gas purchase, transportation and storage services
represent about fifty-four Claims, totalling approximately $123 million as filed
and amended. In addition to certain pipeline-specific issues, the bases for
liability generally asserted in these Claims include: (i) amounts for
pre-petition services rendered; (ii) amounts allegedly due under pipeline
filings to recover costs under FERC Order Nos. 500 and 528; (iii) amounts
allegedly due under pipeline filings to recover costs incurred resulting from
FERC Order No. 94 production-related costs; (iv) potential Contract Rejection
damages; and (v) return of gas imbalances that TCO owed under gas transportation
and exchange agreements.
As part of TCO's implementation of new services and the restructuring
of its operations consistent with FERC's Order No. 636, TCO has to assume,
assign or terminate its pre-petition upstream pipeline contracts and resolve
Claims relating to those contracts. As a general rule, where an upstream
pipeline's capacity can be assigned to TCO's downstream Customers without
further liability to TCO, TCO has assumed the pipeline contracts in order to
effectuate the assignment and pay settled and agreed prepetition invoices as
"cure" costs (which payments may be recoverable from TCO's Customers through the
TCRA). As to
IV-21
<PAGE> 642
upstream pipeline contracts where some or all of the capacity is "stranded"
i.e., not assignable to TCO's Customers and not needed by TCO, TCO has
negotiated exit fee agreements which operate to terminate the upstream pipeline
contracts in consideration for payment of the exit fees, which, in turn may be
recoverable from TCO's Customers.
The Bankruptcy Court has consistently approved the exit fee
arrangements TCO has negotiated with various upstream pipelines, conditioned on
recovery from Customers of the exit fees payable to upstream pipelines, and FERC
has approved all but one of the agreements with the remaining agreement
presently pending approval. Customers, however, have asserted objections to the
amount and their liability for such exit fees, arguing, among other things, that
the capacity underlying those contracts became unused and unuseful prior to
November 1, 1993 and therefore the exit fees and other stranded Account No. 858
costs were not directly related to or recoverable under Order No. 636.
This issue, including pending requests for rehearing and appeals,
has been compromised, in principle, as part of the Customer Settlement
Proposal. Under that settlement proposal, TCO will recover all but
$11.5 million of its upstream pipeline stranded costs, which include both
exit fee payments and other contractual costs paid prior to the termination
of stranded contracts. Contingent Contract Rejection and transition cost
Claims filed by TCO's most significant upstream pipelines will most likely
be resolved in this manner, and it should not be
IV-22
<PAGE> 643
necessary for TCO to reject pipeline contracts, thereby avoiding substantial,
unliquidated rejection damage Claims which could significantly dilute the level
of recoveries available for other unsecured Creditors.
Upstream pipeline Claims which are treated under the Plan consist of
pre-Petition Date unpaid transportation charges and certain other settled
amounts which are treated as trade payables in Class 3.4, entitled to receive
72.5 cents on the dollar. To the extent upstream pipeline contracts have been
assumed by TCO, Bankruptcy Court orders have authorized the payment of
pre-petition unpaid charges as cure costs.
3. THE OMNIBUS FERC MOTION
In connection with the Motion for Order Authorizing Columbia Gas
Transmission Corporation to comply with Federal Energy Regulatory Commission Gas
Tariff and Orders and Regulations of the Federal Energy Regulatory Commission
filed by TCO on August 23, 1991 with the Bankruptcy Court (the "Omnibus FERC
Motion"), and after hearings and extensive briefing by numerous parties in
interest, the Bankruptcy Court issued a Memorandum Opinion and Order on February
13, 1992 regarding, inter alia, TCO's right to flow through to
its Customers pre-petition refunds from its pipeline suppliers pursuant to FERC
orders and its FERC Gas Tariff and to pay to GRI pre-petition collections from
its Customers under a special GRI surcharge.
The Bankruptcy Court adopted the arguments of TCO and its Customers
that such pre-petition refunds and collections were
IV-23
<PAGE> 644
held in trust for TCO's Customers and GRI, respectively, pursuant to FERC orders
and its Tariff. The Bankruptcy Court authorized TCO to flow through all
pre-petition pipeline supplier refunds and GRI collections received
post-petition, to its Customers. However, applying the "lowest intermediate
balance rule", the Bankruptcy Court held that for refunds and GRI collections
received by TCO pre-petition (totalling approximately $35 million), the trust
fund Claims were limited to TCO's cash on hand on the Petition Date,
i.e., $3.3 million. TCO's Customers and GRI were entitled to receive
their pro rata share of the $3.3 million cash balance. The Bankruptcy Court
denied TCO's request to reimburse its upstream pipeline suppliers and
transporters for pre-petition transportation charges.(6)
TCO, the Creditors' Committee, the Customers' Committee and others
appealed the Bankruptcy Court's decision. On July 6, 1992, the United States
District Court for the District of Delaware overturned the Bankruptcy Court's
February 13 Order, holding that the supplier refunds and GRI collections were
not
- - -------------------
6 In prior orders, the Bankruptcy Court approved three
stipulations resulting from the Omnibus FERC Motion which,
inter alia, authorized TCO to (i) pay its pre-petition FERC
charges; (ii) remedy imbalances with respect to gas
deliveries which existed between TCO, its Customers and
other parties as of the Petition Date in the normal course
of business; (iii) deliver gas to its firm storage
Customers pursuant to its FSS agreements and FERC
regulations and orders, subject to certain conditions and
(iv) consummate settlements of certain FERC matters without
Bankruptcy Court review if TCO's Creditors' Committee,
after notice, did not object.
IV-24
<PAGE> 645
held in trust, but belonged to TCO's Estate for the general benefit of its
Creditors.(7)
The District Court upheld the Bankruptcy Court's Order that the
amounts owed to upstream pipeline suppliers constituted general unsecured Claims
and, thus, could not be paid to such suppliers prior to a plan of
reorganization.
TCO, its Customers and other parties appealed the District Court's
ruling to the United States Court of Appeals for the Third Circuit. On July 6,
1993 the Court of Appeals reversed in part and affirmed in part the decision of
the District Court. In effect, the Court of Appeals reinstated the decision of
the Bankruptcy Court, holding that the supplier refunds and the GRI collections
were held in trust by TCO and that the transportation charges owed to upstream
pipeline suppliers and transporters were pre-petition unsecured charges for
goods and services. The ruling generally authorized TCO to flow through to its
Customers and the GRI the funds owed. However, the Court of Appeals also
reinstated that portion of the Bankruptcy Court's decision which applied the
"lowest intermediate balance rule" to the supplier refunds and GRI collections,
holding that only the $3.3 million dollars cash on hand when TCO filed its
- - -------------------
7 Of the approximately $195 million of refunds at issue,
approximately $165 million relate to FERC Order No. 500 and
528 refunds. See Section IV.B.3, "The Omnibus FERC
Motion." On August 20, 1992, TCO advised FERC that in view
of the District Court's July 6 Order, it was suspending all
remaining upstream pipeline Order No. 528 payments as well
as Order No. 528 billing adjustments to its Customers. On
October 15, 1992, FERC granted TCO the necessary waivers
for such suspensions.
IV-25
<PAGE> 646
petition would be available to satisfy Claims relating to monies actually
collected by TCO pre-petition. On February 22, 1994, the United States Supreme
Court denied the Creditors' Committee's petition for certiorari of the Third
Circuit's decision.
As a result of the Third Circuit's decision, TCO has refunded
approximately $170 million of upstream pipeline refunds received post-petition
to its Customers. Because the refunds that were the subject of TCO's requests
for relief in the Omnibus FERC Motion were limited to certain refunds enumerated
therein, TCO and the various parties reserved their rights to request a further
adjudication of whether certain other Refund Obligations owed by TCO similar in
character to the Trust Claims should also be considered trust funds and thus
subject to the $3.3 million lowest intermediate balance. Thus, TCO has not
distributed to date any of the $3.3 million to its Customers.
While the appeals to the Third Circuit were pending, on January 6,
1993, the Bankruptcy Court approved a motion by TCO to establish a Restricted
Investment Arrangement (the "RIA Account", as defined in the Plan) for supplier
refunds held by TCO as of or paid to TCO following the Petition Date, with the
disposition of the funds to be subject to the outcome of the appellate
proceedings and further order of the Bankruptcy Court. On March 2, 1993, FERC
approved an Order directing TCO's pipeline suppliers to pay all such refunds
pursuant to FERC
IV-26
<PAGE> 647
orders to TCO and for TCO to place such refunds into the RIA Account.
On June 23, 1994, FERC ruled that TCO could pay interest actually
earned by the RIA on such flowthrough refunds after such refunds were deposited
into the RIA, but must pay interest at higher FERC-prescribed rates from the
dates TCO collected the refunds until they were deposited into the RIA (the
"FERC Interest Order"). FERC denied rehearing of its order on October 5, 1994.
One TCO Customer has filed a petition for review of this order with the United
States Court of Appeals for the D.C. Circuit. TCO has made additional refunds of
$8.6 million consistent with FERC's orders. References to "RIA Interest" in the
Plan of Reorganization and this Disclosure Statement mean interest consistent
with the FERC Interest Order.
4. CUSTOMER CONTRACT ISSUES AND RECOUPMENT AND SETOFF
MOTIONS
Since September of 1993, various Customers of TCO (collectively, the
"Recoupment Movants") have filed motions with the Bankruptcy Court seeking
authority to permit them to exercise alleged recoupment rights, whereby any
refunds owed to them which were not otherwise payable in full under the Third
Circuit Decision on the Omnibus FERC Motion (i.e., the difference between the
upstream pipeline refunds received by TCO pre-petition and the Customer pro rata
share of the aforementioned $3.3 million), all 1990 Rate Case refunds, BG&E
refunds and miscellaneous refunds not otherwise payable in full under current
court rulings, would be "recouped" out of post-
IV-27
<PAGE> 648
petition payments due under ongoing service contracts between TCO and those
Customers. Certain other Customers (collectively, the "Setoff Movants") have
filed motions seeking authority to Setoff post-Petition Date Weighted Average
Cost of Gas ("WACOG") surcharges,(8) collectible by TCO from its Customers,
against pre-and post-petition refunds and other alleged obligations of TCO to
those Customers.
In October 1993, the Bankruptcy Court approved interim stipulations
pursuant to which the Recoupment Movants, the Setoff Movants and certain
similarly situated Customers have continued making payments to TCO for
FERC-authorized services and charges while TCO has agreed to grant such
Customers administrative priority Claims to the extent the Court finds that such
Customers are entitled to recoupment or setoff rights ("Administrative
Recoupment Claims.") On January 6, 1994, the Bankruptcy Court entered an order
approving procedures pursuant to which Customers similarly situated to the
Recoupment and Setoff Movants could assert similar claims. Approximately 50 of
TCO's Customers have filed such requests for recoupment and/or Setoff of the
applicable amounts of their Claims, certain of which amounts are unliquidated or
contingent. TCO, its Creditors' and Customers' Committees, the IRS, various
state regulatory agencies and various Customers subsequently filed
- - -------------------
8 The WACOG surcharge arises under TCO's 1985 PGA Settlement with
its Customers which permits TCO to recover certain gas costs
from its Customers if TCO meets the "WACOG test" in given years.
IV-28
<PAGE> 649
summary judgment motions and briefs in support of or opposition to the
recoupment and set-off requests. The last brief was filed on August 24, 1994. To
date, the Bankruptcy Court has not set a hearing to consider oral argument or
issued a ruling on the Customers' requests.
These disputes over the payment of Customer refunds have resulted in
proceedings before FERC as well as the Bankruptcy Court, whereby Customers have
sought protection of their recoupment and Setoff rights, if any, notwithstanding
an alleged obligation to execute new or revised contracts reflecting TCO's
restructured service obligations under Order No. 636. To date, many Customers
have yet to execute such contracts, and all parties have preserved their rights
with respect to the legal significance in the Bankruptcy context of the
execution of the new agreements. The Customer Settlement Proposal promises to
bring an end to this ongoing litigation over Customer contracts and allow full
implementation of TCO's Order No. 636 restructuring.
5. THE BG&E CASE
Under FERC Order No. 500, issued in August, 1987, FERC established a
policy allowing pipelines to bill directly a portion of their take-or-pay and
contract reformation costs (herein referred to as "Order No. 500 Costs") to
their customers, provided that the pipeline was willing to absorb an equal share
of such costs. All of TCO's pipeline suppliers received FERC acceptance for
direct billing recovery of Order
IV-29
<PAGE> 650
No. 500 costs, resulting in an allocation to TCO of approximately $350 million
in principal dollars. TCO and other parties challenged the legality of the
allocation methodology, and in December, 1989, in a case styled AGD v. FERC, 893
F.2d 349 (D.C. Cir. 1989), cert. denied, 498 U.S. 907 (1990), the reviewing
court held that the allocation applied by FERC violated the filed rate doctrine
and the prohibition against retroactive ratemaking under the NGA.
In November 1990, FERC issued its Order No. 528, which required
pipelines to file revised direct billing recovery mechanisms for Order No. 500
Costs to comply with the mandate of the Court in AGD v. FERC. TCO's Order No.
500 cost allocation has been reduced to a principal amount in excess of $122
million.
TCO's Customers and consumer groups challenged TCO's recovery of
any Order Nos. 500 and 528 direct charges billed to TCO by its pipeline
suppliers. They argued that TCO was barred from recovering such charges under
its 1985 PGA Settlement, and that TCO should not recover such charges because
they resulted from imprudent past purchasing practices. FERC had issued a series
of orders holding that (i) TCO was not precluded from recovering such charges
under the 1985 PGA Settlement; and (ii) that the Settlement barred challenges to
TCO's purchasing practices prior to April 1, 1987.
TCO's Customers filed petitions for review of such orders in a case
styled Baltimore Gas & Electric Co. v. FERC, D.C. Cir.
IV-30
<PAGE> 651
No. 88-1779 (the "BG&E Appeal"). On June 24, 1994, the D.C. Circuit Court of
Appeals ruled on the BG&E Appeal. It held that TCO is not entitled to recover
from its Customers Order No. 500/528 fixed charges paid by TCO to its upstream
pipeline suppliers if and to the extent such charges are "applicable to" gas
purchases made by TCO prior to April 1, 1987. Baltimore Gas & Electric Company
v. FERC, 26 F.3d 1129 (D.C. Cir. 1994)(the "BG&E Decision"). The total principal
amount of Order No. 500/528 costs paid by TCO to the upstream pipelines and
recovered from its Customers exceeded $122 million. Including interest, the
amount at issue as of July 31, 1991 exceeds $162 million, and as of December 31,
1994 exceeds $237 million. The matter was remanded to the FERC for a
determination as to the amount of refunds owed by TCO to its Customers.
On December 1, 1994, FERC issued an order on remand directing TCO to
make a factual submission regarding which fixed charges imposed by the upstream
pipelines were "applicable to" gas purchases made on or after April 1, 1987.
Extensions of time for such filing have been granted, so that TCO's evidentiary
submission is now due on May 15, 1995. On January 26, 1995, the Commission
denied requests for rehearing of the December 1, 1994 order, but clarified that
it had not pre-judged any substantive issue, and that TCO and the other parties
were free to make any factual showing or take any position they desired
regarding the recoverability of the relevant costs. The Customer Settlement
Proposal resolves the BG&E remand refund
IV-31
<PAGE> 652
issue as between TCO, Accepting Class 3.2 Claimants, and all Supporting Parties
as defined therein.
6. ORDER NO. 94 ISSUES
In 1985, FERC accepted direct billing filings by certain pipeline
suppliers of TCO to recover certain retroactive charges paid to producers by
those pipelines for production and production-related costs under section 110 of
the NGPA, pursuant to FERC Order No. 94. These costs were in turn allocated to
each pipeline customer based upon its purchases from the pipeline during the
period 1980-83, when the pipelines purchased the subject gas from producers.(9)
(These costs will hereinafter be referred to as "Order No. 94 costs"). TCO (as
lead petitioner) and other parties challenged the legality of the past purchase
allocation methodology under these direct billing orders. In decisions issued in
October 1987 and February 1990, in cases styled Columbia Gas
Transmission Corp. v. FERC, the Court of Appeals for the D.C. Circuit
held that the past period allocation mechanism approved by FERC violated the
filed rate doctrine and the prohibition against retroactive ratemaking under the
NGA. The United States Supreme Court denied petitions for writ of certiorari of
the latter decision in October, 1990.
TCO entered into settlements with Panhandle, Texas Eastern, Trunkline
Gas Company and Texas Gas as to the appropriate allocation of Order No. 94 costs
to TCO, which settlements
- - -------------------
9 In 1988, the FERC approved a similar direct billing filing
by Panhandle to recover retroactive production-related
costs under FERC Order No. 473.
IV-32
<PAGE> 653
provide for full recovery from TCO's Customers of the revised amounts paid or to
be paid to these upstream pipelines. These settlements were approved by FERC in
early 1993 and thereafter by the Bankruptcy Court, and the remaining Order No.
94 settlement with Transco was presented to FERC. Panhandle and TCO elected to
accelerate the effectiveness of their settlement, and Panhandle made a net
refund of $5.9 million to TCO in April 1993. However, many of TCO's Customers
filed requests for rehearings of these orders at FERC, arguing that TCO should
not be permitted to recover any of these amounts from them.
On January 13, 1994, FERC issued rehearing orders in these cases
reversing its original approval of the settlements. The FERC determined that
TCO's 1985 PGA Settlement precludes it from recovering from its Customers the
Order No. 94 amounts payable to the pipelines under the settlements, the effect
of which was to unwind the settlements. However, the FERC also found that,
absent TCO's consent, the pipelines may not lawfully recover any of the subject
Order No. 94 costs from TCO. The Commission thus ordered the pipelines to refund
the amounts previously billed to TCO (approximately $32 million) but waived the
normal requirement that such refunds include interest, which amounts to
approximately $29 million as of December 31, 1993.
On October 18, 1994, FERC denied requests for rehearing in the
Panhandle, Trunkline, Texas Eastern and Texas Gas Order No. 94 proceedings, but
clarified that these pipelines must pay interest at FERC prescribed rates on
these refunds for the
IV-33
<PAGE> 654
period commencing February 11, 1994. On February 13, 1995, the Commission issued
a similar order in Transco's Order No. 94 proceeding, finding that Transco must
pay all principal Order No. 94 refunds to TCO, but is not required to pay
interest on such refunds.
Columbia, Panhandle, Texas Eastern and Texas Gas have filed petitions
for review of the Commission's January 13 and October 18, 1994 orders. Columbia
has entered into arrangements with Panhandle, Texas Eastern and Texas Gas,
approved by FERC, to defer payment of any further refunds pending judicial
review, provided that the pipelines will be obligated to pay interest at FERC
prescribed rates on the refunds during the period pending judicial review and
that any party has the right to request FERC to accelerate the payment of
refunds. On May 1, 1995, the Commission issued an order on rehearing of the
February 13 order in the Transco proceeding similarly holding that Columbia was
entitled to interest from Transco from the date the Commission determined the
refund would be due.
TCO may have substantial claims against the upstream pipelines for
Order No. 94 refunds, while those pipelines may assert claims against TCO for
rebilling of these charges on a legally sustainable basis (including the $5.9
million refund made by Panhandle to TCO). TCO intends to oppose the assertion of
these Claims, and believes there is no liability to TCO in connection therewith.
The Customer Settlement Proposal does not resolve or waive contingent claims
which TCO might assert for
IV-34
<PAGE> 655
recoveries from its Customers in the event the upstream pipelines are determined
to have the legal ability to impose rebillings on TCO.
7. TCO RATE CASES
On April 30, 1990, TCO and Gulf made joint general rate increase
filings with the FERC pursuant to section 4(e) of the NGA (Docket Nos.
RP90-108-000 and RP-90-107-000) (the "1990 Rate Case"). On May 31, 1990, the
FERC accepted and suspended the proposed rates and tariff sheets for the full
statutory five-month suspension period, so that they became effective and TCO
began collecting the rates set forth therein as of November 1, 1990, conditioned
on TCO's collection of its newly filed rates subject to refund. On May 31, 1991,
TCO and Gulf filed new general rate proceedings (Docket Nos. RP91-161-000 and
RP91-160-000, respectively) (the "1991 Rate Case") and those rates become
effective, subject to refund, on December 1, 1991. Thus, the 1990 Rate Case
covers 13 months of rates, 8 of which occurred pre-petition and 5 of which
occurred post-petition.
a. THE 1990 RATE CASE SETTLEMENT
After conducting extensive pre-trial discovery and convening numerous
settlement conferences, TCO, Gulf and most of the other parties to the 1990 Rate
Case entered into a settlement which was filed with the FERC on April 16, 1992.
On October 15, 1992, the FERC issued its Order on Contested Partial Settlement
(the "FERC Rate Case Order"), pursuant to which the FERC approved the settlement
as fair and reasonable and in the
IV-35
<PAGE> 656
public interest. The FERC rejected all requests for modifications to the
settlement. No requests for rehearing of the FERC Rate Case Order were filed.
The settlement provides that, subject to the Bankruptcy Court's
approval, TCO is to make refunds to its Customers of overcharges collected
during the period of the 1990 Rate Case. The refund amounts represent the
difference between filed collection rates and settlement rates. The settlement
amount is approximately $58.5 million plus FERC-prescribed interest to the date
of payment. The Rate Case Refunds, together with interest thereon at the FERC
approved rates, were to be made within forty-five days of the later of (1) the
date the FERC Rate Case Order approving the Settlement became final or (2) the
date an order of the Bankruptcy Court approving the Settlement became final.
However, if such final approvals were not obtained, the settlement would be
invalidated absent unanimous approval of the parties thereto.
Although TCO has consistently taken the position that Bankruptcy Court
approval is not required for the settlement of matters pending before the FERC,
in May, 1993, TCO filed a motion with the Bankruptcy Court for approval of the
settlement of the 1990 Rate Case due to the importance of the settlement to
TCO's business and since the Rate Case Refunds related to pre-petition as well
as post-petition time periods. The Creditors' Committee, while generally
recognizing the benefit of the
IV-36
<PAGE> 657
settlement to TCO, opposed that portion of the settlement which provided for the
payment of refunds for the pre-petition period.
On August 9, 1994, the Bankruptcy Court denied the motion for approval
on the grounds that it could not, absent a confirmed plan of reorganization or a
compelling business necessity, approve a settlement which provided for the
immediate payment of pre-petition Claims. An appeal of that order filed by the
Joint State Agencies is currently pending in the U.S. District Court for the
District of Delaware in Civil Action No. 94-497-JJF.
The attached Customer Settlement Proposal, which provides for payment
of 80% of the amount due under the 1990 Rate Case Settlement for pre-petition
periods and 100% of the amount due for post-petition periods with interest as
provided in the 1990 Rate Case Settlement substantially preserves the
effectiveness of the negotiated settlement of the 1990 Rate Case. The amount
payable to Gulf with respect to the 1990 Rate Case is 100% of the amount due for
both the pre- and post-petition periods with interest.
b. THE 1991 RATE CASE SETTLEMENT
The Bankruptcy Court has approved a settlement of TCO's 1991 Rate
Case, as has FERC. All of the rates and charges collected subject to refund
pursuant to the 1991 Rate Case filings relate to post-petition periods and all
of the refunds contemplated by the settlement have been made.
IV-37
<PAGE> 658
8. FERC FORUM LITIGATION GENERALLY
The services TCO provides and the rates it charges for those services
are subject to extensive oversight and regulation by the FERC. As a result, in
the normal course of its business, TCO is involved in numerous ongoing
regulatory proceedings before the FERC, as well as appellate proceedings related
to FERC orders. These regulatory proceedings involve TCO's own rate and
certificate cases, i.e., proceedings initiated by applications filed and
prosecuted by TCO, as well as proceedings of other pipeline companies from which
TCO receives services, and rulemaking and other miscellaneous proceedings
initiated by the FERC. Since the Petition Date, TCO has continued to file and
prosecute its own applications before FERC, to participate in other proceedings
in which it has an interest, and to settle such matters on notice to its
Creditors' Committee, without the need for Bankruptcy Court involvement in most
instances. While the Customer Settlement Proposal resolves many outstanding
regulatory proceedings involving TCO's right to recover costs from, and its
obligation to make refunds to, its customers, it does not address and resolve
certain other ongoing regulatory proceedings involving TCO's collection of rates
subject to refund in the ordinary course of its business. TCO does not expect
the outcome of any such ongoing proceedings to adversely affect its ability to
operate as a financially viable company post reorganization.
IV-38
<PAGE> 659
To the extent the Creditors' Committee has intervened or appeared in
any FERC proceeding involving or affecting TCO, or has filed appeals in
connection therewith, upon the Effective Date the Creditors' Committee shall be
deemed to have withdrawn and dismissed all such interventions, appearances
and/or appeals.
C. CUSTOMER SETTLEMENT PROPOSAL; TREATMENT OF REGULATORY AND OTHER
CUSTOMER AND PIPELINE CLAIMS UNDER THE PLAN
Annexed to the Plan as Exhibit "E", is a Stipulation and Agreement
filed with the FERC on April 17, 1995 (the "Customer Settlement Proposal"),
which sets forth the terms of a comprehensive settlement of disputes between
TCO, its Customers, and various state regulatory and consumer agencies. These
disputes have been and are the subject of prolonged, contentious, burdensome and
costly litigation before the Bankruptcy Court, the FERC and appellate courts for
both of those forums.
Numerous settlement meetings have been held over an extended period of
time with TCO's Customers' Committee, its affiliated and unaffiliated firm
transportation and storage Customers, and many state regulatory and consumer
agencies. Extensive documentation relating to the issues has been provided by
TCO to the Customers. The Customer Settlement Proposal represents a delicate
balancing of multiple and diverse interests that will collapse if its provisions
are modified or conditioned. Any of the parties to the Settlement may disagree
with the resolution of any particular issue or proceeding
IV-39
<PAGE> 660
underlying the Settlement. However, the give and take of settlement negotiations
among knowledgeable parties has resulted in an overall settlement that is
acceptable to all. Further, TCO and the parties to the Settlement believe that
it is in the public interest, by resolving disputes over regulated rates and
costs charged to consumers of natural gas and permitting refunds to flow, by
resolving in a fair and equitable manner a multitude of proceedings before the
FERC, the Bankruptcy Court and appellate courts involving hundreds of millions
of dollars that would otherwise take years to reach a litigated resolution, and
by facilitating, through the recovery of costs, TCO's emergence from Chapter 11
as a financially sound, ongoing concern.
If approved by the FERC and the Bankruptcy Court, the Customer
Settlement Proposal will resolve, inter alia, as to Accepting
Class 3.2 Claimants (and all other Supporting Parties as defined in the Customer
Settlement Proposal) the amount of substantially all pre-petition regulatory
Refund Claims asserted by Customers against TCO, and the amount of substantially
all Order No. 636 transition cost and other cost recoveries which have been
sought by TCO from its Customers. The liquidation of regulatory Refund Claim
amounts, and of the transition cost recoveries, brings to conclusion significant
controversies affecting both the value of the TCO Estate and the level of
recoveries available from that Estate to non-Customer Creditors.
The willingness of what TCO believes will be a substantial percentage
in number and amount of its Customers to accept the
IV-40
<PAGE> 661
Customer Settlement Proposal greatly enhances the viability and will expedite
the timing of TCO's reorganization efforts.
The Customer Regulatory Claims (including all of the Claims held by
the GRI) are classified together in Class 3.2 of the Plan. Class 3.2 is
impaired, thereby requiring that the Class 3.2 claimants vote on the Plan.
Treatment of the Class 3.2 Claims reflects proposed settlements embodied in the
Customer Settlement Proposal.
Assuming the requisite number and amount of Customers holding Claims
in Class 3.2 vote to accept the Plan, those Customers who vote to accept the
Plan or execute a Waiver Agreement consenting to the settlement embodied in the
Plan described below (the "Accepting Customers") will receive by cash payments
or credits to rate mechanisms for (i) the remaining amounts owed by TCO to such
Customers in accordance with the Trust Fund Decision, with interest on trust
fund monies in accordance with the FERC Interest Order (Customers will receive
interest on refunds received by TCO pre-petition over the $3.3 million lowest
intermediate balance at the FERC prescribed interest rate through the Petition
Date, and no interest thereafter); (ii) an amount equal to 80% of the
prepetition portion and 100% of the post-petition portion of each Accepting
Customer's allocable share of the refunds under the 1990 Rate Case Settlement
with interest as provided in the 1990 Rate Case Settlement; (iii) an amount
equal to each Accepting Customers'
IV-41
<PAGE> 662
allocable share of $52.5 million on account of BG&E Refund Claims; and (iv) 80%
of all other Refund Claims.
TCO recognizes that the Customers' Committee has provided substantial
and valuable services and contributions to the formulation and structure of
TCO's Plan. TCO's Estate has never paid any compensation or expenses to the
Customers' Committee members. Likewise TCO has never paid any compensation or
expenses to the Customers' Committee professionals as no retention order was
entered by the Bankruptcy Court. However, in recognition of the Customers'
Committee's expenditures, including the numerous expenses incurred by its
members over a period of approximately four (4) years, and in order to resolve
amicably a potential controversy with respect to the Customers' Committee's
entitlement to some form of reimbursement for such expenditures (the total of
which is as of this date in excess of $3 million), TCO has agreed to pay the
Customer's Committee a lump sum payment of $1.3 million which will be paid
solely to the current members of the Customers' Committee and not to its
professionals, which payment will be shared pro rata among the Customers'
Committee members. Such payment to the Customers' Committee shall be made solely
from post-reorganization income of Reorganized TCO and shall be paid within
forty-five (45) days after the Effective Date.
In a related matter, TCO has agreed with UGI Utilities, Inc. ("UGI"),
a firm service Customer which has participated in the settlement discussions
with TCO but has a separate
IV-42
<PAGE> 663
restructuring appeal pending relating, inter alia, to TCO's rates following
implementation of Order No. 636, to settle UGI's appeals and other ongoing
operational issues. Such settlement includes TCO's agreement to pay UGI, a
former member of the Customers' Committee, $225,000 representing one-half of its
expenses incurred while serving in that capacity, to be paid exclusively out of
TCO's post-reorganization income, within forty-five (45) days after the
Effective Date. TCO believes this settlement is favorable to the Estate since it
resolves an appeal which, if decided adversely to TCO, could have economic
ramifications well in excess of the amounts to be reimbursed to UGI.
TCO will be authorized to collect from its Customers (i) up to $58.7
million of gas purchase costs in its Account No. 191 balance as of the date it
implemented Order No. 636 on its system; (ii) the lesser of (A) $82.5 million,
(B) the costs actually paid, or (C) 80% of the aggregate Allowed Producer Claims
for the cost of gas sold to TCO prior to its filing for bankruptcy which have
not been paid due to the Bankruptcy proceedings, (iii) all but $11.5 million of
upstream pipeline "Account No. 858" costs associated with transportation
contracts no longer needed by TCO under Order No. 636, including exit fee
payments to upstream pipelines;(10) (iv) upstream pipeline transition costs
charged to TCO; (v) $7 million of gas supply
- - -------------------
10 TCO's total "stranded" upstream pipeline costs since it
implemented Order No. 636 are estimated to be $165 million.
IV-43
<PAGE> 664
related costs under its GIC for which TCO could have sought recovery as Order
No. 636 transition costs after November 1, 1993 (and to retain without further
refund liability amounts previously collected under the GIC); and (vi) $10
million for GSR costs, including the recovery of costs for contracts rejected in
bankruptcy on and after November 1, 1991. The foregoing provisions summarize the
refunds that TCO will provide to Accepting Class 3.2 Claimants and the recovery
by TCO and its Estate of collections from those Claimants. The Customer
Settlement Proposal constitutes a complete and final resolution of almost all
major categories of refunds and recoveries that are currently the subject of
litigation between TCO and its Customers.
In addition, each Accepting Customer, in order to receive the
treatment provided under the Plan, will be required to execute a waiver
agreement, effective upon the Effective Date of the Plan, agreeing (i) to the
full settlement, satisfaction, discharge and termination of all of its Refund
Claims and Refund Disputes, (ii) not to challenge the treatment of Customer
contracts under the Plan, (iii) to the withdrawal, with prejudice, of the
Customers' Committee's complaint and intervention in the Intercompany Claims
Litigation and a waiver of any further right, claims or interest in the
Intercompany Claims, (iv) to the withdrawal, with prejudice, of the Joint State
Agencies' appeal of the Bankruptcy Court's denial of approval of the 1990 Rate
Case Settlement and (v) not to oppose
IV-44
<PAGE> 665
the recovery by Reorganized TCO from Customers of the amounts as provided for in
the Customer Settlement Proposal.
Each Customer that votes to reject the Plan (the "Dissenting
Customers") will be entitled to pursue any and all of its rights with regard to
refunds arising pre- or post-petition and to pursue its recoupment and/or
set-off assertions. It will be paid under the Plan in accordance with any final
order of a court of appropriate jurisdiction which establishes any priority
recognized or allowable under the Bankruptcy Code for such Claims, or will be
treated as general unsecured claimants for the balance of their Allowed Claims.
Dissenting Customers will receive their distributions in accordance with the
Trust Fund Decision.
As to Dissenting Customers, TCO will preserve all of its rights and
claims to recover 100% of the Customer's allocable costs, including Account No.
191 Costs, Account No. 858 Costs, exit fee payments, Order No. 636 transition
costs, GIC costs and Gas Supply Realignment (or Order No. 528) costs.
Columbia has agreed, pursuant to a letter agreement with certain
Customers and state agencies (the "Parties") to guarantee (on certain conditions
and subject to any necessary Bankruptcy Court and regulatory approvals) the
financial integrity of the Customer Settlement Proposal. Specifically, Columbia
has agreed (i) that the Settlement will not be "retraded" with the Parties so as
to reduce the financial benefits of the Settlement to the Parties, (ii) that the
IV-45
<PAGE> 666
financial benefits of the Settlement to the Parties will not be adversely
affected by virtue of any subsequent settlement reached with other parties in
either TCO's or Columbia's bankruptcy proceedings, and (iii) that Columbia and
TCO will include the Settlement and Columbia's guarantee in their respective
Plans. However, the foregoing guarantee does not apply to any modifications
imposed on the Settlement or on a Plan incorporating the Settlement by the
action of any judicial or regulatory authority.
The agreements underlying the Customer Settlement Proposal terminate
if (i) Plans of Reorganization for TCO and Columbia incorporating, respectively,
the Customer Settlement Proposal and the Columbia Customer Guaranty are not
confirmed and a Final FERC Order approving the Customer Settlement Proposal is
not received by June 28, 1996; or (ii) the Parties as a class of Claims do not
support the Plans of Reorganization filed by TCO and Columbia incorporating the
Settlement and the Columbia Customer Guaranty. The Customer Settlement Proposal
does not require entry of no-longer-appealable FERC or Bankruptcy Court orders
to become effective. However, the supporting Customers have provided for the
preservation of recoupment and certain other litigation in the Bankruptcy Case
until the Dismissal Date, when the FERC and Bankruptcy Court Orders become truly
final and no longer subject to appeal. TCO, in turn, has preserved its ability
to defend such litigations, and to pursue certain transition cost recovery
claims in the event the
IV-46
<PAGE> 667
Dismissal Date fails to occur, and a supporting Customer reactivates its
preserved claims.
The Customer Settlement Proposal contemplates the dismissal with
prejudice on the Effective Date of the Customers' Committee complaint, and
intervention in the Intercompany Claims Litigation, provided that the Customer's
Committee has preserved its right to pursue a Motion to Unseal Judicial Records
filed in the Intercompany Claims Litigation, which seeks access to privileged
documents filed under seal by Columbia, and which is presently sub
judice. Columbia will continue to oppose that Motion. Within 30 days
after the Effective Date, TCO shall permanently withdraw, dismiss or never
pursue any issues with respect to the collection of Gas Supply Realignment Costs
from Supporting Parties to the Customer Settlement Proposal.
D. ORDER NO. 636 IMPLEMENTATION AND POST-CONFIRMATION OPERATIONS
GENERALLY
TCO will continue operations in all of its market areas after
Confirmation of its Plan. Since the commencement of its Reorganization Case, and
the rejection of thousands of above-market gas purchase contracts, TCO believes
it has resumed a competitive posture in its industry.
TCO has successfully restructured its operations as mandated by Order
No. 636, and is confident that its restructured operations, while not free from
some degree of uncertainty and risk, form the basis for a sound and stable
business plan which is operationally workable and will allow it
IV-47
<PAGE> 668
to maintain its Customer base in the increasingly competitive natural gas
marketplace.
For example, TCO is in the preliminary stages of undertaking a
substantial expansion of its pipeline system in order to meet the increased
natural gas needs of customers in its market area. This expansion project will
include, subject to any necessary Bankruptcy Court or FERC approvals, the
execution of new Customer contracts and/or the amendment of existing contracts,
the undertaking of construction obligations, and increased capital investment
commitments. The expansion is intended to serve the demands of TCO's existing
and potential markets for interstate natural gas transportation and storage
services. The expansion will preserve and enhance TCO's share of the
increasingly competitive markets for services which are the core of TCO's
business and will counter TCO's competitors' proposals to expand their own
pipeline systems into TCO's market area.
TCO conducted a so-called "open season" from February 15, 1995 through
March 16, 1995, which surveyed TCO's general market area for interest in the
transportation and storage capacity that would be made available beginning in
1997 through 1999 should TCO undertake construction of expansion facilities. The
initial non-binding response has clearly indicated a significant demand for the
additional capacity which could be made available by such an expansion project.
TCO is in the process of allocating the capacity it will make available among
the open
IV-48
<PAGE> 669
season nominations and the interested parties are signing binding precedent
Agreements. An application for FERC certificates of necessity and convenience
which would authorize the construction of expansion facilities will be filed
with the FERC later this year. Further information regarding this proposal will
be presented to the Bankruptcy Court in the near future.
Due to continued working capital funding and the proposed
restructuring of TCO's capital structure pursuant to the Columbia Omnibus
Settlement to achieve a financially sound mix of debt and equity, TCO expects to
be able to emerge from Chapter 11 fully capable of continuing to operate its
business, serve its Customers and generally remain a viable enterprise in an
increasingly competitive energy marketplace. TCO believes that the viability of
its Plan is significantly facilitated by the comprehensive resolution of
Customer Claims against TCO, and of TCO's claims for most, if not all,
transition cost recoveries assertable pursuant to Order No. 636. If the Plan is
accepted by Customers and Creditors, TCO believes that significant value will be
"contributed" to TCO's Estate as a result of recoveries from Customers, and
burdensome and costly disputes over Claims will be resolved in a manner that TCO
believes is fair both to TCO's Customers and consumers of natural gas, and to
the interests of other Creditors of TCO.
IV-49
<PAGE> 670
V. SUMMARY OF CLAIMS AND OTHER SIGNIFICANT ISSUES IN THE CHAPTER 11 CASE
A. PRODUCER CLAIMS
Approximately 2,500 timely non-duplicative Claims have been filed
against TCO by Producers in connection with contracts pursuant to which TCO
purchased natural gas as part of its merchant function (described and discussed
in greater detail in Section I). Many of these Claims are for damages assertedly
suffered by Producers as a result of TCO's rejection of several thousand of
these gas purchase contracts. Approximately 4,100 contracts were rejected
pursuant to a motion filed contemporaneously with the Petition in Bankruptcy and
orders dated July 31, 1991 and August 22, 1991. An additional 400 contracts were
rejected by TCO in early 1992.
In total, TCO served notice of these rejections and of applicable
Claims Bar Dates on more than 100,000 potential Claimants under such contracts
based upon an extensive search of its files to identify such potential
Claimants.(1) In addition, notice of these Bar Dates was provided by publication
in a variety of regional and national newspapers.
- - -------------------
1 Notice of TCO's initial rejection in August 1991 and of the
March 18, 1992 Bar Date was provided to primary parties to
these contracts. Similarly, primary parties to the second
group of contracts to be rejected were notified of an
April 17, 1992 Bar Date for Claims related to TCO's
rejection of those contracts. Finally, after a thorough
search of its files to identify potential Claimants under
all of its contracts, notice of an additional Bar Date of
July 31, 1992 was provided.
V-1
<PAGE> 671
Also, by order dated February 10, 1994, the Bankruptcy Court approved
TCO's motion dated December 29, 1993 (i) authorizing TCO's rejection of
approximately 140 additional executory gas purchase contracts, (ii) declaring
that approximately 7,800 gas purchase contracts had been terminated pre-petition
and were not executory and (iii) setting a Bar Date of April 1, 1994 for the
filing of all Claims arising under the rejected and terminated contracts.
Pursuant to the April 1, 1994 Bar Date, approximately 120 Claims were filed
totalling approximately $121,000,000.
In addition to Contract Rejection Claims, Producers and others have
filed additional Non-rejection Claims against TCO related to issues such as
take-or-pay obligations, underpayment for gas taken by TCO, NGPA Section 110
production-related cost reimbursements, tax reimbursements and other issues all
related to or arising from TCO's gas purchase contracts. These Non- rejection
Claims are discussed more fully, infra.
B. ESTIMATION OF PRODUCER CLAIMS
1. THE ESTABLISHMENT OF CLAIMS ESTIMATION PROCEDURES
In addition to significantly overstating the value of their
Claims,(2) the Producers' Claims as Filed were premised upon a variety of
different theories as to the appropriate measure of damages and upon
inconsistent or conflicting assumptions as to common facts or generally
applicable legal principles. This was
- - -------------------
2 The Claims as filed by Producers arising from contracts with TCO
total over $13 billion.
V-2
<PAGE> 672
particularly true of Contract Rejection Claims. For instance, the treatment of
mitigation of damages, discounting to present value, treatment of contract
modification, future exploration and drilling varied greatly among Producers and
in some cases were ignored altogether. Some Claimants simply failed to explain
or support their Claims in any meaningful way, so that the methods, facts and
assumptions used in calculating their Claims are indiscernible from their
filings.(3)
In order to provide for the quantification of the Contract Rejection
Claims and disputed Non-rejection Producer Claims on a fair, consistent,
efficient and relatively timely basis, TCO filed a motion on March 27, 1992,
asking the Bankruptcy Court to estimate Producer Claims for allowance pursuant
to
- - -------------------
3 On or about November 30, 1993, TCO mailed, on behalf of the Claims
Mediator, a questionnaire to holders of Producer Claims subject to the
Claims Estimation process more fully described below, seeking
clarification of the nature of Claims which were ambiguous or
incomplete as filed. The focus of the questionnaire was to elicit
information regarding the nature and rationale of Producer's
Non-rejection Claims. A notice circulated with that questionnaire
provided that Claimants who did not respond to the questionnaire and
define the nature of Claims asserted in their proofs of Claim, would
have their Claims (i) treated as Contract Rejection Claims only or (ii)
expunged as being without basis. TCO subsequently filed a motion, after
review of all questionnaires submitted, seeking (i) to limit the scope
of those proofs of Claim believed by TCO to consist only of Contract
Rejection Claims, and (ii) to expunge Claims where no adequate
justification of any basis for liability had been demonstrated. By
orders dated November 2, 1994 and November 16, 1994, the Bankruptcy
Court granted substantially all of the relief requested, declaring most
of the Claims to be only Contract Rejection Claims and expunging proofs
of Claim which failed to set forth any basis for a Claim and as to
which TCO could identify no liability on its books and records.
V-3
<PAGE> 673
section 502(c) of the Bankruptcy Code. TCO asserted that, absent estimation, the
liquidation of Producer Claims would unduly delay the administration of its
reorganization and would impose an extraordinary burden on the resources of TCO
and the Bankruptcy Court.
As a result of extensive negotiations among TCO, the Creditors'
Committee and representatives of Producer-Claimants over the appropriate
parameters of the Claims Estimation Procedures, the Bankruptcy Court entered an
order on August 27, 1992 (the "August 27 Order") conditionally approving
comprehensive procedures for the estimation of Producer Claims, and the
appointment of Charles P. Normandin of the law firm of Ropes & Gray located in
Boston, Massachusetts, to serve as the claims mediator (the "Claims Mediator")
for the estimation process. On October 9, 1992, the Bankruptcy Court entered its
order (the "October 9 Order") confirming the estimation procedures and
appointment of Mr. Normandin as Claims Mediator (the August 27 Order and the
October 9 Order are collectively referred to herein as the "Estimation Order").
The Estimation Order contemplates the quantification of Producer Claims
generally through a two-stage process. The first stage consists of the
identification of generic issues (i.e., factual or legal issues common
to all or significant subsets of the Claims of a particular type);
determinations by the Claims Mediator regarding the appropriate resolutions of
those generic issues; and a recalculation of filed Claims based
V-4
<PAGE> 674
on these generic determinations (the "Generic Recalculation") for those Producer
Claims as to which generic issues have been identified.
The second stage of proceedings contemplated by the Estimation Order
would permit interested parties to attempt to demonstrate that any amount
established in the Generic Recalculation for a particular Claim should be
revised upward or downward for purposes of final allowance under a plan of
reorganization, based on individual factual or legal distinctions as to the
particular gas contract or Producer warranting an adjustment for that Claim of
the recalculated results based upon the generic determinations. Following the
contract-specific determinations, the Claims Mediator is to issue a final
recommendation as to the appropriate amounts for allowance of Producer Claims.
The procedures expressly invite settlement negotiations and the
liquidation of Claims based on resulting agreements, subject to a review by the
Claims Mediator and the approval of the Bankruptcy Court.
The Estimation Order provides for a ninety day period following the
Generic Recalculation before TCO could request temporary allowance for voting
purposes of Claims based on that recalculation, but it also expressly preserves
TCO's right to propose temporary allowance of Claims at any time on any other
basis under Bankruptcy Rule 3018(a) in order to establish voting rights with
respect to its Plan.
V-5
<PAGE> 675
All recommended determinations of the Claims Mediator are to be
submitted to the Bankruptcy Court for approval, following which the Bankruptcy
Court may issue generic and contract-specific determinations and establish the
allowed amounts of each of the Producer Claims based upon the record generated
through the estimation procedures and the recommendations of the Claims
Mediator.
2. STATUS OF CLAIMS ESTIMATION PROCEDURES
a. GENERAL PROCEEDINGS
On November 13, 1992, Mr. Normandin issued a set of Rules of Procedure
for Estimation of Producer Claims to govern the Claims Estimation Procedures and
set dates for the initial phases of the Claims Estimation Procedures. He also
retained, with court approval, John H. Norris of the law firm of Dickinson,
Wright, Mann, Van Dusen & Freeman, located in Detroit, Michigan, as natural gas
law counsel to the Claims Mediator, and Ronald Harrell of Ryder Scott Company
and John G. Redic of John G. Redic, Inc., petroleum engineers, as technical
expert advisers.
Mr. Norris made presentations to Mr. Normandin as Claims Mediator on
the background and current status of natural gas law in December 1992 and
February, 1993. During that period, the parties voluntarily exchanged listings
of possible generic issues that might be decided by the Claims Mediator.
V-6
<PAGE> 676
b. PROCEEDINGS RELATING TO CONTRACT REJECTION CLAIMS
From February 1993 through January 1995, a series of hearings was held
during which generic issues related to Contract Rejection Claims were addressed.
TCO, with the support of the Customers' Committee, advanced an approach to the
quantification of the Contract Rejection Claims based upon market evidence of
the economic value that the Producers had lost as a result of the rejection of
their long-term gas purchase and sale contracts (the "Market Value of Reserves
Proposal"). TCO proposed examining evidence of (i) transactions for the purchase
and sale of reserves dedicated under similar contracts; and (ii) negotiated
buyouts by pipelines of these types of contracts.
The first type of data would permit a comparison of the average actual
market values of reserves-in-place subject to such contracts with the average
actual market values of uncommitted reserves, as established by transactions
involving the purchase or sale of reserves occurring within an appropriate
time-frame. The difference in market price between committed and uncommitted
reserves would reflect the value that the marketplace was attributing to these
types of long-term contracts. Similarly, the amounts paid between willing
parties for the elimination (by renegotiation to market-price levels or
termination) of long-term contractual obligations at prices in excess of market
levels would evidence the economic value that the market was placing on these
types of contracts pre-petition.
V-7
<PAGE> 677
The implementation of this approach required discovery of information about
actual transactions for the purchase or sale of reserves and of negotiated
contract buyouts.
The Producers strongly opposed TCO's Market Value of Reserves Proposal
and the possibility of discovery from them of the necessary information. In the
course of various conferences on issues relating to the recalculation of
Contract Rejection Claims, Mr. Normandin announced that TCO's Market Value of
Reserves Proposal merited further consideration and that discovery concerning
reserve transactions should occur. After significant negotiations regarding the
scope and handling of confidential data, that discovery was conducted and is in
the process of being analyzed by TCO.
The Creditors' Committee objected to the TCO Market Value Reserves
Proposal on the ground that, among other things, it would systematically
understate this category of Claims to the detriment of this group of Unsecured
Creditors relative to other Unsecured Creditors. The Creditors' Committee
endorsed the DCF approach in concept, but took no position on which, if any, of
the conflicting proposals was more appropriate or as to how that determination
should be made.
All the Producer proposals incorporated some form of a discounted cash
flow ("DCF") methodology for consideration by Mr. Normandin in estimating
rejection Claims. Pursuant to procedures established by the Claims Mediator, the
Producers submitted their proposals for the estimation of Contract
V-8
<PAGE> 678
Rejection Claims on May 24, 1993. In addition to its Market Value of Reserves
Proposal, TCO advanced its own DCF approach.
All submissions by TCO and individual and/or groups of Producers
suggested various simplifying assumptions to be incorporated in the DCF
approach. However, there was little agreement on what simplifying assumptions
should be used.
In contrast to many of the Filed Claims, all of the proposals
recognized the need to discount to present value the projected lost future
revenue streams; the need to mitigate damages in light of the fact that the
Producers retained ownership of the gas and had the right to sell it to others;
the appropriateness of limiting speculative potential "fly-ups" of contract
prices; and the correctness of ignoring highly speculative possible production
from unproved reserves.
(i) HEARINGS ON THE DCF APPROACH ON PRICING AND DISCOUNT RATE
The estimation hearings on the various DCF methodologies commenced on
July 14, 1993, at the offices of Ropes & Gray in Boston, Massachusetts, and
continued intermittently through July, August, September, October and November,
1993. The hearings addressed the Producer proposals in three segments: prices,
discount rates and volumes. The first ten and one-half days of hearings were
devoted to the presentation of argument and testimony on the appropriate
contract prices and market or mitigation prices to be used in the calculation of
lost revenue resulting from the rejection of the contracts.
V-9
<PAGE> 679
Various competing Producer pricing proposals were presented primarily
by (i) a coalition of certain Southwest producers (e.g., Union Pacific
Resources, Co. ("UPR")) and Appalachian producers (e.g., Ashland Exploration
Inc.), and (ii) Exxon Company USA ("Exxon"). The Southwest/Appalachian group
proposed using projected contract prices and actual spot market prices to
calculate damages for the period between July 31, 1991 and the date of the
Generic Recalculation (the "Gap Period"), taking the last contract price and a
twelve month average spot market price to establish differentials that would
then be projected for future periods over the life of the contracts. An integral
part of this proposal was the assumption that gas dedicated under many contracts
would have experienced a substantial increase in price on January 1, 1993, due
to deregulation pricing provisions in the contracts ("Fly-Up") and that
potential Fly-Up should be reflected in the calculation of damages.
Exxon proposed using the actual difference between the July 31, 1991,
contract price and the July 1991 spot market price, seasonally adjusted, for
each Producer as the damage differential assumed for all periods, using the
contract/mitigation price premium existing on the Petition Date as the per unit
dollar amount of rejection damages. The Exxon approach ignores any post-petition
fluctuations in the contract and/or market price levels.
The Producer-participants and Customers' Committee then presented, for
two and one-half days in August, 1993, evidence
V-10
<PAGE> 680
on the appropriate discount rate to be applied. Producer-proposed discount rates
ranged from a risk-free investment rate of 8.5% per annum (reflecting the then
current government ten-year bond yield), presented by the Southwest/Appalachian
group, to a rate of 11.4% per annum based upon the average cost of capital for
natural gas production companies similar to those with Contract Rejection
Claims, presented by Exxon. The Customers' Committee presented evidence that
appropriate discount rates for the types of projected cash flows at issue in
these proceedings were between 15% and 19% per annum, based upon actual practice
in the industry.
(ii) PRODUCER PROPOSALS ON VOLUMES
Over eleven days of hearings in September and October, 1993, the
Producers presented their proposals for determining the relevant volumes of
natural gas to be used in the estimation of damages for contract rejection. The
Producers generally agreed that the smaller Claimants should be given the option
of adopting, without audit, the monthly volumes attributed to them in TCO's
previously defined LOR Study of August 1991. See Section III.B.5, "TCO's 1991
Excess Supply Crisis" for a discussion of the origin of the LOR. Otherwise, the
proposals differed significantly.
Exxon proposed that each Producer-Claimant be allowed to determine and
support for purposes of the proceeding its own total proved reserves (both
developed and undeveloped) as defined by the Society of Petroleum Engineers
("S.P.E.")
V-11
<PAGE> 681
existing and dedicated to TCO as of July 31, 1991 (the "Proved Reserves"). With
minor adjustments to that total to obtain saleable gas quantities, the Producer
would then compute its monthly or annual deliverable volumes by applying an
exponential decline curve that would permit the production of all such reserves
during their expected life, if possible without exceeding in any future year the
greater of the quantities actually produced in the last year before the Generic
Recalculation or 80% of the quantities actually produced during the year prior
to the Petition Date. The Producer-Claimant would then submit its calculations
with supporting documentation to the Claims Mediator.
The resulting monthly (or annual) deliverable quantities would be used
in the Generic Recalculation of damages over the life of the relevant contracts.
Under this proposal, Producers would compute damages based upon total
deliverable quantities, so calculated, without regard to the differing
contractual commitments of TCO under the rejected contracts to take only
particular percentages of the total available.
The Appalachian Producer group supported the Exxon proposal except that
under its methodology, damages would be calculated on Proved Reserves existing
as of the date of the Generic Recalculation, so as to give credit for
post-petition activity by particular producers that increased their Proved
Reserves and, thereby, increased their damage Claims.
V-12
<PAGE> 682
The Southwest Producer group proposed utilizing the quantities
forecasted for each Producer by TCO, in the course of its normal business, as
incorporated in the TCO volumes data base as of August 1991. Under this
proposal, errors or omissions in the volume forecasts could be corrected at a
Producer's initiative if the Producer could demonstrate that no engineering or
geological judgment would be required to conclude that there was an error or
omission and to correct for it (e.g., omissions or errors as to the
Producer's working interest, dedicated acreage or producing wells).
The South Lake Arthur Producers proposed through their written
submission, without calling witnesses, that the Claims Mediator take the
historical amounts being delivered under the contracts as of the Petition Date
and apply generic decline curves (based upon producing regions and other
characteristics) to those levels of deliverability to generate post-petition
monthly volumes for purposes of the Generic Recalculation.
(iii) TCO'S RESPONSE TO THE PRODUCERS' PROPOSALS
In three days of hearings, commencing November 2, 1993, TCO outlined
how the Producers' DCF methodology should be implemented if it were to be used
instead of TCO's Market Value of Reserves Proposal. TCO asserted that a properly
implemented DCF approach to Claims estimation would yield similar results to its
proposed market value approach.
TCO proposed a method of estimating the contract/ mitigation price
differentials for each month under each
V-13
<PAGE> 683
rejected contract that combined features of the various Producers' proposals.
TCO's goal was to identify a set of simplifying assumptions that could be easily
employed but that would still capture the relative benefits of the Producers'
various contracts. Thus, where available, the specified anticipated contract
price premium over market would be utilized. Otherwise, for the period from the
Petition Date to the Recalculation Date, the monthly differentials generally
would be derived from (i) the contract prices being paid immediately prior to
the Petition Date, (ii) any determinable and undisputed contract price changes
that would have occurred thereafter and (iii) mitigation prices based on
reported spot prices for the applicable regional delivery point adjusted for the
quantifiable benefit from the accelerated cash flow that resulted from the
rejection of particular contracts (i.e., from the ability to produce
above the daily contract quantity ("DCQ") level specified in the rejected
contract).(4)
For the future period (post-recalculation until the end of relevant
damages period), TCO proposed that the applicable monthly contract/mitigation
price differentials be the differences between the last determinable and
undisputed contract prices prior to the Recalculation Date (or the last contract
price being paid prior to the Petition Date) and the
- - -------------------
4 Under TCO's proposal, the benefit to the Producers would
be reflected by adjusting the mitigation price upward.
V-14
<PAGE> 684
average of the monthly mitigation prices for 12 months prior to the
Recalculation Date.
TCO presented two alternative volumes proposals. First, TCO proposed to
use monthly deliverable volumes at the appropriate DCQ levels from the Petition
Date as utilized in the LOR study "LOR", infra, adjusted to reflect only
proved producing reserves existing as of July 31, 1991.
Alternatively, TCO proposed that if it were determined that
non-producing proved reserves should be included in the Generic Recalculation of
Claims, then proved reserve estimates contained in the Producers' existing SEC
filings should be used rather than estimates prepared for purposes of the
Estimation Proceedings.
TCO proposed a post-tax discount rate of 16% per annum to reflect the
average cost of equity project financing for natural gas Producers. Finally, TCO
suggested that the resulting net present values be adjusted to reflect the
additional uncertainty and speculativeness of the resulting cash flow
projections so as to reflect the fair market value under established appraisal
standards of the contract rights that were lost by the rejection of the
contracts.
(iv) PRODUCER REBUTTAL
In November 1993, certain Producers and Producer-groups offered
rebuttal testimony to TCO's presentation. Through expert testimony, these
parties offered various critiques of TCO's proposals for the implementation of
the Producers' DCF
V-15
<PAGE> 685
methodology. Generally, the Producers asserted that the pricing and discount
rate proposals would result in lower Contract Rejection Claims than would the
Producer-proposed approaches.
The Southwest Producers group supported the principle of using the LOR
to establish reserves for the purposes of the initial recalculation. All of the
Producers represented at the Claims Estimation hearings indicated that they
objected to the exclusion of proved non-producing reserves from the damages
calculation.
The Producers uniformly objected to TCO's proposal to use pre-petition,
contemporaneous SEC proved reserve data. However, the testimony during the
surrebuttal presentation demonstrated that there were relatively few differences
between the SPE and SEC proved reserve definitions. The Producers' primary
criticism was that the use of pre-existing reserve reports denied Producers the
opportunity of issuing reserve reports and estimates prepared for the Claims
Estimation Procedures. They also criticized TCO's SEC volumes proposal because
it would allow Producers who did not have pre-existing SEC reports to calculate
their reserves for the specific purpose of the Claims Estimation Procedures
while depriving other Producers of the same opportunity.
c. CONSIDERATION OF NON-REJECTION PRODUCER CLAIMS
The principal Non-rejection Producer Claims include (i) take-or-pay
Claims ( i.e. assertions that TCO failed to pay for gas it did not take or make
payment for under its gas purchase
V-16
<PAGE> 686
contracts) (ii) price deficiency Claims (i.e. assertions that TCO
underpaid Producers for gas taken because of disputes over the applicable
contract price, or errors in measurement of the quantity of gas taken which have
been discovered and corrected), (iii) Claims that TCO took gas in the weeks or
months immediately preceding the Petition Date but made no payment therefor, and
(iv) miscellaneous other Claims related to the gas purchase contracts.
Most of the Non-rejection Producer Claims are not subject to generic
determinations and will, therefore, be addressed in the Claims-specific phase of
the Estimation Proceedings.
3. THE CLAIMS MEDIATOR'S INITIAL REPORT ON GENERIC ISSUES
On October 13, 1994, Mr. Normandin issued his Initial Report and
Recommendations of the Claims Mediator on Generic Issues For Natural Gas
Contract Claims (the "Normandin Initial Report"), regarding the recommended
determination of generic issues for, and the methodology for recalculating and
quantifying, the Contract Rejection Claims based upon a discounted cash flow
methodology. Mr. Normandin noted in his report that:
"While this recalculation will make it possible for the
Bankruptcy Court and the parties to analyze the claims in some
detail and on a comparable basis, the result of the
recalculation will not be final. Not all legal issues relating
to the claims are generic issues. There are claim-specific
issues, resolution of which will depend on the facts as to an
individual producer's claim, or the wording of a particular
contract. Claims cannot be finally estimated and allowed until
these claim-specific issues, too, are resolved." Normandin
Initial Report, p. 3.
V-17
<PAGE> 687
The Normandin Initial Report establishes as to Contract Rejection
Claims, a prefinanced discounted cash flow methodology, based on the
applicability of enunciated generic principles relating to pricing, volumes, and
discount rate, which producers are to use in recalculating those Claims, subject
to extensive audits particularly in the area of existing and proved undeveloped
volumes claimed by the Producers.(5)
The generic principles applied to Contract Rejection Claims include a
20-year study period, with an applicable discount rate of 10%. The Report
applies a single price differential to volumes expected to be produced over the
study period, using the difference between (a) the contract price as of the
Petition Date, and (b) the mitigation price for four producing regions as of the
Petition Date, adjusted to eliminate the effect of seasonality by using average
spot prices over a 12-month period ending with the Petition Date.
Allowed volumes include all proved reserves as of December 31, 1991,
including proved undeveloped reserves ("PUDs") if planned as of the Petition
Date to be developed and producing prior to December 31, 1994. Audits of the
Claim forms and of the underlying volumes data are required for most large
Claimants, with a random selection of audits to be conducted for smaller
Claimants. Mr. Normandin did acknowledge the usefulness
- - -------------------
5 The ultimate utilization of the Claims Mediator's DCF approach is also
subject to his findings as to the applicability of TCO's Market Value
of Reserves approach to estimating contract rejection damages.
V-18
<PAGE> 688
of the LOR database and adopted those numbers as a secondary source for
establishing and auditing reserves:
"My conclusion that the primary source of data should be the
producer's records and files in no way implies a criticism of
the LOR database. The testimony of the TCO witnesses who were
responsible for assembling and maintaining the database was
credible, and I am convinced that, on the whole, it was
assembled and maintained in a careful and reasonably objective
manner... While I don't think that the LOR database should be
used as the primary source of information as to volumes, I do
think that it is an appropriate secondary source." Normandin
Initial Report at 121.
As to Non-rejection Claims, the Normandin Initial Report finds TCO
obligated to Producers for breach of its take-or-pay contracts, without any
reduction for unexpired take-or-pay recoupment rights. TCO is not liable,
however, for any take or pay claim for any contract year that had not expired
prior to the Petition Date, nor may any take or pay claim include Claims for
severance taxes or Section 110 Costs. The report also includes forms for the
calculation of flowing gas and price and volume dispute Claims.
Mr. Normandin acknowledges that the generic nature of the recalculation
set out in his report will necessarily provide inaccurate damage values for
individual Producers: "...[T]he estimation process may require that standardized
rules and procedures be applied in estimating claims, even though these may
result in some departure from the exact rules which would [be] applied and
procedure followed if individual claims were being liquidated." Normandin
Initial Report at 19. Specifically, Mr. Normandin notes that the use of a
modified
V-19
<PAGE> 689
date of breach method "is not without flaws, and that the results it will yield
are not perfect." Normandin Initial Report at 86. Although he recommends the
method as fair, he acknowledges that it is "somewhat arbitrary". Normandin
Initial Report at 87.
Following the issuance of his Initial Report, Mr. Normandin scheduled
follow-up hearings in November 1994 and January 1995 to consider comments on the
proposed recalculation forms, and certain specific objections to the Initial
Report. A further hearing was held on January 17, 1995, on the issue of the
appropriate mitigation price for Appalachian Basin gas. (At the time of the
Initial Report, Mr. Normandin mistakenly thought that there was agreement on
that issue among TCO and the Producers; after learning that that was not the
case, he scheduled an additional hearing on that matter.)
On February 17, 1995, Mr. Normandin issued a Supplement to Initial
Report and Recommendations of the Claims Mediator ("Normandin Supplement"). The
Normandin Supplement incorporated agreed upon comments on the recalculations
forms and corrected typographical errors therein. The Normandin Supplement also
discussed and rejected several objections to the Normandin Initial Report,
including the treatment of royalty gas, the use of a generic decline curve to
schedule deliverability, the restriction on the use of post-July 31, 1991
geological data to calculate reserve estimates, and the use of the modified date
of breach method. The Normandin Supplement also recommended that
V-20
<PAGE> 690
the appropriate mitigation price for Appalachian Basin gas be the index price at
Rayne, Louisiana plus sixteen cents (the cost of purchasing gas in the Southwest
plus the cost of transportation of the gas from the Southwest to Appalachia on
Columbia Gulf Transmission). Mr. Normandin rejected TCO's recommendation that
the Appalachian index price be used, agreeing instead with the Appalachian
producers that, although an Appalachian index would be generally favorable for
measuring a mitigation price for Appalachian Basin gas, that particular index
was not mature and/or liquid enough to represent a viable mitigation alternative
during the period one year prior to July 31, 1991.
The Normandin Report is specifically designated an "initial" report
because it is without prejudice to TCO's Market Value of Reserves methodology,
the legal and factual issues as to which remain to be heard by Mr. Normandin.
Mr. Normandin originally set April 21, 1995, as the return date for the
recalculation forms. At the request of TCO and several of the Producers, that
date was extended to May 19, 1995, because of expressions of concern from
Producers that they would be unable to meet the earlier deadline due to, among
other things, the difficulty of supplying the data in computerized form. When
informed by TCO, the Creditors' Committee and certain significant Producer
Claimants of a settlement in principle of numerous Producer Claim amounts and
the intention to offer Claims settlement proposals to all other Producers, Mr.
V-21
<PAGE> 691
Normandin sent out a notice on April 20, 1995, extending the date for submission
of recalculated Claims forms to June 30, 1995, and deferring until further
notice the hearings on TCO's proposed market reserves methodology. The Producer
Settlement Motion requests that the Claims Estimation Procedures be suspended
until the Bankruptcy Court rules on the Producer Settlement Motion after which
TCO, the Creditors' Committee and the Claims Mediator be directed to consider
what further Claims Estimation Procedures are needed and recommend proposed
procedures and a schedule to the Bankruptcy Court.
(i) CONTRACT AND PRODUCER SPECIFIC ISSUES ("CONTRACT-SPECIFIC
DETERMINATIONS") AND DEFENSES
As anticipated in the Estimation Order, the Normandin-Initial Report
leaves many contract-specific issues for resolution subsequent to the Generic
Recalculation. Various parties may contend that the Generic Recalculations
overstate or understate the appropriate damages for particular Producers
depending upon their specific contract terms and conditions and related facts.
Certain contract specific issues can be anticipated. They include, but are not
limited to:
(a) Whether a particular market-sensitive contract with a
periodic price redetermination clause would reasonably be expected to
embody any systematic price premium over Market Value for the
long-term.
V-22
<PAGE> 692
(b) Whether prices in particular contracts would have
experienced Fly-Up post-petition under the applicable contract
provisions and the facts relevant thereto.
(c) Whether prices in contracts with no deregulation pricing
provision generate any post-deregulation damages.
(d) Whether particular pricing provisions or volume provisions
are too vague or indefinite under applicable state law to be
enforceable.
(e) Whether post-recalculation damages under certain contracts
are too speculative to calculate with any reasonable degree of
certainty.
(f) Whether specific development plans for proved non-producing
reserves were sufficiently definite as of the Petition Date to be
allowed for damage calculations.
(g) Whether the contract between TCO and UPR entitles UPR to
calculate damages on volumes of gas previously sold to a different
purchaser from the same fields subject to the TCO contract.
These contract-specific adjustments may increase or decrease damages
for individual Claimants. As contemplated by the Estimation Order,
contract-specific Claims and defenses will be considered subsequent to the
Generic Recalculation.
The Producer Claims involve a myriad of complex and difficult issues
the resolution of which, even in the context of an abbreviated procedure such as
estimation proceedings will take years to accomplish. The Claims Mediator's
generic
V-23
<PAGE> 693
determinations are only recommendations which must be adopted by the Bankruptcy
Court to become effective. Even if those recommendations are adopted, questions
will remain as to the relationship between the generic rules for estimation and
the liquidation of individual Claims. In addition, there are numerous issues
specific to particular Claims that have been expressly excluded from the generic
recommendations.
C. THE SETTLEMENT WITH VARIOUS PRODUCERS
Commencing in December 1994, Columbia engaged in meetings with certain
Producers with the largest Claims against TCO to discuss means of achieving a
negotiated resolution of the central issues in these proceedings. In February
1995, Columbia and TCO embarked upon a series of meetings with the individual
Producer Creditors holding the larger Claims against TCO to present a settlement
concept, the key features of which were (i) that TCO would attempt to negotiate
Allowed Claim amounts with individual Producer Creditors or groups of Producer
Creditors; (ii) the settlements would be conditioned upon a TCO plan of
reorganization supported financially by Columbia that would contain a target
payout of 72.5% of Allowed Producer Claims and guarantee at least 95% of that
target payout; and (iii) that TCO and Columbia would guarantee in that Plan that
all other Producer Creditors would receive at least the same percentage payout
as the settlors were to receive on their Claims once liquidated and Allowed
either through settlement or litigation. In the judgment of the Debtors, it was
the willingness of TCO
V-24
<PAGE> 694
and Columbia to assume the exposure and risk, and of Columbia to guarantee the
funding, with respect to the payment on equal terms of other Producer Creditors
that made the negotiations and, ultimately, the settlements possible.
Following six weeks of intense negotiations, the Debtors reached an
agreement in principle, subsequently documented in the Producer Agreement To
Settle Claims Subject to Plan of Reorganization, dated April 14, 1995 (the
"Initial Accepting Producer Settlement Agreement"), with Producer Creditors
representing in the aggregate over 80% of the Debtors' estimate of the total
likely Allowed amounts of Producer Claims (the "Initial Accepting Producers").
That agreement provides for the 158 Initial Accepting Producers' Claims to be
Allowed in a total amount of $1.329 billion, with an expected payout of $963.5
million and a minimum payout of $915.3 million. That agreement is conditioned
upon the effectiveness no later than June 28, 1996, of a confirmed plan of
reorganization containing the terms that are set forth in this Plan.
On April 27, 1995, TCO filed a Motion to Approve Producer Settlement
(the "Producer Settlement Motion") which is scheduled for hearing before this
Court on June 15 and 16, 1995. The Producer Settlement Motion was served on all
Producer Claimants. Following the filing of the Producer Settlement Motion, TCO
distributed a letter containing the Claims settlement offers set forth on
Schedule I to the April 17 Plan to all non-settling Producer Claimants,
requesting their indication of (i) their
V-25
<PAGE> 695
willingness to accept the proposed settlement offer or (ii) their intention to
file recalculated Claims on June 30, 1995. To date, over 100 additional
Producers have indicated a willingness to accept their Original Settlement
Values from TCO.
Under the Plan, Producers whose Claims are allowed at $25,000 or less,
or who elect to reduce their Allowed Claims to that level, will be entitled to
receive payment in cash of 100% of their Allowed Claims on the Effective Date.
TCO estimates 1,114 of the approximately 2,500 Producer Claims Filed will fall
into this convenience class category. TCO estimates that 1,016 Producers hold
Claims which will be Allowed in excess of $25,000, of which approximately 258
have either accepted or indicated a willingness to accept their Original
Settlement Values.
D. SETTLEMENT OFFERS FOR REMAINING PRODUCER CLAIMS
The rights of non-settling Producer Creditors to liquidate their Claims
through settlement or litigation are fully preserved under the Initial Accepting
Producer Settlement Agreement and this Plan. Any Producer that elects to
liquidate its Claim through litigation will be afforded the opportunity to do so
and will enjoy that opportunity much sooner because of the Initial Accepting
Producer Settlement Agreement and attendant process.
To expedite the process of the liquidation of the remaining Producer
Claims, TCO and the Creditors' Committee have worked together to generate a
schedule of settlement offers for all
V-26
<PAGE> 696
other Producer Creditors. TCO and the Creditors' Committee expect that those
offers will be attractive to and accepted by large numbers of Producer Creditors
with which TCO has been unable to conduct individual negotiations. If so, then
the process of estimating and liquidating the Producer Claims will be expedited
and simplified even further.
To promote the objective of prompt and efficient liquidation of these
Producer Claims, the Schedule of Original Settlement Values was generated on a
basis believed by TCO, Columbia and the Creditors' Committee to be fair and
reasonable to the preponderance of non-settling Producer Claimants. The
methodology underlying the Schedule, as further described below, resolves a
number of identifiable legal and factual disputes of general applicability in
favor of the Producer Creditors and compromises some issues where a reasonable
basis for identifying a compromise position exists. At the same time, TCO
recognizes that certain Producers have individual issues of significance and
that the data available to TCO is not necessarily complete or fully accurate.
Thus, individual Producers may want, and will be given an opportunity if they so
elect, to present their own data and to litigate their individual issues.
In 1991, TCO compiled an extensive data base containing production data
and delivery forecasts for all of its active gas supply contracts. That study
became known as the Life-of-Reserve or "LOR" study. The data base also contained
various assumptions concerning future contract prices under those
V-27
<PAGE> 697
contracts and projections of future spot market prices for natural gas. That
study generated an estimate of the present value of the anticipated future costs
in excess of forecast spot-market prices for natural gas that was to be
purchased by TCO under the contracts. That estimate subsequently was used in
August 1991, after the filing of the bankruptcy petition, in taking a charge
against earnings for the second quarter of 1991. Subsequently, that data base
was revised by TCO utilizing new computer projection techniques contained in a
software package named ARIES for volume projections for Appalachian Producers.
The Initial Report issued in October 1994 adopted an initial generic
approach for estimating damages for the rejection of the gas supply contracts
using different pricing and discount rate assumptions than were used in the LOR.
The utilization of those assumptions with the LOR volume data results in higher
estimated damages than the LOR study for some producers and lower estimated
damages for others.
The Schedule of Original Settlement Values was generated as follows: As
described further below, the Schedule adopts Filed proof of Claim amounts for
Claims that TCO has concluded were filed in appropriate amounts. For each other
Producer Contract Rejection Claim, TCO computed two separate potential allowed
Claims amounts, one utilizing the same pricing, volume and discount rate
assumptions of the LOR (the "LOR Amount") and the other based on LOR volume data
modified when appropriate by the ARIES program and utilizing the corresponding
assumptions
V-28
<PAGE> 698
recommended in the Claims Mediator's Reports (with certain other issues resolved
as discussed below) (the "Normandin Amount"). Then, for each Producer, the
Schedule incorporates the higher of the LOR Amount or 103.45% of the Normandin
Amount (reflecting a modestly favorable variance in respect of the Normandin
Amount) plus TCO's best estimate of that Producer's Non-rejection Claims minus
any applicable Setoffs or, where significant disputes appear to exist as to such
Claims or Setoffs, TCO's best estimate of appropriate compromise amounts. For
the computation of the Normandin Amount, two issues on which the Claims
Mediator's Report did not make a recommendation, were treated as follows:
(i) the settlement offers assume no "flydown" to market levels of
prices upon deregulation in contracts that contain no deregulation
pricing provisions; and
(ii) the settlement offers treat contracts containing Cost Recovery
Clauses where the signatories opted out of the Enterprise
Energy class action on generally the same terms as received
under the settlement of that action by the Producer class members.
The data used to generate the settlement offers set forth in the
Schedule contains, for Appalachian Producers, no additions beyond what is
incorporated in the ARIES projections for proved, undeveloped reserves, to which
some Producers may be entitled under the Claims Mediator's Reports. Data with
respect to the amount or eligibility of such reserves for particular
V-29
<PAGE> 699
Producers is not available to TCO. However, in the judgment of TCO, the pricing
assumptions utilized to generate the Normandin Amount provide several benefits
for Appalachian Producers that may not be attainable if the Claims were
liquidated through litigation. These benefits include the following:
(i) an additional increment to the Normandin Amount;
(ii) the use of a price premium of $.62 above market for contracts
that specify a premium to be reflected in annual price redeterminations
of $.50;
(iii) the use of a permanent above-market price differential in
contracts as to which prices would be market-based when the market
prices reached a certain level;
(iv) no "fly-down" to market upon deregulation for contracts that
contain no deregulation pricing provision; and
(v) treatment of the Enterprise Energy opt outs on the compromise
basis reflected in the Enterprise Energy class action settlement.
The Schedule is not based upon the foregoing methodology in the
following instances: (i) where no proof of Claim was filed on or before the
applicable Bar Date or where TCO, in its judgment, has concluded that there is
no factual or legal basis for the proof of Claim amount Filed, the settlement
offer in the Schedule is zero; (ii) where TCO, in its judgment has concluded
that the proof of Claim Filed does not constitute or include a
V-30
<PAGE> 700
Claim for Contract Rejection damages, the settlement offer in the Schedule does
not reflect any amount in respect of such damages; (iii) where the amount of the
proof of Claim Filed is less than the amount that would have been generated
under the foregoing methodology, the settlement offer in the Schedule adopts the
Filed proof of Claim amount; and (iv) where TCO, in its judgment, has concluded
that the amount of the proof of Claim Filed is otherwise appropriate, the
settlement offer in the Schedule adopts the Filed proof of Claim amount. With
respect to those Claims described in clause (iii) of the immediately preceding
sentence, nothing in the Plan, the documents relating thereto or the
Confirmation Order shall prejudice or be construed to prejudice the right of a
Claimholder to File or, where otherwise eligible, to request that TCO File a
recalculated Claim on behalf of such Claimholder pursuant to the Claims
Estimation Procedures.
Any Producer that elects to reject the proposed Settlement Value for
its Claim will be entitled to liquidate its Claim through litigation, in which
case TCO reserves the right to assert its positions on all of the issues and
defenses which are compromised in the proposed Settlement Value and reserves its
rights as to any other issues that may arise in that litigation.
E. NON-PRODUCER CLAIMS
While several Bar Dates have been set for Producer Claims, March 18,
1992 is the only Bar Date established thus far for most Non-Producer Claims.
Approximately 2,900 of the proofs of
V-31
<PAGE> 701
Claim Filed have been classified by TCO as Claims which do not arise from or
relate to gas purchase and sales contracts, and are generally referred to as
"Non-Producer Claims".
TCO has expended considerable resources in reviewing and reconciling to
TCO's books the Non-Producer Claims to ensure a high degree of accuracy in
deciding whether the Claims Filed are proper as Filed or are objectionable. As a
result of this detailed review and pursuant to the Court's order dated December
17, 1992, establishing guidelines for procedural objections to Claims and
settlement parameters for Claims liquidation (the "Procedural Order"), TCO has
Filed two Omnibus Procedural Objections seeking to disallow over 1,000
Non-Producer Claims on the basis that the Claims were Filed after the Bar Date,
are duplicates of other Claims, were amended by subsequent amending Claims, are
unsigned, have already been paid pursuant to Bankruptcy Court orders, or
asserted no basis for a Claim and as to which TCO's books and records reflect no
liability. The relief requested by TCO in those two Omnibus Procedural
Objections has been or, TCO believes, will be substantially granted by the
Bankruptcy Court.
TCO's review of Non-Producer Claims to date has resulted in the
resolution of disputes and the liquidation for allowance purposes of virtually
all of the Non-Producer Claims. To the extent Disputed Non-Producer Claims are
not resolved by settlement, TCO will continue to prosecute procedural and
substantive objections before the Bankruptcy Court, and believes
V-32
<PAGE> 702
it can, if necessary, achieve thereby an Allowed level of Claims reflective of
the levels for such Claims recorded in the proposed Payout Analysis annexed
hereto as Exhibit 2.
Non-Producer Claims (apart from TCO's secured and unsecured obligations
to Columbia) can be categorized into five groups. These groups are (a) Customer
Claims, See Section IV.B.1., (b) upstream pipeline supplier Claims, See Section
IV.B.2., (c) taxing authority Claims, (d) accounts payable/trade debt Claims and
(e) miscellaneous Claims (including Claims arising in connection with non-gas
contract related litigation). In addition, there are several individual Claims
of governmental agencies that because of their magnitude are separately
described, such as the Claims of the IRS, the EPA and the PBGC.
As with all of the Claims, TCO undertook a careful review of the
Non-Producer/Non-Customer Claims by first identifying the general nature of the
Claim, then assigning that Claim to the appropriate department within TCO, and
then having each Claim analyzed in more detail by individuals in the department
assigned. Each Claim was reviewed to identify the need and basis for an
objection, if any. The Claim amounts were compared with TCO's books and records
to determine the amount of discrepancy between TCO's and Claimant's positions.
TCO made efforts with virtually every Claimant to reconcile or settle the Claim.
In those instances where no settlement could be achieved, the reviewing
department, with the assistance of the Finance and
V-33
<PAGE> 703
Law Departments as necessary, was asked to determine an amount that TCO should
propose in order to liquidate each Claim based upon its review of all records
available, communications with the Claimant and appropriate legal analysis. TCO
or Reorganized TCO will continue in its effort to liquidate the Claims held by
holders of unliquidated General Unsecured Claims that did not accept the
Allowance Amounts proposed for their Claims by objecting to such Claims in the
Bankruptcy Court, to the extent that TCO has not already objected to such Claims
or through settlement of such Claims.
1. STATE AND LOCAL TAXES
A substantial portion of the Claims relating to TCO's pre-petition
state and local property tax liabilities have been paid in full pursuant to
Bankruptcy Court orders characterizing those liabilities as secured or
administrative obligations. Remaining Claims of state and local taxing
authorities represent about 150 proofs of Claim, totalling approximately $23.7
million as Filed. Those Claims which TCO has not been authorized to pay in full
are being liquidated on the basis of assessments and invoices from the taxing
authorities.
Additionally, TCO has included an estimated Allowed Claim for
approximately $2.3 million for Priority Tax Claims, and approximately $6.85
million principally related to Claims by the State of West Virginia for property
taxes which under Court orders are treated as Unsecured, non-Priority Claims and
for unsecured penalties asserted where they relate to taxes which
V-34
<PAGE> 704
are Allowed Secured Claims. The State of West Virginia appealed the ruling on
the status of its Claim to the U.S. Court of Appeals for the Third Circuit which
upheld the lower Court's decision. The State of West Virginia filed a petition
for a writ of certiorari with the United States Supreme Court which was denied.
The Priority Tax Claims include state income, sales, use and other miscellaneous
state and local taxes.
In order to liquidate certain tax Claims, on April 4, 1994, TCO filed
its Omnibus Objection to Certain Tax Claims concerning about 180 Claims by
various taxing authorities. Virtually all of the Claims were disallowed in whole
or in part. The Claims for penalties on secured taxes were reclassified to
unsecured, non-Priority Claims or subordinated to Unsecured Claims. TCO believes
the remaining tax Claims are not valid for various reasons and is attempting to
have those Claims withdrawn, or if necessary, will file objections to those
Claims.
State and local tax obligations are treated as unclassified Priority
Claims, or as Unsecured Claims in Classes 3.1 or 3.4. Approximately $230,000 of
non-compensatory penalty Claims, which have been subordinated by orders of the
Bankruptcy Court, are treated in Class 3.1 or Class 3.4 under the Plan because
TCO, with the consent of the Creditors' Committee, has agreed to waive
enforcement of such subordination.
V-35
<PAGE> 705
2. ACCOUNTS PAYABLE/TRADE DEBT
Claims arising from the purchase of miscellaneous goods and services
represent approximately 1,120 proofs of Claim in the amount of about $20
million. TCO's books and records reflect liabilities of approximately $24
million as of December 31, 1994, including amounts listed on TCO's Schedules of
Liabilities as undisputed, liquidated and not contingent, as to which no proofs
of Claim were filed. Fewer than twenty of the Claims Filed are for an amount
which exceeds TCO's valuation of the Claim, or which assert a priority or
secured status with which TCO disagrees, or which have not yet been liquidated
by agreement or withdrawn, and Allowance Amounts are proposed in the Plan for
these Claims. The amount asserted for those Claims yet to be liquidated is less
than $6.0 million. Allowed Claims are treated under the Plan in Classes 3.1 and
3.4 as appropriate.
3. MISCELLANEOUS CLAIMS
Claims arising from issues not otherwise categorized account for the
remaining 380 Claims, and generally relate to ordinary-course obligations or
transactions arising from TCO's business. Generally, these Claims assert: (1)
personal injury liability, whether litigation was initiated pre-petition or not;
(2) property damage, primarily related to TCO's ongoing use of property under
leases and rights of way for its pipeline operations; (3) condemnation damages
arising from TCO's exercise of its right of eminent domain for natural gas
pipelines and
V-36
<PAGE> 706
storage facilities; (4) indemnity Claims by employees and officers as well as
Claims for benefits; (5) Claims by states based upon abandoned property or
escheat laws; (6) advance payments for construction, and (7) other Claims which
do not exceed $100,000.
TCO is proceeding to liquidate by settlement or objection filed with
the Bankruptcy Court, or have the Claimants withdraw, virtually all of the
Claims in this category. The Allowance Amounts proposed by TCO for unliquidated
Claims are set forth on a schedule to the Plan in the appropriate Classes for
these Claims. These Claims are treated as Class 3.1 or 3.4 Claims, except for
indemnity and condemnation Claims which are to be assumed pursuant to the
treatment provided for Unclassified Claims and Class 4.2, respectively.
4. KENTUCKY WEST VIRGINIA GAS COMPANY CLAIM
After conducting numerous settlement negotiations, TCO and Kentucky
West Virginia Gas Company ("Kentucky West") entered into a settlement agreement
which settled, inter alia, (i) all issues, claims and matters by and between
Kentucky West and TCO arising in FERC Docket Nos. TQ89-1-46, et al.,
RP86-165-000, et al. and RP86-166-000, et al. (the "Kentucky West Filings");
(ii) claims relating to TCO's rejection of a Rate Schedule PLS-1 Contract (the
"PLS-1 Contract") pursuant to an order of the Bankruptcy Court dated November 6,
1992; (iii) claims for unpaid pre-petition demand charges accrued under the
PLS-1 Contract; and (iv) issues regarding the restructuring of certain services
V-37
<PAGE> 707
provided among Kentucky West, TCO and Equitrans, Inc. On February 17, 1993, the
FERC approved the settlement, as clarified and conditioned by the FERC, pursuant
to an Order Accepting Contested Settlement As Clarified. On June 22, 1993, the
Bankruptcy Court entered an order approving the settlement.
As part of the Kentucky West Filings, Kentucky West sought to directly
bill TCO over $57 million, plus interest, for gas costs arising from the
repricing of Kentucky West's company-owned production to reflect prices set in
accordance with the Natural Gas Policy Act (as interpreted by the Supreme Court
in Public Serv. Comm'n of New York v. Mid-Louisiana Gas Co., 463 U.S
319, 103 S. Ct. 3024 (1983)) for the period of December 1, 1978 through March 2,
1983. Kentucky West filed a proof of Claim in TCO's case in the total amount of
$67,334,312 based on the Kentucky West Filings. The settlement allows Kentucky
West an Unsecured Claim of $19 million for gas repriced pursuant to the NGPA for
the period of December 1, 1978 through March 2, 1983.
Another element of the settlement relates to damages arising from the
rejection of the PLS-1 Contract, the pre-petition contract that governed the
terms of TCO's purchases of gas from Kentucky West. On November 6, 1992, the
Court approved TCO's rejection of its PLS-1 Contract effective as of September
30, 1992. Pursuant to the terms of the settlement, Kentucky West is allowed an
Unsecured Claim of $7 million representing the damages arising from the
rejection of the PLS-1 Contract.
V-38
<PAGE> 708
The settlement also provides that Kentucky West is permitted an Unsecured Claim
in the amount of $166,083 for pre-petition demand charges TCO incurred during
June and July, 1991.
Pursuant to the settlement, Kentucky West dismissed all direct billing
claims against TCO in the Kentucky West Filings in addition to any other FERC or
court proceedings involving Kentucky West's right to recover company-owned
production for the period of December 1, 1978 through March 2, 1983. TCO also
dismissed various actions pending before the United States Court of Appeals for
the District of Columbia and the Fifth Circuit Court of Appeals regarding the
review of the FERC's orders permitting direct billings for repriced gas and
withdrew its opposition to Kentucky West's right to recover direct billing
claims for the repriced production for the period December 1, 1978 through March
2, 1983.
Kentucky West's Claims are classified in Class 3.4.
5. IRS AND OTHER PRIORITY TAX CLAIMS; AFFILIATE TAX CLAIMS
Pursuant to section 507(a)(8) of the Bankruptcy Code, Allowed Unsecured
Claims relating to certain income taxes, property taxes, employment taxes, and
certain other types of taxes are Priority Tax Claims.
On or about March 13, 1992, the Internal Revenue Service (the "IRS")
timely filed four duplicative proofs of claim against TCO, each in the amount of
$553,728,311.39 (the "IRS Claims"), as well as identical Claims against
Columbia. The IRS Claims asserted claims for income taxes plus penalties and
V-39
<PAGE> 709
interest, for the taxable years ending 1980, 1981, 1983, 1985, 1986, 1987, 1988
and 1990 and for excise taxes (Form 720) for the period ended June 30, 1991 and
protective claims for pension excise taxes. The IRS Claims asserted that (i)
$11,667,918.33 constituted a secured claim by virtue of a set-off of refunds due
for the taxable years 1979, 1982 and 1989, (ii) $461,884,205.75 constituted an
unsecured priority claim, and (iii) $80,176,187.31 constituted a general
unsecured claim.
Columbia disputed both the amount and priority of the IRS Claims and
engaged in extensive negotiations, along with TCO and the IRS, over the IRS'
claims. Ultimately Columbia, and its subsidiaries, including TCO, entered into a
settlement with the IRS covering income taxes, excise taxes (Form 720) and
pension excise taxes.
The principal federal income tax issues raised by the IRS Claims
consisted of (i) IRS objections to the treatment by TCO of approximately $850
million in payments made by TCO to producers under the Producer Price Reduction
Purchase Plan ("PPRPP") and for other similar payments to producers from 1985 to
1987 in order to obtain price and take-or-pay reductions and for other contract
reformation costs under gas purchase contracts which TCO had with such
Producers; (ii) TCO's ability to deduct in certain tax years expenses that had
previously been included in the valuation of its book and tax LIFO inventory
layer, and (iii) as to TCO as well as other members of the Columbia Group,
questions relating to the deductibility of
V-40
<PAGE> 710
software development costs incurred during the taxable years 1985 to 1990.
The settlement agreement with the IRS, documented in the Department of
the Treasury - Internal Revenue Service Agreement as to the Final Determination
of Tax Liability with the IRS (the "Closing Agreement"), was approved by the
Joint Committee on Taxation of the United States Congress on June 30, 1994 and
was approved by an Order of the Bankruptcy Court dated October 12, 1994.
The IRS settlement reduced the IRS' Claims for the Columbia Group as a
whole from $553 million to $111,902,703.00 plus post-petition interest (of
approximately $24.6 million through December 31, 1995) to be calculated pursuant
to the Closing Agreement, and the Bankruptcy Court's order approving the
settlement allowed the IRS' claims as priority claims under 11 U.S.C Section
507(a)(8) against both Columbia and TCO. It is anticipated that future tax
benefits arising from the payment of the IRS' Claim (the "turnarounds") will
reduce the effective cost of the settlement to approximately $68.2 million,
including post-petition interest through December 31, 1995.
The consolidated income tax regulations provide that each member of the
Columbia Group is severally liable for the entire consolidated tax liability of
the Group. However, the Debtors intend to allocate the tax savings and costs
engendered by the IRS settlement in accordance with their Tax Allocation
Agreement (the "TAA"), which both Columbia and TCO are seeking to assume
V-41
<PAGE> 711
pursuant to their respective plans of reorganization. As a result, TCO, as the
taxpayer primarily responsible for generating the tax liabilities, will fund the
payment to the IRS, including post-petition interest, and receive its allocable
share of the turnarounds. Net refunds allocable to Columbia and its non-debtor
subsidiaries which have been offset by the IRS against its Claim will be paid by
TCO to those entities as a cure cost under the TAA, if the Bankruptcy Court
approves the assumption of the TAA. It is estimated that under the TAA, TCO will
owe approximately $134.6 million plus post-petition interest of approximately
$29.6 million through December 31, 1995, and that other members of the Columbia
Group will be entitled to a refund of approximately $22.7 million plus
post-petition interest of approximately $5.0 million. After taking into account
various turnarounds for the period 1991 through 1995, the net cost of the
settlement to TCO is approximately $76.8 million, including interest through
December 31, 1995 and the net result to other members of the Columbia Group is a
refund of approximately $8.6 million, including interest through December 31,
1995.
At the time the Bankruptcy Court approved the Closing Agreement, it
also approved an agreement between Columbia, TCO and TCO's Creditor's Committee
that, in the event the Bankruptcy Court failed to approve the allocation of
post-petition interest to TCO pursuant to the TAA or otherwise, Columbia and/or
its
V-42
<PAGE> 712
non-debtor subsidiaries would be obligated to make that payment to the IRS.
In the event that the Bankruptcy Court does not approve the assumption
of the TAA as an executory contract, in accordance with section 365 of the
Bankruptcy Code, the amounts claimed against TCO under the TAA by Columbia
and/or its non-debtor subsidiaries will be Affiliate Tax Claims classified in
Class 4.5 of the Plan and will be assumed by Reorganized TCO and paid in cash
when and if due.
The IRS has also Filed an Administrative Claim against TCO in the
amount of $507,438.13 for withholding on certain meal allowances given to
employees. Additionally, the IRS has asserted an Administrative Claim against
Columbia in the amount of $87,844,798.69 for federal income taxes for the
taxable year ending December 31, 1992. If and to the extent that such Claim was
Allowed against Columbia, TCO will be required to pay its allocable share of
such Claim either directly to the IRS or to Columbia pursuant to the Tax
Allocation Agreement. See Section VII.A.1.a.(ii), "Post-Petition Operational
Claims" for a description of these Claims.
In addition to the $2.3 million of state and local Priority Tax Claims
described above in subsection 1, this Class includes also a $391,007 annual
pipeline safety fee payable to the United States Department of Transportation.
V-43
<PAGE> 713
6. PENSION CLAIMS
Columbia has a pension plan known as the Retirement Income Plan for
the Columbia Gas System Companies (the "Retirement Plan") for certain employees
of Columbia's participating subsidiaries, including TCO. The Retirement Plan is
governed by Title IV of Employee Retirement Income Security Act of 1974
("ERISA"). To date, all contributions required to be made to the Retirement Plan
and all premiums due to the Pension Benefit Guaranty Corporation ("PBGC")
pursuant to section 4007 of ERISA, whether pre-or post-petition, have been paid.
The PBGC, however, filed three proofs of Claim (the "PBGC Claims")
against both Columbia's and TCO's estates. The first proof of claim asserts a
priority Claim pursuant to sections 507(a)(1) and (8) in the estimated amount of
$150 million for statutory termination liability which is contingent upon the
termination of the Retirement Plan prior to the confirmation of a plan of
reorganization.
The second Claim filed by the PBGC is for contributions required to be
made to the Retirement Plan pursuant to sections 302 and 4062(c) of ERISA and
the third Claim is for premiums required to be paid to the PBGC pursuant to
section 4007(a) of ERISA. Both of these Claims were filed in unliquidated
amounts and the PBGC has asserted that at least portions of each of the Claims
are entitled to priority pursuant to section 507(a)(1) of the Bankruptcy Code.
V-44
<PAGE> 714
All three Claims were filed against both Columbia's and TCO's estates
because under ERISA each member of the controlled group of a contributing
sponsor is jointly and severally liable for each obligation. See
sections 302(c)(11)(B), 4062(b) and 4007(e) of ERISA.
TCO, Columbia and representatives of the PBGC have reached a
preliminary, informal agreement that if the Retirement Plan does not terminate
prior to the Confirmation of the Plan and if TCO and Columbia (i) continue to
make the required contributions to the Retirement Plan pursuant to section 302
of ERISA, and (ii) pay all premiums due to the PBGC pursuant to section 4007 of
ERISA, the PBGC will withdraw the PBGC Claims. TCO and Columbia acknowledge that
their plans of reorganization do not affect in any way, including by discharge,
their liability for the Retirement Plan's unfunded benefit liabilities or
funding deficiencies.
In fact, the Plan contemplates that all Retirement Plan-related
obligations will be assumed by Reorganized TCO. At this time, TCO does not
believe any modifications will be made to the existing Retirement Plan. The PBGC
has indicated that it supports the intention of Reorganized TCO to continue the
Retirement Plan post-Confirmation. Thus, the PBGC has indicated that it expects
to withdraw the PBGC Claims as of the Effective Date of this Plan.
V-45
<PAGE> 715
7. ENVIRONMENTAL ISSUES
TCO is subject to complex state and federal environmental regulations
that impact its operations over approximately 18,900 miles of pipeline,
approximately 300 active or retired compressor stations and support facilities,
an estimated 15,000 points at which pipeline liquids are or were removed, and
numerous support facilities in eleven states and four regions of the U.S.
Environmental Protection Agency ("EPA"). An objective of the Plan is to insure
that Reorganized TCO emerges from bankruptcy appropriately postured to comply
with all applicable environmental regulatory requirements as well as to remedy
the environmental impacts of its past operations.
TCO has been engaged, prior and subsequent to the Petition Date, in a
comprehensive assessment of the environmental liabilities associated with its
current and past operations. This assessment involves site screening,
characterization and remediation activities. TCO's management has retained
outside counsel and environmental consultants to assist in its environmental
assessment program.
Although TCO initiated its environmental assessment on a voluntary
basis, it has sought to involve the various appropriate governmental
environmental agencies in its characterization and remediation activities in
those jurisdictions with the greatest concentrations of its facilities and
operations. Representatives of TCO have met regularly with representatives from
the various environmental agencies,
V-46
<PAGE> 716
including the EPA and the environmental agencies for the states of Pennsylvania,
West Virginia and Kentucky in furtherance of developing plans acceptable to
those agencies for the characterization and remediation of those TCO facilities
that are or may be contaminated. While meetings have been held with
representatives of the New York, Ohio and Virginia environmental agencies, no
regular participation in characterization and remediation activities has yet
been secured from these states' environmental agencies.
On November 16, 1994, the Bankruptcy Court approved three settlements
with various governmental environmental agencies which include the EPA, the
Kentucky Natural Resources and Environmental Protection Cabinet (the "Kentucky
Cabinet") and the Pennsylvania Department of Environmental Resources (the
"PADER").
The settlement with the EPA (the "EPA Settlement") provides for TCO's
continuation of its comprehensive environmental assessment and remediation
program, TCO's reimbursement of the EPA's oversight costs incurred in connection
with the implementation of the remediation program and the settlement of
litigation regarding TCO's alleged violations of the Toxic Substances Control
Act ("TSCA").
The first part of the EPA Settlement is a consent order pursuant to
which TCO has agreed to continue its comprehensive environmental assessment and
remediation program. Under the consent order, TCO will be responsible for
investigating its
V-47
<PAGE> 717
sites along the pipeline for environmental contamination, reporting the results
to the EPA and conducting any necessary clean-up activities in compliance with
the terms of the consent order. Throughout the duration of the program, the EPA
will oversee TCO's progress. TCO will be responsible for reimbursing the EPA for
its costs incurred in connection with the oversight of TCO's remediation program
as administrative expense Claims.
The second part of the EPA Settlement resolves a complaint filed by the
EPA which sets out 107 counts of alleged violations of TSCA by TCO with regard
to the use and disposal of PCBs at various sites along the pipeline spanning
both pre- and post-petition time periods. In the complaint, the EPA alleged that
TCO was liable for over $8.4 million in penalties. In accordance with the second
part of the EPA Settlement, TCO has paid the EPA a civil penalty of $4,916,472
as an administrative expense Claim in full settlement of the alleged violations
of TSCA.
TCO's settlement with the Kentucky Cabinet (the "Kentucky Settlement")
is similar to the EPA Settlement and is also comprised of two parts. The first
part of the settlement provides that TCO will continue its environmental
remediation program at certain sites located within Kentucky and the Kentucky
Cabinet will oversee TCO's progress. TCO is obligated to reimburse the Kentucky
Cabinet for (i) its claim for pre-petition oversight costs of approximately
$30,000 as an administrative expense Claim under the Plan, (ii) its Claim for
V-48
<PAGE> 718
all post-petition oversight costs of approximately $71,000 as of November 16,
1994 as an administrative expense within 30 days of the effectiveness of the
Kentucky Settlement, and (iii) all future oversight costs as administrative
expenses.
The second part of the Kentucky Settlement addresses TCO's penalty
obligations for its alleged violations of various Kentucky environmental laws
and regulations. Prior to January 1, 1994, the Kentucky Cabinet had issued
fourteen notices of violations to TCO alleging that TCO had violated various
Kentucky environmental laws and thus was liable for penalties ranging from
$1,000 to $25,000 per day per violation. In settlement of these notices of
violation, TCO paid the Kentucky Cabinet $50,000 as an administrative expense
Claim.
The settlement with the PADER (the "PADER Settlement") provides that
TCO is to reimburse the PADER for (i) its pre-petition oversight costs of
$53,384 as administrative expenses under the Plan; (ii) post-petition oversight
costs of $27,622 incurred as of May 31, 1994 as administrative expenses 30 days
after the effectiveness of the PADER Settlement; and (iii) all post-petition
oversight costs incurred after May 31, 1994 to be paid within 60 days of receipt
of the PADER's invoice for such costs as administrative expenses. For any 12
month period, TCO's reimbursement obligations are limited to the lesser of
$200,000 or $20,000 per site.
It is TCO's management's continued intent to address environmental
issues with the cooperation of regulatory
V-49
<PAGE> 719
authorities in a mutually acceptable manner. TCO concluded initially in the
bankruptcy proceedings that protracted conflict with environmental agencies over
the issue of dischargeability of Claims of such agencies would be
non-productive. It was determined by TCO's management that the long-term
interests of the company and its Creditors would be best served by effectively
addressing environmental liability issues and resolving these in a manner
acceptable to the state and Federal environmental enforcement and regulatory
agencies and to TCO. In doing so, it was TCO's intention to assume liability
associated with Claims that may have been held by such agencies for the
investigation or clean-up of environmental contamination caused by past
operations of TCO, with the exception of non-consensual pre-petition
environmental penalty liabilities. Proceeding in this manner also inures to the
benefit of TCO's Creditors by not burdening the bankruptcy proceedings with
potentially protracted disputes over environmental issues with complex questions
of damages and dischargeability, and it relieves the Creditors from sharing
their recoveries with potentially sizeable pre-petition and accelerated
post-petition environmental Claims.
To this end, on January 3, 1992, TCO disseminated a "Notice of Bar Date
for Filing Proof of Claim" as ordered by the Bankruptcy Court. The notice
specifically provided that state and federal environmental agencies were not
required to file proofs of Claims in order to preserve environmental Claims
V-50
<PAGE> 720
against TCO. Additionally, letters were sent by TCO management to the EPA and
all state environmental agencies in the states in which TCO maintains
facilities, stating that these agencies would not be bound by the Bar Date in
the bankruptcy proceeding.
On March 14, 1994, Columbia Gas Transmission Corporation filed a
declaratory judgment action against Aetna Casualty & Surety Company, American
Re-Insurance Corporation, Continental Casualty Company, Employer's Liability
Assurance Corporation, The Home Insurance Company, Lexington Insurance Company,
Certain Underwriters at Lloyd's, London, London Market Insurance Companies,
North Star Reinsurance corporation and St. Paul Indemnity Insurance Company in
the Circuit Court of Kanawha County, West Virginia (Civil Action No. 94-C-454)
seeking recovery under various insurance policies for environmental cleanup
costs incurred (or to be incurred by TCO). Standstill agreements were entered
into with The Travelers Insurance Company and Associated Electric & Gas
Insurance Services, Limited (AEGIS).
The parties are currently engaged in extensive fact discovery related
to the cleanup and other costs incurred or to be incurred by TCO. No trial date
has been established as of yet.
In furtherance of TCO's strategy for addressing its liabilities to
governmental environmental agencies, the Plan classifies all such Claims in
Class 4.1. Pursuant to the Plan, Class 4.1 Claims will not be affected by the
Confirmation Order
V-51
<PAGE> 721
and, therefore, will continue to be liabilities of Reorganized TCO
post-confirmation which will be paid when due and payable. The Plan also
provides that such post-confirmation liabilities include those under the EPA
Settlement, the Kentucky Settlement and the PADER Settlement and will be paid in
accordance with the terms of such settlements.
Primarily as a consequence of its self-assessment program, TCO has
environmental liabilities of approximately $133 million as of December 31, 1994.
TCO has also disclosed that as characterization and site-specific activities
progress and the nature and extent of contamination along the pipeline, at
compressor stations and support facilities becomes better defined, additional
liabilities will be recorded. To the extent that plans for assessment and
remediation of contamination require approval of Federal and/or state
authorities, they may be subject to revision. Until assessment progresses
further, management lacks sufficient data to predict the magnitude of all
required costs.
Based on the data now available and on various assumptions as to
characterization and required remediation, TCO's management currently estimates
that the environmental assessment and remediation program may take ten to twelve
years to complete and cost approximately $20 million per year. As part of this
program, TCO and its environmental consultant are pursuing an ongoing study of
possible environmental contamination and remediation. TCO's estimates of these
remediation costs and the
V-52
<PAGE> 722
time period for completing that work are expected to be revised as this ongoing
study progresses. The financial projections included herein assume that earnings
will continue to be charged appropriately in advance of required expenditures.
The cost of additional and future environmental clean-up by TCO is impossible to
estimate due to (1) the unknown magnitude of possible contamination; (2) the
possible effect of future legislation; (3) the possibility of future litigation;
(4) the possibility of future designations as a potentially responsible party
under CERCLA and the difficulty of determining liability, if any, in proportion
to other responsible parties; and (5) the effect of possible technological
changes related to future cleanups.
The Customer Settlement Proposal addresses certain aspects of TCO's
ability to seek to recover environmental costs through its rates, but does not
resolve all such issues. All penalties, however, are not recoverable by TCO from
Customers. Nonetheless, TCO believes that such matters will not have a material
adverse effect on its financial position and post-reorganization operations, due
in part to the projected recoverability in rates and/or from its insurers of
most of its environmental expenditures and the long period over which such
expenditures will be made.
V-53
<PAGE> 723
F. MISCELLANEOUS ADMINISTRATIVE PROCEEDINGS
1. COMMENCEMENT OF THE CASE
On the Petition Date, Columbia and TCO each filed a voluntary petition
under Chapter 11 of the Bankruptcy Code. Since the Petition Date, TCO's
Reorganization Case has been pending before the United States Bankruptcy Court
for the District of Delaware. TCO has continued to manage its properties and
operate its businesses as a debtor in possession pursuant to sections 1107 and
1108 of the Bankruptcy Code since the Petition Date.
2. FIRST DAY ORDERS
On or about the Petition Date, the Bankruptcy Court issued numerous
"first day orders" which facilitated the on-going normal operation of the
Debtor. These orders covered various issues including, inter alia, authorization
for joint administration of Columbia's and TCO's bankruptcy proceedings; the
payment of pre-petition wages, employee business expenses and employee benefits;
and approval of debtor in possession financing on an interim basis pending a
final hearing.
The Bankruptcy Court also entered an order authorizing TCO to identify
the initial group of gas purchase contracts that it intended to reject by August
8, 1991, and to implement procedures permitting the immediate reduction in
volumes of gas which TCO was obligated to receive and reducing to spot market
levels the prices to be paid for gas taken.
V-54
<PAGE> 724
On the Petition Date, the Bankruptcy Court issued an order approving
TCO's retention of Cravath, Swaine & Moore, Stroock & Stroock & Lavan, and
Young, Conaway, Stargatt & Taylor as bankruptcy co-counsel; and Arthur Andersen
& Co. as accountants. The Bankruptcy Court approved the Debtors' retention of
Salomon Brothers Inc. as financial advisor on October 22, 1991.
In addition to the above professionals, TCO subsequently received
authorization to retain various other professionals and special counsel to
provide advice to TCO with regard to various non-bankruptcy matters.
3. DEBTOR IN POSSESSION FINANCING
On August 22, 1991, the Bankruptcy Court entered a final order (the
"DIP Order") authorizing TCO to borrow up to $80 million from Manufacturers
Hanover Trust Company ("MHT") under a revolving credit facility (the "DIP
Facility"). On November 27, 1991, in accordance with the terms of the DIP
Facility, and effective as of November 29, 1991, TCO notified MHT of its
intention to reduce the DIP Facility to $25 million, all of which was available
for the issuance of letters of credit only. The DIP Facility was amended
subsequently on January 8, 1993 to extend its maturity from July 31, 1993 to
December 31, 1994 and on December 9, 1993 to extend its maturity to December 31,
1995 or such later date as agreed to by Chemical Bank ("Chemical"), the
successor by merger to MHT, and TCO. The Claims arising under the DIP Facility
are secured by a first priority lien on, and security interest in, certain cash,
cash equivalents and
V-55
<PAGE> 725
other property of TCO (the "Cash Collateral") equal to 105% of the face amount
of all letters of credit requested by TCO. The Cash Collateral is funded by
deposits made by TCO into an account maintained by Chemical.
4. FORMATION OF COMMITTEES AND RETENTION OF PROFESSIONALS
On August 12, 1991, the United States Trustee appointed the Official
Committee of Unsecured Creditors of TCO (the "Creditors' Committee"). On
September 26, 1991, the United States Trustee appointed the Official Committee
of Customers of TCO (the "Customers' Committee").
The following are the members and professional advisors to each
Committee:
TCO's Official Unsecured Creditor's Committee:
Members:
Union Pacific Resources Company
Meridian Oil Production, Inc.
Energy Development Corporation
Exxon Corporation
Koch Industries, Inc.
Phillips Production Company
Wyoming - Interstate Company
Equitable Resources Co.
Counsel:
Sidley & Austin
One First National Plaza
Chicago, IL 60603
Rosenthal, Monheit & Gross
First Federal Plaza
P.O. Box 1070
Wilmington, DE 19899
V-56
<PAGE> 726
Financial Advisors:
Lehman Brothers
American Express Tower
World Financial Center
New York, NY 10255-2000
Accountants:
Ernst & Young
787 Seventh Avenue
New York, NY 10019
TCO's Official Customers' Committee:
Members:
Baltimore Gas & Electric Company
Cincinnati Gas & Electric Company
The Dayton Power & Light Company
Mountaineer Gas Company
Washington Gas Light Company
Counsel:
Shaw, Pittman, Potts & Trowbridge
2300 N Street. N.W.
Washington, DC 20037
Trzuskowski, Kipp, Kelleher & Pearce, PA
1020 N. Bancroft Parkway
Wilmington, DE 19899-0429
Financial Advisers:
The NorthBridge Group
950 Winter Street
Waltham, MA 02154
Counsel and advisors to the Customers' Committee currently are not
compensated pursuant to sections 330 and 331 of the Bankruptcy Code. However,
pursuant to the Customer Settlement Proposal, TCO has agreed to pay current
members of the Customers' Committee, but not its professionals, the amount of
$1.3 million, which payment will be shared pro rata among them, and in a
separate settlement agreement, has agreed to pay UGI, a
V-57
<PAGE> 727
former member of the Customers' Committee, the amount of $225,000. All such
payments will be paid out of the post-reorganization income of Reorganized TCO
forty-five days after the Effective Date.
5. EXTENSION OF EXCLUSIVE PERIOD TO FILE PLAN OF
REORGANIZATION
During the course of TCO's Reorganization Case, the Bankruptcy Court
has granted TCO several extensions of the periods during which it has the
exclusive right to file a plan of reorganization and to solicit acceptances
thereto. Concurrently with the filing of the Plan, TCO has requested a
Bankruptcy Court order further extending the exclusive periods for Plan filing
and solicitation on an interim basis through May 18, 1995, and then for a total
of an additional one hundred and eighty (180) days through October 16, 1995 and
December 18, 1995, respectively. This extension will provide TCO the opportunity
to pursue confirmation of its Plan.
6. MOTION FOR A DATA ROOM
On January 31, 1994, the Creditors' Committee filed a motion for an
order requiring TCO to establish a data room (the "Data Room Motion"). The
Debtors and the Columbia Committees opposed the Data Room Motion. At a hearing
held on February 19, 1994, Judge Balick granted the Data Room Motion and ordered
TCO and its Creditors' Committee to submit a joint stipulation of terms and
conditions for entry into the data room by March 11, 1994.
V-58
<PAGE> 728
After much discussion, TCO and its Creditors' Committee negotiated a
Joint Stipulation and Order Re Terms and Conditions for Admission to TCO Data
Room (the "Stipulation") which was "so ordered" by the Court on March 18, 1994.
The salient provisions of the Stipulation provided that all interested parties
submit by April 20, 1994, a written request (the "Request") for entry into the
data room. The Requests were required, inter alia, to (i) identify the name
and identity of the entity or entities making the request, (ii) include an
executed confidentiality agreement in the form annexed to the
Stipulation, (iii) include a check in the amount of $50,000 payable to TCO,
and (iv) include the entity's most recent financial statements or similar
information reasonably demonstrating the financial capability of each person
or entity providing material capital or financial support to any transaction
involving TCO. The Requests were to be reviewed by Lehman Brothers and Salomon
Brothers Inc to determine whether the Requesting Entities should be deemed
qualified. Any disagreements over an entity's qualifications, were to be
submitted to the Bankruptcy Court for determination.
Pursuant to the Stipulation, TCO received six (6) timely Requests for
entry into the data room from the following entities: (i) Tennessee Gas Pipeline
Co., (ii) CNG Transmission Corporation, (iii) Exxon Company, U.S.A. ("Exxon"),
(iv) Dimeling, Schreiber & Park ("Dimeling"), (v) National Fuel Gas Supply
Corporation and (vi) Occidental Petroleum Corporation.
V-59
<PAGE> 729
Pursuant to the Stipulation, TCO issued four (4) access letters to the
requesting entities allowing those entities access to the data room on the dates
requested. With respect to two (2) of the requesting entities, Dimeling and
Exxon, TCO denied those entities access to the Data Room. With respect to
Dimeling's Request, Salomon Brothers Inc. determined that Dimeling's Request
failed to demonstrate the requisite financial capability. Dimeling's Request
failed to provide the identity of, or supporting financial documentation for,
those entities who would be participating with Dimeling in a potential
acquisition of TCO as specifically required by the Stipulation. With respect to
Exxon, TCO denied Exxon access to the data room because (i) the confidentiality
agreement executed by Exxon failed to conform with the form of confidentiality
agreement annexed to the Stipulation and (ii) a potential conflict of interest
exists between Exxon's role as a prospective bidder for TCO and its role as a
member of the Creditors' Committee.
On May 2, 1994, both Exxon and Dimeling filed motions with the
Bankruptcy Court requesting that the Court grant them access to the TCO Data
Room. A hearing on the Motions was held before Judge Balick on May 17, 1994.
Just prior to hearing Exxon withdrew its application for entry into the Data
Room. At the hearing, Judge Balick ordered Dimeling to come forward with
additional information in order to demonstrate its financial capability. Shortly
after the hearing, Dimeling sent a letter
V-60
<PAGE> 730
to TCO voluntarily withdrawing its application for entry into the Data Room.
The four parties entitled to access visited the Data Room and requested
extensive documentation, which was delivered to them. The Data Room was closed
on June 20, 1994.
By letter dated August 19, 1994, Dimeling submitted to the Chairman of
the Board of Columbia a proposal for the reorganizations of Columbia and TCO
whereby Dimeling and an investor group would invest $500 million in newly issued
equity of Columbia, and in return receive the right to propose an initial slate
of directors for reorganized Columbia. Dimeling's proposal also contemplated the
sale of the distribution assets of Columbia for approximately $1.4 billion and
the use of the cash proceeds therefrom to pay Producers $1.3 billion in
settlement of all their Claims, and to pay all priority and other Unsecured
Claims of TCO in full, and to pay, in full, in cash all unsecured claims of
Columbia.
After a careful review and analysis of Dimeling's proposals, Columbia,
with the assistance of its financial advisors, determined that the Dimeling
proposal was inadequate, not feasible and thus not in the best interest of
Columbia, TCO and their respective estates.
7. ASSUMPTION OF NONRESIDENTIAL LEASES
On October 3, 1991, the Bankruptcy Court extended the time within which
TCO may assume or reject leases of nonresidential real property until
Confirmation of a plan of reorganization by
V-61
<PAGE> 731
TCO. On August 19, 1992, TCO filed a motion with the Court seeking authority to
assume over 15,600 leases, which are substantially all of TCO's non-residential
real property leases including its natural gas storage leases. On October 16,
1992, the Court entered an order authorizing TCO to assume all of the real
property leases identified in the August 19, 1992 motion and to pay all
arrearages in connection with the assumed leases which totalled approximately
$1.2 million. Subsequently, TCO was authorized to assume the lease for its main
headquarters located in Charleston, West Virginia (subject to further Bankruptcy
Court approval of the exercise of TCO's option to extend the term of that
lease).
8. CASH COLLATERAL ORDER
As of the Petition Date, the total principal amount of secured debt
owed to Columbia by TCO for the Columbia Secured Claim was approximately $1.3
billion, secured by substantially all the property of TCO. The secured
indebtedness consists of (i) the principal amount of $410 million arising from
the Inventory Financing Agreement between TCO and Columbia secured by a lien on
certain stored gas and (ii) a pre-petition mortgage indebtedness in the
approximate amount of $930 million in principal and $29 million in interest
arising from the TCO Indenture which is secured by substantially all of TCO's
non-storage inventory assets and property, whether currently owned or
after-acquired including the proceeds thereof.
V-62
<PAGE> 732
On August 23, 1991, the Bankruptcy Court entered a final order
(retroactively effective as of the Petition Date) authorizing TCO to use
Columbia's cash collateral and granting Columbia replacement liens and security
interests in TCO's post-petition assets, to the extent such liens and security
interests were valid, perfected and unavoidable as of the Petition Date and to
the extent the value of the collateral securing Columbia's Secured Claims
diminished after the Petition Date as a result of TCO's use of the cash
collateral. Columbia's post-petition liens and security interests were expressly
subordinated to (i) the DIP Facility; (ii) post-petition winter service liens;
(iii) other pre-petition liens on inventory, if valid, and (iv) $7.5 million of
the unpaid fees and expenses incurred by all the professionals retained by TCO
and the Committees in the bankruptcy proceeding to the extent allowed by the
Bankruptcy Court.
9. APPOINTMENT OF FEE EXAMINER
Due to the numerous professionals retained in TCO's and Columbia's
cases, the Bankruptcy Court deemed it necessary to appoint Professional Fee
Examiners, Inc. as the fee examiner (the "Fee Examiner") to assist the Court in
reviewing the numerous fee applications filed and applications to be
subsequently filed in Columbia's and TCO's cases which are in excess of $75,000.
On June 13, 1994, a hearing was held on
V-63
<PAGE> 733
interim fee applications filed for the periods July 31, 1991 through March 31,
1992.
10. PROCEDURES RELATING TO THE FILING AND DETERMINATION\
OF CLAIMS
a. BAR DATES
On December 13, 1991, the Bankruptcy Court entered an order
establishing March 18, 1992, as the Bar Date by which Proofs of Claim must be
filed by all persons and entities that have or may have a Claim against TCO
subject to certain enumerated exceptions. Creditors were required to file a
Proof of Claim by the Bar Date if they hold a Claim which arose prior to the
Petition Date, and if the Claim does not fall within an enumerated list of
exceptions. These exceptions include (i) Claims listed on TCO's Schedules of
Liabilities, if (A) the Claimant agrees with the amount, (B) the Claim is not
listed as disputed, contingent, or unliquidated and the (C) claimant agrees with
the classification of the Claim; (ii) Claims previously allowed by the
Bankruptcy Court; (iii) Claims arising solely from pre-petition amounts owing
under a non-residential real property lease not rejected or assumed by TCO; and
(iv) Claims of state and Federal environmental agencies.
Subsequently, Bar Dates were established for limited groups of
Creditors. First, the Court entered an order setting April 17, 1992 as the Bar
Date by which parties holding Claims arising under the class member contracts
that were within the scope of the Enterprise Energy Action could file
Claims. Pursuant to an order dated June 11, 1992, the Court also
V-64
<PAGE> 734
established July 30, 1992 as a Bar Date by which certain beneficial
interestholders or potential interestholders of approximately 4,680 gas purchase
contracts rejected by TCO not previously notified of TCO's March 18, 1992 Bar
Date were to file proofs of Claim. The June 11, 1992 order also permits TCO to
serve a notice of a new bar date for certain pre-petition Creditors who were not
listed on TCO's Schedules and who did not receive notice of TCO's initial March
18, 1992 bar date. Pursuant to an order dated February 10, 1994, the Court
established April 1, 1994 as a Bar Date by which certain beneficial
interestholders or potential interestholders of approximately 7,800 gas purchase
contracts which were rejected by TCO or declared terminated pursuant to the
Court's order were to file Claims. Such Creditors are allowed 30 days from the
date of service of the notice to file a proof of Claim in TCO's case. TCO has
the right to serve such notices until an order confirming a Plan of
Reorganization is entered by the Court.
b. CLAIMS AGENT
The Bankruptcy Court also authorized TCO to employ Poorman-Douglas
Corporation ("Poorman-Douglas") as its official Claims agent, for purposes of
receipt and docketing of Claims. Notice of the Bar Date and Proof of Claim forms
were disseminated in a wide distribution to TCO's Creditors on or about January
3, 1992.
V-65
<PAGE> 735
c. CLAIM OBJECTIONS PROCEDURES
Since the Petition Date, approximately 7,200 proofs of Claim, amounting
to at least $16.8 billion as docketed have been Filed against TCO's Estate. TCO
has obtained authority to file procedural objections to Claims, and to settle
smaller Claims. TCO has filed two omnibus procedural objections seeking to
expunge or reduce over 1,000 Non-Producer Claims, and has filed objections to
all Producer Claims, which objections have been consolidated with the Claims
Estimation Procedures. In addition, TCO has filed a request for an order
approving procedures for asserting and resolving procedural objections to
Producer Claims.
d. REMOVAL/FILING OF CLAIMS
The Bankruptcy Court has enlarged TCO's time to file applications to
remove litigation pursuant to Bankruptcy Rule 9027(a)(2) during TCO's Chapter 11
proceeding, most recently by an Order dated March 24, 1995 which enlarged TCO's
time to file such applications to July 22, 1995. Pursuant to section 1452 of
Title 28 of the United States Code, TCO has the right to remove any claim or
cause of action in certain civil actions to the district court in the district
where the civil action is pending and such district court may remand the claim
or cause of action on any equitable ground. Bankruptcy Rule 9027 provides that
an application for removal of a litigation in accordance with section 1452 must
be filed by the debtor within the longest of "(A) 90 days after the order for
relief in the case under the
V-66
<PAGE> 736
Code, (B) 30 days after entry of an order terminating a stay, if the claim or
cause of action in a civil action has been stayed under Section 362 of the Code,
or (C) 30 days after a trustee qualifies in a chapter 11 reorganization case but
not later than 180 days after the order for relief." Bankruptcy Rule 9006
authorizes the Bankruptcy Court to enlarge this time period "for cause shown."
The Bankruptcy Court has continued to enlarge the time period for TCO because of
the thousands of Claims filed against TCO and the large number of lawsuits to
which TCO is a party.
The Bankruptcy Court has also enlarged TCO's time to file proofs of
Claim on behalf of Creditors who do not timely file proofs of Claim, most
recently to July 22, 1995, pursuant to an Order dated March 24 1995. Section
501(c) of the Bankruptcy Code provides that if a creditor does not timely file
its proof of claim, the debtor may file a proof of such claim in the name of the
creditor. Bankruptcy Rule 3004 provides that the debtor must file such proof of
claim within thirty (30) days after the expiration of the time for filing proofs
of claim. Bankruptcy Rule 9006 authorizes the Bankruptcy Court to enlarge this
time period "for cause shown." The Bankruptcy Court has continued to enlarge
this time period for TCO because of the thousands of Claims filed against TCO
and the time-consuming process to reconcile and liquidate such Claims.
V-67
<PAGE> 737
G. INVESTMENT GUIDELINES LITIGATION AND OTHER INVESTMENT DECISIONS
On July 31, 1991, Columbia and TCO sought and obtained Court approval
of the Debtors' use of SEC-approved guidelines for the investment of all of the
Debtors' respective cash, cash equivalents, and deposit accounts. The Court
expressly held that the Debtors did not need to obtain a bond from the entity
with which such funds were to be deposited or invested and that compliance with
the guidelines was "adequate and sufficient compliance with the requirements of
Section 345(b) of the Bankruptcy Code...."
On August 14, 1991, the U.S. Trustee filed a motion for reconsideration
of the order approving the investment guidelines (the "Investment Guidelines
Order"), which was denied by the Court after conducting a hearing on October 3,
1991. Subsequently, on October 15, 1991, the U.S. Trustee appealed the
Investment Guidelines Order to the District Court. On appeal, the case was
assigned to a United States Magistrate (the "Magistrate") who issued a report on
May 7, 1993 (the "Report"). The Report recommended reversal of the Investment
Guidelines Order on the basis that the guidelines do not comply with the with
the bonding requirements of section 345(b). On August 19, 1993, the United
States District Court for the District of Delaware (the "District Court")
adopted the Report and reversed the Investment Guidelines Order.
On August 30, 1993, Columbia and TCO appealed the District Court's
decision to the Third Circuit Court of Appeals (the
V-68
<PAGE> 738
"Third Circuit Appeal") and filed a motion for stay pending appeal (the "Stay
Pending Appeal"). On February 10, 1994, the District Court granted the Debtors'
motion for a stay pending appeal.
On August 29, 1994, the Third Circuit issued its decision (i) affirming
the District Court's decision except to the extent that it ruled on the Debtors'
investments in repurchase agreements and (ii) remanding the matter to the
District Court for further proceedings consistent with the opinion. In its
opinion, the Third Circuit suggested to the District and Bankruptcy Courts that
they implement the statutory guidelines of section 345(b) in a gradual manner so
as not to have an unduly adverse impact on the estate.
Pursuant to the Third Circuit's decision, the matter was remanded to
the District Court and then to the Bankruptcy Court for further proceedings. As
of the date hereof, no further proceedings have occurred. In order to come into
compliance with the Third Circuit's decision, the Debtors, in consultation with
the U.S. Trustee, have gradually transferred and will continue to transfer their
investments into government-backed securities and other similar government
insured or guaranteed investments as their prior non-conforming investments have
matured and continue to mature.(6) Thus, TCO's current
- - -------------------
6 On October 22, 1994, President Clinton signed into law the Bankruptcy
Reform Act of 1994 which, among other things, amends section 345(b) of
the Bankruptcy Code so as to insert the phrase "unless the court for
cause orders (continued...)
V-69
<PAGE> 739
investments of excess cash are currently substantially in compliance with the
Third Circuit's decision.
- - -------------------
(...continued)
6 otherwise" at the end of section 345(b). This amendment
allows the court to approve investments other than those permitted by
section 345(b) for just cause, thereby overruling the Third Circuit's
decision in In re Columbia Gas System, Inc.. The Bankruptcy Reform Act
applies prospectively to cases filed after its effective date.
V-70
<PAGE> 740
VI. THE COLUMBIA SYSTEM: PUBLIC UTILITY HOLDING COMPANY ACT
REGULATION, SYSTEM FINANCING, COLUMBIA'S CLAIM AGAINST TCO AND THE
INTERCOMPANY CLAIMS
A. THE COLUMBIA SYSTEM
Columbia, the parent of TCO, is a holding company which owns 100%
of the stock of TCO. Columbia has eighteen subsidiaries, all but one of which
are wholly-owned, comprising one of the largest natural gas systems in the
United States (the "Columbia System").
1. SYSTEM COMPANIES AND RELATIONSHIPS WITH TCO
TCO and its properties and business are described in Section III.
The other components of the Columbia System are:
a. COLUMBIA DISTRIBUTION COMPANIES
(COLLECTIVELY, "CDC")
Columbia Gas of Kentucky, Inc., Columbia Gas of Maryland, Inc.,
Columbia Gas of Ohio, Inc., Columbia Gas of Pennsylvania, Inc., and
Commonwealth Gas Services, Inc. These companies provide natural gas service to
more than 1.9 million residential, commercial and industrial customers in
Kentucky, Maryland, Ohio, Pennsylvania and Virginia. With more than 28,000
miles of distribution pipelines, these companies serve major markets such as:
Columbus, Lorain, Parma, Springfield and Toledo in Ohio; Gettysburg, York and
Pittsburgh in Pennsylvania; Lynchburg, Staunton, Portsmouth and Richmond
suburbs in Virginia; Ashland, Frankfort and Lexington in Kentucky; and
Cumberland and Hagerstown in Maryland. In 1994, these five local distribution
companies provided approximately 513 billion cubic feet of natural gas to their
customers. TCO served these
VI-1
<PAGE> 741
distribution companies as a provider of merchant gas prior to the
implementation of Order No. 636, and now provides them with gas transportation
and storage services.
b. COLUMBIA GULF TRANSMISSION CORPORATION
("GULF")
Gulf has been the primary provider of transportation service for
TCO in connection with gas purchased by TCO from the Southwest, Mid-Continent
and Rocky Mountain gas producing areas. As a consequence of Order No. 636, TCO
is no longer purchasing any significant quantities of gas for which
transportation by Gulf would be necessary. However, Gulf continues to be
important to TCO's operations since it is the transportation source for much of
the gas that is received by TCO for redelivery to TCO's Customers.
c. COLUMBIA GAS SERVICE CORPORATION
("COLUMBIA SERVICE CORPORATION")
Columbia Gas Service Corporation (the "Columbia Service
Corporation"), a mutual service company approved by the SEC under the HCA,
cost-effectively provides a broad range of specialized and other business
services to support the operations of Columbia and its subsidiaries. These
services include electronic data processing, risk management, accounting, legal,
financial, environmental, tax, human resources, auditing and other services for
Columbia and its affiliates. Through economies of scale and efficiency, the
Columbia Service Corporation is able to service the diverse and specialized
needs of Columbia System businesses.
VI-2
<PAGE> 742
d. COLUMBIA NATURAL RESOURCES, INC.
("CNR"), AND COLUMBIA GAS DEVELOPMENT
CORPORATION ("CGD")
CNR is an Appalachian gas and oil producer and CGD a Southwest gas
and oil producer. TCO purchased gas from CNR and CGD prior to the
implementation of Order No. 636. Under Order No. 636, TCO will continue to
render transportation services for gas produced by them.
e. COLUMBIA LNG CORPORATION ("COLUMBIA LNG")
Columbia LNG Corporation ("Columbia LNG"), an approximately
92%-owned subsidiary of Columbia, is also involved in the transmission segment.
Columbia LNG, in partnership with a subsidiary of Potomac Electric Power
Company, has started construction of a FERC-approved natural gas peaking
operation at the Cove Point, Maryland facility referred to above. Peaking and
related services are expected to start in late 1995 to meet the peak demands
for natural gas in the mid-Atlantic area.
F. TRISTAR VENTURES CORPORATION AND COLUMBIA
ENERGY SERVICES
These companies are, respectively, a cogeneration project developer
and a marketer of gas. TriStar Ventures Corporation ("TriStar"), another
Columbia subsidiary, develops new business opportunities in power generation
and other energy-related markets. Its primary focus is the development,
ownership and operation of natural gas-fueled cogeneration and independent
power projects. Its cogeneration projects include interests in a 117 megawatt
facility at the B.F. Goodrich manufacturing plant in Pedricktown, New Jersey, a
44 megawatt facility at
VI-3
<PAGE> 743
International Paper's Anitech plant in Binghamton, New York, a 46 megawatt
facility at the Progresso Foods plant in Vineland, New Jersey and an 85
megawatt facility in Rumford, Maine. TCO transports gas for certain
cogeneration projects in which TriStar has an interest and for Columbia Energy
Services. Columbia Energy Services Corporation is the System's non-regulated
natural gas marketing affiliate which markets natural gas and provides an array
of supply and fuel management services to distribution companies, independent
power producers and other large end users both on and off Columbia's
transmission and distribution pipeline systems.
2. CERTAIN SHARED OPERATION AND MAINTENANCE SERVICES
WITHIN THE SYSTEM
TCO provides, at cost, certain operation and maintenance services
related to the facilities of CDC, CNR and Columbia LNG. In addition, CDC and
CNR perform operation and maintenance services for TCO at cost. All of these
intercompany service arrangements are designed to maximize the efficiency and
effectiveness of system-wide personnel and equipment. TCO proposes to assume
all such executory contracts with its affiliates, and to pay cure costs
connected therewith. See also Section IX.B, "Assumption of Tax Allocation
Agreement".
B. REGULATION BY THE SEC UNDER THE HCA OF THE COLUMBIA
SYSTEM; HCA REGULATION OF CHAPTER 11 PLANS
Columbia is a registered public utility holding company under the
HCA. Under the HCA, the CDC companies are "public utility" subsidiaries,
Columbia Service Corporation is a "mutual
VI-4
<PAGE> 744
service company" and the remainder of Columbia's subsidiaries are "nonutility"
subsidiaries of Columbia.
Under sections 11(f) and (g) of the HCA, Columbia's Chapter 11 plan
of reorganization must be approved by the SEC after public notice and
opportunity for hearing, and the disclosure statement utilized to solicit
acceptances of Columbia's plan must be submitted to the SEC for its review and
a report by the SEC on the plan (or an abstract of such report), made after
opportunity for hearing, must accompany Columbia's plan disclosure/solicitation
materials.
While these same statutory provisions are applicable to Chapter 11
reorganization plans and related disclosure/solicitation materials of all
subsidiary companies, pursuant to its rule-making authority the SEC has
exempted from these requirements nonutility subsidiaries of registered holding
companies such as TCO (with limited exceptions applicable to TCO).
Several of the transactions which are or may be necessary in order
to consummate the TCO Plan (as distinguished from the TCO Plan itself) require
approvals by the SEC under the HCA. Specifically, (i) the acquisition by
Columbia of securities of TCO in satisfaction of its existing Secured Claims
against TCO requires approval under sections 9 and 10 and (ii) the guaranty by
Columbia of the distributions to Creditors contemplated by the TCO Plan
requires approval under sections 6 and 7. In each
VI-5
<PAGE> 745
case public notice and an opportunity for a hearing before the SEC by
interested parties are required.
Columbia's plan of reorganization is essentially a purely financial
restructuring, and Columbia does not reasonably expect that its plan will not
be approved by the SEC. Similarly, neither Columbia nor TCO anticipates that
the TCO Plan transactions requiring approval by the SEC under the HCA will not
be so approved.
C. REGULATION BY THE SEC UNDER THE HCA OF EXTERNAL AND
INTERNAL COLUMBIA SYSTEM FINANCINGS AND OF INTRA-SYSTEM
SALES AND SERVICE CONTRACTS AND ASSET TRANSFERS
1. SYSTEM EXTERNAL AND INTERNAL FINANCING
Because the holding company represents the aggregate of the
diversified credits of its subsidiaries, historically it enjoyed ready and
cost-efficient access to the financial markets. It has proved to be a vehicle
for satisfying the external financing needs of the Columbia System which is
more cost effective than direct financing of the subsidiaries. As a
consequence, with infrequent exceptions, Columbia has satisfied the capital
requirements of its subsidiaries, including TCO, by reinvesting the proceeds of
its own external financings in those subsidiaries either as indebtedness
bearing interest rates and maturities corresponding to the interest rate and
maturities of Columbia's own indebtedness, or as equity.
Sections 6 and 7 of the HCA govern the issuances by Columbia of its
own securities and sections 6, 7, 9 and 10 of the HCA govern the issuances by
its subsidiaries of
VI-6
<PAGE> 746
corresponding securities and Columbia's acquisition of those corresponding
securities.
Section 7 of the HCA provides that debt securities may not (with
minor exceptions) be issued either by a registered holding company or by any of
its subsidiaries if the SEC finds (among other things) that (i) the asset value
underlying the securities is inadequate, (ii) the securities are not reasonably
adapted to the capital structure of the holding company system, (iii) the terms
of the debt securities are not reasonable, or (iv) in the case of debt
securities of subsidiaries, they are not reasonably adapted to the subsidiary's
earning power.
2. SEC REGULATION UNDER THE HCA OF INTRA-SYSTEM SALES
AND SERVICE CONTRACTS AND ASSET TRANSFERS
Most significant transactions between Columbia and its subsidiaries
and between its subsidiaries are subject to HCA regulation by the SEC.
Sections 9, 10 and 13 require SEC approval for the sale or acquisition of
affiliate securities or oil and gas leasehold interests and govern the sale of
non-gas goods and services, generally requiring them to be provided at cost.(1)
As noted, TCO has had and continues to have a variety of on-going
transactions with certain other Columbia subsidiaries. All these transactions
have been and continue to be in
____________________
(1) In addition, state regulation of utility companies also generally
requires pre-approval of transactions with affiliates (including pipeline
affiliates) and generally provides for limited ability to recover more
than a fair allocation of cost of capital.
VI-7
<PAGE> 747
compliance with the requirements of the HCA and any applicable state
regulations. The sale of gas, however, is regulated only by FERC and state
commissions.
D. CLAIMS OF COLUMBIA AND ITS OTHER SUBSIDIARIES AGAINST THE
TCO ESTATE
1. COLUMBIA'S CLAIMS
Columbia's Claims against the TCO Estate fall into four categories:
(i) Secured Claims for borrowed money, (ii) Unsecured Claims for borrowed money
and (iii) Contingent Claims arising under certain contractual relationships.
a. SECURED CLAIMS FOR BORROWED MONEY
The first Secured Claim (the "Inventory Claim") is based upon
indebtedness owed by TCO to Columbia pursuant to an Inventory Loan Agreement.
The Inventory Claim is secured by all of the natural gas held in storage by TCO
in certain underground storage reservoirs, including cushion gas, and the
proceeds thereof (the "Collateral"), as more fully set forth in the Inventory
Security Agreement dated as of June 19, 1985, between Columbia and TCO. As of
the Petition Date, the outstanding amount of the Inventory Claim was $410
million in principal plus accrued interest of approximately $2.7 million.
Post-petition interest has been accrued by TCO on the Inventory Claim,
calculated in accordance with the Inventory Financing Agreement. In connection
with the implementation of Order No. 636, TCO transferred title to most of its
gas inventory to its Customers. Pursuant to the Bankruptcy Court order dated
October 20, 1993 approving that transfer, Columbia's lien attached to the
VI-8
<PAGE> 748
proceeds of sale (approximately $127 million in cash), and continues to attach
to cushion gas retained by TCO in connection with the operation of its storage
facilities.
The second Secured Claim (the "Mortgage Claim") is based on
indebtedness issued by TCO to Columbia under the TCO Indenture of Mortgage and
Deed of Trust dated August 30, 1985 (the "TCO Indenture"). The Mortgage Claim
is secured by substantially all property, rights, privileges and franchises of
TCO of every kind and description, real, personal and mixed, tangible or
intangible (with the exception of certain property set forth in the TCO
Indenture) and the proceeds thereof (collectively, the "Trust Estate"). As of
the Petition Date, the outstanding amount of the Mortgage Claim was
approximately $930.4 million in principal plus accrued interest of
approximately $29 million. Post-petition interest has been accrued by TCO on
the Mortgage Claim calculated in accordance with the various underlying
mortgage documents.
b. UNSECURED CLAIMS FOR BORROWED MONEY
The first Unsecured Claim for borrowed money (the "Columbia
Unsecured Promissory Note Claim") is based upon unsecured indebtedness of TCO
to Columbia evidenced by a series of Installment Promissory Notes of various
dates. As of the Petition Date, the aggregate principal amount outstanding was
approximately $293.8 million and accrued interest was approximately $6.8
million.
VI-9
<PAGE> 749
The second Unsecured Claim for borrowed money is based upon a
series of Revolving Credit Agreement Notes of various dates. The aggregate
principal amount owed, as of the Petition Date, was $50 million, and accrued
interest was approximately $314,000.
c. UNSECURED CLAIMS ARISING UNDER CONTRACTUAL
ARRANGEMENTS
Columbia has asserted an Unsecured Claim against TCO in an
undetermined amount for reimbursement of obligations Columbia has or will pay
to the Reliance Insurance Companies ("Reliance") as guarantor of TCO's
obligations to Reliance under certain surety bonds issued pre-petition. The
Plan provides for the assumption by Reorganized TCO of its obligations to
Columbia on account of such surety bonds.
Columbia and other affiliates have asserted contingent, unsecured
Claims in undetermined amounts (the "TAA Claims") for amounts which may become
owing to them by TCO in the event TCO rejects the Tax Allocation Agreement.
See Section IX.B., "Assumption of Tax Allocation Agreement". The Plan,
however, provides that TCO will seek to assume the TAA, subject to the approval
of the Bankruptcy Court.
d. MISCELLANEOUS PAYABLE CLAIMS
Columbia also holds an Unsecured Claim against TCO relating to tax
benefits in connection with employee stock options for tax year 1990 which was
listed on TCO's Schedules of Liabilities as undisputed, liquidated and
non-contingent in the amount of $193,313. This amount has been increased to
$409,625
VI-10
<PAGE> 750
to reflect additional liabilities associated with the tax benefits in
connection with employee stock options for tax year 1989.
2. CNR'S CLAIM FOR THE EAST LYNN CONDEMNATION AWARD
Following the filing of the petition, TCO received payment from the
U.S. Army Corps of Engineers (the "Corps") for certain coal properties which
the Corps had condemned. These properties had previously been transferred to
CNR (see Section VI.E.1.b, "Transfer of Natural Resource Properties From TCO to
CNR"), and this payment has been held by TCO in an interest-bearing account.
The Plan provides for the transfer of the East Lynn Condemnation Award to CNR.
3. OTHER COLUMBIA SUBSIDIARIES' CLAIMS
The CDC companies and other subsidiaries of Columbia have Claims
against TCO which arose in the ordinary course of their business dealings, as
well as contingent Claims which would arise from a rejection of the Tax
Allocation Agreement. These Claims are payable in full to the extent they are
cure costs on assumed executory contracts, or are classified in Class 3.4 or
Class 4.5.
E. THE INTERCOMPANY CLAIMS (ASSERTED ON BEHALF OF THE TCO
ESTATE AGAINST COLUMBIA AND CNR)
1. BACKGROUND
a. TCO'S 1985 CRISIS
As more fully described in Section III.A, "TCO's Pre-Bankruptcy
Corporate Structure and Operations; Historical Industry Background," by early
1985 TCO's exposure on its high-
VI-11
<PAGE> 751
priced, high take-or-pay, Southwest Producer gas supply contracts jeopardized
its long-term viability. In March 1985, Arthur Andersen & Co., Columbia's
auditors, qualified the 1984 Columbia financials to reflect the uncertainty and
risks arising from the adverse FERC determinations and TCO's high-priced gas
supply contracts.
TCO and Columbia structured a two-part response to resolve TCO's
business problems and to preserve its viability. The first step in this
response came in the spring of 1985: the PGA Settlement between TCO and its
Customers and other participants in certain FERC proceedings set Customer
purchase levels and capped TCO's prices for natural gas sales for two years.
See Section III.B.2, "Emergence of the Gas 'Bubble' and the Effect on TCO". As
a result of the PGA Settlement, TCO incurred pre-tax writeoffs in excess of
$400 million in 1985 and 1986, causing TCO's debt-to-equity ratio to
deteriorate substantially.
The second step of the response was to renegotiate TCO's most
troublesome supply contracts, which effort required more than a billion dollars
in financial assistance from Columbia. In April 1985, the Columbia Board of
Directors approved the plan, which was called the PPRPP (see Section III.B.2.,
"Emergence of the Gas 'Bubble' and the Effect on TCO") and consisted of a
massive buyout proposal to various Producers. Because of the high level of
risk as to TCO's continued financial viability absent success of the PPRPP, the
Board authorized the extension of new funds to TCO only on a secured
VI-12
<PAGE> 752
basis. That secured financing was initially approved by the SEC in June 1985.
From June through December 1985, TCO incurred more than $1 billion
in secured debt, most of which funded the PPRPP. The buydown of those supply
contracts reduced the Producer Claims for which TCO might be liable in a
subsequent bankruptcy proceeding by more than $4 billion.
As a result of Columbia's 1985 commitment and continuing support,
TCO remained a viable, going concern for almost six years and generated net
cash flow from operations (before debt service) of $1.3 billion. From 1986
through 1989, TCO reduced its overall debt by more than $725 million and TCO's
debt-to-equity ratio improved until abnormally warm weather adversely impacted
TCO's operating performance in 1990.
The exceptionally warm winter weather beginning in 1990
substantially reduced TCO's cash flow and increased its working capital
requirements. Through 1990 and early 1991, TCO's secured debt increased
rapidly as Columbia provided new funds to meet TCO's capital and operating cash
needs.
After the PPRPP generally became effective, TCO paid Producers
(through the Petition Date) more than $5.3 billion or approximately $1.6
billion more than these Producers would have received if they had sold their
gas on the declining spot market. Producers also received from TCO another
$393 million in payments for additional contract reformation and non-recouped
VI-13
<PAGE> 753
take-or-pay, in addition to the $796 million paid as part of the PPRPP.
TCO's pre-tax cash flow was more than adequate to fund all its
dividend, interest and principal payments to Columbia. During this period, TCO
made capital expenditures exceeding $680 million, virtually all of which was
spent on the construction of gas pipeline facilities, including transmission
pipelines to reach new Customer areas. In addition, dividends totaling $130
million were paid out of earnings in conformity with Delaware General
Corporation Law and SEC regulations under the HCA. No unsecured debt was
prepaid or retired early.
b. TRANSFER OF NATURAL RESOURCE PROPERTIES FROM
TCO TO CNR
(i) INITIAL APPROVAL OF TRANSFER
In 1944, Columbia was composed of many companies, a number of which
were involved in distribution, transmission and production. In 1971, those
companies were merged to form TCO, a single interstate transmission company
subject to FERC jurisdiction. As a result, TCO acquired all of Columbia's
production properties located in Appalachia. After the passage of the NGPA in
1978, many pipelines (including Columbia) reconsidered the logic of continuing
to combine gas production and pipeline businesses in one company.
In the early 1980s, many pipelines were transferring production
properties to affiliates. Columbia and TCO actively explored transferring
TCO's Appalachian exploration and production properties to a subsidiary devoted
to developing and
VI-14
<PAGE> 754
marketing Appalachian oil and gas free from FERC regulations (and thereby
separating it from TCO's highly regulated pipeline business of buying,
transporting and reselling Appalachian and Southwestern gas). CNR was
incorporated in 1984 for that purpose.
In 1984-85, Columbia and TCO filed applications with the SEC and
FERC to effectuate the transfer. As noted in those applications, the proposed
transfer of properties had been structured as a tax-free reorganization.
(ii) WITHDRAWAL OF THE APPLICATION
TCO had in the meantime begun formulating the PPRPP. Because
Columbia was not in a position to provide all the funds required by TCO, a bank
loan to TCO that was secured by the Appalachian oil and gas reserves that were
to be transferred to CNR (the "Production Loan") was obtained instead.
The Production Loan, however, required any transfer to be subject
to liens. To effect the transfer subject to the liens would have resulted in a
high level of deferred taxes that would have been recognized in the event of a
loss of control by either CNR or TCO of the production properties. To protect
TCO and its creditors (including Columbia) from those tax consequences, the SEC
and FERC applications were withdrawn and the transfer was postponed. At that
time, TCO entered into a management agreement with CNR relating to those
properties.
VI-15
<PAGE> 755
(iii) RESUBMITTAL OF THE REORGANIZATION
TCO repaid the Production Loan in 1988. In early 1989, a new
reorganization agreement providing for transfer of the properties was entered
into and submitted to the SEC and FERC for approval. Following public notice
and an opportunity for hearing, the SEC approved the transfer in May 1989.
Congressional passage of the Natural Gas Wellhead Decontrol Act of 1989 and a
subsequent FERC interpretation of that Act (FERC Order No. 523, February 18,
1990) established that there was no longer a need for FERC approval of the
transfer. Shortly thereafter, the transfer of properties began.
(iv) THE CNR TRANSFER
On May 31, 1990, CNR and TCO executed a purchase and sale
agreement. Pursuant to that agreement, the closings for the transfer (the "CNR
Transfer") of TCO's natural resource properties were held from June to August
1990. The transfers were structured to be tax free, and, like other
intercompany transfers, were all done at book value.
In exchange for the properties (including wells, oil and gas
leaseholds, equipment, contracts and accounts receivable), $54 million of net
liabilities, and $22 million in cash, which collectively had the net book value
of $101,628,700, CNR issued to TCO 4,065,148 shares of its common stock, with
an aggregate par value of $101,628,700. Immediately after the transfer, TCO
owned 80% of CNR. Pursuant to the requirements of section 368(a)(1)(D) of the
Internal Revenue Code governing tax-
VI-16
<PAGE> 756
free divisive reorganizations, TCO then distributed the CNR shares to Columbia;
in exchange TCO received from Columbia TCO common stock having the same
aggregate par value as the CNR shares transferred to Columbia. Before and
after these transactions, both TCO and CNR were wholly-owned subsidiaries of
Columbia.
2. THE INTERCOMPANY CLAIMS LITIGATION
A. STIPULATION AND ORDER CONCERNING
PROSECUTION OF THE INTERCOMPANY CLAIMS
On February 4, 1992, the Bankruptcy Court approved a stipulation
among Columbia, TCO and the Creditors' Committee assigning to the Creditors'
Committee the right to investigate and prosecute, on behalf of the Estate, all
claims against Columbia or CNR relating to actions occurring prior to the
Petition Date that may arise under sections 510(c), 544, 545, 547, 548, 550(a)
and 550(b) of the Bankruptcy Code or under applicable non-bankruptcy law for
any allegedly fraudulent conveyance, equitable subordination, illegal dividend,
corporate waste, alter ego, piercing the corporate veil, preference,
invalidation of unperfected liens or security interests and breach of fiduciary
duty (the "Intercompany Claims").
The Stipulation allowed the claims to be pursued without conflict
by the TCO Creditors that potentially had the most to gain from the litigation
and provided that TCO would cooperate with the Creditors' Committee in the
investigation and prosecution of all intercompany claims. The order approving
the Stipulation reserved to TCO and Columbia the right to include
VI-17
<PAGE> 757
settlement of the litigation in any plan(s) of reorganization. Settlement
negotiations were conducted prior to the filing of a complaint, but did not
produce a settlement.
b. INTERCOMPANY CLAIMS LITIGATION PROCEEDINGS
On March 18, 1992, the Creditors' Committee filed its Complaint
against Columbia and CNR asserting the Intercompany Claims (the "Complaint"),
which are summarized below.
(i) ALLEGATIONS OF EQUITABLE
SUBORDINATION
The Complaint asserted that from 1985 to the filing of TCO's
bankruptcy petition in 1991, Columbia had used its position as sole stockholder
of TCO to gain for itself an unfair advantage over TCO's unaffiliated creditors
by maintaining TCO in an undercapitalized or insolvent condition while Columbia
removed valuable assets from TCO and repositioned itself as a secured creditor
in TCO's remaining assets so that Columbia would be at the head of the creditor
line in the event of a TCO bankruptcy. Among the transactions challenged as
part of the equitable subordination case were the transfer of TCO's oil, gas
and coal properties to Columbia and CNR in exchange for the return of TCO
stock; the payment of $130 million in dividends to Columbia; the use of new
secured debt to Columbia to pay principal and interest on TCO's pre-1985
unsecured debt to Columbia; and the increase in TCO's secured debt to Columbia
prior to bankruptcy. The Complaint alleged that these actions had conferred an
unfair advantage on Columbia over TCO's other creditors and caused injury to
TCO and its creditors. As a
VI-18
<PAGE> 758
remedy for this conduct, the Complaint sought the equitable subordination of
Columbia's claims against the TCO estate to the claims of TCO's other
creditors.
(ii) ALLEGATIONS SEEKING
RECHARACTERIZATION OF DEBT AS
EQUITY
The Complaint also asserted that Columbia's secured advances to TCO
from 1985 through 1991 should be recharacterized as equity contributions
because those loans were made by an insider at a time when TCO was
undercapitalized or had inadequate equity capital such that no disinterested
lender would have been willing to lend a like amount of funds to TCO on similar
terms. The Complaint asserted that Columbia's use of secured debt to finance
TCO in these circumstances inequitably shifted the risk of loss from Columbia
to TCO's other creditors.
(iii) ALLEGATIONS OF FRAUDULENT
CONVEYANCES
The Complaint further asserted that the transfer of TCO's oil, gas
and coal properties to CNR, the payment of dividends to Columbia after July 31,
1988, the payment of principal and interest on TCO's prior unsecured debt to
Columbia after July 31, 1988, and the untimely perfection of certain of
Columbia's liens during that period constituted fraudulent conveyances under
applicable state and federal law. The Complaint alleged that those transfers
were made in bad faith and/or with the intent to hinder, delay or defraud TCO's
Creditors; that TCO was insolvent or engaged in business with unreasonably
small capital at the time of those transfers; and that TCO did not receive fair
consideration.
VI-19
<PAGE> 759
(iv) ALLEGATIONS OF VOIDABLE REDUCTION
IN CAPITAL
The Complaint further alleged that TCO's capital was impaired as a
result of the transfer of TCO's oil, gas and coal properties to CNR and that,
therefore, that transfer was avoidable under applicable state and federal law.
That claim was withdrawn at trial.
(v) ALLEGATIONS OF PREFERENCES
The Complaint also asserted that TCO's payments of principal and
interest on its unsecured debt to Columbia and the untimely perfection by
Columbia of certain liens on TCO real estate between July 31, 1990 and July 31,
1991, were transfers made on account of antecedent debts when TCO was insolvent
which enabled Columbia to receive more than it would have received in a
liquidation of TCO under Chapter 7, and thus constitute voidable preferences
under Section 547 of the Bankruptcy Code.
c. RESPONSE OF COLUMBIA AND CNR
Columbia's response to the Complaint was, among other things, that:
(i) with respect to the fraudulent conveyance claims, such
transfers were made for legitimate business reasons and fair consideration; TCO
was solvent and sufficiently capitalized at all relevant times and did not act
in bad faith, or to hinder, delay or defraud its Creditors; that dividends were
paid in accordance with Delaware Corporation Law and that TCO had sufficient
earnings and/or surplus to pay such dividends to Columbia;
VI-20
<PAGE> 760
(ii) with respect to the preference claims, that TCO was
solvent at the time the payments were made; that the loans were obtained and
the payments were made in the ordinary course of TCO's business; that the loans
were repaid in accordance with their regular payment and ordinary business
terms; and TCO's payments of principal and interest on Columbia's unsecured
debt were not voidable preferences under Section 547 of the Bankruptcy Code;
and
(iii) with respect to claims for equitable subordination and
recharacterization of Columbia's debt as equity, when TCO encountered severe
business problems in 1985, Columbia could have either supported TCO or allowed
it to enter bankruptcy; the decision by Columbia to support TCO and avert its
bankruptcy immensely benefitted TCO and its Creditors (especially Producers
that received PPRPP and other contract renegotiation payments exceeding $1
billion and, over the next six years, more than $1.6 billion in above-market
payments for gas); supporting TCO with unsecured debt or equity was foreclosed
by Columbia's duties to its security holders and thus secured debt was the only
means of providing TCO with financial support; TCO was solvent and adequately
capitalized during the relevant period; all of TCO's dividends were legally
paid, reasonable and appropriate; through Columbia's support, TCO continued to
operate successfully until record warm weather arrived in early 1990; TCO paid
all of its obligations as they came due (including those owed to Producers and
Columbia alike);
VI-21
<PAGE> 761
TCO did not prepay unsecured debt or in any way convert it to secured debt;
Columbia's conduct was neither inequitable nor injurious to TCO's other
Creditors; and any alleged advantage to Columbia over other Creditors in
bankruptcy is derived from its unique position--unlike other Creditors,
Columbia provided new financing to TCO and did so at a time when TCO's
financial position was precarious. The allegation regarding recharacterization
of debt as equity is not a separate claim under the Bankruptcy Code and, in any
event, recharacterization would be improper because it benefitted Creditors
when TCO incurred the debt and Columbia received SEC approval to finance TCO on
a secured basis after public notice. In addition, only initial
undercapitalization, which is not alleged in the Complaint and has not been
proved, could support a claim for recharacterization, and the Complaint also
fails to adequately allege facts that could support a finding of injury or
unfair advantage as is required under section 510(c) of the Bankruptcy Code, 11
U.S.C. Section 510(c).
3. INTERCOMPANY CLAIMS LITIGATION PRETRIAL MATTERS
On April 13, 1992, the Bankruptcy Court entered a Scheduling Order
with respect to discovery and procedures relating to the Intercompany Claims.
Hundreds of thousands of document pages were produced to the Creditors'
Committee by TCO, Columbia and CNR, and depositions of two dozen former or
current employees of TCO and Columbia were taken. In addition,
VI-22
<PAGE> 762
approximately a dozen expert witnesses were deposed by the parties.
In May through June 1992, Columbia's Official Committees of Equity
Holders and of Unsecured Creditors (the "Columbia Committees") both intervened
in the Intercompany Claims litigation as defendant-intervenors and answered the
complaint jointly, and TCO's Customers' Committee intervened as a
plaintiff-intervenor and filed a complaint substantially similar to the
Creditors' Committee's complaint.
On June 30, 1992, Columbia filed an Objection to the TCO Creditors'
Committee's Proof of Claim filed on behalf of TCO against Columbia (the
"Objection"), which was consolidated with the Complaint pursuant to a Consent
Order signed on July 31, 1992.
In June 1992, Columbia and CNR filed a Motion for Judgment on the
Pleadings and Summary Judgment (the "Summary Judgment Motion") as to the
equitable subordination, recharacterization and certain other claims in the
Complaint. The parties (including the intervening committees) briefed the
Summary Judgment Motion extensively, first in 1992 and then, based upon the
factual record developed during discovery, again in 1993. The Summary Judgment
Motion was denied shortly before trial without opinion.
On May 13, 1994, the Bankruptcy Court made a sua sponte motion to
the District Court for withdrawal of the jurisdictional reference of the
Intercompany Claims Litigation.
VI-23
<PAGE> 763
On May 25, 1994, the District Court granted the Bankruptcy Court's sua sponte
motion and withdrew the reference of the Intercompany Claims Litigation.
4. THE INTERCOMPANY CLAIMS TRIAL
Trial before the Honorable Joseph H. Farnan commenced in the United
States District Court for the District of Delaware on September 12, 1994. The
trial was completed on October 25, 1994.
During the trial the Creditors' Committee called three fact
witnesses (as adverse witnesses) and six expert witnesses and offered 677
exhibits in support of TCO's claims against Columbia. In their defense,
Columbia and CNR called four fact witnesses and seven expert witnesses and
offered 184 exhibits in opposition to the evidence presented by the Creditors'
Committee. Each side designated portions of 23 depositions in support of their
positions. All of the fact witnesses testifying at trial or by deposition were
present or former officers of Columbia or TCO.
Following the trial, both sides submitted proposed findings of
fact, reply findings of fact, proposed conclusions of law, and post-trial
argument. These post-trial written submissions were completed on December 20,
1994.
The Columbia Committees participated in trial preparation and
defense and the preparation of post-trial submissions. The Court's decision is
not expected before June 1, 1995.
VI-24
<PAGE> 764
5. SUMMARY OF CREDITORS' COMMITTEE'S POSITION
The Creditors' Committee contends that it established at trial that
between 1985 and 1991 Columbia was carrying out a plan to use its control over
TCO to gain for itself an inequitable advantage over TCO's general unsecured
creditors. The Creditors' Committee contends that the evidence showed (i) that
Columbia formulated this plan in late 1984 and early 1985 when TCO was
experiencing severe financial problems, including the possibility that it might
soon be forced into bankruptcy; (ii) that Columbia recognized that, as
stockholder and unsecured creditor of TCO, it had little chance of holding on
to its investment in TCO if TCO went into bankruptcy at that time; and (iii)
that to avoid the loss of its investment and gain a priority over TCO's other
creditors, Columbia devised and implemented a plan to forestall an immediate
TCO bankruptcy and maintain Columbia's control over TCO while Columbia removed
assets from TCO and repositioned itself as a secured creditor in TCO's
remaining assets, thereby shifting the risk of loss to TCO's other creditors in
case TCO failed.
The Creditors' Committee contends that the evidence further showed
that Columbia's plan included (i) the removal of TCO's valuable oil, gas and
coal properties for the benefit of Columbia through the transfer of those
assets to CNR in exchange for the return of shares of TCO's own stock which had
no value to TCO; and (ii) the removal of an additional $130 million from TCO
through the payment of dividends to Columbia when TCO was
VI-25
<PAGE> 765
undercapitalized and needed additional cash. The Creditors' Committee contends
that the evidence also showed that TCO borrowed additional secured debt from
Columbia to pay those dividends, and that Columbia's equity interest was
thereby in effect converted into secured debt having a priority over TCO's
unsecured creditors.
In addition, the Creditors' Committee contends that the evidence at
trial showed that Columbia made several changes in its practices with respect
to TCO's financial structure between 1985 and 1991 for the purpose of improving
Columbia's claim position in the event of a TCO bankruptcy, including (i)
leaving TCO severely undercapitalized from 1985 through 1991 so as to minimize
Columbia's equity investment at risk in TCO without reducing its ownership and
control; (ii) the institution of a new policy in 1985 of meeting all of TCO's
financing requirements from 1985 onwards exclusively with secured debt from
Columbia in an attempt to gain a secured claim on all of TCO's remaining
assets; and (iii) the conversion of over $300 million of Columbia's pre-1985
unsecured loans to TCO into secured loans by having TCO borrow new secured debt
from Columbia to repay the prior unsecured debt, thereby elevating Columbia's
claim in bankruptcy over that of TCO's other unsecured creditors.
The Creditors' Committee contends that the evidence showed that
Columbia's conduct was inequitable and, unless remedied by the Court, would
result in an unfair advantage for Columbia in
VI-26
<PAGE> 766
the distribution of the TCO estate and a corresponding injury to TCO's other
Creditors.
The Creditors' Committee contends that the evidence at trial also
showed that a number of these transactions could be set aside as fraudulent
conveyances or voidable preferences. Thus, the Creditors' Committee contends
that the evidence established (i) that the transfer of TCO's oil, gas and coal
properties to CNR was both an intentional fraudulent conveyance and a
constructive fraudulent conveyance under Section 548 of the Bankruptcy Code and
Delaware fraudulent conveyance law; (ii) that the dividends paid to Columbia in
the three years prior to TCO's bankruptcy were fraudulent conveyances under
Delaware law; (iii) that the new liens given to Columbia in connection with the
conversion of TCO's pre-1985 unsecured debt to Columbia into secured debt in
the three years prior to bankruptcy were fraudulent conveyances under Delaware
law; and (iv) that the liens acquired by Columbia in connection with the
conversion of TCO's pre-1985 unsecured debt to Columbia into secured debt in
the one year prior to bankruptcy and those liens that Columbia failed to
perfect on a timely basis prior to the preference period were voidable
preferences under Section 547 of the Bankruptcy Code.
VI-27
<PAGE> 767
6. SUMMARY OF COLUMBIA'S ANALYSIS OF THE INTERCOMPANY
CLAIMS
Columbia believes that the Creditors' Committee failed to show at
trial (i) that any transfers by TCO to Columbia were improper or inequitable or
that any such transfers (or liens) constituted fraudulent conveyances or
voidable preferences; (ii) that the secured financing of TCO by Columbia (or
any other conduct of Columbia) was improper or inequitable or that Columbia
obtained any unfair advantage thereby; (iii) that TCO accelerated any payments
to Columbia on unsecured debt or that any unsecured debt was converted to
secured debt; (iv) that the secured financing by Columbia of TCO injured or
unfairly disadvantaged any group of actual or potential Creditors of TCO; or
(v) that TCO was initially undercapitalized.
Columbia also believes that the credible evidence at trial
demonstrates that the two-part plan developed by TCO and Columbia in response
to TCO's problems in 1985 was a reasonable and bona fide attempt to solve TCO's
problems permanently, which in large part succeeded until adverse regulatory
and market developments, followed by unprecedented warm weather in 1990-91, led
to TCO's Chapter 11 filing. Columbia believes that the evidence presented at
trial also shows that (i) TCO's problems in 1985 and the attendant increase in
its debt/equity ratio were a result of adverse business developments unrelated
to Columbia's conduct; (ii) all financing of TCO was approved by the SEC, after
public notice and opportunity for objection; (iii) TCO repaid unsecured debt
only as it came due; (iv) TCO
VI-28
<PAGE> 768
had sufficient net cash flow from operations to fund all of its debt and
dividend payments to Columbia; (v) TCO's payment of principal and interest to
Columbia was in the ordinary course of business, pursuant to ordinary business
terms, as well as pursuant to the terms of loans made in the ordinary course of
business that had been approved by the SEC; (vi) providing TCO with unsecured
debt or equity would have been inconsistent with Columbia's duties to its own
creditors and shareholders; and (vii) all of TCO's dividends were proper.
Most important, Columbia contends that the trial record
demonstrates that Columbia's continued funding of TCO greatly benefitted TCO's
Creditors, since it enabled TCO (i) to continue operating and fulfilling TCO's
obligations to outside Creditors (including the purchase of gas from Producers
at prices above spot market prices) and (ii) to substantially reduce potential
Producer Claims against the Estate by the payment of approximately $850 million
over two years to Producers under the PPRPP, the continued performance of the
long-term gas contracts from 1986 through mid-1991, and the expenditure of more
than $200 million for buyouts (and buydowns) of long-term contracts after 1986.
Finally, Columbia believes that the credible evidence demonstrates
that the CNR Transfer was not a fraudulent conveyance because TCO was in fact
solvent and had sufficient capital available to it at the time of the transfer
(and immediately thereafter) and the transfer was not made with
VI-29
<PAGE> 769
fraudulent intent, but was made to further long-standing substantial and
legitimate business purposes that were shared and effectuated by many other
pipelines, including ensuring that unregulated properties were maintained in a
separate unregulated company where they could be managed and developed more
efficiently free from regulatory constraints.
7. SETTLEMENT OF THE INTERCOMPANY CLAIMS
The outcome of the numerous legal and factual issues raised by the
Intercompany Claims Litigation is not without doubt, and the potential recovery
by the Creditors' Committee could, at least in theory, reach the billion-dollar
level. In addition, any decision by the trial court would likely be subject to
costly and time-consuming appeals. The appeals could result in a reversal and
a new trial that would only further delay resolution of these Claims and the
payment of TCO's Creditors. The settlement of these Claims allows TCO's
Creditors an opportunity to receive substantial cash payments upon the
Effective Date and permits TCO and Columbia the opportunity to emerge from
bankruptcy proceedings without extended further delay.
VI-30
<PAGE> 770
VII. PLAN TREATMENT OF CLAIMS AND SUMMARY OF OTHER PLAN PROVISIONS
THE FOLLOWING SUMMARY OF THE PLAN IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE ACTUAL PROVISIONS OF THE PLAN, A COPY OF WHICH IS ATTACHED
HERETO AS EXHIBIT 1.
A. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS
All Claims and Interests are placed in the Classes set forth below
except that, in accordance with section 1123(a)(1) of the Bankruptcy Code,
Administrative Claims, Priority Tax Claims and certain other obligations of TCO
have not been classified. The treatment of various Claims against, and
Columbia's Interests in, TCO are generally described below. This description
is not intended to supersede the Plan and, for the precise treatment of Claims
and Interests, reference should be made to the Plan itself.
In general, distributions in respect of Claims that are Allowed
Claims on the Effective Date will be made on the Effective Date by Reorganized
TCO. If all Producers accept their Original Settlement Values, all Producers
in Class 3.3 will receive the Target Distribution Percentage of their Allowed
Claims on the Effective Date. If all Producers do not accept the Original
Settlement Values proposed for their Claims prior to the Effective Date, each
Accepting Producer in Class 3.3 will receive the Initial Distribution
Percentage of their Allowed Claims on the Effective Date. Each Rejecting
Producer in Class 3.3 will receive the Initial Distribution Percentage of its
Allowed Claim on the thirtieth day after the end of the Calendar
VII-1
<PAGE> 771
Quarter during which its Claim becomes Allowed. Additionally, all holders of
Allowed Class 3.3 Claims may receive an additional distribution after all Class
3.3 Claims have been liquidated as described below.
Under the Plan, Reorganized TCO will assume Post-Petition Operational
Claims, Miscellaneous Administrative Claims and all Class 4 Claims.
1. UNCLASSIFIED CLAIMS
a. ADMINISTRATIVE CLAIMS
Administrative Claims include Claims for costs and expenses of the
administration of the Reorganization Case Allowed under sections 503,
507(a)(1), 507(b) or 1114(e)(2) of the Bankruptcy Code and consist of the
following:
(i) PROFESSIONAL CLAIMS
Professional Claims include all Claims for unpaid fees and expenses of
Professionals retained in the Reorganization Case, as well as Claims pursuant
to section 503(b) of the Bankruptcy Code for compensation or reimbursement of
expenses to Creditors, indenture trustees and other entities and their
attorneys and other professional advisors who are determined by the Bankruptcy
Court to have made a "substantial contribution" to the Reorganization Case.
Each Allowed Professional Claim will be paid in full in cash by TCO
(unless the holder of such Claim agrees to other treatment) on the later of (i)
the Effective Date and (ii) the tenth day after the date on which an order
allowing such
VII-2
<PAGE> 772
Professional Claim becomes a Final Order. Pursuant to the Plan, a Bar Date
will be set for the Filing of Professional Claims. See Section VII.H.1.a, "Bar
Dates For Certain Administrative Claims; Professional Claims".
TCO estimates that the Allowed Professional Claims which are to be
paid on or after the Effective Date will aggregate approximately $18.5 million.
Most Professionals retained in the Reorganization Case are being paid currently
90% of requested fees and 100% of requested expense reimbursements, which
amounts, as well as the remaining 10% of requested fees, are subject to final
Bankruptcy Court approval. Post-petition interest may be payable, to the
extent Allowed by the Bankruptcy Court, on such remaining 10% of requested
fees. TCO has not consented to the payment of post-petition interest on any
professional fees.
(ii) POST-PETITION OPERATIONAL CLAIMS
Post-Petition Operational Claims consist of all those Administrative
Claims, other than Environmental Claims included in Class 4.1, arising from
liabilities incurred by TCO in the ordinary course of business during the
pendency of the Reorganization Case. Post-Petition Operational Claims include,
but are not limited to, Administrative Claims of governmental units for taxes,
Refund Claims attributable to rates and charges for services rendered by TCO
after the Petition Date and FERC-mandated post-petition interest thereon,
post-petition trade
VII-3
<PAGE> 773
vendor and supplier payment obligations and post-petition obligations under
contracts and leases.
On May 24, 1995, the IRS filed an Administrative Claim against TCO for
employment taxes in the amount of $507,438.13 (including interest of $68,232.19
and penalties of $2,185.05 through May 28, 1995) for its taxable years ending
December 31, 1991, 1992 and 1993 and the taxable period ending June 30, 1994.
The IRS Administrative Claim relates to withholding on certain meal allowances
given to employees. TCO has conceded in principle its liability to the IRS for
the amount of employment taxes due. However, both the IRS and TCO agree that
the interest and penalties were improperly included in the Claim, and will be
excluded.
Additionally, on May 24, 1995, the IRS filed an Administrative Claim
for federal income taxes in the amount of $87,844,798.69 (including interest of
$13,879,916.69 through May 28, 1995) against Columbia for its taxable year
ending December 31, 1992. This Claim arose in connection with an audit of the
Columbia Group's federal income tax returns for the taxable years ending
December 31, 1991 and December 31, 1992. The audit of the tax return for the
1991 year resulted in a net refund to the Columbia Group of $730,548.00. The
issues discussed below were also raised in that year.
The principal federal income tax issues raised by the 1992 IRS
Administrative Claim are the deductibility by Columbia of approximately $174
million of accrued interest expense on its
VII-4
<PAGE> 774
outstanding debt obligations and the deductibility by Columbia of approximately
$10.8 million and by TCO of approximately $13.5 million of professional fees
incurred in the course of their bankruptcy proceedings. Columbia believes that
its position on these and the other federal income tax issues raised in the IRS
Administrative Claim are strong, and it is currently in the process of
challenging the proposed IRS adjustments to its taxable income. However, there
is no way of predicting what the outcome of these challenges will be.
Under the consolidated income tax regulations, each member of the
Columbia Group is severally liable for the entire consolidated tax liability of
the Columbia Group. It is expected that TCO will be required to bear its
allocable share of any income tax deficiency resulting from the IRS
Administrative Claim, including related interest and penalties, either as a
direct obligation or pursuant to its obligations under the Tax Allocation
Agreement.
Post-Petition Operational Claims that are outstanding as of the
Effective Date will be assumed and paid by Reorganized TCO pursuant to the
terms and conditions of the particular transaction giving rise to such Claims,
without any further action on the part of the holders of such Claims.
(iii) ASSUMED EXECUTORY CONTRACT CLAIMS
Assumed Executory Contract Claims consist of all unpaid obligations of
TCO to cure defaults in connection with the assumption by TCO under the Plan or
otherwise of pre-petition
VII-5
<PAGE> 775
executory contracts and unexpired leases pursuant to section 365(b)(1) of the
Bankruptcy Code. Most of these contracts relate to TCO's operations, including
computer maintenance contracts, software leases, equipment leases, service
agreements with Affiliates and any upstream pipeline contracts which may be
assumed by TCO. See Section VII.I.2, "Assumption and Rejection of Executory
Contracts." TCO will seek to assume the Tax Allocation Agreement as an
executory contract and, if approved by the Bankruptcy Court, to the extent that
the Tax Allocation Agreement allocates to TCO the obligation to pay
post-petition interest on amounts included in the IRS's Priority Tax Claim or
requires TCO to reimburse Columbia or any other subsidiary of Columbia for any
refunds and interest accrued on such refunds which Columbia or any other
subsidiary of Columbia would have been entitled to receive under the Tax
Allocation Agreement but were used by TCO to offset the Priority Tax Claims
against it, such post-petition interest will be paid and such reimbursement
will be made by TCO as an Assumed Executory Contract Claim.
Allowed Assumed Executory Contract Claims will be paid in cash on the
Effective Date. Any Assumed Executory Contract Claim that does not become an
Allowed Claim until after the Effective Date will be paid in cash on the
thirtieth day after the end of the Calendar Quarter during which such Claim
becomes an Allowed Claim. Payments will be made net of any Setoff of sums owed
to TCO by the holder of such Claim.
VII-6
<PAGE> 776
TCO estimates that the Allowed Assumed Executory Contract Claims will
aggregate approximately $35.3 million, which amount includes cure costs which
would be payable in respect of the Tax Allocation Agreement.
(iv) U.S. TRUSTEE'S FEE CLAIMS
Pursuant to 28 U.S.C. Section 1930(a)(6), TCO, as a Chapter 11
debtor, is required to pay certain fees to the U.S. Trustee on a quarterly
basis during the pendency of the Reorganization Case. Such fees are based upon
quarterly distributions made by TCO but in no event may such quarterly fees
exceed $5,000. Throughout the course of the Reorganization Case, TCO has
remitted such quarterly fees to the U.S. Trustee on a timely basis. TCO
estimates that there will be no U.S. Trustee's Fee Claims outstanding on the
Effective Date. Such Claims will be paid in full in cash on the Effective
Date.
(v) MISCELLANEOUS ADMINISTRATIVE CLAIMS
Miscellaneous Administrative Claims consist of all Administrative
Claims which are outstanding as of the Confirmation Date other than
Professional Claims, Post-Petition Operational Claims, Assumed Executory
Contract Claims, U.S. Trustee's Fee Claims, and Administrative Recoupment
Claims and include (i) contingent indemnification Claims of officers, directors
and employees of TCO, including indemnification Claims by (a) employees in
connection with pre- and post-petition personal injury and property damage
actions brought against them by third parties, and (b) officers and directors
in connection with pre-
VII-7
<PAGE> 777
petition stockholder class actions and other securities law actions, (ii)
post-petition personal injury and property damage Claims and (iii) Claims
arising pursuant to performance bonds issued on behalf of TCO post-petition.
Miscellaneous Administrative Claims, including the obligation to
provide collateral security to support post-Confirmation performance bonds,
will be assumed and paid by Reorganized TCO as they become due and payable or
as otherwise directed by the Bankruptcy Court. TCO does not believe that the
liabilities likely to be incurred in connection with these assumed obligations
will be material to its business.
(vi) ADMINISTRATIVE RECOUPMENT CLAIMS
Administrative Recoupment Claims consist of all Recoupment Claims of
Customers that are entitled to administrative priority by virtue of the
Stipulation and Order Regarding Motions for an Order Authorizing Recoupment,
or, In the Alternative Directing Payments Into Escrow, dated October 13, 1993,
and the Stipulation and Order Regarding Motion For An Order Modifying the
Automatic Stay to Permit Set-offs of WACOG Surcharges, or, in the Alternative,
Directing Payment Into Escrow, dated October 20, 1993 (collectively, the
"Recoupment and Set-Off Stipulations"). See Section VII.A.2.c.(iii), "Class
3.2 - Unsecured Customer Refund Claims and GRI Claims" for a discussion of the
treatment of such Administrative Recoupment Claims.
VII-8
<PAGE> 778
The Recoupment and Set-off Stipulations apply to payments made by
Customers to TCO from September 1, 1993 to the extent such Customers are
determined to have Recoupment Claims equal to or greater than these payments.
If Class 3.2 accepts the Plan, the Accepting 3.2 Claimants waive their
Administrative Recoupment Claims (see Section VII.A.2.c.(iii), "Class 3.2 -
Unsecured Customer Refund Claims and GRI Claims") and the Dissenting 3.2
Claimants will be entitled to pursue their Refund Disputes by litigation in the
Bankruptcy Court or before FERC and TCO will pay any amounts to which such
Claimants may be entitled under Final Orders determining and resolving such
Claimant's Administrative Recoupment Claims. Such Allowed Administrative
Recoupment Claims shall be paid in cash on the thirtieth day after the end of
the Calendar Quarter in which such final resolution occurs and such holder's
Administrative Recoupment Claim is Allowed.
b. PRIORITY TAX CLAIMS
Priority Tax Claims consist of all Unsecured Claims which are
attributable to income taxes, property taxes and any other taxes entitled to
priority in payment pursuant to section 507(a)(8) of the Bankruptcy Code,
including the Claims of the IRS that are the subject of the IRS Order. See
Section V.E.5, "IRS and Other Priority Tax Claims; Affiliate Tax Claims." TCO
reserves its right to file an amendment to its Schedule of Liabilities to
reflect certain state tax Claims as to which no proofs of Claim have been Filed
in the amount of the liability
VII-9
<PAGE> 779
recognized by TCO, in order to avoid litigation over the dischargeability of
such sums.
The IRS Order resolves essentially all pre-petition tax disputes
between Columbia and its affiliates and the IRS. TCO is obligated to pay the
principal amount of the Allowed IRS Claims, and intends to pay post-petition
interest to the IRS and to reimburse its affiliates for refunds owed to them
which TCO used to set off against TCO's obligations, as cure costs arising in
connection with the assumption of the Tax Allocation Agreement. However,
Columbia is also liable to pay the principal amount and post-petition interest
on the Allowed IRS Claims, and if and to the extent these payments are made by
Columbia, TCO is obligated to reimburse Columbia for such payments under the
Tax Allocation Agreement.
TCO estimates that Allowed Priority Tax Claims will aggregate
approximately $137.3 million, of which the IRS Claims represent approximately
$134.6 million, other Priority Claims represent approximately $.4 million, and
state tax Claims represent approximately $2.3 million.
Each Allowed Priority Tax Claim will be paid in full, in cash, on the
Effective Date, if then Allowed, or, if not then Allowed, on the thirtieth day
from the date on which it becomes an Allowed Claim, except that the Claims of
the IRS that are the subject of the IRS Order will be paid, in accordance with
Section 1129(a)(9)(C) of the Bankruptcy Code, in installments over a period not
to exceed six years from the date of
VII-10
<PAGE> 780
assessment of such Claims, together with interest at the rate set forth in
Section D.7 of the Closing Agreement. The full amount of such Claims will be
paid in cash in equal quarterly installments, beginning on the date which is
three months after the Effective Date and ending on the quarterly date which
does not exceed six years from the date of assessment of such Claims, except
that the first quarterly installment shall be paid in three equal monthly
installments beginning on the Effective Date. Each monthly or quarterly
installment shall be paid together with interest on such installment at the
rate set forth in Section D.7 of the Closing Agreement accrued to the date of
payment. Notwithstanding the foregoing, however, Reorganized TCO, with the
prior consent of Reorganized Columbia, shall have the right to pay the Claims
of the IRS, or any remaining balance of such Claims, in full or in part at any
time on or after the Effective Date, without premium or penalty. Payments on
the Priority Tax Claims of the IRS made by Columbia or Reorganized Columbia
shall, pursuant to the IRS Settlement Agreement, reduce the Priority Tax Claims
of the IRS against TCO or Reorganized TCO in accordance with the terms of the
IRS Order.
It is currently intended that payments of the Allowed IRS Claims and
post-petition interest thereon will be made to the IRS by Columbia, as parent
of the Columbia Group. Accordingly, TCO will pay to Columbia, on the Effective
Date, an amount equal to such Allowed Claims and post-petition interest through
the
VII-11
<PAGE> 781
Effective Date, pursuant to its obligations under the Tax Allocation Agreement.
c. EAST LYNN CONDEMNATION OBLIGATION
In late 1991, TCO received $52 million from the United States
government representing damages arising from the condemnation of the East Lynn
Property which, at the time the condemnation proceedings were begun, was owned
by TCO. Prior to TCO's receipt of the East Lynn Condemnation Award, the East
Lynn Property, together with the right to receive the East Lynn Condemnation
Award, was transferred to CNR. TCO has been holding the money in trust for CNR
and has invested the $52 million in interest-bearing securities. TCO estimates
that as of December 31, 1995, it will hold approximately $62.5 million in trust
for CNR. On the Effective Date, TCO will turn over to CNR the cash and cash
equivalents held on behalf of CNR, including the interest earned thereon
through the Effective Date.
2. CLASSES OF CLAIMS
a. CLASS 1 CLAIMS - SECURED CLAIMS
(i) CLASS 1.1 - THE DIP FACILITY CLAIMS
Class 1.1 consists of all Secured Claims of Chemical Bank under the
DIP Facility. All Class 1.1 Claims will be paid in full on the Effective Date,
if then Allowed, or, if not then Allowed, on the tenth day after such Claims
become Allowed Claims. On the Effective Date, the DIP Facility will terminate
by its terms. Deficiency Claims, if any, will be treated as
VII-12
<PAGE> 782
Administrative Claims in accordance with Section 364(c) of the Bankruptcy Code
and in accordance with the Order of the Bankruptcy Court dated August 22, 1991
approving the DIP Facility. TCO believes that there will be no such Deficiency
Claims.
TCO estimates that the Allowed Class 1.1 Claims will aggregate
approximately $2 million.
Class 1.1 Claims are unimpaired.
(ii) CLASS 1.2 - SECURED PRODUCER CLAIMS
Class 1.2 consists of Claims of Producers that supplied gas to TCO
pre-petition to the extent such Claims are secured by statutory liens.
Although several Claimants have asserted such liens (totalling approximately
$40 million), TCO has Filed complaints seeking a determination that such liens
are invalid or are avoidable by TCO, and believes that its position will be
upheld if the matters are ultimately brought to trial.
To the extent that a lien underlying a Class 1.2 Claim is held to be
valid, the holder of such Claim that is Allowed as of the Effective Date will
receive, on the Effective Date, cash in an amount equal to the lesser of (i)
the Allowed amount of its Claim, and (ii) the value of its collateral as
determined by the Bankruptcy Court. Deficiency Claims, if any, will be treated
as Unsecured Claims in the appropriate category of Class 3. TCO believes that
there will be no such Deficiency Claims.
Any Class 1.2 Claim that does not become an Allowed Claim until after
the Effective Date will be paid in cash to the
VII-13
<PAGE> 783
extent described above on the thirtieth day after the end of the Calendar
Quarter in which such Claim becomes an Allowed Claim.
Class 1.2 Claims are unimpaired.
(iii) CLASS 1.3 - OTHER SECURED CLAIMS
Class 1.3 consists of Secured Claims not included in Classes 1.1, 1.2
or 2.1 and includes Setoff Claims permitted under section 553 of the Bankruptcy
Code. On the Effective Date, TCO will satisfy each Class 1.3 Claim that is
then Allowed by, at TCO's option, (i) paying the holder of such Allowed Claim
cash in an amount equal to the lesser of (x) the Allowed amount of such Claim
and (y) the value of such holder's collateral as determined by the Bankruptcy
Court, (ii) reinstating the maturity of the obligation giving rise to such
Allowed Claim and curing all defaults in accordance with section 1124 of the
Bankruptcy Code, or (iii) permitting Setoff of such Allowed Claim against any
obligation the holder of such Claim may owe to TCO. Deficiency Claims, if any,
will be treated as Unsecured Claims in the appropriate category of Class 3.
TCO believes that there will be no such Deficiency Claims.
Any Class 1.3 Claim that does not become an Allowed Claim until after
the Effective Date will be paid in cash in the amount described in the
preceding paragraph on the thirtieth day after the end of the Calendar Quarter
during which such Claim becomes an Allowed Claim.
Although several claimants have asserted that they hold liens against
property of TCO, the only such Claim which TCO
VII-14
<PAGE> 784
acknowledges to be valid, other than certain Setoff Claims, was Filed by the
West Virginia Economic Development Authority (the "WVEDA") for approximately
$155,000. TCO plans to reinstate its obligations to the WVEDA and cure any
outstanding defaults. TCO has Filed or will File prior to the Plan Mailing
Date objections to those Claims that it believes have improperly asserted
secured status. TCO estimates that Allowed Class 1.3 Claims will aggregate
approximately $163,000.
Class 1.3 Claims are unimpaired.
b. CLASS 2.1 CLAIM - THE COLUMBIA SECURED
CLAIM
Class 2.1 consists of the Columbia Secured Claim.
On the Petition Date, the principal amount of the Columbia Secured
Claim was $1,340,448,419.33 and the total Claim amount on the Effective Date
will be approximately $1,984.1 million (which includes pre- and post-petition
interest calculated as described below, assuming an Effective Date of December
31, 1995. Interest on the Columbia Secured Claim is calculated as follows:
(i) INTEREST ON INVENTORY LOAN AGREEMENT
Interest will be accrued on the aggregate of the unpaid principal and
accrued and unpaid interest under the Inventory Loan Agreement as of the
Petition Date from the Petition Date to the Effective Date at the fluctuating
"Applicable Rate", as that term is defined in the Inventory Financing
Agreement, plus the additional two (2%) percent per annum provided for therein.
VII-15
<PAGE> 785
(ii) INTEREST ON FIRST MORTGAGE BONDS - SERIES A
Accrued interest on each Series A First Mortgage Bond as of the
Effective Date will be the aggregate of:
(a) all unpaid sums due and payable as interest on the unpaid
principal balance thereof during the period between the Petition Date and
December 31, 1991, the date upon which the Series A Bonds are deemed to have
matured, at the fluctuating "Series A Rate", as that term is defined in the
Indenture of Mortgage and Deed of Trust pursuant to which the First Mortgage
Bonds were issued;
(b) interest on each of the installments of interest referred
to in clause (a) above from the due date of such installment to December 31,
1991, at the said Series A Rate; and
(c) interest on the aggregate of the unpaid principal amount
of such bond and the interest installments referred to in clause (a) above,
from January 1, 1992 to the Effective Date, at such Series A Rate.
(iii) INTEREST ON FIRST MORTGAGE BONDS - SERIES
B, D, E AND F
Accrued interest on each Series B, D, E and F First Mortgage Bond on
the Effective Date will be the aggregate of:
(a) all unpaid sums due and payable as interest on the unpaid
principal balance thereof (assuming all required post-petition sinking fund
payments had been made) on each of the interest payment dates provided for in
respect of such Bond, during the period from the Petition Date to the Effective
Date, at the "Series B Rate" (as that term is defined in said
VII-16
<PAGE> 786
Indenture) with respect to the Series B Bonds and at the fixed rate of interest
established for such bond at the time of the issuance thereof, in the case of
the Series D, E and F Bonds;
(b) interest on each such installment of interest referred to
in clause (a) above from the due date of such installment to the Effective
Date, at the rate described in such clause; and
(c) interest on each defaulted sinking fund payment from the
due date of the payment to the Effective Date, at the rate described in clause
(a) above.
The Columbia Secured Claim will be Allowed as Filed, provided that all
other distributions which, under the Plan, are required to be made to Creditors
on the Effective Date are in fact made as provided for. On the Effective Date,
Columbia will receive in respect of its Secured Claim, newly issued secured
debt securities of Reorganized TCO having a principal amount calculated to
provide Reorganized TCO with an appropriate funded debt-to-equity ratio as of
the Effective Date, and the right to retain the existing TCO stock, with the
balance of the Columbia Secured Claim to be contributed to the capital of
Reorganized TCO. The terms of the secured debt securities to be distributed in
respect of the Class 2.1 Claim will be as proposed by TCO and approved by the
Bankruptcy Court on or before the Effective Date.
The Class 2.1 Claim is impaired.
VII-17
<PAGE> 787
c. CLASS 3 CLAIMS - UNSECURED CLAIMS
(i) SETTLEMENT VALUES AND ALLOWANCE
AMOUNTS
TCO has proposed Settlement Values for each Producer Claim in Class 3
as set forth on Schedule III to the Plan. The Original Settlement Values for
each Producer Claim in Class 3 are set forth on Schedule I to the Plan. Both
the Settlement Values set forth on Schedule III and the Original Settlement
Values set forth on Schedule I are listed both by contract number and by the
name of the Producer. The Original Settlement Values may differ from the
Settlement Values set forth on Schedule III to the Plan because of increases or
decreases to individual Settlement Values made subsequent to June 13, 1995 with
the consent of or in consultation with the Creditors' Committee as described
below.
The Settlement Value proposed for any Producer Claim that is an
Allowed Claim as of the Plan Mailing Date is the Allowed amount of such Claim
as of that date. The Settlement Value proposed for each Producer Claim, other
than the Claims of the Initial Accepting Producers, which is not Allowed on
that date is the amount which TCO, in light of all the relevant facts, believes
constitutes a fair and equitable compromise of disputes relating to such Claims
and at which TCO will, if the Plan is consummated, consent to have it be
Allowed. In the case of the Initial Accepting Producers, the Settlement Values
proposed have been individually negotiated with those Producers, taking into
account all known factors likely to affect the ultimate
VII-18
<PAGE> 788
Allowance of such Claims. TCO shall have the right, with the consent of the
Creditors' Committee, to decrease or, after consultation with the Creditors'
Committee, to increase the Settlement Values offered to Producers (other than
Initial Accepting Producers) relative to the Original Settlement Values offered
to Producers (other than Initial Accepting Producers) which are set forth on
Schedule I to the Plan.
Each Producer that accepts the Settlement Value proposed for its Claim
will be deemed to have agreed to an Allowed Claim in that amount, subject to
Bankruptcy Court approval, in Class 3.1 or Class 3.3, as appropriate. As of
the Effective Date, a Producer that accepts the proposed Settlement Value for
its Producer Claim will be deemed to have waived and released any right of
Setoff, any lien, and any other Claim against TCO or TCO's property in respect
of such Producer Claim, and TCO shall be deemed to have released all rights of
Setoff, all Avoidance Claims and all other claims which TCO may have against
such Producer or its property in respect of such Producer Claim, subject to
Bankruptcy Court approval of such Producer's Settlement Value. If the holder
of a Producer Claim in either of Classes 3.1 or 3.3 that accepts its Settlement
Value, but its Settlement Value is not approved by the Bankruptcy Court, such
holder shall be treated as a Rejecting Producer in Class 3.3 unless TCO and
such Producer agree on a modified Settlement Value that is approved by the
Bankruptcy Court. If a holder of an Unsecured Producer Claim that TCO proposes
be in Class 3.1
VII-19
<PAGE> 789
does not accept its proposed Settlement Value, such Claim will be a Class 3.1
Claim to the extent that such Claim is Allowed in an amount of $25,000 or less
and otherwise will be a Class 3.3 Claim. Any holder of a Producer Claim that
does not accept its Settlement Value will have the Allowance of its Claim
determined by litigation before the Claims Mediator or the Bankruptcy Court, as
appropriate, or by a settlement approved by the Bankruptcy Court.
Additionally, a dollar amount (an "Allowance Amount") has been
proposed for each General Unsecured Claim that is not an Allowed Claim as of
the Plan Mailing Date. The Allowance Amounts are set forth on Schedule II to
the Plan. The Allowance Amounts proposed for each General Unsecured Claim
which is not an Allowed Claim on the Plan Mailing Date is the amount at which
TCO, in light of all the relevant facts known to it, believes and consents that
the Claim should be Allowed.
Each holder of an unliquidated General Unsecured Claim that accepts
the Allowance Amount proposed for its Claim will be deemed to have agreed to an
Allowed Claim in that amount, subject to Bankruptcy Court approval, in Class
3.1 or Class 3.4, as appropriate. As of the Effective Date, a holder of a
General Unsecured Claim that accepts the Allowance Amount for its General
Unsecured Claim will be deemed to have waived and released any right of Setoff,
any lien, and any other Claim against TCO or TCO's property in respect of such
General Unsecured Claim, and TCO shall be deemed to have released all
VII-20
<PAGE> 790
rights of Setoff, all Avoidance Claims and all other claims which TCO may have
against such holder or its property in respect of such General Unsecured Claim,
subject to Bankruptcy Court approval of such holder's Allowance Amount. If the
holder of an unliquidated General Unsecured Claim that TCO proposes be in Class
3.1 does not accept its Allowance Amount, such Claim will be a Class 3.1 Claim
to the extent that such Claim is Allowed in an amount of $25,000 or less and
otherwise will be a Class 3.4 Claim. Any holder of an unliquidated General
Unsecured Claim that does not accept its Allowance Amount will have the
Allowance of its Claim determined by litigation before the Bankruptcy Court or
by a settlement approved by the Bankruptcy Court.
If the Plan is not consummated, any voluntary reduction in a Claim
made by a Claimholder by acceptance of a Settlement Value, or an Allowance
Amount, or otherwise, in order receive the treatment provided for Class 3.1,
Class 3.3 or Class 3.4, as applicable may be nullified at the option of the
Claimholder by written notice to TCO in accordance with such procedures as
shall be approved by the Bankruptcy Court.
(ii) CLASS 3.1 - UNSECURED CLAIMS OF $25,000 OR
LESS
Class 3.1 consists of all Unsecured Claims (other than any Customer
Regulatory Claim the holder of which does not execute a Waiver Agreement prior
to the Effective Date) that are Allowed (a) in an amount that does not exceed
$25,000, including Claims which are Allowed at such amount because of a
voluntary
VII-21
<PAGE> 791
reduction in the amount of Claim by the Claimholder's acceptance of a
Settlement Value, or an Allowance Amount or other voluntary reduction in the
amount of the Claim or (b) in an amount in excess of $25,000 and the holders of
which have elected on their ballots to voluntarily reduce the Allowed amount of
their Claims to $25,000. If a Claim as Filed is for more than $25,000 and
consequently is classified in another Class but has a proposed Settlement Value
or Allowance Amount of not more than $25,000, an acceptance of the Settlement
Value or the Allowance Amount constitutes not only a voluntary reduction of the
Claim to its Settlement Value or Allowance Amount but also an election to
receive the treatment provided for Class 3.1. Additionally, if an Unsecured
Claim is Allowed in an amount in excess of $25,000, whether by acceptance of a
proposed Settlement Value, by acceptance of a proposed Allowance Amount or
otherwise, the holder of such Claim may elect on the ballot to voluntarily
reduce the Allowed amount of such Claim to $25,000 in order to receive Class
3.1 treatment. For purposes of Claims in Class 3.1, Claims which have been
purchased by a factoring company from the original holder of the Claim have
been treated individually and therefore, the aggregate of the proposed Allowed
Claims for any factoring company may exceed $25,000 in this Class.
Each Class 3.1 Claimant will be paid in cash one hundred (100%)
percent of the Allowed amount of its Claim, on the Effective Date, if the Claim
is then Allowed, or, if not then
VII-22
<PAGE> 792
Allowed, then on the thirtieth day after the end of the Calendar Quarter during
which such Claim becomes an Allowed Claim. The foregoing is subject, in the
case of any Customer Regulatory Claim, to the provisions of the fourth
paragraph of Section III.B.3.c. of the Plan with respect to the method of
payment of such Claims other than in cash, including, but not limited to,
distributions in the form of a credit to a rate mechanism.
TCO estimates that the Allowed Class 3.1 Claims will aggregate
approximately $8.4 million.
Class 3.1 Claims are unimpaired.
(iii) CLASS 3.2 - UNSECURED CUSTOMER REFUND
CLAIMS AND GRI CLAIMS
Class 3.2 consists of all GRI Claims and all Customer Regulatory
Claims not included in Class 3.1, whether or not scheduled or Filed. These
Claims include all Claims of Customers in excess of $25,000 for pre-petition
regulatory refunds owed to Customers, including (i) Customer Claims and GRI
Claims for regulatory refunds that are the subject of the Omnibus FERC Motion,
(ii) Claims which are the subject of the BG&E Case, (iii) 1990 Rate Case Claims
and any other Section 4(e) Claims and (iv) any other refund provided for by
FERC orders or regulations. This Class does not include Claims by Customers
based on environmental obligations or liabilities or miscellaneous trade
payables or Producer Claims held by Customers. The proposed Allowed amounts of
the Customer Regulatory Claims are set forth in Schedule IV to the Plan
(excluding certain other post-petition Refund Obligations
VII-23
<PAGE> 793
provided for in the Customer Settlement Proposal, which include flowthrough of
certain pipeline excess deferred income tax refunds, general rate refunds,
refunds to be received from Wyoming Interstate Company, Ltd., and miscellaneous
pre-petition refunds received by TCO post-petition). The Omnibus FERC Motion,
the BG&E Case and the 1990 Rate Case Settlement are described in Section IV.B,
"Regulatory Claims and Related Litigation."
Those Claims which involve collections by TCO of "trust fund monies"
from third parties for refund to Customers, or payment, in the case of GRI
Claims, to GRI, will include (i) if the collection of such sums was prior to
the Petition Date, interest as prescribed by FERC from the date of collection
by TCO to the Petition Date and thereafter, with respect only to the
approximately $3.3 million which under the Trust Fund Decision was determined
to be distributable as trust funds after application of the "lowest
intermediate balance" principle, in accordance with the FERC Interest Order and
(ii) if the collection was subsequent to the Petition Date, interest in
accordance with the FERC Interest Order. Holders of Section 4(e) Claims that
are resolved in the 1990 Rate Case Settlement will receive interest as provided
therein. Other Refund Claims, under Section 4(e) or otherwise, will include
FERC-mandated interest through the Petition Date, and interest thereafter, if
any, in accordance with the Customer Settlement Proposal.
VII-24
<PAGE> 794
If Class 3.2 votes to accept the Plan, each Accepting Class 3.2
Claimant (i.e., a Class 3.2 Claimant that votes for the Plan or, not having
voted for the Plan, on or before the Effective Date, executes a Waiver
Agreement) shall have an Allowed Refund Claim in an amount equal to the amount
set forth for such Claimholder in schedules attached to the Customer Settlement
Proposal and shall receive on the Effective Date (a) that to which such
Claimholder is entitled under the Trust Fund Decision and any Final Orders made
in furtherance or implementation thereof, including, without limitation, any
Final Orders regarding the allocation of the Lowest Intermediate Balance
Amount, with post-petition interest in accordance with the FERC Interest Order,
(b) eighty (80%) percent of the pre-petition amount and one hundred (100%)
percent of the post-petition amount due to such Claimholder with interest as
provided in the 1990 Rate Case Settlement in full satisfaction of the 1990 Rate
Case Claims (c) such Claimholder's allocable share of $52.5 million in
settlement of all BG&E Claims, and (d) an amount equal to eighty (80%) percent
of such Claimholder's remaining Customer Regulatory Claim.
Under the Waiver Agreement, a holder of a Customer Regulatory Claim
agrees to accept the treatment accorded such Claim under the terms of the
Customer Settlement Proposal and under the Plan in full settlement,
satisfaction, discharge and termination of each and every of such Claimholder's
Refund Claims and Refund Disputes settled in the Customer Settlement
VII-25
<PAGE> 795
Proposal, including but not limited to (i) any right to appeal from or
otherwise seek modification of the Trust Fund Decision or otherwise seek more
favorable treatment of its Omnibus FERC Motion Claim than that provided in the
Trust Fund Decision, and with respect to interest on such Claims, to seek
modifications or reversal of the FERC Interest Order, (ii) any Refund Claim
that is the subject of the BG&E Case, (iii) any Claim relating to or arising
from the 1990 Rate Case, (iv) any Claim or right in respect of any other Refund
Claim other than as provided in the Plan, (v) any right of Setoff or recoupment
in respect of its Customer Regulatory Claim, (vi) any Claim or right to compel
assumption, rejection or enforcement of its pre-petition Service Contracts
(except as otherwise provided in the Plan or the Customer Settlement Proposal)
and (vii) any right or Claim against Columbia with respect to any of the
foregoing, except the Columbia Customer Guaranty and, to the extent not
previously resolved, the Customers' Committee's Motion to Unseal Judicial
Records (the "Motion to Unseal"). The Waiver Agreement also provides that the
holder agrees (a) not to oppose, before FERC or in any other forum, the
recovery by Reorganized TCO from Customers of any amounts paid or payable under
the Customer Settlement Proposal, as approved by the FERC and (b) except, to
the extent not previously resolved, for the Motion to Unseal, to the
withdrawal, with prejudice, of the Customers' Committee's complaint and
intervention in and its participation in any appeal or other proceeding in
connection with the Intercompany
VII-26
<PAGE> 796
Claims Litigation and releases any rights or interests in any judgment or other
recovery on account of the Intercompany Claims. If Class 3.2 fails to accept
the Plan, or if the Plan is not consummated, any executed Waiver Agreement may,
at the option of the Claimholder, be declared null and void by written notice
to TCO.
In connection with the formulation and implementation of the Customer
Settlement Proposal, TCO recognizes that the Customers' Committee has provided
substantial and valuable services and contributions to the formulation and
structure of TCO's Plan. TCO's Estate has never paid any compensation or
expenses to the Customers' Committee members. Likewise TCO has never paid any
compensation or expenses to the Customers' Committee professionals as no
retention order was entered by the Bankruptcy Court. However, in recognition
of the Customers' Committee's expenditures, including the numerous expenses
incurred by its members over a period of approximately four (4) years, and in
order to resolve amicably a potential controversy with respect to the
Customers' Committee's entitlement to some form of reimbursement for such
expenditures (the total of which is as of this date in excess of $3 million),
TCO has agreed to pay the Customer's Committee a lump sum payment of $1.3
million which will be paid solely to the current members of the Customers'
Committee and not to its professionals, which payment will be shared pro rata
among the current Customers' Committee members. Additionally, TCO has agreed
to pay to UGI, a former
VII-27
<PAGE> 797
member of the Customers' Committee, $225,000, representing one-half of expenses
incurred by UGI while serving in that capacity. Such payments to the
Customers' Committee and UGI shall be made solely from post-reorganization
income of Reorganized TCO and shall be paid forty-five (45) days after the
Effective Date without any requirement of the current members of the Customers'
Committee or UGI to file an application with the Bankruptcy Court in order to
receive such payments.
Any holder of a Class 3.2 Claim that does not vote for the Plan and
does not execute a Waiver Agreement prior to the Effective Date or, if Class
3.2 rejects the Plan, each holder of a Class 3.2 Claim, will be a Dissenting
3.2 Claimant. A Dissenting 3.2 Claimant may continue to pursue its Refund
Disputes by litigation in any appropriate forum and its Class 3.2 Claim will
not be deemed Allowed for distribution purposes until all of its Refund
Disputes have been resolved by Final Orders.
Each Dissenting 3.2 Claimant shall receive in respect of its Allowed
Class 3.2 Claim, (i) that to which such Claimant may be entitled under Final
Orders resolving such Claimant's Recoupment Claims, including Administrative
Recoupment Claims, if any, and (ii) that to which such holder is entitled under
the Trust Fund Decision and any Final Orders in furtherance or implementation
thereof, including, any Final Orders regarding the allocation of the Lowest
Intermediate Balance Amount and/or the determination of the amount of
post-petition interest due,
VII-28
<PAGE> 798
or both and shall receive a distribution in cash in an amount equal to the
Target Distribution Percentage of the Allowed amount of its Class 3.2 Claim
remaining after application of any sums paid pursuant to clauses (i) and (ii)
above.
Distributions to each Dissenting 3.2 Claimant shall be made (i) if
recoupment or Setoff relating to the Refund Disputes is Allowed by Final Order,
on the thirtieth day after the end of the Calendar Quarter in which such Final
Order is entered and such holder's Claim is Allowed and (ii) with respect to
final resolutions of such Dissenting 3.2 Claimant's other Refund Disputes, as
to which no recoupment or Setoff is authorized, on the thirtieth day after the
end of the Calendar Quarter in which all such Refund Disputes are resolved.
Distributions to be made to an Accepting Class 3.2 Claimant shall be
made in accordance with the distribution provisions of the Customer Settlement
Proposal. Distributions to Dissenting 3.2 Claimants shall be distributed in
cash at such time as provided in Section III.B.3.c of the Plan, or over such
period of time and in such form as may be appropriate under the Confirmation
Order or relevant FERC orders. If, at an Accepting Claim 3.2 Claimant's
option, as set forth in the Customer Settlement Proposal, such distribution is
made in other than cash, including, but not limited to, distributions in the
form of a credit to a rate mechanism, Reorganized TCO shall retain the cash
which would otherwise be distributed to such holder under the Plan.
VII-29
<PAGE> 799
TCO may, in its discretion, petition the Bankruptcy Court for an order
estimating, for voting and distribution purposes, the Claims of Dissenting 3.2
Claimants which are the subject of the BG&E Case and any other Disputed Claims.
If Class 3.2 rejects the Plan, or if the Plan is not consummated, any
acceptance of the Waiver Agreement may, at the option of the holder of the
Claim, be considered null and void by written notice to TCO.
Pursuant to the Columbia Customer Guaranty, Columbia shall guaranty
the treatment afforded Accepting Class 3.2 Claimants, if Class 3.2 accepts the
Plan and the Plan becomes Effective.
TCO estimates that the Allowed Class 3.2 Claims will aggregate
approximately $175.2 million.
Class 3.2 Claims are impaired.
(iv) REMAINING UNSECURED CLAIMS
(a) DESCRIPTION OF REMAINING UNSECURED CLAIMS CLASSES
The remaining Unsecured Claims Classes are Classes 3.3 (the Producer
Claims), 3.4 (General Unsecured Claims) and 3.5 (the Columbia Unsecured Claim).
Class 3.3 consists of the Unsecured Claims held by the Producers not
included in Class 3.1. Class 3.3 Claims are impaired.
Class 3.4 consists of all remaining Unsecured Claims not included in
any other Class. Class 3.4 Claims are impaired.
Class 3.5 consists of the Columbia Unsecured Claim. The Class 3.5
Claim is impaired.
VII-30
<PAGE> 800
(b) TREATMENT OF REMAINING UNSECURED CLAIMS
(1) CLASS 3.3 CLAIMS
If all Producers in Class 3.3 accept the Original Settlement Values
proposed for their Producer Claims and such Original Settlement Values are
approved by the Bankruptcy Court, each holder of an Allowed Class 3.3 Claim
shall be paid, in cash, on the Effective Date, an amount equal to seventy-two
and one-half (72.5%) percent (the Target Distribution Percentage) of its
Allowed Claim, together with a Supplemental Interest Payment thereon, if
applicable. Otherwise, each holder of a Class 3.3 Claim which is Allowed as of
the Effective Date shall be paid, in cash, on the Effective Date, sixty eight
and seven-eighths (68.675%) percent (the Initial Distribution Percentage) of
its Allowed Claim, together with a Supplemental Interest Payment thereon, if
applicable.
The difference between seventy two and one half (72.5%) percent and
the Initial Distribution Percentage of all Allowed Class 3.3 Claims represents
the Holdback Amount. The Holdback Amount shall be used by Reorganized TCO to
fund distributions with respect to the Allowed Claims of Rejecting Producers as
described below.
Rejecting Producers may continue to litigate their Claims under the
Claims Estimation Procedures or before the Bankruptcy Court. Each Rejecting
Producer shall be paid an amount equal to the Initial Distribution Percentage
of its Allowed Claim, together with a Supplemental Interest Payment thereon, if
VII-31
<PAGE> 801
applicable, on the thirtieth day after the end of Calendar Quarter during which
such Claim becomes Allowed, provided, however, if on such day, there is pending
an appeal (a) by such Rejecting Producer from the order Allowing such Rejecting
Producer's Claims, or (b) by Reorganized TCO or any other party from the order
Allowing such Rejecting Producer's Claim and Reorganized TCO or such other
party has obtained a stay pending appeal of such order, such distribution shall
be made on the thirtieth day after the earlier of the termination of the stay
pending appeal or the entry of a Final Order Allowing such Rejecting Producer's
Claim.
On the thirtieth day after the end of the Calendar Quarter during
which the Final Allowance Date occurs, except as provided in the following
paragraph, Reorganized TCO shall distribute to each holder of an Allowed Class
3.3 Claim the following:
(a) if the Actual Target Producer Distribution does not exceed
$1,180,516,388.15,
(i) the Target Distribution Percentage multiplied by the
amount of such holder's Allowed Class 3.3 Claim, less
any amounts, other than amounts constituting a
Supplemental Interest Payment, previously paid to
such holder in respect of its Class 3.3 Claim;
(ii) such holder's pro rata share (based on the respective
amounts of Allowed Class 3.3 Claims) of the
Additional Distribution; and
VII-32
<PAGE> 802
(iii) if applicable, a Supplemental Interest Payment with
respect to each of the foregoing;
(b) if the Actual Target Producer Distribution exceeds
$1,180,516,388.15 but does not exceed $1,185 million,
(i) the Target Distribution Percentage multiplied by the
amount of such holder's Allowed Class 3.3 Claim, less
any amounts, other than amounts constituting a
Supplemental Interest Payment, previously paid to
such holder in respect of its Class 3.3 Claim; and
(ii) if applicable, a Supplemental Interest Payment with
respect to the foregoing; and
(c) if the Actual Target Producer Distribution exceeds $1,185
million,
(i) such holder's pro-rata share (based on the respective
amounts of Allowed Class 3.3 Claims) of the Holdback
Amount, if any, remaining after reducing the Holdback
Amount by one half of the amount by which the Actual
Target Producer Distribution exceeds $1,185 million;
and
(ii) if applicable, a Supplemental Interest Payment with
respect to the foregoing.
A spreadsheet and a formula are attached to the Plan as Exhibit D which
represents the consensual allocation of the Holdback Amount by and among TCO
and Reorganized TCO and the holders of Allowed Class 3.3 Claims based upon a
mutually
VII-33
<PAGE> 803
acceptable methodology negotiated between TCO and the Creditors' Committee.
If, prior to the Final Allowance Date, Reorganized TCO determines in
its good faith judgment, in light of the remaining unliquidated Rejecting
Producers' Claims, that the Holdback Amount which will be paid to holders of
Allowed Class 3.3 Claims exceeds $25 million, Reorganized TCO shall make one
interim distribution of the Holdback Amount in excess of $25 million to all
holders of Allowed Class 3.3 Claims pro rata (based on the respective amounts
of Allowed Class 3.3 Claims), subject to a maximum distribution for any such
holder equal to the Target Distribution Percentage of such holder's Allowed
Class 3.3 Claim. If such an interim distribution is made by Reorganized TCO,
the distribution to be made with respect to each Allowed Class 3.3 Claim
relating to the Final Allowance Date will be adjusted so that the sum of the
amount of such distribution and the amount of the interim distribution made
pursuant to this paragraph shall equal the amount that would have been
distributed with respect to such Claim under the preceding paragraph if no
interim distribution were made.
If the Distribution Date occurs after January 31, 1996, each holder of
an Allowed Class 3.3 Claim shall be entitled to receive Supplemental Interest
Payment(s) on its distribution(s) on its Allowed Class 3.3 Claim as provided in
this Section and in Section III.B.3.d. of the Plan.
VII-34
<PAGE> 804
Claims of Rejecting Producers shall be liquidated through litigation
under the Claims Estimation Procedures or before the Bankruptcy Court, as
appropriate, or by a settlement approved by the Bankruptcy Court.
All distributions to holders of Allowed Class 3.3 Claims shall be made
in cash, except that Reorganized TCO, with the prior consent of Columbia, shall
have the option to pay any amount due to any Rejecting Producer in excess of
the Target Distribution Percentage of the Original Settlement Value proposed
for its Claim, in the form of readily marketable publicly traded securities of
Reorganized Columbia having a fair market value equal to the distribution that
Reorganized TCO has elected not to pay in cash. The fair market value of such
securities shall be determined based upon the last New York Stock Exchange
trading day prior to the date of distribution to such Rejecting Producer and,
in the case of Columbia common stock, such fair market value shall be deemed to
be the midpoint between the high and the low price for Columbia common stock as
reported on the consolidated tape of the New York Stock Exchange on such
trading day.
The Supplemental Interest Payment will be paid to all holders of
Allowed Class 3.3 and 3.4 Claims if the Effective Date occurs after January 31,
1996. The Supplemental Interest Payment is in addition to the distribution to
which it relates and such interest is calculated as follows:
VII-35
<PAGE> 805
If the Distribution Date occurs after January 31, 1996, the
Supplemental Interest Payment will be an amount equal to an accrual
for the period from and including January 1, 1996 to but excluding the
Distribution Date, on the amount of such distribution at a rate per
annum equal to the annualized rate realized by TCO on funds invested
by it pursuant to the Investment Guidelines during such period.
The agreement to make Supplemental Interest Payments, if due, is a
result of negotiations among the Creditors' Committee, the Initial Accepting
Producers, TCO and Columbia as part of the settlement of Producers Claims and
is intended to be an incentive for TCO and Columbia to consummate the Plan
quickly.
If the order of the Bankruptcy Court approving the settlement of the
Intercompany Claims Litigation is not a Final Order, upon receipt, not subject
to disgorgement, by an Initial Accepting Producer or group thereof of the
Initial Distribution Percentage of its Allowed Class 3.3 Claim, the residual
economic interest ,if any, of such Initial Accepting Producer or group thereof
in its Allowed Class 3.3 Claim shall be deemed to be transferred to and vested
in Reorganized Columbia, subject only to Reorganized Columbia's obligation to
account to such Initial Accepting Producer or group thereof for, and to pay,
any remaining distributions on such Allowed Class 3.3 Claim under the terms of
the Plan.
VII-36
<PAGE> 806
TCO estimates that Allowed Class 3.3 Claims will aggregate $1,625.1
million.
(2) CLASS 3.4 CLAIMS
Each holder of an Allowed Class 3.4 Claim shall be paid seventy-two
and one-half (72.5%) percent of its Allowed Claim, together with a Supplemental
Interest Payment thereon if the Distribution Date occurs after January 31,
1996, on the Effective Date, if the Claim is then Allowed and, if not then
Allowed, on the thirtieth day after the end of the Calendar Quarter during
which such Claim becomes Allowed, provided, however, if on such day, there is
pending an appeal (a) by such a Claimholder from the order Allowing such
Claimholder's Claims, or (b) by Reorganized TCO or any other party from the
order Allowing such Claimholder's Claim and Reorganized TCO or such other has
obtained a stay pending appeal of such order, such distribution shall be made
on the thirtieth day after the earlier of the termination of the stay pending
appeal or the entry of a Final Order Allowing such Claimholder's Claim.
All distributions to holders of Allowed Class 3.4 Claims shall be made
in cash, except that Reorganized TCO, with prior consent of Columbia, shall
have the option to pay any amount due to any holder of a General Unsecured
Claim that does not accept the Allowance Amount proposed for its Claim, in
excess of the Target Distribution Percentage of the Allowance Amount proposed
for its Claim, in the form of readily marketable publicly traded securities of
Reorganized Columbia having a fair market value
VII-37
<PAGE> 807
equal to the distribution that Reorganized TCO has elected not to pay in cash.
The fair market value of such securities shall be determined based upon the
last New York Stock Exchange trading day prior to the date of distribution to
such Claimholder and, in the case of Columbia common stock, such fair market
value shall be deemed to be the midpoint between the high and the low price for
Columbia common stock as reported on the consolidated tape of the New York
Stock Exchange on such trading day.
The Supplemental Interest Payment is described above in subsection (1).
TCO estimates that Allowed Class 3.4 Claims will aggregate $55.8
million.
(3) CLASS 3.5 CLAIM
On the Effective Date, Reorganized Columbia shall be paid, in cash, an
amount equal to the Initial Distribution Percentage of its Allowed Claim,
together with a Supplemental Interest Payment thereon, if applicable. On the
thirtieth day after the end of the Calendar Quarter during which the Final
Allowance Date has occurred, Reorganized Columbia shall be paid, in cash, an
amount equal to the same final distribution percentage of its Allowed Claim as
(a) all holders of Allowed Class 3.3 Claims have received on their Allowed
Claims or (b) all holders of Allowed Class 3.4 Claims have received on their
Allowed Claims, whichever is lower, less any amounts previously received by
Reorganized Columbia in respect of the Columbia Unsecured Claim,
VII-38
<PAGE> 808
other than any Supplemental Interest Payments, together with a Supplemental
Interest Payment thereon, if applicable. If the Distribution Date occurs after
January 31, 1996, Columbia shall be entitled to receive Supplemental Interest
Payment(s) on its distribution(s) on the Columbia Unsecured Claim.
Reorganized Columbia, however, may utilize all or any portion of the
distribution that it receives on the Columbia Unsecured Claim to fund its
obligations with respect to the Columbia Omnibus Settlement.
The Columbia Unsecured Claim in Class 3.5 will be Allowed under the
Plan as filed in the amount of $351 million.
d. CLASS 4 CLAIMS - ASSUMED CLAIMS
(i) CLASS 4.1 CLAIMS - ENVIRONMENTAL
CLAIMS
Class 4.1 consists of all pre- and post-petition environmental
compliance and remediation obligations owed to state and federal environmental
enforcement and regulatory agencies, including, without limitation, those
obligations of TCO arising under the Order Approving Administrative Order on
Consent for Removal Actions and Toxic Substance Control Act and Consent
Agreement between TCO and the United States Environmental Protection Agency
approved by order of the Bankruptcy Court on November 16, 1994 (the "EPA
Order"), that certain Consent Order and Agreement, dated October 6, 1994 by and
between TCO and the Commonwealth of Pennsylvania, Department of Environmental
Resources, approved by order of the Bankruptcy Court dated November 16, 1994
(the "Pennsylvania Environmental
VII-39
<PAGE> 809
Order") and two certain Agreed Orders by and between TCO and the Commonwealth
of Kentucky, Natural Resources and Environmental Protection Cabinet both dated
October 24, 1994 and approved by order of the Bankruptcy Court dated November
16, 1994 (the "Kentucky Environmental Orders"). Non-consensual pre-petition
environmental penalty liabilities asserted by entities other than the
Commonwealth of Pennsylvania, the Commonwealth of Kentucky or the United States
Environmental Protection Agency and settled in the above-referenced orders are
not included in this Class. For a further discussion of TCO's environmental
liabilities, see Section V.E.7, "Environmental Issues."
Class 4.1 Claims shall survive and be unaffected by the Confirmation
Order and will be assumed by Reorganized TCO and paid if and when due and
payable, either in the ordinary course of Reorganized TCO's business or in
accordance with such agreements or stipulations as may be entered into with the
relevant governmental authority, including, without limitation, the EPA Order,
the Pennsylvania Environmental Order and the Kentucky Environmental Orders.
Class 4.1 Claims are unimpaired.
(ii) CLASS 4.2 CLAIMS - CERTAIN
CONDEMNATION CLAIMS
Class 4.2 consists of condemnation awards payable pursuant to the
Bankruptcy Court's December 18, 1992 Order Authorizing TCO to Pay Condemnation
Awards Adjudicated Post-Petition Where No Bond Has Been Posted. TCO estimates
that the Class 4.2
VII-40
<PAGE> 810
Claims will total approximately $177,000. These Claims will be assumed by
Reorganized TCO and paid if and when due and payable.
Class 4.2 Claims are unimpaired.
(iii) CLASS 4.3 CLAIMS - PENSION CLAIMS
Class 4.3 consists of all Claims Filed by the PBGC relating to pension
plans in existence as of the Petition Date, including all Claims with respect
to the Retirement Plan. The Claims relating to the Retirement Plan include the
Retirement Plan's Claims, if any, for minimum funding contributions required by
ERISA and the three Claims Filed by the PBGC with regard to the Retirement
Plan. On the Effective Date, Reorganized TCO will assume its obligations
relating to all pension plans in existence as of the Petition Date, including
all obligations imposed by ERISA with regard to the Retirement Plan, and all
Claims in Class 4.3 will be satisfied as they arise. See Section V.E.6,
"Pension Claims."
Class 4.3 Claims are unimpaired.
(iv) CLASS 4.4 CLAIMS - SURETY BOND
RELATED CLAIMS
Class 4.4 consists of all contingent Claims arising under or related
to Claims Filed by Columbia in connection with TCO's obligation to reimburse
Columbia for any payments Columbia is or may be required to make on behalf of
TCO under or in connection with surety bonds issued for TCO's benefit. These
Claims will be assumed by Reorganized TCO and paid if and when due and
VII-41
<PAGE> 811
payable. TCO estimates that Allowed Class 4.4 Claims will total approximately
$7,000.
Class 4.4 Claims are unimpaired.
(v) CLASS 4.5 CLAIMS - AFFILIATE TAX
CLAIMS
Class 4.5 consists of all Claims of Columbia or any of its
subsidiaries for any amount owed by TCO under the Tax Allocation Agreement
which remains after payment of Assumed Executory Contract Claims. Class 4.5
Claims will be assumed by Reorganized TCO and paid if and when due and payable.
Class 4.5 Claims are unimpaired.
e. CLASS 5 INTERESTS - COMMON STOCK OF TCO
Class 5 consists of Columbia's Interests. Columbia shall receive no
distribution in respect of its Interests, although Columbia will retain all of
the stock of TCO through the Plan's treatment of the Columbia Secured Claim.
See Section VII.A.2.b, "Class 2.1 Claim - The Columbia Secured Claim."
Class 5 Interests are impaired.
B. MECHANISM FOR QUANTIFYING CLAIMS
1. PRODUCER CLAIMS
Numerous proofs of Claim, notably Producer Claims, have been Filed
which are Disputed or which do not assert a Claim amount. In March, 1992,
immediately following the Bar Date for Claims, TCO presented to the Bankruptcy
Court a proposal to expedite and simplify resolution of Disputed Producer
Claims. The Bankruptcy Court entered a procedural order that provided for (i)
the appointment of a Claims Mediator, (ii) initial
VII-42
<PAGE> 812
resolution of issues generic to all or large categories of gas supply Contract
Claims, and (iii) subsequent resolution of issues specific to particular
rejected gas supply contracts. By agreement, Charles Normandin, Esq. was
appointed Claims Mediator and John Norris, Esq. was appointed to advise Mr.
Normandin with respect to the natural gas law aspects of the proceedings. In
order to obtain more information about and quantify such Producer non-Contract
Rejection Claims, in early December 1993, TCO, with the approval of the Claims
Mediator, sent a questionnaire to approximately 1,000 holders of Producer
non-Contract Rejection Claims requesting detailed information about the nature
of their Claims.
Extensive evidentiary hearings before the Claims Mediator with respect
to generic issues relating to the recalculation of both Contract Rejection
Claims and non-Contract Rejection Claims were conducted over the next two
years, concluding in the Spring of 1994. Preliminary hearings and discovery
also occurred on TCO's request for a market value of reserves approach to
calculating Contract Rejection Claims.
On or about October 13, 1994, Mr. Normandin filed his Initial Report
and Recommendations of the Claims Mediator on Generic Issues for Natural Gas
Contract Claims (the "Claims Mediator Report"). Proposed forms for the
recalculation of Producer Claims were appended to the Claims Mediator Report,
and following the submission of comments and a hearing, were finalized by Mr.
Normandin and distributed to Producer
VII-43
<PAGE> 813
Creditors. Those recalculated Claims forms are due to be returned by June 30,
1995, and will then be analyzed and audited by Mr. Normandin and his technical
experts. Additional hearings on TCO's market value of reserves methodology
have been deferred until further notice by Mr. Normandin. See Section I.B.4.a,
"Producer Claims Litigation."
The Plan proposes Settlement Values for all Producer Claims which
Settlement Values will, subject to Bankruptcy Court approval, be used to fix
such Claims for voting purposes and which, if accepted by any Producer
Claimant, will, subject to Bankruptcy Court approval, be the Allowed amount of
its Claim.
See Section V.C, "The Settlement With Various Producers" and Section
V.D, "Settlement Offers for Remaining Producer Claims" for a description of how
the Settlement Values were determined by TCO.
2. DISPUTED GENERAL UNSECURED CLAIMS
The Plan proposes Allowance Amounts for all unliquidated General
Unsecured Claims which Allowance Amounts will, subject to Bankruptcy Court
approval, be used to fix such Claims for voting purposes and which, if accepted
by any holder of a General Unsecured Claim, will, subject to Bankruptcy Court
approval, be the Allowed Amount of its Claim. See Section V.E, "Non-Producer
Claims" for a description of how the Allowance Amounts were derived by TCO.
VII-44
<PAGE> 814
C. TRANSACTIONS ON THE EFFECTIVE DATE
The following transfers and transactions, will occur on the Effective
Date:
1. Columbia shall deliver to Reorganized TCO cash and securities,
if any, to the extent required by Reorganized TCO to fund the distributions to
be made to Creditors under the Plan, as contemplated by the Columbia Omnibus
Settlement.
2. Reorganized TCO shall make the distributions required under
the Plan to be made on the Effective Date to all holders of Allowed Claims.
3. Reorganized TCO shall issue and deliver to Columbia its new
secured debt securities as required by the treatment of the Columbia Secured
Claim provided in the Plan.
4. If it is not already dissolved Columbia Transmission
Investment Corporation ("CTIC") shall be dissolved. Funds in the RIA Account
shall be distributed to Accepting Class 3.2 Claimants in the manner provided in
the Customer Settlement Proposal, and the RIA Account shall be dissolved. Any
remaining funds held by CTIC shall be distributed to Reorganized TCO.
5. A Stipulation of Dismissal with Prejudice of the Intercompany
Claims Litigation which is conditioned only upon the completion of payment by
Reorganized TCO of all distributions payable on the Effective Date and which,
to the extent not previously resolved, shall not dismiss the Customers'
Committee's Motion to Unseal Judicial Records (the "Stipulation
VII-45
<PAGE> 815
of Dismissal with Prejudice"), shall have been filed with and, if necessary,
approved by the District Court.
TCO estimates it will have approximately $1.39 billion in cash on hand
as of December 31, 1995, not including any contribution from Columbia. In
addition, the Plan is expressly conditioned on confirmation of a plan of
reorganization for Columbia which provides for (a) Columbia to fulfill the
terms of the Columbia Omnibus Settlement and the Columbia Guaranty and (b) the
financing of Reorganized TCO on terms reasonably satisfactory to TCO and
Columbia. See Section VII.I.1.a, "Conditions to Confirmation and
Effectiveness".
D. DISTRIBUTIONS UNDER THE PLAN
1. DISTRIBUTIONS ON CLAIMS
Under the Plan, except as otherwise provided in the Plan, or pursuant
to orders of the Bankruptcy Court, distributions to holders of Claims that are
Allowed as of the Effective Date will be made by Reorganized TCO in cash or
securities on the Effective Date. Under the Plan, distributions to holders of
Claims that are not Allowed Claims as of the Effective Date will be made by
Reorganized TCO in cash or securities on the thirtieth day after the end of the
Calendar Quarter during which such Claim becomes Allowed, in accordance with
the treatment provided for such Claims in the Plan.
Each subsequently Allowed Professional Claim and Priority Tax Claim
will be paid in cash by Reorganized TCO in accordance with the treatment set
forth for such Claims in Section III.A of
VII-46
<PAGE> 816
the Plan. Producers in Class 3.3 and Reorganized Columbia in Class 3.5 will
receive their distributions of the Initial Distribution Percentage on the
Effective Date, if their Claims are then Allowed, or, if not then Allowed, on
the thirtieth day after the end of the Calendar Quarter during which their
Claims become Allowed. All holders of Allowed Class 3.3 Claims and Reorganized
Columbia with respect to the Columbia Unsecured Claim may receive a further
distribution beyond the Initial Distribution Percentage on the thirtieth day
after the end of the Calendar Quarter during which the Final Allowance Date
occurs, depending upon the aggregate Allowed amount of the Producer Claims.
Reorganized Columbia shall receive the lesser of the final distribution
percentage received by holders of Allowed Class 3.3 Claims or the final
distribution percentage received by holders of Allowed Class 3.4 Claims as a
distribution percentage of the Columbia Unsecured Claim.
Reorganized TCO will make all distributions of cash and securities
required in respect of the Allowed Claims under the Plan. Except with respect
to those amounts to be distributed to holders of Allowed Class 3.3, Class 3.4
and Class 3.5 Claims on the Effective Date, any payment, distribution or other
action that is required under the Plan to be made or taken on the Effective
Date, or any other date, shall be deemed to have been made or taken on the
Effective Date or such other date, as applicable, if made or taken on or within
ten (10) Business Days of the Effective Date or such other date, as the case
may be.
VII-47
<PAGE> 817
TCO and Reorganized TCO shall each use its best efforts to complete
distributions due to be made on the Effective Date as soon as reasonably
possible once such distributions are commenced. Distributions to be made on
the Effective Date to holders of Allowed Class 3.3, Class 3.4 and Class 3.5
Claims shall be commenced and completed within a period of three (3) Business
Days commencing on and including the Effective Date. In the event that the
distribution to be made on the Effective Date to any holder of an Allowed Class
3.3 Claim, Class 3.4 Claim or Class 3.5 Claim is not completed within three (3)
Business Days, then each such Claimholder shall receive supplemental interest
on such distribution in cash for the period from the third Business Day after
the Effective Date through and including the day immediately preceding the date
upon which such distribution is made at a rate per annum equal to the
annualized rate realized by TCO on funds invested by it pursuant to the
Investment Guidelines during the period for which such interest is calculated.
Such interest shall be paid at the same time as TCO or Reorganized TCO makes
the distribution to such Claimholder which is required to be made under the
Plan on the Effective Date.
2. DELIVERY OF DISTRIBUTIONS AND UNCLAIMED DISTRIBUTIONS
a. DELIVERY OF DISTRIBUTIONS IN GENERAL
Distributions to each holder of an Allowed Claim will be made (a) at
the address set forth on the proof of Claim Filed by such holder, (b) at the
address set forth in any written notice
VII-48
<PAGE> 818
of address change delivered to TCO or Reorganized TCO after the date of Filing
of any related proof of Claim, or (c) if no proof of Claim has been Filed and
neither TCO nor Reorganized TCO has received written notice of a change of
address, then at the address of such holder reflected in the Schedule of
Liabilities.
b. UNCLAIMED DISTRIBUTIONS
If any distribution to the holder of an Allowed Claim is returned to
Reorganized TCO as undeliverable, or any check issued to a holder in payment of
any distribution is not negotiated, such Unclaimed Distribution will be
retained by Reorganized TCO, which may commingle such funds with its other
funds, until such time as a distribution becomes deliverable.
Within thirty (30) days after the end of each Calendar Quarter,
Reorganized TCO shall distribute all such previously Unclaimed Distributions
that become deliverable during the preceding Calendar Quarter.
Any holder of an Allowed Claim that does not claim an Unclaimed
Distribution within the later of five years after the entry of the Confirmation
Order and two years after such check or other instrument was issued by
Reorganized TCO shall have its Claim for such Unclaimed Distribution
discharged, shall not participate in any further distributions under the Plan
and shall be forever barred from asserting any such Claim against Reorganized
TCO or its property. Any distribution on account of such holder's Claim and
any accumulated income thereon will be the property of Reorganized TCO, free of
any restrictions
VII-49
<PAGE> 819
thereon. Neither TCO nor Reorganized TCO will be required to attempt to locate
any holder of an Allowed Claim other than by reviewing its own records.
The states' abandoned property laws are preempted when they are in
conflict with federal bankruptcy law. Section 347(b) of the Bankruptcy Code
provides that "any security, money or other property remaining unclaimed at the
expiration of the time allowed in a case under chapter 9, 11 or 12 of this
title for the presentation of a security or the performance of any other act as
a condition to participation in the distribution under a plan confirmed under
section 943(b), 1129, 1173, or 1225 of this title, as the case may be, becomes
the property of the debtor or of the entity acquiring the assets of the debtor
under the plan, as the case may be." Accordingly, all Unclaimed Distributions
shall become the property of Reorganized TCO.
3. MEANS OF CASH PAYMENTS
Cash payments made pursuant to the Plan will be in United States
dollars by checks drawn on a domestic bank selected by TCO or Reorganized TCO,
or by wire transfer from a domestic bank, at the option of TCO or Reorganized
TCO; provided, however, that cash payments (i) in excess of $1,000,000 to
Creditors who make a request in writing and provide wire instructions to TCO at
least ten (10) days in advance of the Effective Date shall be made by wire
transfer by TCO or Reorganized TCO and (ii) to foreign Creditors, if any, may
be made, at the option of TCO or Reorganized TCO, in such funds and
VII-50
<PAGE> 820
by such means as are necessary or customary in a particular foreign
jurisdiction.
4. SETOFFS
The Plan preserves Reorganized TCO's right to Setoff, pursuant to
either section 553 of the Bankruptcy Code or applicable nonbankruptcy law.
Subject, in the case of Accepting Class 3.2 Claimants, to the applicable
provisions of the Customer Settlement Proposal, and as to other Creditors, the
provisions relating to accepted Settlement Values and Allowance Amounts set
forth in Section III.B.3.a. of the Plan, Reorganized TCO may set off against
any Allowed Claim and the cash distributions otherwise payable under the Plan,
any claim, right and cause of action of any nature that TCO or Reorganized TCO
may hold against the holder of an Allowed Claim. Nothing contained in the Plan
shall constitute a waiver or release by TCO or Reorganized TCO of any such
claim, right or cause of action, even if Reorganized TCO does not exercise its
right of Setoff against distributions under the Plan.
E. SETTLEMENT OF INTERCOMPANY CLAIMS LITIGATION
Pursuant to the Plan, in consideration of the Columbia Omnibus
Settlement (as defined in the Plan), all Intercompany Claims, including the
proof of Claim docketed as Claim No. 14009 in Columbia's reorganization case,
will be deemed settled, released and discharged as of the Effective Date.
Except for the prosecution of the Motion to Unseal, Columbia, Reorganized
Columbia, TCO, Reorganized TCO, CNR, each of their respective
VII-51
<PAGE> 821
affiliates, each of their respective present and former directors, officers,
employees, agents, attorneys, accountants, bankers, investment bankers and
other representatives, each of their respective successors, executors,
administrators, heirs and assigns, and each official committee appointed in the
Reorganization Case and Columbia's reorganization case and their professionals,
will be released as of the Effective Date pursuant to the Stipulation of
Dismissal With Prejudice from the Intercompany Claims and from any and all
Claims arising from or related to the transactions which are the subject of the
Intercompany Claims, and the Confirmation Order will enjoin the prosecution by
any entity, whether directly, derivatively or otherwise, of any Claim, debt,
right, cause of action or liability which was or could have been asserted in
connection with the Intercompany Claims. Acceptance of the Plan shall
constitute consent to the settlement of the Intercompany Claims Litigation.
F. SETTLEMENT OF CUSTOMER REFUND DISPUTES
As of the Effective Date, and except as provided in the Customer
Settlement Proposal, in consideration of the various settlements and agreements
contained in the Customer Settlement Proposal, which shall be approved by the
Bankruptcy Court pursuant to the Plan, the Refund Claims and Refund Disputes
held by Customers shall be deemed settled, released and discharged. Columbia,
Reorganized Columbia, TCO, Reorganized TCO, and each of their respective
affiliates, and each of their respective
VII-52
<PAGE> 822
present and former directors, officers, employees, agents, attorneys,
accountants, bankers, investment bankers and other representatives, and each of
their respective heirs, executors, administrators, successors, and assigns, and
each official committee appointed in the Reorganization Case and Columbia's
reorganization case and their professionals, shall be released as of that date
from such Refund Claims and Refund Disputes and from any and all claims arising
from or related to the transactions that are the subject of such Refund Claims
and Refund Disputes, and the Confirmation Order will enjoin the prosecution by
any entity, whether directly, derivatively or otherwise, of any claim, debt,
right, cause of action or liability which was or could have been asserted in
connection with such Refund Claims and Refund Disputes.
The Bankruptcy Court's approval of the Customer Settlement Proposal
shall bind all supporters as defined therein, to the settlement of all
litigation involving Refund Disputes and the Intercompany Claims. Dissenting
3.2 Claimants may elect to continue to litigate the Refund Disputes.
G. SETTLEMENT OF 1990 RATE CASE
If Class 3.2 accepts the Plan, the Confirmation Order shall provide
that, as of the Effective Date, the 1990 Rate Case Settlement as modified by
the Plan shall be deemed approved and final on the terms set forth in the
Customer Settlement Proposal.
VII-53
<PAGE> 823
H. PROCEDURES FOR ESTABLISHING ALLOWED CLAIMS AND FOR RESOLVING
DISPUTED CLAIMS - BAR DATES.
Several Bar Dates for the filing of Claims have been established by
order of the Bankruptcy Court during the Reorganization Case. See Section
V.F.10.a, "Bar Dates".
As described below, the Plan establishes additional Bar Dates covering
certain categories of Administrative Claims. The purpose of these Bar Dates is
to enable TCO to ascertain the amounts claimed in these categories so as to
give TCO a more accurate picture of its obligations under the Plan and to
expedite the Claims resolution process.
1. BAR DATES FOR CERTAIN ADMINISTRATIVE CLAIMS
a. PROFESSIONAL CLAIMS
Except as noted in this Section VII.A.2.c.(iii), Professionals or
other entities requesting compensation or reimbursement of expenses pursuant to
sections 327, 328, 330, 331, 503(b) or 1103 of the Bankruptcy Code for services
rendered before the Effective Date (including compensation requested pursuant
to section 503(b)(4) of the Bankruptcy Code by any Professional or other entity
for making a "substantial contribution" in TCO's Reorganization Case) will be
required to File and serve on Reorganized TCO, the U.S. Trustee, and the Fee
Examiner an application for final allowance of compensation and reimbursement
of expenses within such time period as the Bankruptcy Court shall fix in the
Confirmation Order or in any other order and provided further, that any
Professional or other entity that fails to timely file an application for final
VII-54
<PAGE> 824
allowance of compensation and reimbursement of expenses shall be forever barred
from asserting such Claims against TCO and Reorganized TCO, TCO and Reorganized
TCO shall be discharged from such Claims and neither TCO nor Reorganized TCO
shall be obligated to pay such Claims; provided, however, that any Professional
who may receive compensation or reimbursement of expenses pursuant to the
Administrative Fee Order or other such order of the Bankruptcy Court may
continue to receive such compensation and reimbursement of expenses for
services rendered before the Effective Date. Objections to applications of
Professionals or other entities for compensation or reimbursement of expenses
must be Filed and served on Reorganized TCO, the U.S. Trustee, the Fee
Examiner, and the requesting party within such time period as the Bankruptcy
Court shall fix in the Confirmation Order or in any other order.
b. ADMINISTRATIVE CLAIMS ARISING FROM
REJECTION OF EXECUTORY CONTRACTS
If the rejection of an executory contract or unexpired lease pursuant
to the Plan or the Confirmation Order gives rise to an Unsecured Claim or
Administrative Claim by the other party or parties to such contract or lease,
such Claim will be forever barred and will not be enforceable against TCO,
Reorganized TCO or its successors, or the properties of any of them, unless
such parties file and serve a request for payment, with respect to
Administrative Claims, or a proof of Claim, with respect to other Claims, on
Reorganized TCO within the later of (a) the time period established by the
Bankruptcy Court in its Final
VII-55
<PAGE> 825
Order authorizing such rejection and (b) on the thirtieth day after the
Effective Date. Objections to any request for payment or proof of Claim must
be Filed no later than the sixtieth day after the Effective Date.
c. NON-ORDINARY COURSE, NON-ASSUMED ADMINISTRATIVE CLAIMS
TCO shall file a motion seeking an order of the Bankruptcy Court
establishing sixty (60) days after the date that the Confirmation Order is
signed as the bar date for the filing of any motion seeking Allowance of an
Administrative Claim excluding any
(a) Administrative Claims of Professionals and
other entities requesting compensation or reimbursement of
expenses pursuant to sections 327, 328, 330, 331, 503(b) or
1103 of the Bankruptcy Code for services rendered before the
Effective Date,
(b) Post-Petition Operational Claims,
(c) Assumed Executory Contract Claims,
(d) U.S. Trustee's Fee Claims,
(e) Administrative Recoupment Claims,
(f) contingent indemnification Claims of
officers, directors and employees of TCO,
(g) Class 4 Claims, and
(h) payments to be made to UGI and the current
members of the Customers' Committee pursuant to Section
III.B.3.c. of the Plan.
VII-56
<PAGE> 826
2. BAR DATE FOR OBJECTIONS TO CERTAIN NON-ADMINISTRATIVE
CLAIMS
a. CLAIMS SUBJECT TO THE CLAIMS ESTIMATION
PROCEDURES
All objections by TCO and all other parties-in-interest to Producer
Claims which are the subject of the Claims Estimation Procedures will be
governed by the provisions of the Claims Estimation Procedures or by other
orders of the Bankruptcy Court relating to such Claims.
b. OTHER NON-ADMINISTRATIVE CLAIMS
Any non-Administrative Claim which was not Filed at least thirty (30)
days prior to the date of the hearing on the Disclosure Statement may be
objected to by TCO or Reorganized TCO, or the TCO Committees by the later of
(a) the Effective Date and (b) sixty (60) days after a proof of Claim with
respect to such Claim has been Filed. Any such Claim that has not been
objected to on or prior to such date will be an Allowed Claim in the
appropriate Class.
3. AUTHORITY TO PROSECUTE OBJECTIONS
Subject to the Bar Dates and other limitations described above, after
the Effective Date, Reorganized TCO will have the authority to File objections
to Claims, and will have authority to settle, compromise, withdraw or litigate
to judgment objections to Claims Filed by it, upon notice to the other party
and subject to the approval of the Bankruptcy Court. Reorganized
VII-57
<PAGE> 827
TCO shall File all such objections to Claims (other than Producer Claims)
within one hundred twenty (120) days after the Effective Date. The Creditors'
Committee and the Producers shall also have the right after the Effective Date
to File objections to the Producer Claims held by Rejecting Producers, to File
objections to any proposed compromise or settlement of the Claim of any
Producer and to settle, compromise, withdraw or litigate to judgment and to
participate in appeals from any such objections, subject to appropriate
approvals of the Bankruptcy Court. See Section VII.I.5, "Dissolution of
Committees".
4. LIQUIDATION OF CLAIMS FOR VOTING
TCO intends to file a motion with the Bankruptcy Court for an order
establishing, for voting purposes only, the Allowed amount of Claims which are
Disputed Claims on the Plan Mailing Date, through use of Claim amounts as
Filed, the proposed Settlement Values and Allowance Amounts and the Allowed
amounts for Customer Regulatory Claims set forth on the schedules to the
Customer Settlement Proposal and Schedule IV to the Plan, or other appropriate
Claims quantification procedures which are approved by the Bankruptcy Court.
See Section X.C.1, "Voting Procedures and Requirements; Voting
Requirements-Generally."
I. MISCELLANEOUS
1. CONDITIONS TO CONFIRMATION AND EFFECTIVENESS
Section VII of the Plan contains the conditions to Confirmation of the
Plan and the Effective Date. Each such
VII-58
<PAGE> 828
condition may, except as otherwise indicated, be waived by TCO at its option,
with the prior consent of Columbia.
a. CONDITIONS TO CONFIRMATION
(i) The Bankruptcy Court has entered an order,
pursuant to section 1129 of the Bankruptcy Code, confirming a Plan of
Reorganization for Columbia which provides for Columbia to fulfill the terms of
the Columbia Omnibus Settlement and the Columbia Guaranty and for the financing
of Reorganized TCO on terms reasonably satisfactory to TCO and Columbia.
(ii) Any authorization or approval required
under the HCA with respect to Columbia or Reorganized TCO of the transactions
contemplated by the Plan or the Plan of Reorganization for Columbia has been
obtained. This condition is waivable by TCO only if it is made an unwaivable
condition to the Effective Date.
(iii) There shall have been no material adverse
change to TCO's or Columbia's business, properties, results of operations
business prospects, or financial condition between the Plan Mailing Date and
the Confirmation Date.
(iv) No material environmental liability Claim
shall have been Filed by any entity, including, without limitation, any state
or federal environmental or regulatory agency, asserting actual or potential
liability against TCO, other than Claims Filed pursuant to consensual
settlement agreements between TCO and such state or federal environmental or
regulatory agency or other entity. This condition is
VII-59
<PAGE> 829
waivable by TCO only if it is made a condition to the Effective Date that is
waivable only after giving the Official Committee of Equity Holders appointed
in Columbia's reorganization case notice and an opportunity to be heard.
(v) TCO and Columbia shall have received a
ruling from the IRS, in form and substance satisfactory to TCO and Columbia, to
the effect that the payments made by TCO under the Plan that are attributable
to the breach, termination or rejection of gas purchase contracts are
deductible in the year paid by TCO for Federal income tax purposes. If this
condition has not been satisfied by December 15, 1995, the Initial Accepting
Producer Settlement Agreement shall terminate on December 31, 1995, unless
prior to December 31, 1995 either (a) Columbia and TCO waive the receipt of
such ruling as a condition to Confirmation and/or the Effective Date, as
appropriate, or (b) the Initial Accepting Producers agree, in writing, to an
extension of the time within which the condition must be satisfied. This
condition is waivable by TCO only if it is made a condition to the Effective
Date that is waivable only after giving the Official Committee of Equity
Holders appointed in Columbia's reorganization case notice and an opportunity
to be heard.
(vi) The Confirmation Order shall approve the
settlement, in accordance with the Plan, of the Refund Disputes with Accepting
Class 3.2 Claimants, and the 1990 Rate Case Settlement (as amended by the
Customer Settlement Proposal) and
VII-60
<PAGE> 830
approve the Customer Settlement Proposal and TCO's implementation thereof and
the Confirmation Order shall not have been vacated, reversed or stayed. FERC
shall have entered a Final FERC Order approving the Customer Settlement
Proposal. This condition is waivable by TCO only if it is made a condition to
the Effective Date that is only waivable with the prior consent of the
Sponsoring Parties (as defined in the Customer Settlement Proposal).
(vii) The Bankruptcy Court shall have entered an
order approving the Initial Accepting Producers Settlement Agreement and such
order shall not have been vacated, reversed or stayed and the Initial Accepting
Producers Settlement Agreement shall not have been terminated pursuant to
Paragraph 14 thereof or Section VIII of the Plan.
(viii) The Plan shall not have been amended,
modified, waived, supplemented or withdrawn, in whole or in part, without the
prior consent of Columbia, and without the prior consent of (i) the Creditors'
Committee, if such revisions would (a) change the Original Settlement Values
set forth on Schedule I, (b) change the amount, timing or composition of
distributions to Class 3.1, 3.3 or 3.4, (c) change the conditions to
Confirmation or to the Effective Date or (d) otherwise materially affect the
treatment of Unsecured Creditors, other than Customers, under the Plan or (ii)
the Customers' Committee, if such revisions would (a) change the amount, timing
or composition of distributions to Class 3.2, (b)
VII-61
<PAGE> 831
change the conditions to Confirmation or to the Effective Date, or (c)
otherwise materially affect the treatment of Accepting Class 3.2 Claimants
under the Plan.
(ix) The Accepting Producer Percentage shall be
not less than ninety (90%) percent. This condition may be waived only with the
prior consent of the Initial Accepting Producers. This condition is waivable
by TCO only if it is made a condition to the Effective Date that is waivable
only after giving the Official Committee of Equity Holders appointed in
Columbia's reorganization case notice and an opportunity to be heard.
b. CONDITIONS TO EFFECTIVE DATE
(i) The order of the Bankruptcy Court
confirming Columbia's Plan of Reorganization shall not have been vacated,
reversed or stayed, and Columbia's Plan of Reorganization shall have become
effective on terms consistent with the Plan.
(ii) The Confirmation Order shall not have been vacated, reversed or
stayed.
(iii) There shall have been no material adverse
change to TCO's or Columbia's business, properties, results of operations,
financial condition, or business prospects between the Confirmation Date and
the Effective Date.
(iv) The Effective Date and the Distribution
Date shall have occurred on or before June 28, 1996. This condition is
waivable by TCO only with the prior consent of
VII-62
<PAGE> 832
Columbia, the Customers' Committee, and the Creditors' Committee and only if
each of the Initial Accepting Producers do not elect to terminate the Initial
Accepting Producer Settlement Agreement in accordance with Section 14(a)(v)
thereof.
(v) The Stipulation of Dismissal with Prejudice of
the Intercompany Claims Litigation shall have been filed with and, if
necessary, approved by the District Court.
(vi) Each of the conditions to Confirmation that was
made a condition to the Effective Date has been satisfied or, if waivable,
waived.
Accepting Class 3.2 Claimants are not bound to support the Plan if the
Effective Date and the entry of a Final FERC Order approving the Customer
Settlement Proposal fail to occur on or before June 30, 1996.
2. ASSUMPTION AND REJECTION OF EXECUTORY CONTRACTS
During the Reorganization Case, TCO has assumed and rejected various
executory contracts under section 365 of the Bankruptcy Code. Except as
otherwise provided in the Plan or in any contract, instrument, release,
indenture or other agreement or document entered into in connection with the
Plan, on the Effective Date, (i) all of TCO's executory contracts that have not
been expressly assumed or rejected by order of the Bankruptcy Court as of the
Confirmation Date and that are listed on Exhibit 3 to the Disclosure Statement
will be assumed or rejected or otherwise dealt with as set forth on said
Exhibit 3 and (ii) all other executory contracts that have not been so
VII-63
<PAGE> 833
expressly assumed will be rejected. Exhibit 3 also includes executory
contracts that TCO believes have expired, terminated or been superseded by
operation of law subsequent to the Petition Date. The treatment of executory
contracts between TCO and its Customers shall be consistent with the treatment
provided for in Article XII of the Customer Settlement Proposal.
TCO will comply with all FERC orders and other regulatory requirements
relating to assumed service contracts or as otherwise necessary to protect and
preserve its certificated service rights and obligations.
Any arrearages under executory contracts assumed under the Plan will
be satisfied by the payment of such arrearages, or on such other terms as TCO
and the party or parties to such executory contract shall agree. Executory
contracts and leases, and all other obligations, entered into or incurred by
TCO after the Petition Date will survive and be unaffected by the Plan and the
Confirmation Order.
3. CONTINUED CORPORATE EXISTENCE AND VESTING OF ASSETS IN
REORGANIZED TCO
TCO will continue to exist after the Effective Date as a Delaware
corporation with all the powers of a corporation under applicable law.
4. CORPORATE GOVERNANCE, DIRECTORS AND OFFICERS; COMPENSATION
The corporate governance of Reorganized TCO will remain essentially
unchanged.
VII-64
<PAGE> 834
Those persons serving as the directors and officers of TCO as of the
date hereof will continue to serve in their same capacities on behalf of
Reorganized TCO after Confirmation subject to such changes as may occur in the
ordinary course of business.
DIRECTORS
<TABLE>
<CAPTION>
NAME DESCRIPTION
- - ---- -----------
<S> <C>
Oliver G. Richard III Chairman of the Board, President and
CEO of Columbia Gas System, Inc.
Daniel L. Bell, Jr. Senior Vice President, Chief Legal
Officer and Secretary of Columbia Gas
System, Inc.
Michael O'Donnell Senior Vice President and Chief
Financial Officer of Columbia Gas
System, Inc.
James P. Holland Chairman of the Board and CEO of TCO
R. Larry Robinson President of TCO
Mark P. O'Flynn Senior Vice President and Chief
Financial Officer of TCO
</TABLE>
All of the Directors of TCO are currently officers of either TCO or
Columbia. The Directors are not separately compensated for their service as
Directors of TCO. The following table sets forth all compensation(1) paid by TCO
in fiscal year 1994 to each of the seven most senior executives of TCO:
____________________
(1) The non-cash portion of such compensation is not material. Compensation
includes thrift plan restoration or pension plan restoration, if any,
paid in 1994.
VII-65
<PAGE> 835
<TABLE>
<CAPTION>
Name of
Individual Position at TCO Age Compensation
- - ---------- --------------- --- ------------
<S> <C> <C> <C>
M.W. Casdorph Sr. Vice President 46 $258,412.90
J.P. Holland Board Chairman & CEO 46 329,020.00
G.L. Kettering Sr. Vice President 40 298,964.20
M.P. O'Flynn Sr. Vice President/CFO 44 229,376.70
B.D. Perine Sr. Vice President 59 314,986.27
R.L. Robinson President 50 266,944.25
S.J. Small General Counsel & Secretary 48 225,711.78
</TABLE>
5. DISSOLUTION OF COMMITTEES
The Customers' Committee will continue in existence after the Effective Date,
and the Professionals retained by the Customers' Committee may continue to be
employed after the Effective Date, to represent Customers' interests (a) with
respect to any appeal taken from the Confirmation Order (b) by reviewing
proposed settlements of Customer Regulatory Claims held by Dissenting 3.2
Claimants, (c) such other activities as agreed to by Reorganized TCO in its
sole discretion and (d) by overseeing the implementation of the Customer
Settlement Proposal. At the conclusion of the performance of its duties set
forth in clauses (a), (b), (c) and (d), the Customers' Committee shall
dissolve. The Creditors' Committee will continue in existence after the
Effective Date, and the Professionals retained by the Creditors' Committee may
continue to be employed after the Effective Date, to represent Unsecured
Creditors' interests (a) with respect to any appeal taken from the Confirmation
Order or from the order approving the Initial Accepting Producer Settlement
Agreement, (b) by engaging or participating in those matters referenced in
Section VI.C. of the Plan with respect to Producer Claims and by reviewing
VII-66
<PAGE> 836
proposed settlements of Disputed General Unsecured Claims, (c) with respect to
disputes involving the amount or timing of the distribution of any Holdback
Amount and (d) with respect to such other activities as agreed to by
Reorganized TCO in its sole discretion. At the conclusion of the performance
of its duties as set forth in clauses (a), (b), (c) and (d), the Creditors'
Committee shall dissolve. After the Effective Date, the Creditors' Committee
or the Customers' Committee may, in its discretion, dissolve upon notice to
Reorganized TCO. Upon such dissolution, the members of the Creditors'
Committee or the members of the Customers' Committee, as applicable, shall be
released and discharged from all rights and duties arising from or related to
the Reorganization Case.
The Professionals retained by the Creditors' Committee and the
Customers' Committee and the members thereof shall not be entitled to
compensation or reimbursement of expenses for any services rendered after the
Effective Date, except for (a) services performed by the Creditors' Committee
and the Professionals retained by the Creditors' Committee after the Effective
Date as described in the preceding paragraph, (b) services performed by the
Customers' Committee and the Professionals retained by the Customers' Committee
after the Effective Date with respect to activities as agreed to by Reorganized
TCO in its sole discretion, or (c) services rendered and expenses incurred in
connection with any applications for allowance of compensation and
reimbursement of expenses pending
VII-67
<PAGE> 837
on the Effective Date or Filed and served after the Effective Date pursuant to
Section VI.B.1 of the Plan. The Professionals retained by the Creditors'
Committee and the members of such Committee must submit monthly bills to
Reorganized TCO for such services and Reorganized TCO shall pay all reasonable
costs and expenses of such Committee members and all reasonable fees and
expenses of their Professionals from post-reorganization income. Any dispute
regarding compensation for such post-Effective Date services shall be
determined by the Bankruptcy Court.
6. DISCHARGE, TERMINATION, AND INJUNCTION
Section X of the Plan sets forth provisions releasing and discharging
TCO from Claims and other obligations arising prior to the Confirmation Date
and enjoining the prosection of such Claims and obligations. Notwithstanding
Section X, nothing contained in the Plan shall be construed as discharging,
releasing or relieving TCO, Reorganized TCO, or any other party, in any
capacity, from any liability with respect to the Retirement Plan to which such
party is subject under any law or regulatory provision. Nor shall anything
contained in the Plan be construed as enjoining the PBGC or the Retirement Plan
to which such party is subject under any law or regulatory provision as a
result of the Plan's provisions for the discharge, release and settlement of
Claims. Notwithstanding the foregoing, nothing contained in the Plan shall
preclude Reorganized TCO from exercising its right to amend, modify or
terminate the Retirement Plan in accordance with applicable law.
VII-68
<PAGE> 838
Section V.E of the Plan provides for the release of all security interests in
property of TCO, except as otherwise provided in the Plan.
7. CONTINUATION OF RETIREE PROGRAM
All employee and retiree benefit plans or programs in existence as of
the Petition Date will continue after the Effective Date.
8. JURISDICTION OF THE BANKRUPTCY COURT
Section XI of the Plan specifies certain matters with respect to
which the Bankruptcy Court will retain jurisdiction after the Effective Date to
the extent legally permissible. In particular, the Bankruptcy Court's
retention of jurisdiction will include, without limitation, the resolution of
Claims, including the Claims Estimation Procedures, and any disputes arising
over the distribution of assets under the Plan.
9. LIMITATION OF LIABILITY
The Plan limits the liability of TCO, Reorganized TCO, Columbia,
their affiliates and their respective directors, officers, employees, agents,
representatives and professionals (acting in such capacity), and the Creditors'
Committee and the Customers' Committee and their respective members and
Professionals (acting in such capacity), the Official Committee of Unsecured
Creditors and the Official Committee of Equity Holders appointed in Columbia's
Chapter 11 Case and their respective members and professionals (acting in such
capacity), and their respective heirs, executors, administrators,
VII-69
<PAGE> 839
successors and assigns, with respect to their actions or omissions in
connection with the Reorganization Case, the Plan, the Disclosure Statement and
related transactions. However, this limitation of liability does not extend to
any act or omission which is determined to have constituted gross negligence or
willful misconduct.
10. MODIFICATION OF THE PLAN
Subject to the restrictions on modifications set forth in section
1127 of the Bankruptcy Code, TCO, with the prior consent of Columbia and any
other party whose consent is required under the Plan, reserves the right to
alter, amend or modify the Plan (but not the Customer Settlement Proposal or
the Initial Accepting Producers Settlement Agreement) before its substantial
consummation; provided, however, that no alterations, amendments, supplements
or modifications that would conflict with the current treatment of Creditors
provided in the Plan will be made without the consent of TCO or Reorganized TCO
and Columbia or Reorganized Columbia and any other parties whose consent is
required under Section VIII of the Plan.
11. REVOCATION OF THE PLAN
TCO, with the prior consent of Columbia, reserves the right to revoke
or withdraw the Plan prior to the Confirmation Date. If TCO revokes or
withdraws the Plan, or if Confirmation does not occur, then the Plan will be
null and void in all respects, and nothing contained in the Plan shall: (i)
constitute a waiver or release of any Claims by or against, or any Interests
in, TCO
VII-70
<PAGE> 840
or Columbia, (ii) prejudice in any manner the rights of TCO or Columbia or
(iii) constitute an admission against TCO or Columbia. In the event that any
of the conditions set forth in Section VIII.B. of the Plan do not occur by June
28, 1996 and are not timely waived in accordance with Section VIII.C. of the
Plan, the Creditors' Committee, the Customers' Committee, Columbia or TCO shall
each have the right in its discretion to withdraw its support for the Plan upon
notice thereof to each of the other foregoing parties and without necessity of
any Court approval. In the event any such party exercises its right to
withdraw, then the Plan, including the discharge of Claims and all settlements
of Claims in connection with the Plan, shall be null and void in all respects
without any further action by any party or approval by the Bankruptcy Court or
any other court and nothing contained in the Plan shall (i) constitute a waiver
or release of any Claim by or against, or any Interests in, TCO or Columbia,
(ii) prejudice in any manner the rights of TCO, Columbia, the Creditors'
Committee, the Customers' Committee, or any of the Creditors or (iii)
constitute an admission against TCO, Columbia, the Creditors' Committee, the
Customers' Committee, or any of the Creditors.
12. SEVERABILITY OF PLAN PROVISIONS
If any term or provision of the Plan (excluding the Customer
Settlement Proposal and the Initial Accepting Producers Settlement Agreement)
is held by the Bankruptcy Court to be invalid, void or unenforceable, the
Bankruptcy Court will have
VII-71
<PAGE> 841
the power to alter and interpret such term or provision to make it valid or
enforceable to the maximum extent practicable, consistent with the original
purpose of the term or provision held to be invalid, void or unenforceable, and
such term or provision shall then be applicable as altered or interpreted. In
the event of any such holding, alteration or interpretation, the remainder of
the terms and provisions of the Plan may, at TCO's option, with the prior
consent of Columbia, remain in full force and effect and not be deemed
affected, impaired or invalidated by such holding, alteration or
interpretation. However, TCO and Columbia jointly and severally reserve the
right not to proceed to Confirmation or consummation of the Plan if any such
ruling occurs. TCO and Columbia may not unilaterally modify the Customer
Settlement Proposal or the Initial Accepting Producer Settlement Agreement.
The Confirmation Order will constitute a judicial determination and shall
provide that each term and provision of the Plan, as it may have been altered
or interpreted in accordance with the foregoing, is valid and enforceable
pursuant to its terms.
13. SUCCESSORS AND ASSIGNS
The rights, benefits and obligations of any entity named or referred
to in the Plan will be binding on, and shall inure to the benefit of, any heir,
executor, administrator, successor or assign of such entity. From and after
the Voting Deadline, any heir, executor, administrator, successor or assign of
any
VII-72
<PAGE> 842
Creditor who has voted to accept the Plan shall be bound to accept the Plan and
the treatment of such Creditor thereunder.
14. RELEASES
Section X.D. of the Plan provides for broad releases by TCO,
Reorganized TCO and all holders of Claims of (a) each of TCO's officers,
directors, shareholders, employees, consultants, financial advisors, attorneys,
accountants and other representatives, each of their respective successors,
executors, administrators, heirs and assigns, (b) the Creditors' Committee and,
solely in their capacity as members or representatives of the Creditors'
Committee, each member, consultant, financial advisor, attorney, accountant or
other representative of the Creditors' Committee, each of their respective
successors, executors, administrators, heirs and assigns, (c) the Customers'
Committee and, solely in their capacity as members or representatives of the
Customers' Committee, each member, consultant, financial advisor, attorney,
accountant or other representative of the Customers' Committee, each of their
respective successors, executors, administrators, heirs and assigns, (d) the
Official Committee of Equity Holders and the Official Committee of Unsecured
Creditors in Columbia's reorganization case (collectively, the "Columbia
Committees") and, in their capacity as members, invitees or representatives of
the Columbia Committees, each member, invitee, consultant, financial advisor,
attorney, accountant or other representative of the Columbia Committees, each
of their respective successors,
VII-73
<PAGE> 843
executors, administrators, heirs and assigns, and (e) Columbia, Reorganized
Columbia, CNR and each of their officers, directors, shareholders, consultant,
financial advisors, attorneys, accountants or other representatives, each of
their respective successors, executors, administrators, heirs and assigns (the
entities referred to in clauses (a), (b), (c), (d) and (e) are collectively
referred to as the "Releasees"). The Releasees are released on the Effective
Date from any and all claims, obligations, suits, judgments, damages, rights,
causes of action or liabilities whatsoever, whether known or unknown, foreseen
or unforeseen, existing or hereafter arising, in law, equity or otherwise,
based on whole or in part upon any act or omission, transaction, event or other
occurrence taking place on or prior to the Effective Date in any way relating
to the Releasees, TCO, the Reorganization Case or the Plan, including, without
limitation, (x) the Intercompany Claims and all claims arising from or related
to the transactions which are the subject of the Intercompany Claims, provided,
however, that the release referenced in this clause (x) shall not be effective
unless and until the Stipulation of Dismissal with Prejudice becomes effective
pursuant to its terms, and (y) Refund Claims and Refund Disputes and any claims
arising from or related to the transactions that are the subject of such Refund
Claims and Refund Disputes, but excluding (i) any claims relating to
Professional Fees sought by any of the Releasees, (ii) with respect to claims
asserted against TCO or Columbia, any claims
VII-74
<PAGE> 844
arising in the normal course of business after the Petition Date between TCO's
Creditors or TCO and Columbia, (iii) with respect to claims asserted against
CNR, any claims arising in the normal course of business between TCO's
Creditors or TCO and CNR, and (iv) Claims which are preserved pursuant to the
Customer Settlement Proposal, and the Confirmation Order will enjoin the
prosecution by any entity, whether directly, derivatively or otherwise, of any
claim, debt, right, cause of action or liability which was or could have been
asserted against the Releasees, except as otherwise provided herein.
VII-75
<PAGE> 845
VIII. RISK FACTORS RELATING TO PLAN IMPLEMENTATION AND CREDITOR
DISTRIBUTIONS
TCO's ability to implement the Plan as well as the timing and, in some
cases, ultimate amount, of Creditor distributions are subject to a number of
risk factors which could materially impact their outcome. Each Creditor
entitled to vote on the Plan should carefully consider the risk factors
enumerated or referred to below, as well as all the information contained in
this Disclosure Statement, including the exhibits hereto, in determining
whether to accept or reject this Plan.
A. CONDITIONS TO CONFIRMATION REQUIREMENTS
The Plan provides that the Bankruptcy Court shall not issue the
Confirmation Order unless and until certain conditions precedent have been
satisfied or waived (if waivable) at TCO's option with the prior consent of
Columbia, or as otherwise indicated below.
1. SATISFACTION OF CONFIRMATION REQUIREMENTS OF SECTION
1129/CRAM-DOWN
Since TCO's Plan presumes effective settlement agreements with the
overwhelming majority in amount of its Creditors including Producers, Customers
and Columbia, TCO believes it will be accepted by all classes of Claims and
Interests. In the event, however, that any of Classes 3.2, 3.3 or 3.4 reject
their treatment under the Plan, so long as one impaired Creditor class has
accepted the Plan, TCO reserves the right to seek confirmation pursuant to the
"cram-down" provisions of 11 U.S.C. Section 1129(b). A contested confirmation
process under the cram-down
VIII-1
<PAGE> 846
procedures could lead to significant and protracted litigation over many legal
issues, the outcome of which is difficult to predict, but which could in any
event delay confirmation past the point at which settlement agreements with the
Initial Accepting Producers and certain Customers remain in place, and past the
point where the financial assumptions underlying the Plan remain current and
viable.
There are many other statutory conditions to confirmation set forth in
Chapter 11 of the Bankruptcy Code, including section 1129(a) (requirements for
confirmation), section 1125 (post-petition disclosure and solicitation),
section 1122 (classification of Claims and Interests) and section 1123
(contents of Plan) which must be complied with in order for the Plan to be
confirmed. TCO believes it will meet the requirements of those sections as of
the Confirmation Date. See Section X of this Disclosure Statement for further
discussion of certain confirmation requirements.
2. CONFIRMATION OF THE COLUMBIA PLAN
The Plan is premised upon Columbia's implementation of the Columbia
Omnibus Settlement, whereby Columbia has agreed, conditioned on consummation of
the Plan without any modification that is not consented to by Columbia, to
facilitate the prompt emergence of TCO from its Chapter 11 proceedings by,
among other things, accepting TCO debt securities and retaining the equity of
TCO in satisfaction of the Columbia Secured Claim, monetizing the distributions
payable to TCO's Creditors under the Plan, and
VIII-2
<PAGE> 847
guaranteeing the payment levels provided under the Plan to TCO's Creditors.
Thus, the confirmation and consummation of a plan of reorganization for
Columbia which permits the implementation of the Columbia Omnibus Settlement,
and provides a means for Columbia to satisfy its own debts and finance its
obligations under its plan is a condition precedent to consummation of TCO's
Plan.
While Columbia believes its plan will be confirmed and consummated in
a timely manner, the Columbia Plan must be accepted by at least one impaired
Class of Creditors and confirmed by the Bankruptcy Court before it can become
effective. There is, thus, the possibility that the Plan may be delayed by the
progress of confirmation of a plan of reorganization for Columbia. Any delay
could have a negative impact on the timing of implementation of TCO's Plan and
TCO's ability to make the distributions to Creditors provided therein.
Failure to confirm and consummate a plan of reorganization for
Columbia which permits the implementation of the Columbia Omnibus Settlement on
or before the proposed Effective Date of the Plan could have a significant
adverse impact on distributions to TCO's Creditors, since
(i) the Initial Accepting Producer Settlement Agreement and
the Customer Settlement Proposal which form the foundation of the TCO Plan will
not remain binding on the parties indefinitely and dissolutions of those
settlements could
VIII-3
<PAGE> 848
adversely impact the level of Claims and the amounts available to satisfy
Creditors, and
(ii) significant funding and other financial concessions from
Columbia are necessary to ensure full implementation of the TCO Plan.
3. SEC APPROVAL
As described in more detail in Section VI.A, "The Columbia System:
Public Utility Holding Company Act Regulation, System Financing, Columbia's
Claim Against TCO and the Intercompany Claims," Columbia is a regulated public
utility holding company under the HCA. All financing of Columbia is regulated
under the HCA and must be approved by the SEC. Thus, since Columbia's plan of
reorganization will involve a substantial restructuring of its current debt and
equity financing, as well as the restructuring of intercompany debt with TCO,
such plan will require SEC approval, through a process of public disclosure
which will take time to implement. Although TCO is not directly regulated
under the HCA, because of the relationship between the TCO and Columbia plans
primarily because of the Columbia Omnibus Settlement, certain aspects of the
Plan will also require SEC approval.
Additionally, the Columbia plan of reorganization, confirmation of
which is a condition of the Plan, requires SEC approval. See Section VI.B,
"Regulation by the SEC under the HCA of the Columbia System; HCA Regulation of
Chapter 11 Plans." It is possible, though unlikely in the Debtors' view, that
the
VIII-4
<PAGE> 849
SEC will find the financing obligations undertaken by Columbia in its plan of
reorganization to be unacceptable, or will object on other grounds to some
aspect of the Columbia or TCO plans of reorganization, which objection may
delay or even prevent implementation of the Columbia Omnibus Settlement, the
Columbia Plan and TCO's Plan. Thus, the condition of entry of an SEC order may
be waived but only if made an unwaivable condition to the Effective Date. TCO
believes, but cannot assure, that such approvals can be obtained in a timely
manner.
4. NO MATERIAL ADVERSE CHANGES TO PLAN ASSUMPTIONS OR
BUSINESS
The Columbia Omnibus Settlement and Columbia's agreement contained
therein to "monetize" TCO's value for Creditors is based, in part, upon an
assumption by Columbia and TCO of the reasonable business risks reflected in
TCO's current business plan. The major assumptions underlying TCO's business
plan are more fully set forth in Section XI of this Disclosure Statement. Any
material adverse change to TCO's business operations or financial condition
between the Plan Mailing Date and the Confirmation Date could materially impact
TCO's ability to achieve the results forecasted in its business plan and, thus,
significantly affect Columbia's ability to perform its obligations under the
Columbia Omnibus Settlement, and under its own reorganization plan, potentially
to the point of rendering Columbia's participation in the Plan unfeasible.
VIII-5
<PAGE> 850
5. NO ENVIRONMENTAL LIABILITY CLAIMS
TCO is subject to extensive federal, state and local laws and
regulations relating to environmental matters. Since the Plan and the Columbia
Omnibus Settlement contemplate assumption by Reorganized TCO of environmental
compliance and remediation obligations to state and Federal environmental
enforcement and regulatory agencies (with the exception of certain
non-consensual pre-petition penalty Claims which might be asserted), the Plan
is conditioned on the continuance of (i) the current status whereby
governmental agencies do not file environmental Claims in TCO's Reorganization
Case, and (ii) TCO's program for resolution of environmental issues, previously
approved by the Bankruptcy Court, as reflected in the current settlement
agreement with the EPA and with other environmental agencies. See Section
V.E.7, "Environmental Issues." Should the status change materially, and TCO's
program for resolving such liabilities outside of the bankruptcy process fail,
resulting in the filing of significant unanticipated Claims in TCO's
Reorganization Case by environmental authorities, TCO may not be able to
implement the Plan, or there may be substantial delay in the implementation.
6. IRS RULING ON DEDUCTIBILITY OF PRODUCER PAYMENTS
As described more fully in Section IX.A.3, "Tax Ruling," TCO or
Columbia, or both, will apply to the IRS for a tax ruling to the effect that
payments made by TCO under the Plan that are attributable to the breach,
termination or rejection of gas
VIII-6
<PAGE> 851
purchase contracts are currently deductible for Federal income tax purposes in
the year paid. Because of the magnitude of the payments under the Plan in
respect of Contract Rejection Claims, failure to obtain a favorable ruling from
the IRS on this issue could undermine the financial foundations for the Plans,
and might result in a determination by Columbia not to proceed with the Plan.
TCO has agreed that if such ruling has not been received by December
15, 1995, the Initial Accepting Producer Settlement Agreement will terminate on
December 31, 1995 unless, prior to December 31, 1995, either (a) TCO and
Columbia waive the receipt of such ruling as a condition to Confirmation and/or
the Effective Date, as appropriate or (b) the Initial Accepting Producers
agree, in writing, to an extension of the time within which the condition must
be satisfied. While TCO believes the ruling should be obtainable in a timely
manner, failure to do so could derail or delay the Plan process.
7. APPROVALS OF THE CUSTOMER SETTLEMENT PROPOSAL
As described in detail in Section IV of this Disclosure Statement, the
Plan incorporates the terms of the Customer Settlement Proposal. The Customer
Settlement Proposal will be implemented by TCO only if Class 3.2 votes in favor
of the Plan. If Class 3.2 rejects the Plan, TCO, Columbia and the Customers
are not bound by the terms of the Customer Settlement Proposal. Nevertheless,
if TCO and Columbia so elect, TCO believes the Plan may be confirmed, despite
the rejection by Class 3.2,
VIII-7
<PAGE> 852
through a cramdown under section 1129(b) of the Bankruptcy Code and that any
applicable provisions of Section 1129(a)(6) can be complied with. However,
cramdown of Customer Claims raises complicated issues the outcome of which is
uncertain.
If Class 3.2 were to vote to reject the Plan, the aggregate Allowed
amounts of the Customer Regulatory Claims may be significantly greater than the
amounts resulting from the Customer Settlement Proposal as implemented in the
Plan, and TCO's financial projections may be materially adversely affected by
the failure to resolve Order No. 636 recovery rights. In addition, Dissenting
Class 3.2 Claimants would have to litigate the level and priority of
substantially all of their Refund Disputes. Depending upon the outcome of such
litigation, which would involve both FERC and Bankruptcy issues, the ultimate
payout on their Claims might be greater than or less than the amounts to be
paid if Class 3.2 accepts the Plan, but would in any event be subject to
substantial uncertainty and delays in payment.
It is a condition to Confirmation, which may be made a condition to
the Effective Date, that the Bankruptcy Court shall have entered an order
approving the settlement of Refund Disputes with Accepting Class 3.2 Claimants,
the 1990 Rate Case Settlement (as amended by the Customer Settlement Proposal)
and approving those aspects of the Customer Settlement Proposal subject to its
jurisdiction, and TCO's implementation thereof. It is a further condition that
FERC shall have entered a Final
VIII-8
<PAGE> 853
FERC Order approving the Customer Settlement Proposal. If such approval is not
obtained, the Customer Settlement Proposal may never become effective.
On April 17, 1995, TCO filed the Customer Settlement Proposal with the
FERC. The deadline set by the FERC for protests to the Customer Settlement
Proposal has passed without any objection or protest having been made by any
Customer or other interested party. Thus, TCO believes it will obtain a Final
FERC Order approving the Customer Settlement Proposal in a timely manner, but
cannot assure that FERC's decision will be issued within a certain time period.
In addition, the effectiveness of the Customer Settlement Proposal is
conditioned upon it being approved by FERC without modification or with
modifications acceptable to all of the Sponsoring Parties (as defined in the
Customer Settlement Proposal). If not approved by FERC or if amended with
modifications unacceptable to any such parties or to TCO, the failure to obtain
FERC approval could have the same adverse impact as a failure to obtain
Bankruptcy Court approval of the Customer Settlement Proposal.
8. APPROVAL OF INITIAL ACCEPTING PRODUCER SETTLEMENT
AGREEMENT
It is a condition to Confirmation and to effectiveness of the Plan
that the Initial Accepting Producer Settlement Agreement has been approved by
the Bankruptcy Court not later than October 31, 1995, and not terminated in
accordance with its terms. This condition can be waived by TCO only with the
VIII-9
<PAGE> 854
consent of the Initial Accepting Producers. As described in detail in Section
I.B.5.a, the Producer Settlement Motion was Filed and will be heard by the
Bankruptcy Court prior to the hearing on the adequacy of this Disclosure
Statement. Should the Court disapprove the Initial Accepting Producer
Settlement Agreement, or the proposed Allowance amounts for any of the Initial
Accepting Producers, the Initial Accepting Producer Settlement Agreement shall
be null and void.
Any material breach of the Initial Accepting Producer Settlement
Agreement by TCO, Columbia, or, at the option of TCO and Columbia only, any
Initial Accepting Producer, will permit any non-breaching party, at its option,
to terminate the Agreement. In addition, the dismissal of TCO's Chapter 11
Case or the conversion of that Case to Chapter 7 will permit termination of the
Agreement. Breach of the Agreement by any Initial Accepting Producer will not
release the other Initial Accepting Producers.
The Initial Accepting Producer Settlement Agreement is a fundamental
building block to the Plan. If the Initial Accepting Producer Settlement
Agreement is not approved, or is breached or terminated, it is unlikely that
the Plan can be confirmed in its present form.
9. PROHIBITION OF CERTAIN REVISIONS
It is a condition to confirmation and consummation of the Plan that it
shall not be amended, modified, supplemented or revised without the prior
consent of Columbia, and without the
VIII-10
<PAGE> 855
prior consent of the Creditors' Committee if such revisions would change the
Settlement Values proposed for the Initial Accepting Producers, change the
amount, timing or composition of distributions to Classes 3.1, 3.3 or 3.4,
change the conditions to Confirmation or the Effective Date, or otherwise
materially affect the treatment of Unsecured Creditors under the Plan and
without the prior consent of the Customers' Committee, if such revisions would
change the amount, timing or composition of distributions to Class 3.2, change
the conditions to Confirmation or the Effective Date or otherwise materially
affect the treatment of Accepting Class 3.2 Claimants under the Plan. TCO and
Columbia do not anticipate making any such revisions.
10. ACCEPTANCE OF SETTLEMENT VALUES BY PRODUCERS
It is a further Plan condition that Producers holding at least ninety
(90%) percent of the aggregate Original Settlement Values proposed by TCO for
the Claims of Producers, including all Initial Accepting Producers, accept
their Settlement Values. If this level of acceptance is not obtained, then TCO
and Columbia may choose not to proceed with Confirmation of the Plan. Because
TCO and Columbia have agreed to assume a certain amount of risk regarding the
litigation over Allowed amounts of the General Unsecured Claims of Rejecting
Producers, Columbia and TCO may or may not choose to accept additional risk if
this condition to confirmation is not met and may choose to modify the Plan or
to withdraw the Plan. Until voting on the Plan has
VIII-11
<PAGE> 856
been completed, there can be no assurance that Producers holding at least
ninety (90%) percent of the aggregate Original Settlement Values proposed by
TCO for the Claims of Producers have accepted such Settlement Values.
B. CONDITIONS TO EFFECTIVE DATE
The Plan will not be consummated and the Effective Date will not occur
unless and until each of the following conditions precedent has been satisfied
or waived (if waivable) at TCO's and Columbia's option, except as otherwise
indicated.
1. COLUMBIA'S PLAN OF REORGANIZATION SHALL BE EFFECTIVE
Since the TCO Plan is premised on approval of a plan of reorganization
for Columbia pursuant to which Columbia will be authorized to and will become
able to fund the Columbia Omnibus Settlement, the order confirming Columbia's
Plan must not have been vacated, reversed or stayed, and Columbia's Plan must
have become effective on terms consistent with the Plan.
2. NO STAY OF TCO'S CONFIRMATION ORDER
The order confirming TCO's Plan shall not have been vacated, reversed
or stayed.
3. NO MATERIAL ADVERSE CHANGES TO TCO'S OR COLUMBIA'S
BUSINESS
There shall have been no material adverse changes to TCO's or
Columbia's business, properties, financial condition, results of operations or
business prospects between the Confirmation Date and the Effective Date.
VIII-12
<PAGE> 857
4. EFFECTIVE DATE
A condition to the Effective Date of the Plan is that the Effective
Date shall have occurred on or before June 28, 1996. It is a condition to the
Initial Accepting Producers' Settlement that distributions under the Plan shall
have occurred not later than June 28, 1996. In addition, Supporting Parties
may not be bound to the Customer Settlement Proposal if the Plan does not
become effective by June 28, 1996. The Effective Date may not occur by June
28, 1996 for a variety of substantive and scheduling reasons, including the
dates set by the Bankruptcy Court for hearings which are essential to the
Confirmation process, and the timing of regulatory approvals from the FERC and
the SEC, and the timing of the IRS revenue ruling.
However, TCO believes that there is ample time to meet the deadlines
set by the Plan, and that neither the Bankruptcy Court schedule nor the
regulatory rulings will derail the Confirmation process. Should such deadline
be missed, the settlements which underlie this Plan may become void, and there
is no assurance as to when or in what form a subsequent Plan can be filed and
confirmed.
5. INTERCOMPANY CLAIMS LITIGATION
The Bankruptcy Court must have approved the settlement of the
Intercompany Claims Litigation and the Stipulation of Dismissal of Prejudice
must have been Filed with and, if necessary, approved by the District Court as
of the Effective Date. Settlement of the Intercompany Claims Litigation
VIII-13
<PAGE> 858
constitutes another fundamental building block of the Plan, and is critical to
the Columbia Omnibus Settlement. Absent this condition being met, it is
possible that neither the Columbia Plan nor the TCO Plan could become
effective.
C. LIQUIDATION OF GENERAL UNSECURED CLAIMS; CLAIMS ALLOWANCE
PROCESS GENERALLY
Another material factor affecting the amount and timing of
distributions to Unsecured Creditors is the process of liquidation and
Allowance of Disputed Producer and Customer Claims. Producer and Customer
Claims, as presently filed with the claims agent and the Bankruptcy Court, are
far in excess of the liabilities reflected in the Payout Analysis annexed
hereto as Exhibit 2.
There is risk that some or all categories of Disputed Claims will be
resolved and Allowed in amounts in excess of those amounts currently projected
by TCO. Under the Plan, Columbia and TCO agree to ensure payment to dissenting
Creditors of the amounts provided for under the Plan, thus, assuming both Plans
become Effective, Creditors will in all likelihood receive the distributions to
which they are entitled. However, for those Claims that remain Disputed on the
Effective Date, litigation to resolve such Disputed Claims could be protracted
and could result in a lengthy delay in the distributions to such Creditors.
As to Producer Creditors, there is a Holdback Amount from their
distributions if less than one-hundred percent of Producers accept their
Original Settlement Values. That Holdback is dedicated to the partial
satisfaction, together with
VIII-14
<PAGE> 859
contributions from Columbia and TCO, of the amounts payable to Rejecting
Producers if the minimum payout amount on their Allowed Claims exceeds the
proposed payout on the Original Settlement Values. Depending on the ultimate
level of such excess allowances, some or all of the Holdback Amount may be
utilized.
In addition, if Rejecting Producers' Claims and the Claims of Disputed
Class 3.4 Claimants exceed the projected levels, they may, at TCO and
Columbia's option, receive a portion of their distributions in non-cash
securities of an equivalent fair market value to the amount owed.
The Plan assumes the finality of the order of the Third Circuit Court
of Appeals dated March 10, 1995, regarding the Enterprise Energy Settlement
Agreement which held that the Settlement Agreement was not an executory
contract, but was an enforceable pre-petition unsecured claim against TCO, the
terms of which were binding on parties to the settlement. In the event that a
petition for certiorari is filed and granted, and the decision of the Third
Circuit reversed, or if the Enterprise Energy litigants were to seek and obtain
other relief with respect to the enforceability of the Settlement Agreement,
there could be a significant increase in the Allowed amounts of Enterprise
Energy Claims in addition to delay associated with the potential litigation
regarding the issues previously settled, which could adversely impact the final
distribution date and amount.
VIII-15
<PAGE> 860
D. PROJECTIONS
The financial projections included in this Disclosure Statement are
dependent upon the successful implementation of TCO's business plan and the
reliability of the other assumptions contained therein. See Section XI.B,
"Financial Projections, Pro Forma Financial Statements and Liquidation
Analysis; Recapitalization Post Emergence/Feasibility". Those projections
reflect numerous assumptions, including confirmation and consummation of the
TCO Plan in accordance with its terms, the anticipated future performance of
TCO, industry performance, general business and economic conditions and other
matters, most of which are beyond the control of TCO and some of which may well
not materialize. In addition, unanticipated events and circumstances occurring
subsequent to the preparation of the projections may affect the actual
financial results of TCO. Therefore, the actual results achieved throughout
the periods covered by the projections will vary from the projected results.
These variations may be material.
E. LIABILITIES ASSUMED
TCO will assume certain liabilities pursuant to its Plan, including
obligations, if any, to indemnify its officers, directors, employees and
agents, environmental, pension and miscellaneous other obligations. TCO
believes that it will not suffer material exposure to adverse fluctuations in
its assumptions as to those liabilities, and that the costs thereunder will not
jeopardize the feasibility of its reorganization.
VIII-16
<PAGE> 861
IX. TAX ASPECTS OF THE PLAN
A. TAX CONSEQUENCES OF THE PLAN
The following discussion is a summary of certain significant Federal
income tax consequences of the Plan to TCO and the TCO Creditors and is based
upon laws, regulations, rulings and court decisions now in effect, all of which
are subject to change, possibly with retroactive effect. The Federal income
tax consequences to a Creditor may vary based on the particular circumstances
of such Creditor. This summary does not address aspects of Federal income
taxation applicable to Creditors subject to special treatment for Federal
income tax purposes, including, but not limited to, financial institutions, tax
exempt entities, insurance companies and foreign persons. Moreover, the Federal
income tax consequences of certain aspects of the Plan are uncertain due to a
lack of definitive legal authority. Other than as specifically described
below, no rulings have been obtained or will be requested from the IRS with
respect to Federal income tax aspects of the Plan and no opinion of counsel has
been obtained by TCO with respect thereto. EACH CREDITOR IS STRONGLY URGED TO
CONSULT ITS OWN TAX ADVISOR REGARDING THE FEDERAL, STATE AND LOCAL INCOME AND
OTHER TAX CONSEQUENCES TO IT OF THE PLAN.
1. TAX CONSEQUENCES TO TCO
A. GENERAL
TCO, together with Columbia and other Columbia subsidiaries
(collectively, the "Columbia Group"), files a consolidated
IX-1
<PAGE> 862
Federal income tax return under the provisions of sections 1501 and 1504 of the
Internal Revenue Code of 1986, as amended (the "IRC"). U.S. Treasury
Regulations provide that Columbia, as parent of the consolidated group, is the
group's agent for purposes of filing the group's Federal income tax returns,
paying the tax due, and in general for dealing with the IRS. In addition, U.S.
Treasury Regulations provide that every corporation that is or has been a
member of the Columbia Group is severally liable for any tax incurred by the
Columbia Group for the period that such member joined in the filing of the
consolidated return.
B. DISCHARGE OF INDEBTEDNESS
Under the IRC a taxpayer generally must include in gross income the
amount of any cancellation of indebtedness ("COD") income that is realized
during the taxable year. COD income is the difference between the amount of
the taxpayer's indebtedness that is canceled and the amount and/or value of the
consideration exchanged therefor. However, section 108 of the IRC provides
that a debtor in a case under title 11 of the Bankruptcy Code is not required
to recognize COD income (the "Bankruptcy Exception") but must instead reduce
certain of its "tax attributes" by the amount of unrecognized COD income. Tax
attributes include net operating and capital losses, certain tax credits
(including minimum tax credits), and the tax basis of a debtor's property (to
the extent that the aggregate tax basis of
IX-2
<PAGE> 863
the debtor's property exceeds the aggregate amount of the debtor's liabilities
immediately after the discharge), and must be reduced in a prescribed order.
Alternatively, a debtor may make an election (a "Section 1017 Election") to
first reduce the tax basis of any depreciable property (without regard to the
limitation for outstanding liabilities), with the balance of any unrecognized
COD income applied against its other attributes. In addition, section 108
provides that cancellation of indebtedness does not result in COD income to the
extent that the payment of the indebtedness otherwise would have given rise to
a deduction (the "deductible expense exception").
It is expected that payments made under the Plan (including payments
with respect to Contract Rejection Claims) to holders of Allowed Class 3 Claims
(other than the Columbia Unsecured Claim) will be treated as ordinary and
necessary expenses deductible under section 162 of the IRC. Therefore, TCO
will not realize COD income with respect to an Allowed Class 3 Claim for which
TCO has not previously accrued a deduction (or has accrued a deduction which is
less than the amount paid in satisfaction of such Claim), since payment of the
Allowed amount of such Claim would have been deductible to TCO and the
deductible expense exception therefore will apply. COD income may arise,
however, to the extent that the amount of a deduction previously accrued by TCO
with respect to an Allowed Class 3 Claim exceeds the amount paid in
satisfaction of such Claim, or with respect to Allowed Class 3 Claims which do
not constitute
IX-3
<PAGE> 864
otherwise deductible expenses. To the extent that TCO realizes COD income, it
is presently intended that a Section 1017 Election will be made to first reduce
the tax basis of TCO's depreciable property by the amount of the COD income
(unless the normal attribute reduction rules would produce a more favorable
result).
C. DEDUCTION FOR PAYMENTS
TCO intends to deduct certain payments made under the Plan with
respect to Allowed Class 3 Claims, including payments allocable to Claims for
the breach, termination or rejection of gas purchase contracts. See Section
IX. A.3, "Tax Consequences of the Plan; Tax Ruling." The amount of the
deduction expected to be claimed by TCO with respect to Allowed Class 3 Claims
is likely to give rise to a net operating loss carryback which would generate a
refund of previously paid Columbia Group Federal income taxes, or otherwise
produce a carryforward to subsequent years.
Under U.S. Treasury Regulations which relate to consolidated groups,
a parent corporation is required to reduce its tax basis in a subsidiary
corporation for, among other things, losses or deductions of the subsidiary
that are used to offset taxable income of other members of the consolidated
group. To the extent that these negative adjustments reduce the parent
corporation's tax basis in its subsidiary below zero, the adjustments create a
so-called "excess loss account" which must be recognized as taxable income upon
the occurrence of certain
IX-4
<PAGE> 865
enumerated events, including the realization by the subsidiary of COD income
which neither is included in gross income nor reduces tax attributes, and the
claiming of a bad debt deduction by a member which is not matched in the same
year by the inclusion of a corresponding amount in the income of the
debtor-subsidiary. Columbia intends to take appropriate actions, by capital
contributions or otherwise, necessary to ensure that no income will result to
the Columbia Group attributable to an excess loss account in TCO.
2. TAX CONSEQUENCES TO THE TCO CREDITORS OTHER
THAN COLUMBIA
The following discussion assumes that all distributions under the
Plan made on account of Allowed Claims are made to original holders of such
Claims that do not hold such Claims as capital assets. It does not address the
tax consequences to purchasers of Claims or Creditors otherwise holding Claims
as capital assets. It also does not address the tax consequences of the
distribution to the current members of the Customers' Committee pursuant to
Section III.B.3.c. of the Plan.
A Creditor that has not previously included in income amounts with
respect to its Claim and that surrenders such Claim pursuant to the Plan will
be required to recognize income in an amount equal to the amount such Creditor
receives under the Plan less any tax basis such Creditor has in its Claim. The
amount received under the Plan will include the amount of cash and the fair
market value of any other property received, any credits to rate mechanisms,
and any amounts treated as set-offs against
IX-5
<PAGE> 866
claims made by TCO with respect to such Creditor. Creditors that are cash
basis taxpayers will be required to include such amounts in income for the
taxable year in which such distributions are received (or such credits or
set-offs applied). Creditors that are accrual basis taxpayers will be required
to recognize income when, and to the extent that, the amount of any
distribution that they will receive with respect to their Allowed Claims is
finally determined. A Creditor that has previously included in income all
amounts with respect to its Claim will not recognize any income upon the
receipt of payments made pursuant to the Plan, and may recognize a loss to the
extent that the total amount received is less than the amount previously
included in income. It is likely that any such loss may not be recognized
until the time that the total amount of the Allowed Claim that will be received
by such Creditor has been finally determined, which may not occur until all
distributions to Creditors have been made.
The Plan provides for interest payments to certain Creditors,
including the Supplemental Interest Payments, if any, made to Creditors in
Classes 3.3, 3.4 and 3.5. Any such interest will be ordinary income to them
whether or not they otherwise have a loss with respect to their Allowed Claim.
3. TAX RULING
Columbia, on behalf of the Columbia Group, will apply to the IRS for
a tax ruling that payments made by TCO which are attributable to the breach,
termination or rejection of gas
IX-6
<PAGE> 867
purchase contracts are currently deductible. There can be no assurance that
the IRS will agree to rule on this issue, or if it does rule, that it will rule
favorably. Obtaining a favorable ruling from the IRS is a condition to the
effectiveness of the TCO Plan. See Section VIII.A.6, "Risk Factors Relating to
Plan Implementation and Creditor Distributions; IRS Ruling on Deductibility of
Producer Payments."
4. IMPORTANCE OF OBTAINING PROFESSIONAL TAX
ASSISTANCE
The foregoing is intended to be a summary only and not a substitute
for careful tax planning with a tax professional. The Federal, state and local
income and other tax consequences of the Plan are complex and, in some cases,
uncertain. Such consequences may also vary based on the particular
circumstances of each Creditor. Accordingly, each Creditor is strongly urged
to consult with its own tax advisor regarding the Federal, state and local
income and other tax consequences to it of the Plan.
B. ASSUMPTION OF TAX ALLOCATION AGREEMENT
As discussed in Section IX.A.1, "Tax Consequences of the Plan; Tax
Consequences to TCO," supra, TCO, Columbia and the other members of the
Columbia Group file a consolidated Federal income tax return under sections
1501 and 1504 of the IRC and, accordingly, each member of the Columbia Group is
severally liable for any tax payable with the consolidated return. In order to
provide a method for allocating the benefits and
IX-7
<PAGE> 868
liabilities resulting from the filing of a consolidated return, the Columbia
Group has entered into the Tax Allocation Agreement (the "TAA"). The TAA
allocates the Columbia Group's aggregate Federal income tax liability to each
member of the group based on such member's tax liability calculated on a
separate return basis. Members of the group having tax losses are paid by
members with taxable income for the use of such losses. TCO believes that this
method of allocating the Columbia Group's consolidated Federal income tax
liability among the members of the group is equitable, well established within
the Columbia Group, and similar to the method used by other consolidated
companies.
Furthermore, pursuant to Rule 45(c) promulgated by the SEC under the
HCA, a registered holding company which files a consolidated Federal income tax
return is required to secure the approval of the SEC for the allocation of the
liabilities and benefits of such return among the companies included therein
unless there is in effect a tax agreement approved by the SEC providing for the
allocation of the liabilities and benefits of such consolidated return. The
TAA provides for the allocation of the benefits and liabilities of the
consolidated return in a manner consistent with the requirements of Rule 45(c),
and has been approved by the SEC.
The assumption by TCO (and Columbia) of the TAA (assuming such
assumption is approved by the Bankruptcy Court) will affect the allocation of
the liability for the Allowed portion of the
IX-8
<PAGE> 869
IRS Claim. Under the Plan, TCO will be required to bear (as a direct
obligation) its allocable share of the income tax deficiency resulting from the
IRS Claim. By assuming the TAA, it is intended that TCO's allocable share of
such IRS liability will be determined under the TAA. In addition, TCO will be
required to pay, as an Assumed Executory Contract Claim, the portion of the
post-petition interest which is assessed against the Columbia Group and is
attributable to TCO's allocable share of the Allowed portion of the IRS Claim.
It will also be required to pay to Columbia and other members of the Columbia
Group, as an Assumed Executory Contract Claim, the amount of refunds (plus
interest thereon) which other members of the Columbia Group would be entitled
to receive but which were used to offset TCO's allocable share of the IRS tax
liability. If the Bankruptcy Court does not approve the assumption of the TAA
as an executory contract claim, it is intended that the amounts described in
this paragraph will nevertheless be paid by TCO as Affiliate Tax Claims.
On the other hand, the application of the TAA will enable TCO and
TCO's Creditors to benefit from the substantial anticipated tax deduction for
payments to Creditors under the Plan, particularly with respect to the Producer
Contract Rejection Claims. This tax deduction is expected to produce a
substantial reduction in tax and/or a tax refund to the Columbia Group and,
under the TAA, the amount of the refund (or an equivalent amount of
reimbursement from other members of the
IX-9
<PAGE> 870
Columbia Group) will be paid to TCO. The amount of this anticipated tax
reduction/refund has been taken into account by Columbia in valuing the TCO
business for purposes of determining the level of distributions that Columbia
was willing to guarantee under the Plan, and thereby has increased the amount
of distributions that will be made to TCO's Creditors. In addition, certain of
the IRS adjustments giving rise to the Allowed portion of the IRS Claim result
in offsetting favorable adjustments in future years and, as a result of the
TAA, the benefit of these favorable adjustments has similarly been taken into
account invaluing the TCO business. Accordingly, both TCO and its Creditors
will derive significant benefits by the assumption (or enforcement) of the TAA.
IX-10
<PAGE> 871
X. VOTING PROCEDURES AND CONFIRMATION REQUIREMENTS
A. CONFIRMATION HEARING
The Bankruptcy Code requires the Bankruptcy Court, after notice, to
hold a hearing on whether the Plan and its proponents have fulfilled the
Confirmation requirements of section 1129 of the Bankruptcy Code. The
Confirmation hearing has been scheduled for _______________ at _____ a.m.
before the Honorable Helen S. Balick, United States Bankruptcy Court, 824
Market Street, 6th Floor, Wilmington, Delaware 19801. The Confirmation hearing
may be adjourned from time to time by the Bankruptcy Court without further
notice, except for an announcement of the adjourned date made at the
Confirmation hearing. Any objection to Confirmation of the Plan must be made
in writing and must specify in detail the name and address of the objector, all
grounds for the objection, and the amount and proposed treatment of the Claim
held by the objector. Any such objections must be Filed and served upon the
persons designated in the notice of the Confirmation hearing, including TCO.
B. CONFIRMATION REQUIREMENTS
In order to confirm the Plan, the Bankruptcy Code requires that the
Bankruptcy Court make a series of findings concerning the Plan and TCO's
compliance with the requirements of Chapter 11 including in relevant part that
(i) the Plan complies with the applicable provisions of the Bankruptcy Code;
(ii) the proponents of the Plan have complied with the relevant provisions of
the Bankruptcy Code; (iii) the proponents of the
X-1
<PAGE> 872
Plan have proposed the Plan in good faith and not by any means forbidden by
law; (iv) any payments made or to be made for services or for costs and
expenses in connection with the case or the Plan have been approved by or are
subject to the approval of the Bankruptcy Court as reasonable; (v) the
proponent of the Plan has disclosed (a) the identity and affiliations of any
individual proposed to serve, after Confirmation, as a director or officer of
the debtor (and the appointment or continuance in such office of such
individual is consistent with the interests of creditors and equity security
holders and with public policy) and (b) the identity of any insider that will
be employed or retained by the reorganized debtor and the nature of any
compensation for such insider; (vi) any governmental regulatory commission with
jurisdiction, after confirmation of the Plan, over TCO's rates has approved any
rate change provided for in the Plan, or such rate change is expressly
conditioned on such approval; (vii) the Plan is in the "best interests" of all
of the holders of Claims or Interests in an impaired Class by providing to the
holders of Claims or Interests on account of such Claims or Interests, property
of a value, as of the Effective Date, that is not less than the amount that
such holder would receive or retain in a Chapter 7 liquidation, unless each
holder of a Claim or Interest in such Class has accepted the Plan; (viii) the
Plan has been accepted by the requisite majorities of holders of Claims or
Interests in each impaired Class of Claims or Interests or, if accepted by only
X-2
<PAGE> 873
one or more of such Classes of Claims, is "fair and equitable," and does not
discriminate unfairly as to any non-accepting Class, as required by the
so-called "cramdown" provisions of section 1129(b) of the Bankruptcy Code; (ix)
the Plan is feasible and Confirmation is not likely to be followed by the
liquidation or the need for further financial reorganization of TCO; (x) all
fees and expenses payable under 28 U.S.C. Section 1930, as determined by the
Bankruptcy Court at the hearing on Confirmation of the Plan, have been paid or
the Plan provides for the payment of such fees on the Effective Date; and (xi)
the Plan provides for the continuation after the Effective Date of all retiree
benefits, as defined in section 1114 of the Bankruptcy Code, at the level
established at any time prior to Confirmation pursuant to sections
1114(e)(1)(B) or 1114(g) of the Bankruptcy Code, for the duration of the period
that TCO has obligated itself to provide such benefits.
1. ACCEPTANCE
Under the Bankruptcy Code, all impaired Classes of Claims and
Interests are entitled to vote to accept or reject the Plan. Pursuant to
section 1126 of the Bankruptcy Code, the Plan will be accepted by an impaired
Class of Claims if holders of two-thirds in dollar amount and a majority in
number of Claims of that Class vote to accept the Plan. Only the votes of
those holders of Claims who actually vote (and are entitled to vote) to accept
or to reject the Plan count in this tabulation. The Plan will be accepted by
an impaired Class of Interests if
X-3
<PAGE> 874
holders of two-thirds in dollar amount of shares in such Class vote to accept
the Plan. As with Claims, only those holders of Interests who actually return
a ballot count in this tabulation. Pursuant to section 1129(a)(8) of the
Bankruptcy Code, all of the impaired Classes of Claims or Interests must accept
the Plan in order for the Plan to be confirmed on a consensual basis (and at
least one such impaired Class of Claims must accept the Plan without including
acceptance by an insider in that determination). However, under the cramdown
provisions of section 1129(b) of the Bankruptcy Code, only one impaired Class
of Claims (determined without including the acceptance by any insider) needs to
accept the Plan if the other conditions to cramdown are met. In accordance
with the Bankruptcy Code, affiliate votes will not be counted in determining
whether a particular Class is the sole accepting impaired Class of Claims under
section 1129(a)(10), although affiliate votes will be counted in determining
whether a particular Class accepts the Plan for all other purposes.
The Plan provides for five (5) impaired Classes of Claims, all of
which are unsecured (except for Class 2.1, the Columbia Secured Claim), and
which are entitled to vote on the Plan. Class 5 Interests will not receive or
retain any property under the Plan. TCO's Creditors include Columbia and
several subsidiaries of Columbia, all of which are insiders of TCO. Columbia
is the sole member of Classes 2.1, 3.5 and 5. Thus, none of these Classes can
be counted as the accepting impaired
X-4
<PAGE> 875
Class of Claims required under section 1129 of the Bankruptcy Code. Classes
3.2, 3.3, and 3.4 include a number of Claims held by affiliates.
2. BEST INTERESTS TEST
Notwithstanding acceptance of the Plan by each impaired Class, section
1129(a)(7) of the Bankruptcy Code requires that the Bankruptcy Court determine
that the Plan is in the best interests of each holder of a Claim or Interest in
any such impaired Class that has voted against the Plan. Accordingly, if an
impaired Class under the Plan does not unanimously accept the Plan, the "best
interests" test requires that the Bankruptcy Court find that the Plan provides
to each dissenting member of such impaired Class a recovery on account of the
member's Claim or Interest that has a value, as of the Effective Date, at least
equal to the value of the distribution that each such member would receive if
TCO were then liquidated under Chapter 7 of the Bankruptcy Code.
To estimate what members of each impaired Class of Claims or Interests
would receive if TCO were liquidated as part of a Chapter 7 case, the
Bankruptcy Court must analyze the achievable values and the nature and amount
of liabilities to be satisfied if the Reorganization Case is converted to a
Chapter 7 case under the Bankruptcy Code and TCO's assets are liquidated by a
Chapter 7 trustee (the "Liquidation Value"). See Section XI.F, "Liquidation
Analysis/Best Interests Test." TCO believes that its Plan meets the "best
interests" test by providing greater
X-5
<PAGE> 876
value to impaired Classes of Creditors than they would receive in a Chapter 7
liquidation of TCO.
3. FEASIBILITY
Section 1129(a)(11) of the Bankruptcy Code requires a finding that
Confirmation of the Plan is not likely to be followed by the liquidation, or
the need for further financial reorganization, of TCO or any successor to TCO
(unless such liquidation or reorganization is proposed in its Plan, which is
not the case for TCO). For purposes of determining whether its Plan meets this
requirement, TCO has prepared financial projections. TCO's financial
projections, and the material assumptions on which they are based, are set
forth in Section XI.C, "Financial Projections." Based upon its financial
projections, TCO believes that its reorganization under the Plan will meet the
feasibility requirements of the Bankruptcy Code.
4. THE PLAN MUST COMPLY WITH THE APPLICABLE PROVISIONS
OF THE BANKRUPTCY CODE
Section 1129(a)(1) of the Bankruptcy Code requires that the Plan
comply with the applicable provisions of the Bankruptcy Code. TCO believes
that its Plan complies with all applicable provisions of the Bankruptcy Code,
including all provisions of section 1129(a) not otherwise specifically
discussed herein.
a. CLASSIFICATION
Section 1122 sets forth the requirements relating to classification of
claims. Section 1122(b) permits the designation of classes of unsecured claims
that are less than or reduced to an amount that the Court approves as
reasonable and
X-6
<PAGE> 877
necessary for administrative convenience. The Plan contains classifications of
impaired Claims which TCO believes are reasonable, appropriate and fair. TCO's
Unsecured Creditors have been classified according to the following criteria:
CLASS 3.1. CLAIMS OF $25,000 OR LESS.
This Class constitutes a convenience Class as contemplated by section
1122(b) of the Bankruptcy Code. The treatment provides for payment of one
hundred percent in cash, of all Allowed Unsecured Claims which (a) do not
exceed $25,000 (except that, in the case of holders of Customer Regulatory
Claims, and as to their Customer Regulatory Claims only, only those holders who
execute a Waiver Agreement prior to the Effective Date may participate in this
Class) or (b) do exceed $25,000 and the holders of such Claims have elected on
their ballots to voluntarily reduce the Allowed amount of their Claims to
$25,000. TCO presently estimates that approximately 7,000 Claims(1) totalling
approximately $8.0 million (net of setoffs) will be entitled to participate in
this Class on the Effective
____________________
(1) Many of the proofs of Claim filed against TCO contain multiple Claims,
entitled to treatment in different Classes under the Plan. See Section
II.A of the Plan. As provided in the Plan, multiple Claims Filed by a
single Creditor, whether or not contained in a single proof of Claim, which
are covered by a specific Class under the Plan are aggregated and treated
as one Claim for purposes of the Plan. Multiple Claims Filed by a single
Creditor, whether or not contained in a single proof of Claim, which are
covered by different Classes under the Plan are allocated to the
appropriate Class and entitled to vote and receive distributions in those
Classes. Thus, the number of Claims referred to throughout this Section
varies from the actual number of proofs of Claim Filed against TCO.
X-7
<PAGE> 878
Date. This classification avoids the administrative burden of requiring this
Class to vote, pays thousands of the smallest Creditor Claims in full, and
costs less than one quarter of 1% of the total distribution to Creditors under
the Plan.
CLASS 3.2. CUSTOMER AND GRI CLAIMS.
This Class consists of the GRI Claim and all outstanding Customer
Regulatory Claims not included in Class 3.1, which Claims are a legally
distinct, identifiable set of Claims against TCO arising from TCO's various
Refund Obligations. The proposed treatment of this Class reflects the Customer
Settlement Proposal pending approval before FERC, which embodies a proposed
settlement of numerous litigated issues the outcome of which is uncertain, and
avoids the burden, delay, costs and risks of litigation of those issues to
judgment.
TCO's Customers have asserted recoupment and Setoff theories which if
successful, would result in the payment in full of TCO's Refund Obligations,
possibly with post-petition interest, notwithstanding TCO's Reorganization
Case. In addition, Customers have aggressively litigated TCO's Claims to
transition cost recoveries under Order No. 636, which constitute a substantial
portion of TCO's value as an ongoing concern. The proposed settlement, if
approved by FERC, provides for the resolution of all Claims by and against TCO
as to Accepting 3.2 Claimants, which TCO believes will include all or nearly
all of its Customer constituency.
X-8
<PAGE> 879
As previously described in Section IV.B.3, "The Omnibus FERC Motion,"
the Third Circuit's ruling on the Omnibus FERC Motion permitted the payment of
flow-through refund monies received by TCO post-petition. However,
flow-through refunds received pre- petition were subject to a pro rata sharing
of $3.3 million held to be trust monies under the "lowest intermediate cash
balance" ruling. Other pre-petition flow-through Refund Claims not subject to
the Third Circuit's ruling remain outstanding after application of the trust
monies, as well as other Claims for non-flow-through refunds, and will be paid
80 cents on the dollar pursuant to the proposed settlement.
In addition, TCO has settled and proposes to honor through the Plan a
modified version of the treatment set forth in the settlement of its 1990 Rate
Case. The Plan proposes payment of eighty (80%) percent of the pre-petition
amount and one hundred (100%) percent of the post-petition amount due to each
Claimholder under the 1990 Rate Case Settlement with interest as provided
therein.
TCO has proposed in the Plan the settlement of those Claims of
Customers which are the subject of the BG&E Case. TCO proposes to pay $52.5
Million in full settlement of all Claims relating to the BG&E Case. The
settlement of these Claims ends a litigation which could be a substantial
distraction to TCO's management and continuing operations and, ultimately,
could result in substantially greater claims than what TCO has proposed in the
settlement of such BG&E Claims.
X-9
<PAGE> 880
Finally, the Class includes all other Customer Regulatory Claims which
are settled in accordance with the terms of the Customer Settlement Proposal.
As part of the Settlement, Accepting 3.2 Claimants are required to
accept the treatment of their Claims proposed in the Customer Settlement
Proposal and in the Plan and to waive (i) all litigation rights relating to the
BG&E Case, (ii) opposition to TCO's recovery of transition costs as set forth
in the Customer Settlement Proposal including exit fees payable for terminated
upstream pipeline contracts, (iii) all litigation rights regarding such
Customer's recoupment and Setoff rights and (iv) all litigation rights relating
to the Intercompany Claims, except for the Customer Committee's Motion to
Unseal Judicial Records.
TCO believes the proposed settlements and the proposed treatment of
the Accepting 3.2 Claimants in this Class represent a fair compromise of the
parties' positions, require Accepting 3.2 Claimants to release significant
litigation Claims against TCO and Columbia, and confer an economic benefit on
TCO's Estate that might not be available absent the proposed settlement.
Dissenting 3.2 Claimants, if any, will have the opportunity to continue the
litigation over their Refund Disputes and TCO will pay the Allowed Claims after
the resolution of such Refund Disputes the same percentage distribution as
Class 3.4 Claims, unless otherwise provided by a final Bankruptcy Court order.
In
X-10
<PAGE> 881
addition, TCO will preserve its recovery rights for transition costs as to
those entities.
CLASS 3.3 PRODUCER CLAIMS.
This Class encompasses all Claims of Producers arising out of TCO's
rejection of natural gas purchase contracts and other rejection Claims held by
Producers which are not included in Class 3.1 or Class 1.2. Class 3.3 Claims
are essentially all disputed, unliquidated Claims, which are governed by the
ongoing Claims Estimation Procedures. In order to short circuit years of
potential litigation, TCO, in consultation with the Creditors' Committee, has
formulated proposals to settle all Disputed Producer Claims, and fund a
guaranteed level of payment to those Claimants.
The treatment of this Class reflects the terms embodied in the Initial
Accepting Producer Settlement Agreement providing for the acceptance of in
excess of 80% of the proposed Original Settlement Values. In addition, the
treatment of Class 3.3 reflects TCO's agreement with the Initial Accepting
Producers and the Creditors' Committee on (a) a methodology for settlement
offers to all non-settling Producers which would allow those Claims to be
liquidated and Allowed, and (b) a proposed payout for all Producer Claims which
reflects a global compromise of disputes with TCO and Columbia over (i) the
enterprise value of the TCO estate, (ii) the value of the Intercompany Claims,
(iii) issues relating to Columbia's retention of TCO, and (iv) other disputes
arising during the case.
X-11
<PAGE> 882
A further key element of the Initial Accepting Producer Settlement
Agreement and the treatment of Class 3.3 provides that if all holders of
Producer Claims accept their Original Settlement Values, Producers will receive
72.5% of their Allowed Claims in cash on the Effective Date. Otherwise,
Producers that accept the Settlement Values proposed for their Claims,
including the Initial Accepting Producers, will receive 68.875% of their
Allowed Claims in cash on the Effective Date. Producers that do not accept the
Settlement Values proposed for their Claims will receive 68.875% of their
Claims as and when they become Allowed in cash or, to the extent their ultimate
Allowed Claims exceed TCO's proposed Settlement Values, the excess Allowed
Claim amounts may be paid in securities of Reorganized Columbia. When all
Rejecting Producers' Claims are liquidated, all Producers will receive an
additional distribution of the Holdback Amount remaining after reduction by one
half of the amount by which the Actual Target Producer Distribution exceeds
$1,185 million, unless the aggregate Allowed Claims of Rejecting Producers
exceed TCO's proposed Original Settlement Values by approximately $200 million.
See Exhibit D to the Plan. Such additional distributions could result in
aggregate distributions which slightly exceed 72.5% of the Allowed Claims of
Producers if the ultimate Allowed Rejecting Producers' Claims are less than
TCO's proposed Settlement Values for such Claims.
X-12
<PAGE> 883
CLASS 3.4 GENERAL UNSECURED CLAIMS.
Class 3.4 consists of approximately 1,000 General Unsecured Claims not
included in other classes of Unsecured Claims. Creditors in this Class will
receive payment under the Plan of 72.5% of their Allowed Claims on the
Effective Date or as and when such Claims become Allowed. Most Class 3.4
Claims are currently liquidated and Allowed; only a few are currently Disputed.
For those Claims, TCO has proposed Allowance Amounts.
This Class includes all Unsecured Claims not otherwise classified,
primarily Unsecured Claims arising from the sale of goods or the rendering of
services to TCO in the ordinary course of its business including, without
limitation, all Claims of upstream pipelines, other than a Claim arising from
exit fees paid or to be paid to upstream pipelines pursuant to any agreement
for the termination of upstream pipeline service contracts. Claims in Class
3.4, in addition to being substantially liquidated and undisputed, primarily
relate to normal course debts many of whose holders are engaged in ongoing
business relations and transactions with TCO.
CLASS 3.5 COLUMBIA UNSECURED CLAIM
Class 3.5 consists of the Columbia Unsecured Claim. Reorganized
Columbia will receive cash in amount equal to the same final distribution
percentage of the Columbia Unsecured Claim as (a) the holders of Allowed Class
3.3 Claims receive on their Allowed Claims or (b) the holders of Allowed Class
3.4 Claims receive on their Allowed Claims, whichever is lower.
X-13
<PAGE> 884
Reorganized Columbia may use all or a portion of the distribution that it will
receive on the Columbia Unsecured Claim to fund its obligations under the
Columbia Omnibus Settlement and Columbia Guaranty.
TCO believes the classifications of Unsecured Claims set forth in its
Plan appropriately classify substantially similar Claims together and do not
discriminate unfairly in the treatment of those Classes. On the contrary, the
classifications are intended to enhance administrative convenience, and to
recognize unique settlements which are beneficial to the Estate. TCO believes
its classifications permit all Creditors to receive a prompt distribution of
their fair share of the values available and treats similarly situated
Creditors in a similar manner under the Plan.
Section 1122(a) provides that claims or interests may be placed in a
particular class only if they are substantially similar to the other claims or
interests in that class. TCO believes that all Classes under its Plan satisfy
the requirements of section 1122(a).
b. OTHER PLAN PROVISIONS
Section 1123 specifies both mandatory and optional provisions that a
plan shall or may contain. In general, section 1123(a) mandates that a plan
shall designate classes of claims and interests (excluding administrative and
priority claims identified in section 507); specify any class of claims or
interests that is not impaired; specify the treatment of
X-14
<PAGE> 885
classes of claims or interests that are impaired; provide the same treatment
for each claim or interest in a particular class, unless the holder thereof
agrees to a less favorable treatment; provide adequate means for the plan's
implementation including (as provided in the Plan) the retention by the debtor
of all of the property of the estate and the satisfaction or modification of
liens; provide for the inclusion in the debtor's charter of a provision
prohibiting the issuance of non-voting equity securities; and contain only
provisions that are consistent with the interests of creditors and equity
security holders and with public policy with respect to the manner of selection
of any officer, director or trustee under the Plan. TCO believes that its Plan
complies in all respects with the relevant requirements of section 1123(a).
Section 1123(b) provides that a plan may impair or leave unimpaired
any class of claims or interests; provide for the assumption, rejection or
assignment of executory contracts or unexpired leases not previously rejected;
provide for the settlement or adjustment of any claims belonging to the debtor
or the estate; and include any other appropriate provision not inconsistent
with the applicable provisions of title 11.
TCO's Plan avails itself of many of the optional provisions of section
1123(b), and does so, in TCO's opinion, in compliance with applicable standards
of law. With respect to all executory contracts and unexpired leases not
previously assumed or rejected and which have not terminated by their own terms
or by
X-15
<PAGE> 886
operation of law post-Petition Date, the Plan specifies the proposed treatment
to be accorded to those contracts. Notably, the Plan contains many important
provisions for the settlement or adjustment of Claims of the Debtor and the
Estate, including settlements of Producer Claims, settlement of the
Intercompany Claims, and the proposed settlement with Customers of Refund
Disputes and transition cost recoveries. TCO believes that the proposed
settlements comply with the applicable standards of fairness and
reasonableness, and are both beneficial and essential to the reorganization of
TCO. Consequently, TCO believes the Plan complies with all applicable
provisions of section 1123.
5. TCO MUST COMPLY WITH THE APPLICABLE PROVISIONS OF THE
BANKRUPTCY CODE
Section 1129(a)(2) of the Bankruptcy Code requires that TCO, as the
proponent of the Plan, comply with the applicable provisions of the Bankruptcy
Code. TCO believes that, as the proponent of the Plan, it has complied with,
and will continue to comply with, the applicable provisions of the Bankruptcy
Code.
Section 1125(b) of the Bankruptcy Code requires that acceptance or
rejection of a plan may not be solicited after the commencement of the case
from a holder of a claim or interest unless the plan or a summary of the plan
and a written disclosure statement approved, after notice and hearing, by the
court as containing adequate information is transmitted to such
X-16
<PAGE> 887
holder. The Court may approve a disclosure statement without a valuation of
the debtor or an appraisal of the debtor's assets.
TCO intends to solicit acceptances of its Plan only after the
Bankruptcy Court has approved the adequacy of information in this Disclosure
Statement. On May 19, 1995, the Bankruptcy Court entered an order granting the
Debtors' motion to establish procedures for notice and hearing on the
Disclosure Statement, and set July 18, 1995 as the date for a hearing on the
adequacy of their Disclosure Statements. TCO intends to file appropriate
motions to establish further procedures relating to voting, solicitation and
confirmation of its Plan.
Section 1126 of the Bankruptcy Code and related Bankruptcy Rules
govern issues relating to voting on and acceptance or rejection of a plan.
Section 1126(a) provides that "the holder of a claim or interest allowed under
section 502 of this title may accept or reject a plan." As more fully
discussed below, many Claims Filed by Creditors against TCO are not as yet
Allowed. Rather than seek to disenfranchise those Creditors, TCO will File a
motion which will establish mechanics for allowing Disputed Claims for voting
purposes under the Plan. These mechanics include the proposal of Settlement
Values for all Producer Claims which convert Disputed Producer Claims into
Allowed Claims for voting purposes (as well as for all other purposes if the
Settlement Values are accepted by the holders of the Disputed Producer Claims
and approved by the Bankruptcy Court) and the proposal of Allowance Amounts for
all Disputed
X-17
<PAGE> 888
General Unsecured Claims which convert Disputed General Unsecured Claims into
Allowed Claims for voting purposes (as well as for all other purposes if the
Allowance Amounts are accepted by the holders of the Disputed General Unsecured
Claims and approved by the Bankruptcy Court). Additionally, TCO intends to use
the amounts set forth in the schedules attached to the Customer Settlement
Proposal and Schedule IV hereto as the Allowed Claims for voting purposes for
the holders of Customer Regulatory Claims as to their Regulatory Claims only.
Consequently, TCO believes sections 1125 and 1126 are or will be
complied with in connection with this Plan.
6. ANY GOVERNMENTAL REGULATORY COMMISSION HAVING
JURISDICTION OVER TCO'S RATES MUST HAVE APPROVED ANY
RATE CHANGE
Section 1129(a)(6) of the Bankruptcy Code requires that any rate
change provided in the Plan be approved by any governmental regulatory
commission with jurisdiction, after Confirmation of the Plan, over TCO's rates
or such rate change must be expressly conditioned on such approval. FERC has
approved TCO's Order No. 636 restructuring plan, which changes the methodology
for calculating TCO's rates to the SFV methodology. See Section IV.A. "TCO's
Implementation of Order No. 636 Restructuring." To the extent the Customer
Settlement Proposal contemplates various rate changes, FERC approval of the
Customer Settlement Proposal will constitute approval of the requested rate
changes, or provides that such changes will occur only after such approval is
obtained. TCO also reserves the right to seek
X-18
<PAGE> 889
future rate changes in the normal course of its business from the FERC,
consistent with the applicable provisions of the Customer Settlement Proposal.
7. ALTERNATIVES TO THE PLAN
a. CRAMDOWN REQUIREMENTS
The Bankruptcy Code provides a mechanism for obtaining Confirmation of
a plan even if it is not accepted by all impaired Classes, as long as at least
one impaired Class of Claims has accepted it (without counting the acceptances
of insiders). These so- called "cramdown" provisions are set forth in section
1129(b) of the Bankruptcy Code. A plan may be confirmed under the cramdown
provisions if, in addition to satisfying the other requirements of section 1129
of the Bankruptcy Code, it (i) is "fair and equitable" and (ii) "does not
discriminate unfairly" with respect to each Class of Claims or Interests that
is impaired under, and has not accepted, such Plan. TCO reserves the right to
utilize cramdown to confirm the Plan over the dissent of any Class of Unsecured
Claims so long as one impaired Class of Unsecured Claims accepts the Plan.
(i) THE PLAN MUST BE FAIR AND EQUITABLE
With respect to a dissenting class of secured claims, the "fair and
equitable" standard requires, among other things, that holders either (i)
retain their liens and receive deferred cash payments with a value as of the
effective date of the plan equal to the value of their interest in property of
the estate or (ii) otherwise receive the indubitable equivalent of their
secured
X-19
<PAGE> 890
claims. No Class of Secured Claims is impaired under the Plan except for Class
2.1, the Columbia Secured Claim. However, Columbia has advised TCO that it
will accept the Plan.
With respect to a dissenting class of unsecured creditors, the "fair
and equitable" standard requires, among other things, that the plan contain one
of two elements. The plan must provide either that each unsecured creditor in
the class receive or retain property having a value, as of the effective date
of the plan equal to the allowed amount of its claim, or that no holder of
allowed claims or interests in any junior class may receive or retain any
property on account of such claims or interests. The strict requirement as to
the allocation of full value to dissenting classes before junior classes can
receive a distribution is known as the "absolute priority rule." TCO believes
that its Plan meets the requirements of the absolute priority rule, since each
impaired Class of Unsecured Claims must either accept its treatment (which, if
different from other Unsecured Classes, must be approved by the Bankruptcy
Court as appropriate), or it will be treated in a manner which is permissible
under the Bankruptcy Code. TCO believes that, since all of TCO's equity is to
be distributed to Columbia on account of its Secured Claim in accordance with
the Columbia Omnibus Settlement, no Class junior to the Unsecured Claimants
will receive any distribution on account of its interests.
In addition, the "fair and equitable" standard has also been
interpreted to prohibit any class senior to a dissenting class
X-20
<PAGE> 891
from receiving under a plan more than 100% of its allowed claims. TCO believes
that the Plan complies with that requirement.
(ii) THE PLAN MUST NOT DISCRIMINATE UNFAIRLY
As a further condition to approving a cramdown, the Court must find
that the Plan does not "discriminate unfairly" in its treatment of dissenting
classes. TCO believes that the variations in treatment afforded different
Classes of Unsecured Creditors under its Plan do not discriminate unfairly, but
rather are fully justified as reflecting (i) in the case of Class 3.1,
administrative convenience considerations; (ii) in the case of Class 3.2,
settlements of legally and factually unique issues, including Administrative
and other Recoupment Claims asserted by Customers and claims of TCO for
recovery of substantial sums in dispute with its Customers; (iii) in the case
of Class 3.3, largely consensual negotiated resolutions of disputes over
Producer Claims which cannot otherwise be resolved without undue delay and the
burden and expense of ongoing litigation; (iv) in the case of Class 3.4,
considerations of fairness to holders of liquidated Claims and benefit to the
estate from ongoing trade relationships which treatment to the extent it offers
a slightly higher payout (which may not be the case) provides de minimis
additional funds, reallocation of which would not materially benefit other
Creditors; and (v) in the case of Class 3.5, recognition of Columbia's status
as an
X-21
<PAGE> 892
insider, providing for distributions which are the lesser of the distribution
percentage paid to Class 3.3 and Class 3.4.
If any impaired Class does not vote to accept the Plan, so long as at
least one impaired accepting Class votes to accept the Plan, TCO reserves the
right to utilize cramdown to confirm the Plan.
b. LIQUIDATION
See Section XI.F, "Liquidation Analysis/Best Interests Test."
C. VOTING PROCEDURES AND REQUIREMENTS
1. VOTING REQUIREMENTS - GENERALLY
Pursuant to the Bankruptcy Code, only Classes of Claims against or
Interests in TCO that are Allowed pursuant to section 502 of the Bankruptcy
Code and that are "impaired" under the terms and provisions of the Plan are
entitled to vote to accept or reject the Plan. If TCO or any other
party-in-interest has objected to a Claim or Interest, the holder of such Claim
will not be entitled to vote on the Plan unless the Bankruptcy Court has
entered a Final Order allowing such Claim or Interest or unless otherwise
permitted to vote by the Bankruptcy Court. In addition, any holder of a Claim
that is listed on the Schedule of Liabilities as contingent, disputed or
unliquidated and has not Filed a proof of Claim prior to the Bar Date will not
be entitled to vote such Claim with regard to the Plan.
TCO or any other party in interest may seek an order of the Bankruptcy
Court temporarily allowing, for voting purposes only,
X-22
<PAGE> 893
certain Disputed Claims. In fact, TCO intends to File a motion with the
Bankruptcy Court for an order establishing the Allowed amounts of Disputed
Claims for voting purposes only:
a. in the case of Producer Claims, in accordance with the Settlement
Values ascribed to such Claims or such other amounts as the Bankruptcy Court
shall determine;
b. in the case of Customer Regulatory Claims, in accordance with
proposed settlement amounts set forth on the schedules to the Customer
Settlement Proposal and Schedule IV to the Plan or such other amounts as the
Bankruptcy Court shall determine; and
c. in the case of General Unsecured Claims, in accordance with the
proposed Allowance Amounts ascribed to such Claims or such other amounts as the
Bankruptcy Court shall determine.
Pursuant to the Bankruptcy Code, a Class is "impaired" if the legal,
equitable, or contractual rights attached to the Claims or Interests of that
Class are modified, other than by (i) curing defaults and reinstating maturity
or (ii) by payment in full in cash. Classes of Claims and Interests that are
not impaired are not entitled to vote on the Plan, are conclusively presumed to
have accepted the Plan and will not receive a ballot. Nevertheless, each (a)
holder of a Producer Claim for which TCO has proposed a Settlement Value of
$25,000 or less, (b) holder of a Disputed General Unsecured Claim for which TCO
has proposed an Allowance Amount of $25,000 or less, or (c) holder of a
Customer Regulatory Claim which is listed on the schedule to the Customer
Settlement Proposal in an amount which
X-23
<PAGE> 894
is $25,000 or less shall receive a ballot upon which it may make certain
elections as described below. The classification of Claims and Interests under
the Plan is summarized, together with notations as to whether each Class or
Interests is impaired or unimpaired, in Sections II and VII of this Disclosure
Statement.
IF YOU HAVE A CLAIM THAT IS IMPAIRED UNDER THE PLAN ENTITLING YOU TO
VOTE AND YOU DID NOT RECEIVE A BALLOT, RECEIVED A DAMAGED BALLOT, OR LOST YOUR
BALLOT, PLEASE CONTACT [POORMAN - DOUGLAS IN WRITING AT _______________ OR CALL
_____________]. VOTING ON THE PLAN BY A HOLDER OF ANY IMPAIRED CLAIM ENTITLED
TO VOTE ON THE PLAN IS IMPORTANT. IF YOU HOLD CLAIMS IN MORE THAN ONE CLASS,
YOU MAY RECEIVE MORE THAN ONE BALLOT. YOU SHOULD COMPLETE, SIGN AND RETURN
EACH BALLOT YOU RECEIVE.
In most cases, each ballot enclosed with this Disclosure Statement has
been encoded with the amount of your Claim for voting purposes. If your Claim
is or may become a Disputed Claim, this amount may not be the amount ultimately
Allowed for purposes of distribution. PLEASE FOLLOW THE DIRECTIONS CONTAINED
ON THE ENCLOSED BALLOT CAREFULLY.
TO BE COUNTED, YOUR BALLOT MUST BE RECEIVED BY 5:00 P.M., PACIFIC
STANDARD TIME, ON _____________, 1995, AT THE ADDRESS SET FORTH ON THE ENCLOSED
PRE-ADDRESSED ENVELOPE. [ALTERNATIVELY, CREDITORS MAY FAX THEIR BALLOTS TO
TCO'S BALLOT TABULATION CENTER C/O POORMAN-DOUGLAS CORPORATION AT
____________________, BUT SUCH FAX MUST BE RECEIVED BY 5:00 P.M., PACIFIC
STANDARD TIME, ON ____________, 1995. A HARD COPY
X-24
<PAGE> 895
OF ANY BALLOT WHICH IS FAXED MUST BE RECEIVED AT THE ADDRESS SET FORTH ON THE
ENCLOSED PRE-ADDRESSED ENVELOPE WITHIN TWENTY FOUR (24) HOURS OF THE FAX OF THE
BALLOT HAVING BEEN RECEIVED AT TCO'S BALLOT TABULATION CENTER.] IT IS OF THE
UTMOST IMPORTANCE TO TCO THAT YOU VOTE PROMPTLY TO ACCEPT THE PLAN.
Votes cannot be transmitted orally. Accordingly, you are urged to
return your signed and completed ballot(s) promptly.
Any ballot received that is not duly executed shall be an invalid
ballot and shall not be counted for purposes of determining acceptance or
rejection of the Plan. Any ballot received that does not indicate an
acceptance or rejection of the Plan will be counted as a vote to accept the
Plan. A vote may be disregarded if the Bankruptcy Court determines, after
notice and a hearing, that such acceptance or rejection was not solicited or
procured in good faith or in accordance with the provisions of the Bankruptcy
Code or if a Claim was voted in bad faith.
In the event that any holder of a Producer Claim or any holder of a
Disputed General Unsecured Claim does not timely return a ballot, TCO expressly
reserves its right, on notice to such Claimholder, to file a motion with the
Bankruptcy Court prior to the Effective Date seeking to have such Claim Allowed
in the amount of the Settlement Value or the Allowance Amount, as applicable,
proposed by TCO for such holder's Claim.
X-25
<PAGE> 896
2. ELECTIONS BY CERTAIN CREDITORS
a. ELECTIONS BY HOLDERS OF PRODUCER CLAIMS
EACH PRODUCER WITH AN UNSECURED CLAIM MAY INDICATE ACCEPTANCE OR
REJECTION OF THE SETTLEMENT VALUE PROPOSED FOR ITS CLAIM BY TCO AND (A) IF
ACCEPTED, WILL (I) SUBJECT TO THE APPROVAL OF THE BANKRUPTCY COURT, HAVE ITS
CLAIM ALLOWED IN THE AMOUNT OF SUCH SETTLEMENT VALUE AND (II) VOTE TO ACCEPT OR
REJECT THE PLAN OR (B) IF REJECTED, VOTE TO ACCEPT OR REJECT THE PLAN. EACH
HOLDER OF A PRODUCER CLAIM FOR WHICH TCO HAS PROPOSED A SETTLEMENT VALUE OF
$25,000 OR LESS WILL, IF IT REJECTS THE SETTLEMENT VALUE PROPOSED FOR ITS CLAIM
AND ITS CLAIM IS ALLOWED IN AN AMOUNT IN EXCESS OF $25,000, BE TREATED AS A
CLASS 3.3 CLAIM OR A CLASS 1.2 CLAIM.
b. ELECTIONS BY DISPUTED GENERAL UNSECURED CLAIMS
EACH HOLDER OF A GENERAL UNSECURED CLAIM WHICH IS NOT AN
ALLOWED CLAIM AS OF THE PLAN MAILING DATE MAY INDICATE ACCEPTANCE OR REJECTION
OF THE ALLOWANCE AMOUNT PROPOSED FOR ITS CLAIM BY TCO AND (A) IF ACCEPTED WILL
(I) SUBJECT TO THE APPROVAL OF THE BANKRUPTCY COURT, HAVE ITS CLAIM ALLOWED IN
THE AMOUNT OF SUCH ALLOWANCE AMOUNT AND (II) VOTE TO ACCEPT OR REJECT THE PLAN
OR (B) IF REJECTED, VOTE TO ACCEPT OR REJECT THE PLAN. EACH HOLDER OF A
DISPUTED GENERAL UNSECURED CLAIM FOR WHICH TCO PROPOSED AN ALLOWANCE AMOUNT OF
$25,000 OR LESS, WILL, IF IT REJECTS THE ALLOWANCE AMOUNT PROPOSED FOR ITS
CLAIM AND ITS CLAIM IS ALLOWED IN EXCESS OF $25,000, BE TREATED AS A CLASS 3.4
CLAIM.
X-26
<PAGE> 897
c. ELECTIONS BY HOLDERS OF CUSTOMER REGULATORY CLAIMS
AND GRI CLAIM
If a holder of a Customer Regulatory Claim and/or GRI Claim (i) votes
to accept its treatment under the Plan, in case of holders of Customer
Regulatory Claims which the Customer Settlement Proposal provides will be
Allowed in amounts in excess of $25,000, (ii) timely executes a Waiver
Agreement, and (iii) Class 3.2 votes to accept the Plan, such Claimants will be
deemed to waive and release all of their rights and Claims (a) to appeal from
or to otherwise seek modification of the Trust Fund Decision or otherwise seek
more favorable treatment in their favor regarding the Omnibus FERC Motion, (b)
to seek the refunds which are the subject of the BG&E Case, (c) in respect of
TCO's various pre-petition Refund Obligations, other than as provided in the
Plan, (d) to setoff or recoupment in respect of such Customer's Regulatory
Claims, (e) to compel assumption, rejection or enforcement of their
pre-petition service contracts, except as otherwise provided under the Plan,
(f) to seek the refunds which are the subject of the 1990 Rate Case, (g) to
seek recovery from or to enforce against Columbia any of the foregoing
(collectively, the "Refund Claims") except pursuant to the Columbia Customer
Guaranty and (h) against Columbia and CNR with respect to the Intercompany
Claims. In addition, such Customers agree not to oppose TCO's recovery of
payments for Claims in respect of recoverable gas costs, and for appropriate
exit fees payable for terminated upstream pipeline contracts, in accordance
with the Customer Settlement Proposal.
X-27
<PAGE> 898
If, however, a holder of a Class 3.2 Claim votes to reject the Plan,
it may nevertheless elect to receive the treatment provided to Accepting Class
3.2 Claimants under the Plan, if Class 3.2 accepts the Plan, by executing a
Waiver Agreement prior to the Effective Date.
If the holder of a Customer Regulatory Claim fails to execute the
Waiver Agreement contained in the ballot, it nonetheless must return its ballot
within the time prescribed by the Bankruptcy Court in order for its vote to be
counted. For treatment of Dissenting 3.2 Claimants who do not elect Class 3.2
treatment, see Section VII.A.2.c.(iii), "Class 3.2 Unsecured Customer Refund
Claims and GRI Claims". Any holder of a Customer Regulatory Claim that is
listed in the schedules attached to the Customer Settlement Proposal as having
a claim of $25,000 or less that does not execute the Waiver Agreement prior to
the Effective Date shall be treated as a Dissenting Class 3.2 Claimant for such
Claim.
d. ELECTIONS BY HOLDERS OF UNSECURED CLAIMS WITH ALLOWED
CLAIMS IN EXCESS OF $25,000
Each holder of an Allowed Producer Claim, Customer Regulatory Claim,
or General Unsecured Claim, whether such Claim has been Allowed by acceptance
of a proposed Settlement Value, by acceptance of a proposed Allowance Amount or
otherwise, shall have the option on its ballot to voluntarily reduce the
Allowed amount of its Claim to $25,000 in order to be treated in Class 3.1
under the Plan.
X-28
<PAGE> 899
XI. FINANCIAL PROJECTIONS, PRO FORMA FINANCIAL STATEMENTS, AND LIQUIDATION
ANALYSIS
A. FINANCIAL ANALYSIS OF PLAN
As a condition to confirmation of a plan of reorganization, the
Bankruptcy Code requires, among other things, determinations by the bankruptcy
court that (i) confirmation is not likely to be followed by the liquidation or
need for further reorganization of the debtor, (ii) dissenting creditors
impaired under the plan of reorganization will receive more than they would
receive in a hypothetical Chapter 7 liquidation of the debtor, and (iii) in the
event of a cram-down, no senior class is receiving more than the full amount of
its allowed claim, and no class junior to an impaired unsecured class receives
any value. In determining whether the Plan satisfies these confirmation
requirements, the management of TCO analyzed the ability of Reorganized TCO to
meet its obligations under the Plan and conduct its business with sufficient
liquidity and capital resources, and TCO's hypothetical value in a Chapter 7.
In addition, in arriving at the determination of values available to
satisfy Creditor Claims, the management of Columbia and TCO and their
professional advisors have analyzed the value of TCO as a going concern,
including the settlement value of the Intercompany Claims Litigation.
To aid in this analysis, the managements of TCO and Columbia have
requested Salomon Brothers Inc. ("Salomon") to perform valuation analyses of the
possible reorganization values of TCO. These valuations have been updated
periodically
XI-1
<PAGE> 900
throughout this Case, taking into account revised actual and projected financial
information and business plans for TCO, as well as changes in the marketplace
for comparable utilities and other relevant criteria.
Salomon has derived a range of values for TCO employing customary
investment banking valuation methodologies for a going concern, including
analysis of the public market value of comparable publicly traded companies and
analysis of the discounted value of TCO's projected future cash flows. Salomon
has also reviewed certain historical private market transactions (i.e., third
party sales) involving the acquisition of all or part of comparable natural gas
pipeline companies.
The financial analyses performed by Salomon were based, to a very large
extent, on the Projections (as defined below) prepared by TCO's management.
Salomon assumed that such Projections were reasonably prepared on a basis
reflecting the best currently available estimates and judgments of TCO's
management as to the future financial performance of Reorganized TCO and all
other relevant matters. Salomon did not independently verify such Projections.
While the management of TCO believes that the assumptions underlying the
Projections, when considered on an overall basis, are reasonable in light of
current circumstances, no assurance can be, or is being given that the
Projections will be realized.
XI-2
<PAGE> 901
In performing its valuation analyses, Salomon considered, among other
things, the Projections, the nature and condition ofTCO's properties, the nature
of TCO's business and its regulatory rate environment following its
restructuring pursuant to Order No. 636 (see Section III.C, "TCO's
Implementation of Order No. 636 Restructuring and Future Operations"), possible
tax benefits to TCO related to the assumed deductibility of payments under the
Plan to TCO's Creditors for terminated gas purchase contract obligations and
certain other obligations assumed to give rise to income tax deductions, the
recoverability of certain contingent regulatory receivables which are now the
subject of the Customer Settlement Proposal, TCO's historical and current
financial position and results of operations generally, general current economic
and market conditions, including those affecting the interstate natural gas
pipeline industry particularly, and its experience with similar transactions and
in securities valuation generally.
TCO did not impose any limitations upon the scope of, or the procedures
undertaken in, the investigation made by Salomon, nor did TCO impose any limits
on the factors considered by Salomon in rendering its services. In performing
its valuation analyses, Salomon did not make or obtain independent appraisals of
TCO's assets. TCO cooperated fully with Salomon in connection with its
engagement.
Salomon was not authorized to, and did not, solicit third parties which
might be interested in acquiring TCO or its
XI-3
<PAGE> 902
assets. Salomon did, however, assist TCO in the establishment of the Data Room
(as directed by this Court), which provided relevant confidential financial and
other business data relating to TCO to interested potential third-party bidders
for TCO. SeeSection V.F.6. of this Disclosure Statement for further discussion
of the data room proceedings. None of the data-room entrants has submitted to
Columbia or TCO any proposal for acquiring the latter or its assets. In 1994,
Columbia received an unsolicited recapitalization and reorganization proposal
from Dimeling, Schreiber & Park ("DS&P"), a Philadelphia-based investment firm.
The proposal included a group of unnamed investors seeking to obtain minority
control of Columbia through the purchase of Columbia's common stock. DS&P also
proposed thesale of all of Columbia's distribution assets to Utilicorp United
Inc., an electric and natural gas utility company, at a bargain price
approximately equal to their book values. Columbia found the DS&P proposal
unacceptable. Salomon has reviewed the few expressions of interest received
from third parties and has consulted with the Debtors as to the viability and
seriousness of such expressions of interest.
In addition, counsel to Columbia conducted legal analyses of potential
outcomes of the Intercompany Claims Litigation, and Salomon created financial
models utilized by counsel and management in arriving at a range of potential
outcomes giving rise to a settlement value which is embedded in the amounts
distributable to TCO's Creditors and which supplements the core
XI-4
<PAGE> 903
business value of the Estate.
Based on all of the foregoing and other factors which it deemed
relevant to its analyses, including TCO's projected cash balances as of the
Effective Date, Salomon has advised TCO that the $3.9 billion projected to be
paid to TCO Creditors under the Amended Plan, which includes incremental values
provided by Columbia through the Columbia Omnibus Settlement, exceeds the fair
market value of TCO as a going concern.
B. RECAPITALIZATION POST-EMERGENCE/FEASIBILITY
Pursuant to the Columbia Omnibus Settlement, Columbia has agreed to
accept in respect of its Secured Claim, restructured debt and equity securities
of TCO resulting in a debt/equity ratio which TCO believes represents a
reasonable debt structure that will provide a viable capital structure for the
business going forward. TCO's Projections assume that on the Effective Date,
Reorganized TCO will have total debt of approximately $1.5 billion, which will
consist of secured notes to Columbia, with a range of maturities up to thirty
years.
In light of the Projections and Financial Plan Assumptions (as defined
herein) set forth below, and the assumed settlement and satisfaction of
pre-Petition Date liabilities as contemplated in the Plan, TCO believes its
post-reorganization operations will be viable and profitable, and that it will
be able to meet all operational obligations and debt service in the normal
course of its business, without the need for a further reorganization.
XI-5
<PAGE> 904
C. FINANCIAL PROJECTIONS
In connection with the development of the Plan, financial projections
(the "Projections") were prepared by TCO to portray its anticipated
post-reorganization performance. The Projections should be read in conjunction
with the assumptions, qualifications, and explanations set forth herein, and
the historical consolidated financial statements and related notes thereto
contained in Columbia's (1994) Annual Report on Form 10-K and a Quarterly
Report on Form 10-Q for the first quarter of 1995, copies of which are annexed
hereto as Exhibits 5 and 6.
TCO does not customarily publish its business plans and strategies or
make external projections or forecasts of its anticipated financial position or
results of operations. Accordingly, TCO (including Reorganized TCO) does not
anticipate that it will, and disclaims any obligation to, furnish updated
business plans or projections to holders of Claims prior to the Effective Date,
except as may be necessary to meet legal requirements for Confirmation of the
Plan, or to creditors after the Effective Date, or to include such information
in documents required to be filed with the SEC or otherwise make such
information public.
The Projections assume that all pre-petition Claims will be treated in
accordance with the provisions of the Plan, and that the Plan will be
implemented in accordance with its terms. For purposes of the Projections, the
Effective Date of the Plan is assumed to be December 31, 1995. The Projections
are based upon
XI-6
<PAGE> 905
estimates and specific assumptions as to key variables for each year during the
projection period which TCO believes provide a reasonable basis for presenting
the projected effects of the Plan. These assumptions are described in the
following section titled "Assumptions Used in the Financial Projections."
Among other things, the Projections assume that FERC will set rates at a level
adequate to allow TCO the opportunity to recover its costs and a reasonable
return on its rate base. Further, the Projections make assumptions about the
quantity of throughput, the level of operating expenses that TCO considers
reasonable and the recoverability and timing of certain tax benefits that
should be available to TCO post-reorganization as a result of the assumed
deductibility of various payments to TCO's Creditors under the Plan.
The estimates and assumptions underlying the Projections are
inherently uncertain and, though considered reasonable by TCO at this time, are
subject, among other things, to significant regulatory, general economic and
competitive uncertainties and contingencies beyond the control of TCO and its
management, and to operating conditions which are subject to change. In
addition, the uncertainties which are inherent in the Projections increase for
later years in the projection period, due to the increased difficulty
associated with forecasting levels of economic activity and corporate
performance at more distant points in the future. Consequently, the projected
information included herein should not be regarded
XI-7
<PAGE> 906
as a representation by TCO, its advisors or any other person that the projected
results will be achieved.
Furthermore, there will usually be differences between projected and
actual results because events and circumstances frequently do not occur as
expected, and those differences may be material. TCO's independent public
accountants have not performed any procedures with respect to the Projections
and assume no responsibility for them. The Projections were
substantially completed and reviewed by TCO's management prior to the filing of
this Plan. THE INFORMATION CONTAINED IN THESE PROJECTIONS IS SUBJECT TO
ONGOING REVIEW AND ADJUSTMENT WHICH MAY BE MATERIAL. UPDATED PROJECTIONS WILL
BE PROVIDED IF NECESSARY AND APPROPRIATE PRIOR TO THE HEARING ON THIS
DISCLOSURE STATEMENT.
TCO CREDITORS ENTITLED TO VOTE ON THE PLAN MUST MAKE THEIR OWN
DETERMINATIONS AS TO THE REASONABLENESS OF SUCH ASSUMPTIONS AND THE RELIABILITY
OF THE PROJECTIONS IN REACHING THEIR DETERMINATIONS OF WHETHER TO ACCEPT OR
REJECT THE PLAN.
The Projections should be read together with the information contained
in Columbia's current SEC filings, including excerpts pertinent to the Plan
from Columbia's (1994) Annual Report on Form 10-K and a Quarterly Report on
Form 10-Q for the first quarter of 1995, copies of which are annexed hereto as
Exhibits 5 and 6.
TCO's projected earnings for the five-year period ended December 31,
1999, and its projected cash flow information for
XI-8
<PAGE> 907
the same period are summarized below. Additional detail is set forth in the
Pro Forma Financials annexed hereto as Exhibit 4.
<TABLE>
<CAPTION>
Projected Financial Information
Year Ended December 31
Dollars in Millions
-------------------------------
1995A 1996 1997 1998 1999
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Throughput MMDth 1065.8 1052.3 1060.8 1092.4 1123.5
EBITDA(A) 367.3 297.3 311.0 339.2 368.8
EBIT(A) 283.5 206.4 214.5 235.1 256.6
Net Income(A) 66.3 62.9 78.2 95.1 102.9
Return on Rate Base
Average Rate Base 1577.4 1633.5 1718.2 1863.7 1998.9
Return on Rate Base(B) N.A. 11.9 12.0 12.4 12.7
Return on Capitalization
Average Capitalization N.A. 1932.7 1769.4 1823.2 1945.5
Return on Capitalization % N.A. 10.7 12.1 12.9 13.2
</TABLE>
______________________________________
(A) 1995 results include a number of extraordinary items
relating to the emergence from bankruptcy.
(B) This Return on Rate Base is calculated before considering
income tax expenses, interest expenses and other income.
<TABLE>
<CAPTION>
Projected Cash Flow Information
Year Ended December 31
Dollars in Millions
-------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash from Operations 308.2* 498.7 320.0 224.2 214.3
Capital Investment Activities (175.4) (106.7) (244.5) (242.5) (242.7)
</TABLE>
______________________________________
* Excludes cash disbursed to satisfy pre-petition liabilities and
customer obligations pursuant to the Plan on the Effective Date.
Assumptions Used in the Financial Projections
TCO regularly presents detailed historical financial information
through numerous filings with the FERC, as well as through consolidated and
consolidating financial materials filed
XI-9
<PAGE> 908
by Columbia with the SEC pursuant to federal securities laws and the HCA
regulations.
In addition, certain non-public financial detail about TCO's current
and projected operations has been made available on a confidential basis to
Professionals for the Creditors' Committee and Customers' Committee. In
particular, the financial advisors to the Creditors' Committee, Lehman Brothers
and Ernst & Young, have had extensive access over the course of TCO's
Reorganization Case to TCO's books and records, have received comprehensive
information about TCO and have conducted extensive due diligence evaluations on
a wide range of issues relating to TCO's financial condition and value as a
business.
The primary estimates and assumptions used in preparing the
Projections are as follows:
1. Throughput
In preparing its market projections, TCO has made assumptions
about throughput levels that it considers reasonable. Under the
Straight Fixed Variable ("SFV") rate design implemented under Order
No. 636, TCO's projected revenue stream is heavily weighted to demand,
or fixed billings (more than 90%) and thus is not subject to
significant variations normally generated by commodity, or volumetric
types of revenues. Thus, TCO believes that variations of actual
throughput driven by weather, general business conditions of TCO's
Customers, competition or other events are not likely to materially
affect TCO's
XI-10
<PAGE> 909
level of revenues. The SFV rate design provisions of Order No. 636
have been protested on an industrywide basis by various consumer
interests and, notwithstanding the Customer Settlement, remain as an
issue on appeal for all pipelines subject to FERC jurisdiction.
Future changes to TCO's revenue stream as a result of action from the
appeal would be implemented on a prospective basis only. Alternative
rate designs could cause weather and volume throughput to impact TCO's
actual financial results to a greater extent than contemplated in the
Projections.
2. Successful implementation of Order No. 636
The Projections assume a level of performance in the Order No.
636 environment that is contingent upon FERC's continued approval of
TCO's current rate structure and operational structure, and TCO's
implementation of its Order No. 636 business plan. The Customer
Settlement Proposal, if implemented, resolves most but not all issues
relating to the implementation and future operations of Order No. 636.
3. Environmental liabilities
TCO currently estimates that the environmental assessment
and remediation program may take ten to twelve years to complete and
cost approximately $20 million per year. As part of this program, TCO
and its environmental consultant are currently pursuing an ongoing
study of future environmental characterization and remediation
XI-11
<PAGE> 910
activities. Ongoing discussions with the E.P.A. regarding
administration of the EPA Settlement impact the study, including the
nature, timing and estimated amounts of the characterization and
remediation programs. See Section V.E.7, "Environmental Issues."
TCO's estimates of these characterization and remediation costs and
the time period for completing that work are expected to be revised
from time to time as additional information becomes available. In
this regard, an updated report from TCO's environmental consultant is
expected to be provided in mid to late 1995.
TCO's 1995 projected earnings reflect the assumption of an
additional $50 million non-cash charge for this issue. The actual
expense recognized will vary from that assumption depending upon the
contents of the aforementioned report and other circumstances
prevailing at the time the expense is recognized. TCO also projects
that it will recover a substantial portion of these costs through
recoveries under existing insurance policies and through the
collection of costs through rates from Customers although such
recoveries cannot be assured. TCO's accounting model currently
recognizes expense as soon as it is probable and reasonably estimated
but does not recognize offsetting collections and/or reimbursements
until received or relatively assured. Actual cash expenditures and
collection of costs, as well as timing may vary from the projections.
XI-12
<PAGE> 911
4. Cost of capital financing
Based on the assumed post-reorganization capital structure
described above, TCO's cost of debt (based on current interest rate
levels) will be approximately 8.5% per annum and TCO assumes an
appropriate rate of return on equity for its projected rate-making
purposes. These capital costs and TCO's capital structure are
designed to approximate Columbia's costs and capital structure.
5. Regulatory Lag
All rate regulated entities, including TCO, must manage the
variations between actual cost and those costs reflected in the rates
approved by their regulatory agency. TCO believes the variations for
this issue will be manageable, and, if significant, a filing of a rate
case is one option to maintain stability in TCO's earnings
projections, as are cost reductions. Those Projections include
periodic rate cases as necessary to recover increased cost of service
levels driven primarily by general inflation factors. Such rate
increases may not be necessary if the anticipated cost increases do
not materialize.
6. Upstream Pipeline Order No. 94 Costs
Consistent with FERC orders issued in early 1994, the
assumptions herein include voiding previously negotiated Order No. 94
settlements with TCO's upstream pipelines discussed in Section IV.B.6,
"Order No. 94 Issues." Thus,
XI-13
<PAGE> 912
contrary to these previously negotiated settlements, the Projections
reflect pipelines refunding all principal amounts collected of
approximately $30 million plus interest from February, 1994 until the
projected date the refunds are paid. The pipelines and Columbia have
sought and received stays from the FERC on a refunding these sums
pending further Court review. This issue will continue to be
litigated at the FERC and the Courts notwithstanding the Customer
Settlement, and the ultimate outcome may differ materially from the
projection.
7. Customer Settlement
As discussed in Section IV.C., TCO has reached a comprehensive
settlement with many of its customers and other interested parties
resolving a large number of outstanding refund and cost recovery
issues between TCO and its customers. The financial projections
herein assume the economics, refunds and collections, provided for in
the Customer Settlement Proposal and that all Customers will
participate in the settlement by voting favorably on the Plan. The
reserves for refunds recorded on the financial statements as of March
31, 1995 are adequate to reflect the expected refunds under the
Customer Settlement Proposal.
8. Majorsville/Heard Storage Facilities
On March 21, 1995, the Bankruptcy Court approved TCO's
agreements relating to Claims of Braunsol Resources, Inc.
("Braunsol") with Braunsol's owners which resolve the
XI-14
<PAGE> 913
Claims asserted, whereby TCO will temporarily deactivate certain
storage operations so as to permit underground coal mining activities
which should not significantly impact TCO's storage capacity. TCO's
financial plan reflects implementation of this agreement at no net
cost to TCO or TCO's Customers or financial detriment to TCO
resolving years of disputes over ownership rights. The agreement is
expected to result in a payment to TCO from the coal company
sufficient to offset TCO's costs associated with constructing
facilities to offset the temporary loss of storage capacity and other
expenses resulting from the suspension of operations in the
Majorsville/Heard Storage Facility.
9. Market Expansion
As noted in Section IV.D, TCO has undertaken a market
expansion project which is reflected in these financial projections in
the form of increased capital spending and additional revenues during
1997, 1998 and 1999. The financial projections assume the traditional
regulatory treatment.
10. Federal Income Taxes
The financial projections assume a cash payment to Columbia by
TCO for approximately $164 million on the Effective Date for all of
TCO's combined obligations under the IRS Settlement and for the
assumption of the TAA as described in Section V. Columbia acts as an
agent by
XI-15
<PAGE> 914
collecting income tax payments from all of its subsidiaries and
passing the payments on to the IRS.
D. CAPITAL STRUCTURE AND OTHER ISSUES
Upon emergence from bankruptcy, Reorganized TCO's capital structure is
expected to be approximately 69% debt and 31% equity. This includes debt
related to certain tax and regulatory receivables that are expected to be
monetized over a period of years. As these receivables are monetized, cash will
be used to retire debt. TCO's debt to equity ratio is projected to improve to
approximately 60%/40% by 1997. Thereafter, TCO's Projections indicate that this
ratio can be maintained or improved over the long-term.
TCO's post-bankruptcy Financial Plan includes a capital expenditure
program of $175.8 million in 1995, $112.7 million in 1996, $243.8 million in
1997 and $240 million in 1998 and 1999. A large portion of expenditures in
1997 through 1999 represent the cost of TCO's proposed market expansion project
as more fully described in Section IV.D.
Various elements of expense, excluding environmental accruals, are
inflated at specific rates, which when weighted, result in overall inflation
rates of 3% in 1995; 3% in 1996; 4% in 1997; 3% in 1998, and 3% in 1999.
E. PRO FORMA FINANCIAL STATEMENTS
Projected Financial Statements for each year are also annexed hereto
in Exhibit 4.
XI-16
<PAGE> 915
F. LIQUIDATION ANALYSIS/BEST INTERESTS TEST
Should any Creditors voting in an impaired Class reject the Plan, the
Bankruptcy Court must determine whether the Plan is in the best interests of
Creditors. This analysis compares the amounts that each impaired Class of
Creditors would receive if TCO were liquidated in a hypothetical proceeding
under Chapter 7 of the Bankruptcy Code occurring in the event of the failure of
the proposed plan of reorganization, with the amounts each impaired Class will
receive or retain under the Plan. The Plan must provide value to dissenting
impaired Creditors which is greater than or equal to the value which would be
distributed in a Chapter 7 liquidation in order to meet the "best interests of
creditors" test set forth in section 1129(a)(7) of the Bankruptcy Code.
TCO believes that the amounts each impaired Class will receive or
retain under the Plan exceed the amounts such Class would receive in a
liquidation of TCO because, as discussed in greater detail below, through the
mechanism of the Columbia Omnibus Settlement, the Customer Settlement Proposal
and the Initial Accepting Producer Settlement Agreement, the benefits of which
are only available to Creditors through this proposed Plan, Creditors are
receiving guaranteed levels of payout substantially in cash and the assurance
of timely settlement of litigation over Intercompany Claims and Producer Claim
amounts, the continuation of which would certainly delay and likely dilute the
values available under the Plan.
XI-17
<PAGE> 916
In addition, (i) it is possible that a liquidation sale of TCO would
not realize the full going concern value of TCO's assets; (ii) there would be
additional administrative expenses involved in the appointment of a liquidating
trustee, as well as attorneys, financial advisors, accountants and other
professionals to assist such trustee; (iii) there could be substantial Claims
of Federal and state environmental agencies that would have to share in
distributions in a liquidation; (iv) there would be additional expenses and
substantial tax liabilities, some of which would be entitled to priority in
payments, which would arise by reason of the liquidation; and (v) there would
be a substantial delay before Creditors would receive any distribution. Even
if the full going concern value of TCO were to be realized, the net proceeds,
for the reasons stated, would likely be less than amounts distributable under
the Plan due to reserves a buyer would require, the obligation to pay Columbia
secured debt, and the possibility of some portion of the purchase price being
paid other than in cash.
Set forth below is a discussion of the factors considered by TCO in
arriving at its conclusion that the Plan meets the "best interests of
creditors" test.
1. Estimated Liquidation Proceeds
In the hypothetical liquidation of TCO, a Bankruptcy Court-appointed
Chapter 7 trustee would liquidate the assets of TCO's Estate to create a fund
(the "Liquidation Fund") from which to pay TCO's Creditors. The Liquidation
Fund would
XI-18
<PAGE> 917
consist essentially of the aggregate proceeds from the sale of all of TCO's
operations, plus the cash on hand net of the expenses of the sale.
A liquidation of TCO conceivably could be structured as separate,
piecemeal sales of the assets of TCO during which the business operations of
TCO would either continue on a very limited basis or cease altogether (a
"Split-Up Sale"), or as a single sale of essentially all of the assets of TCO
as a going concern (a "Going-Concern Sale"). However, no precedent exists with
regard to a Split-Up Sale of an operating interstate pipeline and there can be
no assurance that such a sale could be consummated. TCO believes that, given
its status as an interstate pipeline subject to the NGA and its regulatory
certificates of public necessity and convenience which both permit and require
TCO to operate in the public interest, it is extremely unlikely that FERC would
permit TCO simply to cease operations and liquidate all of its assets in a
piecemeal fashion. Thus, TCO believes that the nature of TCO's business
provides an insurmountable barrier to a Split-Up Sale.
TCO has considered whether there are discrete aspects of its business
operations, such as branch pipelines which are not essential to the core
business, excess storage capacity, or excess gathering facilities, which would
be worth more to a third party than as part of TCO's ongoing business, and has
determined that it is unlikely that a sale of one or more discrete aspects of
its business operations in addition to the
XI-19
<PAGE> 918
Going-Concern Sale of the remaining operations would result in an increase by
any material amount over the amount that would be obtained from a single
Going-Concern Sale of all its business operations.
Thus, TCO believes that a Going-Concern Sale would offer the best
realization of values for TCO's Estate in a Chapter 7 liquidation context.
In the case of a Going-Concern Sale, the Liquidation Fund would consist
of the proceeds of the sale of TCO's entire operations, as a going-concern, plus
cash on hand net of the expenses of the sale (the "Going-Concern Sale Value").
There is a reasonable probability that the limited authority a Chapter
7 trustee would have to operate TCO, the expeditious liquidation that would be
required, the limited number of qualified buyers that might be interested in
acquiring TCO and the "forced sale" atmosphere that might prevail in a
liquidation would negatively impact the amount of the proceeds of such sale.
Even if the full Going Concern Sale Value of TCO were realized, the new proceeds
available to Creditors would be less because of the additional liquidation
costs.
TCO considered whether the nature of TCO's business afforded any
prospective purchaser an opportunity to realize greater returns than TCO does in
operating its business; however, TCO believes that any potential Going-Concern
Sale must be analyzed in light of the inherently limited returns available to a
purchaser of a rate regulated company such as TCO. As a
XI-20
<PAGE> 919
FERC-regulated company whose rates remain subject to traditional
cost-of-service utility strictures, TCO's revenues (and therefore its value)
will be limited by FERC to an amount based on TCO's costs, including a
reasonable return on its rate base. The value of TCO is limited by this
restriction on revenues whether TCO is owned by Columbia or sold in a
Going-Concern Sale. Thus, TCO believes that there is no reason to assume that
the rates to be set after a liquidation sale would be higher than those set
forth in the Projections.
On the other hand, under the Plan, Reorganized TCO will remain liable
for substantially all pre- and post-petition environmental clean-up obligations
owed to state and Federal governmental units, and TCO assumes certain rate
recovery levels for remediation costs. In the event of a Going-Concern Sale,
TCO believes that the price a purchaser would pay for TCO, or for any discrete
aspect of the pipeline, would be discounted due to environmental liabilities
assumed or imposed by law on that purchaser, and due to the uncertainty as to
the prospects for rate recovery of costs relating to those liabilities. In
addition, not only would the specter of environmental liabilities have a
significant negative impact on value, significant claims related to such
liabilities could materially increase the Claims to be settled by the Chapter 7
trustee, as discussed below.
XI-21
<PAGE> 920
2. Deductions from Liquidation Fund
The hypothetical liquidation of TCO would result in significant
additional costs that would not otherwise be incurred under TCO's Plan. The
most significant readily quantifiable effect of a Going-Concern Sale by TCO's
Chapter 7 trustee would be the taxes incurred on the gain on the sale of TCO's
assets. Even after considering the implications of TCO's overall tax position,
the liquidation of TCO has significant adverse effects that diminish the value
available to Creditors.
Any Liquidation Fund would be reduced further by the costs of the
liquidation. The costs of liquidation under Chapter 7 would likely include the
fees of a trustee, as well as those of counsel and other professionals that
might be retained by the trustee to assist in the liquidation, and selling
expenses (including costs of advertising, auctioneer's fees, brokerage
commissions or investment banker fees) incurred in connection with the
liquidation.
3. Creation of Additional Claims
Under the Plan, employee, environmental and other obligations are
assumed or otherwise satisfied by Reorganized TCO without those Claims sharing
in Plan distributions to Creditors. Significant additional Claims could be
filed against TCO in a Chapter 7 proceeding for the liquidation of TCO. For
example, a sale of TCO's business could trigger the filing of substantial Claims
by governmental environmental agencies that have not to date Filed Claims
against TCO, since those agencies
XI-22
<PAGE> 921
would wish to protect their interests in the Liquidation Fund in addition to
looking to the purchaser for remediation. Further, a liquidation sale of TCO
could trigger or accelerate significant obligations to employees under pension
and other employee benefit plans, in addition to Claims for severance pay and
retiree medical benefits. Under the Plan, all ongoing employee benefit costs
are assumed by Reorganized TCO and are not deducted from distributions to
Creditors under the Plan.
Similarly, the Plan contemplates the assumption and/or continuation as
modified under Order No. 636 of TCO's service contracts with its Customers, as
well as the assumption of many of TCO's existing upstream pipeline
transportation contracts. Breach or rejection of any of these agreements in a
Chapter 7 liquidation could result in the filing of significant Claims,
totalling hundreds of millions of dollars, against the TCO Estate. In addition,
TCO has hundreds of real property lease agreements which it has assumed in this
Chapter 11 case. Termination of any of those leases or breach of related
agreements could result in Administrative Claims being asserted where presently
there is no Claim against the Estate. In addition, the Plan contemplates the
assumption and cure of contracts with affiliates which, in a liquidation sale,
could be terminated, potentially resulting in further Claims against the
Liquidation Fund which do not presently exist.
Finally, the TCO Plan contemplates the assumption by Reorganized TCO
of liabilities relating to pre- and post-
XI-23
<PAGE> 922
petition condemnation awards, surety bonds and certain indemnity obligations,
which liabilities could result in additional Claims against the Liquidation
Fund.
TCO cannot precisely quantify the impact on the Liquidation Fund of
these additional Claims, but they could certainly exist and would likely be
substantial.
4. Timing of the liquidation process
The Bankruptcy Code requires a Chapter 7 trustee to collect and
convert the property of the debtor's estate to cash and close the debtor's
estate as expeditiously as is compatible with the best interests of the parties
in interest. TCO believes that any liquidation, whether in a Split-Up Sale or
Going-Concern Sale, would probably require at least one year from commencement
to completion, and might require substantially longer. The liquidation process
would be delayed by the need to prepare information materials with which to
offer the assets to potential purchasers, by purchasers' requests for additional
information, by the time needed to evaluate offers and by the time needed to
negotiate a sale or sales. Once a tentative agreement is reached, further delay
would be necessary to obtain regulatory approvals, including the approval of
FERC and the Federal Trade Commission or the Antitrust Division of the
Department of Justice. In addition, TCO believes that a liquidation could
result in time-consuming litigation with environmental and tax authorities
seeking to protect their interests.
XI-24
<PAGE> 923
As a result of all of the foregoing factors, any payment out of a
Liquidation Fund to Creditors with impaired Claims would probably be delayed
for at least a year after the date such Creditors would receive payment under
the Plan, and could be delayed much longer. This delay further limits the
value to Creditors of a liquidation as compared with the Plan.
5. Distributions; absolute priority
It is likely that if TCO were liquidated, the Bankruptcy Court would
apply the priority scheme set forth in Chapter 7. Under this scheme, secured
claims are first satisfied from the collateral securing such claims before any
such proceeds are distributed to holders of junior claims. Unless invalidated
by adjudications of the Intercompany Claims adverse to Columbia, Columbia's
Secured Claim would be required to be satisfied in full out of the Liquidation
Fund prior to any distribution to Unsecured Creditors. Moreover, if any
Intercompany Claims judgment was still on appeal, the full amount of Columbia's
Secured Claim would have to be reserved in the Liquidation Fund pending a final
adjudication. In addition, payments would be made on a strict priority basis
to all other Secured Claims, Administrative Claims, Miscellaneous
Administrative Claims, Priority Tax Claims and all other Claims granted
priority status over Unsecured Claims under the Bankruptcy Code. In addition,
certain of the Claims that would result from a liquidation, such as Claims for
severance pay and other employee benefits and for
XI-25
<PAGE> 924
trustee fees and expenses, would have priority over the Claims of Unsecured
Creditors.
Under the Plan, in contrast to the absolute priority scheme in Chapter
7 liquidation, all Creditors are guaranteed a minimum level of payout on their
Claims, with the potential for some increase over the minimum as to Classes 3.3
and 3.4. TCO believes that all Unsecured Creditors will not only receive
greater distributions than they would receive under a Chapter 7 liquidation,
but the certainty of those amounts is guaranteed, and they will receive such
distributions much earlier.
Furthermore, in a Chapter 7 liquidation, the Chapter 7 trustee would
have to determine whether to continue the Intercompany Claims litigation or
seek a settlement which might or might not result in the same value being
provided to Creditors pursuant to the Plan as part of the Columbia Omnibus
Settlement. Columbia has indicated that it would continue to vigorously
litigate the Intercompany Claims litigation should TCO convert to a Chapter 7
proceeding.
TCO believes that, after consideration of all of the foregoing
factors, Creditors with impaired Claims will receive distributions under the
Plan which have greater value as of the Effective Date than such Creditors
would receive from distributions in a Chapter 7 liquidation and that the
Bankruptcy Court will so find. TCO believes that the Plan offers significant
additional values to Creditors over and above the values achievable through
liquidation by virtue of the Columbia
XI-26
<PAGE> 925
Omnibus Settlement, which provides for the settlement of the Intercompany Claims
litigation, the assumption of environmental and other business liabilities by
Reorganized TCO, the restructuring of TCO's secured debt, and the monetization
on the Effective Date of the distributable values under the Plan, the Customer
Settlement Proposal and the settlement of substantial Producer Claims.
XI-27
<PAGE> 926
XII. CONCLUSION
For all of the reasons contained in this Disclosure Statement, the
Debtor believes that confirmation and consummation of the TCO Plan is preferable
to any other reasonable alternative. Consequently, TCO urges all of holders of
Claims entitled to vote to accept the TCO Plan by completing and returning their
ballots in accordance with the procedures approved by the Bankruptcy Court.
Dated: Charleston, West Virginia
June 13, 1995
COLUMBIA GAS TRANSMISSION
CORPORATION
By: /s/ JAMES P. HOLLAND
-----------------------------
James P. Holland
Chairman and Chief Executive
Officer
XII-1
