SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM T-3
FOR APPLICATIONS FOR QUALIFICATION OF INDENTURES UNDER THE
TRUST INDENTURE ACT OF 1939
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HOME HOLDINGS INC.
(Name of applicant)
c/o Risk Enterprise Management Limited
59 Maiden Lane
New York, New York 10038-4548
(Address of principal executive offices)
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SECURITIES TO BE ISSUED UNDER THE INDENTURE TO BE QUALIFIED
TITLES OF CLASSES AMOUNT
[ ]% Senior Notes Due [June] __, 2006 $[ ]
Earn Out Notes, Series I 315,000 Units
Approximate date of proposed public offering:
On or as soon as practicable after the Effective Date (as defined in
the Revised Third Amended and Restated Plan of Reorganization of
Home Holdings Inc. (the "Company" or the "Applicant") under Chapter
11 of the Bankruptcy Code, dated June 3, 1998 (the "Plan")).
Arthur D. Wilson
c/o Risk Enterprise; Management Limited
59 Maiden Lane
New York, New York 10038
Telephone No.: (212) 530-7000
(Name and address of agent for service)
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The Applicant hereby amends this application for qualification on such date or
dates as may be necessary to delay its effectiveness until (i) the 20th day
after the filing of a further amendment which specifically states that it shall
supersede this amendment, or (ii) such date as the Securities and Exchange
Commission, acting pursuant to Section 307(c) of the Trust Indenture Act of
1939, as amended (the "Act"), may determine upon the written request of the
applicant.
GENERAL
1. General Information. Furnish the following as to the applicant:
(a) Form of organization:
A corporation.
(b) State or other sovereign power under the laws of which organized:
Delaware.
2. Securities Act Exemption Applicable. State briefly the facts relied upon by
the Applicant as a basis for the claim that registration of the indenture
securities under the Securities Act of 1933 is not required.
The Applicant proposes to issue under the Plan, up to $___ million of its
[ ]% Senior Notes due 2006 (the "Senior Notes") under an indenture (the "Senior
Notes Indenture") and up to 315,000 Units of Earn Out Notes, Series I (the
"EONs" and, together with the Senior Notes, the "Notes") under an indenture (the
"EONs Indenture" and, together with the Senior Notes Indenture, the
"Indentures"). The Notes will be issued to discharge in part claims of existing
creditors in the Bankruptcy Case described below.
As further described below, the Notes are proposed to be issued in
reliance upon the exemption from registration under the Securities Act of 1933,
as amended (the "Securities Act"), set forth in Section 1145(a)(1) of Title 11
of the United States Code 11 U.S.C. '101 et seq. (the "Bankruptcy Code"),
applicable to the offer or sale under a Chapter 11 reorganization plan by an
entity that is not an underwriter of a security of a debtor in exchange for a
claim against such debtor.
On January 15, 1998, the Company filed a petition for relief under Chapter
11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern
District of New York (the "Court"). The Company continues to own and manage its
properties and assets as debtor-in-possession pursuant to sections 1107(a) and
1108 of the Bankruptcy Code.
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On March 4, 1998, the Court, pursuant to section 1125 of the Bankruptcy
Code, entered an order approving the Company's Disclosure Statement, originally
dated January 15, 1998, and thereafter amended on February 26 and March 3, 1998
(the "Amended Disclosure Statement"), as containing adequate information and
authorized the Company to solicit acceptances of its Amended Plan of
Reorganization (the "Amended Plan"). The Amended Plan was further amended
subsequent to the date of the Amended Disclosure Statement. The Revised Third
Amended and Restated Plan was filed with the Court on June 3, 1998.
The hearing to consider confirmation of the Plan was commenced on June 1,
1998, before the Court and on June 9, 1998, the Court entered an order
confirming the Plan.
A copy of the Amended Disclosure Statement is attached as Exhibit T3E5 to
this Form T-3 and a copy of the Second Amended Plan is attached as Exhibit T3E22
to this Form T-3. Information in this Form T-3 relating to future actions or
intentions of the Applicant or other parties pursuant to the Plan are the
current intentions of such parties, pursuant to the Plan and as described in the
Amended Disclosure Statement, which actions may be subject to modification,
provided that all necessary approvals and/or consents have been obtained.
Section 1145 of the Bankruptcy Code exempts the offer or sale of
securities under a plan of reorganization from registration under the Securities
Act and state law if three principal requirements are satisfied: (1) the
securities are issued by a debtor, its successor, or an affiliate participating
in a joint plan with the debtor (provided that such entity is not an underwriter
as defined in section 1145(b) of the Bankruptcy Code) under a plan of
reorganization; (2) the recipients of the securities hold a claim against the
debtor or such affiliate, an interest in the debtor or such affiliate, or a
claim for an administrative expense against the debtor or such affiliate; and
(3) the securities are issued entirely in exchange for the recipients' claim
against or interest in the debtor or such affiliate, or "principally" in such
exchange and "partly" for cash or property.
The Applicant believes that the issuance of the Notes under the Indentures
governing the Notes to certain creditors of the Applicant pursuant to the Plan
will satisfy all three conditions of Section 1145 of the Bankruptcy Code because
(a) the issuances of the Notes are expressly contemplated under the Plan as part
of the reorganization; (b) the recipients are holders of "claims" against the
Company; and (c) the recipients will obtain such Notes in exchange for their
prepetition claims.
AFFILIATIONS
3. Affiliates. Furnish a list or diagram of all affiliates of the applicant and
indicate the respective percentages of voting securities or other bases of
control.
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As of June 9, 1998:
Percentage
Owned by
Immediate
Subsidiaries Jurisdiction Parent
- -------------------------------------------------------------------------
Home Group Funding Corporation Delaware 100%
Home Group Financial Services, Inc. New York 100
Maiden Lane Realty, Inc. New York 100
Sterling Forest Management, LLC Delaware 100
Sterling Forest, LLC (Series B
Interest) Delaware 100
South County Services, Inc. New York 100
South County Water Corp. New York 100
South County Sewer Corp. New York 100
Sterling Lake Associates General
Partnership New York 50
Sterling Pines, Inc. New York 100
Sterling Lake Associates
General Partnership New York 50
The Home Insurance Company New Hampshire 100
Settlement Designs, Inc. New Jersey 100
Home International Services, Inc. Delaware 100
Glendale Speciality Risks Insurance
Services, Inc. California 100
Briarpark Specialty Risks, Inc. Texas 100
Modern Fold Holdings, Inc. Delaware 100
Modernfold, Inc. Delaware 100
EMCO Manufacturing
Company, Inc. Delaware 100
EMCO Industries, Inc. Kansas 100
Cityvest International Limited Bermuda 100
Cityvest Reinsurance Limited Bermuda 100
US International Re, Inc. Delaware 100
US International Reinsurance CompanyNew Hampshire 100
Home International
Services (HK) Limited Hong Kong 100
USI Re Management Limited Hong Kong 100
USI Re Management Limited Ontario,
Canada 100
City International
Insurance Company Limited United Kingdom 100
Gruntal Financial L.L.C. Delaware 36(1)
Gruntal Management L.L.C. Delaware 100
Gruntal & Co., L.L.C. Delaware 100
The GMS Group, L.L.C. New York 100
Gruntal Life Agency, Inc. New York 100
Gruntal Insurance Agency,
L.L.C. New York 100
On March 3, 1997, The Home Insurance Company ("Home Insurance") was placed
under formal supervision pursuant to an Order of Supervision (the "Order of
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(1) The Home Insurance Company also owns 100% of two classes of Gruntal
Financial L.L.C.'s preferred securities called the Preferred A Interest
and the Preferred B Interest.
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5
Supervision") issued by the New Hampshire Insurance Department (the
"Department"). The Department states in the Order of Supervision that this
action was taken in response to Home Insurances Risk-Based Capital report filed
with the Department which indicated that a mandatory control level event had
occurred within the meaning of New Hampshire Revised Statutes Annotated 404-F:6.
Pursuant to the Order of Supervision, the Department oversees and supervises
Home Insurance for the purpose of continuing and intensifying an economic,
actuarial, and accounting review of the books, records and business affairs of
Home Insurance so as to determine what future actions may be appropriate. The
Order of Supervision also provides that Home Insurance may not take certain
actions without the prior approval of the Department, including, among other
things:
(a) make any single claim payment in excess of $1 million except under
conditions specified therein;
(b) make any payment to creditors or other persons in excess of
$500,000, except under certain conditions specified therein;
(c) make any single payment to cedents or reinsurers (a) in excess of
$250,000 or (b) out of the ordinary course of business, or any
commutation of any amount with any cedents or reinsurers;
(d) release any obligation or collateral in excess of $500,000;
(e) materially change the terms of any contracts or enter into any new
contracts in excess of $500,000; and
(f) engage in any transactions with the applicant, Risk Enterprise
Management Limited ("REM"), the Applicant's majority stockholders,
or any subsidiaries, other affiliates, or agents of such entities.
In addition, without limiting the general authority of the Department as
set forth above, the Department under the Order of Supervision has the final
authority to approve, disapprove, or control (including the power to direct) the
following:
(i) the initiation, settlement, or withdrawal of any action, dispute,
arbitration, litigation, or proceeding of any kind involving Home
Insurance other than in the ordinary course of business; and
(ii) the location and material terms of all banking, investment, trust,
deposit, and custodial accounts for assets of Home Insurance,
including but not limited to reserves.
As of June 9, 1998, the Applicant's Series A Common Stock was owned
approximately as follows:
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6
83.56% by Home Holdings Inc. Stock Trust (the "Trust"),(2) 9.85% by Zurich
Home Investments Limited, a corporation organized under the laws of
Bermuda ("ZHI")(3), 6.00% by Centre Reinsurance (Bermuda) Limited ("Centre
Re (Bermuda)")(4) and 0.59% by public holders.
Affiliates as of the Effective Date: Same as above except for the
following changes:
The Home Insurance Company and its direct and indirect subsidiaries will
no longer be subsidiaries of the Applicant. Prior to the Effective Date all of
the issued and outstanding shares of common stock of Home Insurance will be sold
to Home Insurance Holdings, LLC, a New Hampshire limited liability company (the
"LLC"),
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(2) On November 15, 1997, Trygg-Hansa Holding B.V., a corporation organized
under the laws of The Netherlands ("Trygg-Hansa Holding") established the
Trust and, on November 20, 1997, transferred to the Trust all of its
equity interests in the Company for the benefit of the shareholders of
Trygg-Hansa AB, a corporation organized under the laws of Sweden
("Trygg-Hansa"), as of such date. Trygg-Hansa Stiftelsen, a Swedish
foundation, holds a 23.7% beneficial interest in the Trust, however,
Trygg-Hansa Stiftelsen and the other beneficiaries of the Trust have no
power to vote or direct the voting of shares held by the Trust.
(3) ZHI might be deemed to beneficially own approximately 94% of the
outstanding shares of Series A Common Stock (including shares deemed
outstanding pursuant to Rule 13d-3(d)(1) under the Securities and Exchange
Act of 1934, as amended (the "Exchange Act")) because of its ability,
pursuant to a Securityholders' Agreement, dated as of June 12, 1995, as
amended, among the Company, ZHI, Centre Re (Bermuda), Insurance Partners
Advisors, L.P., a Delaware limited partnership, and the Trust, as assignee
of Trygg-Hansa Holding, to restrict the transfer and voting of shares of
Series A Common Stock held by the Trust, which shares were formerly held
by Trygg-Hansa and Trygg-Hansa Holding. Zurich (as defined in the text of
this application) might also be deemed to beneficially own the shares of
Series A Common Stock beneficially owned by Centre Re (Bermuda), by virtue
of Zurich's indirect ownership of all of the shares of voting stock of
Centre Re (Bermuda). Zurich might be deemed to beneficially own
approximately 95% of the outstanding shares (including shares deemed
outstanding pursuant to Rule 13d-3(d)(1) under the Exchange Act). ZHI and
Zurich have informed the Applicant that they disclaim beneficial ownership
of such shares for which they are not the direct or indirect economic
beneficiaries.
(4) The percentages include shares of Series A Common Stock (if any) which the
foregoing persons have the right to acquire upon conversion of Series B
Convertible Stock of the Company and which are deemed outstanding for
purposes of Rule 13d-3(d)(1) under the Exchange Act.
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whose members will consist of certain creditors of the Applicant who accept
membership interests in the LLC pursuant to the Plan. The LLC will be managed by
a non-member manager corporation (the "Manager Corporation"). The voting shares
of the Manager Corporation will be owned as follows: 50% by ZHI or Zurich Centre
Investments Limited, 45.05% by Wilmington Trust Company, a Delaware state
chartered bank, and 4.95% by Trygg-Hansa Holding.
As of the Effective Date all of the Applicant's current equity interests
will be canceled. In addition, pursuant to the Plan, as of the Effective Date,
the holders of the Company's 7% Series A Senior Working Capital Notes and the
Company's 7% Series B Senior Working Capital Notes will receive a pro rata share
of the new common stock of the reorganized Company. Accordingly, as of the
Effective Date, the new common stock of the Company will be owned as follows:
Entity Address Percentage
- ------ ------- ----------
Zurich Capital Markets Company IFSC House 92.5%
Dublin 1, Ireland
Centre Reinsurance Cumberland House 7.5%
Holdings Limited P.O. Box HM 1788
Hamilton HM HX
Bermuda
The ultimate parent company of Zurich Capital Markets Company and Centre
Reinsurance Holdings Limited is Zurich Insurance Company, a corporation
organized under the laws of Switzerland ("Zurich"). The following is a list of
Zurich's other principal affiliates, the country in which they are incorporated
and Zurich's approximate percentage ownership in the equity of such
affiliates:(5)
Percentage Beneficially
Affiliate Jurisdiction Owned by Zurich
- --------- ------------ -----------------------
Zurich Australian Insurance Australia 100%
Zurich Australian Holding Australia 100%
Zurich Australian Life Australia 100%
Zurich Kosmos Austria 100%
Zurich International
(Belgique) Belgium 99.9%
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(5) Zurich has several hundred other affiliates, however, it would not be
practicable for the Applicant to include such affiliates.
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Percentage Beneficially
Affiliate Jurisdiction Owned by Zurich
- --------- ------------ -----------------------
BG Investments Limited Bermuda 100%
Centre Reinsurance Holdings
Bermuda Limited Bermuda 100%
Centre Reinsurance
(Bermuda) Limited Bermuda 100%
Centre Reinsurance Limited Bermuda 100%
CentreLine Reinsurance
Limited Bermuda 100%
Centre Reinsurance (US)
Limited Bermuda 100%
Zurich Asia Holdings Limited Bermuda 67.5%
Zurich Centre Investments
Limited Bermuda 100%
Zurich Home Investments
Limited Bermuda Bermuda 100%
Zurich International
(Bermuda) Limited Bermuda 100%
Zurich do Brasil Brazil 100%
Zurich Canada Holding Canada 100%
Zurich Indemnity of Canada Canada 100%
Zurich Life Insurance
Company of Canada Canada 100%
Zurich Life Insurance
Company of Canada Holdings Canada 100%
Inversiones Suizo-Chilena Chile 100%
Chilena Consolidada Chile 77.6%
Chilena Consolidada Vida Chile 99.1%
Zuritel France 100%
Zuritel Epargne France 100%
Zurich International (France) France 100%
Agrippina Leben Germany 97.5%
Agrippina Rechtsschutz Germany 99.3%
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Percentage Beneficially
Affiliate Jurisdiction Owned by Zurich
- --------- ------------ -----------------------
Agrippina Ruck Germany 93.7%
Agrippina Versicherung Germany 99.3%
Patria Germany 98.9%
Deutsche Allgemeine Germany 100%
Deutsche Allgemeine Leben Germany 100%
Zurich-Agrippina
Beteiligungs-AG Germany 100%
Zurich International
(Deutschland) Germany 100%
Zurich Kaution und Kredit Germany 100%
Zurich Rechtsschutz Germany 100%
Zurich Versicherungs AG Germany 100%
Zurich Insurance (Guam) Guam 67.5%
Zurich Insurance (Asia) Hong Kong 75%
Zurich Biztosito Rt Hungary 100%
PT Zurich Insurance
Indonesia Indonesia 58.5%
PT Zurich PSP Life
Insurance Indonesia Indonesia 70%
Centre Holdings Limited Ireland 100%
Centre Reinsurance Dublin Ireland 100%
Centre Reinsurance
International Limited Ireland 100%
Centre Reinsurance Limited Ireland 100%
Danubio Italy 100%
Minerva Italy 99.9%
Minerva Vita Italy 98%
SIAR Italy 100%
Sicurta 1879 Italy 100%
Zurich International
(Italia) Italy 100%
Zurich Eurolife SA Luxembourg 99.9%
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Percentage Beneficially
Affiliate Jurisdiction Owned by Zurich
- --------- ------------ -----------------------
Zurich Insurance (Malaysia) Malaysia 67.5%
Zurich Compania de Seguros Mexico 51.2%
Zurich Vida Mexico 100%
La Garantie Generale
Marocaine Morocco 98.5%
Zurich International
(Nederland) The Netherlands 100%
Zurich Leven NV The Netherlands 99.9%
Netherlands
ZIC International Antilles 100%
Zurich Pacific Insurance Papua New Guinea 100%
Metropole Portugal 100%
Zurich Insurance
(Singapore) Singapore 67.5%
Caudal Spain 100%
Zurich International
(Espana) Spain 98.9%
Alpina Switzerland 99.9%
Alstadt Switzerland 100%
Assuricum Switzerland 100%
Genevoise Generale Switzerland 100%
Genevoise Vie Switzerland 99.8%
Rud, Blass & Cie Switzerland 100%
Turegum Switzerland 100%
'Zurich' Investment
Management Switzerland 100%
Zurich Life Switzerland 99.9%
Zurich Insurance (Taiwan) Taiwan 68.2%
General Surety &
Guarantee Ltd United Kingdom 100%
Zurich Holdings (UK) United Kingdom 100%
Zurich International (UK) United Kingdom 100%
Zurich Life United Kingdom 100%
Zurich Re (UK) United Kingdom 100%
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Percentage Beneficially
Affiliate Jurisdiction Owned by Zurich
- --------- ------------ -----------------------
Centre Reinsurance
of New York USA 100%
Centre Reinsurance Holdings
(Delaware) USA 100%
Colonial American Casualty USA 100%
Empire Fire and Marine USA 100%
Empire Indemnity USA 100%
Fidelity and Deposit USA 100%
Dreman Value Advisors USA 97%
Federal Kemper Life
Assurance USA 87.8%
Federal Kemper Life
Insurance Company USA 100%
Kemper Corporation USA 87.8%
Kemper Investors Life
Insurance Company USA 87.8%
ZKI Holdings Corporation USA 97%
Zurich Investment
Management Inc USA 97%
Zurich Kemper
Investments Inc USA 97%
Zurich Life Insurance
Company of America USA 87.8%
Assurance Co of America USA 100%
Maine Bonding & Casualty USA 100%
Maryland Casualty USA 100%
Maryland Insurance USA 100%
Marylands Lloyds USA 100%
National Standard USA 100%
Northern Insurance USA 100%
Risk Enterprise Management
Limited USA 85%
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Percentage Beneficially
Affiliate Jurisdiction Owned by Zurich
- --------- ------------ -----------------------
Valiant Insurance USA 100%
Universal Underwriters
Insurance Company USA 100%
Universal Underwriters Life
Insurance Company USA 100%
Universal Underwriters of
Texas USA 100%
Mountain Insurance Agency USA 100%
American Guarantee USA 100%
American Zurich USA 100%
Steadfast Insurance USA 100%
Zurich American of Illinois USA 100%
Zurich Holding of America USA 100%
Zurich Reinsurance Centre
Holdings USA 65.7%
Zurich Reinsurance Centre USA 65.7%
Zurich Internacionale de
Venezuela Venezuela 100%
Seguros Sud America SA Venezuela 68.1%
MANAGEMENT AND CONTROL
4. Directors and Executive Officers. List the names and complete mailing
addresses of all directors and executive officers of the applicant and all
persons chosen to become directors or executive officers. Indicate all offices
with the applicant held or to be held by each person named.
As of June 9, 1998:
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NAME ADDRESS OFFICE
Steven D. Germain 59 Maiden Lane Director and President
New York, NY 10038-4548 and Chief Executive
Officer
Michael D. Palm 59 Maiden Lane Director
New York, NY 10038-4548
Arthur D. Wilson 59 Maiden Lane Treasurer and principal
New York, NY 10038-4548 financial and accounting
officer
Risk Enterprise Management Limited, a Delaware corporation, provides
services, including management services, to the applicant.
As of the Effective Date:
NAME ADDRESS OFFICE
Steven D. Germain 59 Maiden Lane Director
New York, NY 10038-4548
Louis Feldman 59 Maiden Lane Director
New York, NY 10038-4548
It is anticipated that, following the Effective Date, as disclosed in the
Amended Disclosure Statement, the reorganized Company will be merged (the
"Merger") with and into Zurich Reinsurance North America, a Connecticut
insurance company ("ZRNA"). It is Zurich's current intention, subject to certain
conditions, including receipt of all necessary regulatory approvals, to
consummate the Merger after the Effective Date; however, no assurances can be
given that such Merger will occur or, if so, when. It is expected that the
executive officers of the combined entity will consist of the current executive
officers of ZRNA, as set forth in the following table:
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NAME ADDRESS OFFICE
Steven M. Gluckstern One Chase Manhattan Plaza Chairman
New York, NY 10005
Richard E. Smith One Chase Manhattan Plaza President and CEO
New York, NY 10005
Brian E. Kensil One Chase Manhattan Plaza Senior Vice President
New York, NY 10005
Isaac Mashitz One Chase Manhattan Plaza Senior Vice President
New York, NY 10005
Gerald S. King One Chase Manhattan Plaza Senior Vice President
New York, NY 10005
Adrienne W. Reid One Chase Manhattan Plaza Senior Vice President
New York, NY 10005
Michael E. Maloney One Chase Manhattan Plaza Senior Vice President
New York, NY 10005
Corcoran Byrne One Chase Manhattan Plaza Vice President and
New York, NY 10005 Secretary
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5. Principal Owners of Voting Securities. Furnish the following information as
to each person owning 10 percent or more of the voting securities of the
applicant. As of June 9, 1998:
NAME AND PERCENTAGE
COMPLETE TITLE OF OF VOTING
MAILING CLASS AMOUNT SECURITIES
ADDRESS OWNED OWNED(6) OWNED(6)
- ----------------- ----------------- ----------------- -----------------
Home Holdings, Inc.
Stock Trust
c/o Trygg-Hansa AB
Fleminggaten 18 Series A
S-106 26 Common Stock,
Sweden par value $.01 21,340,832 83.56%
Zurich(7)
Mythenquai 2 Series A
8002 Zurich Common Stock,
Switzerland par value $.01 4,045,882 15.85%
As of the Effective Date:
NAME AND PERCENTAGE
COMPLETE TITLE OF OF VOTING
MAILING CLASS AMOUNT SECURITIES
ADDRESS OWNED OWNED OWNED
- ----------------- ----------------- ----------------- -----------------
- --------------------------------------------------------------------------------
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(6) Includes shares of the Company's Series A Common Stock, par value $.01 per
share (the "Series A Common Stock"), which such persons have the right to
acquire upon conversion of Series B Convertible Stock of the Company and
which are deemed outstanding for purposes of Rule 13d-3(d)(1) under the
Exchange Act.
(7) For the purposes of Rule 13d-3(d)(1) under the Exchange Act, ZHI owns
2,514,326 shares (9.85%) of Series A Common Stock and Centre Re (Bermuda)
owns 1,531,556 shares (6.00%) of Series A Common Stock. Accordingly, for
the purposes of such Rule, Zurich as the parent company of ZHI and Centre
Re (Bermuda) beneficially owns such shares of Series A Common Stock.
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Zurich(8)
Mythenquai 2
8002 Zurich Common Stock,
Switzerland par value $.01 100 shares 100
UNDERWRITERS
6. Underwriters. Give the name and complete mailing address of (a) each person
who, within three years prior to the date of filing the application, acted as an
underwriter of any securities of the obligor which were outstanding on the date
of filing the application, and (b) each proposed principal underwriter of the
securities proposed to be offered. As to each person specified in (a), give the
title of each class of securities underwritten.
The Notes proposed to be offered will be exchanged with certain holders of
claims against the Applicant, as set forth in the Plan, without the assistance
of any underwriter.
CAPITAL SECURITIES
7. Capitalization. (a) Furnish the following information as to each authorized
class of securities of the applicant.
As of June 9, 1998:
AMOUNT AMOUNT
TITLE OF CLASS AUTHORIZED OUTSTANDING
------------------------ ------------------------ ------------------------
Series A Common Stock,
$.01 par value 40,000,000 shares 14,114,500 shares
Series B Convertible Stock,
$.01 par value 15,000,000 shares 11,425,177 shares
Preferred Stock, $.01 par
value 300 shares 170 shares
- ------------------------
(8) Zurich Capital Markets Company ("ZCMC") will own 92.5 shares (92.5%) of
the reorganized Company's Common Stock, par value $.01 per share (the
"Common Stock") and Centre Reinsurance Holdings Limited ("CRHL") will own
7.5 shares (7.5%) of the Common Stock. Accordingly, for the purposes of
Rule 13d-3(1) under the Exchange Act, Zurich as the parent company of ZCMC
and CRHL will beneficially own such shares of Common Stock.
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7% Senior Notes due 1998 $100,000,000 $100,000,000
7-f% Senior Notes due 2003 $180,000,000 $517,000
7-f% Senior Sinking Fund
Notes due 2003 $180,000,000 $179,483,000
12% Senior Subordinated
Notes N/A $133,147,141(9)
8% Junior Subordinated Notes N/A $98,546,454(9)
12% Senior Subordinated
Working Capital Notes N/A $20,379,663(9)
7% Series A Working Capital
Notes N/A $15,758,0839(9)
7% Series B Working Capital
Notes N/A $46,550,000(9)
As of the Effective Date:
AMOUNT AMOUNT
TITLE OF CLASS AUTHORIZED OUTSTANDING
------------------------ ------------------------ ------------------------
Common Stock, $.01 par
value 100 shares 100 shares
[ ]% Senior
Notes due 2006 $[ ] $[ ]
Earn Out Notes, Series I 315,000 Units 315,000 Units
Earn Out Note, Series II N/A 1 Note
Earn Out Note, Series III N/A 1 Note
(b) Give a brief outline of the voting rights of each class of voting
securities referred to in paragraph (a) above.
- ------------------------
(9) Does not include accrued interest, if applicable.
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As of June 9, 1998:
Each holder of shares of Series A Common Stock is entitled to one vote on
all matters on which such shareholders are entitled to vote. The other
securities are not voting securities.
As of the Effective Date:
Each holder of shares of Common Stock shall be entitled to one vote for
each share of Common Stock on all matters on which such shareholders are
entitled to vote. The other securities are not voting securities.
INDENTURE SECURITIES
8. Analysis of Indenture Provisions. Insert at this point the analysis of
indenture provisions required under section 305(a)(2) of the Act.
(i) The following applies to the Senior Notes Indenture:
(A) EVENTS OF DEFAULT.
The following are "Events of Default" under the Senior Notes
Indenture:
(1) default by the Company in the payment of interest
(including default in the payment of interest in Additional Notes (as defined in
the Senior Notes Indenture) in lieu of a cash payment) on any Senior Note when
the same becomes due and payable, and the continuance of such default for a
period of 30 days;
(2) default by the Company in the payment of the principal of
any Senior Note (including failure to make a payment pursuant to a change of
control offer or other offer to purchase the Senior Notes which is required to
be made pursuant to the Senior Notes Indenture) when the same becomes due and
payable at maturity;
(3) the failure by the Company to comply with any of its other
covenants or agreements in the Senior Notes or the Senior Notes Indenture, and
the continuance of such failure for a period of 60 days after notice to the
Company by the Trustee under the Senior Notes Indenture (the "Senior Notes
Trustee") or to the Company and the Senior Notes Trustee by the holders of at
least 25% in principal amount of the Senior Notes then outstanding as specified
below;
(4) a default under any evidence of Indebtedness of the
Company or any of its material insurance subsidiaries, whether any such
Indebtedness
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exists on the date of the Senior Notes Indenture or shall thereafter be created,
in the amount, individually or in the aggregate, of $10 million, if the maturity
of such Indebtedness has been accelerated prior to its expressed maturity;
(5) the entering by a court of competent jurisdiction of a
final and non-appealable judgment against the Company or any of its material
insurance subsidiaries in which the Company or any such subsidiary is required
to pay an amount (calculated after the application of any proceeds of insurance
policies applicable to such loss), individually or in the aggregate, in excess
of $10 million, where such final and non-appealable judgment remains unsatisfied
for a period of 60 days;
(6) if the Company or any of its material insurance
subsidiaries, pursuant to or within the meaning of any Bankruptcy Law (as
defined in the Senior Notes Indenture) (i) becomes insolvent, (ii) fails
generally to pay its debts as they become due, (iii) admits in writing its
inability to pay its debts generally as they become due, (iv) commences a
voluntary case or proceeding, (v) consents to, or acquiesces in, the institution
of a bankruptcy or an insolvency proceeding against it or the entry of a
judgment, decree or order for relief against it in an involuntary case or
proceeding, (vi) applies for, consents to or acquiesces in the appointment of or
taking possession by a custodian of the Company or any of its material insurance
subsidiaries or of all or substantially all of its property or (vii) makes a
general assignment for the benefit of its creditors; and
(7) the entering of a judgment, decree or order by a court of
competent jurisdiction under any Bankruptcy Law which (i) is for relief against
the Company or any of its material insurance subsidiaries in an involuntary
case, (ii) appoints a custodian of the Company or any of its material insurance
subsidiaries or a custodian for all or substantially all of its property or
(iii) orders the winding-up or liquidation of the Company or any of its material
insurance subsidiaries; and such judgment, decree or order shall remain unstayed
and in effect for a period of 60 consecutive days.
A Default under clause (3) above is not an Event of Default until the
Senior Notes Trustee or the holders of at least 25% in principal amount of the
Senior Notes then outstanding notify the Company of the Default and the Company
does not cure the Default within the period specified in such subsection after
receipt of the notice. The notice must specify the Default, demand that it be
remedied and state that the notice is a "Notice of Default". Such notice shall
be given by the Senior Notes Trustee if requested by the holders of at least 25%
in principal amount of the Senior Notes then outstanding.
If an Event of Default (other than an Event of Default specified in
clauses (6) or (7) above) occurs and is continuing, the Senior Notes Trustee by
notice to the Company, or the holders of at least 25% in principal amount of the
Senior Notes then outstanding by notice to the Company and the Senior Notes
Trustee, may declare the unpaid principal of and accrued interest on all the
Senior Notes to be due and
<PAGE>
19
payable. Upon such declaration, the principal of and accrued interest on such
Senior Notes shall be due and payable immediately. If an Event of Default
specified in subsection clause (6) or (7) above of the Senior Notes Indenture
occurs, all unpaid principal of and accrued interest on the Senior Notes then
outstanding shall automatically become due and payable without any declaration
or other act on the part of the Senior Notes Trustee or any Senior Note holder.
Upon payment of such principal amount and interest, all of the Company's
obligations under the Senior Notes and the Senior Notes Indenture shall
terminate. The holders of a majority in principal amount of the Senior Notes by
notice to the Senior Notes Trustee may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of the
acceleration.
If an Event of Default occurs and is continuing, the Senior Notes Trustee
may pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Senior Notes or to enforce the
performance of any provision of the Senior Notes or the Senior Notes Indenture.
The Senior Notes Trustee may maintain a proceeding even if it does not possess
any of the Senior Notes or does not produce any of them in the proceeding. A
delay or omission by the Senior Notes Trustee or any Senior Note holder in
exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. No remedy is exclusive of any other remedy. All available
remedies are cumulative.
(B) EXECUTION AND AUTHENTICATION; APPLICATION OF PROCEEDS.
The Senior Notes shall be authenticated and delivered from time to time
pursuant to the terms of the Indenture. Two officers shall sign the Senior Notes
for the Company by manual or facsimile signature. The Company's seal shall be
reproduced on the Senior Notes. If an officer whose signature is on a Senior
Note no longer holds that office at the time the Senior Note is authenticated,
the Senior Note shall be valid nevertheless. A Senior Note shall not be valid
until authenticated by the manual signature of the Senior Notes Trustee. The
signature shall be conclusive evidence that the Senior Note has been
authenticated under the Senior Notes Indenture. The Senior Notes will be issued
in exchange for claims against the Company, and accordingly, the issuance of the
Senior Notes will not result in proceeds to the Company.
(C) RELEASE OR RELEASE AND SUBSTITUTION OF ANY PROPERTY SUBJECT TO
THE LIEN OF THE DEBENTURE.
Not applicable.
(D) SATISFACTION AND DISCHARGE.
<PAGE>
21
The obligations of the Company under the Senior Notes and the Senior Notes
Indenture will terminate (except for certain obligations of the Company to
indemnify the Trustee and the Paying Agent under certain circumstances, and
certain obligations with respect to unclaimed funds) when (i) all outstanding
Senior Notes theretofore authenticated and delivered (other than Senior Notes
which have been destroyed, lost or stolen and which have been replaced or paid
as provided in Section 2.7 of the Senior Notes Indenture) have been delivered to
the Senior Notes Trustee for cancellation, (ii) the Company has paid or caused
to be paid all other sums payable by it, and (ii) the Company has delivered to
the Senior Notes Trustee an Officers' Certificate and an opinion of Counsel,
each stating that all conditions precedent specified by the Senior Notes
Indenture relating to the satisfaction and discharge of the Indenture have been
complied with.
In addition, the Company may, at its option and at any time (subject to
the survival of certain obligations explained above) elect to have its
obligations discharged with respect to the outstanding Senior Notes and the
Senior Notes Indenture (a "Legal Defeasance"), or may terminate its obligations
under the covenants contained in Sections 3.7, 3.8, 3.10, 3.11, 4.1 and 4.2 of
the Senior Notes Indenture with respect to the outstanding Senior Notes (a
"Covenant Defeasance"), if at any time:
(1) The Company irrevocably deposits in trust with the Senior
Notes Trustee, pursuant to an irrevocable trust and security agreement in form
and substance reasonably satisfactory to the Senior Notes Trustee, U.S. Legal
Tender or direct non-callable obligations of, or non-callable obligations
guaranteed by, the United States of America for the payment of which obligation
or guarantee the full faith and credit of the United States of America is
pledged maturing as to principal and interest in such amounts and at such times
as are, without consideration of the reinvestment of such interest and after
payment of all federal, state and local taxes or other charges or assessments in
respect thereof payable by the Senior Notes Trustee, sufficient (in the opinion
of a nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Senior Notes Trustee) to pay the
principal of and interest on the outstanding Senior Notes on the dates on which
any such payments are due and payable in accordance with the terms of the Senior
Notes Indenture and of the Senior Notes;
(2) Such deposits shall not cause the Senior Notes Trustee to
have a conflicting interest as defined in and for purposes of the Trust
Indenture Act;
(3) No Default or Event of Default shall have occurred or be
continuing on the date of such deposit or shall occur on or before the
ninety-first day after the date of such deposit;
(4) Such deposit will not result in a breach or violation of,
or constitute a default under, the Senior Notes Indenture or any other
instrument to which the Company is a party or by which it or its property is
bound;
<PAGE>
22
(5) The Company shall deliver to the Senior Notes Trustee an
Opinion of Counsel, (A) in the case of a Legal Defeasance, to the effect that
(i) the Internal Revenue Service has published a ruling, (ii) the Company has
received a ruling from the Internal Revenue Service or (iii) since the date
hereof, there has been a change in applicable United States federal income tax
law, in any such case to the effect that, and based upon such opinion shall
confirm that, holders of the Senior Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such deposit and the Legal
Defeasance contemplated hereby, and will be subject to federal income tax in the
same amounts, in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred or, (B) in the case of a
Covenant Defeasance, to the effect that the holders of Senior Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and the Covenant Defeasance contemplated hereby, and will be
subject to federal income tax in the same amounts, in the same manner and at the
same times as would have been the case if such deposit and defeasance had not
occurred;
(6) The deposit shall not result in the Company, the Senior
Notes Trustee or the trust becoming or being deemed to be an "investment
company" under the Investment Company Act of 1940, as amended;
(7) The holders, or the Senior Notes Trustee on behalf of such
holders, shall have a perfected security interest under applicable law in the
monies or U.S. Government Obligations deposited pursuant to clause (1) above;
and
(8) The Company has delivered to the Senior Notes Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent specified herein relating to the Legal Defeasance or the
Covenant Defeasance, as applicable, contemplated by Section 8.1 of the Senior
Notes Indenture have been complied with.
If the Company exercises its option to make a Legal Defeasance or a
Covenant Defeasance, payment of the Senior Notes may not be accelerated because
of an Event of Default.
(E) EVIDENCE AS TO COMPLIANCE WITH CONDITIONS AND COVENANTS.
The Company is required to furnish the Senior Notes Trustee, within 120
days after the end of each fiscal year of the Company, an Officers' Certificate
complying with Section 314(a)(4) of the Trust Indenture Act and stating whether
or not the signers know of any Default that occurred during such fiscal year. If
they do, the Officers' Certificate shall describe the Default and its status.
Such compliance shall be determined without regard to periods of grace or notice
requirements.
The Company is also required to deliver to the Senior Notes Trustee an
Officers' Certificate promptly upon becoming aware of any Event of Default or a
<PAGE>
23
Default which could result in an Event of Default described in clause (4) of
Section (A) above and which Officers' Certificate will specify such Default or
Event of Default.
(ii) The following applies to the EONs Indenture:
(A) EVENTS OF DEFAULT
The following are "Events of Default" under the EONs, Indenture:
(1) the Company defaults in the payment of any amount due on any EON
when the same becomes due and payable and the default continues for a period of
30 days;
(2) the Company fails to comply with any of its other covenants or
agreements in the EONs or the EONs Indenture and the default continues for 60
days after notice to the Company by the Trustee under the EONs Indenture (the
"EONs Trustee") or to the Company and the EONs Trustee by the holders of EONs
representing at least 25% of the EONs then outstanding;
(3) the Company, pursuant to or within the meaning of any Bankruptcy
Law (as defined in the EONs Indenture) (i) becomes insolvent, (ii) fails
generally to pay its debts as they become due, (iii) admits in writing its
inability to pay its debts generally as they become due, (iv) commences a
voluntary case or proceeding, (v) consents to, or acquiesces in, the institution
of a bankruptcy or an insolvency proceeding against it or the entry of a
judgment, decree or order for relief against it in an involuntary case or
proceeding, (vi) applies for, consents to or acquiesces in the appointment of or
taking possession by a custodian of the Company or of all or substantially all
of its property or (vii) makes a general assignment for the benefit of its
creditors; and
(4) the entering by a court of competent jurisdiction of a judgment,
decree or order under any Bankruptcy Law which (i) is for relief against the
Company in an involuntary case, (ii) appoints a custodian of the Company or a
custodian for all or substantially all of its property or (iii) orders the
winding-up or liquidation of the Company; and such judgment, decree or order
shall remain unstayed and in effect for a period of 90 consecutive days.
A Default under clause (2) above is not an Event of Default until the EONs
Trustee or the holders of EONs representing at least 25% of the EONs then
outstanding notify the Company of the Default and the Company does not cure the
Default within the period specified in such subsection after receipt of the
notice. The notice must specify the Default, demand that it be remedied and
state that the notice is a "Notice of Default". Such notice shall be given by
the EONs Trustee if requested by the holders of EONs representing at least 25%
of the EONs then outstanding.
If an Event of Default occurs and is continuing, the EONs Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payments
<PAGE>
24
payable on the EONs or to enforce the performance of any provision of the EONs
or the EONs Indenture. The EONs Trustee may maintain a proceeding even if it
does not possess any of the EONs or does not produce any of them in the
proceeding. A delay or omission by the EONs Trustee or any holder of EONs in
exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. No remedy is exclusive of any other remedy. All available
remedies are cumulative.
(B) EXECUTION AND AUTHENTICATION; APPLICATION OF PROCEEDS.
The EONs shall be authenticated and delivered from time to time pursuant
to the terms of the EONs Indenture. Two officers shall sign the EONs for the
Company by manual or facsimile signature. The Company's seal shall be reproduced
on the EONs. If an officer whose signature is on an EON no longer holds that
office at the time the EON is authenticated, the EON shall be valid
nevertheless. An EON shall not be valid until authenticated by the manual
signature of the EONs Trustee. The signature shall be conclusive evidence that
the EON has been authenticated under the EONs Indenture. The EONs will be issued
in exchange for claims against the Company, and accordingly, the issuance of the
EONs will not result in proceeds to the Company.
(C) RELEASE OR RELEASE AND SUBSTITUTION OF ANY PROPERTY SUBJECT TO
THE LIEN OF THE DEBENTURE.
Not Applicable.
(D) SATISFACTION OR DISCHARGE.
The EONs shall expire upon the final payment made by the Company to the
holders of EONs with respect to the last taxable year of the Home Group (as
defined below) that ends after the Effective Date (a "Taxable Year") of the net
operating loss carryforward period of the Specified NOL Carryovers if, but only
if, all payments required under the EONs with respect to prior Taxable Years,
together with interest accrued thereon, have been paid in full. For the purposes
hereof, "Home Group" means the Company, and with respect to any period for which
it joins in filing consolidated returns for Federal income tax purposes, the
consolidated group (as defined in Treas. Reg. Section 1.1502-1(h)) of which the
Company is a member. For the purposes hereof, "Specified NOL Carryover" means
the aggregate net operating loss carryovers, as described in Section 172 of the
Internal Revenue Code of 1986, as amended (the "Code"), and any corresponding
state and local income tax provisions, as the case may be, available to the
Company immediately after the Effective Date as set forth in the Plan adjusted
to take into account further reductions required as a result of consummation of
the Plan, including those reductions required pursuant to Sections 108(b) and
382(l)(5) of the Code.
<PAGE>
25
(E) EVIDENCE AS TO COMPLIANCE WITH CONDITIONS AND COVENANTS.
The Company is required to furnish the EONs Trustee, within 120 days after
the end of each fiscal year of the Company, an Officers' Certificate complying
with Section 314(a)(4) of the Trust Indenture Act and stating whether or not the
signers know of any Default that occurred during such fiscal year. If they do,
the Officers' Certificate shall describe the Default and its status. Such
compliance shall be determined without regard to periods of grace or notice
requirements
9. Other Obligors. Give the name and complete mailing address of any person,
other than the applicant, who is an obligor upon the indenture securities.
There are no other obligors with respect to the Notes.
CONTENTS OF APPLICATION FOR QUALIFICATION. This application for
qualification comprises --
(a) Pages numbered 1 to __, consecutively.(10)
(b)(i) The statement of eligibility and qualification of the Senior
Notes Trustee under the Senior Notes Indenture.
(b)(ii) The statement of eligibility and qualification of the EONs
Trustee under the EONs Indenture.
(c) The following exhibits in addition to those filed as a part of
the statement of eligibility and qualification of the trustee.
Exhibit T3A. Restated Certificate of Incorporation of the
Company filed with the Secretary of State of the State
of Delaware on May 28, 1997 under the name Home Holdings
Inc.
Exhibit T3B. Amended By-Laws of the Company.
Exhibit T3C1. Form of Senior Notes Indenture including
exhibits thereto.
Exhibit T3C2. Form of EONs Indenture including exhibits
thereto.
Exhibit T3D. Not Applicable.
- ------------------------
(10) Pursuant to Rule 309(a) of Regulation S-T, requirements as to sequential
numbering shall not apply to this electronic format document.
<PAGE>
26
Exhibit T3E1. Notice of Chapter 11 Bankruptcy Case, Meeting
of Creditors & Deadlines.
Exhibit T3E2. Notice of Last Date for Filing of Proofs of
Claim Against Home Holdings Inc. and Procedure
Therefor.
Exhibit T3E3. Proof of Claim Form.
Exhibit T3E4. Notice of (a) Hearing on Approval of Disclosure
Statement and (b) Deadlines and Procedures for
Filing Objections to Disclosure Statement.
Exhibit T3E5. Amended Disclosure Statement with respect to the
Amended Plan of Reorganization, dated as of March 3,
1998.
Exhibit T3E6. Amended Plan, dated as of March 3, 1998.
Exhibit T3E7. Home Holdings Inc. Projected Financial
Information.
Exhibit T3E8. Home Holdings Inc. Liquidation Analysis.
Exhibit T3E9. Company's Annual Report on Form 10-K for the
year ended December 31, 1996, incorporated
herein by reference (SEC File No. 0-19349).
Exhibit T3E10. Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997, incorporated herein by
reference (SEC File No. 0-19349).
Exhibit T3E11. Order (A) pursuant to 11 U.S.C. ss.1125 and
Bankruptcy Rule 3017(b), dated March 4, 1998, approving
Debtors' Disclosure Statement respecting the Amended
Plan and (B) approving Solicitation Letter of Official
Committee of Unsecured Creditors.
Exhibit T3E12. Notice of (a) Hearing on Confirmation of
Amended Plan and (b) Deadlines and Procedures
for Filing Objections to Confirmation of
Amended Plan.
Exhibit T3E13. Recommendation Letter from the Official
Committee of Unsecured Creditors.
Exhibit T3E14. Recommendation Letter from the Unofficial
Committee of Holders of Home Holdings Inc. 7% Senior
Notes due in 1998, 7 7/8% Senior Sinking Fund Notes due
in 2003 and 7 7/8% Senior Notes due in 2003.
<PAGE>
27
Exhibit T3E15. Individual Ballot for Class 4-A (for accepting or
rejecting the Amended Plan).
Exhibit T3E16. Individual Ballot for Class 4-B (for accepting or
rejecting the Amended Plan).
Exhibit T3E17. Individual Ballot for Class 4-C (for accepting
or rejecting the Amended Plan)
Exhibit T3E18. Individual Ballot for Class 4-D (for accepting
or rejecting the Amended Plan)
Exhibit T3E19. Individual Ballot for Class 4-E (for accepting
or rejecting the Amended Plan)
Exhibit T3E20. Individual Ballot for Class 5 (for accepting or
rejecting the Amended Plan)
Exhibit T3E21. Individual Ballot for Class 6 (for accepting or
rejecting the Amended Plan)
Exhibit T3E22. Second Amended Plan dated as of April 29, 1998
Exhibit T3E23. Notice of Motion Regarding Modification of Plan
of Reorganization under 11 U.S.C. ss.1127 and
Fed. R. Bankr. P. 3019, dated April 29, 1998.
Exhibit T3E24. Motion under 11 U.S.C. ss.1127 and Fed. R.
Bankr. P. 3019 for Determination that
Modifications of Plan Shall Be Deemed Accepted
and that Disclosure Statement Contains Adequate
Information.
Exhibit T3F1. See Cross Reference Sheet showing the location in
the Senior Notes Indenture of the provisions inserted
therein pursuant to Section 310 through 318(a),
inclusive, of the Trust Indenture Act of 1939 (included
in Exhibit T3C1 hereof).
Exhibit T3F2. See Cross Reference Sheet showing the location in
the EONs Indenture of the provisions inserted therein
pursuant to Section 310 through 318(a), inclusive, of
the Trust Indenture Act of 1939 (included in Exhibit
T3C2 hereof).
<PAGE>
28
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the applicant, Home Holdings Inc., a corporation organized and existing
under the laws of the State of Delaware, has duly caused this application to be
signed on its behalf by the undersigned, thereunto duly authorized, and its seal
to be hereunto affixed and attested, all in the City of New York, and State of
New York, on the 12th day of June, 1998.
(SEAL) HOME HOLDINGS INC.
By /s/ Arthur D. Wilson
-------------------------------------
Name: Arthur D. Wilson
Title: Treasurer (Principal Financial
and Accounting Officer
through the Services Agreement
with Risk Enterprise
Management Limited)
Attest /s/ Roger M. Moak
-----------------------------------
Name: Roger M. Moak
Title: Executive Vice President,
General Counsel & Corporate
Secretary of Risk
Enterprise Management
Limited
Registration No.
================================================================================
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) _______
WILMINGTON TRUST COMPANY
(Exact name of trustee as specified in its charter)
Delaware 51-0055023
(State of incorporation) (I.R.S. employer identification no.)
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
(Address of principal executive offices)
Cynthia L. Corliss
Vice President and Trust Counsel
Wilmington Trust Company
Rodney Square North
Wilmington, Delaware 19890
(302) 651-8516
(Name, address and telephone number of agent for service)
HOME HOLDINGS INC.
(Exact name of obligor as specified in its charter)
Delaware 13-3584978
(State of incorporation) (I.R.S. employer identification no.)
c/o Risk Enterprise Management Limited
59 Maiden Lane
New York, New York 10038-4548
(Address of principal executive offices) (Zip Code)
[ %] Senior Notes Due [ ], 2006
(Title of the indenture securities)
================================================================================
<PAGE>
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Deposit Insurance Co. State Bank Commissioner
Five Penn Center Dover, Delaware
Suite #2901
Philadelphia, PA
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each
affiliation:
Based upon an examination of the books and records of the trustee
and upon information furnished by the obligor, the obligor is not an
affiliate of the trustee.
ITEM 3. LIST OF EXHIBITS.
List below all exhibits filed as part of this Statement of
Eligibility and Qualification.
A. Copy of the Charter of Wilmington Trust Company, which includes the
certificate of authority of Wilmington Trust Company to commence
business and the authorization of Wilmington Trust Company to
exercise corporate trust powers. Said Charter is incorporated herein
by reference to Registration No. 333-51491/Form S-4 Registration
Statement to Form T-1 filed by Wilmington Trust Company in May 7,
1998, with respect to 10% Senior Notes Due 2005, Series B of PSINet
Inc.
B. Copy of By-Laws of Wilmington Trust Company. Said By-Laws are
incorporated herein by reference to Registration No. 333- 51491/Form
S-4 Registration Statement to Form T-1 filed by Wilmington Trust
Company in May 7, 1998, with respect to 10% Senior Notes Due 2005,
Series B of PSINet Inc.
C. Consent of Wilmington Trust Company required by Section 321(b) of
Trust Indenture Act.
D. Copy of most recent Report of Condition of Wilmington Trust Company.
Said Report of Condition is incorporated herein by reference to
Registration No. 333-51491/Form S-4 Registration Statement to Form
T-1 filed by Wilmington Trust Company in May 7, 1998, with respect
to 10% Senior Notes Due 2005, Series B of PSINet Inc.
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, Wilmington Trust Company, a corporation organized and existing under
the laws of Delaware, has duly caused this Statement of Eligibility to be signed
on its behalf by the undersigned, thereunto duly authorized, all in the City of
Wilmington and State of Delaware on the 9th day of June, 1998.
WILMINGTON TRUST COMPANY
[SEAL]
Attest: /s/ James P. Lawler By: /s/ Emmett R. Harmon
------------------------- -----------------------------
Assistant Secretary Name: Emmett R. Harmon
Title: Vice President
2
<PAGE>
EXHIBIT C
Section 321(b) Consent
Pursuant to Section 321(b) of the Trust Indenture Act of 1939, Wilmington
Trust Company hereby consents that reports of examinations by Federal, State,
Territorial or District authorities may be furnished by such authorities to the
Securities Exchange Commission upon requests therefor.
WILMINGTON TRUST COMPANY
Dated: June 9, 1998 By: /s/ Emmett R. Harmon
------------------------
Name: Emmett R. Harmon
Title: Vice President
3
Registration No.
================================================================================
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) _______
WILMINGTON TRUST COMPANY
(Exact name of trustee as specified in its charter)
Delaware 51-0055023
(State of incorporation) (I.R.S. employer identification no.)
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
(Address of principal executive offices)
Cynthia L. Corliss
Vice President and Trust Counsel
Wilmington Trust Company
Rodney Square North
Wilmington, Delaware 19890
(302) 651-8516
(Name, address and telephone number of agent for service)
HOME HOLDINGS INC.
(Exact name of obligor as specified in its charter)
Delaware 13-3584978
(State of incorporation) (I.R.S. employer identification no.)
c/o Risk Enterprise Management Limited
59 Maiden Lane
New York, New York 10038-4548
(Address of principal executive offices) (Zip Code)
Earn Out Notes, Series I
(Title of the indenture securities)
================================================================================
<PAGE>
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Deposit Insurance Co. State Bank Commissioner
Five Penn Center Dover, Delaware
Suite #2901
Philadelphia, PA
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each
affiliation:
Based upon an examination of the books and records of the trustee
and upon information furnished by the obligor, the obligor is not an
affiliate of the trustee.
ITEM 3. LIST OF EXHIBITS.
List below all exhibits filed as part of this Statement of
Eligibility and Qualification.
A. Copy of the Charter of Wilmington Trust Company, which includes the
certificate of authority of Wilmington Trust Company to commence
business and the authorization of Wilmington Trust Company to
exercise corporate trust powers. Said Charter is incorporated herein
by reference to Registration No. 333-51491/Form S-4 Registration
Statement to Form T-1 filed by Wilmington Trust Company in May 7,
1998, with respect to 10% Senior Notes Due 2005, Series B of PSINet
Inc.
B. Copy of By-Laws of Wilmington Trust Company. Said By-Laws are
incorporated herein by reference to Registration No. 333- 51491/Form
S-4 Registration Statement to Form T-1 filed by Wilmington Trust
Company in May 7, 1998, with respect to 10% Senior Notes Due 2005,
Series B of PSINet Inc.
C. Consent of Wilmington Trust Company required by Section 321(b) of
Trust Indenture Act.
D. Copy of most recent Report of Condition of Wilmington Trust Company.
Said Report of Condition is incorporated herein by reference to
Registration No. 333-51491/Form S-4 Registration Statement to Form
T-1 filed by Wilmington Trust Company in May 7, 1998, with respect
to 10% Senior Notes Due 2005, Series B of PSINet Inc.
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, Wilmington Trust Company, a corporation organized and existing under
the laws of Delaware, has duly caused this Statement of Eligibility to be signed
on its behalf by the undersigned, thereunto duly authorized, all in the City of
Wilmington and State of Delaware on the 9th day of June, 1998.
WILMINGTON TRUST COMPANY
[SEAL]
Attest: /s/ James P. Lawler By: /s/ Emmett R. Harmon
----------------------- --------------------------
Assistant Secretary Name: Emmett R. Harmon
Title: Vice President
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EXHIBIT C
Section 321(b) Consent
Pursuant to Section 321(b) of the Trust Indenture Act of 1939, Wilmington
Trust Company hereby consents that reports of examinations by Federal, State,
Territorial or District authorities may be furnished by such authorities to the
Securities Exchange Commission upon requests therefor.
WILMINGTON TRUST COMPANY
Dated: June 9, 1998 By: /s/ Emmett R. Harmon
------------------------------
Name: Emmett R. Harmon
Title: Vice President
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
HOME HOLDINGS INC.
The undersigned certify that they are the President and Treasurer,
respectively, of Home Holdings Inc., a corporation organized under the laws of
the State of Delaware (the "Corporation"), and do hereby certify as follows:
1. The name of the Corporation is Home Holdings Inc.
2. The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware on September 21, 1990
under the name TVH Acquisition Corporation.
3. A Restated Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware on December 22, 1993
under the name Home Holdings Inc.
4. This Amended and Restated Certificate of Incorporation was duly
adopted at an annual meeting of the stockholders of the Corporation in
accordance with Sections 242 and 245 of the General Corporation Law of the State
of Delaware.
5. The text of the Restated Certificate of Incorporation of the
Corporation is amended hereby to read in its entirety as follows:
FIRST: The name of the Corporation is Home Holdings Inc.
(hereinafter the "Corporation").
SECOND: The address of the registered office of the Corporation in
the State of Delaware is 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at that address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware as set forth in Title 8 of the Delaware
Code (the "GCL").
FOURTH: A. The total number of shares of stock which the Corporation
shall have authority to issue is (1) 40,000,000 shares of Series A
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Common Stock, each having a par value of One Cent ($.01) (the "Series A Common
Stock); (2) 15,000,000 shares of Series B convertible stock, par value One Cent
($.01) per share (the "Series B Convertible Stock," and together with the Series
A Common Stock, the "Common Stock"); and (3) 300 shares of preferred stock, par
value One Cent ($.01) per share (the "Preferred Stock"), to be issued in one or
more classes or in one or more series within such class, which classes or series
may have such voting powers, full or limited, or no voting powers, and such
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, including,
without limiting the generality of the foregoing, such provisions as may be
desired concerning voting, redemption, dividends, dissolution or distribution of
assets, conversion or exchange, and such other subjects or matters as may be
established or amended by the Board of Directors and stated in a resolution or
resolutions adopted from time to time, and without any stockholder action or
approval thereof required, providing for the issue of such shares of Preferred
Stock.
B. The rights of the holders of the Series A Common Stock and Series
B Convertible Stock shall be as follows:
1. Except as otherwise provided in this Amended and Restated
Certificate of Incorporation, all shares of Series A Common Stock and Series B
Convertible Stock shall be identical and shall entitle the holders thereof to
the same rights and privileges;
2. Each holder of shares of Series A Common Stock shall be
entitled to one vote for each share of Series A Common Stock on all matters.
Except as otherwise required by law or provided in this Amended and Restated
Certificate of Incorporation, the holders of shares of Series B Convertible
Stock shall have no vote on any matter;
3. Subject to the rights of the holders of Preferred Stock or
any other class or series of stock having a preference as to dividends over the
Series A Common Stock and the Series B Convertible Stock then outstanding, the
holders of Series A Common Stock and Series B Convertible Stock shall be
entitled to receive, to the extent permitted by law, and to share equally and
ratably, share for share, such dividends as may be declared from time to time by
the Board of Directors, whether payable in cash, property or securities of the
Corporation; provided, however, that if the dividends that are declared are
payable in shares of Series A Common Stock or Series B Convertible Stock, such
dividends shall be declared at the same rate on each class of stock, and the
dividends payable to holders of Series A Common Stock shall be paid in shares of
Series A Common Stock and the dividends payable to holders of Series B
Convertible Stock shall be paid in Series B Convertible Stock;
4. In the event of the voluntary or involuntary liquidation,
dissolution, distribution of assets or other winding-up of the Corporation,
after
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distribution in full of preferential amounts, if any, to be distributed to the
holders of shares of Preferred Stock or any other class or series of stock
having a preference as to liquidating distributions over the Series A Common
Stock and the Series B Convertible Stock, the holders of the Series A Common
Stock and the Series B Convertible Stock shall be entitled to share equally and
ratably, share for share, in all of the remaining assets of the Corporation of
whatever kind available for distribution to stockholders. A consolidation or
merger of the Corporation with and into any other corporation or corporations
shall not be deemed to be a liquidation, dissolution or winding-up of the
Corporation as those terms are used in this section;
5. (a) Each record holder of Series B Convertible Stock is
entitled at any time to convert any or all of the shares of such holder's Series
B Convertible Stock into an equal number of shares of Series A Common Stock;
provided, however, that no holder of Series B Convertible Stock is entitled to
convert any share or shares of Series B Convertible Stock to the extent that, as
a result of such conversion, such holder or its Affiliates (as defined in the
Securityholders' Agreement, dated as of June 12, 1995, by and among the
Corporation and several of its securityholders) would directly or indirectly
own, control or have power to vote or dispose of a greater quantity of
securities of any kind issued by the Corporation than such holder and its
Affiliates are permitted to own, control or have power to vote or dispose of
under any law or under any regulation, order, rule or other requirement of any
governmental authority at any time applicable to such holder and its Affiliates.
(b) Each conversion of shares of Series B Convertible
Stock, as herein described, shall be effected by the surrender of the
certificate or certificates representing the shares to be converted at the
principal office of the Corporation at any time during normal business hours,
upon 30 days' prior written notice by the holder of such shares to be converted
stating that such holder desires to convert the shares, or a stated number of
the shares, represented by such certificate or certificates into Series a Common
Stock, that upon such conversion such holder and its Affiliates shall not
directly or indirectly own, control or have the power to vote or dispose of a
greater quantity of securities of any kind issued by the Corporation than such
holder and its Affiliates are permitted to own, control or have the power to
vote or dispose of under any law or under any regulation, order, rule or other
requirement of any governmental authority at any time applicable to such holder
and its Affiliates. Such conversion shall be deemed to have been effected as of
the close of business on the date on which such certificate or certificates have
been surrendered, and at such time the rights of the holder of the converted
stock as such holder shall cease and the person or persons in whose name or
names the certificate or certificates for shares of Series A Common Stock are to
be issued upon such conversion shall be deemed to have become the holder or
holders of record of the shares of Series A Common Stock as are to be
represented thereby.
(c) Promptly after such surrender referred to above
the Corporation shall issue and deliver, in accordance with the surrendering
holder's
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instructions, (i) the certificate or certificates for the Series A Common Stock
issuable upon such conversion and (ii) a certificate representing any Series B
Convertible Stock which was represented by the certificate or certificates
delivered to the Corporation in connection with such conversion but which was
not converted.
(d) The issuance of certificates for Series A Common
Stock upon conversion of Series B Convertible Stock shall be made without charge
to the holders of such shares for any issuance tax (except stock transfer taxes)
in respect thereof or other cost incurred by the Corporation in connection with
such conversion and related issuance of Series A Common Stock.
6. If the Corporation in any manner subdivides or combines the
outstanding shares of Series A Common Stock or Series B Convertible Stock, the
outstanding shares of the other class of common stock shall be proportionately
subdivided or combined.
7. The Corporation shall not close its books against the
transfer of any shares of Series A Common Stock issued or issuable upon
conversion of Series B Convertible Stock in any manner that would interfere with
the timely conversion of such Series B Convertible Stock.
FIFTH: The following provisions are inserted for the management of
the business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors.
B. The directors shall have concurrent power with the stockholders
to adopt, amend, or repeal the By-Laws of the Corporation.
C. The number of directors of the Corporation shall be as from time
to time fixed by, or in the manner provided in, the By-Laws of the Corporation.
Election of directors need not be by written ballot unless the By-Laws so
provide.
D. In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, subject, nevertheless, to the provision of the GCL,
this Amended and Restated Certificate of Incorporation, and any By-Laws adopted
by the stockholders; provided, however, that no By-Laws hereafter adopted by the
stockholders shall invalidate any prior act of the directors which would have
been valid if such By-Laws had not been adopted.
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SIXTH: A. The Corporation shall indemnify to the fullest extent
permitted under and in accordance with the laws of the State of Delaware any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that he is or
was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, trustee,
employee or agent of or in any other capacity with another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
B. The Corporation shall indemnify to the fullest extent permitted
under and in accordance with the laws of the State of Delaware any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect to any claim, issue or manner as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery of the State of Delaware or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all of the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery of such other court shall deem proper.
C. Expenses including attorneys' fees incurred in defending any
civil, criminal, administrative or investigation action, suit or proceeding
shall (in the case of any such action, suit or proceeding against a director or
an officer of the Corporation) or may (in the case of any such action, suit or
proceeding against a trustee, employee or agent of the Corporation) be paid by
the Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors upon receipt of an
undertaking by or on behalf of the indemnified person to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized in this Article SIXTH.
D. The indemnification and other rights set forth in this Article
SIXTH shall not be deemed exclusive of any provisions with respect thereto in
the
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By-Laws or any other contract or agreement between the Corporation and any
officer, director, employee or agent of the Corporation.
E. Neither the amendment nor repeal of Sections A, B, C or D of this
Article SIXTH nor the adoption of any provision of this Amended and Restated
Certificate of Incorporation inconsistent with Sections A, B, C and D of Article
SIXTH shall eliminate or reduce the effect of Sections A, B, C or D of this
Article SIXTH in respect to any matter occurring prior to such amendment, repeal
or adoption of an inconsistent provision or in respect of any cause of action,
suit or claim relating to any such matter which would have given rise to a right
of indemnification or right to receive expenses pursuant to Sections A, B, C or
D of this Article SIXTH if such provision had not been so amended or repealed or
if a provision inconsistent therewith had not been so adopted.
F. No director shall be personally liable to the Corporation or any
stockholder for monetary damages for breach of fiduciary duty as a director,
except for any matter in respect of which such director (1) shall be liable
under Section 174 of the GCL or any amendment thereto or successor provision
thereto, or (2) shall be liable by reason that, in addition to any and all other
requirements for liability, he:
(a) shall have breached his duty of loyalty to the Corporation
or its stockholders;
(b) shall not have acted in good faith or, in failing to act,
shall not have acted in good faith;
(c) shall have acted in a manner involving intentional
misconduct or a knowing violation of law or, in failing to act, shall have acted
in a manner involving intentional misconduct or a knowing violation of law; or
(d) shall have derived an improper personal benefit.
If the GCL is amended after the effective date of this Amended and
Restated Certificate of Incorporation to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the GCL as so amended.
Neither the alteration, amendment or repeal of this Section F nor
the adoption of any provision of this Amended and Restated Certificate of
Incorporation inconsistent with this Section F shall eliminate or reduce the
effect of this Section F in respect of any matter occurring, or any cause of
action, suit or claim that, but for this Section F, would accrue or arise, prior
to such alteration, amendment, repeal or adoption.
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SEVENTH: Meetings of stockholders may be held within or without the
State of Delaware, as the By-Laws may provide. The books of the Corporation may
be kept (subject to any provision contained in the GCL) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation.
EIGHTH: The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
IN WITNESS WHEREOF, HOME HOLDINGS INC. has caused its corporate seal
to be hereunto affixed and this Amended and Restated Certificate of
Incorporation to be signed by Steven D. Germain, its President, and attested by
Richard H. Hershman, its Treasurer, on this 28th day of May, 1997.
HOME HOLDINGS INC.
By: /s/ Steven D. Germain
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Steven D. Germain
President
Attest:
/s/ Richard H. Hershman
--------------------------------
Richard H. Hershman
Treasurer
BY-LAWS
OF
HOME HOLDINGS INC.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.
Section 2. Other Offices. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The Annual Meetings of Stockholders
shall be held on such date and at such time as shall be designated from time to
time by the Board of Directors and stated in the notice of the meeting, at which
meetings the stockholders shall elect by a plurality vote a Board of Directors,
and transact such other business as may properly be brought before the meeting
in accordance with these By-Laws. Written notice of the Annual Meeting stating
the place, date and hour of the meeting shall be given to each stockholder
entitled to vote at such meeting not less than ten nor more than sixty days
before the date of the meeting.
Section 3. Special Meetings. Unless otherwise prescribed by law or
by the Amended and Restated Certificate of Incorporation, Special Meetings of
Stockholders, for any purpose or purposes, may be called (i) by any director or
officer of the Corporation or (ii) at the request in writing of stockholders
owning a majority of the capital stock of the Corporation issued and outstanding
and entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting. Written notice of a Special Meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting is
called shall be given not less
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than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote at such meeting.
Section 4. Quorum. Except as otherwise provided by law or by the
Amended and Restated Certificate of Incorporation, the holders of a majority of
the capital stock issued and outstanding and entitled to vote thereat, present
in person or represented by proxy, shall constitute a quorum at all meetings of
the stockholders for the transaction of business. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder
entitled to vote at the meeting.
Section 5. Voting. Unless otherwise required by law, the Amended
and Restated Certificate of Incorporation or these By-Laws, any question brought
before any meeting of stockholders shall be decided by the vote of the holders
of a majority of the stock represented and entitled to vote thereat. Unless
otherwise provided in the Amended and Restated Certificate of Incorporation,
each stockholder represented at a meeting of stockholders shall be entitled to
cast one vote for each share of the capital stock entitled to vote thereat held
by such stockholder. Such votes may be cast in person or by proxy but no proxy
shall be voted after three years from its date, unless such proxy provides for a
longer period. The Board of Directors, in its discretion, or the officer of the
Corporation presiding at a meeting of stockholders, in his discretion, may
require that any votes cast at such meeting shall be cast by written ballot.
Section 6. Consent of Stockholders in Lieu of Meeting. Unless
otherwise provided in the Amended and Restated Certificate of Incorporation, any
action required or permitted to be taken at any Annual or Special Meeting of
Stockholders of the Corporation, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
Section 7. List of Stockholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the
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stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder of the Corporation who is present.
Section 8. Stock Ledger. The stock ledger of the Corporation shall
be the only evidence as to who are the stockholders entitled to examine the
stock ledger, the list required by Section 7 of this Article II or the books of
the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors. The number of members
of the Board of Directors of the Corporation shall consist of a minimum of three
directors and a maximum of fifteen directors, the exact number of which shall be
fixed initially at four members and thereafter from time to time by a majority
of the entire Board of Directors. Except as provided in Section 3 of this
Article III, directors shall be elected by a plurality of the votes cast at
Annual Meetings of Stockholders. Each director so elected shall hold office
until the next Annual Meeting and until his successor is duly elected and
qualified, or until his earlier resignation or removal. Any director may resign
at any time upon notice to the Corporation. Directors need not be stockholders.
Section 2. Designation of Directors. Only directors who have been
duly designated in accordance with this section shall be eligible for election
as directors of the Corporation. Directors shall be designated as follows: (1)
TH and its Permitted Transferees may designate two directors ("TH Nominees") and
(2) ZHI and its Permitted Transferees may designate two directors ("ZHI
Nominees"). If the number of directors is increased above four, ZHI and its
Permitted Transferees shall have the right to designate such additional
directors. Directors shall be nominated by the majority of the Board of
Directors of the Corporation, subject to the foregoing provisions of this
Section 2.
Section 3. Resignation, Removal and Replacement of Directors. Any
director designated by a Party pursuant to Section 2 of this Article III may be
removed, with or without cause, by such designating Party. In the event that any
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director (a "Withdrawing Director") designated in the manner set forth in
Section 2 of Article III is unable to serve, or once having commenced to serve,
is removed or withdraws from the Board of Directors of the Corporation, such
Withdrawing Director's replacement (the "Substitute Director") on the Board of
Directors of the Corporation shall be designated by the Party who designated the
Withdrawing Director.
In the event any Party entitled to designate a director pursuant to
Article III, Section (1) hereof ceases to be so entitled, the vacancy or
vacancies resulting therefrom shall be filled by the remaining directors or by
the Parties in the manner provided by law.
Section 4. Duties and Powers. The business of the Corporation shall
be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Amended and Restated Certificate of
Incorporation or by these By-Laws directed or required to be exercised or done
by the stockholders.
Section 5. Meetings. The Board of Directors of the Corporation may
hold meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman, if there be one, the President, or any other officer of the
Corporation, or any director. Notice thereof stating the place, date and hour of
the meeting shall be given to each director either by mail not less than
forty-eight (48) hours before the date of the meeting, by telephone or telegram
on twenty-four (24) hours' notice, or on such shorter notice as the person or
persons calling such meeting may deem necessary or appropriate in the
circumstances.
Section 6. Quorum. Except as may be otherwise specifically provided
by law, the Amended and Restated Certificate of Incorporation or these By-Laws,
at all meetings of the Board of Directors, a majority of the entire Board of
Directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors. If a quorum shall not be present at
any meeting of the Board of Directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 7. Actions of Board. Unless otherwise provided by the
Amended and Restated Certificate of Incorporation or these By-Laws, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting, if all the members of the
Board of Directors or committee, as the case may be, consent thereto in writing,
and the
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writing or writings are filed with the minutes of proceedings of the Board of
Directors or committee.
Section 8. Meetings by Means of Conference Telephone. Unless
otherwise provided by the Amended and Restated Certificate of Incorporation or
these By-Laws, members of the Board of Directors of the Corporation, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors or such committee by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to this
Section 8 shall constitute presence in person at such meeting.
Section 9. Committees. The Board of Directors may designate one or
more committees, each committee to consist of one or more of the directors of
the Corporation. TH and ZHI shall be entitled to appropriate representation on
any committees of the Board of Directors of the Corporation and on the boards of
directors of the Corporation's direct or indirect Subsidiaries. The Board of
Directors may designate one or more directors as alternate members of any
committee who may replace any absent or disqualified member at any meeting of
any such committee. In the absence or disqualification of a member of a
committee, and in the absence of a designation by the Board of Directors of an
alternate member to replace the absent or disqualified member, the Party that
designated such absent or disqualified member may appoint another member of the
Board of Directors to act at the meeting in the place of any absent or
disqualified member. Any committee, to the extent allowed by law and provided in
the resolution establishing such committee, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation. Each committee shall keep regular minutes and
report to the Board of Directors when required.
Section 10. Compensation. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
Section 11. Interested Directors. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to
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his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or (ii) the material
facts as to his or their relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or (iii) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or ratified, by the
Board of Directors, a committee thereof or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
ARTICLE IV
OFFICERS
Section 1. General. The officers of the Corporation shall be elected
by the Board of Directors and shall include a President and a Treasurer. The
Board of Directors, in its discretion, may also elect a Chairman of the Board of
Directors (who must be a director), a Secretary and one or more Vice Presidents,
Assistant Secretaries, Assistant Treasurers and other officers. Any number of
offices may be held by the same person, unless otherwise prohibited by law, the
Amended and Restated Certificate of Incorporation or these By-Laws. The officers
of the Corporation need not be stockholders of the Corporation nor, except in
the case of the Chairman of the Board of Directors, need such officers be
directors of the Corporation.
Section 2. Election. The Board of Directors at its first meeting
held after each Annual Meeting of Stockholders shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the President or any Vice President and any
such
<PAGE>
7
officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer may deem advisable to vote in person or by proxy at
any meeting of security holders of any corporation in which the Corporation may
own securities and at any such meeting shall possess and may exercise any and
all rights and power incident to the ownership of such securities and which, as
the owner thereof, the Corporation might have exercised and possessed if
present. The Board of Directors may, by resolution, from time to time confer
like powers upon any other person or persons.
Section 4. Chairman of the Board of Directors. The Chairman of the
Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. He shall be the Chief Executive
Officer of the Corporation, and except where by law the signature of the
President is required, the Chairman of the Board of Directors shall possess the
same power as the President to sign all contracts, certificates and other
instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the President, the Chairman of
the Board of Directors shall exercise all the powers and discharge all the
duties of the President. The Chairman of the Board of Directors shall also
perform such other duties and may exercise such other powers as from time to
time may be assigned to him by these By-Laws or by the Board of Directors.
Section 5. President. The President shall, subject to the control of
the Board of Directors and, if there be one, the Chairman of the Board of
Directors, have general supervision of the business of the Corporation and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. He or she shall execute all bonds, mortgages, contracts and other
instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these By-Laws, the Board of Directors or
the President. In the absence or disability of the Chairman of the Board of
Directors, or if there be none, the President shall preside at all meetings of
the stockholders and the Board of Directors. If there be no Chairman of the
Board of Directors, the President shall be the Chief Executive Officer of the
Corporation. The President shall also perform such other duties and may exercise
such other powers as from time to time may be assigned to him by these By-Laws
or by the Board of Directors.
Section 6. Vice Presidents. At the request of the President or in
such person's absence or in the event of his inability or refusal to act (and if
there be no Chairman of the Board of Directors), the Vice President or the Vice
Presidents if there is more than one (in the order designated by the Board of
Directors) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. Each Vice President shall perform such other duties and have such
other powers as the Board of Directors from time to time may prescribe. If there
be no Chairman of the Board of Directors and
<PAGE>
8
no Vice President, the Board of Directors shall designate the officer of the
Corporation who, in the absence of the President or in the event of the
inability or refusal of the President to act, shall perform the duties of the
President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President.
Section 7. Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
President, under whose supervision he shall be. If the Secretary shall be unable
or shall refuse to cause to be given notice of all meetings of the stockholders
and special meetings of the Board of Directors, and if there be no Assistant
Secretary, then either the Board of Directors or the President may choose
another officer to cause such notice to be given. The Secretary shall have
custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his signature. The Secretary
shall see that all books, reports, statements, certificates and other documents
and records required by law to be kept or filed are properly kept or filed, as
the case may be.
Section 8. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, the Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 9. Assistant Secretaries. Except as may be otherwise
provided in these By-Laws, Assistant Secretaries, if there be any, shall perform
such duties and
<PAGE>
9
have such powers as from time to time may be assigned to them by the Board of
Directors, the President, any Vice President, if there be one, or the Secretary,
and in the absence of the Secretary or in the event of his disability or refusal
to act, shall perform the duties of the Secretary, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
Secretary.
Section 10. Assistant Treasurers. Assistant Treasurers, if there be
any, shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Treasurer, and in the absence of the Treasurer or in the
event of his disability or refusal to act, shall perform the duties of the
Treasurer, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Treasurer. If required by the Board of Directors,
an Assistant Treasurer shall give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
Section 11. Other Officers. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
Section 1. Form of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by him in the Corporation.
Section 2. Signatures. Any or all of the signatures on a certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
<PAGE>
10
Section 3. Lost Certificates. The Board of Directors may direct a
new certificate to be issued in place of any certificate theretofore issued by
the Corporation alleged to have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as the Board of Directors shall require and/or to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be transferable
in the manner prescribed by law and in these By-Laws. Transfers of stock shall
be made on the books of the Corporation only by the person named in the
certificate or by his attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be cancelled before a new
certificate shall be issued.
Section 5. Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or entitled to express consent to corporate action
in writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty days nor less than ten days
before the date of such meeting, nor more than sixty days prior to any other
action. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 6. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
<PAGE>
11
ARTICLE VI
NOTICES
Section 1. Notices. Whenever written notice is required by law, the
Amended and Restated Certificate of Incorporation or these By-Laws, to be given
to any director, member of a committee or stockholder, such notice may be given
by mail, addressed to such director, member of a committee or stockholder, at
his address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by facsimile transmission, telegram, telex or cable, and
shall be deemed to be given when sent.
Section 2. Waivers of Notice. Whenever any notice is required by
law, the Amended and Restated Certificate of Incorporation or these By-Laws, to
be given to any director, member of a committee or stockholder, a waiver thereof
in writing, signed, by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be deemed equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Amended and Restated Certificate
of Incorporation, if any, may be declared by the Board of Directors at any
regular or special meeting, and may be paid in cash, in property, or in shares
of the capital stock. Before payment of any dividend, there may be set aside out
of any funds of the Corporation available for dividends such sum or sums as the
Board of Directors from time to time, in its absolute discretion, deems proper
as a reserve or reserves to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and notes
of the Corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
<PAGE>
12
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or Proceedings other
Than Those by or in the Right of the Corporation. Subject to Section 3 of this
Article VIII, the Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director or officer of the Corporation,
or is or was a director or officer of the Corporation serving at the request of
the Corporation as a director or officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings by or
in the Right of the Corporation. Subject to Section 3 of this Article VIII, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director or officer of the Corporation, or is or was a
director or officer of the Corporation serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation; except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but
<PAGE>
13
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
Section 3. Authorization of Indemnification. Any indemnification
under this Article VIII (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because he has met the applicable standard of conduct set forth in Section 1 or
Section 2 of this Article VIII, as the case may be. Such determination shall be
made (i) by a majority vote of the directors who are not parties to such action,
suit or proceeding, even though less than a quorum, or (ii) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (iii) by the stockholders. To the extent, however, that a
director or officer of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding described above, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith, without the necessity of authorization in the specific
case.
Section 4. Good Faith Defined. For purposes of any determination
under Section 3 of this Article VIII, a person shall be deemed to have acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his conduct was unlawful,
if his action is based on the records or books of account of the Corporation or
another enterprise, or on information supplied to him by the officers of the
Corporation or another enterprise in the course of their duties, or on the
advice of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation or another
enterprise. The term "another enterprise" as used in this Section 4 shall mean
any other corporation or any partnership, joint venture, trust, employee benefit
plan or other enterprise of which such person is or was serving at the request
of the Corporation as a director, officer, employee or agent. The provisions of
this Section 4 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standard of conduct set forth in Sections 1 or 2 of this Article VIII, as the
case may be.
Section 5. Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article VIII, and
notwithstanding the absence of any determination thereunder, any director or
officer may apply to any court of competent jurisdiction in the State of
Delaware for indemnification to the extent otherwise permissible under Sections
1 and 2 of this Article VIII. The basis of such indemnification by a court shall
be a determination by such court that indemnification of the director or officer
is proper in the
<PAGE>
14
circumstances because he has met the applicable standards of conduct set forth
in Sections 1 or 2 of this Article VIII, as the case may be. Neither a contrary
determination in the specific case under Section 3 of this Article VIII nor the
absence of any determination thereunder shall be a defense to such application
or create a presumption that the director or officer seeking indemnification has
not met any applicable standard of conduct. Notice of any application for
indemnification pursuant to this Section 5 shall be given to the Corporation
promptly upon the filing of such application. If successful, in whole or in
part, the director or officer seeking indemnification shall also be entitled to
be paid the expense of prosecuting such application.
Section 6. Expenses Payable in Advance. Expenses incurred by a
director or officer in defending or investigating a threatened or pending
action, suit or proceeding shall he paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized in this Article VIII.
Section 7. Nonexclusivity of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by or granted
pursuant to this Article VIII shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any By-Law, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of any
court of competent jurisdiction or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, it
being the policy of the Corporation that indemnification of the persons
specified in Sections 1 and 2 of this Article VIII shall be made to the fullest
extent permitted by law. The provisions of this Article VIII shall not be deemed
to preclude the indemnification of any person who is not specified in Sections 1
or 2 of this Article VIII but whom the Corporation has the power or obligation
to indemnify under the provisions of the General Corporation Law of the State of
Delaware, or otherwise.
Section 8. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power or the obligation to indemnify him against such
liability under the provisions of this Article VIII.
Section 9. Certain Definitions. For purposes of this Article VIII,
references to "the Corporation" shall include, in addition to the resulting
corporation,
<PAGE>
15
any constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its directors or
officers, so that any person who is or was a director or officer of such
constituent corporation, or is or was a director or officer of such constituent
corporation serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, shall stand in the
same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued. For purposes of
this Article VIII, references to "fines" shall include any excise taxes assessed
on a person with respect to an employee benefit plan; and references to "serving
at the request of the Corporation" shall include any service as a director,
officer, employee or agent of the Corporation which imposes duties on, or
involves services by, such director or officer with respect to an employee
benefit plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the Corporation" as
referred to in this Article VIII.
Section 10. Survival of Indemnification and Advancement of Expenses.
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article VIII shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
Section 11. Limitation on Indemnification. Notwithstanding anything
contained in this Article VIII to the contrary, except for proceedings to
enforce rights to indemnification (which shall be governed by Section 5 hereof),
the Corporation shall not be obligated to indemnify any director or officer in
connection with a proceeding (or part thereof) initiated by such person unless
such proceeding (or part thereof) was authorized or consented to by the Board of
Directors of the Corporation.
Section 12. Indemnification of Employees and Agents. The Corporation
may, to the extent authorized from time to time by the Board of Directors,
provide rights to indemnification and to the advancement of expenses to
employees and agents of the Corporation similar to those conferred in this
Article VIII to directors and officers of the Corporation.
<PAGE>
16
ARTICLE IX
AMENDMENTS
These By-Laws may be altered, amended or repealed, in whole or in
part, or new By-Laws may be adopted by the stockholders or by the Board of
Directors, provided that notice of such alteration, amendment, repeal or
adoption of new By-Laws be contained in the notice of such meeting of
stockholders or Board of Directors as the case may be. All such amendments must
be approved by either the holders of a majority of the outstanding capital stock
entitled to vote thereon or by a majority of the entire Board of Directors then
in office.
ARTICLE X
CERTAIN DEFINITIONS
Section 1. Defined Terms. For purposes of these By-Laws:
(a) The term "Corporation" shall mean Home Holdings Inc.
(b) The term "entire Board of Directors" shall mean the total
number of directors which the Corporation would have if there were no vacancies.
(c) The term "Party" shall mean TH or ZHI and their respective
Permitted Transferees, individually.
(d) The term "Parties" shall mean TH and ZHI and their
respective Permitted Transferees, collectively.
(e) The term "Permitted Transferees" shall have the meaning
ascribed to it in the Securityholders' Agreement.
(f) The term "Securityholders' Agreement" shall mean the
Securityholders' Agreement, dated as of June 12, 1995, made and entered into by
and among the Corporation, ZHI, TH, Insurance Partners Advisors, L.P., a limited
partnership organized under the laws of Delaware, and Centre Reinsurance
(Bermuda) Limited, a corporation organized under the laws of Bermuda, as
amended, supplemented or modified from time to time.
(g) The term "Subsidiaries" shall have the meaning ascribed to
it in the Securityholders' Agreement.
(h) The term "TH" shall mean Trygg-Hansa AB, a corporation
organized under the laws of Sweden.
<PAGE>
17
(i) The term "ZHI" shall mean Zurich Home Investments Limited,
a corporation organized under the laws of Bermuda.
Section 2. Other Terms. As used in the By-Laws, the following terms
shall have the meanings assigned in the Sections referred to opposite such terms
below:
Term Defined in Section
- ---- ------------------
"Chairman" or
"Chairman of the Board".....................................Art. IV, ss. 4
"Designees"................................................Art. III, ss. 2
"Secretary".................................................Art. IV, ss. 7
"Special Meeting" or
"Special Meeting of Stockholders"...........................Art. II, ss. 3
"TH Nominees"..............................................Art. III, ss. 2
"Withdrawing Director".....................................Art. III, ss. 3
"ZHI Nominees".............................................Art. III, ss. 2
HOME HOLDINGS INC.
AND
[ ],
TRUSTEE
-----------------
INDENTURE
DATED AS OF APRIL __, 1998
----------------
$[ ]
[ ]% SENIOR NOTES DUE APRIL __, 2006
<PAGE>
CROSS-REFERENCE TABLE
Trust Indenture Act Section Indenture Section
- --------------------------- -----------------
310(a)(1) 7.10
(a)(2) 7.10
(a)(3) N.A.
(a)(4) N.A.
(b) 7.8, 7.10, 10.2
(c) N.A.
311(a) 7.11
(b) 7.11
(c) N.A.
312(a) 2.5
(b) 10.3
(c) 10.3
313(a) 7.6
(b)(1) N.A.
(b)(2) 7.6
(c) 7.6, 10.2
(d) 7.6
314(a) 3.2, 10.2
(b) N.A.
(c)(1) 10.4
(c)(2) 10.4
(c)(3) N.A.
(d) N.A.
(e) 10.5
(f) N.A.
315(a) 7.1(b)
(b) 7.5, 10.2
(c) 7.1(a)
(d) 7.1(c)
(e) 6.11
316(a)(last sentence) 2.9
(a)(1)(A) 6.5
(a)(1)(B) 6.4
(a)(2) N.A.
(b) 6.7
317(a)(1) 6.8
(a)(2) 6.9
(b) 2.4
318(a) 10.1
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of this Indenture.
"N.A." means not applicable.
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE..... 1
Section 1.1 Definitions ................................... 1
Section 1.2 Other Definitions ............................. 4
Section 1.3 Incorporation by Reference of Trust
Indenture Act ............................... 5
Section 1.4 Rules of Construction .......................... 5
ARTICLE II THE NOTES....................................... 6
Section 2.1 Form and Dating ................................ 6
Section 2.2 Execution and Authentication; Payments-in-Kind . 6
Section 2.3 Registrar and Paying Agent ..................... 7
Section 2.4 Paying Agent to Hold Money in Trust ............ 7
Section 2.5 Noteholder Lists ............................... 7
Section 2.6 Transfer and Exchange .......................... 8
Section 2.7 Replacement Notes .............................. 8
Section 2.8 Outstanding Notes .............................. 8
Section 2.9 Treasury Notes ................................. 8
Section 2.10 Temporary Notes ................................ 9
Section 2.11 Cancellation ................................... 9
Section 2.12 Defaulted Interest ............................. 9
Section 2.13 CUSIP Numbers .................................. 9
ARTICLE III COVENANTS....................................... 10
Section 3 1 Payment of Notes ............................... 10
Section 3.2 Commission Reports; Reports to Noteholders ..... 10
Section 3.3 Compliance Certificate ......................... 11
Section 3.4 Notice of Default .............................. 11
Section 3.5 Corporate Existence ............................ 11
Section 3.6 Taxes and Other Claims ......................... 11
Section 3.7 Change of Control .............................. 11
Section 3.8 Limitation on Liens ............................ 12
Section 3.9 Limitation on Disposition of Stock of
Significant Subsidiaries ....................... 13
Section 3.10 Limitation on Transactions with Affiliates ..... 13
Section 3.11 Limitation on Dividends, Redemptions and Loans.. 14
ARTICLE IV SUCCESSORS...................................... 14
Section 4.1 When Company May Merge, etc .................... 14
Section 4.2 Successor Corporation Substituted............... 15
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ARTICLE V REDEMPTION....................................... 15
Section 5 1 Optional Redemption by the Company .............. 15
Section 5.2 Notice to Trustees .............................. 16
Section 5.3 Selection of Notes to be Redeemed ............... 16
Section 5.4 Notice of Redemption ............................ 16
Section 5.5 Effect of Notice of Redemption .................. 17
Section 5.6 Deposit of Redemption Price ..................... 17
Section 5.7 Notes Redeemed in Part .......................... 17
ARTICLE VI DEFAULTS AND REMEDIES............................ 17
Section 6 1 Events of Default ............................... 17
Section 6 2 Acceleration .................................... 18
Section 6.3 Other Remedies .................................. 19
Section 6.4 Waiver of Past Defaults ......................... 19
Section 6.5 Control by Majority ............................. 19
Section 6.6 Limitation on Suits ............................. 19
Section 6.7 Rights of Holders to Receive Payment ............ 20
Section 6.8 Collection Suit by Trustee ...................... 20
Section 6.9 Trustee May File Proofs of Claim ................ 20
Section 6 10 Priorities ...................................... 20
Section 6 11 Undertaking for Costs ........................... 21
Section 6 12 Waiver of Stay or Extension Laws ................ 21
ARTICLE VII TRUSTEE.......................................... 21
Section 7.1 Duties of Trustee ............................... 21
Section 7 2 Rights of Trustee ............................... 22
Section 7.3 Individual Rights of Trustee .................... 23
Section 7.4 Trustee's Disclaimer ............................ 23
Section 7.5 Notice of Defaults .............................. 23
Section 7.6 Reports by Trustee to Holders ................... 23
Section 7.7 Compensation and Indemnity ...................... 23
Section 7.8 Replacement of Trustee .......................... 24
Section 7.9 Successor Trustee by Merger, etc ................ 25
Section 7.10 Eligibility; Disqualification ................... 25
Section 7.11 Preferential Collection of Claims Against Company 25
ARTICLE VIII SATISFACTION AND DISCHARGE OF INDENTURE;
DEFEASANCE....................................... 25
Section 8.1 Discharge of Liability on the Notes;
Legal and Covenant Defeasance ............... 25
Section 8 2 Satisfaction, Discharge of the Indenture
and Termination of the Company's Obligations
upon Cancellation of the Notes .............. 27
Section 8.3 Survival of Certain Obligations ................. 27
Section 8.4 Acknowledgment of Discharge by Trustee .......... 27
Section 8.5 Application of Trust Money ...................... 27
Section 8.6 Repayment to Company ............................ 27
Section 8.7 Reinstatement ................................... 27
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ARTICLE IX AMENDMENTS AND WAIVERS........................... 28
Section 9.1 Without Consent of Holders ...................... 28
Section 9.2 With Consent of Holders ......................... 28
Section 9.3 Compliance with Trust Indenture Act ............. 29
Section 9.4 Revocation and Effect of Consents ............... 29
Section 9.5 Notation on or Exchange of Notes ................ 30
Section 9.6 Trustee To Sign Amendments, Etc ................. 30
ARTICLE X MISCELLANEOUS.................................... 30
Section 10.1 Trust Indenture Act Controls ..................... 30
Section 10.2 Notices .......................................... 30
Section 10 3 Communications by Holders with Other Holders ..... 31
Section 10.4 Certificate and Opinion as to Conditions Precedent 31
Section 10.5 Statements Required in Certificate or Opinion .... 32
Section 10.6 Rules by Trustee and Agents ...................... 32
Section 10.7 Legal Holidays ................................... 32
Section 10.8 No Recourse Against Others ....................... 32
Section 10.9 Duplicate Originals .............................. 33
Section 10.10 Governing Law .................................... 33
Section 10.11 No Adverse Interpretation of Other Agreements .... 33
Section 10.12 Successors ....................................... 33
Section 10.13 Severability ..................................... 34
iii
<PAGE>
INDENTURE dated as of April __, 1998 between HOME HOLDINGS INC.,
a Delaware corporation (the "Company"), and [ ], a
______________ banking corporation (the "Trustee").
WHEREAS, the Notes (as defined below) have the benefit of the
security interest granted under the Assignment and Security Agreement dated
April ___, 1998, made by the Company in favor of __________, as collateral agent
for holders of the Notes
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the Holders (as defined below) of the
Company's [ ]% Senior Notes due April __, 2006 (the "Notes"):
ARTICLE I
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.1 Definitions. As used in this Indenture, the following
terms shall have the following meanings:
"Affiliate" means, when used with reference to any Person, any
Person directly or indirectly controlling, controlled by, or under direct
or indirect common control with, that Person. For the purposes of this
definition, "control" when used with respect to any specified Person means
the power to direct or cause the direction of the management or policies
of such Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise, and the terms "controlling"
and "controlled" have meanings correlative of the foregoing.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Board of Directors" means the Board of Directors of the Company or
any authorized committee thereof.
"Business Day" means a day that is not a Legal Holiday.
"Capital Stock" means any and all shares, interests, participations
or other equivalents (however designated) of corporate stock or any and
all equivalent ownership interests in a Person (other than a corporation).
"Change of Control" means an event or series of events pursuant to
which (i) any person or group (as such terms are defined for purposes of
Section 13 of the Exchange Act), other than Zurich, or any of its
Affiliates, becomes the beneficial owner (as defined in Rule 13d-3 of the
Exchange Act) of 50% or more
<PAGE>
2
of the total voting power (on a fully diluted basis) of the Voting Stock
(as defined below) of the Company, (ii) the Company consolidates or merges
with another person or conveys, transfers or leases all or substantially
all of its assets to another person, or any person consolidates or merges
with the Company, in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company is converted into or exchanged for
cash, securities or other property, other than any such transactions (A)
with ZRNA or an Affiliate of ZRNA or (B) in which the holders of a
majority (on a fully diluted basis) of the Voting Stock of the Company
immediately prior to such transaction own, directly or indirectly, not
less than a majority (on a fully diluted basis) of the Voting Stock of the
surviving corporation immediately after such transaction or (iii) the
stockholders of the Company approve any plan of liquidation or dissolution
of the Company. For purposes of the foregoing definition, "Voting Stock"
of any person means the Capital Stock of such person that ordinarily has
voting power for the election of directors (or persons performing similar
functions), whether at all times or only so long as no senior class of
securities has such voting power by reason of any contingency.
"Commission" means the Securities and Exchange Commission.
"Company" means Home Holdings Inc. until a successor replaces it and
thereafter means the successor.
"Default" means any event which is, or after notice or passage of
time would be, an Event of Default.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Holder" or "Noteholder" means a Person in whose name a Note is
registered.
"Indebtedness" means, with respect to any Person, (i) Indebtedness
for Borrowed Money of such Person, any other indebtedness of such Person,
including any indebtedness representing the balance deferred and unpaid of
the purchase price of any property or interest therein, and any guarantee,
endorsement or other contingent obligation of such Person in respect of
any indebtedness of another Person, (ii) obligations of such Person under
interest rate, commodity or currency swaps, caps, collars, options and
similar arrangements, (iii) obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance
or similar credit transaction and (iv) any amendments, modifications,
refundings, renewals or extensions of any indebtedness or other
obligations described in the foregoing clauses (i) through (iii).
"Indebtedness for Borrowed Money" means, with respect to any Person,
(i) the principal of and premium, if any, and interest, if any, on
indebtedness for borrowed money of such Person which is evidenced by
bonds, notes, debentures or similar instruments, and any guarantee by such
Person or letter of credit for
<PAGE>
3
the account of such Person in respect of indebtedness for borrowed money
of another Person which is evidenced by bonds, notes, debentures or
similar instruments, whether such indebtedness, guarantee or letter of
credit is outstanding on the date of this Indenture or is thereafter
created, assumed or incurred, (ii) lease obligations of such Person which
such Person capitalizes in accordance with generally accepted accounting
principles as in effect from time to time and (iii) any amendments,
modifications, refundings, renewals or extensions of any indebtedness or
other obligations described in the foregoing clauses (i) and (ii);
provided that Indebtedness for Borrowed Money shall not include any other
obligation of such Person which is not described in the foregoing clause
(i), (ii) or (iii) (including, without limitation, any sale or pledge of
insurance receivables), whether or not secured by any Lien on any property
of such Person.
"Indenture" means this Indenture, as amended, supplemented or
otherwise modified from time to time.
"Notes" means the Notes described above and issued under this
Indenture, including any Additional Notes.
"Noteholder" or "Holder" means a Person in whose name a Note is
registered.
"Officer" means the Chairman of the Board of Directors, any
President, any Vice President, the Chief Financial Officer, the Treasurer,
the Secretary or the Controller of the Company.
"Officers' Certificate" means a certificate signed by two Officers
or by an Officer and an Assistant Treasurer, Assistant Secretary or
Assistant Controller of the Company or of any other obligor upon the
Notes, as the case may be. One of the Officers signing an Officers'
Certificate pursuant to Section 3.3 shall be the Principal Executive
Officer, Principal Financial Officer or Principal Accounting Officer of
the Company.
"Opinion of Counsel" means a written opinion from legal counsel who
is reasonably acceptable to the Trustee. The counsel may be an employee of
or counsel to the Company, any other obligor upon the Notes or the
Trustee.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Principal" of a debt security (including the Notes) means the
principal of the security.
"Reorganization Plan" means the "pre-arranged" or "pre-negotiated"
reorganization plan for the Home Holdings Inc., a Delaware corporation and
the predecessor of the Company, dated as of January 15, 1998, under
chapter 11 of title 11 of the United States Code, 11 U.S.C. ss. 101 et
seq.
<PAGE>
4
"Senior Indebtedness" means the Notes and any other Indebtedness
that ranks pari passu as to payment of principal or interest with the
Notes.
"Significant Subsidiary" means each insurance Subsidiary with a
statutory surplus equal to or greater than $50 million.
"Subsidiary" of a Person means (i) a corporation at least a majority
of whose Capital Stock with voting power, under ordinary circumstances, to
elect directors is at the time, directly or indirectly, owned or
controlled, directly or indirectly, by such Person or (ii) any other
Person (other than a corporation) in which such Person, directly or
indirectly, at the date of determination thereof has at least a majority
ownership interest.
"Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.
Code ss.ss. 77aaa-77bbbb) as in effect on the date of this Indenture
except as provided in Section 9.3 hereof.
"Trustee" means [ ] until a successor replaces it and
thereafter means the successor.
"Trust Officer" means any officer or assistant officer of the
corporate trust administration department of the Trustee or otherwise
assigned by the Trustee to administer its corporate trust matters.
"U.S. Legal Tender" means such coin or currency of the United States
of America as at the time of payment shall be legal tender for the payment
of public and private debts and, except for purposes of Article VIII
hereof, includes a check of the Company or a bank check payable in U.S.
Legal Tender.
"ZRNA" means Zurich Reinsurance North America, an insurance company
organized under the Laws of Connecticut.
"Zurich" means Zurich Insurance Company, a corporation organized and
existing under the laws of Switzerland.
Section 1.2 Other Definitions. As used in this Indenture, the
following terms shall have the meanings assigned in the Sections referred to
opposite such terms below:
Term Defined in Section
---- ------------------
"Additional Notes" ........................................................2.2
"Bankruptcy Law"...........................................................6.1
"Change of Control Offer"..................................................3.7
"Covenant Defeasance"......................................................8.1
"Custodian"................................................................6.1
"Event of Default".........................................................6.1
"Interest Payment Date" ....................................Note (paragraph 1)
<PAGE>
5
"Lien".....................................................................3.8
"Legal Defeasance".........................................................8.1
"Legal Holiday"...........................................................10.7
"Paying Agent".............................................................2.3
"Registrar"................................................................2.3
"Regular Record Date" ......................................Note (paragraph 2)
"U.S. Government Obligations"..............................................8.1
Section 1.3 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the Trust Indenture Act, the
provision is incorporated by reference in and made a part of this Indenture.
The following terms used in this Indenture and defined in the Trust
Indenture Act have the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Noteholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
and
"obligor" on the indenture securities means the Company and any
other obligor upon the Notes.
All other terms used in this Indenture that are defined by the Trust
Indenture Act, defined by Trust Indenture Act by reference to another statute or
defined by Commission rule under the Trust Indenture Act have the meanings
assigned to them.
Section 1.4 Rules of Construction. Unless the context otherwise
requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles in
effect as of the date any determination hereunder is required;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and in the
plural include the singular; and
(e) provisions apply to successive events and transactions.
<PAGE>
6
ARTICLE II
THE NOTES
Section 2.1 Form and Dating. The Notes shall be substantially in the
form of Exhibit A, which is part of this Indenture. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Note shall be dated the date of its authentication.
Section 2.2 Execution and Authentication; Payments-in-Kind. (a) Two
Officers shall sign the Notes for the Company by manual or facsimile signature.
The Company's seal shall be reproduced on the Notes.
(b) If an Officer whose signature is on a Note no longer holds that
office at the time the Note is authenticated, the Note shall be valid
nevertheless.
(c) A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Note has been authenticated under this Indenture.
(d) The Trustee shall authenticate Notes for original issue up to
the aggregate principal amount of not more than $___ million upon a written
order of the Company signed by two Officers. The aggregate principal amount of
Notes outstanding at any time may not exceed that amount except as provided in
Sections 2.2(e) and 2.7.
(e) (i) The Company may, at its option and in its sole discretion,
in lieu of a cash payment of any or all of the interest due on the Notes on any
Interest Payment Date (as defined in the Notes) up to and including April __,
2001, by giving notice to the Noteholders and the Trustee of such election not
less than 30 nor more than 60 days prior to a Regular Record Date of an interest
payment (as defined in the Notes), require the Trustee or an authenticating
agent (upon written order of the Company signed by one Officer, given not less
than 30 nor more than 60 days prior to the Interest Payment Date) on each such
Interest Payment Date as to which the Company has elected not to make interest
payments in cash, in full or in part, to authenticate for original issue and
deliver additional Notes ("Additional Notes"), in an aggregate principal amount
equal to the amount of cash interest not paid on each such Interest Payment
Date. Each issuance of Additional Notes in lieu of cash payment of interest on
the Notes shall be made pro rata with respect to the outstanding Notes.
(ii) If the Company fails to give the notice required by
Section 2.2(e)(i) to the Noteholders, such notice requirement with respect to
the Noteholders shall be deemed satisfied by the issuance and delivery to the
Noteholders of Additional Notes in lieu of cash on the relevant Interest Payment
Date. The Trustee shall authenticate and deliver such Additional Notes even if
the Company has failed to give the notice required by Section 2.2(e)(i) to the
Noteholders upon the Trustee's receipt of such notice. Failure to pay interest
in such manner on the Interest Payment Date following the failure to give the
notice required by Section 2.2(e)(i) to the Noteholders, or failure to give such
notice to the Trustee, shall obligate the Company to immediately pay the
interest due in cash, subject to the provisions of Section 6.1(a).
<PAGE>
7
(f) The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Notes. An authenticating agent may authenticate
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate of the Company.
(g) The Notes shall be issuable only in registered form without
coupons and only in denominations of $1,000 and integral multiples thereof.
Section 2.3 Registrar and Paying Agent. The Company shall maintain
an office or agency where Notes may be presented for registration of transfer or
for exchange (the "Registrar") and an office or agency where Notes may be
presented for payment (the "Paying Agent"). The Registrar shall keep a register
of the Notes and of their transfer and exchange. The Company may appoint one or
more co-registrars and one or more additional paying agents. The term "Paying
Agent" includes any additional paying agent.
The Company shall enter into an appropriate agency agreement with
any Registrar or Paying Agent not a party to this Indenture, which shall
incorporate the terms of the Trust Indenture Act and the relevant provisions of
this Indenture and shall not otherwise be inconsistent with this Indenture. The
agreement shall implement the provisions of this Indenture that relate to such
Agent. The Company shall notify the Trustee of the name and address of any Agent
not a party to this Indenture. If the Company fails to maintain a Registrar or
Paying Agent, the Trustee shall act as such.
The Company initially appoints the Trustee as Registrar and Paying
Agent in connection with the Notes.
Section 2.4 Paying Agent to Hold Money in Trust. The Company shall
require each Paying Agent other than the Trustee to agree in writing that the
Paying Agent will hold in trust for the benefit of Noteholders or the Trustee
all money and/or Additional Notes held by the Paying Agent for the payment of
principal of or interest on the Notes, and will notify the Trustee of any
default by the Company or any other obligor upon the Notes in making any such
payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money and/or Additional Notes held by it to the Trustee. The
Company at any time may require a Paying Agent to pay all money and/or
Additional Notes held by it to the Trustee. Upon payment over to the Trustee,
the Paying Agent (if other than the Company) shall have no further liability for
the money and/or Additional Notes. If the Company or a Subsidiary acts as Paying
Agent, it shall segregate and hold as a separate trust fund all money held by it
as Paying Agent.
Section 2.5 Noteholder Lists. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Noteholders. If the Trustee is not the Registrar,
the Company or any other obligor upon the Notes shall furnish to the Trustee on
or before each interest payment date and at such other times as the Trustee may
request in writing a list in such form and as of such date as the Trustee may
reasonably require of the names and addresses of Noteholders.
<PAGE>
8
Section 2.6 Transfer and Exchange. When Notes are presented to the
Registrar with a request to register a transfer or to exchange them for an equal
principal amount of Notes of other denominations, the Registrar shall register
the transfer or make the exchange if its requirements for such transactions are
met. To permit registrations of transfers and exchanges, the Company shall
execute and the Trustee shall authenticate Notes at the Registrar's request. Any
transfer or exchange shall be without charge, except that the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto, other than exchanges pursuant to
Section 2.10 or 9.5.
Section 2.7 Replacement Notes. If the Holder of a Note claims that
the Note has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Note if the requirements of the
Trustee and the Company are met. If required by the Trustee or the Company, such
Holder must provide an indemnity bond, sufficient in the judgment of both the
Company and the Trustee, to protect the Company, the Trustee, any Paying Agent
or any authenticating agent from any loss which any of them may suffer if a Note
is replaced. The Company may charge for its reasonable expenses in replacing a
Note lost, destroyed or wrongfully taken.
Every replacement Note is an additional obligation of the Company
and shall be entitled to the benefits of this Indenture.
Section 2.8 Outstanding Notes. The Notes outstanding at any time are
all Notes authenticated by the Trustee except for those cancelled by it, those
delivered to it for cancellation and those described in this Section as not
outstanding. Additional Notes shall be deemed outstanding as of the date with
respect to which they are issued in lieu of cash interest.
If a Note is replaced pursuant to Section 2.7 (other than a
mutilated Note surrendered for replacement), it ceases to be outstanding unless
the Trustee receives proof satisfactory to it that the replaced Note is held by
a bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender
of such Note and replacement thereof pursuant to Section 2.7.
If Notes are considered paid under Section 3.1, they cease to be
outstanding and interest on them ceases to accrue.
Subject to Section 2.9, a Note does not cease to be outstanding
because the Company or an Affiliate of the Company holds the Note.
Section 2.9 Treasury Notes. In determining whether the Holders of
the required principal amount of Notes have concurred in any direction, waiver
or consent, Notes owned by the Company, any other obligor upon the Notes or an
Affiliate of the Company or such obligor shall not be disregarded (including for
purposes of determining the outstanding principal amount of Notes); provided,
however, that for the purposes of the last sentence of subsection 316(a) of the
Trust Indenture Act in determining whether the Holders of the required principal
amount of Notes have concurred in any direction, waiver or consent, Notes owned
by the Company, any other obligor upon the Notes or an Affiliate of
<PAGE>
9
the Company or such obligor shall be disregarded (including for purposes of
determining the outstanding principal amount of Notes); provided further, that
for the purposes of determining whether the Trustee shall be protected in
relying on any such latter direction, waiver or consent, only Notes which a
Trust Officer of the Trustee knows are so owned shall be so disregarded.
Section 2.10 Temporary Notes. Until definitive Notes are ready for
delivery, the Company may prepare and the Trustee shall authenticate temporary
Notes. Temporary Notes shall be substantially in the form of definitive Notes
but may have variations that the Company considers appropriate for temporary
Notes. Without unreasonable delay, the Company shall prepare and the Trustee
shall authenticate definitive Notes in exchange for temporary Notes. Until such
exchange, such temporary Notes shall be entitled to the same rights, benefits
and privileges as the definitive Notes.
Section 2.11 Cancellation. The Company at any time may deliver Notes
to the Trustee for cancellation. The Registrar and Paying Agent shall forward to
the Trustee any Notes surrendered to them for registration of transfer, exchange
or payment. The Trustee shall cancel all Notes surrendered for registration of
transfer, exchange, payment or cancellation and shall dispose of cancelled Notes
in accordance with its usual custom or as the Company otherwise directs,
provided, however, that the Trustee shall not be required to destroy such
cancelled Notes. The Company may not issue new Notes to replace Notes that it
has paid, purchased (on the open market or otherwise) or otherwise acquired or
delivered to the Trustee for cancellation.
Section 2.12 Defaulted Interest. If the Company defaults in a
payment of interest on the Notes, it shall pay the defaulted interest, plus, to
the extent lawful, any interest (which may be payable in Additional Notes for
the period permitted by Section 2.2(e)(i) hereof and Paragraph 1 of the Note)
payable on the defaulted interest, to the Persons who are Noteholders on a
subsequent special record date. The Company shall fix the special record date
and payment date in a manner reasonably satisfactory to the Trustee. At least 15
days before the special record date, the Company shall mail to Noteholders a
notice that states the special record date, payment date and amount of defaulted
interest to be paid. Notwithstanding the preceding two sentences, the Company
may pay defaulted interest in any other lawful manner.
Section 2.13 CUSIP Numbers. The Company in issuing the Notes may use
"CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use
"CUSIP" numbers in notices of redemption as a convenience to Holders; provided
that any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Notes or as contained in
any notice of a redemption and that reliance may be placed only on the other
identification numbers printed on the Notes, and any such redemption shall not
be affected by any defect in or omission of such numbers.
<PAGE>
10
ARTICLE III
COVENANTS
Section 3.1 Payment of Notes. The Company shall pay the principal of
and interest on the Notes on the dates and in the manner provided in the Notes
and in this Indenture. Principal and interest shall be considered paid on the
date due if the Paying Agent (other than the Company or an Affiliate of the
Company) holds on that date money in immediately available funds and/or
Additional Notes sufficient to pay all principal and interest then due.
The Company shall pay interest on overdue principal at the rate
borne by the Notes and the Company shall pay interest on overdue installments of
interest at the same rate to the extent lawful.
Section 3.2 Commission Reports; Reports to Noteholders. (a) The
Company shall file with the Trustee, within 15 days after it files them with the
Commission, copies of the annual reports and the information, documents and
other reports (or copies of such portions of any of the foregoing as the
Commission may by rules and regulations prescribe) which the Company may be
required to file with the Commission pursuant to Section 13 (other than Form
11-K) or 15(d) of the Exchange Act. The Company also shall comply with the other
provisions of Section 314(a) of the Trust Indenture Act. If the Company is not
subject to the requirements of Section 13 or 15(d) of the Exchange Act, it shall
file with the Trustee, within 15 days after it would have been required to file
with the Commission, financial statements, including any notes thereto (and with
respect to annual reports, an auditors' report by a nationally recognized firm
of independent certified public accountants) comparable to that which the
Company would have been required to include in such annual reports, information,
documents or other reports if it were subject to the requirements of Section 13
or 15(d) of the Exchange Act.
(b) So long as the Notes remain outstanding, the Company shall
cause its annual reports to stockholders and any quarterly or other financial
reports furnished by it to stockholders to be mailed to the Noteholders (no
later than ten days after the date such materials are mailed to the Company's
stockholders) at their addresses appearing in the register of Notes maintained
by the Registrar. If the Company is not required to furnish annual or quarterly
reports to its stockholders pursuant to the Exchange Act, it shall cause its
financial statements referred to in subsection 3.2(a) above, including any notes
thereto (and with respect to annual reports, an auditors' report by a nationally
recognized firm of independent certified public accountants), to be so mailed to
the Holders within 120 days after the end of each of the Company's fiscal years
and within 60 days after the end of each of its first three fiscal quarters.
Delivery of such reports, information and documents to the Trustee
is for informational purposes only and the Trustee's receipt of such reports
shall not constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
<PAGE>
11
Section 3.3 Compliance Certificate. The Company shall deliver to the
Trustee, within 120 days after the end of each fiscal year of the Company, an
Officers' Certificate complying with Section 314(a)(4) of the Trust Indenture
Act and stating whether or not the signers know of any Default that occurred
during such fiscal year. If they do, the Officers' Certificate shall describe
the Default and its status. Such compliance shall be determined without regard
to periods of grace or notice requirements.
Section 3.4 Notice of Default. The Company will deliver to the
Trustee an Officers' Certificate promptly upon becoming aware of any Event of
Default or a Default which could result in an Event of Default under subsection
6.1(d) and which Officers' Certificate will specify such Default or Event of
Default.
Section 3.5 Corporate Existence. Subject to Article IV, the Company
shall do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence and the corporate or other existence of
its Significant Subsidiaries in accordance with the respective organizational
documents of each such Subsidiary and the rights (charter and statutory) and
corporate franchises of the Company and each such Subsidiary; provided, however,
that the Company shall not be required to preserve, with respect to itself, any
right or corporate franchise; and with respect to such Significant Subsidiaries,
any such existence, right or corporate franchise if the Board of Directors, or
the board of directors of the Significant Subsidiary concerned, shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company or such Subsidiary and that the loss thereof is not
disadvantageous in any material respect to the Holders.
Section 3.6 Taxes and Other Claims. The Company and each Significant
Subsidiary shall file all federal, state and local tax returns required to be
filed by it and shall pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (i) all taxes, assessments and governmental
charges which are material to the Company and its Subsidiaries, on a
consolidated basis (including withholding taxes and any penalties, interest and
additions to taxes) levied or imposed upon the Company or its Subsidiaries or
upon the income, profits or property of the Company or any such Significant
Subsidiary, and (ii) all lawful claims of materialmen, mechanics, carriers,
warehousemen, landlords and other like persons which are material to the Company
and its Subsidiaries, on a consolidated basis and, if unpaid, might by law
become a lien upon the property of the Company or any such Subsidiary; provided,
however, that the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment or governmental charge or claim
whose amount, applicability or validity is being contested in good faith and for
which disputed amounts adequate reserves have been made in the opinion of the
Company's management or as required by generally accepted accounting principles.
Section 3.7 Change of Control. Upon the occurrence of a Change of
Control, the Company shall make an offer (a "Change of Control Offer") to
purchase each Holder's outstanding Notes at a purchase price in cash equal to
101% of the principal amount of such Holder's Notes, plus accrued and unpaid
interest, if any, to the date of purchase, in accordance with the following
terms.
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12
Within 30 days following any Change of Control, the Company will
mail or cause the mailing of a notice to each Holder of a Note, at the address
of such Holder as it appears on the Note register, stating (i) that a Change of
Control has occurred and that such Holder has the right to require the Company
to repurchase all of such Holder's Notes at the applicable purchase price in
cash as provided above, plus accrued and unpaid interest, if any, to the date of
purchase, (ii) the circumstances and relevant facts regarding such Change of
Control (including, but not limited to, information with respect to pro forma
income, cash flow and capitalization after giving effect to such Change of
Control), (iii) the purchase date (which shall be no earlier than 30 days and no
later than 60 days from the date such notice is mailed) and (iv) the
instructions determined by the Company, consistent with the foregoing, that a
Holder of Notes must follow in order to have its Notes repurchased.
Notwithstanding the foregoing, in the event that the Company is
required to make a Change of Control Offer, the Company will comply with the
provisions of Section 14(e), Rule 14e-1 and any other tender offer rules under
the Exchange Act which may then be applicable in connection with any Change of
Control Offer. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of this Section 3.7, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations hereunder by virtue thereof.
Section 3.8 Limitation on Liens. The Company shall not, and shall
not permit any of its Significant Subsidiaries to, incur, issue, assume,
guarantee or permit to exist any Indebtedness for Borrowed Money secured by any
mortgage, pledge, lien or other encumbrance of any nature (collectively,
"Liens") on any property or assets of the Company or any of its Significant
Subsidiaries, or any shares of Capital Stock of any of its Significant
Subsidiaries, without effectively providing that the Notes (together with, if
the Company shall so determine, any other Senior Indebtedness) shall be secured
equally and ratably with such Indebtedness for Borrowed Money; provided,
however, that the foregoing restrictions shall not apply to (i) Liens existing
on the date of this Indenture; (ii) Liens existing on property or assets of, or
on any shares of Capital Stock of, any Person at the time such Person becomes a
Significant Subsidiary or consolidates or merges with the Company or any of its
Significant Subsidiaries; (iii) Liens upon real or personal property of the
Company or any of its Significant Subsidiaries, each of which Liens either (a)
existed on such property before the time of its acquisition or (b) was created
solely for the purpose of securing Indebtedness for Borrowed Money representing,
or incurred to finance, the cost of such property (provided that (x) no such
Lien shall extend to or cover any property of the Company or any Significant
Subsidiary other than the property acquired (and any fixtures or other
improvements thereafter made to such property) and (y) the principal amount (or
the aggregate amount which in conformity with generally accepted accounting
principles is required to be reported as a liability on the balance sheet of the
Company or any of its Significant Subsidiaries in respect of a capital lease of
such property) of such Indebtedness for Borrowed Money secured by such Lien
shall at no time exceed 80% of the fair market value of such property at the
time it was acquired); (iv) Liens securing Indebtedness for Borrowed Money of
the Company owed to any of its Subsidiaries; and (v) any extension, renewal or
replacement, as a whole or in part, of any Lien referred to in the foregoing
clauses (i) through (iv), provided, however, that (a) such extension, renewal or
replacement Lien is limited to all or a part of the same property or shares of
Capital Stock that secured the Lien extended, renewed or replaced and (b) the
Indebtedness for Borrowed Money
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13
secured by such Lien at such time is not increased (except as otherwise
permitted pursuant to the foregoing clauses (i) through (iv)). For purpose of
determining compliance with this Section 3.8, in the event that an item of
Indebtedness for Borrowed Money meets the criteria of more than one of the types
of Indebtedness for Borrowed Money described in clauses (i) through (v) of this
Section 3.8, the Company, in its sole discretion, shall classify such item of
Indebtedness for Borrowed Money and only be required to include the amount and
type of such Indebtedness for Borrowed Money under one of said clauses.
Section 3.9 Limitation on Disposition of Stock of Significant
Subsidiaries. Except as provided in Section 3.8, the Company shall not, and
shall not permit any Significant Subsidiary to, sell, transfer or otherwise
dispose of any shares of Capital Stock of any Significant Subsidiary unless such
disposition is effected for fair value as determined by the Board of Directors
of the Company acting in good faith and the Company makes an offer to purchase
Notes outstanding at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of purchase, with
the proceeds of such disposition; provided that the Company or any Subsidiary
may sell, transfer or otherwise dispose of shares of Capital Stock of any
Subsidiary to the Company or a direct or indirect wholly owned Subsidiary of the
Company.
Within 30 days following any disposition of shares of Capital Stock
of any Significant Subsidiary, the Company will mail or cause the mailing of a
notice to each Holder of a Note, at the address of such Holder as it appears on
the Note register, stating (i) that such a disposition has occurred and that
such Holder has the right to require the Company to repurchase with the proceeds
of such disposition such Holder's Notes, pro rata with all Notes tendered by
other Holders of Notes, at the applicable purchase price in cash as provided
above, plus accrued and unpaid interest, if any, to the date of purchase, (ii)
the circumstances and relevant facts regarding such disposition (including, but
not limited to, information with respect to pro forma income, cash flow and
capitalization after giving effect to such disposition), (iii) the purchase date
(which shall be no earlier than 30 days and no later than 60 days from the date
such notice is mailed) and (iv) the instructions determined by the Company,
consistent with this Indenture, that such Holder must follow in order to have
its Notes repurchased.
The Company will comply with the provisions of Section 14(e), Rule
14e-1 and any other tender offer rules under the Exchange Act which may then be
applicable in connection with any offer by the Company to purchase Notes at the
option of the Holders thereof as described above. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
this Section 3.9, the Company shall comply with the applicable securities laws
and regulations and shall not be deemed to have breached its obligations
hereunder by virtue thereof.
Section 3.10 Limitation on Transactions with Affiliates. The Company
shall not, and shall not permit any of its Significant Subsidiaries to, enter
into any transaction or series of related transactions in an aggregate amount
exceeding $25 million with (i) any Affiliate of the Company or any of its
Significant Subsidiaries (other than the Company and its Subsidiaries whose
Voting Stock is wholly owned, directly or indirectly by the Company) or (ii) any
Person (or any Affiliate of such Person) holding 10% or more of any class of
Capital Stock of the Company or any of its Significant Subsidiaries (other than
the Company
<PAGE>
14
and its wholly owned Subsidiaries) except in each case on terms, determined by
the Board of Directors of the Company acting in good faith, that are either (x)
equal and ratable among all holders of the Company's equity securities or (y) no
less favorable to the Company or the relevant Significant Subsidiary than would
be obtainable at the time for a comparable transaction on an arm's-length basis
from an unrelated third party; provided that the foregoing restriction shall not
apply to the transactions contemplated by the Reorganization Plan.
Section 3.11 Limitation on Dividends, Redemptions and Loans. The
Company shall not, directly or indirectly: (i) declare or pay any dividends, in
cash or in kind, on account of any shares of any class of capital stock of the
Company now or hereafter outstanding beneficially owned by Zurich or its
Affiliates, its successors, assigns or transferees, or set aside or otherwise
deposit or invest any sums for such purpose, or redeem, retire, defease,
purchase or otherwise acquire any such shares (or set aside or otherwise deposit
or invest any sums for such purpose) for any consideration other than common
stock or apply or set apart any sum, or make any other distribution (by
reduction of capital or otherwise) in respect of any such shares so owned or
agree to do any of the foregoing, or (ii) make any loans or other forms of
credit accommodation to Zurich or its Affiliates, its successors, assigns or
transferees.
ARTICLE IV
SUCCESSORS
Section 4.1 When Company May Merge, etc. The Company shall not
consolidate or merge with any other Person or transfer (by lease, assignment,
sale or otherwise) all or substantially all of its assets, in a single
transaction or through a series of related transactions, to another Person or
group of affiliated Persons unless (i) the Company is the surviving or
continuing Person or, subject to Section 3.9, the Person (if other than the
Company) formed by such consolidation or merger or to which the assets of the
Company are transferred is a Person organized and existing under the laws of the
United States of America or any state thereof or the District of Columbia and
expressly assumes, by an indenture supplemental to this Indenture, in form
satisfactory to the Trustee, all the obligations of the Company under the Notes
and this Indenture and (ii) immediately before and immediately after giving
effect to such transaction, no Default or Event of Default shall have occurred
or be continuing; provided that the transactions contemplated by the
Reorganization Plan shall not constitute a consolidation or a merger which is
subject to this Section 4.1. The Company shall deliver to the Trustee prior to
the consummation of any consolidation, merger or transfer of assets involving
the Company, an Officers' Certificate to the foregoing effect and an Opinion of
Counsel stating that the proposed transactions and such supplemental indenture
comply with this Indenture.
In addition, the Company will not permit any Significant Subsidiary
to consolidate or merge with, or transfer all or substantially all of its assets
in a single transaction or through a series of related transactions to, another
Person or group of affiliated Persons unless such transaction is effected for
fair value as determined by the Board of Directors of the Company acting in good
faith and the Company makes an offer to purchase
<PAGE>
15
the Notes outstanding at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of purchase, with
the proceeds of such transaction; provided that any Subsidiary may consolidate
or merge with or transfer all or substantially all of its assets to the Company
or a direct or indirect wholly owned Subsidiary of the Company.
Within 30 days following any consolidation, merger or transfer of
assets involving a Significant Subsidiary, the Company will mail or cause the
mailing of a notice to each Holder of a Note, at the address of such Holder as
it appears on the Note register, stating (i) that such a transaction has
occurred and that such Holder has the right to require the Company to repurchase
with the proceeds of such transaction such Holder's Notes, pro rata with all
Notes tendered by other Holders of Notes, at the applicable purchase price in
cash as provided above, plus accrued and unpaid interest, if any, to the date of
purchase, (ii) the circumstances and relevant facts regarding such transaction
(including, but not limited to, information with respect to pro forma income,
cash flow and capitalization after giving effect to such transaction), (iii) the
purchase date (which shall be no earlier than 30 days and no later than 60 days
from the date such notice is mailed) and (iv) the instructions determined by the
Company, consistent with this Indenture, that such Holder must follow in order
to have its Notes repurchased.
The Company will comply with the provisions of Section 14 (e), Rule
14e-1 and any other tender offer rules under the Exchange Act which may then be
applicable in connection with any offer by the Company to purchase Notes at the
option of the Holders thereof as described above. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
this Section 4.1, the Company shall comply with the applicable securities laws
and regulations and shall not be deemed to have breached its obligations
hereunder by virtue thereof.
Section 4.2 Successor Corporation Substituted. Upon any
consolidation, merger or transfer of assets involving the Company in accordance
with Section 4.1, any successor Person formed by such consolidation or merger or
to which such transfer is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as an original party
herein. When a successor Person assumes all of the obligations of the Company
hereunder and under the Notes, the Company shall be released from such
obligations.
ARTICLE V
REDEMPTION
Section 5.1 Optional Redemption by the Company. If either (i) the
aggregate principal amount of Notes registered to Persons who are not Affiliates
of the
<PAGE>
16
Company is less than $___ million1/ or (ii) the Company has a Significant
Subsidiary, then the Company may redeem the Notes, in whole or in part from time
to time, at a redemption price equal to the principal amount of the Notes plus
accrued and unpaid interest, if any, to the redemption date.
Section 5.2 Notice to Trustees. If the Company elects to redeem any
or all of the Notes pursuant to Section 5.1, it shall notify the Trustee of the
redemption date and the principal amount of Notes to be redeemed. The Company
shall give such notice in an Officers' Certificate delivered at least 45 days
before the redemption date (unless a shorter period shall be satisfactory to the
Trustee).
Section 5.3 Selection of Notes to be Redeemed. If less than all of
the Notes are to be redeemed, the Trustee shall select the Notes to be redeemed
by lot or such other method as the Trustee may deem fair and appropriate so long
as such method is not proscribed by any securities exchange on which the Notes
are then listed. The Trustee shall make the selection from Notes outstanding and
not previously called for redemption. The Trustee may select for redemption
portions of the principal of Notes that have denominations larger than $1,000.
Provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
Section 5.4 Notice of Redemption. At least 30 days but not more than
60 days before a redemption date, the Company shall mail a notice of redemption
to each Holder whose Notes are to be redeemed.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) the name and address of the Paying Agent;
(d) that Notes called for redemption must be surrendered to
the Paying Agent to collect the redemption price;
(e) that, unless the Company defaults in making the redemption
payment, interest on Notes called for redemption ceases to accrue on and after
the redemption date;
(f) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the redemption date
and upon surrender of such Note, a new Note or Notes will be issued having an
aggregate principal amount equal to the unredeemed portion thereof; and
- ----------------------
1/ Amount equal to 50% of the aggregate principal amount of Notes originally
issued.
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17
(g) the identification, including CUSIP number, of the
particular Notes (or portion thereof) to be redeemed, as well as the aggregate
principal amount of Notes to be redeemed and the aggregate principal amount of
Notes estimated to be outstanding after such redemption.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense.
Section 5.5 Effect of Notice of Redemption. Once notice of
redemption is mailed, Notes called for redemption become due and payable on the
redemption date at the redemption price.
Section 5.6 Deposit of Redemption Price. On or before the redemption
date, the Company shall deposit with the Paying Agent (or, if the Company is its
own Paying Agent, the Company shall segregate and hold in trust) money
sufficient to pay the redemption price of all Notes to be redeemed on that date.
Section 5.7 Notes Redeemed in Part. After the redemption date, upon
surrender of a Note that is redeemed in part, the Trustee shall authenticate for
the Holder a new Note equal in principal amount to the unredeemed portion of the
Note surrendered.
ARTICLE VI
DEFAULTS AND REMEDIES
Section 6.1 Events of Default. An "Event of Default" occurs if:
(a) the Company defaults in the payment of interest (including
default in the payment of interest in Additional Notes in lieu of a cash
payment) on any Note when the same becomes due and payable and the default
continues for a period of 30 days;
(b) the Company defaults in the payment of the principal of
any Note (including failure to make a payment pursuant to a Change of Control
Offer or other offer to purchase the Notes which is required to be made pursuant
to this Indenture) when the same becomes due and payable at maturity;
(c) the Company fails to comply with any of its other
covenants or agreements in the Notes or this Indenture and the default continues
for 60 days after notice to the Company by the Trustee or to the Company and the
Trustee by the Holders of at least 25% in principal amount of the Notes then
outstanding as specified below;
(d) there shall be a default under any evidence of
Indebtedness of the Company or any Significant Subsidiary, whether any such
Indebtedness exists on the date of this Indenture or shall hereafter be created,
in the amount, individually or in the aggregate, of $10 million, if the maturity
of such Indebtedness has been accelerated prior to its expressed maturity;
<PAGE>
18
(e) a court of competent jurisdiction enters a final and non-
appealable judgment against the Company or any Significant Subsidiary in which
the Company or any such Significant Subsidiary is required to pay an amount
(calculated after the application of any proceeds of insurance policies
applicable to such loss), individually or in the aggregate, in excess of $10
million, and such final and non-appealable judgment remains unsatisfied for a
period of 60 days;
(f) the Company or any Significant Subsidiary, pursuant to or
within the meaning of any Bankruptcy Law (i) becomes insolvent, (ii) fails
generally to pay its debts as they become due, (iii) admits in writing its
inability to pay its debts generally as they become due, (iv) commences a
voluntary case or proceeding, (v) consents to, or acquiesces in, the institution
of a bankruptcy or an insolvency proceeding against it or the entry of a
judgment, decree or order for relief against it in an involuntary case or
proceeding, (vi) applies for, consents to or acquiesces in the appointment of or
taking possession by a Custodian of the Company or any Significant Subsidiary or
of all or substantially all of its property or (vii) makes a general assignment
for the benefit of its creditors; or
(g) a court of competent jurisdiction enters a judgment,
decree or order under any Bankruptcy Law which (i) is for relief against the
Company or any Significant Subsidiary in an involuntary case, (ii) appoints a
Custodian of the Company or any Significant Subsidiary or a Custodian for all or
substantially all of its property or (iii) orders the winding-up or liquidation
of the Company or any Significant Subsidiary; and such judgment, decree or order
shall remain unstayed and in effect for a period of 60 consecutive days.
The term "Bankruptcy Law" means title 11, U.S. Code or any similar
federal or state law for the relief, supervision, conservation, reorganization
or liquidation of debtors or for the benefit of creditors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
A Default under subsection 6.1(c) is not an Event of Default until
the Trustee or the Holders of at least 25% in principal amount of the Notes then
outstanding notify the Company of the Default and the Company does not cure the
Default within the period specified in such subsection after receipt of the
notice. The notice must specify the Default, demand that it be remedied and
state that the notice is a "Notice of Default". Such notice shall be given by
the Trustee if requested by the Holders of at least 25% in principal amount of
the Notes then outstanding.
Notwithstanding any Provision of this Indenture, none of the
transactions contemplated by the Reorganization Plan shall constitute an Event
of Default.
Section 6.2 Acceleration. If an Event of Default (other than an
Event of Default specified in subsection 6.1(f) or (g)) occurs and is
continuing, the Trustee by notice to the Company, or the Holders of at least 25%
in principal amount of the Notes then outstanding by notice to the Company and
the Trustee, may declare the unpaid principal of and accrued interest on all the
Notes to be due and payable. Upon such declaration, the principal of and accrued
interest on such Notes shall be due and payable immediately. If an
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19
Event of Default specified in subsection 6.1(f) or (g) occurs, all unpaid
principal of and accrued interest on the Notes then outstanding shall
automatically become due and payable without any declaration or other act on the
part of the Trustee or any Noteholder. Upon payment of such principal amount and
interest, all of the Company's obligations under the Notes and this Indenture
shall terminate. The Holders of a majority in principal amount of the Notes by
notice to the Trustee may rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default have been cured or waived except nonpayment of principal or
interest that has become due solely because of the acceleration.
Section 6.3 Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy by proceeding at law or
in equity to collect the payment of principal of or interest on the Notes or to
enforce the performance of any provision of the Notes or this Indenture. The
Trustee may maintain a proceeding even if it does not possess any of the Notes
or does not produce any of them in the proceeding. A delay or omission by the
Trustee or any Noteholder in exercising any right or remedy accruing upon an
Event of Default shall not impair the right or remedy or constitute a waiver of
or acquiescence in the Event of Default. No remedy is exclusive of any other
remedy. All available remedies are cumulative.
Section 6.4 Waiver of Past Defaults. Subject to Sections 6.2, 6.7
and 9.2, the Holders of a majority in principal amount of the Notes by notice to
the Trustee may waive an existing Default and its consequences except a Default
in the payment of the principal of or interest on any Note. When a Default or
Event of Default is waived, it is cured and ceases to exist.
Section 6.5 Control by Majority. The Holders of a majority in
principal amount of the Notes then outstanding may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on it. However, the Trustee may refuse
to follow any direction that conflicts with law or this Indenture, is unduly
prejudicial to the rights of other Noteholders or would involve the Trustee in
personal liability.
Section 6.6 Limitation on Suits. A Noteholder may pursue a remedy
with respect to this Indenture or the Notes only if:
(a) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the
Notes then outstanding make a request to the Trustee to pursue the remedy;
(c) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of indemnity; and
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20
(e) during such 60-day period, the Holders of a majority in
principal amount of the Notes do not give the Trustee a direction inconsistent
with the request.
A Noteholder may not use this Indenture to prejudice the rights of
another Noteholder or to obtain a preference or priority over another
Noteholder.
Section 6.7 Rights of Holders to Receive Payment. Notwithstanding
any other Provision of this Indenture, the right of any Holder of a Note to
receive payment of principal of and interest on the Note, on or after the
respective due dates expressed in the Note, or to institute suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of the Holder.
Section 6.8 Collection Suit by Trustee. If an Event of Default
specified in subsection 6.1(a) or (b) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company or any other obligor upon the Notes for the whole amount of principal
and interest remaining unpaid, together with interest on overdue principal and,
to the extent that payment of such interest is lawful, interest on overdue
installments of interest, in each case at the rate per annum borne by the Notes
and such further amount as shall be sufficient to cover the costs and expenses
of collection, including the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel and any other amounts due
the Trustee under Section 7.7.
Section 6.9 Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel and any other amounts due under Section 7.7) and
the Noteholders allowed in any judicial proceedings relative to the Company (or
any other obligor upon the Notes), its creditors or its property and shall be
entitled and empowered to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute it, and any
Custodian in any such judicial proceedings is hereby authorized by each
Noteholder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the
Noteholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.7. Nothing
herein contained shall be deemed to authorize the Trustee to authorize or
consent to or accept or adopt on behalf of any Noteholder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof or to authorize the Trustee to vote in respect
of the claim of any Noteholder in any such proceeding.
Section 6.10 Priorities. If the Trustee collects any money pursuant
to this Article, it shall pay out the money in the following order:
first, to the Trustee for amounts due under Section 7.7;
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21
second, to Noteholders for amounts due and unpaid on the Notes for
principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Notes for principal
and interest, respectively; and
third, to the Company.
The Trustee, upon prior written notice to the Company, may fix a
record date and payment date for any such payment to Noteholders in such manner
and procedure as the Trustee deems appropriate.
Section 6.11 Undertaking for Costs. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a suit by the
Trustee, a suit by a Holder pursuant to Section 6.7 or a suit by Holders of more
than 10% in principal amount of Notes then outstanding.
Section 6.12 Waiver of Stay or Extension Laws. The Company covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, which materially adversely affects the performance of this
Indenture; and the Company (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
ARTICLE VII
TRUSTEE
Section 7.1 Duties of Trustee. (a) If an Event of Default has
occurred and is continuing, the Trustee shall exercise such of the rights and
powers vested in it by this Indenture, and use the same degree of care and skill
in their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs.
(b) Except during the continuance of an Event of Default:
(i) The Trustee need perform only those duties that are
specifically set forth in this Indenture and no others.
(ii) In the absence of bad faith or negligence on its
part, the Trustee may conclusively rely, as to the truth of the statements
and the correctness of the opinions expressed therein, upon certificates
or opinions furnished to the Trustee
<PAGE>
22
and conforming to the requirements of this Indenture. However, in the case
of any such certificates or opinions which by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee shall
examine the certificates and opinions to determine whether or not they
conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) This paragraph does not limit the effect of
paragraph (b) of this Section.
(ii) The Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts.
(iii) The Trustee shall not be liable with respect to
any action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.5.
(iv) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured to it.
(d) Every provision of this Indenture that in any way relates
to the Trustee is subject to subsections 7.1(a), (b) and (c).
(e) The Trustee may refuse to perform any duty or exercise any
right or power unless it receives indemnity satisfactory to it against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
Section 7.2 Rights of Trustee. (a) The Trustee may rely on any
document reasonably believed by it to be genuine and to have been signed or
presented by the proper Person. The Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
the Certificate or Opinion.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
<PAGE>
23
(d) The Trustee may consult with counsel of its selection and
the advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon.
Section 7.3 Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Notes and
may otherwise deal with the Company or an Affiliate of the Company with the same
rights it would have if it were not Trustee. Any Agent may do the same with like
rights. However, the Trustee is subject to Sections 7.10 and 7.11.
Section 7.4 Trustee's Disclaimer. The Trustee makes no
representation as to the validity or adequacy of this Indenture or the Notes, it
shall not be accountable for the Company's use of the proceeds from the Notes,
and it shall not be responsible for any statement in the Notes other than its
authentication.
Section 7.5 Notice of Defaults. If a Default occurs and is
continuing and if it is known to the Trustee, the Trustee shall mail to
Noteholders a notice of the Default within 90 days after it occurs. Except in
the case of a Default in payment on any Note, the Trustee may withhold the
notice if and so long as a committee of its Trust Officers in good faith
determines that withholding the notice is in the interests of Noteholders.
Section 7.6 Reports by Trustee to Holders. Within 60 days after each
May 1 beginning with May 1, 1998, the Trustee shall mail to each Noteholder to
the extent required by Section 313(c) of the Trust Indenture Act a brief report
dated as of such date that complies with Section 313(a) of the Trust Indenture
Act. The Trustee also shall comply with Section 313(b) of the Trust Indenture
Act.
A copy of each report at the time of its mailing to Noteholders
shall be filed with the Commission and each stock exchange on which the Notes
are listed. The Company shall promptly notify the Trustee when the Notes are
listed on any stock exchange.
Section 7.7 Compensation and Indemnity. The Company shall pay to the
Trustee from time to time such compensation as the Company and the Trustee shall
agree in writing for its services. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Company
shall reimburse the Trustee upon request for all reasonable out-of-pocket
expenses incurred by it. Such expenses shall include the reasonable compensation
and out-of-pocket expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any, and all loss,
damage, claim, expense or liability incurred by it except as provided below. The
Trustee shall notify the Company promptly of any claim for which it may seek
indemnity. The Company shall defend the claim and the Trustee shall cooperate in
the defense. The Trustee may have separate counsel and the Company shall pay the
reasonable fees and expenses of one such counsel. The Company need not pay for
any settlement made without its consent.
<PAGE>
24
The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee through negligence or bad faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal of and
interest on particular Notes.
When the Trustee incurs expenses or renders services after an Event
of Default specified in subsection 6.1(f) or (g) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
The provisions of this Section shall survive the termination of this
Indenture.
Section 7.8 Replacement of Trustee. A resignation or removal of the
Trustee and the appointment of a successor Trustee shall become effective only
upon the successor Trustee's acceptance of appointment as provided in this
Section.
The Trustee may resign by so notifying the Company. The Holders of a
majority in principal amount of the Notes may remove the Trustee by so notifying
the removed Trustee and, with the Company's consent, may appoint a successor
Trustee. The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent;
(c) a receiver or public officer takes charge of the Trustee
or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company and any other obligor upon the
Notes shall promptly appoint a successor Trustee.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the Notes may petition any court
of competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Noteholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
<PAGE>
25
succession to Noteholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, provided all sums owing
to the Trustee hereunder have been paid and subject to the lien provided for in
Section 7.7. Notwithstanding replacement of the Trustee, the Company's
obligations under Section 7.7 shall continue for the benefit of the retiring
Trustee.
Section 7.9 Successor Trustee by Merger, etc. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business to, another corporation, the successor
corporation without any further act shall be the successor Trustee.
Section 7.10 Eligibility; Disqualification. This Indenture shall
always have a trustee who satisfies the requirements of Section 310(a)(1) of the
Trust Indenture Act. The Trustee shall always have a combined capital and
surplus of at least $50 million as set forth in its most recent published annual
report of condition. The Trustee shall comply with Section 310(b) of the Trust
Indenture Act, including the optional provision permitted by the second sentence
of Section 310(b)(9) of the Trust Indenture Act.
Section 7.11 Preferential Collection of Claims Against Company. The
Trustee is subject to Section 311(a) of the Trust Indenture Act, excluding any
creditor relationship listed in Section 311(b) of the Trust Indenture Act. A
Trustee who has resigned or been removed is subject to Section 311(a) of the
Trust Indenture Act to the extent indicated.
ARTICLE VIII
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
Section 8.1 Discharge of Liability on the Notes; Legal and Covenant
Defeasance. Subject to Section 8.3, the Company may terminate all of its
obligations under the Notes and this Indenture (a "Legal Defeasance"), or may
terminate its obligations under the covenants contained in Sections 3.7, 3.8,
3.9, 3.10, 3.11, 4.1 and 4.2 of this Indenture with respect to the outstanding
Notes (a "Covenant Defeasance"), if at any time:
(a) The Company irrevocably deposits in trust with the
Trustee, pursuant to an irrevocable trust and security agreement in form and
substance reasonably satisfactory to the Trustee, U.S. Legal Tender or direct
non-callable obligations of, or non-callable obligations guaranteed by, the
United States of America for the payment of which obligation or guarantee the
full faith and credit of the United States of America is pledged ("U.S.
Government Obligations") maturing as to principal and interest in such amounts
and at such times as are, without consideration of the reinvestment of such
interest and after payment of all federal, state and local taxes or other
charges or assessments in respect thereof payable by the Trustee, sufficient (in
the opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee) to pay
the principal of and interest on the outstanding Notes on the dates on which any
such payments are due and payable in accordance with the terms of this Indenture
and of the Notes;
<PAGE>
26
(b) Such deposits shall not cause the Trustee to have a
conflicting interest as defined in and for purposes of the Trust Indenture Act;
(c) No Default or Event of Default shall have occurred or be
continuing on the date of such deposit or shall occur on or before the
ninety-first day after the date of such deposit;
(d) Such deposit will not result in a breach or violation of,
or constitute a default under, this Indenture or any other instrument to which
the Company is a party or by which it or its property is bound;
(e) The Company shall deliver to the Trustee an Opinion of
Counsel, (A) in the case of a Legal Defeasance, to the effect that (i) the
Internal Revenue Service has published a ruling, (ii) the Company has received a
ruling from the Internal Revenue Service or (iii) since the date hereof, there
has been a change in applicable United States federal income tax law, in any
such case to the effect that, and based upon such opinion shall confirm that,
Holders of the Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such deposit and the Legal Defeasance contemplated
hereby, and will be subject to federal income tax in the same amounts, in the
same manner and at the same times as would have been the case if such deposit
and defeasance had not occurred or, (B) in the case of a Covenant Defeasance, to
the effect that the Holders of Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and the Covenant
Defeasance contemplated hereby, and will be subject to federal income tax in the
same amounts, in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred;
(f) The deposit shall not result in the Company, the Trustee
or the trust becoming or being deemed to be an "investment company" under the
Investment Company Act of 1940, as amended;
(g) The Holders, or the Trustee on behalf of such Holders,
shall have a perfected security interest under applicable law in the monies or
U.S. Government Obligations deposited pursuant to Section 8.1(a) above; and
(h) The Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent specified herein relating to the Legal Defeasance or the Covenant
Defeasance, as applicable, contemplated by this Section 8.1 have been complied
with.
If the Company exercises its option to make a Legal Defeasance or a
Covenant Defeasance payment of the Notes may not be accelerated because of an
Event of Default.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to this Section 8.1 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of outstanding Notes.
<PAGE>
27
Section 8.2 Satisfaction, Discharge of the Indenture and Termination
of the Company's Obligations upon Cancellation of the Notes. In addition to its
rights under Section 8.1, the Company may satisfy and be discharged from all of
its obligations under this Indenture (subject to Section 8.3) when:
(a) All Notes theretofore authenticated and delivered (other
than Notes which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 2.7) have been delivered to the Trustee
for cancellation;
(b) The Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(c) The Company has delivered to the Trustee an Officers'
Certificate and an opinion of Counsel, each stating that all conditions
precedent specified herein relating to the satisfaction and discharge of this
Indenture have been complied with.
Section 8.3 Survival of Certain Obligations. Notwithstanding the
satisfaction and discharge of this Indenture and of the Notes referred to in
Section 8.1 or 8.2, the respective obligations of the Company, the Trustee and
the Paying Agent under Sections 2.3, 2.4, 2.5, 2.6, 2.7, 3.1, 3.5, 7.7, 7.8, 8.6
and 8.7 shall survive until the Notes are no longer outstanding, and thereafter
the obligations of the Company, the Trustee and the Paying Agent under Sections
7.7, 8.5, 8.6 and 8.7 shall survive. Nothing contained in this Article VIII
shall abrogate any of the obligations or duties of the Trustee under this
Indenture.
Section 8.4 Acknowledgment of Discharge by Trustee. After the
conditions of Section 8.1 or 8.2 have been satisfied, the Trustee upon request
shall acknowledge in writing the discharge of those obligations that the Company
terminates.
Section 8.5 Application of Trust Money. The Trustee shall hold in
trust money or U.S. Government Obligations deposited with it pursuant to Section
8.1. It shall apply the deposited money and the money from U.S. Government
Obligations through the Paying Agent and in accordance with this Indenture to
the payment of principal of and interest on the Notes.
Section 8.6 Repayment to Company. The Trustee and the Paying Agent
shall promptly pay to the Company upon written request any excess money or
securities held by them at any time. The Trustee and the Paying Agent shall pay
to the Company upon written request any money held by them for the payment of
principal or interest that remains unclaimed for two years; provided that the
Company shall have first caused notice of such payment to be mailed to each
Noteholder entitled thereto no less than 30 days prior to such repayment. After
payment to the Company, Noteholders entitled to the money must look to the
Company for payment as general creditors unless an applicable abandoned property
law designates another Person, and the Trustee shall have no further liability
with respect thereto.
Section 8.7 Reinstatement. If the Trustee or the Paying Agent is
unable to apply any money in accordance with Section 8.5 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining,
<PAGE>
28
restraining or otherwise prohibiting such application, the Company's obligations
under this Indenture and the Notes shall be revived and reinstated as though no
deposit had occurred pursuant to Section 8.1 until such time as the Trustee or
the Paying Agent is permitted to apply all such money in accordance with Section
8.5; provided that, if the Company has made any payment of interest on or
principal of any Note because of the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money held by the Trustee or the Paying Agent.
ARTICLE IX
AMENDMENTS AND WAIVERS
Section 9.1 Without Consent of Holders. The Company and the Trustee
may amend or supplement this Indenture or the Notes without the consent of any
Noteholder:
(a) to cure any ambiguity, defect or inconsistency;
(b) to comply with Article IV;
(c) to provide for uncertificated Notes in addition to
certificated Notes;
(d) to make any change that does not adversely affect the
rights of any Noteholder; or
(e) to comply with the Trust Indenture Act.
Section 9.2 With Consent of Holders. The Company and the Trustee may
amend or supplement any provision of either this Indenture or the Notes with the
written consent of the Holders of at least a majority in principal amount of the
Notes then outstanding without notice to any Noteholder. The Holders of a
majority in principal amount of the outstanding Notes may waive compliance by
the Company with any such provision without notice to any Noteholder. However,
without the consent of each Noteholder affected, an amendment, supplement or
waiver under this Section may not:
(a) change the maturity of the principal of or the date of payment
of any installment of interest on any Note;
(b) reduce the principal amount of or interest on any Note or change
the form of payment thereof (except as permitted in Section 2.2 hereof);
(c) impair the right to institute suit for the enforcement of
any payment on or with respect to any Note;
(d) reduce the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver; or
<PAGE>
29
(e) make any change in Sections 6.4 or 6.7 or this Section
9.2.
The Company and the Trustee hereby agree to amend or supplement any
provision of either this Indenture or the Notes at any time after August __,
1998, upon receipt of a written direction indicating the approval of any
amendment or supplement by the Holders of at least a majority in principal
amount of the Notes then outstanding, without notice to any Noteholder;
provided, however, that any such change may not adversely affect the rights of
the Company or the Trustee, it being understood that the elimination of any or
all of Sections 3.7, 3.8, 3.9, 3.10, 3.11, 4.1 and 4.2 of this Indenture would
not constitute such a change; and provided further, that such amendment or
supplement may not make any of the changes specified in clauses (a) through (e)
of the first paragraph of this Section 9.2 without the consent of each
Noteholder affected.
Any amendment or supplement shall be effective upon certification to
the Trustee by the Company or an agent of the Company that such amendment or
supplement has been authorized by the Company and that either (i) the consent of
the majority of an aggregate principal amount of the Notes has been obtained or
(ii) the Company has received a written direction indicating the approval of the
majority of an aggregate principal amount of the Notes, unless such consent or
direction specifies that it shall become effective at a later date, in which
case such amendment or supplement shall become effective in accordance with the
terms of such consent or direction.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to Noteholders a notice briefly describing the
amendment, supplement or waiver. Any failure of the Company to mail such notice,
or any defect therein, shall not, however, in any way impair or affect the
validity of any amendment, supplement or waiver.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
Section 9.3 Compliance with Trust Indenture Act. Every amendment or
supplement to this Indenture or the Notes or waiver of the provisions hereof or
thereof shall comply with the Trust Indenture Act as then in effect.
Section 9.4 Revocation and Effect of Consents. Until an amendment,
supplement or waiver becomes effective, a consent to it by a Holder of a Note is
a continuing consent by the Holder and every subsequent Holder of a Note or
portion of a Note that evidences the same debt as the consenting Holder's Note,
even if notation of the consent is not made on any Note. However, any such
Holder or subsequent Holder may revoke the consent as to his Note or portion of
a Note if the Trustee receives the notice of revocation before the date the
amendment, supplement or waiver becomes effective.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those Persons who were Holders at such record
date (or their duly designated proxies), and
<PAGE>
30
only those Persons, shall be entitled to revoke any consent previously given,
whether or not such Persons continue to be Holders after such record date. No
such consent shall be valid or effective for more than 120 days after such
record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Noteholder, unless it makes a change described in any of clauses (a)
through (e) of Section 9.2. In that case, the amendment, supplement or waiver
shall bind each Holder of a Note who has consented to it and every subsequent
Holder of a Note or portion of a Note that evidences the same debt as the
consenting Holder's Note.
Section 9.5 Notation on or Exchange of Notes. The Trustee may place
an appropriate notation about an amendment or waiver on any Note thereafter
authenticated. The Company in exchange for all Notes may issue and the Trustee
shall authenticate new Notes that reflect the amendment, supplement or waiver.
Section 9.6 Trustee To Sign Amendments, Etc. The Trustee shall sign
any amendment or supplement authorized pursuant to this Article IX if the
amendment or supplement does not adversely affect the rights, duties,
liabilities or immunities of the Trustee. If it does, the Trustee may, but need
not, sign it. In signing or refusing to sign such amendment or supplement, the
Trustee shall be entitled to receive, if requested, an indemnity reasonably
satisfactory to it and to receive and, subject to Section 7.1, shall be fully
protected in relying upon, an Officers' Certificate and an Opinion of Counsel as
conclusive evidence that such amendment or supplement is authorized or permitted
by this Indenture, that it is not inconsistent herewith, and that it will be
valid and binding upon the company in accordance with its terms.
ARTICLE X
MISCELLANEOUS
Section 10.1 Trust Indenture Act Controls. If any provision of this
Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the Trust Indenture Act, the
required provision shall control.
Section 10.2 Notices. Any notice or communication by the Company or
the Trustee to the other is duly given if in writing and delivered in person or
by facsimile or registered or certified mail, postage prepaid, return receipt
requested, addressed as follows:
if to the Company:
Home Holdings Inc.
59 Maiden Lane
New York, New York 10038
Attention: General Counsel
<PAGE>
31
if to the Trustee:
[ ]
[ ]
[ ]
Attention: Corporate Trust Trustee
Administration
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications. Any
notice or communication to the Company or the Trustee shall be deemed to have
been given or made as of the date so delivered if personally delivered; when
receipt is acknowledged, if facsimiled; and five calendar days after mailing if
sent by registered or certified mail (except that a notice of change of address
shall not be deemed to have been given until actually received by the
addressee).
Any notice or communication to a Noteholder shall be mailed by
first-class mail or other equivalent means to his address shown on the register
kept by the Registrar. Failure to mail a notice or communication to a Noteholder
or any defect in it shall not affect its sufficiency with respect to other
Noteholders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it. If the Company mails a notice or communication to Noteholders, it
shall mail a copy to the Trustee and each Agent at the same time.
All notices or communications shall be in writing.
In case by reason of the suspension of regular mail service, or by
reason of any other cause, it shall be impossible to mail any notice as required
by this Indenture, then such method of notification as shall be made with the
approval of the Trustee shall constitute a sufficient mailing of such notice.
Section 10.3 Communications by Holders with Other Holders.
Noteholders may communicate pursuant to Section 312(b) of the Trust Indenture
Act with other Noteholders with respect to their rights under this Indenture or
the Notes. The Company, the Trustee, the Registrar and anyone else shall have
the protection of Section 312(c) of the Trust Indenture Act.
Section 10.4 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any action
under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate stating that, in the opinion of
the signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
<PAGE>
32
(b) an Opinion of Counsel reasonably satisfactory to the
Trustee stating that, in the opinion of such counsel, all such conditions
precedent have been complied with.
Section 10.5 Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include:
(a) a statement that each party making such certificate or
opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(c) a statement that, in the opinion of each such party, he or
she has made such examination or investigation as is necessary to enable him or
her to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether or not, in the opinion of each
such party, such condition or covenant has been complied with;
provided, however, that with respect to matters of law, an Officers' Certificate
may be based upon an Opinion of Counsel, unless the signers know, or in the
exercise of reasonable care should know, that such Opinion of Counsel is
erroneous, and provided, further, that with respect to matters of fact an
Opinion of Counsel may rely on an Officers' Certificate or certificates of
public officials, unless the signer knows, or in the exercise of reasonable care
should know, that any such document is erroneous.
Section 10.6 Rules by Trustee and Agents. The Trustee may make
reasonable rules for action by or at a meeting of Noteholders. The Registrar or
Paying Agent may make reasonable rules and set reasonable requirements for its
functions.
Section 10.7 Legal Holidays. A "Legal Holiday" is a Saturday, a
Sunday or a day on which banking institutions are not required to be open either
in New York City or in the city where the principal corporate trust office of
the Trustee is located. If a payment date is a Legal Holiday at a place of
payment, payment may be made at such place on the next succeeding day that is
not a Legal Holiday, and no interest shall accrue for the intervening period.
Section 10.8 No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under the Notes or this Indenture or for any
claim based on, in respect of or by reason of such obligations or their creation
and if any liability does exist, such liability is waived and released as
provided in the Notes.
<PAGE>
33
Section 10.9 Duplicate Originals. The Parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
Section 10.10 Governing Law. The internal laws of the State of New
York shall govern this Indenture and the Notes, without regard to the conflicts
of laws rules thereof. The Company hereby irrevocably submits to the
jurisdiction of any federal or New York State court sitting in the Borough of
Manhattan in New York City in respect of any suit, action or proceeding arising
out of or relation to this Indenture, and irrevocably agrees that all claims in
respect of any such suit, action or proceeding may be heard and determined in
any such court. The Company irrevocably waives, to the fullest extent it may
effectively do so under applicable law, any objection which it may now or
hereafter have to the laying of the venue of any such suit, action or proceeding
brought in any such court and any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
Section 10.11 No Adverse Interpretation of Other Agreements. This
Indenture may not be used to interpret another indenture, loan or debt agreement
of the Company or any Subsidiary. Any such indenture, loan or debt agreement may
not be used to interpret this Indenture.
Section 10.12 Successors. All agreements of the Company in this
Indenture and the Notes shall bind its successor. All agreements of the Trustee
in this Indenture shall bind its successors.
[Rest of page intentionally left blank]
<PAGE>
34
Section 10.13 Severability. In case any provision in this Indenture
or in the Notes shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed and delivered as of the date first above written.
HOME HOLDINGS INC.
By:
--------------------------------------
Name:
Title:
By:
--------------------------------------
Name:
Title:
[ ], as Trustee
By:
--------------------------------------
Name:
Title:
<PAGE>
35
EXHIBIT A
(Face of Note)
REGISTERED CUSIP No.
----------
No.
HOME HOLDINGS INC.
[ ]% Senior Note due April __, 2006
Home Holdings Inc., a Delaware corporation (the "Company"), for
value received, promises to pay to _______________, or registered assigns, the
principal sum of ______________ Dollars on _____________________, and interest
on such principal sum, at the rate, on the dates and to the Persons specified on
the reverse hereof.
This Note shall not be valid or become obligatory for any purpose
until the certificate of authentication hereon shall have been signed by the
Trustee or an authenticating agent under the Indenture referred to on the
reverse hereof.
Reference is made to the further provisions of this Note set forth
on the reverse hereof. Such further provisions shall for all purposes have the
same effect as though fully set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed under its corporate seal.
HOME HOLDINGS INC.
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
(SEAL)
<PAGE>
36
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Notes described in the within-mentioned indenture.
[ ],
as Trustee
By:
--------------------------------------
Authorized Signatory
<PAGE>
(Back of Note)
HOME HOLDINGS INC.
[ ]% Senior Note due April __, 2006
1. Interest. Home Holdings Inc., a Delaware corporation (the
"Company"), promises to pay interest (a) on the principal amount of this Note
from April __, 1998, payable semi-annually on March 15 and September 15 (each an
"Interest Payment Date") of each year, commencing on September 15, 1998, at the
initial rate per annum of [ ]%, subject to adjustment as provided below, to
holders of record on the Regular Record Date (as defined in paragraph 2 below)
next preceding each Interest Payment Date, and (b) to the extent lawful, on any
interest payment due but unpaid on such principal amount at such rate per annum.
Interest on this Note will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from April __, 1998; provided
that, if there is no existing Default in the payment of interest and if this
Note is authenticated between a Regular Record Date and the next succeeding
Interest Payment Date, interest shall accrue from such Interest Payment Date.
Subject to the terms of this paragraph, the Company may, in its sole
discretion, issue Additional Notes (as hereinafter defined) in lieu of a cash
payment of any or all of the interest due on any Interest Payment Date up to and
including April __, 2001. If the Company elects to issue Additional Notes in
lieu of cash payment of interest due on any Interest Payment Date pursuant to
the immediately preceding sentence, it shall, by giving notice to the
Noteholders and the Trustee of such election not less than 30 nor more than 60
days prior to the Regular Record Date for such Interest Payment Date, issue to
the person who is the registered holder of this Note, and shall instruct the
Trustee to authenticate, an additional Note (the "Additional Note"), dated the
date of such Interest Payment Date, in a principal amount equal to the amount of
cash interest due but not paid on such Interest Payment Date, and with a
maturity date, interest rate, and other terms of, and generally in the form of,
this Note. The issuance of such Additional Note shall constitute full payment of
such interest. If the Company fails to give the required notice of such election
to the Noteholders, the notice requirement shall be deemed satisfied by the
issuance and delivery of Additional Notes in lieu of cash on the relevant
Interest Payment Date. Failure to pay interest in such manner on the Interest
Payment Date following failure to give the required notice to the Noteholders,
or failure to give such notice to the Trustee, shall obligate the Company to pay
the interest due in cash. Each issuance of Additional Notes in lieu of cash
payment of interest on the Notes shall be made pro rata with respect to the
outstanding Notes. The term "Notes" shall include the Additional Notes that may
be issued under the Indenture. After April __, 2001, all interest due on an
Interest Payment Date shall be paid in cash.
<PAGE>
2
The Company shall pay interest on overdue principal and interest on
overdue installments of interest to the extent lawful, at the rate per annum
borne by the Notes in cash or by issuance of Additional Notes up to and
including April __, 2001, and, thereafter, in cash.
2. Regular Record Date. The record date for each payment of interest
on this Note on each Interest Payment Date shall be the close of business of the
Company's office in New York, New York on the March 1 or September 1 next
preceding such Interest Payment Date (a "Regular Record Date").
3. Method of Payment. The Company will pay interest on this Note
(except defaulted interest) to the Persons who are registered Holders of Notes
at the close of business on the Regular Record Date for the next Interest
Payment Date even though Notes are canceled after such Regular Record Date and
on or before the Interest Payment Date. Holders must surrender Notes to a Paying
Agent to collect principal payments. Up to and including April __, 2001, and
subject to paragraph 1 above, the Company may, at its sole discretion, pay
interest in the form of Additional Notes, otherwise the Company will pay
principal and interest in money of the United States of America that at the time
of payment is legal tender for payment of public and private debts. However, the
Company may pay principal and interest by check payable in such money. It may
mail an interest check to a Holder's registered address. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding Business Day, and no interest on the amount payable on such
payment date shall accrue for the intervening period.
4. Paying Agent and Registrar. Initially, [ ] (the "Trustee"), [ ],
will act as Paying Agent and Registrar. The Company may appoint and change any
Paying Agent and Registrar or Co-Registrar at any time without notice. The
Company or any Subsidiary of the Company may act in any such capacity.
5. Indenture. The Company issued this Note under an Indenture dated
as of April __, 1998 (the "Indenture") between the Company and the Trustee. The
terms of this Note include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939, as amended (15
U.S. Code ss.ss. 77aaa-77bbbb), as in effect on the date of the Indenture. This
Note is subject to all such terms, and Noteholders are referred to the Indenture
and the Trust Indenture Act for a statement of such terms. Capitalized terms not
otherwise defined herein have the meaning attributed to them in the Indenture.
The Notes are general obligations of the Company limited in aggregate principal
amount as provided in the Indenture.
6. Optional Redemption and No Sinking Fund. If either (i) the
aggregate principal amount of Notes registered to Persons who are not Affiliates
of the Company is less than $___ million or (ii) the Company has a Significant
Subsidiary, then the Company may redeem the Notes, upon notice as provided
hereunder, in whole at any time or in part from time to time, at a redemption
price
<PAGE>
3
equal to the principal amount of the Notes plus accrued and unpaid interest, if
any, to the redemption date.
Notice of redemption will be mailed at least 30 days but not more
than 60 days before the redemption date of each Holder of Notes to be redeemed
at his registered address. Notes in denominations larger than $1,000 may be
redeemed in part but only in whole multiples of $1,000; provided, however, that
if the Company elects to pay interest in the form of Additional Notes, Notes
larger than $1,000 may be redeemed in part in amounts other than multiples of
$1,000. On and after the redemption date interest ceases to accrue on Notes or
portions of them called for redemption unless the Company defaults in making
this redemption payment.
The Notes do not provide for any mandatory sinking fund.
7. Denominations, Transfer, Exchange. The Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000; provided, however, that if the Company elects to pay interest in the
form of Additional Notes, the Additional Notes may be in denominations other
than multiples of $1,000. The transfer of Notes may be registered and Notes may
be exchanged as provided in the Indenture. The Registrar may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
and to pay any taxes and fees required by law or permitted by the Indenture.
8. Persons Deemed Owners. The registered Holder of a Note may be
treated as its owner for all purposes.
9. Defeasance. Subject to certain conditions set forth in the
Indenture, the Company at any time may terminate some or all of its obligations
under the Notes and the Indenture if the Company deposits with the Trustee U.S.
Legal Tender or U.S. Government Obligations for the payment of principal of and
interest on the Notes at maturity.
10. Amendments and Waivers. Subject to certain exceptions, the
Indenture or the Notes may be amended with the consent of the Holders of at
least a majority in principal amount of the Notes, and any existing Default may
be waived with the consent of the Holders of a majority in principal amount of
the Notes. Without the consent of any Noteholder, the Indenture or the Notes may
be amended to cure any ambiguity, defect or inconsistency, to provide for
assumption of Company obligations to Noteholders, to provide for uncertificated
Notes in addition to certificated Notes, to make any change that does not
adversely affect the rights of any Noteholder or to comply with the Trust
Indenture Act.
After August __, 1998, Holders of at least a majority in principal
amount of the Notes then outstanding may direct the Company and the Trustee to
amend or supplement the provisions of the Indenture or the Notes (including the
restrictive covenants described in paragraph 11 below).
<PAGE>
4
In determining whether the Holders of the required principal amount
of Notes have concurred in any direction, waiver or consent, Notes owned by the
Company and its Affiliates are not disregarded.
11. Restrictive Covenants. The Indenture imposes certain limitations
on the ability of the Company to, among other things, consolidate with or merge
with or into any other Person or transfer all or substantially all its
properties and assets to another Person. The Indenture also limits the ability
of the Company and its Significant Subsidiaries to incur Indebtedness secured by
Liens on properties, assets or Capital Stock of the Company or the Significant
Subsidiary (unless the Holders are secured equally and ratably thereunder) or to
dispose of Capital Stock of the Significant Subsidiaries or of any Subsidiaries
controlling a Significant Subsidiary.
12. Successor Corporation. When a successor corporation assumes all
of the obligations of its predecessor under the Notes and the Indenture and the
transaction complies with the terms of Article IV of the Indenture, the
predecessor corporation will be released from those obligations.
13. Defaults and Remedies. Under the Indenture, an Event of Default
occurs if: (i) the Company defaults in the payment of interest on any Note when
the same becomes due and payable and the default continues for a period of 30
days; (ii) the Company defaults in the payment of the principal of any Note
(including failure to make a payment pursuant to a Change of Control Offer or
other offer to purchase the Notes which is required to be made pursuant to the
Indenture) when the same becomes due and payable at maturity; (iii) the Company
fails to comply with any of its other covenants or agreements in the Notes or
the Indenture and the default continues for 60 days after notice to the Company
by the Trustee or to the Company and the Trustee by the Holders of at least 25%
in principal amount of the Notes then outstanding as specified below; (iv) there
shall be a default under any evidence of Indebtedness of the Company or any
Significant Subsidiary, whether any such Indebtedness exists on the date of this
Indenture or shall hereafter be created, in the amount, individually or in the
aggregate, of $10 million, if the maturity of such Indebtedness has been
accelerated prior to its expressed maturity; (v) a court of competent
jurisdiction enters a final and non-appealable judgment against the Company or
any Significant Subsidiary in which the Company or such Significant Subsidiary
is required to pay an amount (calculated after the application of any proceeds
of insurance policies applicable to such loss), individually or in the
aggregate, in excess of $10 million, and such final and non-appealable judgment
remains unsatisfied for a period of 60 days; and (vi) certain events of
bankruptcy or insolvency of the Company or any Significant Subsidiary occur,
provided, however, that none of the transactions contemplated by the
Reorganization Plan shall constitute an Event of Default. If an Event of Default
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the Notes may declare all the Notes to be due and payable
immediately (other than certain Events of Default relating to the bankruptcy or
insolvency of the Company, which do not require any such action to result in the
Notes being due and payable immediately). Noteholders may not enforce the
Indenture or the Notes except as provided in the Indenture. The Trustee may
require indemnity satisfactory to it before it enforces the Indenture or the
<PAGE>
5
Notes. Subject to certain limitations, Holders of a majority in principal amount
of the Notes may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Noteholders notice of any continuing Default (except a
Default in payment of principal or interest) if it determines that withholding
notice is in their interests. The Company must furnish an annual compliance
certificate to the Trustee.
14. Trustee Dealings with Company. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
15. No Recourse Against Others. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of such obligations or their creation. Each
Noteholder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the Notes.
16. Unclaimed Money. If money and/or Additional Notes for the
payment of principal or interest remains unclaimed for two years, the Trustee or
Paying Agent shall pay the money and/or Additional Notes back to the Company at
its request unless an abandoned property law designates another person. After
any such payment, Holders entitled to the money and/or Additional Notes must
look only to the Company (unless an abandoned Property law designates another
person) and not to the Trustee for payment.
17. Abbreviations. Customary abbreviations may be used in the name
of a Noteholder or an assignee, such as: TEN COM (= as tenants in common), TEN
ENT (= as tenants by the entireties), JT TEN (= as joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
18. Governing Law. The internal laws of the State of New York shall
govern the Indenture and the Notes, without regard to the conflicts of laws
rules thereof. The Company hereby irrevocably submits to the jurisdiction of any
federal or New York State court sitting in the Borough of Manhattan in New York
City in respect of any suit, action or proceeding arising out of or relation to
the Indenture or the Notes, and irrevocably agrees that all claims in respect of
any such suit, action or proceeding may be heard and determined in any such
court. The Company irrevocably waives, to the fullest extent it may effectively
do so under applicable law, any objection which it may now or hereafter have to
the laying of the venue of any such suit, action or proceeding brought in any
such court and any claim that any such suit, action or proceeding brought in any
such court has been brought in an inconvenient forum.
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: I or we assign and transfer this
Note to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint __________________ agent to transfer this Note on the
books of the Company. The agent may substitute another to act for him.
- --------------------------------------------------------------------------------
Date: Your Signature
----------------------------------- ------------------------
(Sign exactly as your name appears on the
other side of this security)
--------------------------------------
Signature Guarantee
HOME HOLDINGS INC.,(1)
AS ISSUER,
AND
[ ],
AS TRUSTEE
-----------------
INDENTURE
DATED AS OF ________ __, 1998
----------------
[315,000] UNITS
EARN OUT NOTES
- ------------------
(1) If any of the provisions in this form of Indenture conflict with the form
of the Earn Out Notes, the Earn Out Notes will govern and the Indenture
will be conformed to the Earn Out Notes.
<PAGE>
CROSS-REFERENCE TABLE
Trust Indenture Act Section Indenture Section
310(a)(1) 7.10
(a)(2) 7.10
(a)(3) N.A.
(a)(4) N.A.
(b) 7.8, 7.10, 10.2
(c) N.A.
311(a) 7.11
(b) 7.11
(c) N.A.
312(a) 2.5
(b) 10.3
(c) 10.3
313(a) 7.6
(b)(1) N.A.
(b)(2) 7.6
(c) 7.6, 10.2
(d) 7.6
314(a) 3.2, 10.2
(b) N.A.
(c)(1) 10.4
(c)(2) 10.4
(c)(3) N.A.
(d) N.A.
(e) 10.5
(f) N.A.
315(a) 7.1(b)
(b) 7.5, 10.2
(c) 7.1(a)
(d) 7.1(c)
(e) 6.11
316(a)(last sentence) 2.9
(a)(1)(A) 6.5
(a)(1)(B) 6.4
(a)(2) N.A.
(b) 6.7
317(a)(1) 6.8
(a)(2) 6.9
(b) 2.4
318(a) 10.1
"N.A." means not applicable.
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of this Indenture.
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS AND INCORPORATION
BY REFERENCE.......................................... 1
Section 1.1 Definitions........................................... 1
Section 1.2 Other Definitions..................................... 3
Section 1.3 Incorporation by Reference of Trust Indenture Act..... 4
Section 1.4 Rules of Construction................................. 4
ARTICLE II THE NOTES............................................. 5
Section 2.1 Form and Dating....................................... 5
Section 2.2 Execution and Authentication.......................... 5
Section 2.3 Registrar and Paying Agent............................ 5
Section 2.4 Paying Agent to Hold Money in Trust................... 6
Section 2.5 Noteholder Lists...................................... 6
Section 2.6 Transfer and Exchange................................. 6
Section 2.7 Replacement Notes..................................... 7
Section 2.8 Outstanding Notes..................................... 7
Section 2.9 Treasury Notes........................................ 7
Section 2.10 Temporary Notes....................................... 7
Section 2.11 CUSIP Numbers......................................... 7
ARTICLE III COVENANTS............................................. 8
Section 3.1 Payment of Notes...................................... 8
Section 3.2 Commission Reports; Reports to Noteholders............ 8
Section 3.3 Compliance Certificate................................ 9
Section 3.4 [Reserved]............................................ 9
Section 3.5 Corporate Existence................................... 9
Section 3.6 Covenant of Good Faith................................ 9
ARTICLE IV SUCCESSORS............................................ 9
Section 4.1 When Company May Merge, etc........................... 9
Section 4.2 Successor Corporation Substituted..................... 10
ARTICLE V [RESERVED]............................................ 10
ARTICLE VI DEFAULTS AND REMEDIES................................. 10
[Section 6.1 Events of Default..................................... 10
Section 6.2 [Reserved]............................................ 11
Section 6.3 Remedies.............................................. 11
Section 6.4 Waiver of Past Defaults............................... 11
Section 6.5 Control by Majority................................... 12
i
<PAGE>
Page
----
Section 6.6 Limitation on Suits................................... 12
Section 6.7 Rights of Holders to Receive Payment.................. 12
[Section 6.8 Collection Suit by Trustee............................ 12
Section 6.9 Trustee May File Proofs of Claim...................... 12
Section 6.10 Priorities............................................ 13
Section 6.11 Undertaking for Costs................................. 13
Section 6.12 Waiver of Stay or Extension Laws...................... 13
ARTICLE VII TRUSTEE............................................... 14
Section 7.1 Duties of Trustee..................................... 14
Section 7.2 Rights of Trustee..................................... 15
Section 7.3 Individual Rights of Trustee.......................... 15
Section 7.4 Trustee's Disclaimer.................................. 16
Section 7.5 Notice of Defaults.................................... 16
Section 7.6 Reports by Trustee to Holders......................... 16
Section 7.7 Compensation and Indemnity............................ 16
Section 7.8 Replacement of Trustee................................ 17
Section 7.9 Successor Trustee by Merger, etc...................... 18
Section 7.10 Eligibility; Disqualification......................... 18
Section 7.11 Preferential Collection of Claims Against Company..... 18
ARTICLE VIII [RESERVED]............................................ 18
ARTICLE IX AMENDMENTS AND WAIVERS................................ 18
Section 9.1 Without Consent of Holders............................ 18
Section 9.2 With Consent of Holders............................... 19
Section 9.3 Compliance with Trust Indenture Act................... 20
Section 9.4 Revocation and Effect of Consents..................... 20
Section 9.5 Notation on or Exchange of Notes...................... 20
Section 9.6 Trustee To Sign Amendments, Etc....................... 20
ARTICLE X MISCELLANEOUS......................................... 21
Section 10.1 Trust Indenture Act Controls.......................... 21
Section 10.2 Notices............................................... 21
Section 10.3 Communications by Holders with Other Holders.......... 22
Section 10.4 Certificate and Opinion as to Conditions Precedent.... 22
Section 10.5 Statements Required in Certificate or Opinion......... 22
Section 10.6 Rules by Trustee and Agents........................... 23
Section 10.7 Legal Holidays........................................ 23
Section 10.8 No Recourse Against Others............................ 23
Section 10.9 Duplicate Originals................................... 23
Section 10.10 Governing Law......................................... 23
Section 10.11 No Adverse Interpretation of Other Agreements......... 23
Section 10.12 Successors............................................ 24
Section 10.13 Severability.......................................... 24
ii
<PAGE>
INDENTURE dated as of ________ __, 1998 between HOME HOLDINGS
INC., a Delaware corporation, as issuer (the "Company") and [ ], a ____________
banking corporation, as trustee (the "Trustee").
WHEREAS, the Notes (as defined below) have the benefit of the
security interest granted under the Assignment and Security Agreement dated
April ___, 1998, made by the Company in favor of ________, as collateral agent
for holders of the Notes.
Each party agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders (as defined below) of
the Company's Earn Out Notes (the "Notes"):
ARTICLE I
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.1 Definitions. As used in this Indenture, the
following terms shall have the following meanings:
"Affiliate" means, when used with reference to any Person, any
Person directly or indirectly controlling, controlled by, or under direct
or indirect common control with, that Person. For the purposes of this
definition, "control" when used with respect to any specified Person means
the power to direct or cause the direction of the management or policies
of such Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise, and the terms "controlling"
and "controlled" have meanings correlative of the foregoing.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Board of Directors" means the Board of Directors of the Company or
any authorized committee thereof.
"Business Day" means a day that is not a Legal Holiday.
"Capital Stock" means any and all shares, interests, participations
or other equivalents (however designated) of corporate stock or any and
all equivalent ownership interests in a Person (other than a corporation).
"Commission" means the Securities and Exchange Commission.
"Common Stock" means Capital Stock of the Company.
<PAGE>
"Company" means Home Holdings Inc. until a successor replaces it and
thereafter means the successor.
"Default" means any event which is, or after notice or passage of
time would be, an Event of Default.
"Effective Date" means the date on which the Plan becomes effective.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Holder" or "Noteholder" means a Person in whose name a Note is
registered.
"Indenture" means this Indenture, as amended, supplemented or
otherwise modified from time to time.
"Notes" means the Notes described above and issued under this
Indenture.
"Noteholder" or "Holder" means a Person in whose name a Note is
registered.
"Officer" means the Chairman of the Board of Directors, any
President, any Vice President, the Chief Financial Officer, the Treasurer,
the Secretary or the Controller of the Company.
"Officers' Certificate" means a certificate signed by two Officers
or by an Officer and an Assistant Treasurer, Assistant Secretary or
Assistant Controller of the Company or of any other obligor upon the
Notes, as the case may be. One of the Officers signing an Officers'
Certificate pursuant to Section 3.3 shall be the Principal Executive
Officer, Principal Financial Officer or Principal Accounting Officer of
the Company.
"Opinion of Counsel" means a written opinion from legal counsel who
is reasonably acceptable to the Trustee. The counsel may be an employee of
or counsel to the Company, any other obligor upon the Notes or the
Trustee.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
2
<PAGE>
"Plan" means the Plan of Reorganization of the Company filed on
January 15, 1998, under Chapter 11 of Title 11 of the United States Code,
11 U.S.C. ss. 101 et seq., Case No. 98 B 40319 (JHG).
"Subsidiary" of a Person means (i) a corporation at least a majority
of whose Capital Stock with voting power, under ordinary circumstances, to
elect directors is at the time, directly or indirectly, owned or
controlled, directly or indirectly, by such Person or (ii) any other
Person (other than a corporation) in which such Person, directly or
indirectly, at the date of determination thereof has at least a majority
ownership interest.
"Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.
Code ss.ss. 77aaa-77bbbb) as in effect on the date of this Indenture
except as provided in Section 9.3 hereof.
"Trustee" means [ ] until a successor replaces it and
thereafter means the successor.
"Trust Officer" means any officer or assistant officer of the
corporate trust administration department of the Trustee or otherwise
assigned by the Trustee to administer its corporate trust matters.
"Unit" means a unit into which the Notes are denominated.
"U.S. Legal Tender" means such coin or currency of the United States
of America as at the time of payment shall be legal tender for the payment
of public and private debts and, except for purposes of Article VIII
hereof, includes a check of the Company or a bank check payable in U.S.
Legal Tender.
Section 1.2 Other Definitions. As used in this Indenture, the
following terms shall have the meanings assigned in the Sections referred
to opposite such terms below:
Term Defined in Section
---- ------------------
"Bankruptcy Default".......................................................6.1
"Bankruptcy Law"...........................................................6.1
"Custodian"................................................................6.1
"Event of Default".........................................................6.1
"Legal Holiday"...........................................................10.7
"Paying Agent".............................................................2.3
"Registrar"................................................................2.3
3
<PAGE>
Section 1.3 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the Trust Indenture Act, the
provision is incorporated by reference in and made a part of this Indenture.
The following terms used in this Indenture and defined in the Trust
Indenture Act have the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder or a Noteholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
and
"obligor" on the indenture securities means the Company and any
other obligor upon the Notes.
All other terms used in this Indenture that are defined by the Trust
Indenture Act, defined by Trust Indenture Act by reference to another statute or
defined by Commission rule under the Trust Indenture Act have the meanings
assigned to them.
Section 1.4 Rules of Construction. Unless the context otherwise
requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles in
effect as of the date any determination hereunder is required;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and in the
plural include the singular; and
(e) provisions apply to successive events and transactions.
4
<PAGE>
ARTICLE II
THE NOTES
Section 2.1 Form and Dating. The Notes shall be substantially in the
form of Exhibit A, which is part of this Indenture. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Note shall be dated the date of its authentication.
Section 2.2 Execution and Authentication. (a) Two Officers shall
sign the Notes for the Company by manual or facsimile signature. The Company's
seal shall be reproduced on the Notes.
(b) If an Officer whose signature is on a Note no longer holds
that office at the time the Note is authenticated, the Note shall be valid
nevertheless.
(c) A Note shall not be valid until authenticated by the
manual signature of the Trustee. The signature shall be conclusive evidence that
the Note has been authenticated under this Indenture.
(d) The Trustee shall authenticate Notes for original issue up
to the total number of not more than [315,000] Units upon a written order of the
Company signed by two Officers. The total number of Units represented by Notes
outstanding at any time may not exceed that number except as provided in Section
2.7.
(e) The Trustee may appoint an authenticating agent acceptable
to the Company to authenticate Notes. An authenticating agent may authenticate
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate of the Company.
(f) The Notes shall be issuable only in registered form and
only in denominations of a whole Unit and integral multiples thereof.
Section 2.3 Registrar and Paying Agent. The Company shall maintain
an office or agency where Notes may be presented for registration of transfer or
for exchange (the "Registrar") and an office or agency where Notes may be
presented for payment (the "Paying Agent"). The Registrar shall keep a register
of the Notes and of their transfer and exchange. The Company may appoint one or
more co-registrars and one or more additional paying agents. The term "Paying
Agent" includes any additional paying agent.
5
<PAGE>
The Company shall enter into an appropriate agency agreement with
any Registrar or Paying Agent not a party to this Indenture, which shall
incorporate the terms of the Trust Indenture Act and the relevant provisions of
this Indenture and shall not otherwise be inconsistent with this Indenture. The
Company or any Subsidiary of the Company may act in any such capacity. The
agreement shall implement the provisions of this Indenture that relate to such
Agent. The Company shall notify the Trustee of the name and address of any Agent
not a party to this Indenture. If the Company fails to maintain a Registrar or
Paying Agent, the Trustee shall act as such.
The Company initially appoints the Trustee as Registrar and Paying
Agent in connection with the Notes. The Company may appoint and change any
Paying Agent and Registrar or co-registrar at any time without notice.
Section 2.4 Paying Agent to Hold Money in Trust. The Company shall
require each Paying Agent other than the Trustee to agree in writing that the
Paying Agent will hold in trust for the benefit of Noteholders or the Trustee
all money held by the Paying Agent for the payment of principal of or interest
on the Notes, and will notify the Trustee of any default by the Company or any
other obligor upon the Notes in making any such payment. While any such default
continues, the Trustee may require a Paying Agent to pay all money held by it to
the Trustee. The Company at any time may require a Paying Agent to pay all money
held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent
(if other than the Company) shall have no further liability for the money. If
the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold as
a separate trust fund all money held by it as Paying Agent.
Section 2.5 Noteholder Lists. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Noteholders. If the Trustee is not the Registrar,
the Company or any other obligor upon the Notes shall furnish to the Trustee on
or before each interest payment date and at such other times as the Trustee may
request in writing a list in such form and as of such date as the Trustee may
reasonably require of the names and addresses of Noteholders.
Section 2.6 Transfer and Exchange. [When Notes are presented to the
Registrar with a request to register a transfer or to exchange them for Notes
representing an equal number of Units in other denominations, the Registrar
shall register the transfer or make the exchange if its requirements for such
transactions are met. To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Notes at the
Registrar's request. Any transfer or exchange shall be without charge, except
that the Company may require payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto, other than
exchanges pursuant to Section 2.10 or 9.5.]
Notwithstanding the foregoing, the Company may restrict transfers as
provided in the Notes.
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Section 2.7 Replacement Notes. If the Holder of a Note claims that
the Note has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Note if the requirements of the
Trustee and the Company are met. If required by the Trustee or the Company, such
Holder must provide an indemnity bond, sufficient in the judgment of both the
Company and the Trustee, to protect the Company, the Trustee, any Paying Agent
or any authenticating agent from any loss which any of them may suffer if a Note
is replaced. The Company may charge for its reasonable expenses in replacing a
Note lost, destroyed or wrongfully taken.
Every replacement Note is an additional obligation of the Company
and shall be entitled to the benefits of this Indenture.
Section 2.8 Outstanding Notes. The Notes outstanding at any time are
all Notes authenticated by the Trustee except for those canceled by it, those
delivered to it for cancellation and those described in this Section as not
outstanding.
If a Note is replaced pursuant to Section 2.7 (other than a
mutilated Note surrendered for replacement), it ceases to be outstanding unless
the Trustee receives proof satisfactory to it that the replaced Note is held by
a bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender
of such Note and replacement thereof pursuant to Section 2.7.
Subject to Section 2.9, a Note does not cease to be outstanding
because the Company or an Affiliate of the Company holds the Note.
Section 2.9 Treasury Notes. In determining whether the Holders of
the required proportion of Units have concurred in any direction, waiver or
consent, Notes owned by the Company, any other obligor upon the Notes or an
Affiliate of the Company or such obligor shall be disregarded (including for
purposes of determining the number of outstanding Units); provided that, for the
purposes of determining whether the Trustee shall be protected in relying on any
such direction, waiver or consent, only Notes which a Trust Officer of the
Trustee knows are so owned shall be so disregarded.
Section 2.10 Temporary Notes. Until definitive Notes are ready for
delivery, the Company may prepare and the Trustee shall authenticate temporary
Notes. Temporary Notes shall be substantially in the form of definitive Notes
but may have variations that the Company considers appropriate for temporary
Notes. Without unreasonable delay, the Company shall prepare and the Trustee
shall authenticate definitive Notes in exchange for temporary Notes. Until such
exchange, such temporary Notes shall be entitled to the same rights, benefits
and privileges as the definitive Notes.
Section 2.11 CUSIP Numbers. The Company in issuing the Notes may use
"CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use
"CUSIP" numbers in notices of redemption as a convenience to Holders; provided
that any such notice may state that no representation is made as to the
correctness of such numbers
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either as printed on the Notes or as contained in any notice of a redemption and
that reliance may be placed only on the other identification numbers printed on
the Notes, and any such redemption shall not be affected by any defect in or
omission of such numbers.
ARTICLE III
COVENANTS
Section 3.1 Payment of Notes. The Company shall pay the amounts
payable on the Notes on the dates and in the manner provided in the Notes.
Payments shall be considered paid on the date due if the Paying Agent (other
than the Company or an Affiliate of the Company) holds on that date money in
immediately available funds sufficient to pay all amounts due under the Notes.
Section 3.2 Commission Reports; Reports to Noteholders. (a) The
Company shall file with the Trustee, within 15 days after it files them with the
Commission, copies of the annual reports and the information, documents and
other reports (or copies of such portions of any of the foregoing as the
Commission may by rules and regulations prescribe) which the Company may be
required to file with the Commission pursuant to Section 13 (other than Form
11-K) or 15(d) of the Exchange Act. The Company also shall comply with the other
provisions of Section 314(a) of the Trust Indenture Act.
(b) So long as the Notes remain outstanding, if the Company is
required to furnish annual or quarterly reports to its stockholders pursuant to
the Exchange Act, the Company shall cause any annual reports to stockholders and
any quarterly or other financial reports furnished by it to stockholders to be
mailed to the Noteholders (no later than ten days after the date such materials
are mailed to the Company's stockholders) at their addresses appearing in the
register of Notes maintained by the Registrar. If the Company is not required to
furnish annual or quarterly reports to its stockholders pursuant to the Exchange
Act, it shall cause its financial statements, including any notes thereto, to be
so mailed to the Holders within 120 days after the end of each of the Company's
fiscal years and within 60 days after the end of each of its first three fiscal
quarters. All financial statements delivered by the Company pursuant to this
Subsection (b) shall be prepared in accordance with generally accepted
accounting principles, consistently applied, and in the case of year-end
financials, shall include either (i) if the Company's financial statements for
such year were audited by independent certified public accountants, a copy of
such auditor's report or (ii) if the Company's financial statements for such
year were not audited, a certificate signed by an Officer certifying that the
financial statements have been prepared in accordance with generally accepted
accounting principles, consistently applied, and fairly present the financial
position of the Company as of the date of, or for the periods covered by, such
financial statements. Upon the written request of the Trustee or any
broker-dealer who wishes
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to publish, or submit for publication, any price quotation with respect to the
Notes, the Company shall deliver promptly in writing the information called for
by items (i) through (xiii) of Section 15c2-11(a)(5) of the Exchange Act.
Delivery of reports, information and documents to the Trustee is for
informational purposes only and the Trustee's receipt of such reports shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
Section 3.3 Compliance Certificate. The Company shall deliver to the
Trustee, within 120 days after the end of each fiscal year of the Company, an
Officers' Certificate complying with Section 314(a)(4) of the Trust Indenture
Act and stating whether or not the signers know of any Default that occurred
during such fiscal year. If they do, the Officers' Certificate shall describe
the Default and its status. Such compliance shall be determined without regard
to periods of grace or notice requirements.
Section 3.4 [Reserved]
Section 3.5 Corporate Existence. Subject to Article IV, the Company
shall do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence and the rights (charter and statutory)
and corporate franchise of the Company; provided, however, that the Company
shall not be required to preserve any right or corporate franchise if the Board
of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and that the loss
thereof is not disadvantageous in any material respect to the Holders.
Section 3.6 Covenant of Good Faith. The Company shall carry out the
covenant of good faith contained in the Note.
ARTICLE IV
SUCCESSORS
Section 4.1 When Company May Merge, etc. The Company shall not
consolidate or merge with any other Person or transfer (by lease, assignment,
sale or otherwise) all or substantially all of its assets, in a single
transaction or through a series of related transactions, to another Person or
group of affiliated Persons unless (i) the Company is the surviving or
continuing Person or the Person (if other than the Company) formed by such
consolidation or merger or to which the assets of the Company are transferred
and expressly assumes, by an indenture supplemental to this Indenture, in form
satisfactory to the Trustee, all the obligations of the Company under the Notes
and
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this Indenture and (ii) immediately before and immediately after giving effect
to such transaction, no Default or Event of Default shall have occurred or be
continuing; provided that the transactions contemplated by the Plan shall not
constitute a consolidation or a merger which is subject to this Section 4.1. The
Company shall deliver to the Trustee prior to the consummation of any
consolidation, merger or transfer of assets involving the Company, an Officers'
Certificate to the foregoing effect and an Opinion of Counsel stating that the
proposed transactions and such supplemental indenture comply with this
Indenture.
Section 4.2 Successor Corporation Substituted. Upon any
consolidation, merger or transfer of assets involving the Company in accordance
with Section 4.1, any successor Person formed by such consolidation or merger or
to which such transfer is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as an original party
herein. When a successor Person assumes all of the obligations of the Company
hereunder and under the Notes, the Company shall be released from such
obligations.
ARTICLE V
[RESERVED]
ARTICLE VI
DEFAULTS AND REMEDIES
[Section 6.1 Events of Default. An "Event of Default" occurs if:
(a) the Company defaults in the payment of any amount due on
any Note when the same becomes due and payable and the default continues for a
period of 30 days;
(b) the Company fails to comply with any of its other
covenants or agreements in the Notes or this Indenture and the default continues
for 60 days after notice to the Company by the Trustee or to the Company and the
Trustee by the Holders of Notes representing at least 25% of the Units then
outstanding as specified below;
(c) the Company, pursuant to or within the meaning of any
Bankruptcy Law (i) becomes insolvent, (ii) fails generally to pay its debts as
they become due, (iii) admits in writing its inability to pay its debts
generally as they become due, (iv) commences a voluntary case or proceeding, (v)
consents to, or acquiesces in, the institution of a bankruptcy or an insolvency
proceeding against it or the entry of a
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judgment, decree or order for relief against it in an involuntary case or
proceeding, (vi) applies for, consents to or acquiesces in the appointment of or
taking possession by a Custodian of the Company or of all or substantially all
of its property or (vii) makes a general assignment for the benefit of its
creditors; or
(d) a court of competent jurisdiction enters a judgment,
decree or order under any Bankruptcy Law which (i) is for relief against the
Company in an involuntary case, (ii) appoints a Custodian of the Company or a
Custodian for all or substantially all of its property or (iii) orders the
winding-up or liquidation of the Company; and such judgment, decree or order
shall remain unstayed and in effect for a period of [90] consecutive days (a
"Bankruptcy Default").
The term "Bankruptcy Law" means title 11, U.S. Code or any similar
federal or state law for the relief, supervision, conservation, reorganization
or liquidation of debtors or for the benefit of creditors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
A Default under subsection 6.1(b) is not an Event of Default until
the Trustee or the Holders of Notes representing at least 25% of the Units then
outstanding notify the Company of the Default and the Company does not cure the
Default within the period specified in such subsection after receipt of the
notice. The notice must specify the Default, demand that it be remedied and
state that the notice is a "Notice of Default". Such notice shall be given by
the Trustee if requested by the Holders of Notes representing at least 25% of
the Units then outstanding.]
Notwithstanding any Provision of this Indenture, none of the
transactions contemplated by the Plan shall constitute an Event of Default.
Section 6.2 [Reserved]
Section 6.3 Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy by proceeding at law or
in equity to collect the payments payable on the Notes or to enforce the
performance of any provision of the Notes or this Indenture. The Trustee may
maintain a proceeding even if it does not possess any of the Notes or does not
produce any of them in the proceeding. A delay or omission by the Trustee or any
Noteholder in exercising any right or remedy accruing upon an Event of Default
shall not impair the right or remedy or constitute a waiver of or acquiescence
in the Event of Default. No remedy is exclusive of any other remedy. All
available remedies are cumulative.
Section 6.4 Waiver of Past Defaults. Subject to Sections 6.7 and
9.2, the Holders of Notes representing a majority of the Units then outstanding,
by notice to the Trustee, may waive an existing Default and its consequences
except a Default in the payment of the amounts payable on any Note. When a
Default or Event of Default is waived, it is cured and ceases to exist.
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Section 6.5 Control by Majority. The Holders of Notes representing a
majority of the Units then outstanding may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on it. However, the Trustee may refuse to follow
any direction that conflicts with law or this Indenture, is unduly prejudicial
to the rights of other Noteholders or would involve the Trustee in personal
liability.
Section 6.6 Limitation on Suits. A Noteholder may pursue a remedy
with respect to this Indenture or the Notes only if:
(a) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of Notes representing at least 25% of the
Units then outstanding make a request to the Trustee to pursue the remedy;
(c) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of indemnity; and
(e) during such 60-day period, the Holders of Notes
representing a majority of the Units then outstanding do not give the Trustee a
direction inconsistent with the request.
A Noteholder may not use this Indenture to prejudice the rights of
another Noteholder or to obtain a preference or priority over another
Noteholder.
Section 6.7 Rights of Holders to Receive Payment. Notwithstanding
any other Provision of this Indenture, the right of any Holder of a Note to
receive payment of amounts payable on the Note, on or after the respective due
dates expressed in the Note, or to institute suit for the enforcement of any
such payment on or after such respective dates, shall not be impaired or
affected without the consent of the Holder.
[Section 6.8 Collection Suit by Trustee. If an Event of Default
specified in subsection 6.1(a) occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the Company
or any other obligor upon the Notes for [____________] and such further amount
as shall be sufficient to cover the costs and expenses of collection, including
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel and any other amounts due the Trustee under
Section 7.7.]
Section 6.9 Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in
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order to have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel and any other amounts due under Section 7.7) and the Noteholders
allowed in any judicial proceedings relative to the Company (or any other
obligor upon the Notes), its creditors or its property and shall be entitled and
empowered to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute it, and any Custodian in any
such judicial proceedings is hereby authorized by each Noteholder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Noteholders, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.7. Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Noteholder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder thereof or to authorize the
Trustee to vote in respect of the claim of any Noteholder in any such
proceeding.
Section 6.10 Priorities. If the Trustee collects any money pursuant
to this Article, it shall pay out the money in the following order:
first, to the Trustee for amounts due under Section 7.7;
second, to Noteholders for amounts due and unpaid on the Notes,
ratably, without preference or priority of any kind, according to the
amounts due and payable on the Notes; and
third, to the Company.
The Trustee, upon prior written notice to the Company, may fix a
record date and payment date for any such payment to Noteholders in such manner
and procedure as the Trustee deems appropriate.
Section 6.11 Undertaking for Costs. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a suit by the
Trustee, a suit by a Holder pursuant to Section 6.7 or a suit by Holders of
Notes representing more than 10% of the Units then outstanding.
Section 6.12 Waiver of Stay or Extension Laws. The Company covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay
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or extension law wherever enacted, now or at any time hereafter in force, which
materially adversely affects the performance of this Indenture; and the Company
(to the extent that it may lawfully do so) hereby expressly waives all benefit
or advantage of any such law and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will suffer
and permit the execution of every such power as though no such law had been
enacted.
ARTICLE VII
TRUSTEE
Section 7.1 Duties of Trustee. (a) If an Event of Default has
occurred and is continuing, the Trustee shall exercise such of the rights and
powers vested in it by this Indenture, and use the same degree of care and skill
in their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs.
(b) Except during the continuance of an Event of Default:
(i) The Trustee need perform only those duties that are
specifically set forth in this Indenture and no others.
(ii) In the absence of bad faith or negligence on its
part, the Trustee may conclusively rely, as to the truth of the statements
and the correctness of the opinions expressed therein, upon certificates
or opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, in the case of any such certificates or opinions
which by any provision hereof are specifically required to be furnished to
the Trustee, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) This paragraph does not limit the effect of
paragraph (b) of this Section.
(ii) The Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts.
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(iii) The Trustee shall not be liable with respect to
any action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.5.
(iv) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured to it.
(d) Every provision of this Indenture that in any way relates
to the Trustee is subject to subsections 7.1(a), (b) and (c).
(e) The Trustee may refuse to perform any duty or exercise any
right or power unless it receives indemnity satisfactory to it against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
Section 7.2 Rights of Trustee. (a) The Trustee may rely on any
document reasonably believed by it to be genuine and to have been signed or
presented by the proper Person. The Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
the Certificate or Opinion.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee may consult with counsel of its selection and
the advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon.
Section 7.3 Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Notes and
may otherwise deal with the Company or an Affiliate of the Company with the same
rights it would have if it
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were not Trustee. Any Agent may do the same with like rights. However, the
Trustee is subject to Sections 7.10 and 7.11.
Section 7.4 Trustee's Disclaimer. The Trustee makes no
representation as to the validity or adequacy of this Indenture or the Notes, it
shall not be accountable for the Company's use of the proceeds from the Notes,
and it shall not be responsible for any statement in the Notes other than its
authentication.
Section 7.5 Notice of Defaults. If a Default occurs and is
continuing and if it is known to the Trustee, the Trustee shall mail to
Noteholders a notice of the Default within 90 days after it occurs. Except in
the case of a Default in payment on any Note, the Trustee may withhold the
notice if and so long as a committee of its Trust Officers in good faith
determines that withholding the notice is in the interests of Noteholders.
Section 7.6 Reports by Trustee to Holders. Within 60 days after each
May 1 beginning with May 1, 1998, the Trustee shall mail to each Noteholder to
the extent required by Section 313(c) of the Trust Indenture Act a brief report
dated as of such date that complies with Section 313(a) of the Trust Indenture
Act. The Trustee also shall comply with Section 313(b) of the Trust Indenture
Act.
A copy of each report at the time of its mailing to Noteholders
shall be filed with the Commission and each stock exchange on which the Notes
are listed. The Company shall promptly notify the Trustee when the Notes are
listed on any stock exchange.
Section 7.7 Compensation and Indemnity. The Company shall pay to the
Trustee from time to time such compensation as the Company and the Trustee shall
agree in writing for its services. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Company
shall reimburse the Trustee upon request for all reasonable out-of-pocket
expenses incurred by it. Such expenses shall include the reasonable compensation
and out-of-pocket expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any, and all loss,
damage, claim, expense or liability incurred by it except as provided below. The
Trustee shall notify the Company promptly of any claim for which it may seek
indemnity. The Company shall defend the claim and the Trustee shall cooperate in
the defense. The Trustee may have separate counsel and the Company shall pay the
reasonable fees and expenses of one such counsel. The Company need not pay for
any settlement made without its consent.
The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee through negligence or bad faith.
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To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay amounts payable on
particular Notes.
When the Trustee incurs expenses or renders services after an Event
of Default specified in subsection 6.1(c) or (d) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
The provisions of this Section shall survive the termination of this
Indenture.
Section 7.8 Replacement of Trustee. A resignation or removal of the
Trustee and the appointment of a successor Trustee shall become effective only
upon the successor Trustee's acceptance of appointment as provided in this
Section.
The Trustee may resign by so notifying the Company. The Holders of a
majority of the Units may remove the Trustee by so notifying the removed Trustee
and, with the Company's consent, may appoint a successor Trustee. The Company
may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent;
(c) a receiver or public officer takes charge of the Trustee
or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company and any other obligor upon the
Notes shall promptly appoint a successor Trustee.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% of the Units may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Noteholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the
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retiring Trustee shall become effective and the successor Trustee shall have all
the rights, powers and duties of the Trustee under this Indenture. The successor
Trustee shall mail a notice of its succession to Noteholders. The retiring
Trustee shall promptly transfer all property held by it as Trustee to the
successor Trustee, provided all sums owing to the Trustee hereunder have been
paid and subject to the lien provided for in Section 7.7. Notwithstanding
replacement of the Trustee, the Company's obligations under Section 7.7 shall
continue for the benefit of the retiring Trustee.
Section 7.9 Successor Trustee by Merger, etc. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business to, another corporation, the successor
corporation without any further act shall be the successor Trustee.
Section 7.10 Eligibility; Disqualification. This Indenture shall
always have a trustee who satisfies the requirements of Section 310(a)(1) of the
Trust Indenture Act. The Trustee shall always have a combined capital and
surplus of at least $50 million as set forth in its most recent published annual
report of condition. The Trustee shall comply with Section 310(b) of the Trust
Indenture Act, including the optional provision permitted by the second sentence
of Section 310(b)(9) of the Trust Indenture Act.
Section 7.11 Preferential Collection of Claims Against Company. The
Trustee is subject to Section 311(a) of the Trust Indenture Act, excluding any
creditor relationship listed in Section 311(b) of the Trust Indenture Act. A
Trustee who has resigned or been removed is subject to Section 311(a) of the
Trust Indenture Act to the extent indicated.
ARTICLE VIII
[RESERVED]
ARTICLE IX
AMENDMENTS AND WAIVERS
Section 9.1 Without Consent of Holders. The Company and the Trustee
may amend or supplement this Indenture or the Notes without the consent of any
Noteholder:
(a) to cure any ambiguity, defect or inconsistency;
(b) to comply with Article IV;
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(c) to provide for uncertificated Notes in addition to
certificated Notes;
(d) to make any change that does not adversely affect the
rights of any Noteholder; or
(e) to comply with the Trust Indenture Act.
Section 9.2 With Consent of Holders. The Company and the Trustee may
amend or supplement any provision of either this Indenture or the Notes with the
written consent of the Holders of Notes representing a majority of the Units
then outstanding without notice to any Noteholder. The Holders of a majority of
the Units may waive compliance by the Company with any such provision without
notice to any Noteholder. However, without the consent of each Noteholder
affected, an amendment, supplement or waiver under this Section may not:
(a) change the due dates for payments on any Note;
(b) reduce the amounts payable on any Note or change the form
of payment thereof;
(c) impair the right to institute suit for the enforcement of
any payment on or with respect to any Note;
(d) reduce the percentage of Units whose Holders must consent
to an amendment, supplement or waiver; or
(e) make any change in Sections 6.4 or 6.7 or this Section
9.2.
Any amendment or supplement shall be effective upon certification to
the Trustee by the Company or an agent of the Company that such amendment or
supplement has been authorized by the Company and that the consent of the
Holders of Notes representing a majority of the Units then outstanding has been
obtained, unless such consents specify that they shall become effective at a
later date, in which case such amendment or supplement shall become effective in
accordance with the terms of such consent.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to Noteholders a notice briefly describing the
amendment, supplement or waiver. Any failure of the Company to mail such notice,
or any defect therein, shall not, however, in any way impair or affect the
validity of any amendment, supplement or waiver.
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It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
Section 9.3 Compliance with Trust Indenture Act. Every amendment or
supplement to this Indenture or the Notes or waiver of the provisions hereof or
thereof shall comply with the Trust Indenture Act as then in effect.
Section 9.4 Revocation and Effect of Consents. Until an amendment,
supplement or waiver becomes effective, a consent to it by a Holder of a Note is
a continuing consent by the Holder and every subsequent Holder of a Note or
portion of a Note that evidences the same debt as the consenting Holder's Note,
even if notation of the consent is not made on any Note. However, any such
Holder or subsequent Holder may revoke the consent as to his Note or portion of
a Note if the Trustee receives the notice of revocation before the date the
amendment, supplement or waiver becomes effective.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those Persons who were Holders at such record
date (or their duly designated proxies), and only those Persons, shall be
entitled to revoke any consent previously given, whether or not such Persons
continue to be Holders after such record date. No such consent shall be valid or
effective for more than 120 days after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Noteholder, unless it makes a change described in any of clauses (a)
through (e) of Section 9.2. In that case, the amendment, supplement or waiver
shall bind each Holder of a Note who has consented to it and every subsequent
Holder of a Note or portion of a Note that evidences the same debt as the
consenting Holder's Note.
Section 9.5 Notation on or Exchange of Notes. The Trustee may place
an appropriate notation about an amendment or waiver on any Note thereafter
authenticated. The Company in exchange for all Notes may issue and the Trustee
shall authenticate new Notes that reflect the amendment, supplement or waiver.
Section 9.6 Trustee To Sign Amendments, Etc. The Trustee shall sign
any amendment or supplement authorized pursuant to this Article IX if the
amendment or supplement does not adversely affect the rights, duties,
liabilities or immunities of the Trustee. If it does, the Trustee may, but need
not, sign it. In signing or refusing to sign such amendment or supplement, the
Trustee shall be entitled to receive, if requested, an indemnity reasonably
satisfactory to it and to receive and, subject to Section 7.1, shall be fully
protected in relying upon, an Officers' Certificate and an Opinion of Counsel as
conclusive evidence that such amendment or supplement is authorized or permitted
by this Indenture, that it is not inconsistent herewith, and that it will be
valid and binding upon the company in accordance with its terms.
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ARTICLE X
MISCELLANEOUS
Section 10.1 Trust Indenture Act Controls. If any provision of this
Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the Trust Indenture Act, the
required provision shall control.
Section 10.2 Notices. Any notice or communication by the Company or
the Trustee to the other is duly given if in writing and delivered in person or
by facsimile or registered or certified mail, postage prepaid, return receipt
requested, addressed as follows:
if to the Company:
Home Holdings Inc.
59 Maiden Lane
New York, New York 10038
Attention: General Counsel
if to the Trustee:
Attention: Corporate Trust Trustee
Administration
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications. Any
notice or communication to the Company or the Trustee shall be deemed to have
been given or made as of the date so delivered if personally delivered; when
receipt is acknowledged, if facsimiled; and five calendar days after mailing if
sent by registered or certified mail (except that a notice of change of address
shall not be deemed to have been given until actually received by the
addressee).
Any notice or communication to a Noteholder shall be mailed by
first-class mail or other equivalent means to his address shown on the register
kept by the Registrar. Failure to mail a notice or communication to a Noteholder
or any defect in it shall not affect its sufficiency with respect to other
Noteholders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it. If
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<PAGE>
the Company mails a notice or communication to Noteholders, it shall mail a copy
to the Trustee and each Agent at the same time.
All notices or communications shall be in writing.
In case by reason of the suspension of regular mail service, or by
reason of any other cause, it shall be impossible to mail any notice as required
by this Indenture, then such method of notification as shall be made with the
approval of the Trustee shall constitute a sufficient mailing of such notice.
Section 10.3 Communications by Holders with Other Holders.
Noteholders may communicate pursuant to Section 312(b) of the Trust Indenture
Act with other Noteholders with respect to their rights under this Indenture or
the Notes. The Company, the Trustee, the Registrar and anyone else shall have
the protection of Section 312(c) of the Trust Indenture Act.
Section 10.4 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any action
under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate stating that, in the opinion of
the signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(b) an Opinion of Counsel reasonably satisfactory to the
Trustee stating that, in the opinion of such counsel, all such conditions
precedent have been complied with.
Section 10.5 Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include:
(a) a statement that each party making such certificate or
opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(c) a statement that, in the opinion of each such party, he or
she has made such examination or investigation as is necessary to enable him or
her to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
22
<PAGE>
(d) a statement as to whether or not, in the opinion of each
such party, such condition or covenant has been complied with;
provided, however, that with respect to matters of law, an Officers' Certificate
may be based upon an Opinion of Counsel, unless the signers know, or in the
exercise of reasonable care should know, that such Opinion of Counsel is
erroneous, and provided, further, that with respect to matters of fact an
Opinion of Counsel may rely on an Officers' Certificate or certificates of
public officials, unless the signer knows, or in the exercise of reasonable care
should know, that any such document is erroneous.
Section 10.6 Rules by Trustee and Agents. The Trustee may make
reasonable rules for action by or at a meeting of Noteholders. The Registrar or
Paying Agent may make reasonable rules and set reasonable requirements for its
functions.
Section 10.7 Legal Holidays. A "Legal Holiday" is a Saturday, a
Sunday or a day on which banking institutions are not required to be open either
in New York City or in the city where the principal corporate trust office of
the Trustee is located. If a payment date is a Legal Holiday at a place of
payment, payment may be made at such place on the next succeeding day that is
not a Legal Holiday, and no interest shall accrue for the intervening period.
Section 10.8 No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under the Notes or this Indenture or for any
claim based on, in respect of or by reason of such obligations or their creation
and if any liability does exist, such liability is waived and released as
provided in the Notes.
Section 10.9 Duplicate Originals. The Parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
Section 10.10 Governing Law. The internal laws of the State of New
York shall govern this Indenture and the Notes, without regard to the conflicts
of laws rules thereof. The Company hereby irrevocably submits to the
jurisdiction of any federal or New York State court sitting in the Borough of
Manhattan in New York City in respect of any suit, action or proceeding arising
out of or relation to this Indenture, and irrevocably agrees that all claims in
respect of any such suit, action or proceeding may be heard and determined in
any such court. The Company irrevocably waives, to the fullest extent it may
effectively do so under applicable law, any objection which it may now or
hereafter have to the laying of the venue of any such suit, action or proceeding
brought in any such court and any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
Section 10.11 No Adverse Interpretation of Other Agreements. This
Indenture may not be used to interpret another indenture, loan or debt agreement
of the
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Company or any Subsidiary. Any such indenture, loan or debt agreement may not be
used to interpret this Indenture.
Section 10.12 Successors. All agreements of the Company in this
Indenture and the Notes shall bind its successor. All agreements of the Trustee
in this Indenture shall bind its successors.
Section 10.13 Severability. In case any provision in this Indenture
or in the Notes shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed and delivered as of the date first above written.
HOME HOLDINGS INC.,
as Issuer
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
[ ]
as Trustee
By:
----------------------------------
Name:
Title:
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<PAGE>
EXHIBIT A
EARN OUT NOTES, SERIES I
(Face of Note)
REGISTERED CUSIP No.
------------
No. Number of Units:
- --------
HOME HOLDINGS INC.
Earn Out Note, Series I
Home Holdings Inc., a Delaware corporation (the "Company"), for value
received, promises to pay to _______________, or registered assigns, the amounts
payable on ________ Units on the dates and to the Persons specified on the
reverse hereof.
This Note shall not be valid or become obligatory for any purpose until
the certificate of authentication hereon shall have been signed by the Trustee
or an authenticating agent under the Indenture referred to on the reverse
hereof.
Reference is made to the further provisions of this Note set forth on the
reverse hereof. Such further provisions shall for all purposes have the same
effect as though fully set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed
under its corporate seal.
HOME HOLDINGS INC.
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
(SEAL)
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Notes described in the within-mentioned indenture.
[ ],
-------------------------
as Trustee
By:
-----------------------
Authorized Signatory
<PAGE>
(Back of Note)
[HOME HOLDINGS INC.]
Earn Out Note, Series I
1. Definitions. As used in this Note, the following terms
shall have the following meanings:
"Accrual Period" with respect to a Payment Date shall mean the
period commencing on the day following the Initial Certification Date of the
year preceding the year in which the Payment Date occurs and ending on the
Initial Certification Date of the year in which the Payment Date occurs.
"Accruals" means Initial Accruals, Final Accruals and Interest
Accruals.
"Actual Payment" means any actual payment made with respect to
the Note pursuant to Sections 2 and 3 herein.
"Adjusted Taxable Income" means taxable income (as defined in
Section 63 of the Code or, in the case of a consolidated group as defined in
Treas. Reg. ss. 1.1502-1(h), Treas. Reg. ss. 1.1502-11) of the Home Group,
excluding income against which the Specified NOL Carryovers may not be offset by
reason of Treas. Reg. ss. 1.1502-21T or any successor provision of the Treasury
Regulations, determined without taking into account any deduction for the
Specified NOL Carryovers.
"Adjusted Treasury Rate" with respect to a Taxable Year means
the sum of (i) the annual yield reported on page PXI of the Bloomberg Financial
Market Services Screen for the off-the-run 5-year Treasury Note on the Payment
Date with respect to such Taxable Year and (ii) 35 basis points.
"Allocated Participation" means, with respect to a Taxable
Year of the Company, [52%] [plus General Unsecured Creditors' amount] of the Tax
Savings (including Tax Savings arising with respect to Deemed Taxable Income)
for such year.
"Business Day" means a day that is not a Legal Holiday.
"Change of Law" means a change in any federal, state or local
statute, unappealable and final court decision, regulation, ruling or other
administrative practice or order, or any lapse or reinterpretation of existing
law.
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"Code" means the Internal Revenue Code of 1986, as amended,
and any successor statute and references to Sections of the Code shall be deemed
to include successor provisions of the Code or any successor statute.
"Company" means Home Holdings Inc., a Delaware corporation or,
in the event that Home Holdings Inc. merges with another entity in which Home
Holdings Inc. is not the surviving entity, Company shall, from and after the
date of such merger, mean the successor to Home Holdings Inc. in such merger.
"Cumulative Accruals" has the meaning given to such term in
Section 2(c).
"Cumulative Adjusted Taxable Income of the Home Group" as of
any date shall mean the sum of the Adjusted Taxable Income of the Home Group
(from time to time) for each Taxable Year from the Taxable Year that includes
the Effective Date through such date.
"Cumulative Target Payment Date Accruals" has the meaning
given to such term in Section 3(c)(iii).
"Deemed Accrual" means any amount that accrues pursuant to
Section 3(c) hereof.
"Deemed Taxable Income" has the meaning given such term in
Section 3(c)(i)(A).
"Effective Date" means the date on which the Plan becomes
effective.
"Final Accrual" with respect to a Taxable Year has the meaning
given to such term in Section 2(b)(ii).
"Final Certification" with respect to the Tax Savings for a
Taxable Year has the meaning given to such term in Section 2(a)(ii).
"Final Certification Date" with respect to the Tax Savings for
a Taxable Year has the meaning given to such term in Section 2(a)(ii).
"Final Deemed Accrual" with respect to a Target has the
meaning given to such term in Section 3(c)(ii)(B).
"Final Deemed Certification" with respect to a Target has the
meaning given to such term in Section 3(c)(i)(B).
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<PAGE>
"Final Deemed Certification Date" with respect to a Target has
the meaning given to such term in Section 3(c)(i)(B).
"Final Determination" means, with regard to any federal tax, a
determination as defined in Section 1313(a) of the Code; with respect to any
other tax, a "Final Determination" means any final determination of liability in
respect of tax, which, under applicable law, is not subject to further appeal,
review or modification through proceedings or otherwise, and shall include the
payment of tax by the Company with respect to any item disallowed by any taxing
authority.
"Final Payment Date" with respect to a Taxable Year means
October 15 following the Final Certification Date with respect to such Taxable
Year.
"Final Target Payment Date" with respect to a Target Date
means October 15 following the Final Deemed Certification Date with respect to
such Target Date.
"First Target" has the meaning given to such term in Section
3(b)(i).
"First Target Date" has the meaning given to such term in
Section 3(b)(i).
"Fourth Target" has the meaning given to such term in Section
3(b)(v).
"Fourth Target Date" was the meaning given such term in
Section 3(b)(v).
"Holder" means a person in whose name a Note is registered.
"Home Group" means the Company, and, with respect to any
period for which it joins in filing consolidated returns for Federal income tax
purposes, the consolidated group (as defined in Treas. Reg. Section 1.1502-1(h))
of which the Company is a member.
"Indenture" has the meaning given to such term in Section 8.
"Initial Accrual" with respect to a Taxable Year has the
meaning given to such term in Section 2(b)(i).
"Initial Certification" with respect to the Tax Savings as
preliminarily calculated for a Taxable Year has the meaning given to such term
in Section 2(a)(i).
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<PAGE>
"Initial Certification Date" with respect to the Tax Savings
as preliminarily calculated for a Taxable Year has the meaning given to such
term in Section 2(a)(i).
"Initial Deemed Accrual" with respect to a Target has the
meaning given to such term in Section 3(c)(ii)(A).
"Initial Deemed Certification" with respect to a Target has
the meaning given such term in Section 3(c)(i)(A).
"Initial Deemed Certification Date" with respect to a Target
has the meaning given to such term in Section 3(c)(i)(A).
"Initial Target Payment Date" with respect to a Target Date
means October 15 following the Initial Deemed Certification Date with respect to
such Target Date.
"Interest Accrual" has the meaning given to such term in
Section 2(b)(ii).
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions are not required to be open either in New York City or in
the city where a Payment on the Note is to be made.
"Material Change of Law" means a Change of Law that prohibits
or effectively proscribes the Zurich Group from conducting its business in the
United States of America.
"Note" or "Notes" as used herein shall refer to the Company's
Earn Out Notes, Series I.
"Payment Date" means October 15 of each year.
"Plan" means the Plan of Reorganization of the Company filed
on January 15, 1998 under Chapter 11 of Title 11 of the United States Code, Case
No. 98 B 40319 (JHG), as amended, modified and supplemented.
"Pro Rata Allocated Participation Allocation" means the
Allocated Participation multiplied by a fraction where the numerator is equal to
the number of units represented by this Note and the denominator is equal to
[315,000].
"Second Target" has the meaning given such term in Section
3(b)(iii).
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<PAGE>
"Second Target Date" has the meaning given such term in
Section 3(b)(iii).
"Specified NOL Carryovers" shall mean the aggregate net
operating loss carryovers, as described in Section 172 of the Code and any
corresponding state and local income tax provisions, as the case may be,
available to the Company immediately after the Effective Date as set forth in
the Plan adjusted to take into account further reductions required as a result
of consummation of the Plan, including those reductions required pursuant to
Sections 108(b) and 382(l)(5) of the Code.
"Statute of Limitations" means the statutory period of
assessment for Federal taxes of the Company as set forth in Section 6501 of the
Code, and any corresponding provisions of state and local tax law.
"Supplemental First Target" has the meaning given such term in
Section 3(b)(ii).
"Supplemental First Target Date" has the meaning given such
term in Section 3(b)(ii).
"Target" has the meaning given to such term in Sections 3(a)
and (b).
"Target Date" means a date on which the First, Supplemental
First, Second, Third or Fourth Target occurs, as set forth in Section 3(b).
"Target Interest Accrual" has the meaning given such term in
Section 3(c)(ii)(B).
"Target Payment" has the meaning given such term in Section
3(c).
"Target Payment Date" with respect to a Target has the meaning
given such term in Section 3(c)(iii).
"Target Payment Date Accruals" with respect to a Target
Payment Date has the meaning given such term in Section 3(c)(iii).
"Tax Returns" means, with respect to a Taxable Year of the
Company, the Federal, state and local income tax returns of the Company filed
with respect to such Taxable Year.
"Tax Savings" means, with respect to a Taxable Year of the
Company, the excess, if any, of (i) the Federal, state and local income taxes
that
5
<PAGE>
would have been payable by the Home Group if no deduction for the Specified NOL
Carryovers were available over (ii) actual Federal, state and local income taxes
payable by the Home Group in such Taxable Year. For this purpose, the term
"income taxes" shall include franchise taxes, alternative minimum taxes, and
other similar taxes.
"Taxable Year" means a taxable year of the Home Group that
ends after the Effective Date.
"Third Target" has the meaning given such term in Section
3(b)(iv).
"Third Target Date" has the meaning given such term in Section
3(b)(iv).
"Treas. Reg." means the Treasury Regulations promulgated under
the Code.
"Zurich Group" means the affiliated group of which Zurich
Insurance Company is the common parent. For this purpose, "affiliated group" has
the meaning given such term in Section 1504(a) of the Code (determined without
regard to the exceptions contained in Section 1504(b) of the Code).
2. Payments to Noteholders with respect to Tax Savings. The Company
promises to make payments on this Note in the amounts and at the times specified
in this Section.
(a) Computation And Certification of Tax Savings. The Tax
Savings shall be computed and certified as follows:
(i) For each Taxable Year, the Company shall make a
preliminary calculation of all Tax Savings for such Taxable Year based
upon the Tax Returns as filed, and on or before September 25 of the year
following such Taxable Year, or on the next Business day if such date is a
Legal Holiday (an "Initial Certification Date"), the Chief Financial
Officer of the Company shall make an initial certification substantially
in the form attached hereto as Exhibit 1 (an "Initial Certification") of
such Tax Savings as so preliminarily calculated; and
(ii) For each Taxable Year with respect to which an
Initial Certification was made, within 10 days of the earlier to occur of
(A) the expiration of the Statute of Limitations with respect to all Tax
Returns to which the Initial Certification related and (B) a Final
Determination with respect to all Tax Savings to which the Initial
Certification related with respect to which the Statute of Limitations has
not
6
<PAGE>
expired (such earlier date, the "Final Certification Date"), the Chief
Financial Officer shall calculate the Tax Savings as finally determined,
and shall make a certification substantially in the form attached hereto
as Exhibit 2 (a "Final Certification") of such Tax Savings.
(b) Accruals. With respect to the taxable income of the
Company for each Taxable Year, the Company will, subject to the provisions of
Section 2(d) hereof, accrue the following amounts with respect to this Note to
be treated in accordance with the payment provisions of this Section:
(i) on the Initial Certification Date for each Taxable
Year, subject to Section 2(d), the Company shall accrue an amount equal to
(A) 35% of the Pro Rata Allocated Participation covered by such Initial
Certification if, and to the extent that the Cumulative Adjusted Taxable
Income of the Home Group is less than or equal to $200 million and (B) 20%
of the Pro Rata Allocated Participation covered by such Initial
Certification thereafter (the "Initial Accrual" with respect to such
taxable year); and
(ii) on the Final Certification Date with respect to any
Taxable Year, the Company shall accrue (x) an amount equal to the Pro Rata
Allocated Participation covered by such Final Certification minus the Pro
Rata Allocated Participation covered by the corresponding Initial Accrual
with respect to such Taxable Year (each a "Final Accrual", and
collectively, "Final Accruals") plus (y) interest thereon at the Adjusted
Treasury Rate with respect to such Taxable Year compounded [semi-]annually
from the Payment Date through the Final Payment Date with respect to such
Taxable Year (each, an "Interest Accrual" and collectively, "Interest
Accruals").
(c) Payments. On each Payment Date, the Company shall make a
payment with respect to the Note in an amount equal to the excess, if any, of
(i) the sum of (A) the Initial Accruals and Final Accruals pursuant to Section
2(b) (but not including Deemed Accruals, if any, with respect to Section 3(c))
that occur on or before September 25 of the year in which the Payment Date
occurs and (B) Interest Accruals with respect to Final Accruals described in
clause (c)(i)(A) that occur on or before September 25 of the year in which the
Payment Date occurs (the "Cumulative Accruals") through and including the
Payment Date over (ii) the total amount of Actual Payments previously made with
respect to the Note.
(d) Suspension of Accruals Due to Challenges. In the event
that the Internal Revenue Service (or, if applicable, any state or local taxing
authority) issues a notice of proposed adjustment (or any procedurally later
notice, such as a notice of proposed deficiency or a notice of deficiency)
which, if sustained, would disallow all or any portion of the Tax Savings
(including any Tax Savings that,
7
<PAGE>
but for this paragraph, would be taken into account pursuant to Section 2 or
treated under Section 3 hereof as arising with respect to Deemed Taxable Income)
for a Taxable Year, Initial Accruals and Initial Deemed Accruals (pursuant to
Section 2(b) or 3(c), as the case may be) and related payments with respect to
such challenged Tax Savings and any correlative amounts for other Taxable Years
may, at the option of the Company, be suspended in their entirety until the
Company receives a Final Determination with respect to the challenged Tax
Savings to which the Initial Accruals or Initial Deemed Accruals relate;
provided, however, that with respect to Tax Savings relating to the first $200
million of Cumulative Adjusted Taxable Income of the Home Group, Initial
Accruals will not be suspended but shall be reduced to 20% of the Pro Rata
Allocated Participation until the Company receives a Final Determination
regarding such Tax Savings (at which time such Initial Accruals shall be made
taking into account such Final Determination), provided, further, that the
amount of any payment that is deferred by reason of this Section 2(d) shall be
increased by interest at the Adjusted Treasury Rate on the amount of such
payment as finally determined for the period of the suspension, and provided,
further, that this section shall not give the Company any right to reclaim any
payments previously made with respect to Initial Accruals that the Company has
not suspended.
(e) Penalty Interest. In the event that any payment due
hereunder is not made when due for any reason other than those set forth in
Section 2(d), the Company shall pay interest thereon at a rate of 8.31%,
accruing from the Payment Date to the date on which such payment is actually
made.
3. Minimum Cumulative Income Targets and Adjustments Thereto; Deemed
Accruals.
(a) Upon the terms and subject to the conditions set forth
herein and in the Indenture, the Company agrees to utilize its best efforts to
cause the Home Group to generate, after the Effective Date, Cumulative Adjusted
Taxable Income in amounts that are at least equal to the Minimum Cumulative
Operating Income Targets (the "Targets") set forth in (b) below.
(b) Targets. Subject to Section 3(d) below, the Targets are as
follows:
(i) From the Effective Date through December 31, 2000,
Cumulative Adjusted Taxable Income in an amount equal to (A) $200 million
multiplied by (B) a fraction, (x) the numerator of which is 731 minus the excess
of (i) the number of days after March 31, 1998 that the Effective Date occurs
over (ii) the number of days after May 1, 1998 that the Confirmation Date
occurs, and (y) the denominator of which is 731 (the "First Target");
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<PAGE>
(ii) $200 million of Cumulative Adjusted Taxable Income
(the "Supplemental First Target") from the Effective Date through December 31,
2001 (the "Supplemental First Target Date");
(iii) $400 million of Cumulative Adjusted Taxable Income
(the "Second Target") from the Effective Date through the end of the first
Taxable Year ending with or after the fifty-seventh month after the Effective
Date (the "Second Target Date");
(iv) $700 million of Cumulative Adjusted Taxable Income
(the "Third Target") from the Effective Date through the end of first Taxable
Year ending with or after the ninety-third month after the Effective Date (the
"Third Target Date");(2) and
(v) Cumulative Adjusted Taxable Income in an amount
equal to the lesser of $1 billion and 90% of the amount of Specified NOL
Carryovers (the "Fourth Target") from the Effective Date through the last year
of the NOL carryforward period of the Specified NOL Carryovers (the "Fourth
Target Date").(3)
(c) Target Payments. In the event that Cumulative Adjusted
Taxable Income of the Home Group through and including a Target Date is less
than the applicable Target, the sole remedy for the Holder shall be to receive a
payment on the Note (each a "Target Payment" and collectively "Target Payments")
determined as set forth below; provided that no payment shall be due pursuant to
this Section 3(c), and the Holder will have no remedy, in the event that a
Target is not met by reason of a Material Change in Law. No accruals or payments
shall be made pursuant to this Section 3(c) with respect to a Target if the
Cumulative Adjusted Taxable Income of the Home Group through and including a
Target Date is at least equal to such Target.
(i) Certification of Deemed Tax Savings. The deemed Tax
Savings for purposes of determining the amount of any Target Payment shall be
calculated as follows:
(A) On the Initial Certification Date following each
Target Date for which the Target is not met (an "Initial Deemed Certification
Date"), subject to Section 2(d), the Chief Financial Officer shall make an
initial
- ----------------
(2) Based on the current estimated amount of Specified NOL Carryovers, the
Third Target will effectively be reduced.
(3) Based on the current estimated amount of Specified NOL Carryovers, the
Fourth Target will not be operative.
9
<PAGE>
certification in substantially the form attached hereto as Exhibit 3 (an
"Initial Deemed Certificate") of the deemed Tax Savings for the Taxable Year
ended on such Target Date (an "Initial Deemed Certification") in an amount equal
to the amount that the Tax Savings would have been if the Adjusted Taxable
Income of the Home Group for the Taxable Year ending on such Target Date were
equal to the excess, if any, of (x) the Target for such Target Date over (y) the
Cumulative Adjusted Taxable Income of the Home Group from the Effective Date
through the end of the Taxable Year of the Home Group immediately preceding the
Taxable Year ending on such Target Date (such excess with respect to such Target
Date, the "Deemed Taxable Income").
(B) For each Taxable Year for which an Initial Deemed
Certification was made, on a date (the "Final Deemed Certification Date") not
later than the date 10 days after the earlier to occur of: (x) the expiration of
the Statute of Limitations with respect to all Tax Returns for such Taxable
Year; or (y) a Final Determination with respect to the Specified NOL Carryovers
that were deemed utilized in calculating the Initial Deemed Certification with
respect to such Target Date; (a "Final Deemed Certification Date"), the Chief
Financial Officer shall calculate the deemed Tax Savings as finally determined,
and shall make a certification in substantially the form attached hereto as
Exhibit 4 (a "Final Deemed Certification") of such deemed Tax Savings; provided,
however, in the event that a Final Determination has previously occurred with
respect to any later Taxable Year(s), the deemed Tax Savings as finally
determined with respect to the relevant Target Date shall be redetermined and
reduced to the amount that would have been so determined if the Deemed Taxable
Income with respect to such Target Date were reduced by an amount equal to the
actual Adjusted Taxable Income for such later Taxable Year(s).
(C) Characteristics of Deemed Income. Deemed Taxable
Income with respect to a Target Date shall be deemed to have the following
characteristics for purposes of Section 3(c):
(x) to the extent of the actual Adjusted Taxable
Income for the taxable year that ends on the
Target Date, the same characteristics as such
actual Adjusted Taxable Income; and
(y) to the extent in excess of the amount described in
clause (x), the same characteristics as the actual
income of the Home Group from the Effective Date
through the relevant Target Date.
For avoidance of doubt, characteristics shall mean all characteristics relevant
to the taxation of an item of income, including, but not limited to, any
characteristics that
10
<PAGE>
may be relevant to the ability of The Home Group to utilize the Specified NOL
Carryovers to offset such item of income.
(ii) Accruals. Solely for purposes of this Section 3(c),
for any Taxable Year that includes a Target Date, the Company will accrue the
following amounts with respect to this Note:
(A) on the Initial Deemed Certification Date with
respect to a Target Date, the Company shall, subject to the provisions of
Section 2(d), accrue an amount equal to the Pro Rata Allocated Participation of
the amount that such Initial Accrual would have been if the Adjusted Taxable
Income for the Target Year had equaled the Deemed Taxable Income with respect to
such Target Date (each an "Initial Deemed Accrual" and collectively, "Initial
Deemed Accruals");
(B) on the Final Deemed Certification Date with respect
to any Target Date, the Company shall accrue (x) an amount equal to the Pro Rata
Allocated Participation of the amount that such Final Accrual would have been if
the Adjusted Taxable Income for the Target Year had equaled the Deemed Taxable
Income with respect to such Target Date (determined after taking into account
the proviso in clause 3(c)(i)(B) hereof), (each a "Final Deemed Accrual" and
collectively, "Final Deemed Accruals") plus (y) interest thereon at the Adjusted
Treasury Rate compounded [semi-]annually with respect to such Target Date from
the Initial Target Payment Date with respect to such Target Date through the
Final Target Payment Date with respect to such Target Date (each, a "Target
Interest Accrual" and collectively, "Target Interest Accruals"). For purposes of
calculating Target Interest Accruals under this Section 3(c)(ii)(B), to the
extent that any redetermination and reduction of deemed Taxable Income has been
made pursuant to the proviso in Section 3(c)(i)(B) (the "Proviso"), the Target
Interest Accrual shall be determined (i) without regard to such redetermination
and reduction of Deemed Taxable Income for the period from the Payment Date for
such Target Year through the Payment Date for the later Taxable Year referred to
in the Proviso, and (ii) taking into account such redetermination and reduction
thereafter.
(iii) Payments. On each Payment Date with respect to
which an Initial Deemed Accrual or Final Deemed Accrual shall have occurred
pursuant to Section 3(b) hereof during the Accrual Period with respect to such
Payment Date (a "Target Payment Date"; such accruals with respect to a Target
Payment Date, the "Target Payment Date Accruals") the Company shall make a
payment with respect to the Note in an amount equal to the excess, if any, of
(A) the sum of (x) the Target Payment Date Accruals with respect to such Target
Payment Date and the Target Interest Accruals relating thereto plus (y) all
Initial Accruals and Final Accruals that occurred pursuant to Section 2 hereof
on or before September 25 preceding the Payment Date other than Initial or Final
Accruals that correspond to such Target Payment Date Accruals, together with any
related Interest Accruals (the "Cumulative Target Payment Date Accruals") with
respect to such Target Payment
11
<PAGE>
Date, over (B) the sum of (x) all Actual Payments previously made with respect
to the Note and (y) any Payments due pursuant to Section 2 on such Payment Date
with respect to the Note. For avoidance of doubt, a Target Payment Date Accrual
corresponds to an Initial Accrual or a Final Accrual, as the case may be, if it
is an Initial Deemed Accrual or Final Deemed Accrual, as the case may be, that
is calculated with respect to the same taxable year as the Initial Accrual or
Final Accrual, respectively.
(d) Reduction of Targets. In the event of the disallowance, in
whole or in part, of the deductibility of the Specified NOL Carryovers, or if,
as a result of a Change of Law, the deductibility of the Specified NOL
Carryovers is limited, any Target that exceeds the amount of Specified NOL
Carryovers that can be utilized by the Company to offset its income will be
adjusted so that it does not exceed such amount of Specified NOL Carryovers. In
addition, if at any time any Target otherwise exceeds the total amount of
Specified NOL Carryovers available to the Company to offset its income, such
Target will be reduced so that it does not exceed such amount of Specified NOL
Carryovers.
(e) Deemed Specified NOL Carryovers. In the event that the
Home Group fails to generate any Adjusted Taxable Income, for purposes of
calculating Target Payments due under this Section 3, the amount of the
Specified NOL Carryovers shall be deemed to equal the amount shown as such on
the Tax Returns of the Company for the first Taxable Year ending after the
Effective Date.
4. Accruals Following an Ownership Change Caused by Transfers of
Common Stock. In the event that holders of Common Stock of the Company transfer
more than 20% of such stock during the first two years following the Effective
Date, or any such stock thereafter, and such transfer causes an ownership change
within the meaning of Section 382 of the Code, the Company shall make payments
with respect to this Note with respect to the First, Supplemental First, Second,
Third and Fourth Target Dates, as applicable, that are no less than the amounts
that would have been due if such ownership change had not occurred, and, subject
to a Material Change of Law, taxable income in the taxable year ending on the
relevant Target Date before deducting the Specified NOL Carryovers equaled the
excess of the respective Target (where appropriate) for such year over the
amount of taxable income with respect to which the Tax Savings have previously
been taken into account.
5. Method of Payment. The Company will make payments on this Note to
a registered Holder of each Note as of the close of business on the date
preceding any date on which a payment is to be made. The Company will make
payments in money of the United States of America that at the time of payment is
legal tender for payment of public and private debts. However, the Company may
make payments by check payable in such money. It may mail a payment check to a
Holder's registered address. If a payment date is a Legal Holiday at a place of
12
<PAGE>
payment, payment may be made at that place on the next succeeding Business Day,
and no interest on the amount payable on such payment date shall accrue for the
intervening period. Amounts payable under the Notes shall be calculated based
upon the Pro Rata Allocated Participation Allocation of a single unit of Notes
(rounded to the nearest $0.01).
6. Covenant of Good Faith. In the preparation of the Tax Returns of
the Home Group or any proceeding related thereto, the Company will seek
realization of Tax Savings relating to the Specified NOL Carryovers in good
faith, provided however, that this covenant shall not give any Noteholders or
any other person any rights with respect to the preparation or filing of any Tax
Returns of the Home Group or the conduct of any proceeding with respect thereto
or any rights to confidential information of the Home Group or its affiliates.
7. Paying Agent and Registrar. Initially, [_______________] (the
"Trustee"), __________________, New York, New York ______, will act as Paying
Agent and Registrar. The Company may appoint and change any Paying Agent and
Registrar or Co-Registrar at any time without notice. The Company or any
Subsidiary of the Company may act in any such capacity.
8. Indenture. The Company issued this Note under an Indenture dated
as of _________ __, 1998 (the "Indenture") between the Company and the Trustee.
The terms of this Note include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15
U.S. Code ss.ss. 77aaa-77bbbb), as in effect on the date of the Indenture. This
Note is subject to all such terms, and Noteholders are referred to the Indenture
and the Trust Indenture Act for a statement of such terms. Capitalized terms not
otherwise defined herein have the meaning attributed to them in the Indenture.
The Notes are obligations of the Company limited, in the aggregate, to the
Allocated Participation of the Tax Savings (based upon the Specified NOL
Carryovers).
9. No Sinking Fund. The Notes do not provide for any mandatory
sinking fund.
10. Denominations, Transfer, Exchange. The Notes are in registered
form denominated in integral numbers of Units. The transfer of Notes may be
registered and Notes may be exchanged as provided in the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture.
11. Transfer of Notes. The Notes will be transferable by Holders at
all times to the extent permitted by applicable securities laws; provided,
however, that the Company shall have the right to instruct the Trustee not to
register a proposed transfer of a Note if the Company has received a written
opinion of its
13
<PAGE>
counsel (a copy of which shall be delivered to the Trustee) to the effect that
such proposed transfer would cause an ownership change of the Company within the
meaning of Section 382(g) of the Code, and any such transfer shall be deemed
void ab initio.
12. Persons Deemed Owners. The registered Holder of a Note may be
treated as its owner for all purposes.
14
<PAGE>
13. Amendments and Waivers. Subject to certain exceptions, the
Indenture or the Notes may be amended with the consent of the Holders of at
least a majority of the Units then outstanding, and any existing Default may be
waived with the consent of the Holders of the Notes representing a majority of
the Units then outstanding. Without the consent of any Holder, the Indenture or
the Notes may be amended to cure any ambiguity, defect or inconsistency, to
provide for assumption of Company obligations to Noteholders, to provide for
uncertificated Notes in addition to certificated Notes, to make any change that
does not adversely affect the rights of any Holder or to comply with the Trust
Indenture Act.
14. Restrictive Covenants. The Indenture imposes certain limitations
on the ability of the Company to, among other things, consolidate with or merge
with or into any other Person or transfer all or substantially all its
properties and assets to another Person.
15. Successor Corporation. When a successor corporation assumes all
of the obligations of its predecessor under the Notes and the Indenture and the
transaction complies with the terms of Article IV of the Indenture, the
predecessor corporation will be released from those obligations.
16. Defaults and Remedies. Under the Indenture, an Event of Default
occurs if the Company defaults in the payment of amounts due on any Note when
the same becomes due and payable and the default continues for a period of ___
days [certain events of bankruptcy or insolvency of the Company, provided,
however, that none of the transactions contemplated by the Reorganization Plan
shall constitute an Event of Default]. The Company must furnish an annual
compliance certificate to the Trustee.
17. Expiration. The Notes shall expire upon the final payment made
by the Company to the Holders with respect to the last Taxable Year of the NOL
carryforward period of the Specified NOL Carryovers if, but only if, all
payments required hereunder with respect to prior Taxable Years, together with
interest accrued thereon, have been paid in full.
18. Trustee Dealings with Company. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
19. No Recourse Against Others. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of such obligations or their creation. Each
Holder by accepting a Note waives and releases all such liability. The waiver
and release are part of the consideration for the issue of the Notes.
15
<PAGE>
20. Unclaimed Money. If money for the payment of amounts due under
the Note remains unclaimed for two years, the Trustee or Paying Agent shall pay
the money back to the Company at its request unless an abandoned property law
designates another person. After any such payment, Holders entitled to the money
must look only to the Company (unless an abandoned property law designates
another person) and not to the Trustee for payment.
21. Abbreviations. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= as tenants in common), TEN ENT
(= as tenants by the entireties), JT TEN (= as joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
22. Governing Law. The internal laws of the State of New York shall
govern the Indenture and the Notes, without regard to the conflicts of laws
rules thereof. The Company hereby irrevocably submits to the jurisdiction of any
federal or New York State court sitting in the Borough of Manhattan in New York
City in respect of any suit, action or proceeding arising out of or relation to
the Indenture or the Notes, and irrevocably agrees that all claims in respect of
any such suit, action or proceeding may be heard and determined in any such
court. The Company irrevocably waives, to the fullest extent it may effectively
do so under applicable law, any objection which it may now or hereafter have to
the laying of the venue of any such suit, action or proceeding brought in any
such court and any claim that any such suit, action or proceeding brought in any
such court has been brought in an inconvenient forum.
16
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: I or we assign and transfer this
Note to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint __________________ agent to transfer this Note on the
books of the Company. The agent may substitute another to act for him.
- --------------------------------------------------------------------------------
Date: Your Signature
-------------------------------- ------------------------
(Sign exactly as your name appears on the
other side of this security)
--------------------------------------
Signature Guarantee
17
Form B9F (ALT.) (Chapter 11 Corporation/Partnership Case) (9/97)
- --------------------------------------------------------------------------------
UNITED STATES BANKRUPTCY COURT Southern District of New York
- --------------------------------------------------------------------------------
Notice of
Chapter 11 Bankruptcy Case, Meeting of Creditors & Deadlines
- --------------------------------------------------------------------------------
A chapter 11 bankruptcy case concerning the debtor corporation listed
below was filed on January 15, 1998 (date).
You may be a creditor of the debtor. This notice lists important
deadlines. You may want to consult an attorney to protect your rights. All
documents filed in the case may be inspected at the bankruptcy clerk's
office at the address listed below. NOTE: The staff of the bankruptcy
clerk's office cannot give legal advice.
- --------------------------------------------------------------------------------
See Reverse Side For Important Explanations.
- --------------------------------------------------------------------------------
Debtor (name(s) and address): Case Number:
HOME HOLDINGS INC. 98 B 40319 (JHG)
59 Maiden Lane
New York, New York 10038-4548 ----------------------------------
Taxpayer ID Nos.:
13-3584978
- --------------------------------------------------------------------------------
Attorney for Debtor (name and address) Telephone number:
Skadden, Arps, Slate, Meagher & Flom LLP (212) 735-3000
919 Third Avenue
New York, New York 10022-3897
- --------------------------------------------------------------------------------
Meeting of Creditors
- --------------------------------------------------------------------------------
Date: 03/05/98 Time: 1:00 ( ) A.M. Location: Office of the U.S. Trustee
(X) P.M. 80 Broad Street, Second Floor
New York, New York 10004
- --------------------------------------------------------------------------------
Deadlines to File a Proof of Claim
- --------------------------------------------------------------------------------
Papers must be RECEIVED by the claims agent indicated below by:
- --------------------------------------------------------------------------------
For all creditors: NO LATER THAN 5:00 P.M. (EST) ON FEBRUARY 12, 1998
- --------------------------------------------------------------------------------
Claims agent: MacKenzie Partners, Inc.
Madison Square Station, P.O. Box 865
New York, New York 10160-1051
Att'n: Home Holdings Inc.
- --------------------------------------------------------------------------------
Creditors May Not Take Certain Actions
- --------------------------------------------------------------------------------
The filing of the bankruptcy case automatically stays certain collection and
other actions against the debtor and the debtor's property. If you attempt to
collect a debt or take other action in violation of the Bankruptcy Code, you may
be penalized.
- --------------------------------------------------------------------------------
Address of the Bankruptcy Clerk's Office: For the Court:
One Bowling Green ----------------------------------
New York, New York 10004-1408 Clerk of the Bankruptcy Court:
Telephone number: (212) 668-2870 Cecelia G. Morris
- --------------------------------------------------------------------------------
Hours Open: Monday through Friday Date: January 20, 1998
from 8:30 a.m. to 5:00 p.m.
- --------------------------------------------------------------------------------
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - x
In re :
:
HOME HOLDINGS INC., : Chapter 11
: Case No. 98 B 40319 (JHG)
:
Debtor. :
- - - - - - - - - - - - - - - - - - - x
NOTICE OF LAST DATE FOR FILING OF PROOFS OF
CLAIM AGAINST HOME HOLDINGS INC. AND PROCEDURE THEREFOR
TO ALL CREDITORS AND OTHER PARTIES IN INTEREST:
PLEASE TAKE NOTICE that on January 15, 1998, the United States Bankruptcy
Court for the Southern District of New York (the "Court") entered an order
fixing February 12, 1998 (the "Bar Date") as the last date for all persons and
entities, including, but not limited to, individuals, partnerships,
corporations, limited liability companies, limited liability partnerships,
estates, trusts, indenture trustees, taxing authorities, EXCEPT THOSE PERSONS
AND ENTITIES SPECIFICALLY DESCRIBED BELOW, who have or assert, or believe they
may have or assert, any claim (as defined below) against Home Holdings Inc.(the
"Debtor") to file proofs of claim. The Bar Date and the procedure set forth
below for filing proofs of claim apply to all claims against the Debtor that
arose before January 15, 1998 (any such claims "Pre-Petition Claims").
Under section 101(5) of the Bankruptcy Code and as used in this Notice,
the word "claim" means (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)
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.
1. WHO MUST FILE A PROOF OF CLAIM.
You must file a proof of claim if you have a Pre-Petition Claim, unless
your Pre-Petition Claim is of a type described in paragraphs 2 or 3 below,
whether or not such Pre-Petition Claim is of a general unsecured, priority, or
secured status, and notwithstanding that such claim may not have matured or
become fixed or liquidated prior to January 15, 1998. Any person or entity (a)
having a claim or potential claim against the Debtor, no matter how remote or
contingent, or (b) whose claim is not listed in the Debtor's Schedules (as
defined below), is listed in an incorrect amount, or is listed as "disputed,"
"contingent," or "unliquidated" in the Debtor's Schedules and who desires to
participate in this case and share in any distribution must file a proof of
claim on or before the Bar Date.
2. WHO MAY FILE A PROOF OF CLAIM, BUT IS NOT REQUIRED TO.
YOU DO NOT HAVE TO FILE A PROOF OF CLAIM IF YOUR PRE-PETITION CLAIM IS
CORRECTLY LISTED IN THE DEBTOR'S SCHEDULES. You may file a proof of claim, but
ARE NOT REQUIRED to do so, if (a) you have already properly filed a proof of
claim with the Court; or (b) your Pre-Petition Claim (i) is listed on the
schedule of liabilities filed by the Debtor with the Court on January 15, 1998,
or any amendments to those schedules (as amended, the "Schedules"), (ii) is not
listed as "contingent," "unliquidated," or "disputed" on those Schedules, and
(iii) has been accu rately scheduled as to its amount or classification on those
Schedules.
3. WHO SHOULD NOT FILE A PROOF OF CLAIM.
You should not file a proof of claim if (1) the Court has already entered
an order allowing your Pre-Petition Claim; (2) you have no Pre-Petition Claim;
(3) your claim arises on or after January 15, 1998 and is entitled to
administrative expense status under sections 503(b) or 507(a) of the Bankruptcy
Code; or (4) you assert an equity security interest in the Debtor.
<PAGE>
2
4. EXECUTORY CONTRACTS AND UNEXPIRED LEASES.
Pre-Petition Claims arising from the rejection by the Debtor of an
executory contract or unexpired lease must be filed on or before (a) the Bar
Date, (b) 30 days after service of an order authorizing such rejection or such
other period as ordered by the Court, or (c) 30 days after service of a notice
of such rejection, if such rejection occurred by expiration of time fixed by the
Court, unless the Court by order provides for a longer period.
5. WHEN AND WHERE TO FILE.
Proofs of claim must be filed so as to be received no later than 5:00 p.m.
(Eastern Standard Time), February 12, 1998, at the following address:
MacKenzie Partners, Inc.
Madison Square Station
P.O. Box 865
New York, New York 10160-1051
Att'n: Home Holdings Inc.
6. WHAT TO FILE.
EACH PROOF OF CLAIM MUST BE SUBSTANTIALLY IN THE FORM OF OFFICIAL FORM NO.
10. You should include all Pre-Petition Claims against the Debtor on a single
proof of claim form. Each proof of claim form must specifically set forth the
full name of the Debtor and the proper Chapter 11 case number of the Debtor. The
case number for the Debtor is 98 B 40319 (JHG).
EXCEPT FOR CREDITORS WHOSE CLAIMS ARE OF THE TYPE SET FORTH IN PARAGRAPHS
2 AND 3 ABOVE, ANY CREDITOR WHO FAILS TO FILE A PROOF OF CLAIM ON OR BEFORE
FEBRUARY 12, 1998 FOR ANY PRE-PETITION CLAIM SUCH CREDITOR HOLDS OR WISHES TO
ASSERT AGAINST THE DEBTOR SHALL BE FOREVER BARRED, ESTOPPED, AND ENJOINED FROM
ASSERTING SUCH PRE-PETITION CLAIM AGAINST THE DEBTOR OR ITS PROPERTY (OR FILING
A PROOF OF CLAIM WITH RESPECT THERETO), AND THE DEBTOR AND ITS PROPERTY SHALL BE
FOREVER DISCHARGED FROM ANY AND ALL INDEBTEDNESS OR LIABILITY WITH RESPECT TO
SUCH PRE-PETITION CLAIM, AND SUCH HOLDER SHALL NOT BE PERMITTED TO VOTE ON ANY
PLAN OF REORGANIZATION OR PARTICIPATE IN ANY DISTRIBUTION IN THIS CHAPTER 11
CASE ON ACCOUNT OF SUCH PRE-PETITION CLAIM, OR TO RECEIVE FURTHER NOTICES
REGARDING SUCH PRE-PETITION CLAIM.
7. ACCESS TO SCHEDULES.
Copies of the Schedules may be examined by interested parties during
regular business hours, 9:30 a.m.-4:30 p.m., Monday through Friday, at the
Office of the Clerk of the Court, United States Bankruptcy Court, Alexander
Hamilton Custom House, One Bowling Green, New York, New York 10004-1408. If the
Debtor amends the Schedules after having given notice of the Bar Date, the
Debtor shall give notice of any amendment to the holders of Pre-Petition Claims
affected by the amendment, and such holders shall be afforded 30 days from the
date of such notice (or such other period as may be fixed by the Court) to file
proofs of claim, if necessary, or be forever barred from doing so. CREDITORS
WISHING TO RELY ON THE SCHEDULES SHALL BE SOLELY RESPONSIBLE FOR DETERMINING
THAT THEIR PRE-PETITION CLAIMS ARE ACCURATELY LISTED THEREIN.
Dated: New York, New York By Order of the Court
January 15, 1998
/s/ Jeffry H. Gallet
------------------------------
United States Bankruptcy Judge
- --------------------------------------------------------------------------------
United States Bankruptcy Court PROOF OF CLAIM
Southern District of New York
- --------------------------------------------------------------------------------
In re Case Number
Home Holdings Inc. 98 B 40319 (JHG)
- --------------------------------------------------------------------------------
NOTE: This form should not be used to make a claim for an administrative expense
arising after the commencement of the case. A "request" of payment of an
administrative expense may be filed pursuant to 11 U.S.C. ss. 503.
================================================================================
Name of Creditor (The person or entity to whom the debtor owes money or
property)
- --------------------------------------------------------------------------------
Name and Addresses Where Notices Should be Sent
Telephone No. ( )
================================================================================
|_| Check box if you are aware that anyone else has filed a proof of claim
relating to your claim. Attach copy of statement giving particulars.
|_| Check box if you have never received any notices from the bankruptcy court
in this case.
|X| Check box if the address differs from the address on the envelope sent to
you by the court.
- --------------------------------------------------------------------------------
THIS SPACE IS FOR
COURT USE ONLY
- --------------------------------------------------------------------------------
ACCOUNT OR OTHER NUMBER BY WHICH CREDITOR IDENTIFIES DEBTOR:
- --------------------------------------------------------------------------------
Check here if this claim |_| replaces |_| amends a previously filed claim, dated
______________________
- --------------------------------------------------------------------------------
1. BASIS FOR CLAIM
|_| Goods sold
|_| Services performed
|_| Money loaned
|_| Personal injury/wrongful death
|_| Taxes
|_| Other (Describe briefly) _____________________________________
|_| Retiree benefits as defined in 11 U.S. C.ss.1114(a)
|_| Wages, salaries, and compensations (Fill out below)
Your social security number __________________________________
Unpaid compensations for services performed from (date)
to (date)
---------------- ----------------
- --------------------------------------------------------------------------------
2. DATE DEBT WAS INCURRED
- --------------------------------------------------------------------------------
3. IF COURT JUDGMENT, DATE OBTAINED
- --------------------------------------------------------------------------------
4. CLASSIFICATION OF CLAIM. Under the Bankruptcy Code all claims are classified
as one or more of the following: (1) Unsecured Nonpriority. (2) Unsecured
Priority. (3) Secured. It is possible for part of a claim to be in one category
and part in another.
CHECK THE APPROPRIATE BOX OR BOXES that best describe your claim and STATE THE
AMOUNT OF THE CLAIM.
|_| SECURED CLAIM $_____________________________________________________________
Attach evidence of perfection of security interest
Brief Description of Collateral:
|_| Real Estate |_| Motor Vehicle |_| Other (Describe briefly)
Amount of arrearage and other charges included in secured claim above, if
any $___________________________________________________________________________
|_| UNSECURED NONPRIORITY CLAIM ________________________________________________
A claim is unsecured if there is no collateral or lien on property of the
debtor securing the claim or to the extent that the value of such property is
less than the amount of the claim.
|_|UNSECURED PRIORITY CLAIM $___________________________________________________
Specify the priority of the claim.
|_| Wages, salaries, or commissions (up to $4000), earned not more than 90 days
before filing of the bankruptcy petition or cessation of the debtor's
business, whichever is earlier - 11 U.S.C. ss.507(a)(3)
|_| Contributions to an employee benefit plan - 11 U.S.C. ss.507(a)(4)
|_| Up to $1,800 of deposits toward purchase, lease, or rental of property or
services for personal, family, or household use - 11 U.S.C. ss.507(a)(6)
|_| Taxes or penalties of governmental units - 11 U.S.C. ss.507(a)(8)
|_| Other - 11 U.S.C. ss.ss.507(a)(2), (a)(5)- (Describe briefly)
================================================================================
5. TOTAL AMOUNT OF
CLAIM AT TIME $ $ $ $
----------- ----------- ----------- -----------
CASE FILED: (Unsecured) (Secured) (Priority) (TOTAL)
|_| Check this box if claim includes prepetition charges in addition to the
principal amount of the claim. Attach itemized statement of all additional
charges.
================================================================================
6. CREDITS AND SETOFFS: The amount of all payments on this claim has been
credited and deducted for the purpose of making this proof of claim. In filing
this claim, claimant has deducted all amounts that claimant owes to debtor.
7. SUPPORTING DOCUMENTS: Attach copies of supporting documents, such as
promissory notes, purchase orders, invoices, itemized statements of running
accounts, contracts, court judgments, or evidence of security interests. If the
documents are not available, explain. If the documents are voluminous, attach a
summary.
8. TIME-STAMPED COPY: To receive an acknowledgment of the filing of your claim,
enclose a stamped, self-addressed envelope and copy of this proof of claim.
- --------------------------------------------------------------------------------
Date Sign and print the name and title, if any, of the
creditor or other person authorized to file this
claim (attach copy of power of attorney, if any).
Print:
Name Title:
- --------------------------------------------------------------------------------
THIS SPACE IS FOR
COURT USE ONLY
Penalty for presenting fraudulent claim: Fine of up to $500,000 or imprisonment
for up to 5 years, or both. 18 U.S.C.ss.ss.152 and 3571.
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - x
In re :
:
: Chapter 11
HOME HOLDINGS INC., : Case No. 98 B 40319 (JHG)
:
Debtor. :
:
- - - - - - - - - - - - - - - - - - - x
NOTICE OF (a) HEARING ON APPROVAL OF DISCLOSURE
STATEMENT AND (b) DEADLINES AND PROCEDURES
FOR FILING OBJECTIONS TO DISCLOSURE STATEMENT
TO ALL CREDITORS, EQUITY SECURITY HOLDERS, AND OTHER PARTIES IN INTEREST:
PLEASE TAKE NOTICE that Home Holdings Inc. (the "Debtor"), as debtor
and debtor-in-posses sion, is seeking approval of its Disclosure Statement,
dated January 15, 1998 (the "Disclosure Statement"), from the United States
Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court").
PLEASE TAKE FURTHER NOTICE that this notice is not a solicitation of
acceptances or rejections of the Debtor's proposed plan of reorganization and
that acceptances may not be solicited unless and until the Disclosure Statement
is approved by the Bankruptcy Court.
PLEASE TAKE FURTHER NOTICE that, on the Debtor's motion, dated
January 15, 1998 (the "Scheduling Motion"), the Bankruptcy Court entered an
order, dated January 15, 1998 (the "Scheduling Order"), pro viding, among other
things, that:
HEARING ON DISCLOSURE STATEMENT
1. The hearing to consider the adequacy of information contained in
the Disclosure Statement (the "Disclosure Statement Hearing") will commence on
February 27, 1998 at 9:30 a.m. Eastern Standard Time before the Honorable Jeffry
H. Gallet, United States Bankruptcy Judge, United States Bankruptcy Court,
Alexander Hamilton Custom House, One Bowling Green, New York, New York
10004-1408. The Disclosure Statement Hearing may be continued from time to time
by announcing such continuance in open court or otherwise, all without further
notice to parties in interest.
DEADLINES AND PROCEDURES FOR FILING OBJECTIONS TO
ADEQUACY OF DISCLOSURE STATEMENT
2. February 20, 1998 at 5:00 p.m. Eastern Standard Time is fixed as
the last date and time for filing and serving objections or proposed
modifications to the Disclosure Statement (or to any of the other procedures
stated herein).
3. To be considered by the Bankruptcy Court, objections or proposed
modifications (if any) to the Disclosure Statement (or to any of the other
procedures stated herein) must (a) be in writing, (b) comply with the Bankruptcy
Rules and the General Orders of the Bankruptcy Court, (c) set forth the name of
the objector, and the nature and the amount of any claim or interest asserted by
the objector against the estate or property of the Debtor, (d) state with
particularity the legal and factual basis for such objection or proposed
modification, and (e) be filed with the Bankruptcy Court (including a copy for
Chambers), together with proof of service, and served by personal service or by
overnight delivery, so as to be RECEIVED no later than the February 20, 1998 at
5:00 p.m. Eastern Standard Time
<PAGE>
2
by: (1) Skadden, Arps, Slate, Meagher & Flom LLP, attorneys for the Debtor, 919
Third Avenue, New York, New York 10022-3897, Att'n: Kayalyn A. Marafioti, Esq.;
(2) Anderson Kill & Olick, P.C., attorneys for the Unofficial Senior
Noteholders' Committee, 1251 Avenue of the Americas, New York, New York
10020-1182, Att'n: Anthony Princi, Esq.; (3) Paul, Weiss, Rifkind, Wharton &
Garrison, attorneys for Zurich Centre Resource Limited, 1285 Avenue of the
Americas, New York, New York 10019-6064, Att'n: Alan W. Kornberg, Esq.; (4)
Simpson Thatcher & Bartlett, attorneys for Trygg-Hansa AB, 425 Lexington Avenue,
New York, New York 10017-3909, Att'n: Lillian Kraemer, Esq.; (5) Sheehan Phinney
Bass & Green, attorneys for the New Hampshire Insurance Department, 1000 Elm
Street, P.O. Box 3701, Manchester, New Hampshire 03105-3701, Att'n: Bruce A.
Harwood, Esq.; and (6) the Office of the United States Trustee, 80 Broad Street,
New York, New York 10004. OBJECTIONS OR MODIFICATIONS NOT TIMELY FILED AND
SERVED IN THE MANNER SET FORTH ABOVE SHALL NOT BE CONSIDERED AND SHALL BE
OVERRULED.
PLEASE TAKE FURTHER NOTICE that any party in interest wishing to
obtain a copy of the Disclosure Statement, the Plan, any exhibits to those
documents, the Scheduling Motion, or the Scheduling Order may request such
copies by contacting the voting agent, MacKenzie Partners, Inc., 156 Fifth
Avenue, New York, New York 10010, (212) 929-5500. All such copies shall be
provided at the expense of the party requesting the documents unless otherwise
specifically required by Bankruptcy Rule 3017(d). All documents that are filed
with the Bankruptcy Court may be reviewed during regular business hours (from
9:30 a.m. to 4:30 p.m. weekdays, except legal holidays) at the Bankruptcy Court,
One Bowling Green, New York, New York 10004-1408.
Dated: New York, New York
January 23, 1998
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
Attorneys for Home Holdings Inc., Debtor
and Debtor-in-Possession
919 Third Avenue
New York, New York 10022-3897
(212) 735-3000
Kayalyn A. Marafioti (KM 9362)
Stephanie R. Schwartz (SS 3000)
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - - - -x
:
In re : Chapter 11
: Case No. 98 B 40319 (JHG)
HOME HOLDINGS INC., :
:
Debtor. :
:
- - - - - - - - - - - - - - - - - - - - - - - -x
AMENDED DISCLOSURE STATEMENT WITH RESPECT
TO AMENDED PLAN OF REORGANIZATION OF
HOME HOLDINGS INC. UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
Attorneys for Home Holdings Inc.,
Debtor and Debtor-in-Possession
919 Third Avenue
New York, New York 10022-3897
(212) 735-3000
Dated: New York, New York
March 3, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
EXECUTIVE SUMMARY ....................................................... i
A. Summary Of The Plan Of Reorganization ........................ i
B. Summary Of Post-Consummation Activities ...................... v
C. Projected Recoveries Under The Plan .......................... v
D. Acceptances Of The Plan ...................................... ix
E. Confirmation Hearing ......................................... ix
I. INTRODUCTION ......................................................... 1
A. Definitions .................................................. 2
B. Notice To Holders Of Claims .................................. 2
C. Solicitation Package ......................................... 3
D. Voting Procedures, Ballots, And Voting Deadline .............. 3
E. Confirmation Hearing And Deadline For Objections To
Confirmation And Adequacy Of Disclosure Statement ............ 4
II. THE DEBTOR AND BACKGROUND OF THE CHAPTER 11 CASE .................... 5
A. Description Of The Debtor's Business ......................... 5
B. Order Of Supervision And Other Regulatory Action ............. 6
C. The Recapitalization Agreement And Related Agreements ........ 7
D. Insurance Operations ......................................... 9
1. Property And Casualty Insurance ........................... 9
2. Excess Of Loss Reinsurance Agreement ...................... 10
3. Risk-Based Capital ........................................ 10
E. Other Businesses ............................................. 11
1. Securities Brokerage Operations ........................... 11
2. Land Development Operations ............................... 12
F. Principal Liabilities Of The Debtor .......................... 13
1. Debtor's Debt For Borrowed Money .......................... 13
2. Other Liabilities ......................................... 15
III. MANAGEMENT AND OWNERSHIP OF THE DEBTOR ............................ 18
A. Board Of Directors Of The Debtor ............................. 18
B. Management Of The Debtor ..................................... 18
C. Certain Relationships And Related Transactions With
Officers And Directors ....................................... 19
D. Ownership Of The Debtor ...................................... 19
IV. THE CHAPTER 11 CASE ................................................. 20
A. Events Leading To Or In Contemplation Of The Chapter 11 Case . 20
1. Dividend Restrictions ..................................... 20
2. Formation Of And Negotiations With Committee Of Senior
Noteholders ............................................... 20
3. Qualified Auditor's Opinion ............................... 22
4. Public Debt Ratings ....................................... 22
5. Tender Offer Of Trygg-Hansa; Transfer Of Stock ............ 23
6. The Pre-Reorganization Agreement .......................... 23
7. The Proposed Restructuring And Third Party Releases ....... 24
B. Commencement Of The Chapter 11 Case .......................... 26
C. Description Of Significant Events During The Pendency Of
The Chapter 11 Case .......................................... 26
1. Retention Of Professionals ................................ 26
2. Administrative Services Arrangement ....................... 26
3. The Official Committee Of Unsecured Creditors ............. 26
4. Transfer Of Interests In Home Insurance ................... 26
D. Business And Operations Of Reorganized Home .................. 27
i
<PAGE>
E. Credit Rating Of The Zurich Note Entity And The Zurich
Put Entity ................................................... 28
F. Certain Subordination Provisions ............................. 28
V. SUMMARY OF THE PLAN OF REORGANIZATION ................................ 29
A. Overall Structure Of The Plan ................................ 29
B. Certain Matters Regarding Classification And Treatment Of
Claims And Equity Interests .................................. 30
1. Unclassified Claims (Not Entitled To Vote On The Plan) .... 30
2. Unimpaired Class Of Claims ................................ 31
3. Impaired Classes Of Claims ................................ 32
4. Impaired Classes Of Claims And Equity Interests ........... 34
C. Description Of Securities And Instruments To Be Issued In
Connection With The Plan ..................................... 34
1. Earn Out Notes Series I ................................... 34
2. Earn Out Notes Series II .................................. 38
3. Earn Out Notes Series III ................................. 41
4. New Notes ................................................. 42
5. Membership Units .......................................... 43
6. New Common Stock .......................................... 44
D. The Percentage Formula ....................................... 44
E. Home Insurance Settlement .................................... 44
F. Certain Provisions Regarding Corporate Governance And
Management Of Reorganized Home ............................... 45
1. General ................................................... 45
2. Meetings Of Reorganized Home Stockholders ................. 45
3. Directors And Officers Of Reorganized Home ................ 45
4. Amended Bylaws And Amended Certificate Of Incorporation ... 46
5. Issuance Of New Securities ................................ 46
G. Means For Implementation Of The Plan ......................... 46
1. Sources Of Payment ........................................ 46
2. Tender Offer .............................................. 46
3. Consummation Of Acquisition ............................... 47
4. Waiver Of Claims; Covenant Not To Sue; Releases ........... 47
5. Professional Fees ......................................... 48
H. Effect Of Confirmation Of Plan ............................... 48
1. Tern Of Bankruptcy Injunction Or Stays .................... 48
2. Revesting Of Assets ....................................... 48
3. Causes Of Action .......................................... 48
4. Discharge Of Debtor ....................................... 49
5. Injunction ................................................ 49
6. Termination Of Subordination Rights ....................... 49
I. Distributions Under The Plan ................................. 49
1. In General ................................................ 49
2. Distributions Of Cash ..................................... 50
3. Timing Of Distributions ................................... 50
4. Minimum Distributions ..................................... 50
5. Fractional Shares; Multiples Of New Notes ................. 50
6. Unclaimed Distributions ................................... 50
7. Distributions To Holders As Of The Record Date ............ 50
8. Distributions Withheld For Disputed General Unsecured
Claims .................................................... 51
9. Distributions Upon Allowance Of Disputed Unsecured Claims . 51
10. Disbursing Agent ......................................... 51
J. Objections To And Resolution Of Administrative Expense
Claims, And Equity Interests ................................. 51
ii
<PAGE>
K. Administrative Claims Reserve ................................ 52
L. Cancellation And Surrender Of Existing Securities And
Agreements ................................................... 52
M. Retention Of Jurisdiction .................................... 52
N. Miscellaneous Matters ........................................ 53
1. Professional Compensation And Reimbursement Claims ........ 53
2. Assumption Or Rejection Of Executory Contracts And
Unexpired Leases .......................................... 53
3. Releases .................................................. 54
4. Indemnification Obligations ............................... 54
5. Exemption From Transfer Taxes ............................. 55
6. Injunction Regarding Worthless Stock Deduction And
Reattribution Of NOLs To The Debtor Or Reorganized Home ... 55
7. Exculpation ............................................... 55
8. Termination Of Committee .................................. 55
9. Post-Confirmation Date Fees And Expenses .................. 55
10. Payment Of Statutory Fees ................................ 56
11. Amendment Or Modification Of The Plan .................... 56
12. Revocation Or Withdrawal Of The Plan And Termination ..... 56
13. Plan Supplement .......................................... 56
14. Allocation Of Plan Distributions Between Principal And
Interest ................................................. 57
15. Waiver Of Fed. R. Civ. P. 62(a) .......................... 57
VI. CERTAIN FACTORS TO BE CONSIDERED .................................... 57
A. General Considerations ....................................... 57
B. Risk Factors ................................................. 57
1. Certain Bankruptcy Considerations ......................... 57
2. Failure Of Conditions Precedent To The Effective Date ..... 57
3. Inherent Uncertainty Of Financial Projections ............. 57
4. Taxation .................................................. 58
5. No Assurance Of Active Public Market For New Notes,
Earn Out Notes, And New Common Stock ...................... 58
6. Appeal Of Confirmation Order .............................. 58
VII. RESALE OF SECURITIES RECEIVED UNDER THE PLAN ....................... 58
A. Registration Of Securities ................................... 58
B. Restrictions On Transfer Of New Common Stock ................. 59
VIII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN ............... 59
A. Federal Income Tax Consequences To The Debtor ................ 60
1. Cancellation Of Indebtedness Income ....................... 60
2. Net Operating Loss Carryovers; Limitations ................ 60
3. Alternative Minimum Tax ................................... 64
B. Federal Income Tax Consequences To Creditors ................. 64
1. Class 1, 2 And 3 Creditors ................................ 64
2. Class 4 Creditors Receiving New Notes And Earn Out Notes .. 64
3. Installment Sales ......................................... 67
4. Treatment Of Accused Interest ............................. 68
C. Federal Income Tax Treatment Of Payments On The New Notes
And The Earn Out Notes ....................................... 68
1. Original Issue Discount ................................... 68
2. Treatment As Equity ....................................... 70
D. New Notes Tender Offer ....................................... 70
E. Effect Of Future Transactions On Holders Of Earn Out Notes ... 70
F. Federal Income Tax Consequences To Shareholders .............. 70
iii
<PAGE>
IX. FEASIBILITY; BEST INTEREST OF CREDITORS; CONFIRMATION OF THE PLAN ... 71
A. Feasibility Of The Plan ...................................... 71
B. Acceptance Of The Plan ....................................... 71
C. Best Interests Of Holders Of Claims And Equity Interests ..... 72
D. Liquidation Analysis ......................................... 72
E. Valuation Of New Notes, Earn Out Notes, And Membership Units . 73
F. Confirmation Without Acceptance Of All Impaired Classes: The
"Cramdown" Alternative ....................................... 73
G. Effectiveness Of The Plan .................................... 74
1. Conditions Precedent To Effectiveness ..................... 74
2. Effect Of Failure Of Conditions ........................... 75
3. Waiver Of Conditions ...................................... 75
X. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN ............ 75
A. Continuation Of The Chapter 11 Case .......................... 75
B. Liquidation Under Chapter 7 .................................. 76
C. Dismissal Of The Case ........................................ 76
XI. VOTING REQUIREMENTS ................................................. 76
SPECIAL NOTE FOR HOLDERS OF SECURITIES ............................ 77
A. Beneficial Owners ............................................ 77
B. Brokerage Firms, Banks, And Other Nominees ................... 78
C. Fiduciaries And Other Representatives ........................ 78
D. Parties In Interest Entitled To Vote ......................... 78
B. Classes Impaired Under The Plan .............................. 79
XII. CONCLUSION ......................................................... 79
A. Hearing On And Objections To Confirmation Of Plan ............ 79
1. Confirmation Hearing ...................................... 79
2. Date Set For Filing Objections To Confirmation ............ 80
B. Recommendation ............................................... 81
iv
<PAGE>
GLOSSARY OF CERTAIN TERMS
Term Page
- ---- ----
12% Senior Subordinated Notes ........................................... 8
12% Senior Subordinated Working Capital Notes ........................... 8
7-7/8% Senior Notes ..................................................... 9
7-7/8% Senior Sinking Fund Notes ........................................ 9
7% Senior Notes ......................................................... 9
Bondholder Agreement .................................................... 9
Centre Re (Bermuda) ..................................................... 8
Consent Order ........................................................... 5
Department .............................................................. 5
Equity Repurchase Transaction ........................................... 8
Excess of Loss Reinsurance Agreement .................................... 10
Home Insurance .......................................................... 5
Interest Deferral Agreement ............................................. 8
Investor Group .......................................................... 7
IP ...................................................................... 7
Junior Notes ............................................................ 8
Manager Corporation ..................................................... 27
Mandatory Control Level Event ........................................... 6
NOLs .................................................................... 64
Order Supervision ....................................................... 6
Pre-Reorganization Agreement ............................................ 25
Preferred Stock ......................................................... 8
REC ..................................................................... 6
Recapitalization Agreement .............................................. 8
REM ..................................................................... 7
SE Banken ............................................................... 24
Services Agreement ...................................................... 9
Sterling Forest ......................................................... 6
Sterling Forest Agreement ............................................... 13
Sterling Forest Lands ................................................... 6
Sterling Forest Series A Property ....................................... 13
Sterling Forest Series B Property ....................................... 13
Sterling Management ..................................................... 6
Tax Savings ............................................................. 37
Title 11 Exception ...................................................... 67
Trygg-Hansa ............................................................. 7
Trygg Shareholders ...................................................... 67
Trygg Takeover .......................................................... 66
ZCI ..................................................................... 8
ZCMC .................................................................... 13
ZHI ..................................................................... 7
ZIM ..................................................................... 9
ZRCH .................................................................... 30
ZRNA .................................................................... 29
Zurich .................................................................. 3
Zurich Entity ........................................................... 38
v
<PAGE>
ALL CREDITORS ARE ADVISED AND ENCOURAGED TO READ THIS DISCLOSURE STATEMENT AND
THE PLAN IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR REJECT THE PLAN. PLAN
SUMMARIES AND STATEMENTS MADE IN THIS DISCLOSURE STATEMENT, INCLUDING THE
FOLLOWING SUMMARY, ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE PLAN,
OTHER EXHIBITS ANNEXED TO THE PLAN, THE PLAN SUPPLEMENT, AND THIS DISCLOSURE
STATEMENT. THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE ONLY
AS OF THE DATE HEREOF, AND THERE CAN BE NO ASSURANCE THAT THE STATEMENTS
CONTAINED HEREIN WILL BE CORRECT AT ANY TIME AFTER THE DATE HEREOF. ALL
CREDITORS SHOULD READ CAREFULLY THE "RISK FACTORS" SECTION HEREOF BEFORE VOTING
FOR OR AGAINST THE PLAN. SEE "CERTAIN FACTORS TO BE CONSIDERED--RISK FACTORS."
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH SECTION 1125 OF
THE BANKRUPTCY CODE AND RULE 3016(b) OF THE FEDERAL RULES OF BANKRUPTCY
PROCEDURE AND NOT NECESSARILY IN ACCORDANCE WITH FEDERAL OR STATE SECURITIES
LAWS OR OTHER APPLICABLE LAW. THIS DISCLOSURE STATEMENT HAS NEITHER BEEN
APPROVED NOR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC")
NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED
HEREIN. PERSONS OR ENTITIES TRADING IN OR OTHERWISE PURCHASING, SELLING, OR
TRANSFERRING SECURITIES OF THE DEBTOR SHOULD EVALUATE THIS DISCLOSURE STATEMENT
AND THE PLAN IN LIGHT OF THE PURPOSE FOR WHICH IT WAS PREPARED.
AS TO CONTESTED MATTERS, ADVERSARY PROCEEDINGS, AND OTHER ACTIONS OR THREATENED
ACTIONS, THIS DISCLOSURE STATEMENT SHALL NOT CONSTITUTE OR BE CONSTRUED AS AN
ADMISSION OF ANY FACT OR LIABILITY, STIPULATION, OR WAIVER, BUT RATHER AS A
STATEMENT MADE WITHOUT PREJUDICE SOLELY FOR SETTLEMENT PURPOSES, WITH FULL
RESERVATION OF RIGHTS, AND IS NOT TO BE USED FOR ANY LITIGATION PURPOSE
WHATSOEVER.
THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT IS INCLUDED HEREIN FOR
PURPOSES OF SOLICITING ACCEPTANCES OF THE PLAN AND MAY NOT BE RELIED UPON FOR
ANY PURPOSE OTHER THAN TO DETERMINE HOW TO VOTE ON THE PLAN. THE FACTUAL
INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT, INCLUDING THE DESCRIPTION OF
THE DEBTOR, ITS BUSINESS, AND EVENTS LEADING TO THE COMMENCEMENT OF THE CHAPTER
11 CASE, HAS BEEN OBTAINED FROM VARIOUS DOCUMENTS, AGREEMENTS, AND OTHER
WRITINGS RELATING TO THE DEBTOR AND FROM DISCUSSIONS WITH, AND VARIOUS WRITINGS
PREPARED BY, RISK ENTERPRISE MANAGEMENT LIMITED, ZURICH INSURANCE COMPANY (OR AN
AFFILIATE THEREOF), TRYGG-HANSA AB, AND AN AD HOC COMMITTEE OF CERTAIN
NOTEHOLDERS FORMED PRIOR TO THE CHAPTER 11 CASE, AND THEIR RESPECTIVE COUNSEL
AND FINANCIAL ADVISORS. THE DESCRIPTIONS SET FORTH HEREIN OF THE ACTIONS,
CONCLUSIONS, OR RECOMMENDATIONS OF THE DEBTOR OR ANY OTHER PARTY IN INTEREST
HAVE BEEN SUBMITTED TO OR APPROVED BY SUCH PARTY, BUT NEITHER THE DEBTOR NOR ANY
SUCH PARTY MAKES ANY REPRESENTATION OR WARRANTY REGARDING SUCH DESCRIPTIONS.
THIS DISCLOSURE STATEMENT SHALL NOT BE ADMISSIBLE IN ANY NONBANKRUPTCY
PROCEEDING INVOLVING THE DEBTOR, ZURICH INSURANCE COMPANY (OR ITS AFFILIATES),
TRYGG-HANSA AB OR ANY OTHER PARTY IN INTEREST, NOR SHALL IT BE CONSTRUED TO BE
CONCLUSIVE ADVICE ON THE TAX, SECURITIES, FINANCIAL, OR OTHER LEGAL EFFECTS OF
THE REORGANIZATION AS TO HOLDERS OF CLAIMS AGAINST OR EQUITY INTERESTS IN THE
DEBTOR.
<PAGE>
EXECUTIVE SUMMARY
On January 15, 1998, Home Holdings Inc. ("Home Holdings" or the "Debtor")
filed a petition for relief under Chapter 11 of the Bankruptcy Code. On January
15, 1998, the Debtor also filed its plan of reorganization, dated January 15,
1998 (as it may be amended, modified, or supplemented, the "Plan") which sets
forth the manner in which Claims against and Equity Interests in the Debtor will
be treated. This Disclosure Statement describes certain aspects of the Plan, the
Debtor's business, and related matters. This Executive Summary is intended
solely as a summary of the distribution provisions of the Plan and related
matters. FOR A COMPLETE UNDERSTANDING OF THE PLAN YOU SHOULD READ THE DISCLOSURE
STATEMENT, THE PLAN, AND THE EXHIBITS AND SCHEDULES THERETO IN THEIR ENTIRETY.
ALL CREDITORS SHOULD READ CAREFULLY THE "RISK FACTORS" SECTION HEREOF BEFORE
VOTING FOR OR AGAINST THE PLAN. SEE "CERTAIN FACTORS TO BE CONSIDERED--RISK
FACTORS." Capitalized terms used in this Executive Summary and not otherwise
defined have the meanings ascribed to them in the Disclosure Statement and the
Plan.
A. Summary Of The Plan Of Reorganization
After careful review of the Debtor's business and the Debtor's prospects
as an ongoing business, the Debtor, in consultation with certain Affiliates and
an unofficial committee of noteholders that was formed prior to the filing of
the Chapter 11 petition (the "Senior Noteholders' Committee"), has concluded
that the recovery to creditors will be maximized by Home Holdings' continued
operation as a going concern under the terms of the Plan. According to its
liquidation analysis, the Debtor is worth more to its creditors as a going
concern than it would be upon liquidation. To achieve that value, the Plan
contemplates the issuance of New Common Stock, New Notes, Earn Out Notes, and
Membership Units to certain creditors.
Under the Plan, Claims against and Equity Interests in the Debtor are
divided into Classes. Certain unclassified Claims, including Administrative
Claims and Priority Tax Claims, and the Class of Other Priority Claims will
receive payment in Cash either on the Effective Date, as such Claims are
liquidated, or in installments over time, as permitted by the Bankruptcy Code,
or as agreed upon by the holders of such Claims. Other than the unclassified
Claims, all other Claims and all Equity Interests are classified into twelve
(12) classes or subclasses and will receive the distributions and recoveries (if
any) described in the table below.
The table summarizes the classification and treatment of the principal
pre-petition Claims and Equity Interests under the Plan. The classification and
treatment of all Classes are described in greater detail in the section of the
Disclosure Statement entitled "SUMMARY OF THE PLAN OF REORGANIZATION--Certain
Matters Regarding Classification And Treatment Of Claims And Equity Interests."
Estimated and Allowed Claim amounts are based upon the Debtor's books and
records. There can be no assurance that the estimated amounts below are correct,
and actual Claim amounts may be significantly different from the estimates. This
summary is qualified in its entirety by reference to the provisions of the Plan.
Class Description Treatment Under The Plan
Class 1: Other Priority o Unimpaired
Estimated Allowed Amount: $0
as of January 15, 1998 o Each holder of an Allowed Class 1 Other
Priority Claim will receive payment in
full (in cash) of its Allowed Other
Priority Claim on the Effective Date or
as soon thereafter as is practicable.
Class 2: Convenience Claims o Unimpaired
Estimated Allowed Amount: $0
as of January 15, 1998 o Each holder of an Allowed Class 2
Convenience Claim will receive payment
in full (in cash) of its Allowed
<PAGE>
ii
Convenience Claim on the Effective Date
or as soon thereafter as is practicable.
Class 3: Secured Claims o Unimpaired
Estimated Allowed Amount: $0
as of January 15, 1998 o At the option of the Debtor, the Debtor
will (i) reinstate such Allowed Secured
Claims by curing all outstanding
defaults with all legal, equitable, and
contractual rights remaining unaltered,
(ii) pay in full (in cash) such Allowed
Secured Claims on the Effective Date or
as soon thereafter as practicable, or
(iii) relinquish the collateral securing
such Allowed Secured Claims and pay any
interest required to be paid under
section 506(b) of the Bankruptcy Code.
Class 4: Unsecured Claims
Group 4-A: General Unsecured o Impaired
Claims Estimated Allowed
Amount: $11,857,704 o On the Initial Distribution Date or as
as of January 15, 1998 soon thereafter as is practicable, each
holder of an Allowed General Unsecured
Claim as of the Record Date will receive
(x) New Notes in a principal amount
equal to the product of the Percentage
Formula and such holder's Allowed
General Unsecured Claim, (y) its Pro
Rata Share of units of Earn Out Notes
Series I, and (z) its Pro Rata Share of
Membership Units in a limited liability
company which is to acquire all of the
outstanding shares of stock of Home
Insurance. On each Subsequent
Distribution Date, each holder of an
Allowed General Unsecured Claim which
was a Disputed Claim on the Initial
Distribution Date or the prior
Subsequent Distribution Date shall
receive a Pro Rata Share of the amount
of Earn Out Notes Series I, New Notes,
and Membership Units in the Reserve in
accordance with Section 5.3 of the Plan.
Group 4-B: Senior 7% Note Claims o Impaired
Allowed Amount: $104,545,859.37
o On the Initial Distribution Date or as
soon thereafter as is practicable, each
holder of an Allowed Senior 7% Note
Claim as of the Record Date will receive
(x) New Notes in a principal amount
equal to the product of the Percentage
Formula and such holder's Allowed Senior
7% Note Claim, (y) its Pro Rata Share of
units of Earn Out Notes Series I, and
(z) its Pro Rata Share of Membership
Units in a limited liability company
which is to acquire all of the
outstanding shares of stock of Home
Insurance.
Group 4-C: Senior 7-7/8% Sinking o Impaired
Fund Note Claims
Allowed Amount: $188,568,871.16 o On the Initial Distribution Date or as
soon thereafter as is practicable, each
holder of an Allowed Senior 7-7/8%
Sinking Fund Note Claim as of the Record
Date will receive (x) New Notes in a
principal amount equal to the
<PAGE>
iii
product of the Percentage Formula and
such holder's Allowed Senior 7-7/8%
Sinking Fund Note Claim, (y) its Pro
Rata Share of units of Earn Out Notes
Series I, and (z) its Pro Rata Share of
Membership Units in a limited liability
company which is to acquire all of the
outstanding shares of stock of Home
Insurance.
Group 4-D: Senior 7-7/8% Note o Impaired
Claims Allowed Amount: $543,171.81
o On the Initial Distribution Date or as
soon thereafter as is practicable, each
holder of an Allowed Senior 7-7/8% Note
Claim as of the Record Date will receive
(x) New Notes in a principal amount
equal to the product of the Percentage
Formula and such holder's Allowed Senior
7-7/8% Note Claim, (y) its Pro Rata
Share of units of Earn Out Notes Series
I, and (z) its Pro Rata Share of
Membership Units in a limited liability
company which is to acquire all of the
outstanding shares of stock of Home
Insurance.
Group 4-E: Home Insurance Claim o Impaired
Allowed Amount: $14,145,407
o On the Initial Distribution Date or as
soon thereafter as is practicable, Home
Insurance will receive Earn Out Notes
Series III pursuant to the Home
Insurance Settlement.
Class 5: Senior Working Capital o Impaired
Note Claims
Allowed Amount: $71,424,889 o On the Initial Distribution Date or as
soon thereafter as is practicable, each
holder of an Allowed Senior Working
Capital Note Claim as of the Record Date
will receive a Pro Rata Share of the New
Common Stock Distribution Pool.
Class 6: Junior Note Claims o Impaired
Allowed Amount: $41,340,232
o On the Initial Distribution Date or as
soon thereafter as is practicable, each
holder of an Allowed Junior Note Claim
as of the Record Date will receive the
Earn Out Notes Series II. Zurich Home
Investments Limited will waive its
Junior Note Claims and its right to
receive a distribution on account of its
Junior Note Claims.
Class 7: Senior Subordinated o Impaired
Note Claims
Allowed Amount: $0 o Will not receive or retain any property
or interest in property under the Plan.
Class 8: Equity Interests o Impaired
Estimated Number Of
Shares Outstanding: o Will not receive or retain any property
Preferred stock - 170 or interest in property under the Plan.
Series A common stock -
14,114,500
Series B convertible stock -
11,425,177
<PAGE>
iv
Funding The Plan
The Plan will be funded from several sources. Allowed Administrative
Expense Claims and the Allowed professional fees and expenses referred to in
Section 8.11 of the Plan will be paid by the Debtor by means of one or more
dividends to the Debtor from two of its subsidiaries: Home Insurance (whose
dividends are subject to the approval of the New Hampshire Insurance Department
(the "Department"), which approval the Debtor believes will be forthcoming based
upon discussions leading to the formulation and filing of the Plan and the
Department's preliminary support for the Plan), and Sterling Forest Management
LLC. All such payments will be made on the Effective Date or as otherwise
provided under the terms of the Plan. Payments to be made under the Plan with
respect to all other Classes of Claims will be made pursuant to the Earn Out
Notes and the other instruments and securities that are issued and delivered
under the Plan.
Tender Offer For New Notes
As provided in the New Note Tender Offer Undertaking, the Zurich Note
Entity will offer to purchase any and all outstanding New Notes upon the terms
and subject to the conditions set forth in the Offer to Purchase and Letter of
Transmittal not later than the sixtieth (60th) day after the Effective Date. The
Zurich Note Entity will offer to purchase the New Notes at a price equal to the
sum of 99% of (i) the face amount of the New Notes and (ii) all accrued and
unpaid interest on such New Notes as of the date that the Zurich Note Entity
makes the payments referred to in Section 8.3(c) of the Plan. The Zurich Note
Entity currently intends to hold any New Notes it acquires after the tender
offer and does not intend to dispose of such New Notes. For a more detailed
discussion of the tender offer, see "SUMMARY OF THE PLAN OF REORGANIZATION--
Means For Implementation Of The Plan--Tender Offer."
Releases
The Plan provides that any holder of a Claim against or Equity Interest in
the Debtor shall release the Debtor, Reorganized Home, Home Insurance, the
Trygg-Hansa Group, the Zurich Group, the Department, and certain related parties
with respect to liabilities relating to the Debtor, the Chapter 11 Case, or the
Plan. For further discussion concerning the releases, see "THE CHAPTER 11
CASE--Events Leading To Or In Contemplation Of The Chapter 11 Case--The Proposed
Restructuring And Third Party Releases" and "SUMMARY OF THE PLAN OF
REORGANIZATION--Means For Implementation Of The Plan--Waiver Of Claims; Covenant
Not To Sue; Releases."
Home Insurance Settlement
Home Holdings and Home Insurance have agreed to settle the Home Insurance
Claim pursuant to the terms of the Home Insurance Settlement. The Home Insurance
Settlement provides that Home Insurance will release the Home Insurance Claim
and receive Earn Out Notes Series III as a distribution under the Plan. In
addition, on the Effective Date, the Debtor and Home Insurance will exchange
mutual releases in favor of the other party, except with respect to obligations
under or pursuant to the Plan. Home Insurance will also be entitled to receive a
release under the Plan. For a more detailed description of the Home Insurance
Settlement, see "THE DEBTOR AND BACKGROUND OF THE CHAPTER 11 CASE--Principal
Liabilities Of The Debtor--Other Liabilities--Liabilities To Home Insurance" and
"SUMMARY OF THE PLAN OF REORGANIZATION--Home Insurance Settlement."
Transfer Of Home Insurance Stock
Immediately prior to the Effective Date, the Debtor will transfer the
shares of Home Insurance to a newly formed limited liability company, Home
Insurance Holdings, LLC, pursuant to the Acquisition Agreement. For further
discussion concerning the transfer of the shares of Home Insurance, see "THE
CHAPTER 11 CASE--Description Of Significant Events During The Pendency Of The
Chapter 11 Case--Transfer Of Interests In Home Insurance" and "SUMMARY OF THE
PLAN OF REORGANIZATION--Means For Implementation Of The Plan--Consummation Of
Acquisition."
<PAGE>
v
B. Summary Of Post-Consummation Activities
Attached hereto as Exhibit B are financial statements which project the
financial performance of Reorganized Home through the year 2002. It is
anticipated that, following the Effective Date, Reorganized Home will be merged
with and into Zurich Reinsurance North America, a Connecticut insurance company
("ZRNA"). ZRNA is the principal underwriting affiliate of Zurich Insurance
Company in the North American market for traditional property and casualty
reinsurance. For a more detailed description of the anticipated business and
operations of Reorganized Home, see "THE CHAPTER 11 CASE--Business And
Operations Of Reorganized Home."
C. Projected Recoveries Under The Plan
THE PROJECTED RECOVERIES SET FORTH BELOW HAVE BEEN PREPARED BY HOULIHAN,
LOKEY, THE FINANCIAL ADVISORS TO THE SENIOR NOTEHOLDERS' COMMITTEE, AND ARE
PREDICATED UPON THE FINANCIAL PROJECTIONS OF REORGANIZED HOME SET FORTH IN
EXHIBIT B HERETO AND THE ASSUMPTIONS SUMMARIZED BELOW, INCLUDING THE ASSUMPTION
THAT REORGANIZED HOME WILL BE MERGED WITH AND INTO ZRNA. PROJECTED RECOVERIES
ARE AS OF AN ASSUMED EFFECTIVE DATE OF APRIL 15, 1998. TO THE EXTENT THAT ACTUAL
RESULTS VARY FROM THE PROJECTIONS OR THE ASSUMPTIONS, RECOVERIES WILL VARY FROM
THOSE SET FORTH BELOW. CREDITORS ARE ENCOURAGED TO READ THE ASSUMPTIONS SET
FORTH BELOW IN THEIR ENTIRETY TO FULLY UNDERSTAND THE MANNER IN WHICH THE
PROJECTED RECOVERIES WERE DETERMINED. HOULIHAN LOKEY HAS NOT PERFORMED AN
INDEPENDENT INVESTIGATION TO ASSESS THE REASONABLENESS OF THE FINANCIAL
PROJECTIONS AND MAKES NO REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE
REASONABLENESS OF THE FINANCIAL PROJECTIONS.
<PAGE>
vi
Projected Recoveries
The following projected recoveries are based on the assumptions set forth
below and subject to the qualification and limitations in this Disclosure
Statement.
Projected
Recovery Of
Class Or Subclass Allowed Claims
Class 1 Other Priority Claims100%
Class 2 Convenience Claims........................ 100%
Class 3 Secured Claims............................ 100%
Class 4 Unsecured Claims
Group 4-A General Unsecured Claims.................. 38.3%
Group 4-B Senior 7% Note Claims..................... 38.3%
Group 4-C Senior 7-7/8% Sinking Fund Note Claims.... 38.3%
Group 4-D Senior 7-7/8% Note Claims................. 38.3%
Group 4-E Home Insurance Claim...................... 38.3%
Class 5 Senior Working Capital Note Claims........ [* ]%
Class 6 Junior Note Claims........................ 44.2%**
Class 7 Senior Subordinated Note Claims........... 0%
Class 8 Equity Interests.......................... 0%
- --------
(1) The value of the New Common Stock is speculative and no specific value is
ascribed to the New Common Stock for purposes of computing a projected
recovery for Class 5. From a theoretical basis, the New Common Stock has a
positive value, based on principles similar to those applicable to option
pricing theory (e.g., the Black Scholes Formula). Because the factors to
determine such value are, for the most part, subject to a wide range of
possibilities, such value is deemed too speculative to be quantified
herein.
(2) The recovery ascribed to the holder of the Class 6 Claim is in connection
with, among other things, the holder's participation in the transactions
contained in "THE CHAPTER 11 CASE -- Events Leading To Or In Contemplation
Of The Chapter 11 Case -- The Proposed Restructuring And Third Party
Releases."
<PAGE>
vii
The following table is for illustrative purposes only and is intended to
show the distribution that a holder of an Allowed Senior Note Claim or an
Allowed General Unsecured Claim would receive pursuant to the Plan.
TABLE I
Estimated Recoveries Per Class 4-A, 4-B, 4-C, and 4-D Claims
<TABLE>
<CAPTION>
Number Principal
Groups Of Notes Outstanding Claim
- ------ -------- ----------- -----
<S> <C> <C> <C>
Group 4-B: Home Holdings 7% Senior Notes due 1998 100,000 $100,000,000 $104,545,859
Group 4-C: Home Holdings 7-7/8% Senior Sinking Fund Notes due 2003 179,483 $179,483,000 $188,568,871
Group 4-D: Home Holdings 7-7/8% Senior Notes due 2003 517 $517,000 $543,172
---------- --------------- ---------------
280,000 $280,000,000 $293,657,902
Group 4-A: General Unsecured Claims $11,857,704
---------------
- ---------------------------------------------------------------------------------------------------------------------------
Total Class 4 Claims Receiving Earn Out Notes Series I $305,515,606
- ---------------------------------------------------------------------------------------------------------------------------
New Notes
Recovery Per $1,000 of Allowed Claim (2) Principal
- ----------------------------------------
Claim Amount(5)
----- ---------
Group 4-A: General Unsecured Claims $1,000 $227.57
Group 4-B: Home Holdings 7% Senior Notes due 1998 $1,000 $227.57
Group 4-C: Home Holdings 7-7/8% Senior Sinking Fund Notes due 2003 $1,000 $227.57
Group 4-D: Home Holdings 7-7/8% Senior Notes due 2003 $1,000 $227.57
<CAPTION>
New Notes Number Of Number Estimated
Principal Membership Of EONS Value Of
Groups Amount(4) Units(1) Series I EONS I(3)
- ------ --------- -------- -------- ---------
<S> <C> <C> <C> <C>
Group 4-B: Home Holdings 7% Senior Notes due 1998 $23,791,697 104,546 104,546 $16,493,818
Group 4-C: Home Holdings 7-7/8% Senior Sinking Fund Notes due 2003 $42,912,971 188,569 188,569 $29,749,821
Group 4-D: Home Holdings 7-7/8% Senior Notes due 2003 $123,611 543 543 $85,694
-------------- ----------- ------------ --------------
$66,828,279 293,658 293,658 $46,329,333
Group 4-A: General Unsecured Claims $2,698,480 11,858 11,858 $1,870,747
-------------- ----------- ------------ --------------
- -------------------------------------------------------------------------------------------------------------------------------
Total Class 4 Claims Receiving Earn Out Notes Series I $69,526,759 305,516 305,516 $48,200,080
- -------------------------------------------------------------------------------------------------------------------------------
Number Of Estimated
Recovery Per $1,000 of Allowed Claim (2) Number Of Membership Value Of Value Of
- ----------------------------------------
Series 1 EONS Units(1) EONS Recovery (1)
------------- -------- ---- ------------
Group 4-A: General Unsecured Claims 1 1 $158 38.3%
Group 4-B: Home Holdings 7% Senior Notes due 1998 1 1 $158 38.3%
Group 4-C: Home Holdings 7-7/8% Senior Sinking Fund Notes due 2003 1 1 $158 38.3%
Group 4-D: Home Holdings 7-7/8% Senior Notes due 2003 1 1 $158 38.3%
</TABLE>
(1) Value of New Notes at 99% of principal amount, reflecting Zurich tender
offer. The value of the Membership Units, as set forth in the Disclosure
Statement, is speculative.
(2) This comparison reflects the distribution on account of a $1,000 Class
4-A, 4-B, 4-C, or 4-D Claim.
(3) Valuation of Earn Out Notes Series I is based on the Assumed Aggregate
Payments on Earn Out Notes Series I, as shown in Table II at the end of
the "Executive Summary," the discount rates as set forth in this
Disclosure Statement, and the timing of receipt of such distributions
(assumed to be in the October following the end of the relevant tax year)
and the other assumptions and qualifications set forth in the Disclosure
Statement.
(4) If the Effective Date is prior to April 15, 1998, the New Notes Principal
Amount will be less than the amount set forth herein, and if the Effective
Date is after April 15, 1998, the New Notes Principal Amount will be
greater than the amount set forth herein.
(5) If the Effective Date is prior to April 15, 1998, the New Notes Principal
Amount will be smaller than the amount set forth herein, and if the
Effective Date is after April 15, 1998, the New Notes Principal Amount
will be greater than the amount set forth herein.
<PAGE>
viii
Summary Of Principal Assumptions For Determination Of Projected Recoveries
o The projected recovery is based on the terms of the respective securities
to be received by each Class.
o The principal amount of New Notes issued to Groups 4-A, 4-B, 4-C, and 4-D
is based on a Commencement Date of January 15, 1998 and an Effective Date
of April 15, 1998. The value of the New Notes is assumed to be 99% of the
sum of the principal amount and all accrued and unpaid interest, based on
the tender offer to be commenced by the Zurich Note Entity. See "SUMMARY
OF THE PLAN OF REORGANIZATION--Means For Implementation Of The
Plan--Tender Offer."
o The valuation of the respective series of Earn Out Notes is based on the
following assumptions:
- Specified NOL Carryovers (as hereinafter defined) equal $600
million. For a discussion of issues relating to the Specified NOL
Carryovers, including possible limitations on their utilization, see
"CERTAIN FACTORS TO BE CONSIDERED--Risk Factors--Taxation" and
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN--Federal Income
Tax Consequences To The Debtor--Net Operating Loss Carryovers."
- In fiscal 1998 through fiscal 2000, Reorganized Home will generate
pretax income, available for utilization of the Specified NOL
Carryovers in an amount equal to the amounts set forth in the
Projections in Exhibit B (as adjusted for projected permanent and
temporary differences between financial and taxable income, as
determined by Zurich, to derive regular taxable income). The
projected pretax income of Reorganized Home, assuming it is merged
with and into ZRNA, is as follows:
Projected Assumed
Year Pretax Income Tax Savings
---- ------------- -----------
1998 $170.0 million $56.1 million
1999 $208.4 million $68.8 million
2000* $262.5 million $77.6 million
- Net operating loss carryforwards as computed for alternative minimum
income tax ("AMT") purposes ("AMT NOLs") are assumed to equal the
Specified NOL Carryovers.** Taxable income for AMT purposes ("AMT
Taxable Income") is assumed to equal regular taxable income. It is
also assumed for AMT purposes that the Specified NOL Carryovers may
offset no more than 90% of AMT Taxable Income.
- A Federal corporate tax rate of 35% and an AMT rate of 20% are
assumed. Current tax rates are assumed and no prediction of the
impact of changes in future tax rates is made or reflected herein.
- ----------
(1) Assumed Tax Savings for years after 2000 will not significantly affect the
valuation of the Earn Out Notes due to deferred payment of such savings,
together with high discount rates. Accordingly, Tax Savings from those
years have not been utilized to value the Earn Out Notes.
(2) Any theoretical differences between the computation of NOLs and AMT NOLs
are not significant for Reorganized Home. Based on its tax returns as
filed and estimates as of December 31, 1997, the Debtor's AMT NOLs are
estimated to be approximately $100 million less than its NOLs, each as of
December 31, 1997. That difference is almost entirely attributable to Home
Insurance and should not cause a significant difference between
Reorganized Home's NOLs and AMT NOLs. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES-Federal Income Tax Consequences To The Debtor-Net Operating
Loss Carryovers; Limitations And Alternative Minimum Tax."
<PAGE>
ix
- The amount of Tax Savings (as hereinafter defined) is equal to the
difference of (i) taxes due on the projected pretax income based on
the Federal corporate tax rate (without utilization of the Specified
NOL Carryovers) and (ii) taxes assumed to be paid (with utilization
of the Specified NOL Carryovers). Certain additional Tax Savings may
be derived from the use of NOLs to reduce state income taxes. No
assumption concerning such additional Tax Savings, if any, is made.
- A 5-year Treasury Note rate of 5.80%. Current interest rates are
assumed and no prediction of the impact of changes in future
interest rates is made or reflected herein.
- For purposes of determining the present discounted value of payments
made on the Earn Out Notes, the following discount rates were used
for payments received on the Earn Out Notes Series I and the Earn
Out Notes Series III in respect of Tax Savings of prior fiscal
years:
Payment Received On Earn Out
Notes In October Of: Discount Rate:
-------------------- --------------
1999 17.5%
2000 17.5%
2001 17.5%
2002 and after 22.5%
- The discount rate applied to payments on the Earn Out Notes Series
II is 22.5% for each year. A higher discount rate is utilized in
computing the present value of the assumed payments on the Earn Out
Notes Series II because the holders of the Earn Out Notes Series II
are subject to the added risk of repaying a portion of the prior
payments to the extent tax benefits are decreased due to a
subsequent reduction of the Specified NOL Carryovers.
o The value of the Membership Units, which represents the residual value in
Home Insurance whose insurance operations are being fully run-off and
subject to the Order of Supervision, is speculative and no specific
quantitative value is ascribed to the Membership Units for purposes
hereof.
D. Acceptances Of The Plan
All holders of Claims in unimpaired Classes are presumed under the
Bankruptcy Code to have voted to accept the Plan. All holders of Claims in
impaired Classes that will receive a distribution under the Plan are entitled to
vote on the Plan. A Class of Claims has accepted the Plan if votes to accept the
Plan are cast by the holders of at least two-thirds in dollar amount and more
than one-half in number of the Claims of such Class that actually vote on the
Plan. For additional information concerning voting, see "FEASIBILITY; BEST
INTEREST OF CREDITORS; CONFIRMATION OF THE PLAN--Acceptance Of The Plan." Class
7 Senior Subordinated Note Claims and Class 8 Equity Interests will receive no
benefit or distribution under the Plan and, therefore, are deemed to have
rejected the Plan and will not receive ballots for voting.
E. Confirmation Hearing
The Bankruptcy Court has scheduled the Confirmation Hearing for April 3,
1998 at 9:30 a.m. Eastern Standard Time, before the Honorable Jeffry H. Gallet,
United States Bankruptcy Judge, Alexander Hamilton Custom House, One Bowling
Green, New York, New York 10004. The Bankruptcy Court has directed that
objections, if any, to confirmation of the Plan be served and filed on or before
March 27, 1998 at 5:00 p.m. Eastern Standard Time. The Confirmation Hearing may
be adjourned from time to time by the Bankruptcy Court without further notice
except for the announcement of the adjournment date made at the Confirmation
Hearing or at any subsequent adjourned Confirmation Hearing. The Plan may be
modified pursuant to section 1127 of the Bankruptcy Code prior to, during, or as
a result of that hearing, without further notice. At the Confirmation Hearing,
the Bankruptcy Court will determine whether the requirements for confirmation of
the Plan under section 1129 of the Bankruptcy Code have been satisfied and, if
appropriate, enter an order confirming the Plan. For a more detailed description
of the confirmation requirements, see "FEASIBILITY; BEST INTEREST OF CREDITORS;
CONFIRMATION OF THE PLAN." Effectiveness of the Plan is subject
<PAGE>
x
to certain conditions precedent. See "FEASIBILITY; BEST INTEREST OF CREDITORS;
CONFIRMATION OF THE PLAN--Effectiveness Of The Plan--Conditions Precedent To
Effectiveness."
The following table is for illustrative purposes only and is intended to
show the distributions that holders of Earn Out Notes would receive under the
assumptions described in the Executive Summary.
Table II
Summary Of Distributions On Earn Out Notes (EONs)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Oct. Oct. Oct. Oct. Oct. Oct. Oct.
Payment Made: 1999 2000 2001 2002 2003 2004 2005
------------------------------------------------------------------------
Tax Year: 1 (1998) 2 (1999) 3 (2000) 4 (2001) 5 (2002) 6 (2003) 7(2004)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assumed Beginning NOL Carryforward $600,000 $429,986 $221,616 0 - - -
Assumed Taxable Income (1) $170,014 $208,370 $262,530 $314,333 - - -
Assumed NOL Utilized $170,014 $208,370 $221,616 0 - - -
Assumed Ending NOL $429,986 $221,616 0 0 - - -
Estimated Income Shielded By NOL $153,013 $187,533 $221,616 - - -
Estimated Unshielded/Alternative Minimum Income (2) $ 17,001 $ 20,837 $ 40,914 $314,333 - - -
--------- --------- --------- -------
Total Income $170,014 $208,370 $262,530 $314,333 - - -
Assumed Tax Rate On Unshielded/Alternative Minimum 20.0% 20.0% 35.0% 35.0% - - -
Income
Taxes Assumed Paid $ 3,400 $ 4,167 $14,320 $110,017 - - -
Taxes Assumed Due Without NOL (35% rate) $59,505 $72,930 $91,886 $110,017 - - -
Estimated Tax Savings $56,105 $68,762 $77,566 0 - - -
Allocation Of Tax Savings
Series I $29,185 $35,769 $40,349 0 - - -
Series II $11,501 $13,904 $ 2,897 0 - - -
Series III $ 3,868 $ 4,741 $ 5,348 0 - - -
Residual Tax Savings (Home Holdings) $11,550 $14,348 $28,972 0 - - -
------- ------- ------- -
$56,105 $68,762 $77,566 0 - - -
Percentage Allocation Of Tax Savings
Series 1 52.02% 52.02% 52.02%
Series 2 20.50% 20.22% 3.74%
Series 3 6.89% 6.89% 6.89%
Residual Tax Savings (Home Holdings) 20.59% 20.87% 37.35%
------ ------ ------
100.00% 100.00% 100.00%
Assumed Aggregate Payments On EONs(3)
Series I $10,215 $ 7,926 $ 8,070 $22,690 $33,303 $38,608 -
Series II $11,501 $13,904 $ 2,897 0 0 0 -
Series III 0 0 0 $ 4,627 $ 5,671 $ 6,397 -
<CAPTION>
Oct. Oct. Oct. Oct. Oct.
Payment Made: 2006 2007 2008 2009 2010
-----------------------------------------------------
Tax Year: 8 (2005) 9 (2006) 10 (2007) 11 (2008) 12 (2009)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assumed Beginning NOL Carryforward - - - - -
Assumed Taxable Income (1) - - - - -
Assumed NOL Utilized - - - - -
Assumed Ending NOL - - - - -
Estimated Income Shielded By NOL - - - - -
Estimated Unshielded/Alternative Minimum Income (2) - - - - -
Total Income - - - - -
Assumed Tax Rate On Unshielded/Alternative Minimum - - - - -
Income
Taxes Assumed Paid - - - - -
Taxes Assumed Due Without NOL (35% rate) - - - - -
Estimated Tax Savings - - - - -
Allocation Of Tax Savings
Series I - - - - -
Series II - - - - -
Series III - - - - -
Residual Tax Savings (Home Holdings) - - - - -
- - - - -
Percentage Allocation Of Tax Savings
Series 1
Series 2
Series 3
Residual Tax Savings (Home Holdings)
Assumed Aggregate Payments On EONs(3)
Series I - - - - -
Series II - - - - -
Series III - - - - -
</TABLE>
(1) Assumed Taxable Income differs slightly from the Projections set forth in
Exhibit B due to adjustments by Zurich to account for temporary and
permanent differences between book and taxable income.
(2) NOLs are assumed not to shield more than 90% of taxable income.
(3) The Assumed Aggregate Payments on EONs are based on the assumptions, and
subject to the qualifications, set forth in this Disclosure Statement.
<PAGE>
AMENDED DISCLOSURE STATEMENT WITH RESPECT TO
AMENDED PLAN OF REORGANIZATION OF HOME HOLDINGS INC.
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
I. INTRODUCTION
Home Holdings Inc. ("Home Holdings" or the "Debtor") submits this
disclosure statement (the "Disclosure Statement") pursuant to section 1125 of
title 11 of the United States Code, 11 U.S.C. ss.ss. 101-1330 (as amended, the
"Bankruptcy Code"), for use in the solicitation of votes on the Plan of
Reorganization of Home Holdings Inc., dated as of January 15, 1998 (as it may be
amended, modified, or supplemented from time to time, the "Plan," a copy of
which is annexed hereto as Exhibit A), filed with the United States Bankruptcy
Court for the Southern District of New York (the "Bankruptcy Court") on January
15, 1998.
This Disclosure Statement sets forth certain information regarding the
Debtor's pre-bankruptcy history and the anticipated organization and operations
of Reorganized Home. This Disclosure Statement also describes the Plan, certain
alternatives to the Plan, certain effects of confirmation of the Plan, certain
risk factors associated with the Plan and the securities to be issued to certain
creditors under the Plan, and the manner in which distributions will be made
under the Plan. In addition, this Disclosure Statement discusses the
confirmation process and the voting procedures that holders of Claims in
impaired Classes that are entitled to vote to accept or reject the Plan must
follow for their votes to be counted.
FOR A DESCRIPTION OF THE PLAN AND VARIOUS RISK AND OTHER FACTORS
PERTAINING TO THE PLAN AS IT RELATES TO HOLDERS OF CLAIMS AGAINST THE DEBTOR,
PLEASE SEE "SUMMARY OF THE PLAN OF REORGANIZATION" AND "CERTAIN FACTORS TO BE
CONSIDERED."
THIS DISCLOSURE STATEMENT CONTAINS SUMMARIES OF CERTAIN PROVISIONS OF THE
PLAN, CERTAIN STATUTORY PROVISIONS, CERTAIN DOCUMENTS RELATED TO THE PLAN,
CERTAIN ANTICIPATED EVENTS IN THE DEBTOR'S CHAPTER 11 CASE, AND CERTAIN
FINANCIAL INFORMATION. ALTHOUGH THE DEBTOR BELIEVES THAT THE PLAN AND RELATED
DOCUMENT SUMMARIES ARE FAIR AND ACCURATE, SUCH SUMMARIES ARE QUALIFIED TO THE
EXTENT THAT THEY DO NOT SET FORTH THE ENTIRE TEXT OF SUCH DOCUMENTS OR STATUTORY
PROVISIONS. THE FACTUAL INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT,
INCLUDING THE DESCRIPTION OF THE DEBTOR, ITS BUSINESS, AND EVENTS LEADING TO THE
COMMENCEMENT OF THE CHAPTER 11 CASE, HAS BEEN OBTAINED FROM VARIOUS DOCUMENTS,
AGREEMENTS, AND OTHER WRITINGS RELATING TO THE DEBTOR AND FROM DISCUSSIONS WITH,
AND VARIOUS WRITINGS PREPARED BY, RISK ENTERPRISE MANAGEMENT LIMITED, ZURICH
INSURANCE COMPANY (OR AN AFFILIATE THEREOF), TRYGG-HANSA AB, AND AN AD HOC
COMMITTEE OF CERTAIN NOTEHOLDERS FORMED PRIOR TO THE CHAPTER 11 CASE, AND THEIR
RESPECTIVE COUNSEL AND FINANCIAL ADVISORS. THE DESCRIPTIONS SET FORTH HEREIN OF
THE ACTIONS, CONCLUSIONS, OR RECOMMENDATIONS OF THE DEBTOR OR ANY OTHER PARTY IN
INTEREST HAVE BEEN SUBMITTED TO OR APPROVED BY SUCH PARTY, BUT NEITHER THE
DEBTOR NOR ANY SUCH PARTY MAKES ANY REPRESENTATION OR WARRANTY REGARDING SUCH
DESCRIPTIONS.
THIS DISCLOSURE STATEMENT SHALL NOT BE ADMISSIBLE IN ANY NONBANKRUPTCY
PROCEEDING INVOLVING THE DEBTOR OR ANY OTHER PARTY IN INTEREST, NOR SHALL
ANYTHING CONTAINED HEREIN CONSTITUTE AN ADMISSION OF FACT OR LIABILITY BY THE
DEBTOR OR ANY OTHER PARTY, OR BE CONSTRUED TO BE CONCLUSIVE ADVICE ON THE TAX,
SECURITIES, FINANCIAL, OR OTHER LEGAL EFFECTS OF THE REORGANIZATION AS TO
HOLDERS OF CLAIMS AGAINST OR EQUITY INTERESTS IN THE DEBTOR. THE DEBTOR AND ANY
OTHER PARTY IN INTEREST THAT SUBMITTED DESCRIPTIONS SET FORTH HEREIN OF ACTIONS,
CONCLUSIONS, OR RECOMMENDATIONS ARE UNABLE TO WARRANT OR REPRESENT THAT THE
INFORMATION CONTAINED HEREIN, INCLUDING THE FINANCIAL INFORMATION, IS WITHOUT
ANY INACCURACY OR OMISSION. YOU SHOULD CONSULT YOUR PERSONAL COUNSEL, OR
FINANCIAL OR TAX ADVISOR ON ANY QUESTIONS OR CONCERNS WITH RESPECT TO TAX,
SECURITIES, OR OTHER LEGAL CONSEQUENCES OF THE PLAN.
<PAGE>
2
A. Definitions
Unless otherwise defined, capitalized terms used in this Disclosure
Statement shall have the meanings ascribed to them in the Plan.
B. Notice To Holders Of Claims
This Disclosure Statement is being transmitted to (a) holders of impaired
Claims against the Debtor that are entitled to vote to accept or reject the
Plan, (b) holders of unimpaired Claims against the Debtor that are conclusively
presumed to have accepted the Plan and hence are not entitled to vote thereon,
and (c) holders of impaired Claims against and Equity Interests in the Debtor
that will receive or retain no distribution or property under the Plan and,
therefore, are presumed to have rejected the Plan and hence are not entitled to
vote thereon. The primary purpose of this Disclosure Statement is to provide the
holders of Claims against the Debtor that are entitled to vote on the Plan with
adequate information to make a reasonably informed decision with respect to the
Plan prior to exercising their right to vote to accept or to reject the Plan.
On March 4, 1998, the Bankruptcy Court approved this Disclosure Statement
as containing information of a kind and in sufficient detail adequate to enable
the holders of Claims against the Debtor that are entitled to vote to make an
informed judgment with respect to acceptance or rejection of the Plan. THE
BANKRUPTCY COURT'S APPROVAL OF THIS DISCLOSURE STATEMENT DOES NOT CONSTITUTE
EITHER A GUARANTY OF THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED
HEREIN, OR AN ENDORSEMENT OF THE PLAN, BY THE BANKRUPTCY COURT.
WHEN CONFIRMED BY THE BANKRUPTCY COURT, THE PLAN WILL BIND ALL HOLDERS OF
CLAIMS AGAINST AND EQUITY INTERESTS IN THE DEBTOR, WHETHER OR NOT THEY ARE
ENTITLED TO VOTE OR DID VOTE ON THE PLAN AND WHETHER OR NOT THEY RECEIVE OR
RETAIN ANY DISTRIBUTIONS OR PROPERTY UNDER THE PLAN. THUS, YOU ARE ENCOURAGED TO
READ THIS DISCLOSURE STATEMENT CAREFULLY. IN PARTICULAR, ALL HOLDERS OF CLAIMS
AGAINST THE DEBTOR THAT ARE ENTITLED TO VOTE ON THE PLAN ARE ENCOURAGED TO READ
THIS DISCLOSURE STATEMENT AND ITS EXHIBITS CAREFULLY AND IN THEIR ENTIRETY
BEFORE DECIDING TO VOTE EITHER TO ACCEPT OR TO REJECT THE PLAN. This Disclosure
Statement contains important information about the Plan, considerations
pertinent to acceptance or rejection of the Plan, and developments concerning
the Chapter 11 Case.
THIS DISCLOSURE STATEMENT AND RECOMMENDATION LETTERS OF THE SENIOR
NOTEHOLDERS' COMMITTEE (AS HEREINAFTER DEFINED) AND THE OFFICIAL COMMITTEE OF
UNSECURED CREDITORS (THE "CREDITORS' COMMITTEE") ARE THE ONLY DOCUMENTS
AUTHORIZED BY THE BANKRUPTCY COURT TO BE USED IN CONNECTION WITH THE
SOLICITATION OF VOTES ON THE PLAN. No solicitation of votes may be made except
after distribution of this Disclosure Statement, and no person has been
authorized to distribute any information concerning the Debtor other than the
information contained herein.
CERTAIN INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT IS BY ITS
NATURE FORWARD-LOOKING AND CONTAINS ESTIMATES, ASSUMPTIONS, AND PROJECTIONS THAT
MAY BE MATERIALLY DIFFERENT FROM ACTUAL, FUTURE RESULTS.
Except with respect to the projections set forth in Exhibit B hereto (the
"Projections"), which have been prepared by Zurich Insurance Company or an
affiliate thereof ("Zurich"), and except as otherwise specifically and expressly
stated herein, this Disclosure Statement does not reflect any events that may
occur or may have occurred subsequent to the date hereof. These events may have
a material impact on the information contained in this Disclosure Statement. The
Debtor, Reorganized Home, and Zurich do not intend to update the Projections.
Nor shall Houlihan Lokey update the estimated creditor recoveries reflected
herein. Thus, the Projections and estimated creditor recoveries will not reflect
the impact of any subsequent events not already accounted for in the assumptions
underlying the Projections or underlying the estimated creditor recoveries.
Further, the Debtor does not anticipate that any amendments or supplements to
this Disclosure Statement will be distributed to reflect such occurrences.
Accordingly, the delivery of this Disclosure Statement
<PAGE>
3
shall not under any circumstances imply that the information herein is correct
or complete as of any time subsequent to the date hereof.
EXCEPT WHERE SPECIFICALLY NOTED, THE FINANCIAL INFORMATION CONTAINED
HEREIN HAS NOT BEEN PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES, AND HAS NOT BEEN AUDITED BY A CERTIFIED PUBLIC ACCOUNTANT.
C. Solicitation Package
Accompanying this Disclosure Statement are copies of (i) the Plan; (ii)
the exhibits to the Plan and Disclosure Statement; (iii) the notice of, among
other things, the time for submitting Ballots to accept or reject the Plan, the
date, time, and place of the hearing to consider confirmation of the Plan and
related matters, and the time for filing objections to confirmation of the Plan
(the "Confirmation Hearing Notice"); and, if applicable, (iv) a Ballot (and
return envelope) to be used in voting to accept or to reject the Plan. If you
did not receive a Ballot in your package and believe that you should have,
please contact the Information Agent at the address or telephone number set
forth in the next subsection.
D. Voting Procedures, Ballots, And Voting Deadline
After carefully reviewing the Plan, this Disclosure Statement, and the
instructions accompanying your Ballot, please indicate your acceptance or
rejection of the Plan by voting in favor of or against the Plan by checking the
appropriate box on the enclosed Ballot. Please complete and sign your original
Ballot (copies will not be accepted) and return it in the envelope provided so
that it is RECEIVED no later than the Voting Deadline (as defined below). Please
note that if you hold the debt securities evidencing your Claim through a broker
or other financial intermediary, you may have to return your ballot to such
broker or financial intermediary sufficiently in advance of the Voting Deadline
so as to permit such broker or financial intermediary to fill out and return a
master ballot by the Voting Deadline. HOLDERS OF SECURITIES SHOULD REFER TO
"VOTING REQUIREMENTS--SPECIAL NOTE FOR HOLDERS OF SECURITIES" FOR FURTHER
INFORMATION REGARDING VOTING PROCEDURES.
Each Ballot has been coded to reflect the Class of Claims it represents.
Accordingly, in voting to accept or reject the Plan, you must use only the coded
Ballot or Ballots sent to you with this Disclosure Statement.
FOR YOUR VOTE TO BE COUNTED, YOUR BALLOT MUST BE PROPERLY COMPLETED AS SET
FORTH ABOVE AND IN ACCORDANCE WITH THE VOTING INSTRUCTIONS ON THE BALLOT AND
RECEIVED NO LATER THAN MARCH 27, 1998 AT 5:00 P.M. EASTERN STANDARD TIME (THE
"VOTING DEADLINE") BY MACKENZIE PARTNERS, INC. AT 156 FIFTH AVENUE, NEW YORK,
NEW YORK 10010 (THE "INFORMATION AGENT"). DO NOT RETURN TO THE DEBTOR OR ANY OF
ITS ADVISORS DEBT INSTRUMENTS WITH YOUR BALLOT.
If you (i) have any questions about the procedure for voting your Claim or
with respect to the packet of materials that you have received or (ii) wish to
obtain, at your own expense, an additional copy of the Plan, this Disclosure
Statement, or any exhibits to such documents, please contact:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
Att'n: Edith A. Lohman
Tel: (212) 929-5500
Tel: (800) 322-2885
<PAGE>
4
If you have any questions about the amount of your Claim, please contact:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
Att'n: Edith A. Lohman
Tel: (212) 929-5500
Telephone: (800) 322-2885
FOR FURTHER INFORMATION AND INSTRUCTIONS ON VOTING TO ACCEPT OR REJECT THE PLAN,
SEE "VOTING REQUIREMENTS" AND "SPECIAL NOTE FOR HOLDERS OF SECURITIES" IN
SECTION XI.
E. Confirmation Hearing And Deadline For Objections To Confirmation And
Adequacy Of Disclosure Statement
Pursuant to section 1128 of the Bankruptcy Code and Fed. R. Bankr. P.
3017(c), the Bankruptcy Court has scheduled the Confirmation Hearing for April
3, 1998 at 9:30 a.m. Eastern Standard Time, before the Honorable Jeffry H.
Gallet, United States Bankruptcy Judge, Alexander Hamilton Custom House, One
Bowling Green, New York, New York 10004. The Bankruptcy Court has directed that
objections, if any, to confirmation of the Plan be filed with the Clerk of the
Bankruptcy Court and served so that they are RECEIVED on or before March 27,
1998 at 5:00 p.m. Eastern Standard Time by:
Counsel To The Debtor
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022-3897
Att'n: Kayalyn A. Marafioti, Esq.
United States Trustee
The Office of the United States Trustee
Southern District for New York
80 Broad Street
New York, New York 10004
Att'n: Paul K. Schwartzberg, Esq.
Counsel For The Official Committee Of Unsecured Creditors
Anderson, Kill & Olick
1251 Avenue of the Americas
New York, New York 10020-1182
Att'n: Anthony Princi, Esq.
Counsel For Zurich Centre ReSource Limited
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Att'n: Alan W. Kornberg, Esq.
<PAGE>
5
Counsel For Trygg-Hansa AB
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3909
Att'n: Lillian Kraemer, Esq.
The Confirmation Hearing may be adjourned from time to time by the Bankruptcy
Court without further notice except for the announcement of the adjournment date
made at the Confirmation Hearing or at any subsequent adjourned Confirmation
Hearing.
THE PLAN HAS THE SUPPORT OF (i) THE CREDITORS' COMMITTEE, (ii) THE
PREPETITION SENIOR NOTEHOLDERS' COMMITTEE, WHOSE MEMBERS HELD IN THE AGGREGATE
APPROXIMATELY 71.8% OF THE OUTSTANDING PRINCIPAL AMOUNT OF THE SENIOR NOTES IN
CLASS 4,(1) (iii) THE HOLDERS OF SENIOR WORKING CAPITAL NOTES IN CLASS 5, (iv)
THE HOLDERS OF JUNIOR NOTES IN CLASS 6, AND (v) THE DEBTOR. IN THE VIEW OF THE
DEBTOR, THE TREATMENT OF HOLDERS OF CLAIMS IN THE IMPAIRED CLASSES ELIGIBLE TO
VOTE CONTEMPLATES A GREATER POTENTIAL RECOVERY FOR SUCH HOLDERS THAN WOULD BE
AVAILABLE IN A CHAPTER 7 LIQUIDATION. IN ADDITION, IF THE PLAN IS NOT APPROVED,
IT WILL FURTHER DELAY RESOLUTION OF THE DEBTOR'S CHAPTER 11 CASE AND COULD
RESULT IN A REORGANIZATION OR LIQUIDATION OF THE DEBTOR ON TERMS LESS FAVORABLE
THAN THOSE PROPOSED IN THE PLAN. IN SUCH AN EVENT, THE DEBTOR BELIEVES THAT THE
RECOVERY TO THE HOLDERS OF SENIOR NOTES, IF ANY, WILL LIKELY BE LESS THAN THAT
PROPOSED IN THE PLAN. ACCORDINGLY, THE DEBTOR BELIEVES THAT THE PLAN IS IN THE
BEST INTERESTS OF HOLDERS OF CLAIMS IN SUCH CLASSES AND, THUS, RECOMMENDS THAT
ALL HOLDERS OF CLAIMS IN THE IMPAIRED CLASSES ENTITLED TO DO SO VOTE TO ACCEPT
THE PLAN.
II. THE DEBTOR AND BACKGROUND OF THE CHAPTER 11 CASE
A. Description Of The Debtor's Business
Home Holdings, a Delaware corporation, is a holding company for its wholly
owned insurance subsidiary, The Home Insurance Company, a New Hampshire
corporation ("Home Insurance"), and its other subsidiaries. Prior to June 12,
1995, Home Insurance concentrated on large, complex commercial and specialty
risks. These specialty risks included lawyers' liability, directors' and
officers' liability, and other specialized property and liability coverage for
individuals, professionals, and businesses. Pursuant to a Consent Order, dated
June 12, 1995 (the "Consent Order"), issued by the New Hampshire Insurance
Department (the "Department"), Home Insurance generally ceased writing new or
renewal insurance on June 12, 1995, the date of the closing of the
Recapitalization Agreement described below. For information concerning the
Recapitalization Agreement, see "THE DEBTOR AND BACKGROUND OF THE CHAPTER 11
CASE--The Recapitalization Agreement And Related Agreements." Additionally, on
March 3, 1997, the Department issued an Order of Supervision (the "Order of
Supervision") placing Home Insurance under formal supervision of the Department.
For information concerning the Order of Supervision, see "THE DEBTOR AND
BACKGROUND OF THE CHAPTER 11 CASE--Order Of Supervision And Other Regulatory
Action." On March 7, 1997, A.M. Best downgraded the rating of Home Insurance to
E (under state supervision). A.M. Best ratings represent an independent opinion
of an insurance company's financial strength and ability to meet its obligations
to policyholders.
In addition, the Debtor through Home Insurance and Sterling Forest
Management LLC, a limited liability company wholly owned by the Debtor
("Sterling Management"), owns Sterling Forest LLC ("Sterling
- --------
(1) See "THE CHAPTER 11 CASE -- Events Leading To Or In Contemplation Of The
Chapter 11 Case-- Formation Of And Negotiations With Committee Of Senior
Noteholders" for a discussion concerning the Senior Noteholders'
Committee.
<PAGE>
6
Forest"), a limited liability company primarily engaged in property development.
Prior to the sale described below, Home Insurance and Sterling Forest owned the
largest privately held undeveloped area of land in the greater New York
metropolitan area, consisting of approximately 17,500 acres (the "Sterling
Forest Lands"). An agreement was entered into, on February 18, 1997, to sell a
substantial portion of the Sterling Forest Lands and consummated during February
1998. For information concerning Sterling Forest, see "THE DEBTOR AND BACKGROUND
OF THE CHAPTER 11 CASE--Other Businesses--Land Development Operations."(2)
The Debtor through Home Insurance currently owns 40% of the membership
interests in Gruntal Financial, LLC ("Gruntal"), a securities brokerage
business.(3) Gruntal, through its broker-dealer subsidiaries, Gruntal & Co., LLC
("Gruntal & Co.") and The GMS Group LLC ("GMS"), had approximately 2,000
full-time employees as of December 31, 1996, including approximately 854 account
executives located in its 29 offices throughout the United States. For
information concerning the Gruntal reorganization, see "THE DEBTOR AND
BACKGROUND OF THE CHAPTER 11 CASE--Other Businesses--Securities Brokerage
Operations."(4)
The Debtor's executive office is located at 59 Maiden Lane, New York, New
York 10038-4548.
The Debtor currently has no employees.
B. Order Of Supervision And Other Regulatory Action
On March 3, 1997, Home Insurance was placed under formal supervision by
the Department. The Department states in the Order of Supervision that this
action was taken in response to Home Insurance's Risk-Based Capital ("RBC")
report filed with the Department which indicated that a mandatory control level
event had occurred within the meaning of New Hampshire Revised Statutes
Annotated 404-F:6 (a "Mandatory Control Level Event"). For information
concerning the Mandatory Control Level Event, see "THE DEBTOR AND BACKGROUND OF
THE CHAPTER 11 CASE--Insurance Operations--Risk-Based Capital." Pursuant to the
Order of Supervision, the Department oversees and supervises Home Insurance for
the purpose of continuing and intensifying an economic, actuarial, and
accounting review of the books, records, and business affairs of Home Insurance
so as to determine what future actions may be appropriate. The Order of
Supervision also provides that Home Insurance may not take certain actions
without the prior approval of the Department, including, among other things:
(a) make any single claim payment in excess of $1 million except under
conditions specified therein;
(b) make any payment to creditors or other persons in excess of
$500,000, except under certain conditions specified therein;
(c) make any single payment to cedents or reinsurers (a) in excess of
$250,000 or (b) out of the ordinary course of business, or any
commutation of any amount with any cedents or reinsurers;
(d) release any obligation or collateral in excess of $500,000;
(e) materially change the terms of any contracts or enter into any new
contracts in excess of $500,000; and
- --------
(2) This paragraph was prepared in conjunction with counsel for the Zurich
Group.
(3) On or about December 30, 1997, Home Financial Corp., the Debtor's former
holding company of its interests in Gruntal, merged into Home Insurance.
(4) In addition, the Debtor also directly owns 100% of the equity of three
other subsidiaries. Maiden Lane Realty, Inc. is a licensed New York real
estate brokerage which handles occasional real estate transactions for the
Debtor and its subsidiaries. The other two subsidiaries, which are
currently dormant, are Home Group Funding Corporation, a special purpose
financial services firm, and Home Group Financial Services, Inc., a
financial services firm which engaged in the sale and leaseback of cars
and furniture.
<PAGE>
7
(f) engage in any transactions with the Debtor, Risk Enterprise
Management Limited ("REM"), the Debtor's majority stockholders, or
any subsidiaries, other affiliates, or agents of such entities.
In addition, without limiting the general authority of the Department as
set forth above, the Department under the Order of Supervision has the final
authority to approve, disapprove, or control (including the power to direct) the
following:
(i) the initiation, settlement, or withdrawal of any action, dispute,
arbitration, litigation, or proceeding of any kind involving Home
Insurance other than in the ordinary course of business; and
(ii) the location and material terms of all banking, investment, trust,
deposit, and custodial accounts for assets of Home Insurance,
including but not limited to reserves.
At the time of the Recapitalization (as defined below) in 1995, the
Department restricted the licenses of Home Insurance to prohibit the writing of
any new or renewal business, except for limited risks that Home Insurance was
obligated to continue writing for an interim period until Home Insurance could
complete the orderly transition to full run-off of operations. Also, in
connection with the closing of the Recapitalization described below, the
Department appointed a representative to act as an on-site monitor for the Home
Insurance's operations, with certain rights of access and cooperation from the
Debtor and REM. The Department also notified the Debtor that, after the
Recapitalization, Home Insurance could not pay any dividends to the Debtor
without prior approval of the Department. In addition to New Hampshire (the
primary domiciliary state of Home Insurance), several states issued orders
restricting, suspending, or revoking Home Insurance's licenses or authority to
write business.
C. The Recapitalization Agreement And Related Agreements
The Debtor entered into a recapitalization agreement (as amended, the
"Recapitalization Agreement" or the "Recapitalization"), dated as of February 9,
1995, with Trygg-Hansa AB, a corporation organized under the laws of Sweden
("Trygg-Hansa"), Zurich Insurance Company, a corporation organized under the
laws of Switzerland ("Zurich"), Zurich Centre Investments Limited, a corporation
organized under the laws of Bermuda ("ZCI"), Insurance Partners Advisors, L.P.,
a Delaware limited partnership ("IP"), and ZCI Investments Limited (now known as
Zurich Home Investments Limited), a corporation organized under the laws of
Bermuda ("ZHI") (Zurich, ZCI, IP and ZHI are collectively referred to herein as
the "Investor Group"). Closing under the Recapitalization Agreement took place
on June 12, 1995.
As noted above, Home Insurance has generally ceased writing new or renewal
insurance or reinsurance business, except for limited risks that it is obligated
to continue writing for an interim period. Since the closing of the
Recapitalization, the business and assets of the Debtor and its subsidiaries
have received management services provided by an affiliate of Zurich, as further
described below. For further information concerning the management of Home
Holdings, see "MANAGEMENT AND OWNERSHIP OF THE DEBTOR--Management Of The Debtor"
and "THE CHAPTER 11 CASE--Description Of Significant Events During The Pendency
Of The Chapter 11 Case -- Administrative Services Arrangement."
As a result of the transactions consummated under the Recapitalization
Agreement, Trygg-Hansa (including its affiliates) and the Investor Group owned
virtually the entire equity interest in the Debtor. Since the closing of the
Recapitalization, certain members of the Investor Group transferred their
respective equity interests to affiliates. In addition, on November 15, 1997, an
affiliate of Trygg-Hansa established the Home Holdings Inc. Stock Trust and, on
November 20, 1997, transferred all of its equity interests in Home Holdings to
such trust for the benefit of the shareholders of Trygg-Hansa AB as of the date
of such transfer. For a more detailed discussion concerning the ownership of the
Debtor, see "MANAGEMENT AND OWNERSHIP OF THE DEBTOR--Ownership Of The Debtor."
The primary transactions constituting the Recapitalization were as
follows:
o The Debtor issued to Trygg-Hansa (a) $98 million aggregate principal
amount of the Debtor's 12% Senior Subordinated Notes due December
31, 2004 (the "12% Senior Subordinated Notes") and (b) $80 million
aggregate principal amount of the Debtor's 8% Junior
<PAGE>
8
Subordinated Notes due December 31, 2004 (the "Junior Notes"), in
exchange for all notes and other obligations of the Debtor
outstanding under the Credit Agreement, dated as of November 20,
1991, as amended (the "Credit Agreement"), by and between the Debtor
and Trygg-Hansa and in exchange for the aggregate principal amount
of the notes and all other obligations of the Debtor outstanding
under the Interest Deferral Agreement, dated as of February 9, 1995
(the "Interest Deferral Agreement"), by and between the Debtor and
Trygg-Hansa, representing interest deferred on the Credit Agreement
Notes from February 9, 1995 to June 12, 1995. See "THE DEBTOR AND
BACKGROUND OF THE CHAPTER 11 CASE--Principal Liabilities Of The
Debtor--Debtor's Debt For Borrowed Money" for a more detailed
description of the refinancing.
o ZHI purchased, at a purchase price equal to the aggregate
liquidation preference of $98 million, 170 shares of the Debtor's
Series A Preferred Stock, par value $.01 per share (the "Preferred
Stock"), to fund the Equity Repurchase Transaction (as defined
below) and to pay non-capitalized expenses associated with the
Recapitalization.
o Trygg-Hansa sold to ZHI (a) 800,000 shares of the Debtor's Series A
Common Stock and 333,333 shares of the Series B Common Stock for a
purchase price of $7.50 per share and (b) 8-year warrants, for an
aggregate purchase price of $124,000; Trygg-Hansa sold to Zurich
Home Investments Limited, an affiliate of Zurich, $98 million
principal amount of 12% Senior Subordinated Notes of the Debtor held
by Trygg-Hansa and $12 million principal amount of Junior Notes of
the Debtor held by Trygg-Hansa for $1 million in cash plus the right
to receive a contingent payment; and Trygg-Hansa exchanged with ZHI
$35 million principal amount of Junior Notes for 6/17ths (i.e., 60
shares) of the number of shares of Preferred Stock.
o The Debtor consummated a repurchase transaction (the "Equity
Repurchase Transaction") pursuant to which participating holders of
the Series A Common Stock (other than Centre Reinsurance (Bermuda)
Limited ("Centre Re (Bermuda)"), Centre Reinsurance Limited,
International Insurance Investors, L.P. and Trygg-Hansa) received
$10.00 (net) per share of Series A Common Stock in cash plus a
payment of $.20 per share in settlement of certain litigation
related to the Recapitalization.
o To fund additional cash requirements incurred in connection with the
Equity Repurchase Transaction, the Recapitalization and other
extraordinary needs, Centre Finance and ZCI purchased, in 1995, $15
million principal amount of the Debtor's 12% Senior Subordinated
Working Capital Notes due December 31, 2004 (the "12% Senior
Subordinated Working Capital Notes") and $12 million principal
amount of the Debtor's 7% Series A Senior Working Capital Notes,
pursuant to the Amended and Restated Standby Working Capital Credit
Agreement, dated as of April 26, 1995, by and between the Debtor and
ZHI. In February 1996, the Debtor, ZHI and Trygg-Hansa agreed that
the Debtor may issue, and ZHI may purchase, additional 7% Series A
Senior Working Capital Notes having an aggregate principal amount of
$4 million, and the Debtor issued $3.8 million of these additional
notes during 1996.
o ZCI issued a commitment to extend a line of credit of up to $30
million to Sterling Forest to finance Sterling Forest's activities.
Sterling Forest borrowed $20.6 million as of January 14, 1998,
bearing interest at a rate of 10% per annum. For further discussion
concerning Sterling Forest, see "THE DEBTOR AND BACKGROUND OF THE
CHAPTER 11 CASE--Other Businesses--Land Development Operations."
o As of April 7, 1995, ZHI, ZCI, and certain of the holders of the
Debtor's 7% Senior Notes due 1998 (the "7% Senior Notes") and 7-7/8%
Senior Notes due 2003 (the "7-7/8% Senior Notes") entered into an
agreement (the "Bondholder Agreement") pursuant to which each such
bondholder delivered to the trustee under the Indentures governing
the 7% Senior Notes and the 7-7/8% Senior Notes on April 18, 1995, a
Waiver, Consent and Release consenting to waivers and amendments to
the Indentures necessary to consummate the Recapitalization. Also
pursuant to the Bondholder Agreement, on August 25, 1995, the Debtor
completed an exchange offer in which approximately $179 million
principal value of the 7-7/8% Senior
<PAGE>
9
Notes were exchanged for the Debtor's 7-7/8% Senior Sinking Fund
Notes due December 15, 2003 (the "7-7/8% Senior Sinking Fund Notes")
which provide for a sinking fund payment (to be applied to the
mandatory retirement of the 7-7/8% Senior Sinking Fund Notes) in
installments of approximately $36 million each in years 1999 through
2003. The Senior Notes are collectively referred to as the "Public
Indebtedness." See "THE DEBTOR AND BACKGROUND OF THE CHAPTER 11
CASE--Principal Liabilities Of The Debtor--Debtor's Debt For
Borrowed Money" for further discussion of the Public Indebtedness.
o As part of a services agreement, dated as of June 12, 1995 (the
"Services Agreement"), between the Debtor, Home Insurance, and REM,
an indirect subsidiary of Zurich, REM provides management services
pertaining to the assets and liabilities associated with the Debtor
and the insurance policies written by Home Insurance. REM's services
include the administrative operations of Home Holdings and Home
Insurance and the claims associated with all of Home Insurance's
policyholders. During 1995, REM leased substantially all of its
employees from Home Insurance to perform these services and
effective January 1, 1996, Home Insurance employees became REM
employees. The Services Agreement was amended on March 4, 1997 to
accommodate the terms of the Order of Supervision. This amendment
includes, among other provisions, provisions related to the
Department's right of prior approval with respect to certain
transactions involving Home Insurance. For further information
concerning the management of Home Holdings, see "MANAGEMENT AND
OWNERSHIP OF THE DEBTOR--Management Of The Debtor" and "THE CHAPTER
11 CASE--Description Of Significant Events During The Pendency Of
The Chapter 11 Case--Administrative Services Arrangement."
o Zurich Investment Management Inc. ("ZIM"), a subsidiary of Zurich,
was appointed by Centre Investment Services Limited, also an
affiliate of Zurich, to manage the cash and invested assets of the
Debtor and Home Insurance pursuant to an investment management
agreement, which was amended to add ZIM as an additional party.
Currently, the Debtor has no assets under the management of ZIM. On
or about December 19, 1997, Home Holdings and Home Insurance
consented to the assignment of the Investment Management Agreement
to Scudder Kemper Investments, Inc.
o The Debtor and Home Insurance entered into separate Portfolio Value
Swap Agreements (each, a "Swap") with Centre Reinsurance
International Company which subsequently novated the contracts to
Centre Reinsurance Dublin. Currently, the Debtor has no investment
portfolio subject to a respective Swap.
o Home Insurance purchased an Aggregate Excess of Loss Reinsurance
Agreement (the "Excess of Loss Reinsurance Agreement") from Centre
Reinsurance International Company, an affiliate of Zurich, which
subsequently novated the contract to Centre Reinsurance Dublin and
commuted or assigned its right to receive payments under the
existing stop loss treaty dated January 1, 1991. See "THE DEBTOR AND
BACKGROUND OF THE CHAPTER 11 CASE--Insurance Operations--Excess Of
Loss Reinsurance Agreement" for more detailed information concerning
the Excess of Loss Reinsurance Agreement.
D. Insurance Operations
1. Property And Casualty Insurance
At the time of the transactions contemplated by the Recapitalization, Home
Insurance ceased writing new and renewal business except for limited risks that
Home Insurance was obligated to continue writing for an interim period until
Home Insurance could complete the orderly transition to full run-off of
operations. All Home Insurance operations are being run off subsequent to June
12, 1995.
Home Insurance's principal insurance operations prior to June 12, 1995
were organized into two business groups. The commercial accounts group
underwrote property and casualty insurance throughout the United States and
internationally for two primary market segments: (i) large industrial and
commercial enterprises that were national in scope and required customized
property and casualty insurance involving the
<PAGE>
10
services of a professional risk manager and (ii) enterprises operating out of a
single state or region. The specialty lines group wrote specialized property and
liability insurance for individuals, professionals, and businesses. Finally,
Home Insurance maintained a run-off operations group which administered certain
businesses from which Home Insurance had withdrawn prior to June 12, 1995,
principally assumed reinsurance, personal lines, and excess casualty business
written during the period from 1962 through 1982, and also managed run-off of
policies containing asbestos/pollution exposure.
Since June 12, 1995, REM has provided administrative services covering all
of Home Insurance's operations. For further information concerning the
Management of Home Holdings, see "MANAGEMENT AND OWNERSHIP OF THE
DEBTOR--Management Of The Debtor" and "THE CHAPTER 11 CASE--Description Of
Significant Events During The Pendency Of The Chapter 11 Case--Administrative
Services Arrangement."
2. Excess Of Loss Reinsurance Agreement
In connection with the Recapitalization, Home Insurance and Centre
Reinsurance Dublin entered into the Excess of Loss Reinsurance Agreement, dated
as of June 12, 1995. Home Insurance is provided with an aggregate limit of $1.3
billion subject to certain adjustments, attaching at the point that Home
Insurance has no remaining cash or assets readily convertible into cash to pay
any of its obligations. Among such adjustments, in the event that Home Insurance
pays any dividends to the Debtor prior to the third anniversary of the closing
of the Recapitalization to fund interest payments on the Public Indebtedness,
the limit will be increased by the amount of such dividends plus interest
thereon at the rate of 7.5% per annum, compounded, from the date such dividends
were paid to the date the reinsurers commence making payments under the Excess
of Loss Reinsurance Agreement. Also, up to $290 million of additional coverage
provided by the Excess of Loss Reinsurance Agreement is linked to certain
factors, including dividend payments from Home Insurance to the Debtor, and
funding principal payments on the Public Indebtedness as such debts become
payable. For further discussion concerning the payment of dividends, see "THE
CHAPTER 11 CASE--Events Leading To Or In Contemplation Of The Chapter 11
Case--Dividend Restrictions."
In connection with the Excess of Loss Reinsurance Agreement, the Debtor
and Zurich entered into a guaranty agreement, dated as of June 12, 1995 (the
"Guaranty Agreement"), in favor of Home Insurance pursuant to which Zurich
guaranteed to Home Insurance the complete and timely performance of Centre
Reinsurance Dublin's obligations under the Excess of Loss Reinsurance Agreement
to the fullest extent permitted by law. Based on cash flow forecasts at December
31, 1996, the Debtor projects that the coverage limits of the Excess of Loss
Reinsurance Agreement will be exhausted in favor of the creditors of Home
Insurance and that no residual interest will be available for the creditors of
Home Holdings.
3. Risk-Based Capital
To enhance the regulation of insurer solvency, on December 5, 1993 the
National Association of Insurance Commissioners approved a formula and model
laws to implement RBC requirements for property and casualty insurance
companies, which are designed to assess capital adequacy and to raise the level
of protection that statutory surplus provides for policyholder obligations. The
RBC formula for property and casualty insurance companies measures three major
areas of risk facing property and casualty insurers: (i) underwriting, which
encompasses the risk of adverse loss development and inadequate pricing; (ii)
declines in asset values arising from credit risk; and (iii) declines in asset
values arising from investment risks. Pursuant to the model law, insurers having
less statutory surplus than is required by the RBC calculation will be subject
to varying degrees of regulatory action, depending on the level of capital
inadequacy.
Home Insurance, which had received a waiver from the Department relating
to calculation of RBC in 1995, was required to perform this calculation in 1996.
This calculation indicated that a Mandatory Control Level Event had occurred
because Home Insurance's total adjusted capital was negative $227 million, which
was less than its mandatory control level RBC of $228 million. The adjusted
capital is a calculated amount per the RBC formula, derived by deducting 60% of
non-tabular discount from statutory surplus. The Department informed Home
Insurance that it was exercising its rights under New Hampshire law to expand
its supervision of Home Insurance's run-off based on this Mandatory Control
Level Event. In this regard, the Department issued the Order of Supervision to
increase the Department's oversight of Home Insurance. See "THE DEBTOR AND
BACKGROUND OF THE CHAPTER 11 CASE--Order Of Supervision And Other Regulatory
Action" for further discussion.
<PAGE>
11
E. Other Businesses
1. Securities Brokerage Operations
Gruntal, through its broker-dealer subsidiaries, Gruntal & Co. and GMS,
operates a full-service securities brokerage business. As of December 31, 1996
Gruntal employed approximately 2,000 full-time people, of whom approximately 854
were account executives. Gruntal & Co. has its main office in New York City and
23 branch offices in nine states. GMS specializes in municipal and other fixed
income securities, with headquarters in Livingston, New Jersey and four branch
offices. Gruntal has approximately 278,000 active clients, which are
predominantly retail.
Gruntal's business is divided into two primary areas: retail and capital
markets.
Retail principally includes client brokerage and professional asset
management. These businesses are conducted through 29 offices in the United
States, with a concentration on the northeast corridor, particularly New York.
In addition, Gruntal provides research and client services in support of these
businesses. The retail business accounted for 55% of Gruntal's total revenues
during 1996. Gruntal's additional activities within the retail area, included in
the retail revenues, are customer margin lending, money market funds, securities
borrowing, and lending activities.
Capital market activities primarily involved the trading of high grade
corporate bonds ("bond dealer"), municipal fixed income debt instruments, unit
trusts government issues, and proprietary trading, which in aggregate, excluding
bond dealer, accounted for 27% of Gruntal's total revenues during 1996. With
respect to corporate bonds, Gruntal maintains active markets and an extensive
inventory of corporate debt instruments, marketing them through its dealer
network of over 300 brokers and institutions. Bond dealer activities accounted
for 8% of Gruntal's total revenues during 1996. In addition, Gruntal conducts a
traditional investment banking/corporate finance business, which emphasizes
initial purchase offerings and private placements for emerging companies. These
aggregate business lines accounted for 2% of Gruntal's total revenues during
1996.
Gruntal is a member of the New York Stock Exchange Inc., other principal
stock exchanges, the National Association of Securities Dealers, Inc. ("NASD")
and the National Futures Association. Gruntal is also a member of the Securities
Investor Protection Corporation ("SIPC") and is registered as a futures
commission merchant. GMS is also a member of NASD and SIPC.
Gruntal is subject to extensive regulation under Federal and state laws
covering numerous aspects of the securities business, including sales methods,
trade practices, uses and safekeeping of customer funds and securities, capital
structure, payment of dividends, record keeping, margin lending, and the conduct
of directors, officers, and employees. Much of the regulation of broker-dealers
has been delegated to self-regulatory organizations, principally the national
securities exchanges and the NASD. Gruntal is also subject to regulation in the
states in which it is registered.
On February 24, 1997, Gruntal Financial Corp. ("Gruntal Corp."), a former
wholly owned subsidiary of Home Insurance, and The 1880 Group LLC ("The 1880
Group") entered into the Reorganization Agreement. The Gruntal reorganization
was consummated on March 28, 1997. The reorganization resulted in Gruntal Corp.
transferring its securities broker-dealer operating companies, Gruntal & Co. and
GMS, to a newly formed limited liability company, Gruntal. In connection with
the reorganization, Gruntal Corp. changed its name to Home Financial on April 1,
1997. On or about December 30, 1997, Home Financial merged into Home Insurance.
The Gruntal reorganization involved the issuance of several classes of
securities to Home Financial and The 1880 Group, including preferred securities,
in an aggregate nominal amount of approximately $235 million as follows: (i)
Gruntal issued to Home Financial securities called Preferred A Interests in a
nominal amount of $155.9 million, as adjusted, and securities called Preferred B
Interests in a nominal amount of $70 million and (ii) Gruntal issued to The 1880
Group securities called Preferred C Interests in an approximate nominal amount
of $9 million. As a result of the Gruntal reorganization, Home Financial held
40% of the common interest of Gruntal and The 1880 Group held 60% of the common
interest of Gruntal. The Debtor anticipates that, during March 1998, Home
Insurance may decrease its common interest in Gruntal to approximately 35%. As a
result of the merger of Home Financial, Home Insurance currently owns a direct
40% common interest in Gruntal. In connection with the issuance of certain
preferred securities to Home Financial, Home Insurance and Centre Reinsurance
Dublin entered into a swap agreement intended to ensure
<PAGE>
12
that Home Insurance's investment in Gruntal yields at least $155.9 million plus
a 7.5% per annum rate of return thereon, subject to certain modifications with
respect to certain distributions and sales proceeds of the common and preferred
interests of Gruntal. In connection with the Gruntal reorganization, the members
of The 1880 Group entered into a management services agreement with The 1880
Group which, in turn, provides such services to Gruntal.
2. Land Development Operations (5)
Sterling Forest, formerly known as Sterling Forest Corporation, was
reorganized as a limited liability company and changed its name to Sterling
Forest LLC on June 27, 1997. Prior to the sale described below, the principal
asset of Sterling Forest, the Sterling Forest Lands, consisted of approximately
17,500 acres of largely undeveloped land in Orange County, New York,
approximately 40 miles from Manhattan.
On May 15, 1996, Governors Pataki of New York and Whitman of New Jersey,
and Speaker of the House Gingrich, announced an agreement in principle for the
purchase and sale of a substantial part of the Sterling Forest Lands for public
parkland. In connection therewith, a Purchase and Sale Agreement between
Sterling Forest and Sterling Lake Associates, as seller, and Trust for Public
Land and Open Space Institute, as buyer, was signed on February 18, 1997 (the
"Sterling Forest Agreement").
Under the terms of the Sterling Forest Agreement, approximately 15,250
acres of Sterling Forest land were to be acquired as parkland by the State of
New York under the management of the Palisades Interstate Park Commission, at a
total acquisition cost of $55 million. On August 11, 1997, the sale of
approximately 1,400 acres to the not-for-profit conservation foundation was
consummated, resulting in estimated net proceeds of $4.8 million and leaving
approximately 16,000 acres of Sterling Forest Lands.
As of January 14, 1998, the limited liability interests in Sterling Forest
were divided into series interests: the series A interests consisting of
approximately 12,850 acres of the Sterling Forest Lands to be sold pursuant to
the Sterling Forest Agreement and the liabilities relating thereto, other than
an existing mortgage in favor of an affiliate of Zurich (the "Sterling Forest
Series A Property"), and the series B interests consisting of all of the assets
of Sterling Forest, other than the Sterling Forest Series A Property, including
approximately 3,250 acres of the Sterling Forest Lands not being sold pursuant
to the Sterling Forest Agreement and the liabilities relating thereto, including
the mortgage in favor of the affiliate of Zurich (the "Sterling Forest Series B
Property"). As a result of distributions and contributions on January 14, 1998,
Home Insurance became the owner of the Sterling Forest Series A Property and
Home Holdings, through its wholly owned limited liability company, Sterling
Management, became the owner of the Sterling Forest Series B Property. In
addition, on such date Home Insurance received $10 million in the form of cash
from Sterling Forest and at least $3.5 million (subject to increase pending the
results of an appraisal of the Sterling Forest Series B Property) in the form of
an increase to the available reinsurance limit under the Excess of Loss
Reinsurance Agreement.
The management of the Sterling Forest Series A Property is provided
through a management services agreement among Home Insurance, Sterling Forest,
and Sterling Management. Similarly, the management of the Sterling Forest Series
B Property is provided through a management services agreement between Sterling
Forest and Sterling Management.
During February 1998, the closing of the sale of the remaining Sterling
Forest Series A Property to be sold pursuant to the Sterling Forest Agreement
occurred, resulting in estimated net proceeds of approximately $48 million to
Home Insurance. Under the Sterling Forest Agreement, development on the
approximately 2,250 acres of land to be retained by Sterling Forest will be
"capped" at no more than 3,000 new residential units and 2.8 million square feet
of new commercial space.
Under the terms of a loan agreement between Zurich Capital Markets Company
("ZCMC") and Sterling Forest, ZCMC has agreed to lend Sterling Forest up to $30
million to finance Sterling Forest's activities. As of January 14, 1998, on
behalf of the Sterling Forest series B interest, Sterling Forest has borrowed
$20.6 million under such agreement, which loan has been secured by a first
mortgage on the Sterling Forest Series B Property.
- --------
(5) This section was prepared in conjunction with counsel for the Zurich
Group.
<PAGE>
13
F. Principal Liabilities Of The Debtor
1. Debtor's Debt For Borrowed Money
As of January 15, 1998, the Debtor's principal debt outstanding for
borrowed money consisted of approximately the following:
($ millions)
7% Senior Notes due in 1998, net of unamortized discount of 100.0
nil in 1996
7-7/8% Senior Sinking Fund Notes due in 2003, net of 179.5
unamortized discount of $2 million in 1996
7-7/8% Senior Notes due in 2003, net of unamortized discount .5
of nil in 1996
12% Senior Subordinated Notes, issued at original issue 133.1
discount, $303 million principal value due in 2004
8% Junior Subordinated Notes, issued at original issue 98.5
discount, $171 million principal value due in 2004
12% Senior Subordinated Working Capital Notes, issued at 20.4
original issue discount, $46 million principal value due
in 2004
7% Series A Senior Working Capital Notes 15.8
7% Series B Senior Working Capital Notes 46.5
-----------
Total $ 594.3
===========
(a) Public Indebtedness--7% Senior Notes Due December 15, 1998;
7-7/8% Senior Notes Due December 15, 2003; And 7-7/8% Senior
Sinking Fund Notes Due December 15, 2003
In December 1993, as part of a 1993 recapitalization, the Debtor issued
(i) $100 million in the original principal amount of 7% Senior Notes due
December 15, 1998 pursuant to an Indenture, dated as of December 28, 1993,
between the Debtor and The Bank of New York, as trustee and (ii) $180 million in
the original principal amount of 7-7/8% Senior Notes due December 15, 2003
pursuant to an Indenture, dated as of December 28, 1993, between the Debtor and
The Bank of New York, as trustee. The 7% Senior Notes and the 7-7/8% Senior
Notes were originally secured by certain collateral pursuant to certain security
agreements with The Chase Manhattan Bank ("Chase"), as collateral agent for the
trustee. The security agreements have since terminated.
The Debtor sold the Public Indebtedness subject to an interest rate
adjustment of 3/4% depending on debt ratings assigned by Moody's Investors
Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P"). On November
7, 1994, as a result of a reduction in the Debtor's debt rating to BB- by S&P,
the interest rate on the Public Indebtedness increased by 3/4% to 7-3/4% for the
7% Senior Notes and 8-5/8% for the 7-7/8% Senior Notes. For further information
concerning the public debt ratings, see "THE CHAPTER 11 CASE--Events Leading To
Or In Contemplation Of The Chapter 11 Case--Public Debt Ratings."
Pursuant to the Bondholder Agreement, in exchange for the consent by each
bondholder to the waivers and amendments to the indentures governing the Public
Indebtedness necessary to consummate the Recapitalization, the Debtor completed
an exchange offer on August 25, 1995, in which approximately $179 million
principal value of the 7-7/8% Senior Notes were exchanged for the 7-7/8% Senior
Sinking Fund Notes, which provide for sinking fund payments (to be applied to
the mandatory retirement of the 7-7/8% Senior Sinking Fund Notes) in
installments of approximately $36 million each in year 1999 through 2003. All
other terms and conditions of the 7-7/8% Senior Sinking Fund Notes are
substantially the same as the 7-7/8% Senior
<PAGE>
14
Notes. The 7-7/8% Senior Sinking Fund Notes were originally secured by certain
collateral pursuant to a security agreement with Chase, as collateral agent for
the trustee. The security agreements have since terminated.
The principal repayments due under the Public Indebtedness are $100
million in 1998 and $179 million in 2003. The Debtor's only source of funding
principal payments for the Public Indebtedness would be dividend income from
Home Insurance, and there can be no assurance that such a dividend would be
made.
The Debtor failed to pay $11,637,500 in interest on the Senior Notes due
on December 15, 1997, see "THE CHAPTER 11 CASE--Events Leading To Or In
Contemplation Of The Chapter 11 Case--Dividend Restrictions" for further
discussion concerning the failure to make the interest payments.
(b) Nonpublic Debt--12% Senior Subordinated Notes; 8% Junior
Subordinated Notes; 12% Senior Subordinated Working Capital
Notes; And 7% Senior Working Capital Notes
As part of the Recapitalization, Trygg-Hansa refinanced the sum of $178
million of indebtedness outstanding under the Credit Agreement ($170 million)
and the Interest Deferral Agreement ($8 million). In exchange, the Debtor issued
$98 million of 12% Senior Subordinated Notes issued at original issue discount
($303 million principal value) and $80 million of Junior Notes issued at
original issue discount ($171 million principal value). Trygg-Hansa sold to
Zurich Home Investments Limited ("ZHI") $98 million principal amount of the 12%
Senior Subordinated Notes and $12 million principal amount of the Junior Notes.
The Debtor is not required to pay any interest or principal on the 12% Senior
Subordinated Notes or the Junior Notes until maturity at December 31, 2004.
Pursuant to the Plan, ZHI will waive its Junior Note Claim and its right to
receive a distribution on account of the Junior Note Claim.
To fund additional cash requirements incurred in connection with the
Equity Repurchase Transaction, the Recapitalization and other extraordinary
needs, Centre Finance and ZCI purchased, in 1995, $15 million principal amount
of the Debtor's 12% Senior Subordinated Working Capital Notes due December 31,
2004 issued at original issue discount ($46 million principal value) and $16
million principal amount of the Debtor's 7% Series A Senior Working Capital
Notes pursuant to the Amended and Restated Standby Working Capital Credit
Agreement, dated as of April 26, 1995 between the Debtor and ZHI. The Debtor is
not required to pay any interest or principal on the 12% Senior Subordinated
Working Capital Notes until maturity. The principal on 7% Series A Senior
Working Capital Notes is due on successive one-year anniversaries of the closing
date. The date can be extended, however, for annual periods at the option of
either Centre Finance, ZHI, or the Debtor until December 15, 2003. The Debtor
elected in 1997 to extend the due date until June of 1998. In February 1996, the
Debtor, ZHI, and Trygg-Hansa agreed that the Debtor may issue and ZHI may
purchase additional 7% Series A Senior Working Capital Notes having an aggregate
principal amount of $4 million. During 1996, the Debtor issued $3.8 million of
7% Series A Working Capital Notes.
During 1995 and 1996, the Debtor issued to Centre Finance the aggregate
principal amount of $46,550,000 of the Debtor's 7% Series B Senior Working
Capital Notes to fund interest payments occurring through December 1996 on the
Public Indebtedness. The principal on these notes is due on the successive
one-year anniversaries of the closing date. The date can be extended, however,
for annual periods at the option of either Centre Finance or the Debtor until
December 15, 2003. The Debtor elected in 1997 to extend the due date until June
of 1998.
In addition, effective December 31, 1996, each of the 7% Series A and 7%
Series B Senior Working Capital Notes was amended to change the timing of the
payment of interest. Prior to such amendment, interest was payable quarterly.
According to the amended terms, however, interest shall not be due or payable
until seven business days following the receipt by the Debtor of written demand
from holders of these notes, or when the principal of the 7% Series A and 7%
Series B Senior Working Capital Notes becomes due and payable. If interest is
not paid within seven business days of such written demand, all interest accrued
shall be deemed overdue and shall immediately become due and payable. If
interest becomes overdue, the interest rate is adjusted upwards to the greater
of (i) the rate of interest on the notes, plus 3% or (ii) the prime rate plus
3%. As of September 30, 1997, approximately $7 million of interest had accrued
but not been paid on the 7% Series A and 7% Series B Senior Working Capital
Notes. As a result of the amended terms, the interest is not overdue.
<PAGE>
15
2. Other Liabilities
(a) Liability To AmBase Corporation
On February 13, 1991, Home Insurance and its subsidiaries were acquired
from AmBase Corporation ("AmBase") by Home Holdings (then known as TVH
Acquisition Corporation) pursuant to a stock purchase agreement (the "Stock
Purchase Agreement"). As part of the Stock Purchase Agreement, as amended,
AmBase provided Home Holdings and Home Insurance a tax indemnification for all
taxes including those assessed against AmBase and its consolidated group, which
included Home Insurance, for all periods ending on or before December 31, 1989
(other than those taxes accrued on Home Insurance's financial statements as of
December 31, 1989). The Stock Purchase Agreement, as amended, also provided for
a "hold-back" by Home Holdings to defer payment of a portion of the purchase
consideration until called on to pay as follows: (i) $23 million in respect of
liabilities for Federal or state income taxes, including interest thereon,
assessed against AmBase, Home Holdings, Home Insurance, or any other member of
the AmBase affiliated group for years ending on or before December 31, 1989 and
liabilities of AmBase in connection with the Assignment and Assumption Agreement
dated as of August 30, 1985, between AmBase and City Investing Company (the
"Assignment and Assumption Agreement"), (ii) $15 million in respect of
litigation and related expenses, and (iii) $10 million in respect of certain
other liabilities to be paid pursuant to an agreed schedule, and, in each case,
to the extent not used for these purposes, to be paid to AmBase as provided in
the Stock Purchase Agreement.
The maximum amounts in connection with the hold-back for items (ii) and
(iii) above were paid by December 31, 1994. According to the Debtor's books and
records, the unpaid balance relating to the amounts held back for item (i) above
is $11,703,136 as of January 15, 1998. In the calendar year 1997, a total of
$450,578 was paid, at AmBase's request, primarily for legal fees in connection
with an ongoing tax issue and also for various amounts due under the Assignment
and Assumption Agreement. The Stock Purchase Agreement provides that the balance
of the hold-back amount relating to all the liabilities under item (i) above
(the "Tax Liabilities") would be paid on the earlier of the dates on which all
Tax Liabilities are resolved and the date the applicable statute of limitations
with respect to the Tax Liabilities expires. The significant issues remaining
which AmBase contends could give rise to the Tax Liabilities are (x) a
withholding tax issue concerning a wholly owned Netherlands Antilles finance
subsidiary that the Internal Revenue Service contends was not adequately
capitalized and thus should be disregarded for tax purposes and (y) a "Fresh
Start" Tax Reform Act of 1986 insurance tax issue involving Home Insurance
("AmBase's Position"). The first case has been tried before the Tax Court and a
decision is pending. The outcome of the second case will be determined based on
a Supreme Court decision that has not yet been rendered. Under AmBase's
Position, the potential liabilities significantly exceed the remaining balance
of the holdback. Accordingly, Home Holdings believes that it has no obligation
to make current payments until the remaining issues are resolved.
In addition to the foregoing, AmBase alleges that Home Holdings has
responsibility for certain amounts which AmBase contends have not been paid to
it by Home Insurance pursuant to certain provisions of a Consolidated Income Tax
Agreement, dated as of October 30, 1975, between AmBase and Home Insurance (the
"1975 Consolidated Income Tax Agreement"). In 1995, Home Holdings paid AmBase
the full amounts which Home Holdings calculated were owed under the relevant
provisions of the 1975 Consolidated Income Tax Agreement. Until February 1998,
when AmBase informed Home Holdings of AmBase's contention, Home Holdings
believed that AmBase had accepted Home Holdings' computation as correct. AmBase
now claims that Home Holdings currently owes AmBase approximately $5,100,000
under the 1975 Consolidated Income Tax Agreement. Home Holdings believes that
AmBase does not have any basis for the claim under the 1975 Consolidated Income
Tax Agreement and thus the claim has been estimated at $0.
AmBase filed a proof of claim alleging a claim against the Debtor in the
aggregate amount of $57,136,920. The Debtor believes that any claim asserted by
AmBase in excess of $11,703,136 is entirely without merit. The Debtor intends to
object vigorously to AmBase's asserted claims. For a discussion concerning the
risks of failing to satisfy conditions precedent to the Effective Date,
including the condition precedent that Allowed General Unsecured Claims not
exceed $12.5 million as of the Effective Date, see "CERTAIN FACTORS TO BE
CONSIDERED--Risk Factors--Failure Of Conditions Precedent To The Effective Date"
and "FEASIBILITY; BEST INTERESTS OF CREDITORS; CONFIRMATION OF THE
PLAN--Effectiveness Of The Plan." The Debtor believes that the amount of $12.5
million as the maximum amount of Allowed General Unsecured Claims as a condition
precedent to the effectiveness of the Plan is an appropriate amount. AmBase has
indicated to the Debtor that it intends vigorously to object to the confirmation
of the Plan and to pursue claims against nondebtor parties.
<PAGE>
16
(b) Liability To Home Insurance
Home Holdings and Home Insurance entered into a Consolidated Group Tax
Agreement, dated as of February 13, 1991 (the "Consolidated Group Tax
Agreement") effective for tax years commencing on or after February 14, 1991.
The Consolidated Group Tax Agreement provides that Home Insurance is obligated
to pay to Home Holdings an amount equal to the total tax liability that Home
Insurance and each of its direct and indirect subsidiaries (the "Home Insurance
Consolidated Group") would have incurred if the Home Insurance Consolidated
Group had filed a separate consolidated Federal income tax return. If on the
basis of separate tax computations made by the Home Insurance Consolidated
Group, the Home Insurance Consolidated Group would have had a claim for refund
of Federal income taxes, Home Holdings is obligated to pay to Home Insurance an
amount equal to the refund the Home Insurance Consolidated Group would have been
entitled to obtain from the Internal Revenue Service. At the option of Home
Holdings, Home Holdings may defer payment of the excess of the amount due under
the Consolidated Group Tax Agreement over the amount of any refund received from
the Internal Revenue Service to Home Insurance for up to three years. Interest
on the deferred amount accrues at the prime rate beginning one year following
the date such payment was due.
As of January 15, 1998, Home Holdings was indebted to Home Insurance in
the amount of $14,145,407 (inclusive of accrued interest) on account of the
Consolidated Group Tax Agreement for the taxable years 1992 and 1993. Home
Holdings and Home Insurance have agreed to settle the Home Insurance Claim,
consisting of the Debtor's liability under the Consolidated Group Tax Agreement,
in accordance with the terms of the Home Insurance Settlement. The Home
Insurance Settlement provides that Home Insurance will release the Home
Insurance Claim and receive Earn Out Notes Series III as a distribution under
the Plan. In addition, Home Insurance and the Debtor will exchange mutual
releases in favor of the other party, except with respect to obligations under
or pursuant to the Plan. Home Insurance will also be entitled to receive a
release under Section 8.10 of the Plan. For a more detailed description of the
Home Insurance Settlement, see "SUMMARY OF THE PLAN OF REORGANIZATION--Certain
Matters Regarding Classification And Treatment Of Claims And Equity
Interests--Impaired Classes Of Claims (Entitled To Vote On The Plan)" and
"SUMMARY OF THE PLAN OF REORGANIZATION--Home Insurance Settlement."
(c) Liability To General Electric Capital Corporation
Pursuant to a guaranty dated February 13, 1991, as amended by letter
agreement dated December 30, 1991 (the "Guaranty"), the Debtor agreed to
guaranty (i) all amounts payable under a Master Lease Agreement dated as of
December 30, 1988, as amended, between General Electric Capital Corporation
("GECC"), as lessor, and Home Insurance, as lessee (the "Master Lease
Agreement"), for certain furniture and telecommunications equipment, as set
forth on Schedules thereto and (ii) all other obligations of Home Group
Financial Services, Inc. ("Home Group Financial") under such Master Lease
Agreement pursuant to an assignment thereof dated March 31, 1989.
The failure of the Debtor to own all of the issued and outstanding shares
of Home Insurance would give GECC the right to declare a default under the
Master Lease Agreement. In addition, by letter dated December 18, 1997, GECC
advised Home Group Financial that GECC would not declare a default of the Master
Lease Agreement for previous violations of such agreement resulting from the
sale, transfer, or relocation of certain equipment if Home Insurance takes
certain requested actions, including an accounting of all sales, transfers, and
relocations, and timely payment and performance of its obligations under the
Master Lease Agreement. GECC filed a proof of claim alleging a fixed and
contingent claim against the Debtor in the amount of $9,907,076.71.
Subsequently, GECC has settled with Home Insurance and Home Group Financial with
respect to the Master Lease Agreement and stated its intentions to withdraw its
proof of claim.
(d) General Business Corporation Franchise Tax
The Debtor is currently under field examination by the State of New York
for the General Business Corporation Franchise Tax Return and the City of New
York for the General Corporation Tax Return. The years under audit are 1992
through 1994 for New York State, and 1993 through 1995 for New York City.
Proposed adjustments totaling $529,563 in the aggregate have been submitted by
those jurisdictions. The Debtor is preparing responses to the proposed
adjustments. The Debtor believes that the proposed adjustments are excessive,
but is uncertain as to the amount of tax and interest, if any, that will
ultimately be due.
<PAGE>
17
(e) Potential Liability Under Title IV Of ERISA
The Home Insurance Company Retirement Plan (the "Pension Plan") is a
tax-qualified, defined benefit pension plan that was established and maintained
for employees of Home Insurance, the Debtor, Sterling Forest, and USI
Reinsurance. At this time, the Debtor has no employees. The Pension Plan is
covered by Title IV of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") (29 U.S.C. ss. 1301 et seq.).
The Debtor is a contributing sponsor of the Pension Plan and is a member
of Home Insurance's controlled group. The Debtor understands that it and all
members of the controlled group are obligated to contribute to the Pension Plan
at least the amounts necessary to satisfy ERISA's minimum funding standards,
ERISA ss. 302; Internal Revenue Code ("I.R.C.") ss. 412. In addition, in the
event of a termination of the Pension Plan, the Debtor and all members of the
controlled group will be jointly and severally liable for the unfunded benefit
liabilities, if any, of the Pension Plan. See 29 U.S.C. ss. 1362(a). The Debtor
further understands that the Pension Plan may be terminated only if the
statutory requirements of either ERISA ss. 4041, 29 U.S.C. ss. 1341, or ERISA
ss. 4042, 29 U.S.C. ss. 1342, are met.
The Pension Benefit Guaranty Corporation ("PBGC") is a wholly-owned United
States Government corporation created under Title IV of ERISA which guarantees
the payment of certain pension benefits upon termination of a pension plan. It
should be noted that in the event of a termination, the PBGC would review the
determination of the Pension Plan's enrolled actuary as to asset sufficiency,
including all actuarial assumptions, and that insufficiently funded plans must
use the PBGC's assumptions to measure benefit liabilities. See 29 C.F.R. ss.
4041.1 et seq.
As of December 31, 1997, the Pension Plan is estimated to be 80% funded on
a "PBGC plan termination" basis. The fair market value of assets on that date
was $140.8 million. The Pension Plan's benefit liabilities on a "PBGC plan
termination" basis on that date was an estimated $176.2 million, as determined
using interest rate (5.6% immediate), mortality (GAM83), and retirement age
(weighted average equal to 56) assumptions required by the PBGC under Title IV
of ERISA in calculating pension plan benefit liabilities in standard
terminations.
On an "ongoing ERISA funding" basis, the Pension Plan is estimated to be
126% funded as of December 31, 1997 (ERISA funding liability estimated at $111.7
million using 7.50% interest rate, GAM83, and average retirement age equal to
61). Therefore, no cash contributions are required at this time. As of December
31, 1995, all benefits were frozen.
The liabilities under the "PBGC plan termination" and "ongoing ERISA
funding" bases were estimated using 1/1/97 valuation census data projected to
12/31/97 using generally accepted actuarial practices.
Under the proposed Plan, Home Insurance may no longer be a member of its
existing controlled group of corporations. It is the PBGC's view that it is
unlikely that Home Insurance will be able to make additional contributions to
the Pension Plan at any point in the foreseeable future, should such
contributions be required under ERISA's minimum funding standards. The PBGC also
believes it is not clear whether, and if so, for how long, Home Insurance will
be able to perform its duties as Pension Plan Administrator under ERISA.
Based on its foregoing views, the PBGC has requested that arrangements be
made within a reasonable period of time prior to confirmation of the Plan with
respect to the Pension Plan that assure that the unfunded benefits of the
Pension Plan will be funded in accordance with the requirements of ERISA. The
PBGC has indicated that if a disposition of the Plan that provides for funding
of the Pension Plan's unfunded benefit liabilities is not effectuated, it may
seek to exercise its authority to involuntarily terminate the Pension Plan
pursuant to 29 U.S.C. ss. 1342. In that event, as discussed above, PBGC
indicates that the Debtor and others in Home Insurance's controlled group would
be liable to the PBGC for the unfunded benefit liabilities of the Pension Plan
pursuant to 29 U.S.C. ss. 1362.
The Debtor and the PBGC are in discussions with respect to the disposition
of the Pension Plan and the Debtor is seeking a resolution to provide assurances
to the PBGC prior to the confirmation of the Plan. For a discussion concerning
the risks of failing to satisfy conditions precedent to the Effective Date,
including the condition precedent that Allowed General Unsecured Claims not
exceed $12.5 million as of the Effective Date, see "CERTAIN FACTORS TO BE
CONSIDERED--Risk Factors--Failure Of Conditions Precedent To The
<PAGE>
18
Effective Date" and "FEASIBILITY; BEST INTERESTS OF CREDITORS; CONFIRMATION OF
THE PLAN--Effectiveness Of The Plan."
III. MANAGEMENT AND OWNERSHIP OF THE DEBTOR
A. Board Of Directors Of The Debtor
As of Commencement Date, the following persons comprised the Board of
Directors of Home Holdings:
Steven D. Germain has been a director since June 1995. Mr. Germain is
currently a managing director of Zurich Centre ReSource Limited, and General
Counsel of Zurich Centre Investments Limited and its wholly owned subsidiaries
since 1994. Since 1988, Mr. Germain has also served as General Counsel of the
Centre Reinsurance Group of Companies.
Jan E. Bruneheim has been a director since February 1995. Mr. Bruneheim
resigned as President and Chief Executive Officer of the Debtor on April 15,
1996. He also has served as Senior Vice President and General Manager of the
Run-off Division of Trygg-Hansa since 1995.
Michael D. Palm has been a director since June 1995. Mr. Palm has been
Executive Vice President of Centre Reinsurance Limited since its founding in
1987. He has also served as Executive Vice President of Zurich Centre
Investments Limited since March 1994 and Chief Executive Officer of Centre
Reinsurance Holdings Limited since September 1995. Mr. Palm also serves on the
Board of Directors of Zurich Reinsurance Centre Holdings, Inc.
Zaid O.B. Pedersen has been a director since January 1994. Mr. Pedersen
has been Executive Vice President and Controller of Trygg-Hansa since 1993.
Prior thereto he served as Senior Vice President and Controller of Trygg-Hansa
from 1980 to 1993.
As a result of a condition of the Federal Reserve Board's approval of a
tender offer of the common stock of Trygg-Hansa by Skandinaviska Enskilda
Banken, Mr. Bruneheim and Mr. Pedersen tendered their resignations as directors
of each of Home Holdings and Home Insurance, effective as of the close of
business of January 15, 1998. For a further discussion of the tender offer, see
"THE CHAPTER 11 CASE--Events Leading To Or In Contemplation Of The Chapter 11
Case--Tender Offer Of Trygg-Hansa; Transfer Of Stock."
Mr. Germain and Mr. Palm are currently directors of Home Insurance.
B. Management Of The Debtor
As noted above, REM has provided to Home Holdings the services necessary
for the continuing operations of the Debtor and its subsidiaries, including, but
not limited to, management, accounting, tax, auditing, corporate, treasury, data
processing, and communication services. REM's service agreement with Home
Holdings and Home Insurance provides that REM will receive compensation of its
actual costs, plus a contingent fee amounting to 15% in excess of its actual
costs, accumulating with interest, as follows: 100% of the annual amounts for
the years 1995 through 2000 and 33% of the amounts from years 2000 until 2005,
payable from and after 2005. The fee is payable by Home Insurance contingent
upon prior approval of the Department. REM has not waived any rights it may have
against Home Insurance. Based on the issuance of the Order of Supervision, and
based on projections that the Excess of Loss Reinsurance Agreement will be fully
exhausted, the payment of such contingent fees is considered remote and
therefore has not been accrued in the consolidated financial statements of Home
Holdings. The consolidated contingent liability as of September 30, 1997 was $48
million. Prior to the Commencement Date, REM has not allocated any charges for
its services to Home Holdings, and, accordingly, has no claim against Home
Holdings for the contingent fee. See "THE DEBTOR AND BACKGROUND OF THE CHAPTER
11 CASE--Insurance Operations--Excess Of Loss Reinsurance Agreement" for further
discussion of the Excess of Loss Reinsurance Agreement.
Mr. Germain has served as President and Chief Executive Officer of the
Debtor since January 9, 1997. He had served as Secretary and General Counsel of
the Debtor since June 1995 and resigned from such position on May 20, 1996. For
discussion of additional experience of Mr. Germain, see "MANAGEMENT AND
OWNERSHIP OF THE DEBTOR-Board Of Directors Of The Debtor."
<PAGE>
19
Through the services of REM, Richard H. Hershman served as Treasurer and
principal financial and accounting officer of the Debtor since October 1995. On
December 23, 1997, the Board of Directors appointed Arthur D. Wilson to succeed
Mr. Hershman, effective March 1, 1998. Mr. Wilson is also Vice President and
Controller of Home Insurance.
On February 3, 1998, the Bankruptcy Court entered an order authorizing the
continuation of the services of REM. Subsequent to the Commencement Date and,
pursuant to the Bankruptcy Court order, REM will charge the Debtor only for its
actual costs. In connection with that order, REM agreed to waive any and all
prepetition claims against the Debtor that it may have held. See "THE CHAPTER 11
CASE--Description Of Significant Events During The Pendency Of The Chapter 11
Case--Administrative Services Arrangement" for further discussion on REM's
services arrangement with the Debtor.
For additional information concerning the Debtor's officers and directors,
see Items 10 and 11 of the Debtor's Form 10-K for the year ended December 31,
1996 filed with the Securities and Exchange Commission ("SEC") on or about March
31, 1997, annexed to this Disclosure Statement as Exhibit D (the "1996 Form
10-K"). Directors in office during 1997 did not receive any fees for service on
the Board of Directors of either Home Holdings or Home Insurance.
C. Certain Relationships And Related Transactions With Officers And Directors
Certain officers and directors are involved in other relationships and
transactions with Affiliates of the Debtor. See Item 13 "Certain Relationships
and Related Party Transactions" on pages 99-101 of the 1996 Form 10-K.
D. Ownership Of The Debtor
On June 12, 1995, the Debtor repurchased 9,234,701 shares of its Series A
Common Stock for approximately $92 million. The repurchase had the effect of
Trygg-Hansa and the Investor Group owning virtually the entire equity in the
Debtor.
As of December 31, 1997, Home Holdings Inc. Stock Trust, ZHI, and Centre
Re (Bermuda), directly or indirectly, beneficially owned 83.56%, 9.85%,(6) and
6.0%, respectively, of the Debtor's outstanding Series A Common Stock.(7) As of
December 31, 1997, only .59% of the Debtor's outstanding Common Stock was held
by public holders. On November 15, 1997, an affiliate of Trygg-Hansa established
the Home Holdings Inc. Stock Trust and, on November 20, 1997, transferred to the
trust all of its equity interests in the Debtor for the benefit of the
shareholders of Trygg-Hansa AB as of the date of such transfer. Trygg-Hansa
Stiftelsen, a Swedish foundation, holds a 23.7% beneficial interest in the
trust. However, Trygg-Hansa Stiftelsen and the other beneficiaries of the trust
have no power to vote or direct the voting of shares held by the trust. For a
discussion of the tax consequences concerning a possible ownership change within
the meaning of section 382 of the Internal Revenue Code of 1986, as amended, see
"CERTAIN FEDERAL INCOME TAX
- --------
(6) ZHI might be deemed to beneficially own approximately 94% of the
outstanding shares of Series A Common Stock (including shares deemed
outstanding pursuant to Rule 13d-3(d)(1) under the Exchange Act) because
of its ability, pursuant to a Securityholders' Agreement, dated as of June
12, 1995, as amended, among the Debtor, ZHI, Centre Re (Bermuda), IP, and
Home Holdings Inc. Stock Trust, as assignee of an affiliate of
Trygg-Hansa, to restrict the transfer and voting of shares of Series A
Common Stock held by Home Holdings Inc. Stock Trust, which shares were
formerly held by Trygg-Hansa and its affiliate. Zurich might also be
deemed to beneficially own the shares of Series A Common Stock
beneficially owned by Centre Re (Bermuda), by virtue of Zurich's indirect
ownership of all of the shares of voting stock of Centre Re (Bermuda).
Zurich might be deemed to beneficially own approximately 95% of the
outstanding shares (including shares deemed outstanding pursuant to Rule
13d-3(d)(1) under the Exchange Act).
(7) The percentages include shares of Series A Common Stock which such Persons
have the right to acquire upon conversion of Series B Convertible Stock
and which are deemed outstanding for purposes of Rule 13d-3(d)(1) under
the Exchange Act.
<PAGE>
20
CONSEQUENCES OF THE PLAN--Federal Income Tax Consequences To The Debtor--Net
Operating Loss Carryovers; Limitations."
Zurich Holding Company of America and Home Holdings Inc. Stock Trust also
hold Series A Preferred Shares of the Debtor in the amounts of 110 shares and 60
shares, respectively.
IV. THE CHAPTER 11 CASE
A. Events Leading To Or In Contemplation Of The Chapter 11 Case
1. Dividend Restrictions
The Debtor has relied primarily on dividends from Home Insurance to meet
its obligations for payment of interest and principal on outstanding debt
obligations, dividends to stockholders, and corporate expenses. The Debtor's
ability to pay its obligations has depended on the receipt of sufficient funds
from Home Insurance. Since the issuance of the Consent Order, Home Insurance has
been subject to regulatory restrictions on the amount of dividends that it may
pay as described below. The Debtor received no common stock dividends from Home
Insurance in 1995, 1996, and the first six months of 1997.
Pursuant to the Consent Order, Home Insurance could not pay any dividends
without prior approval of the Department. In July 1997, the Department approved
an $11.7 million dividend for the purpose of funding the payment of interest by
the Debtor on its Public Indebtedness that was due on June 15, 1997, plus 29
days' interest thereon. The dividend was received by the Debtor on July 14,
1997.
On December 12, 1997, the Debtor announced that it would not pay
$11,637,500 in interest on the Senior Notes by the coupon date of December 15,
1997. The Debtor failed to make the interest payment because the board of
directors of Home Insurance voted to defer a decision on whether to make a
dividend payment to the Debtor. To the Debtor's knowledge, the board of
directors of Home Insurance has not requested the Department to approve any
further dividends other than in connection with the Plan. For further
information concerning dividends, see "THE DEBTOR AND BACKGROUND OF THE CHAPTER
11 CASE--Insurance Operations--Excess Of Loss Reinsurance Agreement."
2. Formation Of And Negotiations With Committee Of Senior Noteholders (8)
In March 1997, as a result of the Department's issuance of the Order of
Supervision with respect to Home Insurance, institutions holding collectively
approximately two-thirds in amount of the Debtor's 7% Senior Notes, 7-7/8%
Senior Notes, and 7-7/8% Senior Sinking Fund Notes formed an ad hoc committee
(such holders, and such holders as comprised such committee from time to time,
collectively, the "Senior Noteholders' Committee") to seek to advance and
protect their interests in the Senior Notes. As of the Commencement Date, the
members of the Senior Noteholders' Committee, which represented in the aggregate
approximately 71.8% of the outstanding principal amount of the Senior Notes,
were:
CS First Boston
Lehman Brothers Inc.
Conseco Capital Management
Contrarian Capital Management, LLC
Cerberus Partners
BEA Associates
Alliance Capital Management LP
After its formation, the Senior Noteholders' Committee engaged Anderson
Kill & Olick, P.C. ("Anderson Kill") as independent counsel and Houlihan Lokey
Howard & Zukin, Inc. ("Houlihan Lokey") as financial advisor. In addition, the
Senior Noteholders' Committee retained Altheimer & Gray as special insurance
regulatory counsel.
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(8) This section was prepared in conjunction with counsel for the Senior
Noteholders' Committee.
<PAGE>
21
In April 1997, the Senior Noteholders' Committee, through its advisors,
engaged in discussions with the Department seeking the support of the Department
for a possible recapitalization of Home Insurance and a related exchange offer
for the Senior Notes. On April 24, 1997, the Senior Noteholders' Committee
presented a proposal for such a recapitalization to the board of directors of
Home Insurance, which the board declined to pursue. As a result, the Senior
Noteholders' Committee began discussions with the Department regarding a
possible consensual restructuring of Home Holdings. The Senior Noteholders'
Committee then commenced negotiations with Zurich regarding such a
restructuring. In July 1997, these negotiations resulted in the preparation by
Zurich and the Senior Noteholders' Committee of a preliminary outline of the
principal terms of a proposed reorganization of Home Holdings.
Zurich thereafter engaged in negotiations with Trygg-Hansa in an effort to
achieve a proposed restructuring of Home Holdings in a manner consistent with
the terms that had been developed with the Senior Noteholders' Committee. These
negotiations led to the execution by Zurich and Trygg-Hansa of the
Pre-Reorganization Agreement dated as of November 15, 1997. For a more detailed
discussion of the Pre-Reorganization Agreement, see "THE CHAPTER 11 CASE --
Events Leading To Or In Contemplation Of The Chapter 11 Case -- The
Pre-Reorganization Agreement."
Thereafter and through the Commencement Date, Zurich, the Senior
Noteholders' Committee, Home Holdings, the Department, and Trygg-Hansa continued
to negotiate the definitive terms of the Plan and prepared the documentation
necessary to effectuate the Plan.
Prior to the Commencement Date, the members of the Senior Noteholders'
Committee holding approximately 71.8% of the outstanding principal amount of the
Senior Notes signed lock-up letters (collectively, the "Lock-Up Letters") making
certain undertakings and representations for the benefit of the members of the
Senior Noteholders' Committee and Zurich. Pursuant to these Lock-Up Letters,
each member of the Senior Noteholders' Committee has agreed that (i) the members
of the Senior Noteholders' Committee will support the Plan for Home Holdings and
(ii) the Senior Noteholders will not, directly or indirectly, sell or otherwise
transfer, pledge, encumber, or dispose of, or enter into, any agreement or
commitment to sell or otherwise transfer, pledge, encumber, or dispose of, any
or all of their Senior Notes or any interest or participation therein, other
than in a transaction contemplated by the Plan or for the benefit of any person
or entity that agrees in writing to be subject to the terms and undertakings
contained in the Lock-Up Letters.
The Senior Noteholders' Committee paid Anderson Kill at its customary
hourly rates, in effect from time to time, and reimbursed Anderson Kill for its
out-of-pocket expenses relating to its representation of the Senior Noteholders'
Committee. The Senior Noteholders' Committee incurred legal fees and expenses in
connection with the services rendered by Anderson Kill in the total amount of
approximately $925,000. As of February 24, 1998, Anderson Kill has been paid
$700,684.89 by members of the Senior Noteholders' Committee.
The Senior Noteholders' Committee and Houlihan Lokey entered into a letter
agreement, dated April 15, 1997, setting forth the terms of Houlihan Lokey's
engagement (the "Houlihan Lokey Engagement Letter"). Under the Houlihan Lokey
Engagement Letter, the Senior Noteholders' Committee agreed to compensate
Houlihan Lokey directly for its services and undertake certain indemnification
obligations to Houlihan Lokey. Specifically, as compensation for Houlihan
Lokey's services under such engagement, the Senior Noteholders' Committee agreed
to pay a fee of $200,000 for the first 60 days of the assignment commencing as
of April 10, 1997 payable upon the signing of the Houlihan Lokey Engagement
Letter, $50,000 per month for each month thereafter payable in advance on the
first day of each month, plus a transaction fee (the "Transaction Fee") equal to
.5% of the total consideration received by the holders of the Senior Notes who
participate in any Senior Noteholders' Committee-approved transaction,
including, without limitation, a Chapter 11 or Chapter 7 case, payable upon
closing in cash or, at the Senior Noteholders' Committee's option, securities
received by the holders of the Senior Notes pursuant to the transaction. In
addition to the foregoing, Houlihan Lokey was reimbursed by the Senior
Noteholders' Committee for reasonable and documented out-of-pocket expenses
incurred relating to the engagement. The Senior Noteholders' Committee incurred
fees and expenses in connection with the services rendered by Houlihan Lokey in
the total amount of approximately $600,547.82 (excluding the Transaction Fee).
As of February 24, 1998, Houlihan Lokey has been paid $321,949.71 by members of
the Senior Noteholders' Committee.
<PAGE>
22
The Senior Noteholders' Committee incurred legal fees and expenses in
connection with the services rendered by Altheimer & Gray in the total amount of
approximately $157,691.18. As of February 24, 1998, Altheimer & Gray has been
paid $125,760.63 by members of the Senior Noteholders' Committee.
The Senior Noteholders' Committee will be required to seek an award by the
Bankruptcy Court for reimbursement for its professional fees and expenses
incurred prior to the Chapter 11 Case, including the fees and expenses of
Anderson Kill, and Houlihan Lokey, attorneys and financial advisors,
respectively, for the Senior Noteholders' Committee, together with any other
advisor so designated by such committee, under section 503(b) of the Bankruptcy
Code, by filing an application for allowance for reimbursement of all its
professional fees and expenses by the date that is 60 days after the Effective
Date or such other date as may be fixed by the Bankruptcy Court and, if granted,
such award by the Bankruptcy Court will be Allowed in an amount not to exceed
$2.2 million in the aggregate. The Allowed amount of such award will not be paid
by the Debtor unless and until the Effective Date has occurred, in which event
the Allowed amount of such award will be paid by the Debtor on the later of (x)
the date such award becomes an Allowed Administrative Expense Claim, or as soon
thereafter as is practicable, and (y) the Initial Distribution Date. The Debtor
has agreed to support the Senior Noteholders' Committee's application for such
fees and expenses up to an amount not to exceed $2.2 million in the aggregate.
Zurich has agreed that in the event the Bankruptcy Court awards the Senior
Noteholders' Committee an amount less than the amount the Senior Noteholders'
Committee requested for reimbursement for its professional fees and expenses,
Zurich will pay the Senior Noteholders' Committee an amount equal to the
requested amount up to $2.2 million minus the Allowed portion of the award, if
and only if the Effective Date has occurred. See "SUMMARY OF THE PLAN OF
REORGANIZATION--Means For Implementation Of The Plan--Professional Fees" for the
Plan provision concerning the payment of such fees.
3. Qualified Auditor's Opinion
The Debtor's independent auditors issued a qualified opinion in connection
with the Debtor's 1996 Form 10-K. The auditors' report stated in part:
the Company has suffered recurring losses from operations and has a net
stockholders' deficiency. In addition, based on the Company's most current
cash flow projections, without dividends from The Home Insurance Company
(Home Insurance), the Company is unlikely to meet its cash flow needs
during 1997. Home Insurance cannot pay any dividends without prior
approval of The State of New Hampshire Insurance Department (Department).
At December 31, 1996, these circumstances raise substantial doubt about
the entity's ability to continue as a going concern. The 1996 consolidated
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
* * *
Home Insurance follows a permitted accounting practice in its statutory
financial statements as filed with the Department which has a material
positive impact on statutory surplus. Non-tabular loss and loss adjustment
expense reserves are reported at their present value discounted at 7.0%
for the time value of money resulting in a reduction of such reserves in
the statutory financial statements and a corresponding increase in
reported statutory surplus of $469 million.
In our opinion, because the amount and timing of ultimate loss payments
are subject to substantial uncertainty, the Company does not meet the
prescribed statutory criteria required to account for its loss reserves on
a discounted basis. However, the Company requested permission to follow
this practice in its 1996 statutory financial statements filed with the
Department and such permission was granted.
4. Public Debt Ratings
In March 1997, Moody's lowered its rating of the Debtor's debt security to
Ca from B3, and S&P lowered its ratings to CC from B-. S&P lowered its rating to
D on June 15, 1997 following the nonpayment of interest due on the Public
Indebtedness, and the rating was restored to CC on November 7, 1997 to reflect
the payment of such interest on July 14, 1997.
<PAGE>
23
5. Tender Offer Of Trygg-Hansa; Transfer Of Stock
On December 1, 1997, Skandinaviska Enskilda Banken ("SE Banken")
consummated a tender offer for the common stock of Trygg-Hansa. Pursuant to an
agreement with Zurich, in an effort to avoid an ownership change within the
meaning of section 382 of the Internal Revenue Code of 1986, as amended, and
preserve the Debtor's NOLs, an affiliate of Trygg-Hansa established a New
Hampshire trust, the Home Holdings Inc. Stock Trust, and, on November 20, 1997,
transferred all of its equity interests in the Debtor to such trust for the
benefit of the shareholders of Trygg-Hansa AB as the date of such transfer. See
"CERTAIN FACTORS TO BE CONSIDERED--Risk Factors--Taxation" and "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE PLAN" for a further discussion of the possible
impact of these transactions on the Debtor's NOLs.
6. The Pre-Reorganization Agreement (9)
Following negotiations commenced by the Senior Noteholders' Committee and
a series of discussions and negotiations between Trygg-Hansa, Zurich, and their
respective representatives, on November 15, 1997, Trygg-Hansa, one of its
affiliates, and two affiliates of Zurich entered into the Pre-Reorganization
Agreement (the "Pre-Reorganization Agreement") setting forth their agreements
with respect to the Plan, the governance of Home Insurance following the
Effective Date, and the contribution by the Trygg-Hansa affiliate of its equity
interests in the Debtor to a New Hampshire trust. The parties to the
Pre-Reorganization Agreement agreed, among other things, (i) to support the
principal terms of the Plan and to vote their respective claims, if any, in
favor of the Plan, (ii) that under the Plan Trygg-Hansa would receive Earn Out
Notes Series II in exchange for its Junior Notes and the Plan would provide for
the Earn Out Notes Series II Payments, (iii) to the formation of Home Insurance
Holdings, LLC for the purpose of holding the shares of Home Insurance as of the
Effective Date, (iv) to the formation of a corporation to act as the manager of
Home Insurance Holdings, LLC, subject to any necessary government approvals, and
that, subject to receipt of any necessary government approvals (including
approval of the Federal Reserve Board), the Trygg-Hansa affiliate and one of the
Zurich affiliates will each purchase up to 50% of the voting shares of such
corporation (or, if acquisition of such shares would not be in conformity with
the terms of any relevant governmental approval, such other interest as may be
in conformity with such terms), (v) to the contribution by the Trygg-Hansa
affiliate of its Series A Common Stock, Series B Convertible Stock, and Series A
Preferred Stock of the Debtor to a New Hampshire trust for the benefit of the
holders of Trygg-Hansa common stock as of the date of such contribution, and
(vi) that, following the date of the Pre-Reorganization Agreement, Trygg-Hansa
is entitled to receive from Zurich an amount equal to a portion of all fees and
expenses actually payable to REM by Home Insurance and its insurance
subsidiaries under the Service Agreement dated as of June 12, 1995.
In addition, the parties to the Pre-Reorganization Agreement agreed
that, if at any time ownership of an interest in the Home Insurance Holdings,
LLC would result in a violation of any law applicable to the affiliate of
Trygg-Hansa or Zurich or any of their respective affiliates (including the terms
of any government approval), such affiliate of Zurich or such affiliate of
Trygg-Hansa may dispose of such interest in accordance with applicable law. Any
such disposition by such entities is to be subject to the consent of the other
party, as the case may be, such consent not to be unreasonably withheld; it
being agreed that neither party may withhold its consent to a disposition by the
other party made in order to comply with applicable law (including the terms of
any government approval, including the approval of the Federal Reserve Board) if
withholding such consent would force the other party to take unreasonable steps
in order to comply with applicable law or the terms of any government approval.
As part of the Pre-Reorganization Agreement, affiliates of Zurich agreed to
indemnify, among other parties, the Trygg-Hansa Group and Home Holdings Inc.
Stock Trust from certain claims and liabilities relating to or arising out of
the operation or governance of Home Insurance Holdings, LLC. See "THE CHAPTER 11
CASE--Events Leading To Or In Contemplation Of The Chapter 11 Case--Tender Offer
Of Trygg-Hansa; Transfer of Stock" and "Description Of Significant Events During
The Pendency Of The Chapter 11 Case--Transfer Of Interests In Home Insurance";
"MANAGEMENT AND OWNERSHIP OF THE DEBTOR--Ownership Of The Debtor"; and "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN--Federal Income Tax Consequences To
The Debtor--Net Operating Loss Carryovers; Limitations" for further discussions
concerning Trygg-Hansa. Affiliates of the parties to the Pre-
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(9) This paragraph was prepared in conjunction with counsel for the Zurich
Group and for Trygg-Hansa.
<PAGE>
24
Reorganization Agreement are also party to an Affiliates Agreement dated
November 15, 1997 regarding certain post-Effective Date obligations between such
parties arising in connection with the Pre-Reorganization Agreement.
For a discussion concerning the status of the request for Federal Reserve
Board approval and an alternative structure for the manager corporation of Home
Insurance Holdings, LLC, see "CHAPTER 11 CASE -- Events Leading To Or In
Contemplation Of The Chapter 11 Case -- The Proposed Restructuring And Third
Party Releases."
7. The Proposed Restructuring And Third Party Releases
During 1997, Home Holdings, Zurich, Trygg-Hansa, the Department, and the
Senior Noteholders' Committee, as then constituted, engaged in negotiations
regarding a consensual restructuring of the indebtedness of the Debtor, which
culminated in the principal economic and other terms of a financial
restructuring proposal, as reflected by the terms and provisions of the Plan.
An integral part of the financial restructuring proposal for Home Holdings
was the agreement by the Senior Noteholders' Committee and the Debtor to grant
the members of the Zurich Group and the Trygg-Hansa Group the releases set forth
in the Plan and described in further detail below. See "SUMMARY OF THE PLAN OF
REORGANIZATION -- Means For Implementation Of The Plan -- Waiver Of Claims;
Covenant Not To Sue; Releases," for a description of the releases and injunction
not to sue set forth in the Plan.
The Zurich Group is providing several sources of financial support which
cumulatively represent both the primary sources of creditor recoveries under the
Plan and the necessary liquidity for the Debtor to satisfy its administrative
expenses. First, the Zurich Note Entity has agreed, pursuant to the New Note
Tender Offer Undertaking, to offer to purchase any and all outstanding New Notes
on the terms and conditions described therein. Second, the Zurich Put Entity has
agreed, pursuant to the Put Option Undertaking, to purchase the Earn Out Notes
Series I on the terms and conditions described therein in the event that an
order for relief under the Bankruptcy Code is entered against Reorganized Home
within five years of the Effective Date. In addition, a member of the Zurich
Group shall enter into the Keepwell Agreement on the Effective Date, which will
insure that Reorganized Home has the necessary liquidity to meet its obligations
under the New Notes and Earn Out Notes Series I. Finally, Centre Reinsurance
Dublin (a member of the Zurich Group) has agreed with the Commissioner that
dividends paid to the Debtor to fund administrative expenses will increase the
amount available under the Excess of Loss Reinsurance Agreement.
The Zurich Group is receiving several different types of direct and
indirect benefits in exchange for their claims against the Debtor and the
financial support provided by members of the Zurich Group described herein.
First, members of the Zurich Group shall receive all of the New Common Stock
issued by Reorganized Home in exchange for their Senior Working Capital Notes.
Reorganized Home shall retain all of the residual tax benefits, net of payments
which Reorganized Home is required to pay to creditors pursuant to the EONs, or
approximately 20.5% of such tax benefits. In addition, as a result of the
transfer of the stock of the Home Insurance to Home Insurance Holdings, LLC, the
Zurich Group shall not have any further obligation under the Excess of Loss
Reinsurance Agreement that could arise from the payment of dividends by the Home
Insurance to the Debtor or Reorganized Home. AmBase argues that as a result
thereof the Zurich Group will be released from approximately $350 million of
obligations under the Excess of Loss Reinsurance Agreement. Zurich disputes that
argument and does not believe that it would have to make any such payments. REM
(an affiliate of the Zurich Group) shall also retain approximately $48 million
in claims against Home Insurance. Finally, the Zurich Group is being provided
with certain releases by creditors of, and holders of equity interests in, the
Debtor as set forth in the Plan.(10)
AmBase argues that it and the holders of the Senior Notes might have
rights directly or indirectly under the Excess of Loss Reinsurance Agreement to
compel dividends of approximately $300 million to Home Holdings for the payment
of all or a portion of their claims. The Debtor, Home Insurance, and Zurich
dispute that argument and would vigorously contest its prosecution. Confirmation
of the Plan will eliminate AmBase's and other creditors' potential recourse, if
any, to such rights.
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(10) This paragraph and the foregoing paragraph were prepared in conjunction
with counsel for the Zurich Group.
<PAGE>
25
Trygg-Hansa contributed significant value to the reorganization. By having
an affiliate contribute all of its equity interests in Home Holdings to the Home
Holdings Inc. Stock Trust, Trygg-Hansa intended to preserve Home Holdings' tax
benefits that will be the basis for value to be received under the Earn Out
Notes. In addition, Trygg-Hansa has agreed, pursuant to the Pre-Reorganization
Agreement, that subject to regulatory approval, an affiliate of Trygg-Hansa will
purchase, for consideration not exceeding $1,000, up to 50% of the voting shares
of a corporation that may be organized for the purpose of acting as a manager of
Home Insurance Holdings, LLC or, if acquisition of such shares would not be in
conformity with the terms of any relevant government approval, such other
interest in Home Insurance Holdings, LLC as may be in conformity with such
terms. See "THE CHAPTER 11 CASE--Events Leading To Or In Contemplation Of The
Chapter 11 Case--The Pre-Reorganization Agreement." Subsequent to the execution
of the Pre-Reorganization Agreement, the staff of the Federal Reserve Board
indicated that it will not recommend to the Board approval of Trygg-Hansa's
purchase of up to 50% of the voting shares of the corporation to be organized to
act as the manager (the "Manager Corporation") of Home Insurance Holdings, LLC
and Trygg-Hansa's designation of 50% of the Manager Corporation's directors.
Trygg-Hansa may, however, be permitted to purchase some lower percentage of the
voting shares of the Manager Corporation and to designate a lower percentage of
the Manager Corporation's directors. Accordingly, Zurich has reached an
agreement in principle with a Delaware trust company whereby the Delaware trust
company has agreed to hold up to 50% of the shares of the Manager Corporation
and to appoint directors to its board. Therefore, to the extent that Trygg-Hansa
is not successful in obtaining the requisite regulatory approval to purchase
voting shares of the Manager Corporation and designate directors to its board,
it is currently contemplated that a Delaware trust company will hold such shares
and designate such directors. All proposals regarding the ownership of Home
Insurance are subject to the approval of the Department and the above
alternative is subject to the execution and delivery of a definite agreement
with the Delaware trust company.(11)
Under the Plan, Trygg-Hansa, as a holder of a Class 6 Junior Note Claim,
will receive the Earn Out Notes Series II, representing substantially less than
100% of the value of the tax savings achieved through the Debtor's NOLs. See
Table II of the "Executive Summary" for summary of distributions on Earn Out
Notes. The Earn Out Notes Series II aggregate approximately 20.5% of the tax
savings of Reorganized Home. Prior to the transfer of its equity interest in
Home Holdings to Home Holdings Inc. Stock Trust, Trygg-Hansa would have been
entitled to 100 percent of that value. Under the Plan, the Trygg-Hansa Group is
also receiving a release from all holders of Claims and Equity Interests.
Trygg-Hansa has advised the Debtor that it is not aware of any claims pending or
threatened against it relating to the Debtor or the Chapter 11 Case. In
addition, Trygg-Hansa is entitled to receive from Zurich an amount equal to a
portion of all fees and expenses actually payable to REM by Home Insurance and
its insurance subsidiaries under the Services Agreement dated as of June 12,
1995. This is a pre-existing obligation of Zurich that is not being released
under the Plan and therefore neither Trygg-Hansa nor Zurich believes that such
payment is part of the Plan consideration.(12)
The Home Insurance Settlement also represents an integral part of the
Plan. As part of the Home Insurance Settlement, releases in favor of Home
Insurance are provided for under the Plan. Home Insurance is providing sources
of financial support, which represent the liquidity necessary for the Debtor to
satisfy its Administrative Expense Claims. Home Insurance through the payment of
dividends (whose dividends are subject to the approval of the New Hampshire
Insurance Department, which approval the Debtor believes will be forthcoming
based upon discussions leading to the formulation and the filing of the Plan and
the Department's preliminary support of the Plan ) will provide the Cash for the
payment of the Allowed Administrative Expense Claims and the Allowed
professional fees and expenses referred to in Section 8.11 of the Plan. In
addition, in contemplation of the Chapter 11 Case and in reliance upon the
imminent filing of the petition by Home Holdings, Home Insurance recapitalized
Sterling Forest and provided value to the Debtor. In that regard, the Department
has required in connection with the proposed restructuring set forth in the Plan
certain protections for Home Insurance, including, without limitation, certain
releases provided for under the Plan. The Department has and will continue to
participate in negotiations concerning the structure and implementation of the
Plan and the transactions contemplated thereby. Its consent was necessary to
certain
- --------
(11) This paragraph and the foregoing paragraph were prepared in conjunction
with counsel for Trygg-Hansa and the Zurich Group.
(12) This paragraph and the foregoing paragraph were prepared in conjunction
with counsel for Trygg-Hansa and the Zurich Group.
<PAGE>
26
transactions that enabled the Plan to be proposed, and its consent remains
necessary as a condition precedent to the Plan becoming effective.
Although not as part of the Plan, Zurich Group and the Home Insurance have
also agreed that the amount available under the Excess of Loss Reinsurance
Agreement will be increased in a manner to reflect any tax savings actually
realized by Reorganized Home net of payments pursuant to Earn Out Notes Series,
I, II, and III.
B. Commencement Of The Chapter 11 Case
Based on the foregoing, on January 15, 1998, Home Holdings filed a
petition for reorganization relief under Chapter 11 of the Bankruptcy Code.
C. Description Of Significant Events During The Pendency Of The Chapter 11 Case
1. Retention Of Professionals
Simultaneously with the filing of the petition, this Disclosure Statement,
and the Plan, the Debtor filed an application to retain Skadden, Arps, Slate,
Meagher & Flom LLP ("Skadden Arps") as bankruptcy counsel and KPMG Peat Marwick
LLP ("Peat Marwick") as accountants and financial adviser. By orders dated
January 31, 1998, the Bankruptcy Court authorized the Debtor's retention of
Skadden Arps and Peat Marwick.
2. Administrative Services Arrangement
On January 31, 1998, the Bankruptcy Court granted the Debtor's motion,
pursuant to sections 105 and 363 of the Bankruptcy Code, for an order approving
an administrative services arrangement among the Debtor, its insurance
subsidiaries, and REM pursuant to the terms set forth in the motion (the
"Administrative Services Motion"). Accordingly, REM is responsible for the
day-to-day operation, direction, management, and supervision of the Debtor
during the pendency of the Chapter 11 Case.
3. The Official Committee Of Unsecured Creditors
On January 23, 1998, the United States Trustee appointed an Official
Committee of Unsecured Creditors (the "Creditors' Committee") in the Chapter 11
Case of the Debtor. The Creditors' Committee originally consisted of: Contrarian
Capital Management LLC, Cerberus Partners, L.P., and Credit Suisse First Boston
Corp. On February 5, 1998, the United States Trustee changed the membership of
the Creditors' Committee to include The Bank of New York, as Indenture Trustee
for the holders of the Senior Notes, and See More Light Investments. There have
been no further changes to the composition of the Creditors' Committee since
February 5, 1998.
By order dated January 31, 1998, the Bankruptcy Court approved the
retention of Anderson Kill as counsel to the Creditors' Committee. By order
dated February 13, 1998, the Bankruptcy Court approved the Creditors'
Committee's retention of Houlihan Lokey as its financial advisor.
4. Transfer Of Interests In Home Insurance(13)
The Debtor will form a limited liability company ("Home Insurance
Holdings, LLC") organized for the purpose of holding the shares of common stock
of Home Insurance as of the Effective Date but not govern or manage the business
of Home Insurance in any way. See "THE DEBTOR AND BACKGROUND OF THE CHAPTER 11
CASE -- Order Of Supervision And Other Regulatory Action" and "MANAGEMENT AND
OWNERSHIP OF THE DEBTOR -- Management Of The Debtor." The members of Home
Insurance Holdings, LLC will consist of holders of Allowed General Unsecured
Claims and Allowed Senior Notes Claims that receive distributions under the
Plan, unless such holders elect not to receive their pro rata share of
- --------
(13) This paragraph was prepared in conjunction with counsel for the Zurich
Group and for Trygg- Hansa.
<PAGE>
27
Membership Units. The Membership Units will be non-transferable and have no
voting or other governance rights.
Immediately prior to the Effective Date, Home Insurance Holdings, LLC
pursuant to the Acquisition Agreement will purchase from the Debtor all of the
issued and outstanding shares of common stock of Home Insurance. Prior to the
Effective Date, a Zurich entity (either Zurich Home Investments Limited or
Zurich Centre Investments Limited, each a Bermuda corporation), subject to
relevant governmental approvals, will purchase 50% of the voting shares of a
newly formed corporation to act as the non-member manager of Home Insurance
Holdings, LLC. Zurich has reached an agreement in principle with a Delaware
trust company whereby the Delaware trust company has agreed to hold up to 50% of
the shares of the Manager Corporation and to appoint directors to its board.
Therefore, to the extent that Trygg-Hansa is not successful in obtaining the
requisite regulatory approval to purchase voting shares of the manager
corporation and designate directors to its board, it is currently contemplated
that a Delaware trust company will hold such shares and designate such
directors. All proposals regarding the ownership of Home Insurance are subject
to the approval of the Department and the above alternative is subject to the
execution and delivery of a definitive agreement with the Delaware trust
company. For a further discussion on the Manager Corporation, see "THE CHAPTER
11 CASE--Events Leading To Or In Contemplation Of The Chapter 11 Case--The
Proposed Restructuring And Third Party Releases."
To enable the Department to continue to exercise its appropriate authority
under the Order of Supervision, the Department has indicated that the
restrictions on transferability and governance rights of the Membership Units
will be necessary and therefore required in order to secure the Department's
consent to this transaction. In particular, the manager of Home Insurance
Holdings, LLC must be acceptable to the Department, thereby obviating any reason
for the Membership Units to have the right to select management. In addition,
because the value of the Membership Units is speculative and no specific value
has been assigned to them, the Membership Units should not be traded. For the
assumptions concerning the value of the Membership Units, see "EXECUTIVE
SUMMARY-Projected Recoveries Under The Plan-Summary Of Principal Assumptions For
Determination Of Projected Recoveries."
D. Business And Operations Of Reorganized Home (14)
It is anticipated that, following the Effective Date, Reorganized Home
will be merged (the "Merger") with and into Zurich Reinsurance North America, a
Connecticut insurance company ("ZRNA"). It is Zurich's current intention,
subject to certain conditions, including receipt of all necessary regulatory
approvals, to consummate the Merger after the Effective Date; however, no
assurances can be given that such Merger will occur or, if so, when. It is
expected that the executive officers of the combined entity will consist of the
current executive officers of ZRNA, as set forth in the following table:
Name Title
Steven M. Gluckstern Chairman
Richard E. Smith President and CEO
Brian E. Kensil Senior Vice President
Isaac Mashitz Senior Vice President
Gerald S. King Senior Vice President
Adrienne W. Reid Senior Vice President
Michael E. Maloney Senior Vice President
Corcoran Byrne Vice President and Secretary
ZRNA is the principal underwriting affiliate of Zurich in the North
American market for traditional property and casualty reinsurance. ZRNA's
executive offices are located at One Chase Manhattan Plaza, 43rd Floor, New
York, New York 10005 and its telephone number is (212) 898-5000. Zurich, a
corporation organized under the laws of Switzerland, is an insurance company
which is engaged in operations in more than 40 countries. Zurich and its
subsidiaries and affiliates are engaged in life and property and casualty
insurance
- --------
(14) This section was prepared by the Zurich Group.
<PAGE>
28
and reinsurance, insurance-related businesses and asset management. Zurich's
principal executive offices are located in Mythenquai 2, Zurich, Switzerland and
its telephone number is 011-411 205-2121.
Zurich anticipates that, following the Merger, the assets, business and
operations of ZRNA will be continued substantially as they are currently being
conducted. Management of ZRNA may, however, cause ZRNA to make such changes as
are deemed appropriate and intends to continue to review ZRNA and its assets,
businesses, operations, properties, policies, corporate structure,
capitalization, and management and consider if any changes would be desirable in
light of the circumstances then existing. In addition, Zurich intends to
continue to review the business of ZRNA and identify synergies and potential
cost savings. See "CERTAIN FACTORS TO BE CONSIDERED--Risk Factors--Taxation" and
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN" for a discussion of the
possible effects of the anticipated merger on Reorganized Home's NOLs.
In addition, Reorganized Home will hold all the limited liability
interests of Sterling Management, which will continue to provide management
services to the Sterling Forest Series A Property and Sterling Forest Series B
Property. For a description of the land development operations, see "THE DEBTOR
AND BACKGROUND OF THE CHAPTER 11 CASE --Other Businesses--Land Development
Operations."
E. Credit Rating Of The Zurich Note Entity And The Zurich Put Entity (15)
Zurich Reinsurance Centre Holdings ("ZRCH"), a Delaware corporation, is
the member of the Zurich Group which will initially be the Zurich Note Entity
and Zurich Put Entity. ZRCH has a "A-" senior debt and counterparty credit
rating from S&P. Under each of the New Note Tender Offer Undertaking and Put
Option Undertaking, ZRCH retains the ability to assign its obligations
thereunder to an Affiliate provided that at the time of such assignment and
after giving effect to such assignment such Affiliate has a credit rating which
is "A" (or higher) from A.M. Best Company or "A" (or higher) from S&P. For a
discussion of the obligations of the Zurich Note Entity and the Zurich Put
Entity, see "SUMMARY OF THE PLAN OF REORGANIZATION--Description Of Securities
And Instruments To Be Issued In Connection With The Plan" and "Means For
Implementation Of The Plan--Tender Offer."
F. Certain Subordination Provisions
The Class 6 Junior Note Claims are by the terms of the Junior Notes
subordinate to certain debt of the Debtor which includes the Class 4 Senior Note
Claims and the Class 7 Senior Subordinated Note Claims (the "Senior Debt").16
Pursuant to Section 5 of the Junior Notes (the "Subordination Provision"), the
holders of
- --------
(15) This paragraph was prepared by counsel for the Zurich Group.
(16) The Term "Senior Debt" is defined in the Junior Notes as follows:
"Senior Debt" shall mean (i) the [Debtor's] 7% Senior Notes due
December 15, 1998, issued pursuant to that certain Indenture, dated
as of December 28, 1993, between the [Debtor] and The Bank of New
York, as trustee, (ii) the [Debtor's] 7-7/8% Senior Notes due
December 15, 2003, issued pursuant to that certain Indenture, dated
as of December 28, 1993, between the [Debtor] and The Bank of New
York, as trustee, (iii) the [Debtor's] 12% Senior Subordinated Notes
due December 31, 2004, issued pursuant to that certain Amended and
Restated Note Exchange Agreement, dated as of April 26, 1995, by and
between the [Debtor] and [Trygg-Hansa], (iv) the Senior Working
Capital Notes, if issued, (v) the indebtedness issued under the Bank
Working Capital Facility, if issued, (vi) the Senior Subordinated
Working Capital Notes, if issued, and (vii) extensions, renewals and
refundings of the Debt referred to in the foregoing clauses (i)
through (vi), except that any such extensions, renewals or
refundings of the Debt referred to in the foregoing clauses (i)
through (vi) shall not increase the principal amount
(continued...)
<PAGE>
29
Senior Debt have the right to receive payment in full of all amounts due or to
become due on or in respect of all Senior Debt before the holders of Junior
Notes are entitled to receive any payment under the Plan on the account of
Junior Notes. The Subordination Provision further provides that any
distributions to be made to the holders of Junior Note Claims under the Plan
shall be received in trust for the benefit of the holders of Senior Debt, and
shall be paid over or delivered and transferred to the holders of Senior Debt.
Based on the projected recoveries, however, the holders of Allowed Senior
Note Claims will not receive as great a recovery (on a percentage basis) as
holders of Allowed Junior Note Claims. For a discussion and the underlying
assumptions of the projected recoveries, see "EXECUTIVE SUMMARY-Projected
Recoveries Under The Plan." The Plan proposes to distribute to each holder of an
Allowed Senior Note Claim less than the full amount provided in the
Subordination Provision. The Debtor believes that the recoveries to be received
by each holder of an Allowed Senior Note Claim under the Plan will be greater
than any recoveries that would be achieved in a Chapter 7 liquidation. By
accepting the distributions under the Plan, each holder of an Allowed Senior
Note Claim will be, as of the Effective Date, deemed to have waived, released,
discharged, and terminated such holder's subordination rights, rights to
post-petition and default interest, or similar rights, and all actions related
to the enforcement of such rights, provided by the Subordination Provision. See
"EFFECT OF CONFIRMATION OF PLAN-Termination Of Subordination Rights."
V. SUMMARY OF THE PLAN OF REORGANIZATION
THIS SECTION PROVIDES A SUMMARY OF THE STRUCTURE, CLASSIFICATION,
TREATMENT, AND IMPLEMENTATION OF THE PLAN, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE PLAN, WHICH ACCOMPANIES THIS DISCLOSURE STATEMENT, AND TO THE
EXHIBITS ATTACHED THERETO.
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT INCLUDE SUMMARIES OF
THE PROVISIONS CONTAINED IN THE PLAN AND IN DOCUMENTS REFERRED TO THEREIN. THE
STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT DO NOT PURPORT TO BE PRECISE
OR COMPLETE STATEMENTS OF ALL THE TERMS AND PROVISIONS OF THE PLAN OR DOCUMENTS
REFERRED TO THEREIN, AND REFERENCE IS MADE TO THE PLAN AND TO SUCH DOCUMENTS FOR
THE FULL AND COMPLETE STATEMENTS OF SUCH TERMS AND PROVISIONS.
THE PLAN ITSELF AND THE DOCUMENTS REFERRED TO THEREIN, WHICH ARE OR WILL
HAVE BEEN FILED PRIOR TO THE HEARING ON FINAL APPROVAL OF THIS DISCLOSURE
STATEMENT, WILL CONTROL THE TREATMENT OF HOLDERS OF CLAIMS AND HOLDERS OF EQUITY
INTERESTS UNDER THE PLAN AND WILL, UPON CONSUMMATION, BE BINDING UPON HOLDERS OF
CLAIMS AGAINST AND EQUITY INTERESTS IN THE DEBTOR AND ALL OTHER PARTIES IN
INTEREST.
A. Overall Structure Of The Plan
Under the Plan, Claims against and Equity Interests in the Debtor are
divided into Classes and subclasses according to their relative seniority and
other criteria. If the Plan is confirmed by the Bankruptcy Court and
consummated, (i) the Claims in certain Classes will receive distributions equal
to the full amount of such Claims, (ii) the Claims in other Classes will receive
distributions constituting a partial recovery on such Claims, and (iii) the
Claims in a certain other Class and the Equity Interests will receive no
distribution. On the Effective Date, and at certain times thereafter, the
Disbursing Agent will distribute Cash, securities, and other property in respect
of certain Classes of Claims as provided in the Plan. The Classes of Claims
against and Equity Interests in the Debtor created under the Plan, the treatment
of those Classes under the Plan, and the securities and other property to be
distributed under the Plan, are described below.
- ----------
(16)(...CONTINUED)
thereof (other than to include accrued and unpaid interest at
such time).
<PAGE>
30
The terms of the Plan are based upon, among other things, the New Note
Tender Offering Undertaking, the Keepwell Agreement, the Put Option Undertaking,
and the Debtor's assessment of its ability to make distributions under the Plan
and its future tax savings through the utilization of its NOLs.
It is the present intention of Zurich that, following consummation of the
Plan, Reorganized Home will be merged with and into ZRNA, although no assurances
can be given that such Merger will occur or, if so, when. ZRNA is the principal
underwriting affiliate of Zurich Insurance Company in the North American market
for traditional property and casualty reinsurance. For a more detailed
description of the anticipated business and operations of Reorganized Home, see
"THE CHAPTER 11 CASE--Business And Operations Of Reorganized Home." See "CERTAIN
FACTORS TO BE CONSIDERED--Risk Factors--Taxation" and "CERTAIN FEDERAL INCOME
TAX CONSEQUENCES OF THE PLAN" for a discussion of the possible effects of the
anticipated Merger on Reorganized Home's NOLs.
B. Certain Matters Regarding Classification And Treatment Of Claims And Equity
Interests
1. Unclassified Claims (Not Entitled To Vote On The Plan)
(a) Administrative Expense Claims
An Administrative Expense Claim consists of any right to payment
constituting a cost or expense of administration of the Chapter 11 Case of a
kind specified under section 503(b) and entitled to priority under section
507(a)(1) of the Bankruptcy Code, including, without limitation, any actual and
necessary costs and expenses of preserving the estate of the Debtor, any actual
and necessary costs and expenses of operating the business of the Debtor, any
indebtedness or obligations incurred or assumed by the Debtor-in-Possession in
connection with the conduct of its business, including, without limitation, for
the acquisition or lease of property or an interest in property or the rendition
of services, all compensation and reimbursement of expenses to the extent
Allowed by the Bankruptcy Court under sections 330 or 503 of the Bankruptcy
Code, and any fees or charges assessed against the estate of the Debtor under
section 1930 of chapter 123 of title 28 of the United States Code.
Except to the extent that any entity entitled to payment of any Allowed
Administrative Expense Claim agrees to a different treatment, each holder of an
Allowed Administrative Expense Claim will receive Cash in an amount equal to
such Allowed Administrative Expense Claim on the later of the Effective Date and
the date such Administrative Expense Claim becomes an Allowed Administrative
Expense Claim, or as soon thereafter as is practicable; provided, however, that
Allowed Administrative Expense Claims representing liabilities incurred in the
ordinary course of business by the Debtor-in-Possession or liabilities arising
under loans or advances to or other obligations incurred by the
Debtor-in-Possession (to the extent authorized and approved by the Bankruptcy
Court if such authorization and approval was required under the Bankruptcy Code)
will be paid in full and performed by Reorganized Home in the ordinary course of
business in accordance with the terms and subject to the conditions of any
agreements governing, instruments evidencing, or other documents relating to,
such transactions. The Debtor expects that Administrative Expense Claims will
approximate $1,105,000 or more in the aggregate if the Plan is confirmed within
90 days of the Commencement Date.
(b) Priority Tax Claims
A Priority Tax Claim consists of any Claim of a governmental unit of the
kind specified in sections 502(i) and 507(a)(8) of the Bankruptcy Code. Except
to the extent that a holder of an Allowed Priority Tax Claim has been paid by
the Debtor prior to the Effective Date or agrees to a different treatment, each
holder of an Allowed Priority Tax Claim will receive, at the sole option of
Reorganized Home, (a) Cash in an amount equal to such Allowed Priority Tax Claim
on the later of the Effective Date and the date such Priority Tax Claim becomes
an Allowed Priority Tax Claim, or as soon thereafter as is practicable, or (b)
equal annual Cash payments in an aggregate amount equal to such Allowed Priority
Tax Claim, together with interest at a fixed annual rate equal to 8 1/4%, over a
period through the sixth anniversary of the date of assessment of such Allowed
Priority Tax Claim, commencing on the first anniversary of the Effective Date,
or upon such other terms as may be determined by the Bankruptcy Court to provide
the holder of such Allowed Priority Tax Claim deferred Cash payments having a
value, as of the Effective Date, equal to such Allowed Priority Tax Claim. The
Debtor expects that Priority Tax Claims will not exceed $800 in the aggregate.
<PAGE>
31
2. Unimpaired Class Of Claims (Deemed To Have Accepted The Plan And
Therefore Not Entitled To Vote On The Plan)
(a) Class 1: Other Priority Claims
An Other Priority Claim consists of any Claim, other than an
Administrative Expense Claim or a Priority Tax Claim, entitled to priority in
right of payment under section 507(a) of the Bankruptcy Code. Each holder of an
Allowed Other Priority Claim will receive Cash in an amount equal to such
Allowed Other Priority Claim on the later of the Effective Date and the date
such Allowed Other Priority Claim becomes an Allowed Other Priority Claim, or as
soon thereafter as is practicable. The Debtor expects that the Other Priority
Claims will be $0.
(b) Class 2: Convenience Claims
A Class 2 Convenience Claim includes any General Unsecured Claim in the
amount of $2,000 or less and any General Unsecured Claim that is reduced to
$2,000 by the election of the holder thereof on such holder's Ballot. Each
holder of an Allowed Convenience Claim will receive Cash in an amount equal to
100% of such Allowed Convenience Claim on the later of the Effective Date and
the date such Allowed Convenience Claim becomes an Allowed Convenience Claim, or
as soon thereafter as is practicable.
By checking the appropriate box on a timely cast Ballot, the holder of an
Allowed General Unsecured Claim in an amount greater than $2,000 may elect to
reduce the amount of such holder's Allowed General Unsecured Claim to $2,000 and
to receive a distribution upon such Allowed Class 2 Convenience Claim in the
amount of $2,000 as described in Section 4.2(b) of the Plan. Such an election
will constitute a waiver of the right to collect, and a release of, the amount
of the Allowed General Unsecured Claim in excess of $2,000, and the holder of
such Allowed Class 2 Convenience Claim will be deemed to have released the
Debtor and its estate, Reorganized Home, and their property from any and all
liability for such excess amount. The holder of an Allowed General Unsecured
Claim which timely elects to reduce the amount of its Allowed Claim will be
deemed to be the holder of an Allowed Class 2 Convenience Claim for
classification, voting, and all other purposes under the Plan. The Debtor
expects that the Convenience Claims will be $0.
(c) Class 3: Secured Claims
A Secured Claim includes any Claim, to the extent reflected in the
Schedules or a proof of claim as a Secured Claim, which is secured by a Lien on
Collateral to the extent of the value of such Collateral, as determined in
accordance with section 506(a) of the Bankruptcy Code, or, in the event that
such Claim is subject to setoff under section 553 of the Bankruptcy Code, to the
extent of such setoff.
Except to the extent that a holder of an Allowed Secured Claim agrees to a
different treatment, at the sole option of Reorganized Home, (i) each Allowed
Secured Claim will be reinstated and rendered unimpaired in accordance with
section 1124(2) of the Bankruptcy Code, notwithstanding any contractual
provision or applicable nonbankruptcy law that entitles the holder of an Allowed
Secured Claim to demand or receive payment of such Allowed Secured Claim prior
to the stated maturity of such Allowed Secured Claim from and after the
occurrence of a default, (ii) each holder of an Allowed Secured Claim will
receive Cash in an amount equal to such Allowed Secured Claim, including any
interest on such Allowed Secured Claim required to be paid pursuant to section
506(b) of the Bankruptcy Code, on the later of the Effective Date and the date
such Allowed Secured Claim becomes an Allowed Secured Claim, or as soon
thereafter as is practicable, or (iii) each holder of an Allowed Secured Claim
will receive the Collateral securing its Allowed Secured Claim and any interest
on such Allowed Secured Claim required to be paid pursuant to section 506(b) of
the Bankruptcy Code, in full and complete satisfaction of such Allowed Secured
Claim on the later of the Effective Date and the date such Allowed Secured Claim
becomes an Allowed Secured Claim, or as soon thereafter as is practicable. The
Debtor does not believe that any Secured Claims can properly be asserted against
it.
<PAGE>
32
3. Impaired Classes Of Claims (Entitled To Vote On The Plan)
(a) Class 4: Unsecured Claims
(i) Group 4-A: General Unsecured Claims
A General Unsecured Claim includes any Unsecured Claim other than a
Convenience Claim, Senior Note Claim, Senior Working Capital Note Claim, Senior
Subordinated Note Claim, Junior Note Claim, or Home Insurance Claim.
On the Initial Distribution Date or as soon thereafter as is practicable,
each holder of an Allowed General Unsecured Claim as of the Record Date will
receive (x) New Notes in a principal amount equal to the product of the
Percentage Formula and such holder's Allowed General Unsecured Claim, (y) its
Pro Rata Share of units of Earn Out Notes Series I, and (z) its Pro Rata Share
of Membership Units in Home Insurance Holdings, LLC, a limited liability company
which is to acquire all of the outstanding shares of stock of Home Insurance.
See "SUMMARY OF THE PLAN OF REORGANIZATION--The Percentage Formula" for further
discussion of the Percentage Formula. On each Subsequent Distribution Date, each
holder of an Allowed General Unsecured Claim which was a Disputed Claim on the
Initial Distribution Date or the prior Subsequent Distribution Date will receive
a Pro Rata Share of the amount of Earn Out Notes Series I, New Notes, and the
Membership Units in the Reserve in accordance with Section 5.3(i) of the Plan.
Each holder of an Allowed General Unsecured Claim, by accepting the
distributions provided for under the Plan, will be deemed to have (i) requested
that it be admitted as a member of the Home Insurance Holdings, LLC and (ii)
agreed to be bound by the terms of the Home Insurance Holdings, LLC Agreement,
unless such holder elects not to be a member by checking the appropriate box on
a timely cast Ballot or so advising the Debtor in writing prior to the Effective
Date. Such an election will constitute a waiver of the right to receive its pro
rata share of Membership Units. The Debtor expects that Allowed General
Unsecured Claims will not exceed $11,857,704 in the aggregate.
(ii) Group 4-B: Senior 7% Note Claims
A Senior 7% Note Claim includes a Claim of a Senior Noteholder arising
under or as a result of the 7% Senior Notes.
On the Initial Distribution Date or as soon thereafter as is practicable,
each holder of an Allowed Senior 7% Note Claim as of the Record Date will
receive (x) New Notes in a principal amount equal to the product of the
Percentage Formula and such holder's Allowed Senior 7% Note Claim, (y) its Pro
Rata Share of units of Earn Out Notes Series I, and (z) its Pro Rata Share of
Membership Units in Home Insurance Holdings, LLC. See "SUMMARY OF THE PLAN OF
REORGANIZATION--The Percentage Formula" for further discussion of the Percentage
Formula. Each holder of an Allowed Senior 7% Note Claim, by accepting the
distributions provided for under the Plan, will be deemed to have (i) requested
that it be admitted as a member of the Home Insurance Holdings, LLC and (ii)
agreed to be bound by the terms of the Home Insurance Holdings, LLC Agreement,
unless such holder elects not to be a member by checking the appropriate box on
a timely cast Ballot or so advising the Debtor in writing prior to the Effective
Date. Such an election will constitute a waiver of the right to receive its pro
rata share of Membership Units. On the Effective Date, the Senior 7% Note Claims
will be deemed Allowed Unsecured Claims in Group 4-B in the aggregate amount of
$104,545,859.37.
(iii) Group 4-C: Senior 7-7/8% Sinking Fund Note Claims
A Senior 7-7/8% Sinking Fund Note Claim includes a Claim of a Senior
Noteholder arising under or as a result of the 7-7/8% Sinking Fund Senior Notes.
On the Initial Distribution Date or as soon thereafter as is practicable,
each holder of an Allowed Senior 7-7/8% Sinking Fund Note Claim as of the Record
Date will receive (x) New Notes in a principal amount equal to the product of
the Percentage Formula and such holder's Allowed Senior 7-7/8% Sinking Fund Note
Claim, (y) its Pro Rata Share of units of Earn Out Notes Series I, and (z) its
Pro Rata Share of Membership Units in Home Insurance Holdings, LLC. See "SUMMARY
OF THE PLAN OF REORGANIZATION--The Percentage Formula" for further discussion of
the Percentage Formula. Each holder of an Allowed Senior 7-7/8% Sinking Fund
Note Claim, by accepting the distributions provided for under the Plan, will be
deemed to
<PAGE>
33
have (i) requested that it be admitted as a member of the Home Insurance
Holdings, LLC and (ii) agreed to be bound by the terms of the Home Insurance
Holdings, LLC Agreement, unless such holder elects not to be a member by
checking the appropriate box on a timely cast Ballot or so advising the Debtor
in writing prior to the Effective Date. Such an election will constitute a
waiver of the right to receive its pro rata share of Membership Units. On the
Effective Date, the Senior 7-7/8% Sinking Fund Note Claims will be deemed
Allowed Unsecured Claims in Group 4-C in the aggregate amount of
$188,568,871.16.
(iv) Group 4-D: Senior 7-7/8% Note Claims
A Senior 7-7/8% Note Claim includes a Claim of a Senior Noteholder arising
under or as a result of the 7-7/8% Senior Notes.
On the Initial Distribution Date or as soon thereafter as is practicable,
each holder of an Allowed Senior 7-7/8% Note Claim as of the Record Date will
receive (x) New Notes in a principal amount equal to the product of the
Percentage Formula and such holder's Allowed Senior 7-7/8% Note Claim, (y) its
Pro Rata Share of units of Earn Out Notes, and (z) its Pro Rata Share of
Membership Units in Home Insurance Holdings, LLC. See "SUMMARY OF THE PLAN OF
REORGANIZATION--The Percentage Formula" for further discussion of the Percentage
Formula. Each holder of an Allowed Senior 7-7/8% Note Claim, by accepting the
distributions provided for under the Plan, will be deemed to have (i) requested
that it be admitted as a member of the Home Insurance Holdings, LLC and (ii)
agreed to be bound by the terms of the Home Insurance Holdings, LLC Agreement,
unless such holder elects not to be a member by checking the appropriate box on
a timely cast Ballot or so advising the Debtor in writing prior to the Effective
Date. Such an election will constitute a waiver of the right to receive its pro
rata share of Membership Units. On the Effective Date, the Senior 7-7/8% Note
Claims will be deemed Allowed Unsecured Claims in Group 4-D in the aggregate
amount of $543,171.81.
(v) Group 4-E: Home Insurance Claim
The Home Insurance Claim includes any and all claims which Home Insurance
may have against the Debtor and the Debtor-in-Possession arising out of that
certain Consolidated Group Tax Agreement, dated February 13, 1991, between Home
Holdings and Home Insurance.
On the Initial Distribution Date, or as soon thereafter as is practicable,
in full satisfaction of the Home Insurance Claim, Home Insurance shall receive
the consideration provided in the Home Insurance Settlement described in Section
9.1 of the Plan. On the Effective Date, the Home Insurance Claim shall be deemed
an Allowed Unsecured Claim in Group 4-E in the amount of $14,145,407.
(b) Class 5: Senior Working Capital Note Claims
A Senior Working Capital Note Claim includes a Claim of a Senior Working
Capital Noteholder arising under or as a result of the Senior Working Capital
Notes.
On the Initial Distribution Date or as soon thereafter as is practicable,
each holder of an Allowed Senior Working Capital Note Claim as of the Record
Date will receive a pro rata share of the New Common Stock in the New Common
Stock Distribution Pool. On the Effective Date, the Senior Working Capital Note
Claims will be deemed Allowed Unsecured Claims in Class 5 in the aggregate
amount of $71,424,889.
(c) Class 6: Junior Note Claims
A Junior Note Claim includes a Claim of a Junior Noteholder arising under
or as a result of the Junior Notes.
On the Initial Distribution Date or as soon hereafter as is practicable,
the holder of the Allowed Junior Note Claims (other than Zurich Home Investments
Limited) as of the Record Date will receive the Earn Out Notes Series II. Zurich
Home Investments Limited has waived its Junior Note Claims and the right to
receive a distribution on account of its Junior Note Claims. On the Effective
Date, the Junior Note Claims will be deemed Allowed Unsecured Claims in Class 6
in the aggregate amount of $41,340,232.
<PAGE>
34
4. Impaired Classes Of Claims And Equity Interests (Not Entitled To
Vote On The Plan)
(a) Class 7: Senior Subordinated Note Claims
A Senior Subordinated Note Claim includes a Claim of a Senior Subordinated
Noteholder arising under or as a result of the Senior Subordinated Notes. Class
7 is deemed to have rejected the Plan, and, therefore, is not entitled to vote
to accept or reject the Plan.
On the Effective Date, the holders of Senior Subordinated Notes shall not
be entitled to, and shall not, receive or retain any property or interest in
property on account of such Senior Subordinated Notes. See "FEASIBILITY; BEST
INTEREST OF CREDITORS; CONFIRMATION OF THE PLAN--Confirmation Without Acceptance
Of All Impaired Classes: The 'Cramdown' Alternative." The Debtor believes the
Plan does not unfairly discriminate and is fair and equitable to Class 7.
(b) Class 8: Equity Interests
A Class 8 Equity Interest includes any share of preferred stock or common
stock or other instrument evidencing an ownership interest in the Debtor,
whether or not transferable, and any option, warrant, or right, contractual or
otherwise, to acquire any such interest. Class 8 is deemed to have rejected the
Plan, and, therefore, is not entitled to vote to accept or reject the Plan. On
the Effective Date, the Class 8 Equity Interests in the Debtor will be canceled
and each holder of a Class 8 Equity Interest in the Debtor will not be entitled
to, and will not, receive or retain any property or interest in property on
account of such Class 8 Equity Interest. See "FEASIBILITY; BEST INTEREST OF
CREDITORS; CONFIRMATION OF THE PLAN--Confirmation Without Acceptance Of All
Impaired Classes: The 'Cramdown' Alternative." The Debtor believes the Plan does
not unfairly discriminate and is fair and equitable to Class 8.
C. Description Of Securities And Instruments To Be Issued In Connection With
The Plan
1. Earn Out Notes Series I
The principal terms of the Earn Out Notes Series I to be issued by
Reorganized Home under the Plan are set forth below. The following summary is
qualified by reference to, and may be modified by, the form of Earn Out Notes
Indenture and the Earn Out Notes Series I which will be filed with the
Bankruptcy Court at least 10 days prior to the date of the Confirmation Hearing.
Issuer:
Reorganized Home.
Issue:
Units of Earn Out Notes Series I (the "Series I EONS").
Number Of Units:
315,000 Units to be issued on a pro rata basis to holders of
Claims based upon the Senior Notes issued and outstanding
immediately prior to the Effective Date plus amounts due on
the Senior Notes, including interest accrued through the
Commencement Date and to holders of Allowed Group 4-A General
Unsecured Claims.
Participation Of Series I EONS:
The Series I EONS will participate in the Federal, state, and
local income tax savings (the "Tax Savings") realized by
Reorganized Home through the actual or deemed utilization by
the consolidated group of which Reorganized Home or its
successor in a merger with another entity in which Reorganized
Home is not the surviving entity, is a member (the "Home
Group") of the net operating loss carryforwards available to
Reorganized Home immediately after the Effective Date as set
forth in the Plan after taking into account adjustments
required by reason of the consummation of the Plan, including
the reductions required pursuant to sections 108(b) and
382(l)(5) of the Internal Revenue Code of 1986, as amended
(the "Specified NOL Carryovers").
<PAGE>
35
Tax Savings:
The Tax Savings will be the difference between the
consolidated Federal, state, and local income tax liability of
the Home Group with or without the Specified NOL Carryovers.
Amount Of Participation:
The Series I EONS issued in exchange for Senior Notes will be
entitled in the aggregate to 50% of the Tax Savings and Series
I EONS issued to holders of Allowed Group 4-A General
Unsecured Claims will be entitled in the aggregate to a
percentage of the Tax Savings that is in the same ratio to
their aggregate allowed claims as 50% is to the aggregate
Allowed Senior Note Claims (such aggregate portion of the Tax
Savings, the "Allocated Participation").
Computation Of Tax Savings:
The Tax Savings will be computed each taxable year based upon
the Federal, state, and local income tax returns (a "Tax
Return") of the Home Group filed with respect to such year and
certified (a "Certification") by the Chief Financial Officer
of the Home Group on September 25 of the following taxable
year.
Payments To Series I EONS-Holders:
Subject to the third following sentence, upon the issuance by
the Home Group of a Certification with respect to any of its
Tax Returns, Series I EONS-holders shall be entitled to
payments with respect to their Series I EONS as follows:
(a) with respect to the actual or deemed utilization of the
first $200 million of Specified NOL Carryovers: (i) on October
15 following the issuance of each Certification (the "Initial
Payment Date"), an aggregate amount equal to 35% of the
Allocated Participation thereby certified and (ii) upon the
October 15 following the expiration of the statute of
limitations with respect to the Tax Return to which the
Certification relates, an aggregate amount equal to the
excess, if any, of the Allocated Participation for such
taxable year as finally determined over the amounts previously
paid pursuant to clause (i) plus interest on the amount paid
pursuant to this clause (ii) at a fixed rate equal to the
5-year Treasury Notes rate as of the Initial Payment Date with
respect to such taxable year, plus 35 basis points, from the
Initial Payment Date with respect to such taxable year; and
(b) thereafter: (i) on the Initial Payment Date with respect
to a taxable year, an aggregate amount equal to 20% of the
Allocated Participation thereby certified and (ii) upon the
October 15 following the expiration of the statute of
limitations with respect to the Tax Return to which the
Certification relates, an aggregate amount equal to the
excess, if any, of the Allocated Participation for such
taxable year as finally determined over the amounts previously
paid pursuant to clause (i) plus interest on the amount paid
pursuant to this clause (ii) at a fixed rate equal to the
5-year Treasury Notes rate as of the Initial Payment Date with
respect to such taxable year, plus 35 basis points, from the
Initial Payment Date with respect to such taxable year.
Credit support for payments due, including interest accrued
thereon, shall be provided in the form of a Keepwell Agreement
by a member of the group comprised of Zurich Insurance Company
and its worldwide affiliates with creditworthiness
satisfactory to the Senior Noteholders' Committee (the "Zurich
Entity").
<PAGE>
36
In the event that payment of the first installment on the
Series I EONS with respect to any Taxable Year is not made on
the Initial Payment Date other than for the reason set forth
in the following paragraph, Reorganized Home shall pay
interest thereon monthly at a rate of 8.31%, accruing from the
Initial Payment Date.
In the event that the Internal Revenue Service (or, if
relevant, any state or local taxing authority) issues a notice
of proposed adjustment (or any procedurally later notice, such
as a notice of proposed deficiency or notice of deficiency)
which, if sustained, would disallow all or a portion of the
Tax Savings in question, payments with respect to the
challenged Tax Savings will be suspended to the extent of such
challenge, taking into account the effect of such challenge on
other taxable years (or, in the case of Tax Savings described
in clause (a), above, reduced to 20% of the Allocated
Participation) until a final determination. Once a final
determination has been made, the Allocated Participation with
respect to the Tax Savings as finally determined shall be paid
(to the extent not previously paid), plus interest thereon at
a fixed rate equal to the 5-year Treasury Notes rate as of the
Initial Payment Date, plus 35 basis points from the Initial
Payment Date.
Minimum Cumulative Operating Income Of Reorganized Home:
Pursuant to the terms of the Series I EONS, the Home Group
will agree, solely in favor of the Series I EONS-holders, that
it will utilize its best efforts to generate cumulative
taxable income (determined without regard to the Specified NOL
Carryovers) at least as follows:
From the Effective Date through the end of the first taxable
year ending on or after the thirty- third month after the
Effective Date (the "First Target Date")
$200 million(17) (the "First Target")
From the Effective Date through the end of the first taxable
year ending on or after the fifty- seventh month after the
Effective Date (the "Second Target Date")
$400 million (the "Second Target")
- --------
(17) In the event that the Effective Date falls after the first quarter of
1998, the First Target Date will be December 31, 2000, with the First
Target reduced by a fraction, the numerator of which is the number of days
after March 31 that the Effective Date occurs and the denominator of which
is 731 (the total number of days in 1999 and 2000). To the extent that
there is any such reduction in the First Target, December 31, 2001 will
constitute a Supplemental First Target Date ("Supplemental First Target
Date") by which the Home Group will utilize its best efforts to generate
cumulative taxable income of $200 million ("Supplemental First Target").
The Supplemental First Target will be subject to the same conditions and
limitations, and will provide the same remedies for the Series I
EONS-holders, as the other Targets set forth herein.
<PAGE>
37
From the Effective Date through the end of the first taxable
year ending on or after the ninety- third month after the
Effective Date (the "Third Target Date")(18)
$700 million (the "Third Target")
From the Effective Date through the last year of the NOL
carryforward period of the Specified NOL Carryovers (the
"Fourth Target Date")(19)
the lessor of $1 billion and 90% of the amount of the
Specified NOL Carryovers as finally determined (the
"Fourth Target")
(a) In the event that such Targets are not met other than by
reason of a Material Change of Law, the sole remedy for the
Series I EONS-holders shall be to receive payments with
respect to the Series I EONS in an amount equal to the amounts
that would have been payable were the minimum income levels
met at the times at which such amounts would have been
payable. To the extent that the actual taxable income of the
Home Group is less than the amounts specified above, the
excess deemed income shall be deemed to have the same
characteristics as the actual income of the Home Group from
the Effective Date through the relevant Target Date.
(b) In the event that such Targets are not met by reason of a
Material Change of Law, the Series I EONS-holders shall have
no remedy. For this purpose, a Material Change of Law shall
mean: a change in any Federal, state, or local statute,
unappealable and final court decision, regulation, ruling, or
other administrative practice or order, or any lapse or
reinterpretation of existing law (a "Change of Law"), that
prohibits or effectively proscribes the Zurich Group from
conducting its business in the United States.
(c) In the event of the disallowance, in whole or in part, of
the deductibility of the Specified NOL Carryovers, or if, as a
result of a Change of Law, the deductibility of the Specified
NOL Carryovers is limited, the Targets above will be adjusted
so that they do not exceed the amount of Specified NOL
Carryovers that can be utilized by Reorganized Home to offset
its income.
(d) In the event that the Home Group fails to generate any
taxable income, for purposes of calculating payments due with
respect to the Targets, the amount of the Specified NOL
Carryovers shall be deemed to be equal to the amount shown as
such on the Tax Return of Reorganized Home for the first
taxable year ending after the Effective Date.
- ----------
(18) Based on the current estimated amount of the Specified NOL Carryovers of
approximately $560-610 million, the Third Target will effectively be lower
than $700 million.
(19) Based on the current estimated amount of the Specified NOL Carryovers of
$560-610 million, the Fourth Target will not be operative.
<PAGE>
38
Any payments made pursuant to this section shall be credited
against future amounts otherwise payable with respect to the
Series I EONS.
In the preparation of the Tax Returns of the Home Group or any
proceeding relating thereto, Reorganized Home will seek
realization of Tax Savings relating to the Specified NOL
Carryovers in good faith; provided that this paragraph shall
not give any Series I EONS-holders or any other person any
rights with respect to the preparation or filing of any Tax
Return of the Home Group or the conduct of any proceeding with
respect thereto or any rights to be provided with confidential
information of Reorganized Home or its Affiliates.
Transfers Of New Common Stock:
In the event that holders of New Common Stock of Reorganized
Home transfer more than 20% of such stock during the first two
years following the Effective Date, or any such stock
thereafter, and such transfer causes an ownership change
within the meaning of section 382 of the Internal Revenue Code
of 1986, as amended, such holders will make, or cause
Reorganized Home to make, payments with respect to the Series
I EONS with respect to the First, Supplemental First, Second,
Third, and Fourth Target Dates, as applicable, that are no
less than the amounts that would have been due if such
ownership change had not occurred, and subject to a Material
Change of Law, taxable income in the taxable year ending on
the relevant Target Date before deducting the Specified NOL
Carryovers equaled the excess of the respective Target (where
appropriate) for such year over the amount of taxable income
with respect to which the Tax Savings have previously been
taken into account.
(b) Transfers of New Common Stock shall not affect the Zurich
Entity's Keepwell obligations hereunder unless those
obligations are assumed by another entity with an equivalent
or better AM Best rating for claims paying ability at the time
of transfer.
Transfers Of Series I EONS:
Certain limited restrictions on transferability under certain
limited circumstances to the extent necessary to prevent
adverse consequences under Section 382 of the Internal Revenue
Code of 1986, as amended.
Order For Relief Against Reorganized Home:
In the event that an order for relief under title 11 of the
United States Code is entered against Reorganized Home within
five years of the Effective Date, the Series I EONS will be
puttable to the Zurich Put Entity at a price to be determined
pursuant to the formula set forth on Schedule 1-A to Exhibit A
to the Plan.
Expiration:
The Series I EONS will expire upon the final payment made by
Reorganized Home to the Series I EONS-holders with respect to
the last year of the NOL carryforward period of the Specified
NOL Carryovers.
2. Earn Out Notes Series II
The principal terms of the Earn Out Notes Series II to be issued by
Reorganized Home under the Plan and related terms of the Pre-Reorganization
Agreement are set forth below. The following summary is qualified by reference
to, and may be modified by, the form of Earn Out Notes Series II, which will be
filed with the Bankruptcy Court at least 10 days prior to the date of the
Confirmation Hearing.
<PAGE>
39
Issuer:
Reorganized Home.
Issue:
The Plan shall provide for the issuance to Trygg-Hansa in
exchange for its Junior Subordinated Note of Series II EONS
which shall provide for the Series II EONS Payments.
Series II EONS Payment:
The "Series II EONS Payment" shall mean payments which
Reorganized Home will be required to make pursuant to the
Series II EONS on October 31 of each year, equal to (i) until
Trygg-Hansa has received payments with a net present value
(calculated from the Effective Date) of $20 million, the
greater of (A) 50% of the Zurich Tax Benefits with respect to
the taxable year ending immediately prior to such October 31
or (B) 20.5% of the Tax Benefits for such taxable year, and
(ii) 10% of the Zurich Tax Benefits thereafter; provided that
the net present value (calculated from the Effective Date) of
the Series II EONS Payments shall not exceed $50 million.
"Zurich Tax Benefits" means (a) 85%, multiplied by (b) Tax
Benefits reduced by amounts payable with respect thereto to
holders of the Series I EONS. "Tax Benefits" means the
difference between (x) the consolidated Federal, state, and
local income tax liability of the Home Group with the Home
NOLs and (y) the consolidated Federal, state, and local income
tax liability of the Home Group without the Home NOLs computed
each taxable year, which shall initially be based upon the
Federal, state, and local income tax returns of the Home Group
filed with respect to such year and shall initially certified
by the Chief Financial Officer of Reorganized Home on
September 25 of the following taxable year. "Home NOLs" means
the net operating loss carryforwards and built-in losses
available to Reorganized Home immediately after the Effective
Date. "Home Group" means any affiliated, consolidated,
combined, or unitary group of which the Reorganized Home is or
would become a member. "Net present value" hereunder shall be
calculated using a 7.5% discount rate compounded quarterly.
So long as Trygg-Hansa or any of its Affiliates owns the
Series II EONS, Series II EONS Payments shall be made to
Trygg-Hansa, by wire transfer in immediately available funds
to an account designated by Trygg-Hansa, on October 31 of each
year and shall be accompanied by a certification by the Chief
Financial Officer of Reorganized Home as described in the
definition of "Tax Benefits." Series II EONS Payments with
respect to Series II EONS not held by Trygg-Hansa or any of
its Affiliates shall be made on the same basis as payments
pursuant to other EONS.
<PAGE>
40
Minimum Cumulative Operating Income Of The Home Group:
(a) Pursuant to the Series II EONS, the Home Group will agree,
solely in favor of Trygg-Hansa and its successors and assigns,
that it will utilize its best efforts to generate cumulative
taxable income (determined without regard to the Reorganized
Home's NOLs) at least as follows:
(i) $200 million for the period from the Effective Date
through the end of the first taxable year ending on or after
the thirty-third month after the Effective Date (the "First
Target");
(ii) $400 million for the period from the Effective Date
through the end of the first taxable year ending on or after
the fifty-seventh month after the Effective Date (the "Second
Target");
(iii) $700 million for the period from the Effective Date
through the end of the first taxable year ending on or after
the ninety-third month after the Effective Date (the "Third
Target"); and
(iv) the lesser of $1 billion and ninety percent of the Home
NOLs as finally determined for the period from the Effective
Date through the last year of the carryforward period of the
Home NOLs (the "Final Target").
(b) (i) If the Targets described in (a)(i)-(iv) above are not
met, then, subject to clause (ii) below, the remedy (which
shall be the sole remedy) of the Series II EONS-holders as a
result of such failure shall be to receive Series II EONS
Payments in the amounts that would have been payable were the
Targets met at the time when such amounts would have been
payable. To the extent that the actual taxable income of the
Home Group is less than the amounts specified above, the
excess deemed income shall be deemed to have the same
characteristics as the actual income of the Home Group from
the Effective Date through the date specified in the relevant
clause above. Any amounts paid solely by reason of the
application of this clause (b) shall be credited against
future amounts otherwise payable pursuant to the Series II
EONS. Deemed income shall not be taken into account in
determining the cumulative taxable income of the Home Group
under (a)(i)-(iv).
(ii) To the extent that the Targets described in (a)(i)-(iv)
above are not met by reason of a Material Change of Law, the
Series II EONS-holders shall have no remedy. For this purpose,
a "Material Change in Law" shall mean: a change in any
Federal, state or local statute, unappealable and final court
decision, regulation, ruling or other administrative practice
or order, or any lapse or reinterpretation of existing law
that prohibits or effectively proscribes Zurich from
conducting its business in the United States.
<PAGE>
41
(c) If, subsequent to the making of a Series II EONS Payment
there is a Final Tax Determination or the filing of an amended
tax return that results in the reduction or elimination in
whole or in part of the Tax Benefit that gave rise to such
Payment, the amount of the Series II EONS Payment shall be
recomputed and Trygg-Hansa shall repay to Home Holdings an
amount (the "Repayment Amount") equal to the excess of the
Series II EONS Payment actually paid over the amount of the
Series II EONS Payment as so recomputed based upon such Final
Tax Determination or amended Tax Return (together with an
allocable portion of any interest payable to the Internal
Revenue Service or other relevant taxing authority); provided
however that the aggregate repayments pursuant to this (c)
(exclusive of amounts relating to interest) shall not exceed
the aggregate amounts paid pursuant to the Series II EONS.
In the preparation of the Tax Returns of the Home Group or any
proceeding relating thereto, Reorganized Home will seek
realization of the Tax Benefits relating to the Reorganized
Home's NOLs in good faith; provided that neither this
paragraph nor any other provision of the Pre-Reorganization
Agreement shall give Trygg-Hansa or any other person any
rights with respect to the preparation or filing of any Tax
Return of the Home Group or the conduct of any proceeding with
respect thereto or any rights to be provided with confidential
information of Reorganized Home or its Affiliates.
Transfers Of Series II EONS
Certain limited restrictions on transferability under certain
limited circumstances to the extent necessary to prevent
adverse consequences under Section 382 of the Internal Revenue
Code of 1986, as amended; provided that Trygg-Hansa may
transfer Series II EONS to Trygg-Hansa Forsakrings AB or any
of their respective Affiliates.
Transfers Of New Common Stock:
See "SUMMARY OF THE PLAN OF REORGANIZATION--Description Of
Securities And Instruments To Be Issued In Connection With The
Plan--Earn Out Notes Series I--Transfers Of New Common Stock."
3. Earn Out Notes Series III
The principal terms of the Earn Out Notes Series III to be issued by
Reorganized Home under the Plan are set forth below. The following summary is
qualified by reference to, and may be modified by, the form of Earn Out Notes
Series III, which will be filed with the Bankruptcy Court at least 10 days prior
to the date of the Confirmation Hearing.
Issuer:
Reorganized Home.
Issue:
Units of Earn Out Notes Series III ("Series III EONS").
Number Of Units:
One Note to be issued for release of Class 4-E claims under
the Plan.
Participation Of Series III EONS:
The Series III EONS will participate in the Federal, State,
and local income tax savings (the "Tax Savings") realized by
Reorganized Home through the utilization by the consolidated
group of which Reorganized Home or its successor is a member
(the "Home Group") of the net operating loss carryforwards
available to Reorganized Home immediately after the Effective
<PAGE>
42
Date as set forth in the Plan after taking into account
adjustments required by reason of the consummation of the
Plan, including the reductions required pursuant to sections
108(b) and 382(l)(5) of the Internal Revenue Code of 1986, as
amended (the "Specified NOL Carryovers").
Tax Savings:
The Tax Savings will be the difference between the
consolidated Federal, state, and local income tax liability of
the Home Group with or without the Specified NOL Carryovers.
Amount Of Participation:
The Series III EONS will be entitled in the aggregate to 6.89%
of the Tax Savings realized by Reorganized Home (the "Series
III EONS Allocated Participation").
Computation Of Tax Savings:
The Tax Savings for each year will be calculated as of the
earlier of: a) the expiration of the statute of limitations
with respect to the relevant taxable year; or b) the time at
which a Final Determination (within the meaning of section
1313(a) of the Internal Revenue Code of 1986, as amended) is
made with respect to the tax liability of Reorganized Home for
the relevant taxable year (a "Calculation Date") and will be
certified (a "Certification") by the Chief Financial Officer
of Reorganized Home within 30 days of the Calculation Date.
Payments To Series III EONS-Holders:
Upon the issuance by Reorganized Home of a Certification with
respect to its Tax Savings for a taxable year, Series III
EONS- holders shall be entitled to payments with respect to
their Series III EONS in the amount of the Series III EONS
Allocated Participation relating to such Certification plus
interest thereon at a fixed rate equal to the Specified
Treasury Rate plus 35 basis points from October 15 of the
taxable year following the taxable year to which the
Certification relates. "Specified Treasury Rate" shall mean
the 5-Year Treasury Notes rate as of October 15 of the taxable
year following the taxable year to which the Certification
relates.
Transfers Of Series III EONS:
Certain limited restrictions on transferability under certain
lim- ited circumstances to the extent necessary prevent
adverse consequences under Section 382 of the Internal Revenue
Code of 1986, as amended.
Expiration:
The Series III EONS will expire upon the final payment made by
Reorganized Home with respect to the Series III EONS with
respect to the last year of the NOL carryforward period of the
Specified NOL Carryovers.
4. New Notes
The principal terms of the New Notes to be issued by Reorganized Home
under the Plan are set forth below. The following summary is qualified by
reference to, and may be modified by, the form of the New Notes Indenture and
New Notes which will be filed with the Bankruptcy Court at least 10 days prior
to the date of the Confirmation Hearing.
Issuer:
Reorganized Home.
Issue:
Senior Notes due 2005 (the "New Notes").
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Issuance:
New Notes to be issued to holders of Allowed Senior Note Claims and
Allowed General Unsecured Claims on or as soon as practicable after
the Effective Date.
Price:
The product of the "Percentage Formula" and each holder's Allowed
General Unsecured Claim or Allowed Senior Note Claim, as the case
may be. See "SUMMARY OF THE PLAN OF REORGANIZATION-- The Percentage
Formula" for further discussion of the "Percentage Formula."
Denominations:
$1,000 and integral multiples thereof.
Interest:
The interest rate per annum shall be a fixed rate equal to the
5-year Treasury Note rate as of the Effective Date. Interest for the
first 3 years following the Effective Date may, at Reorganized
Home's option, be paid in the form of additional New Notes.
Maturity:
8 years (2005).
Mandatory Redemption:
None prior to maturity.
Optional Redemption:
The New Notes may be redeemed at the option of Reorganized Home, in
whole or in part, at any time on not less than 30 nor more than 60
days' notice, at par plus accrued and unpaid interest, if any, to
the redemption date.
Ranking:
The New Notes will be senior unsecured obligations of Reorganized
Home, ranking pari passu with all other existing and future senior
unsecured obligations of Reorganized Home and will rank senior to
all existing and future subordinated debt of Reorganized Home.
Covenants:
Same as in the Indenture dated as of December 22, 1993 (the "Old
Indenture"), relative to the Company's 7% Senior Notes due December
15, 1998.
Events Of Default:
Same as in the Old Indenture.
Defeasance Or Covenant Defeasance:
Market terms.
Modification Of New Indenture:
Same as in the Old Indenture.
Credit Support:
Credit support for payments due, including interest accrued thereon,
shall be provided in the form of a Keepwell Agreement by a member of
the group composed of Zurich Insurance Company and its worldwide
affiliates with creditworthiness satisfactory to the Senior
Noteholders' Committee.
5. Membership Units
The principal terms of the Membership Units in Home Insurance Holdings,
LLC are set forth below. The following summary is qualified by reference to, and
may be modified by, the form of the Home Insurance Holdings, LLC Agreement,
which will be filed with the Bankruptcy Court at least 10 days prior to the
Confirmation Date.
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44
The Membership Units represent interests in the Home Insurance Holdings,
LLC and entitle the members to participate in the profits and losses of, and any
distributions made by, the Home Insurance Holdings, LLC. Membership Units carry
no voting rights and are non-transferable.
6. New Common Stock
The principal terms of the New Common Stock to be issued by Reorganized
Home under the Plan will be set forth in an Amended Home Certificate of
Incorporation to be contained in the Plan Supplement and filed with the Clerk of
the Bankruptcy Court at least 10 days prior to the date of the Confirmation
Hearing.
D. The Percentage Formula
The "Percentage Formula" was developed to calculate the recovery to be
realized on the New Notes by the holders of Allowed Senior Note Claims and
Allowed Class 4-A General Unsecured Claims, which recovery was negotiated
between the Senior Noteholders' Committee and the Zurich Group. The face amount
of the New Notes to be distributed to a holder of either an Allowed Class 4-A
General Unsecured Claim or an Allowed Senior Note Claim is computed by
multiplying the percentage determined by the Percentage Formula and such
holder's Allowed Class 4-A General Unsecured Claim or Allowed Senior Note Claim,
as the case may be. The Percentage Formula means:
(A/B)
-----
.99
when
A = the sum of
(i) $61,271,875 (representing 25% of the $280,000,000 principal
amount of the Senior Notes, plus 25% of accrued interest on
the Senior Notes as of June 15, 1997, less 100% of accrued
interest paid thereon in July 1997) and
(ii) .25 x (((280,000,000 (representing the principal amount of the
Senior Notes) x .083125 (representing the weighted average of
annual interest rates on the Senior Notes)) / 360
(representing the number of days in a year for the purpose of
computing interest)) x N1),
N1 = the number of days from and including June 16, 1997 to and
including the Effective Date,
B = the sum of (i) 280,000,000 and
(ii) (((280,000,000 x .083125) / 360) x N2), and
N2 = the number of days from and including June 16, 1997 to and
excluding the Commencement Date.
Because the Debtor filed its Chapter 11 petition on January 15, 1998, and
assuming an Effective Date of April 15, 1998, "N2" would be equal to 213 days
and "N1" would be equal to 304 days. Thus, the Percentage Formula would be equal
to approximately 22.76%. Accordingly, if the Effective Date is prior to April
15, 1998, the Percentage Formula will be less than 22.76%, and if the Effective
Date is after April 15, 1998, the Percentage Formula will be greater than
22.76%.
E. Home Insurance Settlement
On the Effective Date, and in accordance with the Plan, the Home Insurance
Settlement will be effective. In accordance with the Home Insurance Settlement,
the Home Insurance Claim against the Debtor will be resolved and compromised and
Home Insurance will exchange the Home Insurance Claim against the Debtor as
follows:
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45
(a) On the Effective Date, the Home Insurance Claim will be deemed
an Allowed Unsecured Claim in Group 4-E in the amount of $14,145,407.
(b) On the Initial Distribution Date, or as soon thereafter as is
practicable, in full satisfaction of the Home Insurance Claim, Home Insurance
will receive the Earn Out Notes Series III.
(c) In exchange for the Earn Out Notes Series III, Home Insurance
shall release the Home Insurance Claim.
In addition, on the Effective Date, the Debtor and Home Insurance will
each execute general releases in favor of the other party, except with respect
to obligations under or pursuant to the Plan. Home Insurance will also be
entitled to receive a release under Section 8.10 of the Plan.
F. Certain Provisions Regarding Corporate Governance And Management Of
Reorganized Home
1. General
On the Effective Date, the management, control, and operation of
Reorganized Home will become the general responsibility of the Board of
Directors of Reorganized Home, who will, thereafter, have the responsibility for
the management, control, and operation of Reorganized Home.
2. Meetings Of Reorganized Home Stockholders
In accordance with the Amended Home Certificate of Incorporation and the
Amended Home Bylaws, as the same may be amended from time to time, the first
annual meeting of the stockholders of Reorganized Home will be held on a date in
1998 to be selected by the Board of Directors of Reorganized Home, and
subsequent meetings of the stockholders of Reorganized Home will be held at
least once annually each year thereafter.
3. Directors And Officers Of Reorganized Home
(a) Board Of Directors
The initial Board of Directors of Reorganized Home will consist of four
individuals whose names will be disclosed 10 days prior to the date of the
Confirmation Hearing. Each of the members of such initial Board of Directors
will serve until the first annual meeting of stockholders of Reorganized Home or
their earlier resignation or removal in accordance with the Amended Home
Certificate of Incorporation or Amended Home Bylaws, as the same may be amended
from time to time.
(b) Officers
The individuals listed below will serve as the initial officers of
Reorganized Home on and after the Effective Date.
Name Title
Steven M. Gluckstern Chairman
Richard E. Smith President and CEO
Brian E. Kensil Senior Vice President
Isaac Mashitz Senior Vice President
Gerald S. King Senior Vice President
Adrienne W. Reid Senior Vice President
Michael E. Maloney Senior Vice President
Corcoran Byrne Vice President and Secretary
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46
4. Amended Bylaws And Amended Certificate Of Incorporation
The Amended Home Bylaws and Amended Home Certificate of Incorporation will
be amended and restated as of the Effective Date to the extent necessary (a) to
prohibit the issuance of nonvoting equity securities as required by section
1123(a)(6) of the Bankruptcy Code, subject to further amendment of such
certificates of incorporation and bylaws as permitted by applicable law and (b)
to effectuate the provisions of the Plan, in each case without any further
action by the stockholders or directors of the Debtor, the Debtor-in-Possession,
or Reorganized Home.
5. Issuance Of New Securities
The issuance of the following securities and notes by Reorganized Home or
Home Insurance Holdings, LLC, as the case may be, will be authorized under the
Plan without further act or action under applicable law, regulation, order, or
rule:
(a) 100 shares of New Common Stock;
(b) the New Notes;
(c) the Earn Out Notes; and
(d) the Membership Units.
G. Means For Implementation Of The Plan
1. Sources Of Payment
The Plan will be funded from several sources. Allowed Administrative
Expense Claims and the Allowed professional fees and expenses referred to in
Section 8.11 of the Plan will be paid by the Debtor by means of one or more
dividends to the Debtor from two of its subsidiaries: Home Insurance (whose
dividends are subject to the approval of the New Hampshire Insurance Department,
which approval the Debtor believes will be forthcoming based upon discussions
leading to the formulation and filing of the Plan and the Department's
preliminary support for the Plan), and Sterling Forest Management LLC. All such
payments will be made on the Effective Date, or as incurred by the
Debtor-in-Possession (to the extent authorized and approved by the Bankruptcy
Court if such authorization and approval was required by the Bankruptcy Code),
or as otherwise provided in the terms of the Plan. Payments to be made under the
Plan with respect to all other Classes of Claims will be made pursuant to the
Earn Out Notes and the other instruments and securities that are issued and
delivered under the Plan. Dividends paid in connection with the Chapter 11 Case
and the Plan shall be deemed paid within the meaning of the Excess of Loss
Reinsurance Agreement.
By letter dated January 15, 1998, the Department conditionally approved
Home Insurance's payment of a $2.5 million dividend to Home Holdings for the
payment of administrative fees in the Debtor's Chapter 11 Case, contingent upon
confirmation of the Plan.
2. Tender Offer
As provided in the New Note Tender Offer Undertaking, the Zurich Note
Entity will offer to purchase any and all outstanding New Notes upon the terms
and subject to the conditions set forth below and in the Offer to Purchase and
Letter of Transmittal:
(a) Tender Offer. Not later than the sixtieth (60th) day after the
Effective Date, the Zurich Note Entity will offer to purchase any and all
outstanding New Notes.
(b) Offer Price. The Zurich Note Entity will offer to purchase the
New Notes at a price
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47
equal to the sum of 99% of: (i) the face amount of the New Notes tendered by any
holder of New Notes and (ii) all accrued and unpaid interest on such New Notes
as of the date that the Zurich Note Entity makes the payments described in
Section 8.3(c) of the Plan.
(c) Payment. In the event that a holder of the New Notes accepts the
Zurich Note Entity's offer and delivers a Letter of Transmittal and such
holder's New Notes to the Zurich Note Entity, the Zurich Note Entity shall pay
the purchase price for such New Notes in Cash to such holder.
3. Consummation Of Acquisition
Pursuant to the Acquisition Agreement between the Debtor and Home
Insurance Holdings, LLC and as contemplated by the Plan, prior to the Effective
Date, the consummation of the Acquisition Agreement will occur and in connection
therewith, Home Insurance Holdings, LLC will acquire the Acquired Assets.
4. Waiver Of Claims; Covenant Not To Sue; Releases
Effective as of the Confirmation Date, but subject to the occurrence of
the Effective Date, and except as otherwise provided in the Plan or the
Confirmation Order, (i) the Debtor and Debtor-in-Possession and (ii) all Persons
who have held, hold, or may hold Claims against or Equity Interests in the
Debtor (x) will be deemed to have covenanted with each member of the Zurich
Group, the Trygg-Hansa Group, and Home Insurance to waive and not to (1) sue or
otherwise seek any recovery from the Zurich Group, the Trygg-Hansa Group, Home
Insurance, or their respective property, whether for tort, fraud, contract,
violations of Federal or state securities laws, or otherwise, based in whole or
in part upon any act or omission, transaction, or other occurrence taking place
on or before the Effective Date in any way relating to the Debtor, the Chapter
11 Case, or the Plan or (2) assert against any of the Zurich Group, the
Trygg-Hansa Group, Home Insurance, or their respective property any Claim,
obligation, right, cause of action, or liability which any such holder of a
Claim against or Equity Interest in the Debtor may be entitled to assert in any
case, whether for tort, fraud, contract, violations of Federal or state
securities laws, or otherwise, whether known or unknown, foreseen or unforeseen,
existing or hereafter arising, based in whole or in part upon any act or
omission, transaction, or other occurrence taking place on or before the
Effective Date in any way relating to the Debtor, the Chapter 11 Case, or the
Plan and (y) are permanently enjoined, on and after the Effective Date, from
commencing or continuing in any manner any action or other proceeding of any
kind with respect to such Claims, obligations, rights, causes of action, and
liabilities released hereunder.
Effective as of the Confirmation Date, but subject to the occurrence of
the Effective Date, and except as otherwise provided in the Plan or the
Confirmation Order, each of the Debtor, Reorganized Home, the Trygg-Hansa Group,
the Zurich Group, Home Insurance, the Department, and each of their respective
officers, directors, agents, financial advisors, attorneys, employees, and
representatives and their respective property will be released from any and all
Claims, obligations, rights, causes of action, and liabilities which any holder
of a Claim against or Equity Interest in the Debtor may be entitled to assert in
any case, whether for tort, fraud, contract, violations of Federal or state
securities laws, or otherwise, whether known or unknown, whether foreseen or
unforeseen, existing or hereafter arising, based in whole or in part upon any
act or omission, transaction, or other occurrence taking place on or before the
Effective Date in any way relating to the Debtor, the Chapter 11 Case, or the
Plan.
As noted above, AmBase argues that it and the noteholders of the Senior
Notes might have rights directly or indirectly under the Excess of Loss
Reinsurance Agreement to compel dividends of approximately $300 million to Home
Holdings for the payment of all or a portion of their claims. The Debtor, Home
Insurance, and Zurich dispute that argument and would vigorously contest its
prosecution. Confirmation of the Plan will eliminate AmBase's and other
creditors' potential recourse, if any, to such rights.
Effective as of the Confirmation Date, but subject to the occurrence of
the Effective Date, and except as otherwise provided in the Plan or the
Confirmation Order, each of the Trygg-Hansa Group, the Zurich Group, Home
Insurance, the Department, and each of their respective officers, directors,
agents, financial advisors, attorneys, employees, and representatives and their
respective property will be released from any and all Claims, obligations,
rights, causes of action, and liabilities which the Debtor or the
Debtor-in-Possession may
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48
be entitled to assert, in any case, whether for tort, fraud, contract,
violations of Federal or state securities laws, or otherwise, whether known or
unknown, whether foreseen or unforeseen, existing or hereafter arising, based in
whole or in part upon any act or omission, transaction or other occurrence
taking place on or before the Effective Date in any way relating to the Debtor,
the Chapter 11 Case, or the Plan.
The waivers and covenants set forth in the foregoing paragraphs will not
be applicable to (x) any obligations of any such Person or group pursuant to the
Plan, or pursuant to any of the documents contained in the Plan Supplement, or
any of the documents listed on Exhibit G to the Plan, or (y) any continuing
obligations and liabilities of each applicable member of the Zurich Group to
Home Insurance under the contracts and agreements between such member of the
Zurich Group and Home Insurance, or (z) any Claim, obligation, right, cause of
action, or other liability arising out of any contract of insurance or
reinsurance or other similar agreement.
5. Professional Fees
The Senior Noteholders' Committee will be required to seek an award by the
Bankruptcy Court for reimbursement for its professional fees and expenses
incurred prior to the Chapter 11 Case, including the fees and expenses of
Anderson Kill and Houlihan Lokey, attorneys and financial advisors,
respectively, for the Senior Noteholders' Committee, together with any other
advisor so designated by such committee, under section 503(b) of the Bankruptcy
Code, by filing an application for allowance of reimbursement of all its
professional fees and expenses by the date that is 60 days after the Effective
Date or such other date as may be fixed by the Bankruptcy Court and, if granted,
such award by the Bankruptcy Court will be Allowed in an amount not to exceed
$2.2 million in the aggregate. The Allowed amount of such award will not be paid
by the Debtor unless and until the Effective Date has occurred, in which event,
the Allowed amount of such award will be paid by the Debtor on the later of (x)
the date such award becomes an Allowed Administrative Expense Claim, or as soon
thereafter as is practicable, and (y) the Initial Distribution Date. The Debtor
has agreed to support the Senior Noteholders' Committee's application for such
fees and expenses up to an amount not to exceed $2.2 million in the aggregate.
H. Effect Of Confirmation Of Plan
1. Term Of Bankruptcy Injunction Or Stays
All injunctions or stays provided for in the Chapter 11 Case under
sections 105 or 362 of the Bankruptcy Code, or otherwise, and in existence on
the Confirmation Date, will remain in full force and effect until the Effective
Date.
2. Revesting Of Assets
The property of the estate of Home Holdings will revest in Reorganized
Home on the Effective Date, except as provided in Sections 5.3(h)(ii), 5.5, and
8.4 of the Plan. From and after the Effective Date, Reorganized Home may operate
its business, and may use, acquire, and dispose of property free of any
restrictions imposed under the Bankruptcy Code. As of the Effective Date, all
property of the Debtor and Reorganized Home shall be free and clear of all
liens, claims, and interests of holders of Claims and Equity Interests, except
as provided in the Plan.
3. Causes Of Action
Except as otherwise expressly provided in the Plan, as of the Effective
Date, pursuant to section 1123(b)(3)(B) of the Bankruptcy Code, any and all
causes of action accruing to the Debtor and Debtor-in-Possession, including,
without limitation, actions under sections 544, 547, 548, 549, 550, 551, and 553
of the Bankruptcy Code, shall become assets of Reorganized Home, and Reorganized
Home will have the authority to prosecute (or not prosecute) such causes of
action for the benefit of Reorganized Home as it shall determine in its sole and
absolute discretion. Reorganized Home will have the authority to compromise and
settle, otherwise resolve, discontinue, abandon, or dismiss all such causes of
action without approval of the
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49
Bankruptcy Court. The Debtor will evaluate whether any such causes of action
exist and disclose this at this Confirmation Hearing. AmBase believes that there
are significant claims relating to the Recapitalization, having value in excess
of $90 million, which will be retained by Reorganized Home. The Debtor and
Zurich believe that such claims, if any, are meritless.
4. Discharge Of Debtor
The rights afforded in the Plan and the treatment of all Claims and Equity
Interests therein will be in exchange for and in complete satisfaction,
discharge, and release of Claims and Equity Interests of any nature whatsoever,
including any interest accrued on such Claims from and after the Commencement
Date, against the Debtor and the Debtor-in-Possession, or any of its assets or
properties arising on or prior to the Effective Date. Except as otherwise
provided in the Plan, (a) on the Effective Date, all such Claims against and
Equity Interests in the Debtor shall be satisfied, discharged, and released in
full and (b) all persons shall be precluded from asserting against Reorganized
Home, its successors, or its assets or properties any other or further Claims or
Equity Interests based upon any act or omission, transaction, or other activity
of any kind or nature that occurred prior to the Confirmation Date.
5. Injunction
Except as otherwise expressly provided in the Plan, the Confirmation
Order, or a separate order of the Bankruptcy Court, all entities who have held,
hold, or may hold Claims against or Equity Interests in the Debtor which arose
before or were held as of the Effective Date, will be permanently enjoined, on
and after the Effective Date, from (a) commencing or continuing in any manner
any action or other proceeding of any kind against the Debtor with respect to
any such Claim or Equity Interest, (b) the enforcement, attachment, collection,
or recovery by any manner or means of any judgment, award, decree, or order
against the Debtor on account of any such Claim or Equity Interest, (c)
creating, perfecting, or enforcing any encumbrance of any kind against the
Debtor or against the property or interests in property of the Debtor on account
of any such Claim or Equity Interest, and (d) asserting any right of setoff,
subrogation, or recoupment of any kind against any obligation due from the
Debtor or against the property or interests in property of the Debtor on account
of any such Claim or Equity Interest. Such injunction will extend to successors
of the Debtor (including, without limitation, Reorganized Home) and their
respective properties and interests in property.
6. Termination Of Subordination Rights
All Claims of the Senior Noteholders, Senior Working Capital Noteholders,
Senior Subordinated Noteholders, and Junior Noteholders against the Debtor and
all rights and claims between or among the Senior Noteholders, Senior Working
Capital Noteholders, Senior Subordinated Noteholders, and Junior Noteholders
relating in any manner whatsoever to claimed subordination rights, rights to
post-petition and default interest, or similar rights, if any (collectively,
"Subordination-Related Rights"), will be deemed satisfied by the distributions
under, described in, contemplated by, and/or implemented by, the Plan to holders
of such Claims and such rights will be deemed waived, released, discharged, and
terminated as of the Effective Date, and all actions related to the enforcement
of such Subordination-Related Rights shall be permanently enjoined.
Distributions under, described in, contemplated by, and/or implemented by, the
Plan shall not be subject to levy, garnishment, attachment, or like legal
process by any holder of a Claim, including, but not limited to, holders of
Senior Note Claims, Senior Working Capital Noteholders, Senior Subordinated Note
Claims, and Junior Note Claims by reason of any claimed Subordination-Related
Rights or otherwise, so that each holder of a Claim shall have and receive the
complete benefit of the distributions in the manner set forth and described in
this Plan.
I. Distributions Under The Plan
1. In General
Subject to Bankruptcy Rule 9010, all distributions under the Plan will be
made by Reorganized Home to the holder of each Allowed Claim at the address of
such holder as listed on the Schedules as of the Record
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50
Date, unless the Debtor or Reorganized Home has been notified in writing of a
change of address, including, without limitation, by the filing of a proof of
claim by such holder that provides an address for such holder different from the
address reflected on the Schedules.
2. Distributions Of Cash
Any payment of Cash made by Reorganized Home pursuant to the Plan will be
made by check drawn on a domestic bank.
3. Timing Of Distributions
If the day when any payment or distribution required to be made under the
Plan is not a Business Day, such payment or distribution will be made on the
next succeeding Business Day.
4. Minimum Distributions
No payment of Cash less than one-hundred dollars will be made by
Reorganized Home to any holder of a Claim unless a request therefor is made in
writing to Reorganized Home.
5. Fractional Shares; Multiples Of New Notes
New Notes will only be issued in multiples of $1,000. Any New Notes that
would otherwise have been distributed in multiples of other than $1,000 shall be
aggregated by the Trustee under the New Notes Indenture or the Disbursing Agent
and sold. The Cash proceeds from such sale will be distributed on a pro rata
basis to those holders of Allowed General Unsecured Claims and Senior Note
Claims which would have been entitled to New Notes in multiples of other than
$1,000. No fractional units of Earn Out Notes or of Membership Units will be
distributed under the Plan. When any distribution on account of an Allowed Claim
pursuant to the Plan would otherwise result in the issuance of a number of units
of Earn Out Notes or of Membership Units that is not a whole number, the actual
distribution of shares of Earn Out Notes or of Membership Units shall be rounded
as follows: (i) fractions of one-half or greater shall be rounded to the next
higher whole number and (ii) fractions of less than one-half shall be rounded to
the next lower whole number. The total number of units of Earn Out Notes or of
Membership Units to be distributed to a Class of Claims will be adjusted as
necessary to account for the rounding as provided in Section 5.3(e) of the Plan.
6. Unclaimed Distributions
Any distributions to holders of Allowed Unsecured Claims of New Notes,
Earn Out Notes, or Membership Units under the Plan that are unclaimed for a
period of one year after distribution thereof will revest in Reorganized Home,
such New Notes, Earn Out Notes, or Membership Units will be deemed canceled, and
any entitlement of such holders of Allowed Unsecured Claims to such
distributions will be extinguished and forever barred.
7. Distributions To Holders As Of The Record Date
As at the close of business on the Record Date, the claims register will
be closed, and there shall be no further changes in the record holders of any
Claims. The Debtor and Reorganized Home will have no obligation to recognize any
transfer of any Claims occurring after the Record Date. The Debtor and
Reorganized Home will instead be entitled to recognize and deal for all purposes
under the Plan (except as to voting to accept or reject the Plan pursuant to
Section 5.1 of the Plan) with only those record holders stated on the claims
register as of the close of business on the Record Date.
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51
8. Distributions Withheld For Disputed General Unsecured Claims
(a) Establishment And Maintenance Of Reserve. On the Initial
Distribution Date, Reorganized Home will place into a reserve an amount of Earn
Out Notes Series I, New Notes, and Membership Units equal to 100% of the
distributions to which holders of Disputed General Unsecured Claims would be
entitled under the Plan as of such date if such Disputed General Unsecured
Claims were Allowed General Unsecured Claims in their Disputed Claim Amounts
(the "Reserve"). Such amount will be determined by reference to the aggregate
Face Amount of all Disputed General Unsecured Claims that have Face Amounts,
plus an amount to be determined by the Bankruptcy Court to be reserved for any
given Disputed General Unsecured Claims that do not have Face Amounts.
(b) Property Held In Reserve. Cash held in the Reserve (including
interest paid on New Notes held in the Reserve) will be deposited in a
segregated bank account or accounts in the name of Reorganized Home and
designated as held in trust for the benefit of holders of Allowed General
Unsecured Claims. Cash held in the Reserve will not constitute property of
Reorganized Home. Reorganized Home will invest the Cash held in the Reserve in a
manner consistent with investment guidelines to be included in the Plan
Supplement. Reorganized Home will pay, or cause to be paid, out of the funds
held in the Reserve, any tax imposed on the Reserve by any governmental unit
with respect to income generated by the property held in the Reserve. The yield
earned on such invested Cash (net of applicable taxes) will be distributed to
each holder of a Disputed Claim that has become an Allowed General Unsecured
Claim on the final Subsequent Distribution Date under the Plan. New Notes, Earn
Out Notes Series I, and Membership Units held in the Reserve will be held in
trust by Reorganized Home for the benefit of the potential claimants of such
securities and will not constitute property of Reorganized Home. Any Cash, New
Notes, Earn Out Notes Series I, and Membership Units held in the Reserve after
all Allowed General Unsecured Claims have been Allowed or disallowed will revest
to Reorganized Home, such New Notes, Earn Out Notes, or Membership Units will be
deemed canceled, and any entitlement of such holders of Allowed Unsecured Claims
to such distributions will be extinguished and forever barred.
9. Distributions Upon Allowance Of Disputed Unsecured Claims
The holder of a Disputed General Unsecured Claim that becomes an Allowed
Claim subsequent to the Initial Distribution Date will receive distributions of
New Notes, Earn Out Notes Series I, or Membership Units, as applicable, from the
Reserve on the next Subsequent Distribution Date that follows the Quarter during
which such Disputed General Unsecured Claim becomes an Allowed Claim pursuant to
a Final Order. Such distributions will be made in accordance with the Plan based
upon the distributions that would have been made to such holder under the Plan
if the Disputed General Unsecured Claim had been an Allowed Claim on or prior to
the Effective Date, without any post-Effective Date interest thereon (without
regard to interest earned on property held in the Reserve pursuant to Section
5.3(h)(ii) of the Plan).
10. Disbursing Agent
The Debtor or Reorganized Home will appoint or will become the disbursing
agent (the "Disbursing Agent") to fulfill the obligations that Reorganized Home
will have under the Plan with respect to distributions to holders of Allowed
General Unsecured Claims, including, without limitation, holding all reserves
and accounts pursuant to the Plan, including the Reserve.
J. Objections To And Resolution Of Administrative Expense Claims, Claims, And
Equity Interests
Except as to applications for allowances of compensation and reimbursement
of expenses under sections 330 and 503 of the Bankruptcy Code, the Debtor,
Reorganized Home, and Zurich will have the exclusive right to make and file
objections to Administrative Expense Claims and Claims subsequent to the
Confirmation Date. All objections will be litigated to Final Order; provided,
however, that Reorganized Home or Zurich will have the authority to compromise,
settle, or otherwise resolve or withdraw any objections, without approval of the
Bankruptcy Court. Unless otherwise ordered by the Bankruptcy Court, the Debtor,
Reorganized Home, or Zurich will file all objections to Administrative Expense
Claims that are the subject of proofs of claim or requests for payment filed
with the Bankruptcy Court (other than applications for allowances
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52
of compensation and reimbursement of expenses) and Claims and serve such
objections upon the holder of the Administrative Expense Claim or Claim as to
which the objection is made as soon as is practicable, but in no event later
than 60 days after the Effective Date or such later date as may be approved by
the Bankruptcy Court.
K. Administrative Claims Reserve
On the Effective Date, Reorganized Home will create and fund the
Administrative Claims Reserve with an amount of the Cash equal to (i) the sum of
the aggregate Face Amount of all Disputed Administrative Claims, Disputed
Priority Tax Claims, and Disputed Other Priority Claims that have Face Amounts,
plus (ii) an amount to be determined by the Bankruptcy Court to be reserved for
any given Disputed Administrative Claims, Disputed Priority Tax Claims, and
Disputed Other Priority Claims that do not have Face Amounts.
Cash held in the Reserve shall be deposited in a segregated bank account
or accounts in the name of Reorganized Home and designated as held in trust for
the benefit of holders of Allowed Administrative Claims. Cash held in the
Reserve shall not constitute property of Reorganized Home. Reorganized Home
shall invest the Cash held in the Reserve in a manner consistent with investment
guidelines to be included in the Plan Supplement. Reorganized Home shall pay, or
cause to be paid, out of the funds held in the Reserve, any tax imposed on the
Reserve by any governmental unit with respect to income generated by the cash
held in the Reserve. Any Cash held in the Administrative Claims Reserve after
all Administrative Claims have been allowed or disallowed shall be transferred
to and become property of Reorganized Home.
L. Cancellation And Surrender Of Existing Securities And Agreements
On the Effective Date, the promissory notes, share certificates, bonds,
and other instruments evidencing any Claim against or Equity Interest in the
Debtor will be deemed canceled as against the Debtor without further act or
action under any applicable agreement, law, regulation, order, or rule, and the
obligations of the Debtor under the agreements, indentures, and certificates of
designations governing such Claims and Equity Interests, as the case may be,
will be discharged.
Each holder of a promissory note, bond, or other instrument evidencing a
Claim shall surrender such promissory note, bond, or instrument to Reorganized
Home, unless such requirement is waived by Reorganized Home. No distribution of
property hereunder will be made to or on behalf of any such holders unless and
until such promissory note, bond, or instrument is received by Reorganized Home
or the unavailability of such promissory note, bond, or instrument is
established to the reasonable satisfaction of Reorganized Home or such
requirement is waived by Reorganized Home. Reorganized Home may require any
holder which is unable to surrender or cause to be surrendered any such
promissory notes, bonds, or instruments to deliver an affidavit of loss and
indemnity and/or furnish a bond in form and substance (including, without
limitation, with respect to amount) reasonably satisfactory to Reorganized Home.
Any holder which fails within the later of one year after the Confirmation Date
and the date of Allowance of its Claim (i) if possible, to surrender or cause to
be surrendered such promissory note, bond, or instrument, (ii) if requested, to
execute and deliver an affidavit of loss and indemnity reasonably satisfactory
to Reorganized Home, and (iii) if requested, to furnish a bond reasonably
satisfactory to Reorganized Home, will be deemed to have forfeited all rights,
claims, and causes of action against the Debtor and Reorganized Home and will
not participate in any distribution hereunder.
It is the Debtor's position that any agreement under which AmBase's Claim
arises and any non-monetary obligation under any such agreement will be
discharged pursuant to the Plan. AmBase disputes the Debtor's position and
intends to challenge this provision in connection with confirmation of the Plan.
M. Retention Of Jurisdiction
The Bankruptcy Court will have exclusive jurisdiction of all matters
arising out of, and related to, the Chapter 11 Case and the Plan pursuant to,
and for the purposes of, sections 105(a) and 1142 of the Bankruptcy Code and
for, among other things, the following purposes:
(a) To hear and determine pending applications for the assumption or
rejection of executory contracts or unexpired leases, if any are pending, and
the allowance of Claims resulting therefrom;
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(b) To hear and determine any objection to Administrative Expense
Claims, Claims, or Equity Interests;
(c) To enter and implement such orders as may be appropriate in the
event the Confirmation Order is for any reason stayed, revoked, modified, or
vacated;
(d) To issue such orders as may aid in the execution and
consummation of the Plan, to the extent authorized by section 1142 of the
Bankruptcy Code;
(e) To consider any amendments to or modifications of the Plan, to
cure any defect or omission thereof, or to reconcile any inconsistency in any
order of the Bankruptcy Court, including, without limitation, the Confirmation
Order;
(f) To hear and determine all applications for compensation and
reimbursement of expenses of professionals under sections 330, 331, and 503(b)
of the Bankruptcy Code;
(g) To hear and determine disputes arising in connection with the
interpretation, implementation, or enforcement of the Plan;
(h) To recover all assets of the Debtor and property of the Debtor's
estate, wherever located;
(i) To hear and determine matters concerning state, local, and
Federal taxes in accordance with sections 346, 505, and 1146 of the Bankruptcy
Code;
(j) To hear any other matter not inconsistent with the Bankruptcy
Code; and
(k) To enter a final decree closing the Chapter 11 Case.
N. Miscellaneous Matters
1. Professional Compensation And Reimbursement Claims
All entities seeking an award by the Bankruptcy Court of compensation for
services rendered or reimbursement of expenses incurred through and including
the Confirmation Date under sections 503(b)(2), 503(b)(3), 503(b)(4), or
503(b)(5) of the Bankruptcy Code (a) shall file their respective final
applications for allowances of compensation for services rendered and
reimbursement of expenses incurred through the Confirmation Date by the date
that is 60 days after the Effective Date or such other date as may be fixed by
the Bankruptcy Court and (b) if granted, such an award by the Bankruptcy Court
will be paid in full in such amounts as are Allowed by the Bankruptcy Court (i)
on the date such Administrative Expense Claim becomes an Allowed Administrative
Expense Claim, or as soon thereafter as is practicable or (ii) upon such other
terms as may be mutually agreed upon between such holder of an Administrative
Expense Claim and the Debtor-in-Possession or, on and after the Effective Date,
Reorganized Home.
2. Assumption Or Rejection Of Executory Contracts And Unexpired Leases
(a) Executory Contracts And Unexpired Leases. Pursuant to sections
365(a) and 1123(b)(2) of the Bankruptcy Code, all executory contracts and
unexpired leases that exist between the Debtor and any person will be deemed
assumed by Reorganized Home as of the Effective Date, except for any executory
contract or unexpired lease (i) which has been assumed pursuant to an order of
the Bankruptcy Court entered prior to the Confirmation Date, (ii) which has been
rejected pursuant to an order of the Bankruptcy Court entered prior to the
Confirmation Date, (iii) as to which a motion for approval of the rejection of
such executory contract or unexpired lease has been filed and served prior to
the Confirmation Date, or (iv) which is set forth in Schedules 6.1(a)(x)
(executory contracts) or 6.1(a)(y) (unexpired leases) to the Plan, which
Schedules will be included in the Plan Supplement; provided, however, that the
Debtor or Reorganized Home reserves the right, on or prior to the Confirmation
Date, to amend Schedules 6.1(a)(x) or 6.1(a)(y) to the Plan
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54
to delete any executory contract or unexpired lease therefrom or to add any
executory contract or unexpired lease thereto, in which event such executory
contract(s) or unexpired lease(s) will be deemed to be, respectively, assumed or
rejected. The Debtor or Reorganized Home will provide notice of any amendments
to Schedules 6.1(a)(x) or 6.1(a)(y) to the Plan to the parties to the executory
contracts and unexpired leases affected thereby. The listing of a document on
Schedules 6.1(a)(x) and 6.l(a)(y) to the Plan will not constitute an admission
by the Debtor or Reorganized Home that such document is an executory contract or
an unexpired lease or that the Debtor or Reorganized Home have any liability
thereunder.
(b) Approval Of Assumption Or Rejection Of Executory Contracts And
Unexpired Leases. Entry of the Confirmation Order will constitute (i) the
approval, pursuant to sections 365(a) and 1123(b)(2) of the Bankruptcy Code, of
the assumption of the executory contracts and unexpired leases assumed pursuant
to Section 6.1(a) of the Plan, (ii) the extension of time, pursuant to section
365(d)(4) of the Bankruptcy Code, within which the Debtor may assume or reject
the unexpired leases specified in Section 6.1(a) of the Plan through the date of
entry of an order approving the assumption or rejection of such unexpired
leases, and (iii) the approval, pursuant to sections 365(a) and 1123(b)(2) of
the Bankruptcy Code, of the rejection of the executory contracts and unexpired
leases rejected pursuant to Sections 6.1(a) of the Plan.
(c) Cure Of Defaults. Except as may otherwise be agreed to by the
parties, within 60 days after the Effective Date, Reorganized Home will cure any
and all undisputed defaults under any executory contract or unexpired lease
assumed pursuant to the Plan in accordance with section 365(b)(1) of the
Bankruptcy Code. All disputed defaults that are required to be cured will be
cured either within 30 days of the entry of a Final Order determining the
amount, if any, of the Debtor's or Reorganized Home's liability with respect
thereto, or as may otherwise be agreed to by the parties.
(d) Bar Date For Filing Proofs Of Claim Relating To Executory
Contracts And Unexpired Leases Rejected Pursuant To The Plan. Claims arising out
of the rejection of an executory contract or unexpired lease pursuant to Section
6.1 of the Plan must be filed with the Bankruptcy Court and/or served upon the
Debtor or Reorganized Home or as otherwise may be provided in the Confirmation
Order, by no later than 30 days after the later of (i) notice of entry of an
order approving the rejection of such executory contract or unexpired lease,
(ii) notice of entry of the Confirmation Order, and (iii) notice of an amendment
to Schedule 6.1(a)(x) or 6.1(a)(y) to the Plan. Any Claims not filed within such
time will be forever barred from assertion against the Debtor, its estate,
Reorganized Home, and their respective property. Unless otherwise ordered by the
Bankruptcy Court, all Claims arising from the rejection of executory contracts
and unexpired leases will be treated as General Unsecured Claims under the Plan.
3. Releases
The Debtor will release and will be permanently enjoined from any
prosecution or attempted prosecution of any and all causes of action which it
has, may have, or claims to have against any present or former director,
officer, or employee of the Debtor; provided, however, that the foregoing will
not operate as a waiver of or release from any causes of action arising out of
(a) any express contractual obligation owing by any such director, officer, or
employee to the Debtor or (b) the willful misconduct or gross negligence of such
director, officer, or employee in connection with, related to, or arising out
of, the Chapter 11 Case, the pursuit of confirmation of the Plan, the
consummation of the Plan, the administration of the Plan, or the property to be
distributed under the Plan. The Debtor does not believe that it has any claims
against any of its present or former officers, directors, or employees.
4. Indemnification Obligations
For purposes of the Plan, the obligations of the Debtor to defend,
indemnify, reimburse, or limit the liability of their present and any former
directors, officers, or employees who were directors, officers, or employees,
respectively, on or after the Commencement Date against any claims or
obligations pursuant to the Debtor's certificate of incorporation or bylaws,
applicable state law or specific agreement, or any combination of the foregoing,
will survive confirmation of the Plan, remain unaffected thereby, and not be
discharged irrespective of whether indemnification, defense, reimbursement, or
limitation is owed in connection with an event occurring before, on or after the
Commencement Date.
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55
5. Exemption From Transfer Taxes
Pursuant to section 1146(c) of the Bankruptcy Code, the issuance,
transfer, or exchange of notes or equity securities under the Plan, the creation
of any mortgage, deed of trust, or other security interest, the making or
assignment of any lease or sublease, or the making or delivery of any deed or
other instrument of transfer under, in furtherance of, or in connection with,
the Plan, including, without limitation, any merger agreements or agreements of
consolidation, deeds, bills of sale, or assignments executed in connection with
any of the transactions contemplated under the Plan shall not be subject to any
stamp, real estate transfer, mortgage recording, or other similar tax.
6. Injunction Regarding Worthless Stock Deduction And Reattribution Of
NOLs To The Debtor Or Reorganized Home
At the Confirmation Hearing, the Debtor may request that the Bankruptcy
Court include in the Confirmation Order a provision enjoining (i) any
"50-percent shareholder" of the Debtor within the meaning of section
382(g)(4)(D) of the Internal Revenue Code of 1986, as amended, from claiming a
worthless stock deduction with respect to its Equity Interest for any taxable
year of such shareholder ending prior to the Effective Date and thereby causing
an ownership change under section 382(g)(4)(D) of the Internal Revenue Code and
(ii) Home Insurance from claiming the benefit of NOLs reattributed from Home
Insurance to the Debtor or Reorganized Home.
7. Exculpation
Neither the Debtor, Reorganized Home, the Zurich Group, the Trygg-Hansa
Group, Home Insurance, the Department, the Creditors' Committee, the Senior
Noteholders' Committee, the Disbursing Agent, the Information and Tabulation
Agent, nor any of their respective members, representatives, officers,
directors, employees, attorneys, financial advisors, or agents shall have or
incur any liability to any holder of a Claim or Equity Interest for any act or
omission in connection with, related to, or arising out of, the Chapter 11 Case,
the pursuit of confirmation of the Plan, the consummation of the Plan, or the
administration of the Plan or the property to be distributed under the Plan and,
in all respects, the Debtor, Reorganized Home, the Zurich Group, the Trygg-Hansa
Group, Home Insurance, the Creditors' Committee, the Disbursing Agent, the
Information Agent, and each of their respective members, officers, directors,
employees, financial advisors, and agents shall be entitled to rely in good
faith upon the advice of counsel with respect to their duties and
responsibilities under the Plan. Nothing contained herein shall be deemed to
release or otherwise exculpate any such party for any liability under any
contract of insurance or reinsurance or other similar agreement.
8. Termination Of Committee
The appointment of the Creditors' Committee shall terminate on the later
of the sixtieth (60th) day following the Effective Date and the first date on
which there exists a Final Order with respect to the applications for final
allowances of compensation and reimbursement of expenses of the attorneys and
financial advisors to the Creditors' Committee.
9. Post-Confirmation Date Fees And Expenses
From and after the Confirmation Date, the Debtor until the Effective Date
and thereafter Reorganized Home will, in the ordinary course of business and
without the necessity for any approval by the Bankruptcy Court, pay the
reasonable fees and expenses of professional persons thereafter incurred by the
Debtor and Reorganized Home, including, without limitation, those fees and
expenses incurred in connection with the implementation and consummation of the
Plan.
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10. Payment Of Statutory Fees
All fees payable pursuant to section 1930 of title 28 of the United States
Code, as determined by the Bankruptcy Court at the Confirmation Hearing, will be
paid on the Effective Date.
11. Amendment Or Modification Of The Plan
Alterations, amendments, or modifications of the Plan may be proposed in
writing by the Debtor, with the consent of Zurich, Trygg-Hansa, and the
Creditors' Committee at any time prior to the Confirmation Date, provided that
the Plan, as altered, amended, or modified, satisfies the conditions of sections
1122 and 1123 of the Bankruptcy Code, and the Debtor shall have complied with
section 1125 of the Bankruptcy Code; provided, however, that, prior to the date
of the commencement of solicitation of votes to accept or reject the Plan, (a)
no alteration, amendment, or modification of the Plan that would materially and
adversely affect the Senior Note Claims or General Unsecured Claims may be made
without prior approval of the Creditors' Committee and (b) no alteration,
amendment or modification of the Plan that would materially and adversely affect
Trygg-Hansa may be made without prior approval of Trygg-Hansa; provided,
further, that alterations, amendments, or modifications of the Plan proposed by
the Debtor that are immaterial and non-adverse in nature may be made upon notice
to, but without the consent of any of the aforesaid parties. The Plan may be
altered, amended, or modified at any time after the Confirmation Date and before
substantial consummation, with the consent of Zurich, Trygg-Hansa, and the
Creditors' Committee, provided that the Plan, as altered, amended, or modified,
satisfies the requirements of sections 1122 and 1123 of the Bankruptcy Code and
the Bankruptcy Court, after notice and a hearing, confirms the Plan, as altered,
amended, or modified, under section 1129 of the Bankruptcy Code and the
circumstances warrant such alterations, amendments, or modifications. A holder
of a Claim that has accepted the Plan shall be deemed to have accepted the Plan,
as altered, amended, or modified, if the proposed alteration, amendment, or
modification does not materially and adversely change the treatment of the Claim
of such holder.
12. Revocation Or Withdrawal Of The Plan And Termination
The Debtor reserves the right to revoke or withdraw the Plan prior to the
Confirmation Date and such right shall only be exercised with the prior consent
of Zurich, Trygg-Hansa, and the Creditors' Committee. If the Debtor revokes or
withdraws the Plan prior to the Confirmation Date, then the Plan shall be deemed
null and void. In such event, nothing contained herein shall constitute or be
deemed a waiver or release of any claims by or against the Debtor or any other
person or to prejudice in any manner the rights of the Debtor or any person in
any further proceedings involving the Debtor. If the Effective Date shall not
have occurred prior to July 1, 1998, the Plan shall terminate unless the Debtor
and Zurich, with the consent of Trygg-Hansa and the Creditors' Committee, shall
agree otherwise.
13. Plan Supplement
Forms of the documents relating to the Amended Home Certificate of
Incorporation, the Amended Home Bylaws, the Earn Out Notes, the Earn Out Notes
Indenture, the Keepwell Agreement, the Membership Units, the Home Insurance
Holdings, LLC Documents, the Offer to Purchase, the Letter of Transmittal, the
New Notes, the New Notes Indenture, the investment guidelines referred to in
Sections 5.3(h)(ii) of the Plan, Schedules 6.1(a)(x) (executory contracts) and
6.1(a)(y) (unexpired leases) referred to in Section 6.1 of the Plan, and
Schedule 10.1(l) (contracts and agreements of the Zurich Group) referred to in
Section 10.1 of the Plan, and the transfer documentation for the shares of Home
Insurance will be contained in the Plan Supplement and filed with the Clerk of
the Bankruptcy Court at least 10 days prior to the date of the Confirmation
Hearing. Upon its filing with the Bankruptcy Court, the Plan Supplement may be
inspected in the office of the Clerk of the Bankruptcy Court during normal court
hours. Holders of Claims or Equity Interests may obtain a copy of the Plan
Supplement upon written request to the Debtor in accordance with Section 12.14
of the Plan.
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14. Allocation Of Plan Distributions Between Principal And Interest
To the extent that any Allowed Claim entitled to a distribution under the
Plan is comprised of indebtedness and accrued but unpaid interest thereon, such
distribution shall, for Federal income tax purposes, be allocated to the
principal amount of the Claim first and then, to the extent the consideration
exceeds the principal amount of the Claim, to accrued but unpaid interest.
15. Waiver Of Fed. R. Civ. P. 62(a)
Home Holdings intends to request that the Confirmation Order include (a) a
finding that Fed. R. Civ. P. 62(a) shall not apply to the Confirmation Order and
(b) authorization for the Debtor to consummate the Plan immediately after entry
of the Confirmation Order.
VI. CERTAIN FACTORS TO BE CONSIDERED
The holder of a Claim against the Debtor should carefully consider the
following factors before deciding whether to vote to accept or to reject the
Plan.
A. General Considerations
The formulation of a reorganization plan is the principal purpose of a
Chapter 11 case. The Plan sets forth the treatment of holders of Claims against
and Equity Interests in the Debtor. See Articles II and III of the Plan.
Reorganization of the Debtor's business and operations under the Plan also
avoids the potentially adverse impact of a liquidation on the Debtor and its
creditors, and many other parties in interest.
B. Risk Factors
1. Certain Bankruptcy Considerations
If the Plan is not confirmed and consummated, there can be no assurance
that the Chapter 11 Case will continue rather than be converted to a Chapter 7
liquidation, or that any alternative plan of reorganization would be on terms as
favorable to the holders of the Impaired Claims as the terms of the Plan. If a
Chapter 7 liquidation or protracted reorganization were to occur, there is a
substantial risk that there would be little, if any, value available for
distribution to the holders of Claims.
2. Failure Of Conditions Precedent To The Effective Date
As discussed in Section IX.G.1. below, and in the Plan, certain conditions
must be satisfied for the Plan to become effective and for the transactions
contemplated therein to be consummated. Unless such conditions are fully
satisfied, or waived in accordance with the applicable provisions of the Plan
and in compliance with the Bankruptcy Code, the Plan will not become effective
and the transactions contemplated therein will not be consummated. The Debtor
believes that each such condition is capable of being satisfied.
3. Inherent Uncertainty Of Financial Projections
The projections (the "Projections") set forth in Exhibit B, which were
prepared by Zurich, are based on numerous assumptions that are an integral part
of the Projections, including confirmation and consummation of the Plan in
accordance with its terms, the anticipated future performance of the Reorganized
Home, general business and economic conditions, and other matters, many of which
are beyond the control of Reorganized Home and some or all of which may not
materialize. In addition, unanticipated events and circumstances occurring
subsequent to the date that this Disclosure Statement is approved by the
Bankruptcy Court may affect the actual financial results of Reorganized Home's
operations. These variations may be material and may adversely affect the
ability of Reorganized Home to pay the obligations owing to certain holders of
Claims entitled to distributions under the Plan and other post-Consummation
indebtedness. Because the actual results
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achieved throughout the periods covered by the Projections may vary from the
projected results, the Projections should not be relied upon as a guaranty,
representation, or other assurance of the actual results that will occur. In the
event that the income amounts set forth in the Projections are not realized, the
estimated recoveries under the Plan set forth in the "Executive Summary" may be
materially less.
4. Taxation
There are a number of material income tax considerations, risks, and
uncertainties associated with consummation of the Plan. For example, the value
of the Earn Out Notes is entirely dependent on the amount of Specified NOL
Carryovers and the ability of Reorganized Home to utilize them to reduce its
taxable income after the Effective Date. There can be no assurance that the IRS
will not challenge the amount or availability of the Specified NOL Carryovers,
nor can there be any assurance that the IRS will not challenge Reorganized
Home's future utilization of the Specified NOL Carryovers. In addition,
Reorganized Home's future ability to utilize the Specified NOL Carryovers could
be affected to the extent that it engages in future merger or acquisition
transactions, including the possible Merger of Reorganized Home into ZRNA.
Further, the ability of Reorganized Home to utilize the Specified NOL Carryovers
in the future will likely be limited if future transfers of equity interests in
Reorganized Home result in an "ownership change" within the meaning of section
382 of the Internal Revenue Code, and if such an ownership change were to occur
within two years of consummation of the Plan, Reorganized Home would be
prevented from utilizing the Specified NOL Carryovers in their entirety. In
addition, both the New Notes and the Earn Out Notes will be issued with original
issue discount ("OID"), which could result in the inclusion of substantial
amounts of income prior to the receipt of cash. Interested parties should read
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN" for a discussion of the
material Federal income tax consequences and risks for holders of Claims and
Reorganized Home resulting from the transactions occurring in connection with
the Plan.
5. No Assurance Of Active Public Market For New Notes, Earn Out Notes, And
New Common Stock
There is currently no trading market for the New Notes, the Earn Out
Notes, or the New Common Stock. No assurance can be given as to whether any such
market will develop or, if one does develop, as to the price at which such
securities will trade. In addition, the Membership Units will not be tradeable.
6. Appeal Of Confirmation Order
The Confirmation Order may be the subject of an appeal. If the
Confirmation Order is vacated on appeal (assuming an appeal could be taken and
would not be rendered moot prior to prosecution) the Plan would fail.
VII. RESALE OF SECURITIES RECEIVED UNDER THE PLAN
A. Registration Of Securities
Under section 1145(a) of the Bankruptcy Code, the issuance of the New
Notes, the Earn Out Notes, the Membership Units, and the New Common Stock to be
distributed under the Plan in exchange for certain Claims against the Debtor,
and the subsequent resale of such securities by entities which are not
"underwriters" (as defined in section 1145(b) of the Bankruptcy Code), are not
subject to the registration requirements of Section 5 of the Securities Act of
1933.
BECAUSE OF THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION OF WHETHER A
PARTICULAR HOLDER MAY BE AN UNDERWRITER, THE DEBTOR MAKES NO REPRESENTATION
CONCERNING THE ABILITY OF ANY PERSON TO DISPOSE OF THE SECURITIES TO BE
DISTRIBUTED UNDER THE PLAN. MOREOVER, SUCH SECURITIES, OR THE DOCUMENTS THAT
ESTABLISH THE TERMS AND PROVISIONS THEREOF, MAY CONTAIN TERMS AND LEGENDS THAT
RESTRICT OR INDICATE THE EXISTENCE OF RESTRICTIONS ON THE
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59
TRANSFERABILITY THEREOF. THE DEBTOR RECOMMENDS THAT RECIPIENTS OF SUCH
SECURITIES UNDER THE PLAN CONSULT WITH LEGAL COUNSEL CONCERNING THE LIMITATIONS
ON THEIR ABILITY TO DISPOSE OF SUCH SECURITIES.
The Debtor has no present intention to (i) register under the Securities
Act of 1933 the New Notes, the Earn Out Notes, the Membership Units, or the New
Common Stock to be distributed under the Plan or (ii) apply for listing of such
instruments on a national securities exchange or quoting in a United States
automated inter-dealer quotation system and comply with the reporting
requirements of the Securities Exchange Act of 1934.
B. Restrictions On Transfer Of New Common Stock
To preserve the Debtor's ability to apply its past NOLs against future
taxable income (see "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN"), the
New Common Stock will be subject to certain restrictions contained in the Earn
Out Notes on the ability of any holder to transfer New Common Stock. For a
detailed description on the restrictions on the ability to transfer the New
Common Stock, see "SUMMARY OF THE PLAN OF REORGANIZATION--Description Of
Securities And Instruments To Be Issued In Connection With The Plan--Earn Out
Notes Series I."
VIII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
THE DISCUSSION BELOW IS A SUMMARY OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE PLAN THAT HAS BEEN PREPARED BY COUNSEL TO ZURICH AND IS
BASED UPON INFORMATION PROVIDED BY REM ON BEHALF OF THE DEBTOR. THE DEBTOR HAS
REVIEWED THIS SUMMARY AND BELIEVES THAT IT ACCURATELY DISCLOSES, SUBJECT TO THE
QUALIFICATIONS SET FORTH BELOW, THE PRINCIPAL FEDERAL INCOME TAX CONSEQUENCES OF
THE PLAN. HOWEVER, THE DISCUSSION BELOW SHALL NOT CONSTITUTE OR BE CONSTRUED AS
AN ADMISSION OF ANY FACT OR LIABILITY.
THIS SUMMARY OF CERTAIN ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF THE
REORGANIZATION IS FOR GENERAL INFORMATION ONLY AND IS BASED ON THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), FINAL, TEMPORARY, AND PROPOSED
TREASURY REGULATIONS THEREUNDER ("TREASURY REGULATIONS") AND APPLICABLE JUDICIAL
AND ADMINISTRATIVE INTERPRETATIONS THEREOF, ALL AS IN EFFECT AS OF THE DATE
HEREOF AND ALL OF WHICH ARE SUBJECT TO CHANGE AT ANY TIME, WHICH CHANGES MAY BE
RETROACTIVELY APPLIED IN A MANNER THAT COULD ADVERSELY AFFECT THE DEBTOR, ITS
CREDITORS, AND ITS EQUITY SECURITY HOLDERS. MANY OF THE TAX ISSUES INVOLVED
RAISE UNSETTLED AND COMPLEX LEGAL ISSUES, AND ALSO INVOLVE VARIOUS FACTUAL
DETERMINATIONS, SUCH AS VALUATIONS, THAT RAISE ADDITIONAL UNCERTAINTIES. NO
RULINGS OR OPINIONS HAVE BEEN OR ARE EXPECTED TO BE REQUESTED FROM THE INTERNAL
REVENUE SERVICE (THE "SERVICE") OR COUNSEL CONCERNING ANY OF THE MATTERS
DESCRIBED HEREIN, AND THERE CAN BE NO ASSURANCE THAT THE SERVICE WILL NOT
CHALLENGE THE POSITIONS EXPRESSED HEREIN WITH RESPECT TO SUCH MATTERS OR THAT A
COURT WOULD NOT SUSTAIN SUCH A CHALLENGE. MOREOVER, DEVELOPMENTS SUBSEQUENT TO
THE DATE HEREOF COULD AFFECT THE TAX CONSEQUENCES OF THE REORGANIZATION.
THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT
MAY BE RELEVANT TO A PARTICULAR CREDITOR OR EQUITY SECURITY HOLDER IN LIGHT OF
ITS PARTICULAR FACTS AND CIRCUMSTANCES OR TO CERTAIN CREDITORS AND EQUITY
SECURITY HOLDERS SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS
(FOR EXAMPLE, BROKER-DEALERS, TAX-EXEMPT ENTITIES, INSURANCE COMPANIES, AND
FOREIGN CORPORATIONS AND INDIVIDUALS WHO ARE NOT CITIZENS OR RESIDENTS OF THE
UNITED STATES) AND DOES NOT DISCUSS ANY ASPECT OF STATE, LOCAL, OR FOREIGN
TAXATION. FURTHERMORE, THIS DISCUSSION DOES NOT ADDRESS THE TAX
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CONSEQUENCES OF THE REORGANIZATION TO CREDITORS HOLDING CLASS 4-E, CLASS 5,
CLASS 6, OR CLASS 7 CLAIMS.
THE FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION ARE COMPLEX.
CREDITORS AND EQUITY SECURITY HOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MATTERS DISCUSSED
HEREIN, INCLUDING THE APPLICABILITY AND EFFECT OF ANY FEDERAL, STATE, LOCAL, AND
FOREIGN TAX LAWS.
A. Federal Income Tax Consequences To The Debtor
1. Cancellation Of Indebtedness Income
A taxpayer generally must include in gross income the amount of any
discharged indebtedness realized during the taxable year, except to the extent
payment of such indebtedness would have given rise to a deduction. Such amounts,
however, are not included in income where the discharge of indebtedness is
accomplished pursuant to a plan approved by the court in a case under the
Bankruptcy Code. Instead, the amount of discharged indebtedness that would
otherwise have been required to be included in income will be applied to reduce
certain tax attributes of the taxpayer in the following order: net operating
loss carryovers ("NOLs"), general business credit carryovers, capital loss
carryovers, the taxpayer's basis in property and foreign tax credit carryovers.
Under the Plan, satisfaction of the Claims would give rise to discharge of
indebtedness income to the Debtor in an amount equal to the difference between
(i) the sum of the adjusted issue prices of those Claims that constitute
securities for Federal income tax purposes and the amount of those Claims that
do not so constitute securities and (ii) the sum of (a) the amount of Cash, if
any, paid by the Debtor in partial satisfaction of such Claims and (b) the issue
price of any debt instrument and the fair market value of stock and other
consideration issued in satisfaction of such Claims, except to the extent that
the discharged Claims would have given rise to a deduction had they been paid in
full and a deduction for such amount has not already been claimed.
As of January 15, 1998, the Debtor estimates that the amount of its
indebtedness that would be impaired under the Plan is approximately $644 million
which includes approximately $75 million of accruals of interest and original
issue discount which have not been deducted in computing taxable income (loss)
and which the Debtor believes would have given rise to a deduction if paid and
that the aggregate amount of consideration to be issued in satisfaction of such
indebtedness is approximately $69 million to $117 million (as determined for
Federal income tax purposes based on the projected recoveries under the Plan
determined by the financial advisors to the Senior Noteholders' Committee (see
"EXECUTIVE SUMMARY--Projected Recoveries Under The Plan") resulting in discharge
of indebtedness of approximately $450 million to $500 million. The appropriate
valuation of the consideration to be paid, however, is subject to both legal and
factual uncertainty (including issues relating to the proper classification of
the securities to be issued, whether or not they are publicly traded and other
factors), and thus the amount of discharge of indebtedness could differ
substantially from the amounts set forth above.
Because the discharge is being accomplished pursuant to a plan approved by
a court in a case under the Bankruptcy Code and affects certain accruals which
have not been deducted in computing taxable income, the Debtor will not be
required to recognize income in respect of such discharge. Instead, the amount
of such discharge (less the amount of discharged accruals which have not been
deducted in computing taxable income) will reduce tax attributes existing after
the determination of the Debtor's taxable income for the taxable year in which
the discharge occurs.
2. Net Operating Loss Carryovers; Limitations
Based on its tax returns as filed, the Debtor had approximately $1,935
million of NOLs at December 31, 1996, of which approximately $1,690 million are
attributable to its subsidiary, Home Insurance,
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and estimates that these amounts will be approximately $1,995 million(20) and
$1,725 million, respectively, as of December 31, 1997. The Debtor believes that,
upon its sale of the stock of Home Insurance to Home Insurance Holdings, LLC, it
should, pursuant to the consolidated return regulations, be able to reattribute
to itself approximately $793 million of the NOLs attributable to Home Insurance,
with the result that it would have NOLs at the Effective Date of approximately
$1,060 million prior to taking into account reductions for discharge of
indebtedness discussed above (see "Cancellation of Indebtedness Income") and any
additional reductions required pursuant to the Title 11 Exception discussed
below, although such amounts would likely be reduced to the extent that the
stock of Home Insurance has more than nominal value. After taking into account
such reductions, the net amount of NOLs would be approximately $560 million to
$610 million based on the Debtor's tax returns as filed and estimates as of
December 31, 1997, and positions Reorganized Home could take on its Federal
income tax returns, although such amounts would likely be reduced to the extent
that the stock of Home Insurance has more than nominal value. It should be
noted, however, the Debtor's Federal income tax returns have not been audited by
the Service; thus there can be no assurance that an audit of one or more of
those returns (including tax returns to be filed for 1997 and later taxable
years) would not result in the reduction in the amount or complete elimination
of the remaining NOLs available for future use. Moreover, the Code and the
Regulations contain several limitations on the utilization of NOLs, including
sections 269, 382, and 384 of the Code and certain provisions of the
consolidated return regulations. ACCORDINGLY, THERE ARE SUBSTANTIAL RISKS THAT
REORGANIZED HOME'S ABILITY TO UTILIZE THE NOLS MAY BE REDUCED OR ELIMINATED.
CREDITORS RECEIVING EARN OUT NOTES SHOULD BE AWARE THAT ANY LIMITATION ON THE
DEBTOR'S ABILITY TO UTILIZE ITS NOLS WILL AFFECT THE AMOUNTS PAID WITH RESPECT
TO THE EARN OUT NOTES. THESE LIMITATIONS ARE DISCUSSED BELOW.
(a) Section 382
(i) In General
Section 382 of the Code provides in general that when a corporation with
certain tax attributes such as NOLs undergoes an "ownership change" (as defined
in section 382(g) of the Code), the corporation's ability to utilize such NOLs
and other tax attributes to offset income earned following such change may be
subject to limitations unless the so-called "Title 11 Exception" under section
382(1)(5) of the Code (discussed below) is available. Generally, an ownership
change occurs when the percentage of stock (determined on the basis of value)
owned by one or more holders of at least 5% of such stock increases by more than
50 percentage points (in relationship to the corporation's total stock
considered to be outstanding for this purpose) from the lowest percentage of
stock that was owned by such 5% shareholders at any time during the applicable
"testing period." The testing period is ordinarily the shorter of (i) the
three-year period preceding the date of testing or (ii) the period of time since
the most recent ownership change of the corporation. In general, for purposes of
determining stock ownership under section 382, stock owned by an entity is
deemed owned proportionately by its owners and, with certain exceptions, all
persons holding less than 5% of the value of the corporation's stock are treated
as a single 5% shareholder.
Subject to the application of the Title 11 Exception, a corporation that
undergoes an "ownership change" may use pre-change NOLs in any taxable year
following an ownership change only to the extent of its "section 382 limitation"
for such taxable year. (Similar limitations apply with respect to built-in
losses, and, under section 383, tax credits.) The section 382 limitation for a
taxable year equals, in general and subject to adjustments, the product of (i)
the "long-term tax-exempt bond rate" (5.23% for the month of February 1998) as
determined at the time of the ownership change and (ii) the equity value of the
corporation immediately before the ownership change. In general, in the case of
a corporation that undergoes an ownership change in a bankruptcy proceeding (to
which the Title 11 Exception is not applied), the value of the corporation, for
purposes of calculating the section 382 limitation, is increased to reflect the
surrender or cancellation of
- --------
(20) The Debtor estimates NOL expirations approximately as follows: $71
million, $98 million, $232 million, $315 million, $550 million, $670
million, $60 million (estimated) expire in the years 2006 through 2012,
respectively.
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62
creditors' claims for stock. If the limitation under section 382 of the Code
applies with respect to an ownership change, and the corporation does not
continue its historic business (as defined in the Code) during the two-year
period following the date of such ownership change, the NOLs are eliminated in
their entirety. NOLs not utilized in a given year because of the section 382
limitation remain available for use in future years until their normal
expiration dates, but subject to the section 382 limitation in such later years.
To the extent that a corporation's section 382 limitation in a given year
exceeds its taxable income for such year, such excess will increase the section
382 limitation in future taxable years.
The Debtor has taken the position in filing its tax returns to date that
it has not undergone an ownership change prior to the Effective Date of the
Plan. However, there is uncertainty as to this conclusion. If the IRS were
successfully to assert that the Debtor has previously undergone an ownership
change, the resulting section 382 limitation could severely limit or eliminate
the deductibility of all or a substantial portion of the Debtor's existing NOLs.
Moreover, on December 1, 1997, SE Banken completed its tender offer for
100% of the common stock of Trygg-Hansa, an affiliate of which was the former
holder of 83.56% of the common stock of the Debtor (the "Trygg Takeover"). If
the affiliate of Trygg-Hansa had continued to own its common stock in the Debtor
at the time of the Trygg Takeover, an ownership change of the Debtor within the
meaning of section 382 would likely have occurred. Based on the value of the
stock of Debtor at such time, the utilization of the Debtor's NOLs following
such an ownership change would have been substantially eliminated. However, on
November 20, 1997, prior to SE Banken's acquisition of any shares pursuant to
the tender offer, the affiliate of Trygg-Hansa contributed its shares to a New
Hampshire Trust to be held for the benefit of the public shareholders of
Trygg-Hansa as of such date in the same proportions as their stockholdings in
Trygg-Hansa as of such date (the "Trygg Shareholders"). Under the section 382
regulations, such shareholders were deemed to own the Debtor's stock before and
after the transfer of the stock to the New Hampshire Trust; accordingly, the
Debtor believes that the Trygg Takeover should not have adversely affected the
NOLs of the Debtor. However, due to a lack of explicit authority, there can be
no certainty that the Service will agree with the conclusion that the transfer
of the Debtor's stock to the New Hampshire Trust preserved beneficial ownership
of the Debtor for the purposes of Section 382 so as to avoid an ownership change
within the meaning of that section as a result of the Trygg Takeover.
(ii) Application To The Plan
Pursuant to the Plan, all existing stock of Home Holdings will be
canceled, and 100% of the New Common Stock will be issued to Class 5 Creditors
in respect of their Senior Working Capital Note Claims. As a result of such
exchange, after taking into account prior increases in Class 5 Creditors'
ownership of Home Holdings during the testing period, an ownership change,
within the meaning of section 382 of the Code, will occur. Unless the Title 11
Exception applies to the ownership change that results from the Plan, the
operation of section 382 will significantly reduce or eliminate the amount of
NOLs that may be utilized by the Debtor in any taxable period after the
Effective Date. The Debtor intends to take the position that the Title 11
Exception applies with respect to the Plan. However, the application of the
Title 11 Exception to the Plan is uncertain in several respects, and it is
possible that the IRS may disagree with the Debtor's analysis.
Section 382(l)(5) of the Code (the "Title 11 Exception") provides that the
section 382 limitation does not apply if (i) a corporation that is otherwise
subject to section 382 of the Code is under the jurisdiction of a court in a
case under the Bankruptcy Code and (ii) the shareholders and "qualified
creditors" of the corporation (determined immediately before the ownership
change) together own, after such ownership change, and as a result of being
shareholders or qualified creditors immediately before such change, stock having
50% or more of the value and voting power of the reorganized corporation or its
reorganized parent corporation and (iii) the corporation so elects. For this
purpose "qualified creditors" include (i) persons who held indebtedness at least
18 months before the date the Chapter 11 petition was filed (the "Commencement
Date") and (ii) holders of indebtedness that arose in the ordinary course of
business of the corporation and who have at all times held the beneficial
interest in such indebtedness.
The Class 5 Creditors that will receive 100% of the common stock of the
Debtor under the Plan have held the indebtedness exchanged for such stock for
the requisite 18 month period before the Commencement
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63
Date; accordingly, it is expected that the reorganization of the Debtor pursuant
to the Plan will qualify for the Title 11 Exception. However, due to the complex
nature of the Plan, the securities being issued thereunder, and the identity of
the recipients thereof, it is possible that the IRS could challenge the Debtor's
conclusion that the Plan meets the requirements of the Title 11 Exception.
If the Title 11 Exception applies, the use of the corporation's NOLs is
not subject to the section 382 limitation, but the NOLs are reduced by the
amount of interest relating to any indebtedness that is converted into stock and
for which the corporation claimed a deduction during the three-year period
preceding the taxable year of the ownership change, plus the portion of the year
of the ownership change prior to the Effective Date of the Plan. The Debtor
estimates the amount of this reduction to be approximately $1 million, although
it is possible that the Service will disagree with the Debtor's calculation.
Under the Title 11 Exception, if there were a second ownership change during the
two-year period following the ownership change that results from the Plan, the
Title 11 Exception would not apply with respect to the first ownership change
and the NOLs and other tax attributes of the corporation would be subject to a
section 382 limitation of $0 for all taxable years ending after the date of the
second ownership change (thereby, in effect, eliminating entirely the
corporation's ability to utilize such tax attributes).
(b) Other Limitations
In addition to section 382, certain other sections of the Code and
Regulations could apply to limit the Debtor's utilization of its tax attributes,
including its NOLs, following its reorganization under the Plan. The Debtor's
tax attributes could be further limited under certain sections of the Code and
the Regulations to the extent that it engages in future mergers or acquisition
transactions, including the possible Merger of Reorganized Home into ZRNA (See
"THE CHAPTER 11 CASE--Business and Operations of Reorganized Home") that are
found not to have non-tax business purposes or are found to have tax avoidance
as their principal purpose. In addition, if Reorganized Home engages in a merger
transaction with another entity in which it is not the surviving entity and
which transaction does not constitute a reorganization or other transaction
described in section 381 of the Code, the NOLs will be eliminated. Zurich has
advised the Debtor that the possible Merger of Reorganized Home into ZRNA will
be structured in a manner intended to qualify as a reorganization for purposes
of section 381 of the Code, however, there can be no assurance that the Service
will not challenge this conclusion.
Section 269 of the Code provides generally that where (i) a person or
persons acquire, directly or indirectly, control of a corporation, or (ii) any
corporation acquires, directly or indirectly, property of another corporation
not controlled by the acquiring corporation or its shareholder prior to the
acquisition, the basis of which property in the hands of the acquiring
corporation is determined in whole or in part by reference to the basis of the
property in the hands of the transferor corporation, for the principal purpose
of the avoidance or evasion of Federal income tax by securing the benefit of a
deduction, credit, or other allowance which such person or other corporation
would not otherwise enjoy, the Service may disallow such deduction, credit, or
other allowance. If the Service determined that the acquisition by Class 5
Creditors of the Debtor under the Plan, or any future acquisition of or by the
Debtor, including the possible Merger of Reorganized Home into ZRNA (see "THE
CHAPTER 11 CASE--Business and Operations Of Reorganized Home"), had, as its
principal purpose the avoidance or evasion of Federal income tax, the Service
could disallow the Debtor's utilization of certain tax attributes, including its
net operating loss carry forwards.
Treasury Regulations under section 269 of the Code provide that when
control of a corporation is acquired in a transaction that qualifies for the
Title 11 Exception of section 382 of the Code, the principal purpose of such
acquisition will be presumed to be the avoidance or evasion of Federal income
tax unless the corporation carries on more than an insignificant amount of an
active trade or business during and subsequent to the Title 11 case (the "active
business requirement"). Immediately prior to filing its Chapter 11 petition, the
Debtor acquired all of the interests in Sterling Forest Management LLC, which in
turn owns all of the Series B interests in Sterling Forest, LLC (the "Sterling
Forest Business"), which owns certain real estate in Tuxedo, New York, and
engages in the operation of real estate development, sales and rentals,
operation of water and sewer utilities, forestry, outdoor recreation, property
management and sand and gravel facilities relating to such real estate. The
Debtor believes that its ownership of the Sterling Forest Business should
satisfy the active business requirement of section 1.269-3(d) of the
Regulations. However, due to the absence of interpretive
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64
authority with respect to the amount of business activity required to meet the
active business requirement of the section 269 regulations, there is no
certainty that the Service will determine that the Sterling Forest venture meets
the active business requirement. In addition, it is possible that the Service
may seek to apply section 269 to transactions in which the Debtor engages in the
future, including the possible Merger of Reorganized Home into ZRNA. See "THE
CHAPTER 11 CASE--Business And Operations Of Reorganized Home" for further
discussion.
If, subsequent to its reorganization under the Plan, the Debtor becomes a
member of a consolidated group, the net operating losses of the Debtor may be
separate return limitation year losses ("SRLY losses") under the rules provided
in the regulations governing consolidated returns, and the consolidated group
would be limited in its utilization of Debtor's SRLY losses such that the SRLY
losses could only be used to offset income attributable to the Debtor, and not
income attributable to the other members of the group.
If, subsequent to the reorganization of the Debtor under the Plan, the
Debtor acquired a corporation that has unrealized built-in-gains, section 384 of
the Code would apply to prevent the Debtor from using its net operating losses
to offset any gains realized within the five years following the acquisition
that are attributable to the acquired corporation's built-in-gains.
3. Alternative Minimum Tax
An alternative minimum tax ("AMT") is imposed on a corporation's
alternative minimum taxable income at a 20% rate to the extent such tax exceeds
the corporation's regular Federal income tax. For purposes of computing taxable
income for AMT purposes, certain tax deductions and other beneficial allowances
are modified or eliminated. In particular, even though a corporation might
otherwise be able to offset all of its taxable income for regular tax purposes
by available NOLs, only 90% of a corporation's taxable income for AMT purposes
may be offset by available net operating loss carryforwards (as computed for
these purposes).
B. Federal Income Tax Consequences To Creditors
1. Class 1, 2, And 3 Creditors
On the exchange of its Claim for cash, each Class 1, 2, or 3 Creditor will
recognize gain or loss measured by the difference between the amount realized on
the exchange and its tax basis in the Claim. The amount realized will be equal
to the aggregate fair market value of the cash and/or property received to the
extent not allocable to interest. (See "Treatment Of Accrued Interest," below.)
The character and taxation of any recognized gain or loss will depend on the
status of the Creditor, the nature of the Claim in its hands, and its holding
period.
2. Class 4 Creditors Receiving New Notes And Earn Out Notes
The Federal income tax consequences of the implementation of the Plan to a
Class 4 Creditor receiving New Notes or Earn Out Notes under the Plan (a "Senior
Creditor") will depend primarily on a number of factors, including whether the
New Notes and Earn Out Notes are properly classified as debt or equity for
Federal income tax purposes, whether the exchanged claim (a "Senior Claim") is
an obligation that constitutes a "security" for Federal income tax purposes (a
"Tax Security"), and, if a Senior Creditor's Senior Claim constitutes a Tax
Security, on whether the New Notes and Earn Out Notes constitute Tax Securities
and whether any of the Senior Claim, the New Notes or the Earn Out Notes are
considered traded on an established securities market ("publicly traded") for
purposes of the original issue discount rules, as well as marketable securities
in the case of the Senior Claim or readily tradable in the case of the New Notes
and the Earn Out Notes, in each case for purposes of the installment sales rules
of the Code. The term "security" is not defined in the Code or the Treasury
Regulations. Whether a Senior Claim constitutes a Tax Security is based on the
facts and circumstances surrounding the origin and nature of the Senior Claim
and its maturity date. Generally, stock, and bonds or debentures with an
original term of at least ten years have been considered to be Tax Securities.
In contrast, instruments with terms of five years or less rarely qualify as Tax
Securities. The Debtor believes that the Senior Notes are likely to be treated
as Tax Securities, and intends to take the position that the
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65
New Notes and Earn Out Notes are both debt instruments for Federal income tax
purposes. However, because of the unique features of both the Earn Out Notes and
the New Notes, their characterization as debt or equity is unclear, and,
furthermore, if either or both of the New Notes and Earn Out Notes is properly
characterized as debt, it is unclear whether such debt would constitute a Tax
Security of the Debtor.
(a) Class 4-A Senior Creditors
The Debtor believes that the Class 4-A Claims do not constitute Tax
Securities, and accordingly the exchange of a Class 4-A Claim for New Notes and
Earn Out Notes will be a taxable event for a Class 4-A Creditor.
Because the New Notes and Earn Out Notes both provide for payments in
future years, gain recognized by a Class 4-A Creditor on the exchange of its
Class 4-A Claim for New Notes and Earn Out Notes may, under certain
circumstances, qualify for the installment sale rules under section 453 of the
Code (see "Installment Sales," below).
If the New Notes or Earn Out Notes are readily tradeable within the
meaning of section 453(f) of the Code, the exchange will not be treated as an
installment sale for Federal income tax purposes. In addition, even if neither
the New Notes nor Earn Out Notes are readily tradeable within the meaning of
section 453(f) of the Code, a Class 4-A Creditor may elect under section 453(g)
of the Code not to have the installment sale rules apply to the exchange. If the
installment sale rules do not apply to the exchange, a Class 4-A Creditor will
recognize gain, if any, at the time of the exchange in an amount equal to the
difference between the Class 4-A Creditor's tax basis in its Class 4-A Claim
that is allocable to the New Notes and Earn Out Notes received and the issue
price (or, if such Notes are not considered debt instruments, fair market value)
of the New Notes and Earn Out Notes received by the Class 4-A Creditor. The
character of any recognized gain will depend on the status of the Class 4-A
Creditor, the nature of the Class 4-A Claim in its hands and its holding period.
A Class 4-A Creditor's tax basis in the New Notes and Earn Out Notes thus
received will generally equal the fair market value of the New Notes and Earn
Out Notes at the time gain is recognized, and the holding period for such New
Notes and Earn Out Notes will commence on the day following the exchange. Even
if the exchange is not subject to installment reporting, however, due to the
contingent nature of payments to be made in future years with respect to the
Earn Out Notes, it is not clear whether the transaction would be sufficiently
closed such that a Class 4-A Creditor would be able to recognize a loss on the
exchange. If either of the New Notes and Earn Out Notes qualifies for
installment reporting and the other does not, the portion of the exchange that
does not qualify for installment reporting (i.e., the New Notes or Earn Out
Notes, as the case may be) will be treated as a payment on the installment sale.
Future payments with respect to the New Notes and Earn Out Notes will be
subject to the original issue discount rules if such securities constitute
indebtedness for Federal income tax purposes (see "Federal Income Tax Treatment
Of Payments On The New Notes And The Earn Out Notes--Original Issue Discount,"
below). If the New Notes or Earn Out Notes became worthless before the holder
fully recovered its tax basis, a Class 4-A Creditor would be entitled to a loss
at that time equal to its adjusted basis, if any, in such security. The Debtor
anticipates that such loss would likely be a capital loss.
(b) Class 4-B, Class 4-C, And Class 4-D Senior Creditors
The Federal income tax consequences of the implementation of the Plan to
Class 4-B, Class 4-C, and Class 4-D Senior Creditors ("Senior Note Creditors")
exchanging Class 4-B, Class 4-C, and Class 4-D Senior Claims (the "Senior Note
Claims") for a combination of Earn Out Notes and New Notes depend primarily on
whether the Earn Out Notes and New Notes are properly classified as debt or
equity for Federal income tax purposes and whether they constitute Tax
Securities of the Debtor for Federal income tax purposes. As noted above, the
tax classification of the New Notes and Earn Out Notes is uncertain. No rulings
or opinions have been requested from the Service or counsel with respect to the
Federal tax classification of the Earn Out Notes and the New Notes. Accordingly,
the Federal tax consequences of the implementation of the Plan to a Senior Note
Creditor exchanging a Senior Note Claim for New Notes and Earn Out Notes are
unclear.
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(i) New Notes And Earn Out Notes Are Indebtedness Of The
Debtor
The Debtor intends to take the position that the New Notes and Earn Out
Notes issued under the Plan are indebtedness of the Debtor. If the Debtor's
position is correct, the Federal income tax consequences of the Plan to the
exchange of a Senior Note Claim for Earn Out Notes and New Notes pursuant to the
Plan will thus depend on whether either or both of the New Notes and Earn Out
Notes constitute Tax Securities of the Debtor. The treatment of future payments
to be made with respect to the New Notes and Earn Out Notes is discussed below
(see "Federal Income Tax Treatment Of Payments On The New Notes And The Earn Out
Notes--Original Issue Discount").
(x) New Notes And Earn Out Notes Are Tax Securities. If both
the New Notes and the Earn Out Notes are Tax Securities, the exchange of a
Senior Note Claim for New Notes and Earn Out Notes will constitute a
recapitalization under section 368(a)(1)(E) of the Code, and a Senior Note
Creditor will not recognize gain or loss on such exchange except to the extent,
if any, that the Earn Out Notes and New Notes are attributable to interest
accrued on the Senior Note Creditor's Senior Note Claim after the beginning of
such Senior Note Creditor's holding period (see "Treatment of Accrued Interest,"
below) (or if the principal amount of New Notes and Earn Out Notes received
exceeds the principal amount of the Senior Note Creditor's Senior Notes
exchanged (which the Debtor believes should not be the case), in which case the
Senior Note Creditor will recognize gain under section 356 of the Code equal to
the fair market value of the amount by which the principal amount of the Earn
Out Notes and New Notes exceeds the principal amount of the exchanged Senior
Notes). A Senior Note Creditor's aggregate tax basis in the Earn Out Notes and
New Notes received under the Plan in respect of the Senior Note Claim will
generally equal its basis in the Senior Note Claim allocated in proportion to
the fair market value of the Earn Out Notes and New Notes received. The holding
period for Earn Out Notes and New Notes received in the exchange (other than in
respect of interest -- see "Treatment Of Accrued Interest," below) will
generally include the Senior Note Creditor's holding period of its Senior Note
Claim.
(y) Either Of New Notes Or Earn Out Notes Is Not A Tax
Security. To the extent that either, but not both, of the Earn Out Notes or New
Notes does not constitute a Tax Security of the Debtor, the exchange of a Senior
Note Claim for Earn Out Notes and New Notes pursuant to the Plan will constitute
a recapitalization under section 368(a)(1)(E) of the Code, for which the non-Tax
Security received will constitute "boot" to the Senior Note Creditor.
A Senior Note Creditor will not recognize loss on the exchange, but may
recognize gain in an amount equal to the lesser of: (a) the fair market value of
the non-Tax Security received and (b) the total gain realized in the
recapitalization, which amount would be equal to the difference between the
Senior Note Creditor's tax basis in its Senior Note Claim and the aggregate
issue price (or, if such Notes are not considered debt instruments, fair market
value) of the Earn Out Notes and New Notes received in the exchange. Any
recognized gain may qualify for installment reporting (see "Installment Sales,"
below).
A Senior Note Creditor's tax basis in the Tax Security thus received will
generally equal its tax basis in the Senior Note Claim, decreased by the fair
market value of the non-Tax Security received and increased by the amount of any
gain recognized on the exchange. A Senior Note Creditor's holding period for the
Tax Security thus received will generally include the Senior Note Creditor's
holding period for its Senior Note Claim.
A Senior Note Creditor's basis in the non-Tax Security thus received will
generally equal the fair market value of the non-Tax Security, and the holding
period for the non-Tax Security will commence on the day following the exchange.
(z) Neither The New Notes Nor The Earn Out Notes Are Tax
Securities. If both the Earn Out Notes and the New Notes are characterized as
debt not constituting a Tax Security of the Debtor, the exchange of a Senior
Note Claim for Earn Out Notes and New Notes will be a taxable event for an
exchanging Senior Note Creditor, with the same Federal tax consequences as those
for Class 4-A Creditors (see "Class 4-A Senior Creditors" above).
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(ii) Earn Out Notes Are Characterized As Equity
As stated above, the Debtor intends to take the position that both the New
Notes and the Earn Out Notes issued under the Plan constitute indebtedness of
the Debtor. However, if it were determined that the Earn Out Notes constitute
equity of the Debtor, the exchange would likely constitute a transfer to a
controlled corporation under section 351 of the Code, in which the New Notes
(whether or not treated as equity) would constitute "boot." A Senior Note
Creditor would recognize gain on the exchange to the extent of the fair market
value of the boot received. It is possible that a Senior Note Creditor may be
able to report such gain on the installment method (see "Installment Sales,"
below). If the exchange did not qualify as an installment sale because the
Senior Note Claim exchanged constitutes a marketable security, or if the Senior
Note Creditor elected out of the installment rules under section 453(g) of the
Code, a Senior Note Creditor would recognize gain, but not loss, on the receipt
of New Notes in an amount equal to the fair market value of the New Notes. A
Senior Note Creditor's basis in the New Notes thus received would equal the fair
market value of the New Notes, and the holding period for the New Notes would
commence on the day following the exchange.
A Senior Note Creditor's basis in the Earn Out Notes thus received would
equal its basis in its Senior Note Claim, decreased by the fair market value of
the New Notes and increased by the amount of gain recognized with respect to the
New Notes, and the holding period for Earn Out Notes received in the exchange
(other than in respect of interest) would generally include the Senior Note
Creditor's holding period of its Senior Note Claim.
3. Installment Sales
In any situation where the exchange of a Senior Claim is, wholly or
partially, a taxable event to the exchanging Senior Creditor, the installment
sale rules will apply to the exchange unless: (i) either or both of the New
Notes or Earn Out Notes are "readily tradeable" within the meaning of section
453(f) of the Code; (ii) in the case of an exchange of Senior Notes, the Senior
Notes constitute marketable securities; or (iii) the Senior Creditor elects out
of the installment rules pursuant to section 453(g). It is not clear whether the
New Notes or Earn Out Notes will be "readily tradeable" under section 453(f) of
the Code, nor is it clear whether the Senior Notes are marketable securities;
accordingly, the applicability of the installment sale rules to gain recognition
on the exchange of a Senior Claim for New Notes and Earn Out Notes is uncertain.
If neither the New Notes nor the Earn Out Notes are "readily tradeable"
within the meaning of section 453(f), or, in the case of Senior Note Claims, the
Senior Notes do not constitute marketable securities, the exchange will be
treated as an installment sale for Federal income tax purposes, and the Senior
Creditor will be required to report the transaction using the installment method
under section 453 of the Code (unless a Senior Creditor elects out of the
installment rules under section 453(g) of the Code). In the case of a
wholly-taxable exchange, a Senior Creditor will be required to "spread" its tax
basis in the New Notes and Earn Out Notes received ratably over a 15-year
period; in the case of an exchange by a Senior Note Creditor where the receipt
of New Notes is taxable as boot, a Senior Note Creditor will recognize gain on a
portion of each payment received over the term of the New Notes equal to the
amount of the payment multiplied by a fraction, the numerator of which is the
total amount of gain realized by the Creditor on the exchange and the
denominator is the total amount to be paid under the New Notes.
The character of a holder's gain will depend upon the nature and
holding period of the Senior Claim exchanged for the New Notes and Earn Out
Notes, except that payments with respect to both the New Notes and the Earn Out
Notes will be subject to the original issue discount rules (see "Federal Income
Tax Treatment Of Payments On The New Notes And The Earn Out Notes--Original
Issue Discount", below). The portions of any payments received that are not
treated as gain as set forth above, or interest income under the original issue
discount rules, will be applied against the holder's adjusted basis in the New
Notes and Earn Out Notes until the holder's basis in each is reduced to zero,
with any excess payment treated as gain which will be capital gain if the Notes
or Earn Out Notes are capital assets (except to the extent, in the case of the
Earn Out Notes, that the Earn Out Notes are publicly traded (see "Federal Income
Tax Treatment Of Payments On The New Notes And The Earn Out Notes--Original
Issue Discount" below.) A Senior Creditor will not be able to claim a loss in a
year in which no payment is received, or if the payment received is less than
the basis allocated to the year (unless the New Notes or Earn Out Notes have
become worthless). If either situation occurs, the
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excess basis is allocated ratably over the balance of the 15-year period (or,
where only gain on the New Notes is reported on the installment method, the term
of the New Notes). Any basis not recovered at the end of the 15th year (or,
where only gain on the New Notes is reported on the installment method, at the
maturity of the New Notes) is carried forward to the next succeeding year until
all basis has been recovered or the New Notes or Earn Out Notes are determined
to be worthless. If the New Notes or Earn Out Notes become worthless before the
holder has fully recovered its tax basis, the holder would be entitled to a
capital loss at that time.
If a Senior Creditor elects out of the installment method, or if the Earn
Out Notes and New Notes are readily tradeable, or, in the case of a Senior Note
Creditor, the Senior Notes exchanged are marketable securities, the exchange
will not constitute an installment sale.
4. Treatment Of Accrued Interest
A Creditor will be treated as receiving interest with respect to its Claim
to the extent that the Cash, Earn Out Notes or New Notes received is
"attributable to" unpaid interest since the beginning of the Creditor's holding
period. A Creditor will recognize interest income to the extent that the amount
received attributable to its unpaid interest exceeds the amount, if any, that
such Creditor had previously included in income with respect to such interest,
and will recognize a loss to the extent that the amount of interest previously
included in income exceeds the amount treated as attributable to interest.
Neither the Code nor the Treasury Regulations specify how a creditor who
receives consideration with respect to a Claim that is less than the amount of
the Claim should allocate such consideration between principal and interest. The
Report of the House Ways and Means Committee on the Bankruptcy Tax Act of 1980
indicates that if an allocation is reflected in the plan of reorganization, both
the debtor and creditor must utilize the allocation. The Plan provides that the
entire amount of Cash, if any, paid to Classes 1, 2, and 3 in satisfaction of
their Claims and the entire amount of Earn Out Notes and New Notes issued to
Senior Creditors in exchange for their Senior Claims will be allocated to the
principal portion first and then to the interest portion. The Service could,
however, take the view that the consideration must be allocated proportionately
between the portion of a Claim representing principal and the portion of the
Claim representing interest. Creditors should consult their tax advisors as to
the proper allocation.
C. Federal Income Tax Treatment Of Payments On The New Notes And The Earn Out
Notes
The Federal income tax treatment of future payments on the New Notes and
the Earn Out Notes will depend on whether such securities are properly
classified as debt or equity and, if debt, on a variety of other factors
discussed below under "Original Issue Discount." If, consistent with positions
that the Debtor currently intends to take, the New Notes and Earn Out Notes are
indebtedness for Federal income tax purposes, the Original Issue Discount
("OID") rules will apply, and holders, as discussed below, could be required to
include amounts in taxable income substantially in advance of receiving
corresponding amounts of cash.
1. Original Issue Discount
The amount of original issue discount, if any, on a debt instrument is the
excess of its "stated redemption price at maturity" over its "issue price,"
subject to a statutorily-defined de minimis exception. The "stated redemption
price at maturity" of a debt instrument is the sum of its principal amount plus
all other payments required thereunder, other than payments of "qualified stated
interest" (defined generally as interest that is unconditionally payable in cash
or in property (other than debt instruments of the issuer) at least annually at
a single fixed rate that appropriately takes into account the length of
intervals between payment). The "issue price" of a debt instrument is determined
under sections 1273(b) and 1274 of the Internal Revenue Code and depends upon
whether the Senior Claims, the New Notes, or the Earn Out Notes are publicly
traded.
In general, the holder of a debt instrument with original issue discount
must include in gross income for Federal income tax purposes the sum of the
daily portions of original issue discount with respect to such debt instrument
for each day during the taxable year or portion of a taxable year on which such
holder holds the debt instrument. This could result in a holder recognizing
taxable income prior to receiving payment with
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respect to the debt instrument. The daily portion is determined by allocating to
each day of any accrual period a pro rata portion of the amount of original
issue discount allocable to such accrual period. The amount of original issue
discount that is allocable to an accrual period is generally an amount equal to
(x) the product of the "adjusted issue price" of the debt instrument at the
beginning of such accrual period times its yield to maturity less (y) any
qualified stated interest allocable to such accrual period. The "adjusted issue
price" is the issue price of a debt instrument increased by the accrued original
issue discount for all prior accrual periods (other than qualified stated
interest payments) and decreased by certain payments made by the issuer to the
holder. The "yield to maturity" is the discount rate, which when applied to all
payments under the debt instrument results in a present value equal to the issue
price. The tax basis of the debt instrument in the hands of the holder will be
increased by the amount of original issue discount, if any, on the debt
instrument that is included in the holder's gross income and will be decreased
by the amount of cash payments (other than qualified stated interest payments)
received with respect to the debt instrument, whether such payments are
denominated as principal or interest.
(a) Application To New Notes
Because the New Notes contain a payment-in-kind ("PIK") feature that
enables the Debtor to make interest payments, at its option, in the form of
additional New Notes for three years following their issuance, the New Notes do
not bear adequate stated interest for purposes of the original issue discount
rules, and accordingly, all interest on the New Notes will be accounted for
under the original issue discount rules outlined above.
(b) Application To Earn Out Notes
Because the Earn Out Notes do not bear any qualified stated interest,
payments made with respect to the Earn Out Notes will be subject to the original
issue discount rules, and because the amount and timing of the payments to be
made with respect to the Earn Out Notes are contingent, the Earn Out Notes
payments will be subject to the contingent payment original issue discount rules
of Treasury Regulations, section 1.1275-4. The effect and manner of application
of the contingent payment original issue discount rules depends on whether or
not either (or both) of the Senior Claims and Earn Out Notes are "publicly
traded" within the meaning of section 1273 of the Code. The determination of
whether a debt instrument is publicly traded for the purposes of section 1273 is
factual, based on whether certain types of market activity occur with respect to
debt instruments within a certain time frame (30 days before and after the
Effective Date), and it is not known whether the Earn Out Notes or the
outstanding Senior Claims would be considered "publicly traded" for purposes of
the original issue discount rules.
If neither the Senior Claims nor the Earn Out Notes are publicly traded,
under the rules set forth in Treasury Regulations, section 1.1275-2 the Earn Out
Notes will be aggregated with the New Notes as one debt instrument for purposes
of applying the original issue discount rules (unless the New Notes are publicly
traded, in which case there would not be aggregation). Under the rules set forth
in section 1.1275-4(c) of the Treasury Regulations, however, a contingent
payment debt instrument's noncontingent payments are treated as a separate debt
instrument from the contingent payments, which is generally taxed under the
rules for noncontingent debt instruments. Accordingly, although the New Notes
would technically be aggregated with the Earn Out Notes for purposes of the
original issue discount rules, for practical purposes, the New Notes would be
treated as a separate debt instrument for purposes of applying the original
issue discount rules. As set forth above, interest on the New Notes is subject
to the original issue discount rules because of the PIK feature of the New
Notes. Under the rules provided for a debt instrument's contingent payments, a
portion of each payment made with respect to the Earn Out Notes would be treated
as principal, with such amount calculated by discounting the payment at the
applicable Federal rate ("AFR") from the payment date to the issue date, and the
remainder of the payment would be treated as interest. If the amount and timing
of a contingent payment become fixed more than six months prior to payment,
special rules apply; however, under the terms of the Earn Out Notes, payments
are to be made within 30 days of being fixed as to amount, and accordingly, it
is expected that these special rules would not apply to the Earn Out Notes.
If either the Senior Claims or the Earn Out Notes are publicly traded
within the meaning of section 1273 of the Code, the Earn Out Notes will be
subject to the noncontingent bond method of calculating interest
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70
accruals under section 1.1275-4(b) of the Treasury Regulations. Under the
noncontingent bond method, interest accruals on the Earn Out Notes would be
computed by setting up a payment schedule as of the issue date based on the
hypothetical yield of a comparable fixed rate debt instrument of Reorganized
Home and applying the original issue discount rules according to that payment
schedule. The payment schedule generally consists of all fixed payments on the
debt and a projected amount for each contingent payment. Because the payments to
be made with respect to the Earn Out Notes are wholly contingent, the payment
schedule for the Earn Out Notes consists of a projected amount for each payment.
The Debtor will provide such a projected payment schedule in the event that it
determines that the Senior claims or the Earn Out Notes were, in fact, publicly
traded during the relevant time frame.
2. Treatment As Equity
In the event that either the New Notes or the Earn Out Notes are treated
as equity for Federal income tax purposes, the treatment of payments on such
securities would be substantially different to the treatment described above. In
the case of the New Notes, the Debtor believes that payments denominated as
interest would likely be treated as dividends to the extent that the company has
sufficient earnings and profits, and that payments of principal would be treated
as payments in redemption of stock governed by section 302 of the Code. If the
Earn Out Notes were treated as equity, the treatment of payments is
significantly less clear due to the unique nature of the Earn Out Notes and the
lack of authority as to the treatment of such securities. Creditors are urged to
consult their tax advisors in this regard.
D. New Notes Tender Offer
The Plan provides that Zurich Note Entity will commence a tender for the
New Notes at 99% face value within 60 days of their issuance. A Creditor who
tenders his or her New Notes will recognize a gain or loss on the tender in an
amount equal to the difference between the Creditor's basis in the New Notes
tendered and the amount realized from such tender. Such gain or loss will be
capital gain or loss if the New Notes are capital assets in the hands of the
creditor, which will be long- or short-term and taxed depending on the
creditor's holding period in the New Notes tendered.
E. Effect Of Future Transactions On Holders Of Earn Out Notes
To the extent that Reorganized Home engages in future merger transactions,
including the possible Merger of Reorganized Home into ZRNA (see "THE CHAPTER 11
CASE--Business And Operations Of Reorganized Home"), in which the Earn Out Notes
are exchanged for Earn Out Notes of another entity, it is uncertain whether such
transactions will constitute tax-free reorganizations or whether the Earn Out
Notes would constitute Tax Securities eligible for nonrecognition treatment, and
accordingly, such a transaction could be a taxable event for holders of Earn Out
Notes. CREDITORS RECEIVING EARN OUT NOTES UNDER THE PLAN ARE URGED TO CONSULT
THEIR TAX ADVISORS IN THIS REGARD.
F. Federal Income Tax Consequences To Shareholders
Holders of old common stock of Home Holdings should recognize a loss upon
consummation of the Plan. Such loss will be a capital loss if the stock was a
capital asset in the hands of the holder. Taxpayers should consult their own tax
advisors as to whether they are entitled to a worthless securities deduction
under section 165(g) of the Code in an earlier taxable year.
THE FEDERAL, STATE, AND LOCAL TAX CONSEQUENCES OF THE PLAN ARE COMPLEX
AND, IN SOME CASES, UNCERTAIN. IN ADDITION, THE FOREGOING SUMMARY DOES NOT
DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO A
PARTICULAR CREDITOR OR EQUITY HOLDER IN LIGHT OF ITS PARTICULAR CIRCUMSTANCES
AND INCOME TAX SITUATION. ACCORDINGLY, EACH HOLDER OF A CLAIM OR INTEREST IS
STRONGLY URGED TO CONSULT WITH ITS OWN TAX ADVISOR REGARDING THE FEDERAL, STATE,
AND LOCAL TAX CONSEQUENCES OF THE PLAN.
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IX. FEASIBILITY; BEST INTEREST OF CREDITORS; CONFIRMATION OF THE PLAN
A. Feasibility Of The Plan
Section 1129(a)(11) of the Bankruptcy Code requires a judicial
determination that confirmation of the Plan will not likely be followed by
liquidation or the need for further financial reorganization of the Debtor or
any successor to the Debtor under the Plan, unless liquidation is contemplated
under the Plan.
To demonstrate feasibility of the Plan, financial information concerning
certain members of the Zurich Group has been attached as Exhibit B hereto and
described in the section "Credit Rating Of The Zurich Note Entity And The Zurich
Put Entity." In addition, Zurich has prepared financial Projections (assuming
the Merger of Reorganized Home with and into ZRNA) for the period 1998 through
2002, as set forth in Exhibit B attached to this Disclosure Statement.
The Projections indicate that Reorganized Home (or its successor) should
have sufficient cash flow to make the payments required under the Plan on the
Effective Date and to repay and service its debt obligations and to maintain its
operations. As noted in the Projections, however, the Debtor and Zurich caution
that no representations can be made as to the accuracy of the Projections or as
to Reorganized Home's ability to achieve the projected results. Many of the
assumptions upon which the Projections are based are subject to uncertainties
outside the control of the Debtor, Reorganized Home, and Zurich. Some
assumptions inevitably will not materialize, and events and circumstances
occurring after the date on which the Projections were prepared may be different
from those assumed or may be unanticipated, and may adversely affect the
Reorganized Home's financial results. Therefore, the actual results may vary
from the projected results and the variations may be material and adverse. See
"CERTAIN FACTORS TO BE CONSIDERED" for a discussion of certain risk factors that
may affect financial feasibility of the Plan.
THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARD COMPLIANCE WITH THE
GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS, THE FINANCIAL ACCOUNTING STANDARDS BOARD, OR THE RULES AND
REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION REGARDING PROJECTIONS.
FURTHERMORE, THE PROJECTIONS HAVE NOT BEEN AUDITED BY THE DEBTOR'S OR ZURICH'S
INDEPENDENT CERTIFIED ACCOUNTANTS. ALTHOUGH PRESENTED WITH NUMERICAL
SPECIFICITY, THE PROJECTIONS ARE BASED UPON A VARIETY OF ASSUMPTIONS, WHICH MAY
NOT BE REALIZED, AND ARE SUBJECT TO SIGNIFICANT BUSINESS, LITIGATION, ECONOMIC,
AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE
CONTROL OF THE DEBTOR, REORGANIZED HOME, AND ZURICH. CONSEQUENTLY, THE
PROJECTIONS SHOULD NOT BE REGARDED AS A REPRESENTATION OR WARRANTY BY THE
DEBTOR, ZURICH, OR ANY OTHER PERSON, THAT THE PROJECTIONS WILL BE REALIZED.
ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE PRESENTED IN THE PROJECTIONS.
B. Acceptance Of The Plan
As a condition to confirmation, the Bankruptcy Code requires that each
Class of impaired Claims votes to accept the Plan, except under certain
circumstances.
Section 1126(c) of the Bankruptcy Code defines acceptance of a plan by a
class of impaired claims as acceptance by holders of at least two-thirds in
dollar amount and more than one-half in number of claims in that class who
actually vote to accept or to reject the Plan. Thus, a Class of Claims will have
voted to accept the Plan only if two-thirds in amount and a majority in number
actually voting cast their Ballots in favor of acceptance. Holders of claims who
fail to vote are not counted as either accepting or rejecting a plan.
Class 4 Unsecured Claims have been divided into separate groups. Together,
all of the groups of Class 4 Unsecured Claims constitute a single Class of
Claims for voting purposes under the Plan and the Bankruptcy Code.
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C. Best Interests Of Holders Of Claims And Equity Interests
Even if a plan is accepted by each class of holders of claims and
interests, the Bankruptcy Code requires the Bankruptcy Court to determine that
the Plan is in the best interests of all holders of claims and interests that
are impaired by the Plan and that have not accepted the Plan. The "best
interests" test, as set forth in section 1129(a)(7) of the Bankruptcy Code,
requires the Bankruptcy Court to find either that (i) all members of an impaired
class of claims or interests have accepted the plan or (ii) the plan will
provide a member who has not accepted the plan with a recovery of property of a
value, as of the effective date of the plan, that is not less than the amount
that such holder would receive or retain if the debtor were liquidated under
Chapter 7 of the Bankruptcy Code.
To calculate the probable distribution to members of each impaired class
of holders of claims and interests if a debtor were liquidated under Chapter 7,
the Bankruptcy Court must first determine the aggregate dollar amount that would
be generated from the debtor's assets if its Chapter 11 case were converted to a
Chapter 7 case under the Bankruptcy Code. This "liquidation value" would consist
primarily of the proceeds from a forced sale of the debtor's assets by a Chapter
7 trustee.
The amount of liquidation value available to unsecured creditors would be
reduced by, first, the claims of secured creditors to the extent of the value of
their collateral, and, second, by the costs and expenses of liquidation, as well
as by other administrative expenses and costs of both the Chapter 7 case and the
Chapter 11 Case. Costs of liquidation under Chapter 7 of the Bankruptcy Code
would include the compensation of a trustee, as well as of counsel and other
professionals retained by the trustee, asset disposition expenses, all unpaid
expenses incurred by the debtor in its Chapter 11 case (such as compensation of
attorneys, financial advisors, and accountants) that are Allowed in the Chapter
7 case, litigation costs, and claims arising from the operations of the debtor
during the pendency of the Chapter 11 case. The liquidation itself would trigger
certain priority payments that otherwise would be due in the ordinary course of
business. Those priority claims would be paid in full from the liquidation
proceeds before the balance would be made available to pay general claims or to
make any distribution in respect of equity interests. The liquidation would also
prompt the rejection of executory contracts and unexpired leases and thereby
create a significantly higher number of unsecured creditors.
Under a Chapter 7 liquidation, no class of claims that is junior to a
class of claims may be paid unless the senior class of claims is paid in full.
Section 510(a) of the Bankruptcy Code provides that subordination agreements are
enforceable in a bankruptcy case to the same extent that such subordination is
enforceable under applicable non-bankruptcy law. Therefore, no class of claims
that is contractually subordinated to another class would receive any payment on
account of its claims, unless and until such senior class were paid in full.
Once the Bankruptcy Court ascertains the recoveries in liquidation of
secured creditors and priority claimants, it must determine the probable
distribution to general unsecured creditors and equity security holders from the
remaining available proceeds in liquidation. If such probable distribution has a
value greater than the distributions to be received by such creditors and equity
security holders under the Plan, then the Plan is not in the best interests of
creditors and equity security holders and cannot be confirmed by the Bankruptcy
Court. The Debtor believes that each member of each class of impaired claims
will receive at least as much as, or more, under the Plan than it would receive
if the Debtor were liquidated under Chapter 7 as explained below. With respect
to Class 7 Senior Subordinated Note Claims and the Class 8 Equity Interests, the
Debtor believes that each member in such impaired Classes will receive nothing
in a Chapter 7 liquidation on account of its Senior Subordinated Note Claims or
Equity Interests, respectively. Because liquidation will not yield more for the
holders of Senior Subordinated Note Claims or Equity Interest holders, the Plan
meets the requirements of Section 1129(a)(7) as to such holders as well.
D. Liquidation Analysis
The Debtor believes that the Plan meets the best interests test of section
1129(a)(7) of the Bankruptcy Code. The Debtor believes that the members of each
impaired Class of Claims will receive more under the Plan than they would in a
liquidation. The liquidation analysis prepared by REM, with the assistance of
KPMG Peat Marwick LLP, is attached as Exhibit C to this Disclosure Statement.
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The Debtor believes that any liquidation analysis is speculative. The
liquidation analysis necessarily contains an estimate of the amount of Claims
which will ultimately become Allowed Claims. This estimate is based solely upon
the Debtor's books and records and the Debtor's estimate as to Claims that would
arise in the event of a conversion of its Case from Chapter 11 to Chapter 7. No
order or finding has been entered by the Bankruptcy Court estimating or
otherwise fixing the amount of Claims at the projected amounts of Allowed Claims
set forth in the liquidation analysis. In preparing the liquidation analysis,
the Debtor has projected an amount of Allowed Claims that is at the lowest end
of a range of reasonableness such that, for purposes of the liquidation
analysis, the largest possible liquidation dividend to holders of Allowed Claims
can be assessed. The estimate of the amount of Allowed Claims set forth in the
liquidation analysis should not be relied on for any other purpose, including,
without limitation, any determination of the value of any distribution to be
made on account of Allowed Claims under the Plan.
E. Valuation Of New Notes, Earn Out Notes, And Membership Units
Houlihan Lokey, financial advisor for the Creditors' Committee and the
Senior Noteholders' Committee, has estimated (i) the value of the New Notes to
be 99% of the sum of their face amount and all accrued and unpaid interest based
on the contemplated tender offer by Zurich (see "SUMMARY OF THE PLAN OF
REORGANIZATION--Means For Implementation Of The Plan-- Tender Offer"), (ii) the
aggregate value of the Earn Out Notes Series I, II, and III to be approximately
$48.2 million, $18.3 million, or $5.4 million, respectively, based on the
assumptions described in the "EXECUTIVE SUMMARY--Projected Recoveries Under The
Plan." Depending on general market conditions and other factors prevailing at
the relevant times, however, the New Notes and Earn Out Notes Series I may trade
at prices higher or lower than these estimated values. Accordingly, no
representation can be, or is being made with respect to whether the estimated
value will actually be realized by the holders of the New Notes and Earn Out
Notes under the Plan. No specific value has been assigned to the Membership
Units. The value of the Membership Units is speculative and no specific value is
ascribed to the Membership Units for the purposes hereof. See "CERTAIN FACTORS
TO BE CONSIDERED--Risk Factors" and "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF
THE PLAN" for further discussion on the risk factors affecting valuation of the
securities to be issued under the Plan.
F. Confirmation Without Acceptance Of All Impaired Classes: The "Cramdown"
Alternative
Section 1129(b) of the Bankruptcy Code provides that a plan can be
confirmed even if the plan is not accepted by all impaired classes, as long as
at least one impaired class of claims has accepted it. The Bankruptcy Court may
confirm the Plan at the request of the Debtor if the Plan "does not discriminate
unfairly" and is "fair and equitable" as to each impaired Class which has not
accepted the Plan. A plan does not discriminate unfairly within the meaning of
the Bankruptcy Code if a dissenting class is treated equally with respect to
other classes of equal rank. See "CERTAIN FACTORS TO BE CONSIDERED--Risk
Factors" and "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN" for further
discussion on the risk factors affecting valuation of the securities to be
issued under the Plan.
A plan is fair and equitable as to a class of secured claims that rejects
such plan if the plan provides (a)(i) that the holders of claims included in the
rejecting class retain the liens securing those claims whether the property
subject to those liens is retained by the debtor or transferred to another
entity, to the extent of the allowed amount of such claims and (ii) that each
holder of a claim of such class receives on account of that claim deferred cash
payments totaling at least the allowed amount of that claim, of a value, as of
the effective date of the plan, of at least the value of the holder's interest
in the estate's interest in such property; (b) for the sale, subject to section
363(k) of the Bankruptcy Code, of any property that is subject to the liens
securing the claims included in the rejecting class, free and clear of the
liens, with the liens to attach to the proceeds of the sale, and the treatment
of the liens on proceeds under clause (a) or (c) of this subparagraph; or (c)
for the realization by such holders of the indubitable equivalent of such
claims.
A plan is fair and equitable as to a class of unsecured claims which
rejects a plan if the plan provides (a) that each holder of a claim included in
the rejecting class will receive or retain on account of that claim property
that has a value, as of the effective date of the plan, equal to the allowed
amount of such claim or (b) that the holder of any claim or interest that is
junior to the claims of such rejecting class will not receive or retain under
the Plan on account of such junior claim or interest any property at all.
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A plan is fair and equitable as to a class of equity interests that
rejects a plan if the plan provides (a) that each holder of an equity interest
included in the rejecting class receive or retain on account of that equity
interest property that has a value, as of the effective date of the plan, equal
to the greatest of the allowed amount of any fixed liquidation preference to
which such holder is entitled, any fixed redemption price to which such holder
is entitled, or the value of such equity interest or (b) that the holder of any
equity interest that is junior to the equity interest of such rejecting class
will not receive or retain under the plan any property at all on account of such
junior interest.
Because Class 7 Senior Subordinated Note Claims and Class 8 Equity
Interests will be deemed to have rejected the Plan, the Bankruptcy Court will
have to determine at the Confirmation Hearing whether the Plan is fair and
equitable with respect to, and does not discriminate unfairly against, such
impaired Classes of Claims and Equity Interests. Accordingly, the Debtor intends
to request confirmation of the Plan, as is modified from time to time in
accordance with its terms, under section 1129(b) of the Bankruptcy Code
notwithstanding the deemed failure to accept the Plan by Classes 7 and 8.
G. Effectiveness Of The Plan
1. Conditions Precedent To Effectiveness
The Plan will not become effective unless and until the following
conditions set forth in Section 10.1 of the Plan will have been satisfied or
waived pursuant to Section 10.3 of the Plan:
(a) the Bankruptcy Court shall have entered an order approving the
Disclosure Statement with respect to the Plan as containing adequate information
within the meaning of section 1125 of the Bankruptcy Code;
(b) the Confirmation Order, in form and substance acceptable to the
Debtor, Zurich, Trygg-Hansa, and the Creditors' Committee, shall have been
entered, and no stay or injunction shall be in effect with respect thereto;
(c) the New Notes Indenture shall have been qualified under the
Trust Indenture Act of 1939, as amended;
(d) the Earn Out Notes Indenture shall have been qualified under the
Trust Indenture Act of 1939, as amended;
(e) all actions, documents, and agreements necessary to implement
the Plan shall have been effected or executed;
(f) the Debtor shall have received all authorizations, consents,
regulatory approvals, rulings, letters, no-action letters, opinions, or
documents that are determined by the Debtor (with Zurich's, Trygg-Hansa's, and
the Creditors' Committee's consent) to be necessary to implement the Plan,
including, without limitation, no-action letters from the Securities and
Exchange Commission and letter or other rulings from the Internal Revenue
Service;
(g) each of the Amended Home Certificate of Incorporation, the
Amended Home Bylaws, the New Notes, the New Notes Indenture, the Earn Out Notes,
the Earn Out Notes Indenture, the Acquisition Agreement, the Home Insurance
Holdings, LLC Documents, the Membership Units, the Keepwell Agreement, in form
and substance acceptable to the Debtor, Zurich, Trygg-Hansa, and the Creditors'
Committee, as applicable, shall have been effected or executed;
(h) the aggregate Allowed General Unsecured Claims shall not exceed
$12,500,000 as of Effective Date;
(i) no order for rehabilitation or liquidation shall have been filed
or obtained by or against Home Insurance;
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(j) (i) the Insurance Commissioner shall have consented to the Plan
and the transactions contemplated thereby and (ii) such consent shall be in form
and substance reasonably acceptable to the Debtor, Zurich, Trygg-Hansa, and the
Creditors' Committee;
(k) all transactions involving the sale of the Acquired Assets to be
sold pursuant to the Acquisition Agreement shall have been consummated;
(l) each of the contracts and agreements described on Schedule
10.1(l) to the Plan will have been terminated or amended to release the Debtor
from all obligations thereunder; and
(m) no ownership change of Home Holdings shall have occurred within
the meaning of section 382(g) of the Internal Revenue Code prior to the
Effective Date.
2. Effect Of Failure Of Conditions
In the event that one or more of the conditions specified in Section 10.1
of the Plan have not occurred on or before 60 days after the Confirmation Date
and the same shall not have been waived pursuant to Section 10.3 of the Plan,
upon notification submitted by the Debtor to the Bankruptcy Court, Zurich,
Trygg-Hansa, and counsel for the Creditors' Committee, (a) the Confirmation
Order will be vacated, (b) the Plan will become null and void and of no further
force and effect, (c) the Debtor and all holders of Claims and Equity Interests
will be restored to the status quo ante as of the day immediately preceding the
Confirmation Date as though the Confirmation Date had never occurred, and (d)
the Debtor's obligations with respect to the Claims and Equity Interests will
remain unchanged and nothing contained herein will constitute or be deemed a
waiver or release of any Claims or Equity Interests by or against the Debtor or
any other person or to prejudice in any manner the rights of the Debtor or any
person in any further proceedings involving the Debtor.
3. Waiver Of Conditions
The Debtor may waive, with the consent of Zurich and Trygg-Hansa, by a
writing signed by an authorized representative of the Debtor and subsequently
filed with the Bankruptcy Court, one or more of the conditions precedent to
effectiveness of the Plan set forth in Sections 10.2(h), (i), (k), and (l) of
the Plan. The Debtor, with the written consent of Zurich, Trygg-Hansa, and the
Creditors' Committee, may waive, by a writing signed by an authorized
representative of the Debtor and subsequently filed with the Bankruptcy Court,
the conditions precedent to effectiveness of the Plan set forth in Sections
10.2(b), (e), (f), (g), (j)(ii), and (m) of the Plan.
X. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
The Debtor believes that the Plan affords holders of Claims the potential
for the greatest realization on the Debtor's assets and, therefore, is in the
best interests of such holders. If the Plan is not confirmed, however, the
theoretical alternatives include (a) continuation of the pending Chapter 11 Case
and formulation of an alternative plan or plans of reorganization; (b)
liquidation of the Debtor under Chapter 7 of the Bankruptcy Code; or (c)
dismissal of the Chapter 11 Case.
A. Continuation Of The Chapter 11 Case
If the Plan is not confirmed, it is not clear that Home Holdings could
survive in a protracted Chapter 11 Case, particularly in view of the limited
availability of working capital of the Debtor during the pendency of the Chapter
11 Case and the reorganization expenses associated with a lengthy Chapter 11
case. In the event that Home Holdings remains a Chapter 11 debtor, the Debtor
(or other parties in interest) could eventually propose a different plan. Such a
plan might involve either a reorganization of the Debtor's business, or an
orderly liquidation of its assets, or a combination of both.
AmBase has argued that it and the holders of the Senior Notes might have
rights directly or indirectly under the Excess of Loss Reinsurance Agreement to
compel dividends of approximately $300 million to Home
<PAGE>
76
Holdings for the payment of all or a portion of their claims. The Debtor, Home
Insurance, and Zurich dispute that such rights exist and dispute that an
alternative plan based upon such rights could be confirmed.
B. Liquidation Under Chapter 7
If no plan is confirmed, Home Holdings' Chapter 11 Case may be converted
to a case under Chapter 7 of the Bankruptcy Code. In a Chapter 7 case, a trustee
or trustees would be appointed to liquidate the assets of the Debtor. It is
impossible to predict precisely how the proceeds of the liquidation would be
distributed to the respective holders of Claims against or Equity Interests in
the Debtor.
Home Holdings believes, however, that in a liquidation under Chapter 7,
before creditors received any distribution, additional administrative expenses
involved in the appointment of a trustee or trustees and attorneys, accountants,
and other professionals to assist such trustees would cause a substantial
diminution in the value of the estate. The assets available for distribution to
creditors would be reduced by such additional expenses and by Claims, some of
which would be entitled to priority, which would arise by reason of the
liquidation and from the rejection of leases and other executory contracts in
connection with the cessation of the Debtor's operations and the failure to
realize the greater going concern value of the Debtor's assets.
The Debtor's liquidation analysis (see "FEASIBILITY; BEST INTERESTS OF
CREDITORS; CONFIRMATION OF THE PLAN -- Liquidation Analysis") is premised upon a
liquidation under Chapter 7. In the analysis, the Debtor has taken into account
the nature, status, and underlying value of its assets, the ultimate realizable
value of its assets, and the extent to which such assets are subject to liens
and security interests. The Debtor's analysis shows that a Chapter 7
liquidation, probably in the form of a forced sale, likely would produce less
value for distribution to creditors than that recoverable in each instance under
the Plan. In the opinion of Home Holdings, the recoveries projected to be
available in a Chapter 7 liquidation are not likely to afford holders of Claims
as great a realization as does the Plan.
C. Dismissal Of The Case
If the Plan is not confirmed, Home Holdings or any other party in interest
could seek dismissal of the case due to the Debtor's inability to effectuate a
plan, among other reasons.
XI. VOTING REQUIREMENTS
On January 16, 1998, the Bankruptcy court entered the Scheduling and
Solicitation Procedures Orders which, among other things, established voting
procedures, and scheduled the hearing on confirmation of the Plan. On March 4,
1998, the Bankruptcy Court entered an order approving this Disclosure Statement.
A copy of the notice of the Confirmation Hearing is enclosed with this
Disclosure Statement. The Notice of the Confirmation Hearing sets forth in
detail, among other things, procedures governing voting deadlines and objection
deadlines. The Notice of Confirmation Hearing and the instructions attached to
the Ballot should be read in connection with this section of this Disclosure
Statement.
If you (i) have any questions about the procedure for voting your Claim or
the packet of materials you received or (ii) wish to obtain an additional copy
of the Plan, this Disclosure Statement, or any exhibits to such documents, at
your own expense, unless otherwise specifically required by Fed. R. Bankr. P.
3017(d), please contact:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
Att'n: Edith A. Lohman
Telephone: (212) 929-5500
Telephone: (800) 322-2885
<PAGE>
77
If you have any questions about the amount of your Claim, please contact:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
Att'n: Edith A. Lohman
Telephone: (212) 929-5500
Telephone: (800) 322-2885
The Bankruptcy Court may confirm the Plan only if it determines that the
Plan complies with the technical requirements of Chapter 11 of the Bankruptcy
Code and that the disclosures by the Debtor concerning the Plan have been
adequate and have included information concerning all payments made or promised
in connection with the Plan and the Chapter 11 Case. In addition, the Bankruptcy
Court must determine that the Plan has been proposed in good faith and not by
any means forbidden by law and, under Fed. R. Bankr. P. 3020(b)(2), it may do so
without receiving evidence if no objection is timely filed.
In particular, the Bankruptcy Code requires the Bankruptcy Court to find,
among other things, that (i) the Plan has been accepted by the requisite votes
of the Classes of impaired Claims and Equity Interests unless approval will be
sought under section 1129(b) of the Bankruptcy Code in spite of the dissent of
one or more such classes, which will be the case under the Plan, (ii) the Plan
is "feasible," which means that there is a reasonable probability that
confirmation of the Plan will not be followed by liquidation or the need for
further financial reorganization, and (iii) the Plan is in the "best interests"
of all holders of Claims and Equity Interests, which means that such holders
will receive at least as much under the Plan as they would receive in a
liquidation under Chapter 7 of the Bankruptcy Code. The Bankruptcy Court must
find that all conditions mentioned above are met before it can confirm the Plan.
Thus, even if all Classes of impaired Claims and Equity Interests accept the
Plan by the requisite votes, the Bankruptcy Court must make an independent
finding that the Plan conforms to the requirements of the Bankruptcy Code, that
the Plan is feasible, and that the Plan is in the best interests of the holders
of Claims against and Equity Interests in the Debtor. These statutory conditions
to Confirmation are discussed above.
SPECIAL NOTE FOR HOLDERS OF SECURITIES
The record date for determining which holders of public securities of the
Debtor (the "Securities") are entitled to vote on the Plan is February 19, 1998.
The indenture trustees, agents, or servicers, as the case may be, for the
Securities will not vote on behalf of the holders of such Securities. Holders
must submit their own Ballots.
A. Beneficial Owners
(i) Any beneficial owner holding Securities as record holder in its own
name should vote on the Plan by completing, if necessary, and
signing the enclosed Ballot and returning it directly to the
INFORMATION AGENT on or before the Voting Deadline using the
enclosed self-addressed, stamped envelope.
(ii) Any beneficial owner holding Securities in "street name" through a
brokerage firm, bank, trust company, or other nominee should vote on
the Plan through such nominee by following these instructions:
(I) Complete and sign the Ballot.
(II) Return the Ballot to your nominee as promptly as possible and
in sufficient time to allow such nominee to process the Ballot
and return it to the Information Agent by the Voting Deadline.
If no self-addressed, stamped
<PAGE>
78
envelope was enclosed for this purpose, contact the
Information Agent for instructions.
Any Ballot returned to a nominee by a beneficial owner will not be counted
for purposes of acceptance or rejection of the Plan until such nominee properly
completes and delivers to the Information Agent a master ballot (the "Master
Ballot") that reflects the vote of such beneficial owner.
If any beneficial owner owns Securities through more than one broker,
bank, or other nominee, such beneficial owner may receive multiple mailings
containing the Ballots. Each such beneficial owner should execute a separate
Ballot for each block of Securities that it holds through any particular nominee
and return each Ballot to the respective nominee in the return envelope provided
therewith.
Beneficial owners who execute multiple Ballots with respect to Securities
held through more than one nominee must indicate on each Ballot the names of ALL
such other nominees and the additional amounts of such Securities so held and
voted.
If a beneficial owner holds a portion of the Securities through a nominee
and another portion as a record holder, such owner should follow the procedures
described in (i) above to vote the portion held of record and the procedures
described in (ii) above to vote the portion held through a nominee or nominees.
B. Brokerage Firms, Banks, And Other Nominees
An entity (other than a beneficial owner) which is the registered holder
of Securities should vote on behalf of the beneficial owners of such Securities
by (i) immediately distributing a copy of this Disclosure Statement and
accompanying materials, all appropriate Ballots, and self-addressed return
envelopes to all beneficial owners for whom it holds such Securities, (ii)
collecting all such Ballots, and (iii) completing a Master Ballot compiling the
votes and other information from the Ballots collected, and transmitting such
Master Ballot to the Information Agent on or before the Voting Deadline. A proxy
intermediary acting on behalf of a brokerage firm or bank may follow the
procedures outlined in the preceding sentence to vote on behalf of such party.
C. Fiduciaries And Other Representatives
If a Ballot is signed by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation, or another acting in a fiduciary or
representative capacity, such person should indicate such capacity when signing
and, unless otherwise determined by the Debtor, must submit proper evidence
satisfactory to the Debtor of authority to so act. Authorized signatories should
submit separate Ballots for each beneficial owner for whom they are voting.
UNLESS THE MASTER BALLOT BEING FURNISHED IS TIMELY SUBMITTED TO THE
INFORMATION AGENT ON OR PRIOR TO THE VOTING DEADLINE TOGETHER WITH ANY OTHER
DOCUMENTS REQUIRED BY SUCH BALLOT, THE DEBTOR MAY, IN ITS SOLE DISCRETION,
REJECT SUCH BALLOT AS INVALID AND, THEREFORE, DECLINE TO COUNT IT AS AN
ACCEPTANCE OR REJECTION OF THE PLAN. IN NO CASE SHOULD A BALLOT OR ANY OF THE
SECURITIES BE DELIVERED TO THE DEBTOR OR ANY OF ITS ADVISORS.
D. Parties In Interest Entitled To Vote
Under section 1124 of the Bankruptcy Code, a class of claims or equity
interests is deemed to be "impaired" under a plan unless (i) the plan leaves
unaltered the legal, equitable, and contractual rights to which such claim or
equity interest entitles the holder thereof or (ii) notwithstanding any legal
right to an accelerated payment of such claim or equity interest, the plan cures
all existing defaults (other than defaults resulting from the occurrence of
events of bankruptcy) and reinstates the maturity of such claim or equity
interest as it existed before the default.
<PAGE>
79
In general, a holder of a claim or equity interest may vote to accept or
to reject a plan if (i) the claim or equity interest is "allowed," which means
generally that no party in interest has objected to such claims or equity
interest, and (ii) the claim or equity interest is impaired by the Plan. If the
holder of an impaired claim or equity interest will not receive or retain any
distribution under the plan in respect of such claim or equity interest, the
Bankruptcy Code deems such holder to have rejected the plan. If the claim or
equity interest is not impaired, the Bankruptcy Code deems that the holder of
such claim or equity interest has accepted the plan and the plan proponent need
not solicit such holder's vote.
The holder of a Claim against the Debtor that is "impaired" under the Plan
is entitled to vote to accept or reject the Plan if (i) the Plan provides a
distribution in respect of such Claim and (ii)(a) the Claim has been scheduled
by the Debtor (and such claim is not scheduled at zero or as disputed,
contingent, or unliquidated) or (b) it has filed a proof of claim on or before
the bar date applicable to such holder, pursuant to sections 502(a) and 1126(a)
of the Bankruptcy Code and Fed. R. Bankr. P. 3003 and 3018. Any Claim as to
which an objection has been timely filed and has not been withdrawn or dismissed
is not entitled to vote, unless the Bankruptcy Court, pursuant to Bankruptcy
Rule 3018(a), upon application of the holder of the Claim with respect to which
there has been objection, temporarily allows the Claim in an amount that the
Bankruptcy Court deems proper for the purpose of accepting or rejecting the
Plan.
A vote may be disregarded if the Bankruptcy Court determines, pursuant to
section 1126(e) of the Bankruptcy Code, that it was not solicited or procured in
good faith or in accordance with the provisions of the Bankruptcy Code. The
Procedures Order also sets forth assumptions and procedures for tabulating
Ballots that are not completed fully or correctly.
E. Classes Impaired Under The Plan
Class 4 Unsecured Claims, Class 5 Senior Working Capital Note Claims, and
Class 6 Junior Note Claims are impaired under the Plan and entitled to vote on
the Plan. Class 1 Other Priority Claims, Class 2 Convenience Claims, and Class 3
Secured Claims are not impaired under the Plan, are deemed under section 1126(f)
to have accepted the Plan, and their votes to accept or to reject the Plan will
not be solicited. Class 7 Senior Subordinated Note Claims and Class 8 Equity
Interests will receive no distributions and will retain no property under the
Plan arising from or under, or relating to, the ownership of the Equity
Interests, are deemed, under section 1126(g) of the Bankruptcy Code, to have
rejected the Plan, and therefore are not entitled to accept or reject the Plan.
Acceptances of the Plan are being solicited only from creditors that hold claims
in an impaired Class and will receive a distribution under the Plan.
XII. CONCLUSION
This Disclosure Statement has been approved by the Bankruptcy Court after
notice and a hearing. The Bankruptcy Court has determined that this Disclosure
Statement contains information adequate to permit holders of Claims to make an
informed judgment about the Plan. Such approval, however, does not mean that the
Bankruptcy Court recommends either acceptance or rejection of the Plan or
guarantees the accuracy of this Disclosure Statement.
A. Hearing On And Objections To Confirmation Of Plan
1. Confirmation Hearing
The hearing to consider confirmation of the Plan has been scheduled to
commence on April 3, 1998 at 9:30 a.m., Eastern Standard Time, before the
Honorable Jeffry H. Gallet, United States Bankruptcy Judge, United States
Bankruptcy Court, Alexander Hamilton Custom House, One Bowling Green, New York,
New York 10004. The Confirmation Hearing may be adjourned from time to time by
announcing such adjournment in open court, all without further notice to parties
in interest, and the Plan may be modified by the Debtor
<PAGE>
80
pursuant to section 1127 of the Bankruptcy Code prior to, during, or as a result
of that hearing, without further notice to parties in interest.
2. Date Set For Filing Objections To Confirmation
The time by which all objections to confirmation of the Plan must be filed
with the Bankruptcy Court and received by the parties listed in the Notice of
the Confirmation Hearing has been set for 5:00 p.m., Eastern Standard Time, on
March 27, 1998. A copy of that Notice has been transmitted with this Disclosure
Statement.
<PAGE>
81
B. Recommendation
HOME HOLDINGS BELIEVES THAT THE CONFIRMATION OF THE PLAN IS IN THE BEST
INTERESTS OF THE DEBTOR, ITS CREDITORS, AND ITS ESTATE. The Plan provides for an
equitable and early distribution to creditors. Home Holdings believes that any
alternative to confirmation of the Plan, such as Chapter 7 liquidation or
attempts by another party in interest to file a plan, could result in
significant uncertainty, delays, litigation, and costs, as well as a diminution
in the value of the Debtor's estate. Moreover, Home Holdings believes that its
creditors will receive greater and earlier recoveries under the Plan than those
that would be achieved in a Chapter 7 liquidation. FOR THESE REASONS, THE DEBTOR
URGES YOU TO RETURN YOUR BALLOT AND VOTE TO ACCEPT THE PLAN.
Dated: New York, New York
March 3, 1998
HOME HOLDINGS INC.
By: /s/ Arthur D. Wilson
--------------------------------------
Name: Arthur D. Wilson
Title: Treasurer through the services
of Risk Enterprise Management
Limited
SKADDEN, ARPS, SLATE, MEAGHER
& FLOM LLP
Attorneys for Home Holdings Inc.,
Debtor and Debtor-in-Possession
By: /s/ Kayalyn A. Marafioti
--------------------------------
Kayalyn A. Marafioti (KM 9362)
(A Member of the Firm)
919 Third Avenue
New York, New York 10022-3897
(212) 735-3000
EXHIBIT A
TO
AMENDED DISCLOSURE STATEMENT WITH RESPECT TO
AMENDED PLAN OF REORGANIZATION OF HOME HOLDINGS INC.
PLAN OF REORGANIZATION
<PAGE>
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - x
In re :
:
HOME HOLDINGS INC., : Chapter 11
: Case No. 98 B 40319 (JHG)
Debtor. :
:
- - - - - - - - - - - - - - - - - x
AMENDED PLAN OF REORGANIZATION OF HOME HOLDINGS INC.
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
SKADDEN, ARPS, SLATE, MEAGHER
& FLOM LLP
Attorneys for Home Holdings Inc.,
Debtor and Debtor-in-Possession
Kayalyn A. Marafioti (KM 9362)
Stephanie R. Schwartz (SS 3000)
919 Third Avenue
New York, New York 10022
(212) 735-3000
Dated: New York, New York
March 3, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
I DEFINITIONS AND CONSTRUCTION OF TERMS....................................1
1.1 Definitions.....................................................1
1.2 Interpretation; Application Of Definitions And Rules Of
Construction...................................................12
II TREATMENT OF ADMINISTRATIVE EXPENSE CLAIMS AND
PRIORITY TAX CLAIMS.....................................................12
2.1 Administrative Expense Claims..................................12
2.2 Professional Compensation And Reimbursement Claims.............12
2.3 Priority Tax Claims............................................13
III CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS...........................13
3.1 Introduction...................................................13
3.2 Unclassified Claims............................................13
3.3 Unimpaired Classes Of Claims...................................14
3.4 Impaired Classes Of Claims.....................................14
3.5 Impaired Classes Of Claims And Equity Interests................15
IV TREATMENT OF CLAIMS AND EQUITY INTERESTS................................15
4.1 Class 1 -- Other Priority Claims...............................15
4.2 Class 2 -- Convenience Claims..................................15
4.3 Class 3 -- Secured Claims......................................16
4.4 Class 4 -- Unsecured Claims....................................16
4.5 Class 5 -- Senior Working Capital Note Claims..................19
4.6 Class 6 -- Junior Note Claims..................................19
4.7 Class 7 -- Senior Subordinated Note Claims.....................20
4.8 Class 8 -- Equity Interests....................................20
V PROVISIONS REGARDING VOTING AND DISTRIBUTIONS
UNDER THE PLAN AND TREATMENT OF DISPUTED,
CONTINGENT, AND UNLIQUIDATED CLAIMS AND
ADMINISTRATIVE EXPENSE CLAIMS...........................................20
5.1 Voting Of Claims...............................................20
5.2 Nonconsensual Confirmation.....................................20
5.3 Method Of Distributions Under The Plan.........................21
5.4 Objections To And Resolution Of Administrative Expense
Claims, Claims, And Equity Interests...........................23
5.5 Administrative Claims Reserve..................................23
i
<PAGE>
Page
----
5.6 Cancellation And Surrender Of Existing Securities And
Agreements.....................................................24
VI EXECUTORY CONTRACTS AND UNEXPIRED LEASES................................25
6.1 Assumption Or Rejection Of Executory Contracts And
Unexpired Leases...............................................25
6.2 Releases.......................................................26
6.3 Indemnification Obligations....................................26
VII PROVISIONS REGARDING CORPORATE GOVERNANCE
AND MANAGEMENT OF REORGANIZED HOME......................................26
7.1 General........................................................26
7.2 Meetings Of Reorganized Home Stockholders......................27
7.3 Directors And Officers Of Reorganized Home.....................27
7.4 Amended Bylaws And Amended Certificates Of
Incorporation..................................................27
7.5 Issuance Of New Securities.....................................28
VIII IMPLEMENTATION AND EFFECT OF CONFIRMATION OF
PLAN....................................................................28
8.1 Term Of Bankruptcy Injunction Or Stays.........................28
8.2 Sources Of Payment.............................................28
8.3 Tender Offer...................................................28
8.4 Consummation Of Acquisition....................................29
8.5 Revesting Of Assets............................................29
8.6 Causes Of Action...............................................29
8.7 Discharge Of Debtor............................................29
8.8 Injunction.....................................................30
8.9 Termination Of Subordination Rights............................30
8.10 Waiver Of Claims; Covenant Not To Sue; Releases................30
8.11 Professional Fees..............................................32
IX SETTLEMENT OF HOME INSURANCE CLAIM......................................32
9.1 Home Insurance Settlement......................................32
9.2 Mutual Release.................................................33
9.3 Release Under Plan.............................................33
X EFFECTIVENESS OF THE PLAN...............................................33
10.1 Conditions Precedent To Effectiveness..........................33
10.2 Effect Of Failure Of Conditions................................34
10.3 Waiver Of Conditions...........................................34
XI RETENTION OF JURISDICTION...............................................35
ii
<PAGE>
Page
----
XII MISCELLANEOUS PROVISIONS................................................36
12.1 Effectuating Documents And Further Transactions................36
12.2 Corporate Action...............................................36
12.3 Exemption From Transfer Taxes..................................36
12.4 Injunction Regarding Worthless Stock Deduction And
Reattribution Of NOLs To The Debtor Or Reorganized Home........36
12.5 Exculpation....................................................37
12.6 Termination Of Committee.......................................37
12.7 Post-Confirmation Date Fees And Expenses.......................37
12.8 Payment Of Statutory Fees......................................37
12.9 Amendment Or Modification Of The Plan..........................37
12.10 Severability...................................................38
12.11 Revocation Or Withdrawal Of The Plan And Termination...........38
12.12 Waiver Of Federal Rule Of Civil Procedure 62(a)................38
12.13 Binding Effect.................................................38
12.14 Notices........................................................38
12.15 Governing Law..................................................40
12.16 Withholding And Reporting Requirements.........................40
12.17 Plan Supplement................................................40
12.18 Allocation Of Plan Distributions Between Principal And
Interest.......................................................41
12.19 Headings.......................................................41
12.20 Exhibits/Schedules.............................................41
12.21 Filing Of Additional Documents.................................41
Exhibits
Exhibit A - Term Sheet - Earn Out Notes Series I
Exhibit B - Term Sheet - Earn Out Notes Series II
Exhibit C - Term Sheet - Earn Out Notes Series III
Exhibit D - Term Sheet - New Notes
Exhibit E - Form Of New Note Tender Offer Undertaking
Exhibit F - Form Of Put Option Undertaking
Exhibit G - Surviving Documents
iii
<PAGE>
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - x
In re :
:
HOME HOLDINGS INC., : Chapter 11
: Case No. 98 B 40319 (JHG)
Debtor. :
:
- - - - - - - - - - - - - - - - - x
AMENDED PLAN OF REORGANIZATION OF HOME HOLDINGS INC.
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
Home Holdings Inc. proposes the following plan of reorganization
under section 1121(a) of title 11 of the United States Code:
I
DEFINITIONS AND CONSTRUCTION OF TERMS
1.1 Definitions. As used herein, the following terms have the
respective meanings specified below, unless the context otherwise requires:
7% Senior Note Indenture means that certain Indenture, dated as of
December 28, 1993, between Home Holdings, as issuer, and the Trustee, pursuant
to which the 7% Senior Notes were issued, together with any amendments or
supplements thereto.
7% Senior Notes means the 7% Senior Notes, due 1998, of Home
Holdings, issued and outstanding under the 7% Senior Note Indenture.
7% Series A Senior Working Capital Notes means the 7% Series A
Senior Working Capital Notes of Home Holdings, issued and outstanding under the
Amended and Restated Standby Working Capital Agreement.
7% Series B Senior Working Capital Notes means the 7% Series B
Senior Working Capital Notes of Home Holdings, issued and outstanding under the
Amended and Restated Standby Working Capital Agreement.
<PAGE>
2
7 7/8% Senior Note Indenture means that certain Indenture, dated as
of December 28, 1993, between Home Holdings, as issuer, and the Trustee,
pursuant to which the 7 7/8% Senior Notes were issued, together with any
amendments or supplements thereto.
7 7/8% Senior Notes means the 7 7/8% Senior Notes, due 2003, of Home
Holdings, issued and outstanding under the 7 7/8% Senior Note Indenture.
7 7/8% Senior Sinking Fund Note Indenture means that certain
Indenture, dated as of August 22, 1995, between Home Holdings, as issuer, and
the Trustee, pursuant to which the 7 7/8% Senior Sinking Fund Notes were issued,
together with any amendments or supplements thereto.
7 7/8% Senior Sinking Fund Notes means the 7 7/8% Senior Sinking
Fund Notes, due 2003, of Home Holdings, issued and outstanding under the 7 7/8%
Senior Sinking Fund Note Indenture.
12% Senior Subordinated Note Agreement means that certain Amended
and Restated Note Purchase Agreement, dated as of April 26, 1995, between Home
Holdings and ZCI Investments Limited.
12% Senior Subordinated Notes means the 12% Senior Subordinated
Notes, due 2004, of Home Holdings, issued and outstanding under the 12% Senior
Subordinated Note Agreement.
12% Senior Subordinated Working Capital Notes means the 12% Senior
Subordinated Working Capital Notes, due 2004, of Home Holdings, issued and
outstanding under the Amended and Restated Standby Working Capital Agreement.
Acquisition Agreement means the Stock Purchase Agreement, to be
dated on or before the Effective Date, between the Debtor and Home Insurance
Holdings, LLC, which shall be substantially in the form contained in the Plan
Supplement.
Acquired Assets means all of the issued and outstanding shares of
common stock of Home Insurance owned by the Debtor.
Administrative Expense Claim means any right to payment constituting
a cost or expense of administration of the Chapter 11 Case of a kind specified
under section 503(b) and entitled to priority under section 507(a)(1) of the
Bankruptcy Code, including, without limitation, any actual and necessary costs
and expenses of preserving the estate of the Debtor, any actual and necessary
costs and expenses of operating the business of the Debtor, any indebtedness or
obligations incurred or assumed by the Debtor-in-Possession in connection with
the conduct of its business, including, without limitation, for the acquisition
or lease of property or an interest in property or the rendition of services,
all compensation and reimbursement of expenses to the extent Allowed by the
Bankruptcy Court under sections 330 or 503
<PAGE>
3
of the Bankruptcy Code, and any fees or charges assessed against the estate of
the Debtor under section 1930 of chapter 123 of title 28 of the United States
Code.
Administrative Claims Reserve means the reserve maintained by
Reorganized Home to pay Administrative Expense Claims, Priority Tax Claims, and
Other Priority Claims that first become Allowed Claims after the Effective Date.
Amended and Restated Standby Working Capital Agreement means that
certain Amended and Restated Standby Working Capital Agreement, dated as of
April 26, 1995, between Home Holdings and ZCI Investments Limited.
Affiliate means as to any Person, any other Person which, directly
or indirectly, is in control of, is controlled by, or is under common control
with, such Person. For purposes of this definition, "control" of a Person means
the power, directly or indirectly, either to (a) vote 10% or more of the
securities having ordinary voting power for the election of directors of such
Person or (b) direct or cause the direction of the management and policies of
such Person whether by contract or otherwise.
Allowed means, with reference to any Claim or Equity Interest, (a)
any Claim against or Equity Interest in the Debtor which has been listed by the
Debtor in its Schedules, as such Schedules may be amended by the Debtor from
time to time in accordance with Bankruptcy Rule 1009, as liquidated in amount
and not disputed or contingent and with respect to which no contrary proof of
claim or interest has been filed, (b) any Claim or Equity Interest Allowed under
this Plan, (c) any Claim or Equity Interest which is not Disputed or (d) any
Claim or Equity Interest the amount or existence of which, if Disputed, (i) has
been determined by a final order of a court of competent jurisdiction other than
the Bankruptcy Court pursuant to the Plan or a Final Order of the Bankruptcy
Court, or (ii) has been Allowed by Final Order; provided, however, that any
Claims or Equity Interests allowed solely for the purpose of voting to accept or
reject the Plan pursuant to an order of the Bankruptcy Court shall not be
considered "Allowed Claims" or "Allowed Equity Interests" hereunder.
Amended Home Bylaws means the amended and restated Bylaws of
Reorganized Home, which shall be substantially in the form contained in the Plan
Supplement.
Amended Home Certificate of Incorporation means the amended and
restated Certificate of Incorporation of Reorganized Home, which shall be
substantially in the form contained in the Plan Supplement.
Ballot means the form distributed to each holder of an impaired
Claim (other than to holders of impaired Claims deemed to have rejected the
Plan) upon which is to be indicated acceptance or rejection of the Plan.
<PAGE>
4
Bankruptcy Code means title 11 of the United States Code, as amended
from time to time, as applicable to the Chapter 11 Case.
Bankruptcy Court means the United States District Court for the
Southern District of New York or such other court as may have jurisdiction over
the Chapter 11 Case and, to the extent of any reference under section 157 of
title 28 of the United States Code, the unit of such District Court under
section 151 of title 28 of the United States Code.
Bankruptcy Rules means the Federal Rules of Bankruptcy Procedure as
promulgated by the United States Supreme Court under section 2075 of title 28 of
the United States Code, and any local rules of the Bankruptcy Court, as the
context may require.
Business Day means any day other than a Saturday, Sunday, or any
other day on which commercial banks in New York, New York are required or
authorized to close by law or executive order.
Cash means legal tender of the United States of America and
equivalents thereof.
Chapter 11 Case means the case under Chapter 11 of the Bankruptcy
Code commenced by the Debtor, styled In re Home Holdings Inc., Chapter 11 Case
No. 98 B 40319 (JHG).
Class means a category of holders of Claims or Equity Interests as
set forth in Article III of the Plan.
Collateral means any property or interest in property of the estate
of the Debtor subject to a Lien to secure the payment or performance of a Claim,
which Lien is not subject to avoidance under the Bankruptcy Code or otherwise
invalid under the Bankruptcy Code or applicable state law.
Commencement Date means January 15, 1998, the date on which the
Debtor commenced the Chapter 11 Case.
Confirmation Date means the date on which the Clerk of the
Bankruptcy Court enters the Confirmation Order on the docket.
Confirmation Hearing means the hearing held by the Bankruptcy Court
to consider confirmation of the Plan pursuant to section 1129 of the Bankruptcy
Code, as such hearing may be adjourned or continued from time to time.
Confirmation Order means the order of the Bankruptcy Court
confirming the Plan pursuant to section 1129 of the Bankruptcy Code.
<PAGE>
5
Convenience Claim means any General Unsecured Claim in the amount of
$2,000 or less and any General Unsecured Claim that is reduced to $2,000 by the
election of the holder thereof on such holder's Ballot.
Creditors' Committee means the statutory committee of unsecured
creditors appointed in the Chapter 11 Case pursuant to section 1102 of the
Bankruptcy Code.
Debtor means Home Holdings Inc.
Department means the New Hampshire Insurance Department.
Debtor-in-Possession means the Debtor in its capacity as debtor in
possession in the Chapter 11 Case pursuant to sections 1101, 1107(a), and 1108
of the Bankruptcy Code.
Disbursing Agent shall have the meaning set forth in Section 5.3(j)
of the Plan.
Disclosure Statement means the disclosure statement relating to the
Plan, including, without limitation, all exhibits and schedules thereto, as
approved by the Bankruptcy Court pursuant to section 1125 of the Bankruptcy
Code.
Disputed means, with reference to any Claim or Equity Interest, (a)
any Claim or Equity Interest proof of which was timely and properly filed and
which either (i) has been or hereafter is listed on the Schedules as
unliquidated, disputed, or contingent (and in such cases or, in the case of an
Administrative Expense Claim, any Administrative Expense Claim, Claim, or Equity
Interest which is disputed under the Plan) or (ii) as to which the Debtor or, if
not prohibited by the Plan, any other party in interest has interposed a timely
objection and/or request for estimation in accordance with section 502(c) of the
Bankruptcy Code and Bankruptcy Rule 3018, which objection and/or request for
estimation has not been withdrawn or determined by a Final Order, or (b) any
Claim or Equity Interest proof of which was required to be filed by order of the
Bankruptcy Court but as to which a proof of claim or interest was not timely or
properly filed.
Disputed Claim Amount means the amount set forth in the proof of
claim relating to a Disputed Claim or, if an amount is estimated in respect of a
Disputed Claim in accordance with section 502(c) of the Bankruptcy Code and
Bankruptcy Rule 3018 for purposes of, among other things, Section 5.3(h) of the
Plan, the amount so estimated pursuant to an order of the Bankruptcy Court.
Earn Out Notes means, collectively, the Earn Out Notes Series I,
Earn Out Notes Series II, and Earn Out Notes Series III.
Earn Out Notes Indenture means the trust indenture between
Reorganized Home, as issuer, and the Trustee, which shall relate to the Earn Out
<PAGE>
6
Notes Series I and which shall be substantially in the form contained in the
Plan Supplement.
Earn Out Notes Series I means the Earn Out Notes Series I authorized
and to be issued pursuant to the Plan on the terms and subject to the conditions
described in Exhibit A hereto, and which shall be substantially in the form
contained in the Plan Supplement.
Earn Out Notes Series II means the Earn Out Notes Series II
authorized and to be issued pursuant to the Plan on the terms and subject to the
conditions described in Exhibit B hereto, and which shall be substantially in
the form contained in the Plan Supplement.
Earn Out Notes Series III means the Earn Out Notes Series III
authorized and to be issued pursuant to the Plan on the terms and subject to the
conditions described in Exhibit C hereto, and which shall be substantially in
the form contained in the Plan Supplement.
Effective Date means the first Business Day on which the conditions
specified in Section 10.1 of the Plan have been satisfied or waived.
Equity Interest means any share of preferred stock or common stock
or other instrument evidencing an ownership interest in the Debtor, whether or
not transferable, and any option, warrant, or right, contractual or otherwise,
to acquire any such interest.
Face Amount means, when used in reference to a Disputed Claim, the
full stated amount claimed by the holder of such Claim in any proof of claim
timely filed with the Bankruptcy Court or otherwise deemed timely filed by any
Final Order of the Bankruptcy Court or other applicable bankruptcy law.
Final Order means an order of the Bankruptcy Court as to which the
time to appeal, to petition for certiorari, or to move for reargument or
rehearing has expired and as to which no appeal, petition for certiorari, or
other proceedings for reargument or rehearing shall then be pending or as to
which any right to appeal, petition for certiorari, reargue, or rehear shall
have been waived in writing in form and substance satisfactory to the Debtor or
Reorganized Home or, in the event that an appeal, writ of certiorari,
reargument, or rehearing thereof has been sought, such order of the Bankruptcy
Court shall have been affirmed by the highest court to which such order was
appealed, or certiorari, reargument, or rehearing shall have been denied and the
time to take any further appeal, petition for certiorari or move for reargument
or rehearing shall have expired; provided, however, that the possibility that a
motion under Rule 59 or Rule 60 of the Federal Rules of Civil Procedure, or any
analogous rule under the Bankruptcy Rules, may be filed with respect to such
order shall not cause such order not to be a Final Order.
<PAGE>
7
General Unsecured Claim means any Unsecured Claim other than a
Convenience Claim, Senior Note Claim, Senior Working Capital Note Claim, Senior
Subordinated Note Claim, Junior Note Claim, or Home Insurance Claim.
Home Holdings means Home Holdings Inc., a Delaware corporation.
Home Insurance means The Home Insurance Company, a New Hampshire
corporation.
Home Insurance Claim means any and all claims which Home Insurance
may have against the Debtor or Debtor-in-Possession arising out of that certain
Consolidated Group Tax Agreement, dated February 13, 1991, between Home Holdings
and Home Insurance.
Home Insurance Holdings, LLC means Home Insurance Holdings, LLC, a
Delaware or New Hampshire limited liability company, which shall acquire all of
the outstanding stock of Home Insurance pursuant to the Acquisition Agreement.
Home Insurance Holdings, LLC Agreement means the Home Holdings
Limited Liability Company Agreement.
Home Insurance Holdings, LLC Documents means the Home Holdings, LLC
Agreement and the documents and agreements executed in connection therewith
(including, without limitation, the organizational documents of the manager of
the Home Insurance Holdings, LLC), substantially in the form contained in the
Plan Supplement.
Home Insurance Settlement means the compromise and settlement with
Home Insurance to be effected in accordance with Section 9.1 hereof.
Information and Tabulation Agent means MacKenzie Partners, Inc.
having offices at 156 Fifth Avenue, New York, New York 10010.
Initial Distribution Date means the Effective Date or as soon
thereafter as is practicable.
Insurance Commissioner means the New Hampshire Commissioner of
Insurance.
Junior Note Claim means a Claim of a Junior Noteholder arising under
or as a result of the Junior Notes.
Junior Noteholder means a holder of Junior Notes.
<PAGE>
8
Junior Notes means the 8% Junior Subordinated Notes, due 2004, of
Home Holdings, issued and outstanding under the Junior Subordinated Note
Agreement.
Junior Subordinated Note Agreement means that certain Amended and
Restated Note Exchange Agreement, dated as of April 26, 1995, between
Trygg-Hansa and Home Holdings.
Keepwell Agreement means the Keepwell Agreement to be entered into
between a member of the Zurich Group and Reorganized Home, which shall be
substantially in the form contained in the Plan Supplement.
Letter of Transmittal means the Letter of Transmittal to Tender New
Notes of Reorganized Home, which shall be substantially in the form contained in
the Plan Supplement.
Membership Units means the membership units in Home Insurance
Holdings, LLC.
New Common Stock means the common stock of Reorganized Home
authorized and to be issued pursuant to the Plan, having a par value of $.01 per
share and such rights with respect to dividends, liquidation, voting, and other
matters as are provided for by applicable nonbankruptcy law or in the Amended
Home Certificate of Incorporation and the Amended Home Bylaws.
New Common Stock Distribution Pool means 100 shares of New Common
Stock.
New Notes means the Senior Notes due 2005 authorized and to be
issued pursuant to the Plan on the terms and subject to the conditions described
in Exhibit D hereto, and which shall be substantially in the form contained in
the Plan Supplement.
New Notes Indenture means the trust indenture between Reorganized
Home, as issuer, and the Trustee, which shall be substantially in the form
contained in the Plan Supplement.
New Note Tender Offer Undertaking means the undertaking by Zurich
Note Entity to purchase all of the New Notes on the terms and conditions
contained therein, a copy of which is annexed hereto as Exhibit E.
Offer to Purchase means the Offer to Purchase any and all
outstanding New Notes, which shall be substantially in the form contained in the
Plan Supplement.
<PAGE>
9
Other Priority Claim means any Claim, other than an Administrative
Expense Claim and a Priority Tax Claim, entitled to priority in right of payment
under section 507(a) of the Bankruptcy Code.
Percentage Formula means (A/B) when
----
.99
A = the sum of (i) 61,271,875 and
(ii) .25 x (((280,000,000 x .083125) / 360) x N1),
N1 = the number of days from and including June 16, 1997 to and including
the Effective Date,
B = the sum of (i) 280,000,000 and
(ii) (((280,000,000 x .083125) / 360) x N2), and
N2 = the number of days from and including June 16, 1997 to and excluding
the Commencement Date.
Person means an individual, partnership, limited liability company,
corporation, business trust, joint stock company, trust, unincorporated
association, joint venture, or other entity of whatever nature.
Plan means this Chapter 11 plan of reorganization, including,
without limitation, the Plan Supplement and all exhibits, supplements,
appendices, and schedules hereto, either in its present form or as the same may
be altered, amended, or modified from time to time in accordance with its terms.
Plan Supplement means the forms of documents specified in Section
12.17 of the Plan.
Priority Tax Claim means any Claim of a governmental unit of the
kind specified in sections 502(i) and 507(a)(8) of the Bankruptcy Code.
Pro Rata Share means a proportionate share, so that the ratio of the
consideration distributed on account of an Allowed Claim in a Class to the
amount of such Allowed Claim is the same as the ratio of the amount of the
consideration distributed on account of all Allowed Claims in such Class to the
amount of all Allowed Claims in such Class.
Put Option Undertaking means the undertaking by Zurich Put Entity to
redeem the Earn Out Notes Series I on the terms and conditions continued
therein, a copy of which is annexed hereto as Exhibit F.
Quarter means the period beginning on the Effective Date and ending
on the immediately succeeding March 31, June 30, September 30, or December 31,
and each three-month period thereafter, as the context may require.
<PAGE>
10
Record Date means the day that is five days from and after the
Confirmation Date.
Reorganized Home means Home Holdings, or any successor thereto by
merger, consolidation, or otherwise, on and after the Effective Date.
Reserve shall have the meaning set forth in Section 5.3(h) of the
Plan.
Schedules means the schedules of assets and liabilities, the list of
holders of Equity Interests and the statements of financial affairs filed by the
Debtor under section 521 of the Bankruptcy Code and Bankruptcy Rule 1007, and
all amendments and modifications thereto through the Confirmation Date.
Secured Claim means any Claim, to the extent reflected in the
Schedules or a proof of claim as a Secured Claim, which is secured by a Lien on
Collateral to the extent of the value of such Collateral, as determined in
accordance with section 506(a) of the Bankruptcy Code, or, in the event that
such Claim is subject to setoff under section 553 of the Bankruptcy Code, to the
extent of such setoff.
Senior 7% Note Claim means a Claim of a Senior Noteholder arising
under or as a result of the 7% Senior Notes.
Senior 7 7/8% Note Claim means a Claim of a Senior Noteholder
arising under or as a result of the 7 7/8% Senior Notes.
Senior 7 7/8% Sinking Fund Note Claim means a Claim of a Senior
Noteholder arising under or as a result of the 7 7/8% Senior Sinking Fund Notes.
Senior Note Claim means a Claim of a Senior Noteholder arising under
the Senior Notes.
Senior Noteholder means a holder of one or more 7% Senior Notes, 7
7/8% Senior Sinking Fund Notes, or 7 7/8% Senior Notes.
Senior Noteholders' Committee means the unofficial committee that
was formed by certain holders of the Senior Notes prior to the Commencement
Date.
Senior Notes means, collectively, the 7% Senior Notes, 7 7/8% Senior
Sinking Fund Notes, and 7 7/8% Senior Notes.
Senior Subordinated Note Claim means a Claim of a Senior
Subordinated Noteholder arising under or as a result of the Senior Subordinated
Notes.
Senior Subordinated Noteholder means a holder of one or more 12%
Senior Subordinated Notes or 12% Senior Subordinated Working Capital Notes.
<PAGE>
11
Senior Subordinated Notes means, collectively, the 12% Senior
Subordinated Notes and 12% Senior Subordinated Working Capital Notes.
Senior Working Capital Note Claim means a Claim of a Senior Working
Capital Noteholder arising under the Senior Working Capital Notes.
Senior Working Capital Noteholder means a holder of one or more 7%
Series A Senior Working Capital Notes or 7% Series B Senior Working Capital
Notes.
Senior Working Capital Notes means, collectively, the 7% Series A
Senior Working Capital Notes and 7% Series B Senior Working Capital Notes.
Subordination Related Rights shall have the meaning ascribed to such
term in Section 8.9 of the Plan.
Subsequent Distribution Date means the twentieth day after the end
of the Quarter following the Quarter in which the Initial Distribution Date
occurs and the twentieth day after the end of each subsequent Quarter.
Trustee means, (i) with respect to the 7% Senior Note Indenture, the
7 7/8% Senior Note Indenture, and the 7 7/8% Senior Sinking Fund Note Indenture,
The Bank of New York, in its capacity as trustee under each such indenture, (ii)
with respect to the New Notes, the trust company or bank which is initially
appointed by the issuer as trustee under the New Note Indenture, and (iii) with
respect to the Earn Out Notes Series I, the trust company or bank which is
initially appointed by the issuer as trustee under the Earn Out Notes Indenture.
Trygg-Hansa means Trygg-Hansa AB.
Trygg-Hansa Group means Trygg-Hansa and each of its Affiliates.
Unsecured Claim means any Claim that is not a Secured Claim,
Administrative Expense Claim, Priority Tax Claim, or Other Priority Claim.
Zurich means Zurich Insurance Company.
Zurich Group means Zurich and each of its Affiliates, including,
without limitation, Risk Enterprise Management Limited.
Zurich Home Investments means Zurich Home Investments Limited, a
Bermuda corporation.
Zurich Note Entity means Zurich Reinsurance Centre Holdings, a
Delaware Corporation.
<PAGE>
12
Zurich Put Entity means Zurich Reinsurance Centre Holdings, a
Delaware Corporation.
1.2 Interpretation; Application Of Definitions And Rules Of
Construction. Wherever from the context it appears appropriate, each term stated
in either the singular or the plural shall include both the singular and the
plural and pronouns stated in the masculine, feminine, or neuter gender shall
include the masculine, feminine, and neuter. Unless otherwise specified, all
section, article, schedule, or exhibit references in the Plan are to the
respective Section in, Article of, Schedule to, or Exhibit to, the Plan. The
words "herein," "hereof," "hereto," "hereunder," and other words of similar
import refer to the Plan as a whole and not to any particular section,
subsection, or clause contained in the Plan. The rules of construction contained
in section 102 of the Bankruptcy Code shall apply to the construction of the
Plan. A term used herein that is not defined herein, but that is used in the
Bankruptcy Code or the Bankruptcy Rules, shall have the meaning ascribed to that
term in the Bankruptcy Code or the Bankruptcy Rules. The headings in the Plan
are for convenience of reference only and shall not limit or otherwise affect
the provisions of the Plan.
II
TREATMENT OF ADMINISTRATIVE
EXPENSE CLAIMS AND PRIORITY TAX CLAIMS
2.1 Administrative Expense Claims. Except to the extent that any
entity entitled to payment of any Allowed Administrative Expense Claim agrees to
a different treatment, each holder of an Allowed Administrative Expense Claim
shall receive Cash in an amount equal to such Allowed Administrative Expense
Claim on the later of the Effective Date and the date such Administrative
Expense Claim becomes an Allowed Administrative Expense Claim, or as soon
thereafter as is practicable; provided, however, that Allowed Administrative
Expense Claims representing liabilities incurred in the ordinary course of
business by the Debtor-in-Possession or liabilities arising under loans or
advances to or other obligations incurred by the Debtor-in-Possession (to the
extent authorized and approved by the Bankruptcy Court if such authorization and
approval was required under the Bankruptcy Code) shall be paid in full and
performed by Reorganized Home in the ordinary course of business in accordance
with the terms and subject to the conditions of any agreements governing,
instruments evidencing, or other documents relating to, such transactions.
2.2 Professional Compensation And Reimbursement Claims. All entities
seeking an award by the Bankruptcy Court of compensation for services rendered
or reimbursement of expenses incurred through and including the Confirmation
Date under sections 503(b)(2), 503(b)(3), 503(b)(4), or 503(b)(5) of the
Bankruptcy Code (a) shall file their respective final applications for
allowances of compensation for services rendered and reimbursement of expenses
incurred through
<PAGE>
13
the Confirmation Date by the date that is 60 days after the Effective Date or
such other date as may be fixed by the Bankruptcy Court and (b) if granted, such
an award by the Bankruptcy Court shall be paid in full in such amounts as are
Allowed by the Bankruptcy Court (i) on the date such Administrative Expense
Claim becomes an Allowed Administrative Expense Claim, or as soon thereafter as
is practicable or (ii) upon such other terms as may be mutually agreed upon
between such holder of an Administrative Expense Claim and the
Debtor-in-Possession or, on and after the Effective Date, Reorganized Home.
2.3 Priority Tax Claims. Except to the extent that a holder of an
Allowed Priority Tax Claim has been paid by the Debtor prior to the Effective
Date or agrees to a different treatment, each holder of an Allowed Priority Tax
Claim shall receive, at the sole option of Reorganized Home, (a) Cash in an
amount equal to such Allowed Priority Tax Claim on the later of the Effective
Date and the date such Priority Tax Claim becomes an Allowed Priority Tax Claim,
or as soon thereafter as is practicable or (b) equal annual Cash payments in an
aggregate amount equal to such Allowed Priority Tax Claim, together with
interest at a fixed annual rate equal to 8 1/4%, over a period through the sixth
anniversary of the date of assessment of such Allowed Priority Tax Claim,
commencing on the first anniversary of the Effective Date, or upon such other
terms as may be determined by the Bankruptcy Court to provide the holder of such
Allowed Priority Tax Claim deferred Cash payments having a value, as of the
Effective Date, equal to such Allowed Priority Tax Claim.
III
CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS
3.1 Introduction. All Claims and Equity Interests, except
Administrative Expense Claims and Priority Tax Claims, are placed in the Classes
set forth below. In accordance with section 1123(a)(1) of the Bankruptcy Code,
Administrative Expense Claims and Priority Tax Claims, as described below, have
not been classified.
A Claim or Equity Interest is placed in a particular Class only to
the extent that the Claim or Equity Interest falls within the description of
that Class, and is classified in other Classes to the extent that any portion of
the Claim or Equity Interest falls within the description of such other Classes.
A Claim is also placed 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 such Claim has not been paid, released, or
otherwise settled prior to the Effective Date.
3.2 Unclassified Claims (not entitled to vote on the Plan).
(a) Administrative Expense Claims.
(b) Priority Tax Claims.
<PAGE>
14
3.3 Unimpaired Classes Of Claims (deemed to have accepted the Plan
and, therefore, not entitled to vote on the Plan).
(a) Class 1: Other Priority Claims.
Class 1 consists of all Other Priority Claims.
(b) Class 2: Convenience Claims.
Class 2 consists of all Convenience Claims.
(c) Class 3: Secured Claims.
Class 3 consists of all Secured Claims. Each Class 3 Secured
Claim is deemed to be in a separate subclass for all purposes under the
Bankruptcy Code.
3.4 Impaired Classes Of Claims (entitled to vote on the Plan).
(a) Class 4: Unsecured Claims.
Class 4 consists of all Unsecured Claims. Class 4 Unsecured
Claims have been divided into separate groups below. Together, all of the groups
of Unsecured Claims constitute a single Class of Claims for voting purposes
under the Plan and the Bankruptcy Code.
(i) Group 4-A: Group 4-A consists of all General
Unsecured Claims.
(ii) Group 4-B: Group 4-B consists of all Senior 7%
Note Claims.
(iii) Group 4-C: Group 4-C consists of all Senior 7 7/8%
Sinking Fund Note Claims.
(iv) Group 4-D: Group 4-D consists of all Senior 7 7/8%
Note Claims.
(v) Group 4-E: Group 4-E consists of the Home
Insurance Claim.
(b) Class 5: Senior Working Capital Note Claims.
Class 5 consists of all Senior Working Capital Note Claims.
<PAGE>
15
(c) Class 6: Junior Note Claims.
Class 6 consists of all Junior Note Claims.
3.5 Impaired Classes Of Claims And Equity Interests (deemed to have
rejected the Plan and, therefore, not entitled to vote on the Plan).
(a) Class 7: Senior Subordinated Note Claims.
Class 7 consists of all Senior Subordinated Note Claims.
(b) Class 8: Equity Interests.
Class 8 consists of all Equity Interests.
IV
TREATMENT OF CLAIMS AND EQUITY INTERESTS
4.1 Class 1 -- Other Priority Claims.
(a) Impairment And Voting. Class 1 is unimpaired by the Plan.
Each holder of an Allowed Other Priority Claim is conclusively presumed to have
accepted the Plan and is not entitled to vote to accept or reject the Plan.
(b) Distributions. Each holder of an Allowed Other Priority
Claim shall receive Cash in an amount equal to such Allowed Other Priority Claim
on the later of the Effective Date and the date such Allowed Other Priority
Claim becomes an Allowed Other Priority Claim, or as soon thereafter as is
practicable.
4.2 Class 2 -- Convenience Claims.
(a) Impairment And Voting. Class 2 is unimpaired by the Plan.
Each holder of an Allowed Convenience Claim is conclusively presumed to have
accepted the Plan and is not entitled to vote to accept or reject the Plan.
(b) Distributions. Each holder of an Allowed Convenience Claim shall
receive Cash in an amount equal to 100% of such Allowed Convenience Claim on the
later of the Effective Date and the date such Allowed Convenience Claim becomes
an Allowed Convenience Claim, or as soon thereafter as is practicable.
(c) Election To Be Treated As Convenience Claim. By checking the
appropriate box on a timely cast Ballot, the holder of an Allowed General
Unsecured Claim in an amount greater than $2,000 may elect to reduce the amount
of such holder's Allowed General Unsecured Claim to $2,000 and to receive
<PAGE>
16
a distribution upon such Allowed Class 2 Convenience Claim in the amount of
$2,000 as described in Section 4.2(b) above. Such an election shall constitute a
waiver of the right to collect, and a release of, the amount of the Allowed
General Unsecured Claim in excess of $2,000, and the holder of such Allowed
Class 2 Convenience Claim shall be deemed to have released the Debtor and its
estate, Reorganized Home, and their property from any and all liability for such
excess amount. The holder of an Allowed General Unsecured Claim which timely
elects to reduce the amount of its Allowed Claim shall be deemed to be the
holder of an Allowed Class 2 Convenience Claim for classification, voting, and
all other purposes under the Plan.
4.3 Class 3 -- Secured Claims.
(a) Impairment And Voting. Class 3 is unimpaired by the Plan.
Each holder of an Allowed Secured Claim is conclusively presumed to have
accepted the Plan and is not entitled to vote to accept or reject the Plan.
(b) Distributions/Reinstatement Of Claims. Except to the
extent that a holder of an Allowed Secured Claim agrees to a different
treatment, at the sole option of Reorganized Home, (i) each Allowed Secured
Claim shall be reinstated and rendered unimpaired in accordance with section
1124(2) of the Bankruptcy Code, notwithstanding any contractual provision or
applicable nonbankruptcy law that entitles the holder of an Allowed Secured
Claim to demand or receive payment of such Allowed Secured Claim prior to the
stated maturity of such Allowed Secured Claim from and after the occurrence of a
default, (ii) each holder of an Allowed Secured Claim shall receive Cash in an
amount equal to such Allowed Secured Claim, including any interest on such
Allowed Secured Claim required to be paid pursuant to section 506(b) of the
Bankruptcy Code, on the later of the Effective Date and the date such Allowed
Secured Claim becomes an Allowed Secured Claim, or as soon thereafter as is
practicable, or (iii) each holder of an Allowed Secured Claim shall receive the
Collateral securing its Allowed Secured Claim and any interest on such Allowed
Secured Claim required to be paid pursuant to section 506(b) of the Bankruptcy
Code, in full and complete satisfaction of such Allowed Secured Claim on the
later of the Effective Date and the date such Allowed Secured Claim becomes an
Allowed Secured Claim, or as soon thereafter as is practicable.
4.4 Class 4 -- Unsecured Claims.
(a) Impairment And Voting. Class 4 is impaired by the Plan.
Each holder of an Allowed Unsecured Claim is entitled to vote to accept or
reject the Plan.
<PAGE>
17
(b) Distributions.
(i) Group 4-A.
(1) On the Initial Distribution Date or as soon
thereafter as is practicable, each holder of an Allowed General Unsecured Claim
as of the Record Date shall receive (x) New Notes in a principal amount equal to
the product of the Percentage Formula and such holder's Allowed General
Unsecured Claim, (y) its Pro Rata Share of units of Earn Out Notes Series I, and
(z) its Pro Rata Share of Membership Units.
(2) On each Subsequent Distribution Date, each
holder of an Allowed General Unsecured Claim which was a Disputed Claim on the
Initial Distribution Date or the prior Subsequent Distribution Date shall
receive a Pro Rata Share of the amount of Earn Out Notes Series I, New Notes,
and Membership Units in the Reserve in accordance with Section 5.3(i) of the
Plan.
(3) Each holder of an Allowed General Unsecured
Claim, by accepting the distributions provided for under the Plan, shall be
deemed to have (i) requested that it be admitted as a member of Home Insurance
Holdings, LLC and (ii) agreed to be bound by the terms of the Home Insurance
Holdings, LLC Agreement, unless such holder elects not to be a member by
checking the appropriate box on a timely cast Ballot or so advising the Debtor
in writing prior to the Effective Date. Such an election shall constitute a
waiver of the right to receive its Pro Rata Share of Membership Units.
(ii) Group 4-B.
(1) On the Initial Distribution Date or as soon
thereafter as is practicable, each holder of an Allowed Senior 7% Note Claim as
of the Record Date shall receive (x) New Notes in a principal amount equal to
the product of the Percentage Formula and such holder's Allowed Senior 7% Note
Claim, (y) its Pro Rata Share of units of Earn Out Notes Series I, and (z) its
Pro Rata Share of Membership Units.
(2) Each holder of an Allowed Senior 7% Note
Claim, by accepting the distributions provided for under the Plan, shall be
deemed to have (i) requested that it be admitted as a member of Home Insurance
Holdings, LLC and (ii) agreed to be bound by the terms of the Home Insurance
Holdings, LLC Agreement, unless such holder elects not to be a member by
checking the appropriate box on a timely cast Ballot or so advising the Debtor
in writing prior to the Effective Date. Such an election shall constitute a
waiver of the right to receive its Pro Rata Share of Membership Units.
<PAGE>
18
(3) On the Effective Date, the Senior 7% Note
Claims shall be deemed Allowed Unsecured Claims in Group 4-B in the aggregate
amount of $104,545,859.37.
(iii) Group 4-C.
(1) On the Initial Distribution Date or as soon
thereafter as is practicable, each holder of an Allowed Senior 7 7/8% Sinking
Fund Note Claim as of the Record Date shall receive (x) New Notes in a principal
amount equal to the product of the Percentage Formula and such holder's Allowed
Senior 7 7/8% Sinking Fund Note Claim, (y) its Pro Rata Share of units of Earn
Out Notes Series I, and (z) its Pro Rata Share of Membership Units.
(2) Each holder of an Allowed Senior 7 7/8%
Sinking Fund Note Claim, by accepting the distributions provided for under the
Plan, shall be deemed to have (i) requested that it be admitted as a member of
Home Insurance Holdings, LLC and (ii) agreed to be bound by the terms of the
Home Insurance Holdings, LLC Agreement, unless such holder elects not to be a
member by checking the appropriate box on a timely cast Ballot or so advising
the Debtor in writing prior to the Effective Date. Such an election shall
constitute a waiver of the right to receive its Pro Rata Share of Membership
Units.
(3) On the Effective Date, the Senior 7 7/8%
Sinking Fund Note Claims shall be deemed Allowed Unsecured Claims in Group 4-C
in the aggregate amount of $188,568,871.16.
(iv) Group 4-D.
(1) On the Initial Distribution Date or as soon
thereafter as is practicable, each holder of an Allowed Senior 7 7/8% Note Claim
as of the Record Date shall receive (x) New Notes in a principal amount equal to
the product of the Percentage Formula and such holder's Allowed Senior 7 7/8%
Note Claim, (y) its Pro Rata Share of units of Earn Out Notes Series I, and (z)
its Pro Rata Share of Membership Units.
(2) Each holder of an Allowed Senior 7 7/8% Note
Claim, by accepting the distributions provided for under the Plan, shall be
deemed to have (i) requested that it be admitted as a member of Home Insurance
Holdings, LLC and (ii) agreed to be bound by the terms of the Home Insurance
Holdings, LLC Agreement, unless such holder elects not to be a member by
checking the appropriate box on a timely cast Ballot or so advising the Debtor
in writing prior to the Effective Date. Such an election shall constitute a
waiver of the right to receive its Pro Rata Share of Membership Units.
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19
(3) On the Effective Date, the Senior 7 7/8% Note
Claims shall be deemed Allowed Unsecured Claims in Group 4-D in the aggregate
amount of $543,171.81.
(v) Group 4-E
(1) On the Initial Distribution Date, or as soon
thereafter as is practicable, in full satisfaction of the Home Insurance Claim,
Home Insurance shall receive the consideration provided in the Home Insurance
Settlement described in Section 9.1 hereof.
(2) On the Effective Date, the Home Insurance
Claim shall be deemed an Allowed Unsecured Claim in Group 4-E in the amount of
$14,145,407.
4.5 Class 5 -- Senior Working Capital Note Claims.
(a) Impairment And Voting. Class 5 is impaired by the Plan.
Each holder of an Allowed Senior Working Capital Note Claim is entitled to vote
to accept or reject the Plan.
(b) Distributions.
(i) On the Initial Distribution Date or as soon
thereafter as is practicable, each holder of an Allowed Senior Working Capital
Note Claim as of the Record Date shall receive a Pro Rata Share of the New
Common Stock in the New Common Stock Distribution Pool.
(ii) On the Effective Date, the Senior Working Capital
Note Claims shall be deemed Allowed Unsecured Claims in Class 5 in the aggregate
amount of $71,424,889.
4.6 Class 6 -- Junior Note Claims.
(a) Impairment And Voting. Class 6 is impaired by the Plan.
The holder of the Allowed Junior Note Claims (other than Zurich Home
Investments) is entitled to vote to accept or reject the Plan.
(b) Distributions.
(i) On the Initial Distribution Date or as soon
thereafter as is practicable, the holder of the Allowed Junior Note Claims
(other than Zurich Home Investments) as of the Record Date shall receive the
Earn Out Notes Series II. Zurich Home Investments has waived its Junior Note
Claims and the right to receive a distribution on account of its Junior Note
Claims.
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20
(ii) On the Effective Date, the Junior Note Claims
(other than of Zurich Home Investments) the Junior Note Claims shall be deemed
an Allowed Unsecured Claim in Class 6 in the aggregate amount of $41,340,232.
4.7 Class 7 -- Senior Subordinated Note Claims.
(a) Impairment And Voting. Class 7 is impaired by the Plan.
Class 7 is deemed to have rejected the Plan, and, therefore, is not entitled to
vote to accept or reject the Plan.
(b) Distributions. On the Effective Date, the holders of
Senior Subordinated Notes shall not be entitled to, and shall not, receive or
retain any property or interest in property on account of such Senior
Subordinated Notes.
4.8 Class 8 -- Equity Interests.
(a) Impairment And Voting. Class 8 is impaired by the Plan.
Class 8 is deemed to have rejected the Plan, and, therefore, is not entitled to
vote to accept or reject the Plan.
(b) Distributions. On the Effective Date, the Equity Interests
shall be canceled and the holders of Equity Interests shall not be entitled to,
and shall not, receive or retain any property or interest in property on account
of such Equity Interests.
V
PROVISIONS REGARDING VOTING AND DISTRIBUTIONS
UNDER THE PLAN AND TREATMENT OF DISPUTED,
CONTINGENT, AND UNLIQUIDATED CLAIMS AND
ADMINISTRATIVE EXPENSE CLAIMS
5.1 Voting Of Claims. Each holder of an Allowed Claim in an impaired
Class of Claims, other than holders of Claims deemed to have rejected the Plan,
shall be entitled to vote separately to accept or reject the Plan as provided in
such order as may be entered by the Bankruptcy Court establishing certain
procedures with respect to the solicitation and tabulation of votes to accept or
reject the Plan, or any other order or orders of the Bankruptcy Court.
5.2 Nonconsensual Confirmation. Home Holdings hereby requests
confirmation of the Plan, as it may be modified from time to time in accordance
with its terms, under section 1129(b) of the Bankruptcy Code.
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21
5.3 Method Of Distributions Under The Plan.
(a) In General. Subject to Bankruptcy Rule 9010, all
distributions under the Plan shall be made by Reorganized Home to the holder of
each Allowed Claim at the address of such holder as listed on the Schedules as
of the Record Date, unless the Debtor or Reorganized Home has been notified in
writing of a change of address, including, without limitation, by the filing of
a proof of claim by such holder that provides an address for such holder
different from the address reflected on the Schedules.
(b) Distributions Of Cash. Any payment of Cash made by
Reorganized Home pursuant to the Plan shall be made by check drawn on a domestic
bank.
(c) Timing Of Distributions. If the day when any payment or
distribution required to be made under the Plan is not a Business Day, such
payment or distribution shall be made on the next succeeding Business Day.
(d) Minimum Distributions. No payment of Cash less than
one-hundred dollars shall be made by Reorganized Home to any holder of a Claim
unless a request therefor is made in writing to Reorganized Home.
(e) Fractional Shares; Multiples Of New Notes. New Notes shall
only be issued in multiples of $1,000. Any New Notes that would otherwise have
been distributed in multiples of other than $1,000 shall be aggregated by the
Trustee under the New Notes Indenture or the Disbursing Agent and sold. The Cash
proceeds from such sale shall be distributed on a pro rata basis to those
holders of Allowed General Unsecured Claims and Senior Note Claims which would
have been entitled to New Notes in multiples of other than $1,000. No fractional
units of Earn Out Notes or of Membership Units shall be distributed under the
Plan. When any distribution on account of an Allowed Claim pursuant to the Plan
would otherwise result in the issuance of a number of units of Earn Out Notes or
of Membership Units that is not a whole number, the actual distribution of
shares of Earn Out Notes or of Membership Units shall be rounded as follows: (i)
fractions of one-half or greater shall be rounded to the next higher whole
number and (ii) fractions of less than one-half shall be rounded to the next
lower whole number. The total number of units of Earn Out Notes or of Membership
Units to be distributed to a Class of Claims shall be adjusted as necessary to
account for the rounding as provided in this Section 5.3(e).
(f) Unclaimed Distributions. Any distributions to holders of
Allowed Unsecured Claims of New Notes, Earn Out Notes, or Membership Units under
the Plan that are unclaimed for a period of one year after distribution thereof
shall revest in Reorganized Home, such New Notes, Earn Out Notes, or Membership
Units shall be deemed canceled, and any entitlement of such holders of Allowed
Unsecured Claims to such distributions shall be extinguished and forever barred.
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22
(g) Distributions To Holders As Of The Record Date. As at the
close of business on the Record Date, the claims register shall be closed, and
there shall be no further changes in the record holders of any Claims. The
Debtor and Reorganized Home shall have no obligation to recognize any transfer
of any Claims occurring after the Record Date. The Debtor and Reorganized Home
shall instead be entitled to recognize and deal for all purposes under the Plan
(except as to voting to accept or reject the Plan pursuant to Section 5.1 of the
Plan) with only those record holders stated on the claims register as of the
close of business on the Record Date.
(h) Distributions Withheld For Disputed General Unsecured
Claims.
(i) Establishment And Maintenance Of Reserve. On the
Initial Distribution Date, Reorganized Home shall place into a reserve an amount
of Earn Out Notes Series I, New Notes, and Membership Units equal to 100% of the
distributions to which holders of Disputed General Unsecured Claims would be
entitled under the Plan as of such date if such Disputed General Unsecured
Claims were Allowed General Unsecured Claims in their Disputed Claim Amounts
(the "Reserve"). Such amount shall be determined by reference to the aggregate
Face Amount of all Disputed General Unsecured Claims that have Face Amounts,
plus an amount to be determined by the Bankruptcy Court to be reserved for any
given Disputed General Unsecured Claims that do not have Face Amounts.
(ii) Property Held In Reserve. Cash held in the Reserve
(including interest paid on New Notes held in the Reserve) shall be deposited in
a segregated bank account or accounts in the name of Reorganized Home and
designated as held in trust for the benefit of holders of Allowed General
Unsecured Claims. Cash held in the Reserve shall not constitute property of
Reorganized Home. Reorganized Home shall invest the Cash held in the Reserve in
a manner consistent with investment guidelines to be included in the Plan
Supplement. Reorganized Home shall pay, or cause to be paid, out of the funds
held in the Reserve, any tax imposed on the Reserve by any governmental unit
with respect to income generated by the property held in the Reserve. The yield
earned on such invested Cash (net of applicable taxes) shall be distributed to
each holder of a Disputed Claim that has become an Allowed General Unsecured
Claim on the final Subsequent Distribution Date under the Plan. New Notes, Earn
Out Notes Series I, and Membership Units held in the Reserve shall be held in
trust by Reorganized Home for the benefit of the potential claimants of such
securities and shall not constitute property of Reorganized Home. Any Cash, New
Notes, Earn Out Notes Series I, and Membership Units held in the Reserve after
all Allowed General Unsecured Claims have been Allowed or disallowed shall
revest to Reorganized Home, such New Notes, Earn Out Notes, or Membership Units
shall be deemed canceled, and any entitlement of such holders of Allowed
Unsecured Claims to such distributions shall be extinguished and forever barred.
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(i) Distributions Upon Allowance Of Disputed Unsecured Claims.
The holder of a Disputed General Unsecured Claim that becomes an Allowed Claim
subsequent to the Initial Distribution Date shall receive distributions of New
Notes, Earn Out Notes Series I, and Membership Units, as applicable, from the
Reserve on the next Subsequent Distribution Date that follows the Quarter during
which such Disputed General Unsecured Claim becomes an Allowed Claim pursuant to
a Final Order. Such distributions shall be made in accordance with the Plan
based upon the distributions that would have been made to such holder under the
Plan if the Disputed General Unsecured Claim had been an Allowed Claim on or
prior to the Effective Date, without any post-Effective Date interest thereon
(without regard to interest earned on property held in the Reserve pursuant to
Section 5.3(h)(ii) of the Plan).
(j) Disbursing Agent. The Debtor or Reorganized Home will
appoint or will become the disbursing agent (the "Disbursing Agent") to fulfill
the obligations that Reorganized Home will have under the Plan with respect to
distributions to holders of Allowed General Unsecured Claims, including, without
limitation, holding all reserves and accounts pursuant to the Plan, including
the Reserve.
5.4 Objections To And Resolution Of Administrative Expense Claims,
Claims, And Equity Interests. Except as to applications for allowances of
compensation and reimbursement of expenses under sections 330 and 503 of the
Bankruptcy Code, the Debtor, Reorganized Home, and Zurich shall have the
exclusive right to make and file objections to Administrative Expense Claims and
Claims, subsequent to the Confirmation Date. All objections shall be litigated
to Final Order; provided, however, that Reorganized Home or Zurich shall have
the authority to compromise, settle, otherwise resolve or withdraw any
objections, without approval of the Bankruptcy Court. Unless otherwise ordered
by the Bankruptcy Court, the Debtor, Reorganized Home, or Zurich shall file all
objections to Administrative Expense Claims that are the subject of proofs of
claim or requests for payment filed with the Bankruptcy Court (other than
applications for allowances of compensation and reimbursement of expenses) and
Claims and serve such objections upon the holder of the Administrative Expense
Claim or Claim, as to which the objection is made as soon as is practicable, but
in no event later than 60 days after the Effective Date or such later date as
may be approved by the Bankruptcy Court.
5.5 Administrative Claims Reserve.
(a) Establishment of Administrative Claims Reserve. On the
Effective Date, Reorganized Home shall create and fund the Administrative Claims
Reserve with an amount of the Cash equal to (i) the sum of the aggregate Face
Amount of all Disputed Administrative Claims, Disputed Priority Tax Claims, and
Disputed Other Priority Claims that have Face Amounts, plus (ii) an amount to be
determined by the Bankruptcy Court to be reserved for any given Disputed
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24
Administrative Claims, Disputed Priority Tax Claims, and Disputed Other Priority
Claims that do not have Face Amounts.
(b) Cash Held In Administrative Claims Reserve. Cash held in
the Reserve shall be deposited in a segregated bank account or accounts in the
name of Reorganized Home and designated as held in trust for the benefit of
holders of Allowed Administrative Claims. Cash held in the Reserve shall not
constitute property of Reorganized Home. Reorganized Home shall invest the Cash
held in the Reserve in a manner consistent with investment guidelines to be
included in the Plan Supplement. Reorganized Home shall pay, or cause to be
paid, out of the funds held in the Reserve, any tax imposed on the Reserve by
any governmental unit with respect to income generated by the cash held in the
Reserve. Any Cash held in the Administrative Claims Reserve after all
Administrative Claims have been Allowed or disallowed shall be transferred to
and become the property of Reorganized Home.
5.6 Cancellation And Surrender Of Existing Securities And
Agreements.
(a) On the Effective Date, the promissory notes, share
certificates, bonds, and other instruments evidencing any Claim against or
Equity Interest in the Debtor shall be deemed canceled without further act or
action under any applicable agreement, law, regulation, order, or rule, and the
obligations of the Debtor under the agreements, indentures, and certificates of
designations governing such Claims and Equity Interests, as the case may be,
shall be discharged.
(b) Each holder of a promissory note, bond, or other
instrument evidencing a Claim shall surrender such promissory note, bond, or
instrument to Reorganized Home, unless such requirement is waived by Reorganized
Home. No distribution of property hereunder shall be made to or on behalf of any
such holders unless and until such promissory note, bond, or instrument is
received by Reorganized Home or the unavailability of such promissory note,
bond, or instrument is established to the reasonable satisfaction of Reorganized
Home or such requirement is waived by Reorganized Home. Reorganized Home may
require any holder which is unable to surrender or cause to be surrendered any
such promissory notes, bonds, or instruments to deliver an affidavit of loss and
indemnity and/or furnish a bond in form and substance (including, without
limitation, with respect to amount) reasonably satisfactory to Reorganized Home.
Any holder which fails within the later of one year after the Confirmation Date
and the date of Allowance of its Claim (i) if possible, to surrender or cause to
be surrendered such promissory note, bond, or instrument, (ii) if requested, to
execute and deliver an affidavit of loss and indemnity reasonably satisfactory
to Reorganized Home, and (iii) if requested, to furnish a bond reasonably
satisfactory to Reorganized Home, shall be deemed to have forfeited all rights,
claims, and causes of action against the Debtor and Reorganized Home and shall
not participate in any distribution hereunder.
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25
VI
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
6.1 Assumption Or Rejection Of Executory Contracts And Unexpired
Leases.
(a) Executory Contracts And Unexpired Leases. Pursuant to
sections 365(a) and 1123(b)(2) of the Bankruptcy Code, all executory contracts
and unexpired leases that exist between the Debtor and any person shall be
deemed assumed by Reorganized Home as of the Effective Date, except for any
executory contract or unexpired lease (i) which has been assumed pursuant to an
order of the Bankruptcy Court entered prior to the Confirmation Date, (ii) which
has been rejected pursuant to an order of the Bankruptcy Court entered prior to
the Confirmation Date, (iii) as to which a motion for approval of the rejection
of such executory contract or unexpired lease has been filed and served prior to
the Confirmation Date, or (iv) which is set forth in Schedule 6.1(a)(x)
(executory contracts) or Schedule 6.1(a)(y) (unexpired leases), which Schedules
shall be included in the Plan Supplement; provided, however, that the Debtor or
Reorganized Home reserves the right, on or prior to the Confirmation Date, to
amend Schedules 6.1(a)(x) or 6.1(a)(y) to delete any executory contract or
unexpired lease therefrom or to add any executory contract or unexpired lease
thereto, in which event such executory contract(s) or unexpired lease(s) shall
be deemed to be, respectively, assumed or rejected. The Debtor or Reorganized
Home shall provide notice of any amendments to Schedules 6.1(a)(x) or 6.1(a)(y)
to the parties to the executory contracts and unexpired leases affected thereby.
The listing of a document on Schedules 6.1(a)(x) and 6.l(a)(y) shall not
constitute an admission by the Debtor or Reorganized Home that such document is
an executory contract or an unexpired lease or that the Debtor or Reorganized
Home have any liability thereunder.
(b) Approval Of Assumption Or Rejection Of Executory Contracts
And Unexpired Leases. Entry of the Confirmation Order shall constitute (i) the
approval, pursuant to sections 365(a) and 1123(b)(2) of the Bankruptcy Code, of
the assumption of the executory contracts and unexpired leases assumed pursuant
to Section 6.1(a) hereof, (ii) the extension of time, pursuant to section
365(d)(4) of the Bankruptcy Code, within which the Debtor may assume or reject
the unexpired leases specified in Section 6.1(a) hereof through the date of
entry of an order approving the assumption or rejection of such unexpired
leases, and (iii) the approval, pursuant to sections 365(a) and 1123(b)(2) of
the Bankruptcy Code, of the rejection of the executory contracts and unexpired
leases rejected pursuant to Sections 6.1(a) hereof.
(c) Cure Of Defaults. Except as may otherwise be agreed to by
the parties, within 60 days after the Effective Date, Reorganized Home shall
cure any and all undisputed defaults under any executory contract or unexpired
lease assumed pursuant to the Plan in accordance with section 365(b)(1) of the
Bankruptcy Code. All disputed defaults that are required to be cured shall be
cured either within 30 days of the entry of a Final Order determining the
amount, if any, of the Debtor's
<PAGE>
26
or Reorganized Home's liability with respect thereto, or as may otherwise be
agreed to by the parties.
(d) Bar Date For Filing Proofs Of Claim Relating To Executory
Contracts And Unexpired Leases Rejected Pursuant To The Plan. Claims arising out
of the rejection of an executory contract or unexpired lease pursuant to Section
6.1 of the Plan must be filed with the Bankruptcy Court and/or served upon the
Debtor or Reorganized Home or as otherwise may be provided in the Confirmation
Order, by no later than 30 days after the later of (i) notice of entry of an
order approving the rejection of such executory contract or unexpired lease,
(ii) notice of entry of the Confirmation Order, and (iii) notice of an amendment
to Schedule 6.1(a)(x) or 6.1(a)(y). Any Claims not filed within such time will
be forever barred from assertion against the Debtor, its estate, Reorganized
Home, and their respective property. Unless otherwise ordered by the Bankruptcy
Court, all Claims arising from the rejection of executory contracts and
unexpired leases shall be treated as General Unsecured Claims under the Plan.
6.2 Releases. The Debtor hereby releases and is permanently enjoined
from any prosecution or attempted prosecution of any and all causes of action
which it has, may have, or claims to have against any present or former
director, officer, or employee of the Debtor; provided, however, that the
foregoing shall not operate as a waiver of or release from any causes of action
arising out of (a) any express contractual obligation owing by any such
director, officer, or employee to the Debtor or (b) the willful misconduct or
gross negligence of such director, officer, or employee in connection with,
related to, or arising out of the Chapter 11 Case, the pursuit of confirmation
of the Plan, the consummation of the Plan, the administration of the Plan, or
the property to be distributed under the Plan.
6.3 Indemnification Obligations. For purposes of the Plan, the
obligations of the Debtor to defend, indemnify, reimburse, or limit the
liability of their present and any former directors, officers, or employees who
were directors, officers, or employees, respectively, on or after the
Commencement Date against any claims or obligations pursuant to the Debtor's
certificate of incorporation or bylaws, applicable state law or specific
agreement, or any combination of the foregoing, shall survive confirmation of
the Plan, remain unaffected thereby, and not be discharged irrespective of
whether indemnification, defense, reimbursement, or limitation is owed in
connection with an event occurring before, on or after the Commencement Date.
VII
PROVISIONS REGARDING CORPORATE GOVERNANCE
AND MANAGEMENT OF REORGANIZED HOME
7.1 General. On the Effective Date, the management, control, and
operation of Reorganized Home shall become the general responsibility of the
Board
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27
of Directors of Reorganized Home, who shall, thereafter, have the responsibility
for the management, control, and operation of Reorganized Home.
7.2 Meetings Of Reorganized Home Stockholders. In accordance with
the Amended Home Certificate of Incorporation and the Amended Home Bylaws, as
the same may be amended from time to time, the first annual meeting of the
stockholders of Reorganized Home shall be held on a date in 1998 selected by the
Board of Directors of Reorganized Home, and subsequent meetings of the
stockholders of Reorganized Home shall be held at least once annually each year
thereafter.
7.3 Directors And Officers Of Reorganized Home.
(a) Board Of Directors.
(i) Reorganized Home. The initial Board of Directors of
Reorganized Home shall consist of four individuals whose names shall be
disclosed 10 days prior to the date of the Confirmation Hearing. Each of the
members of such initial Board of Directors shall serve until the first annual
meeting of stockholders of Reorganized Home or their earlier resignation or
removal in accordance with the Amended Home Certificate of Incorporation or
Amended Home Bylaws, as the same may be amended from time to time.
(b) Officers. The individuals listed below shall serve as the
initial officers of Reorganized Home on and after the Effective Date.
Name Title
---- -----
Steven M. Gluckstern Chairman
Richard E. Smith President and CEO
Brian E. Kensil Senior Vice President
Isaac Mashitz Senior Vice President
Gerald S. King Senior Vice President
Adrienne W. Reid Senior Vice President
Michael E. Maloney Senior Vice President
Corcoran Byrne Vice President and Secretary
7.4 Amended Bylaws And Amended Certificates Of Incorporation. The
Amended Home Bylaws and Amended Home Certificate of Incorporation shall be
amended and restated as of the Effective Date to the extent necessary (a) to
prohibit the issuance of nonvoting equity securities as required by section
1123(a)(6) of the Bankruptcy Code, subject to further amendment of such
certificates of incorporation and bylaws as permitted by applicable law and (b)
to effectuate the provisions of the Plan, in each case without any further
action by the stockholders or directors of the Debtor, the Debtor-in-Possession,
or Reorganized Home.
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28
7.5 Issuance Of New Securities. The issuance of the following
securities and notes by Reorganized Home or Home Insurance Holdings, LLC, as the
case may be, is hereby authorized without further act or action under applicable
law, regulation, order, or rule:
(a) 100 shares of New Common Stock;
(b) the New Notes;
(c) the Earn Out Notes; and
(d) the Membership Units.
VIII
IMPLEMENTATION AND EFFECT OF CONFIRMATION OF PLAN
8.1 Term Of Bankruptcy Injunction Or Stays. All injunctions or stays
provided for in the Chapter 11 Case under sections 105 or 362 of the Bankruptcy
Code, or otherwise, and in existence on the Confirmation Date, shall remain in
full force and effect until the Effective Date.
8.2 Sources Of Payment. Allowed Administrative Expense Claims and
the professional fees referred to in Section 8.11 of the Plan shall be paid by
the Debtor by means of one or more dividends to the Debtor from two of its
subsidiaries: Home Insurance (whose dividends are subject to the approval of the
Department), and Sterling Forest Management LLC. All such payments shall be made
on the Effective Date, or as incurred by the Debtor-in-Possession (to the extent
authorized and approved by the Bankruptcy Court if such authorization and
approval was required by the Bankruptcy Code) or as otherwise provided in the
terms of the Plan. Payments to be made under the Plan with respect to all other
Classes of Claims shall be made pursuant to the Earn Out Notes and the other
instruments and securities that are issued and delivered to the respective Class
under the Plan.
8.3 Tender Offer. As provided in the New Note Tender Offer
Undertaking, the Zurich Note Entity shall offer to purchase any and all
outstanding New Notes upon the terms and subject to the conditions set forth
below and in the Offer to Purchase and Letter of Transmittal.
(a) Tender Offer. Not later than the sixtieth day after the
Effective Date, the Zurich Note Entity shall offer to purchase any and all
outstanding New Notes.
(b) Offer Price. The Zurich Note Entity shall offer to
purchase the New Notes at a price equal to the sum of 99% of (i) the face amount
of the New Notes tendered by any holder of New Notes and (ii) all accrued and
unpaid
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29
interest on such New Notes as of the date that the Zurich Note Entity makes the
payments described in Section 8.3(c) below.
(c) Payment. In the event that a holder of the New Notes
accepts the Zurich Note Entity's offer and delivers a Letter of Transmittal and
such holder's New Notes to the Zurich Note Entity, the Zurich Note Entity shall
pay the purchase price for such New Notes in Cash to such holder.
8.4 Consummation Of Acquisition. Pursuant to the Acquisition
Agreement and the Plan, prior to the Effective Date, the Consummation of the
Acquisition Agreement shall occur and in connection therewith, Home Insurance
Holdings, LLC shall acquire the Acquired Assets.
8.5 Revesting Of Assets.
(a) The property of the estate of the Debtor shall revest in
Reorganized Home on the Effective Date, except as provided in Sections
5.3(h)(ii), 5.5, and 8.4 of the Plan.
(b) From and after the Effective Date, Reorganized Home may
operate its business, and may use, acquire, and dispose of property free of any
restrictions imposed under the Bankruptcy Code.
(c) As of the Effective Date, all property of the Debtor and
Reorganized Home shall be free and clear of all liens, claims, and interests of
holders of Claims and Equity Interests, except as provided in the Plan.
8.6 Causes Of Action. Except as otherwise expressly provided in the
Plan, as of the Effective Date, pursuant to section 1123(b)(3)(B) of the
Bankruptcy Code, any and all causes of action accruing to the Debtor and
Debtor-in-Possession, including, without limitation, actions under sections 544,
547, 548, 549, 550, 551, and 553 of the Bankruptcy Code, shall become assets of
Reorganized Home, and Reorganized Home shall have the authority to prosecute (or
not prosecute) such causes of action for the benefit of Reorganized Home as it
shall determine in its sole and absolute discretion. Reorganized Home shall have
the authority to compromise and settle, otherwise resolve, discontinue, abandon,
or dismiss all such causes of action without approval of the Bankruptcy Court.
8.7 Discharge Of Debtor. The rights afforded herein and the
treatment of all Claims and Equity Interests herein shall be in exchange for and
in complete satisfaction, discharge, and release of Claims and Equity Interests
of any nature whatsoever, including any interest accrued on such Claims from and
after the Commencement Date, against the Debtor and the Debtor-in-Possession, or
any of its assets or properties, arising on or prior to the Effective Date.
Except as otherwise provided herein, (a) on the Effective Date, all such Claims
against and Equity Interests in the Debtor shall be satisfied, discharged, and
released in full and (b) all persons shall be precluded from asserting against
Reorganized Home, its successors,
<PAGE>
30
or its assets or properties any other or further Claims or Equity Interests
based upon any act or omission, transaction, or other activity of any kind or
nature that occurred prior to the Confirmation Date.
8.8 Injunction. Except as otherwise expressly provided in the Plan,
the Confirmation Order, or a separate order of the Bankruptcy Court, all
entities who have held, hold, or may hold Claims against or Equity Interests in
the Debtor which arose before or were held as of the Effective Date, are
permanently enjoined, on and after the Effective Date, from (a) commencing or
continuing in any manner any action or other proceeding of any kind against the
Debtor with respect to any such Claim or Equity Interest, (b) the enforcement,
attachment, collection, or recovery by any manner or means of any judgment,
award, decree, or order against the Debtor on account of any such Claim or
Equity Interest, (c) creating, perfecting, or enforcing any encumbrance of any
kind against the Debtor or against the property or interests in property of the
Debtor on account of any such Claim or Equity Interest and (d) asserting any
right of setoff, subrogation, or recoupment of any kind against any obligation
due from the Debtor or against the property or interests in property of the
Debtor on account of any such Claim or Equity Interest. Such injunction shall
extend to successors of the Debtor (including, without limitation, Reorganized
Home) and their respective properties and interests in property.
8.9 Termination Of Subordination Rights. All claims of the Senior
Noteholders, Senior Working Capital Noteholders, Senior Subordinated
Noteholders, and Junior Noteholders against the Debtor and all rights and claims
between or among the Senior Noteholders, Senior Working Capital Noteholders,
Senior Subordinated Noteholders, and Junior Noteholders relating in any manner
whatsoever to claimed subordination rights, rights to post-petition and default
interest, or similar rights, if any (collectively, "Subordination-Related
Rights"), shall be deemed satisfied by the distributions under, described in,
contemplated by, and/or implemented by, this Plan to holders of such Claims and
such rights shall be deemed waived, released, discharged, and terminated as of
the Effective Date, and all actions related to the enforcement of such
Subordination-Related Rights shall be permanently enjoined. Distributions under,
described in, contemplated by, and/or implemented by, this Plan shall not be
subject to levy, garnishment, attachment, or like legal process by any holder of
a Claim, including, but not limited to, holders of Senior Note Claims, Senior
Working Capital Note Claims, Senior Subordinated Note Claims, and Junior Note
Claims by reason of any claimed Subordination-Related Rights or otherwise, so
that each holder of a Claim shall have and receive the complete benefit of the
distributions in the manner set forth and described in this Plan.
8.10 Waiver Of Claims; Covenant Not To Sue; Releases. (a) Effective
as of the Confirmation Date, but subject to the occurrence of the Effective
Date, and except as otherwise provided in this Plan or the Confirmation Order,
(i) the Debtor and Debtor-in-Possession and (ii) all Persons who have held,
hold, or may hold Claims against or Equity Interests in the Debtor (x) shall be
deemed to have covenanted with each member of the Zurich Group, the Trygg-Hansa
Group, and Home Insurance to waive and not to (1) sue or otherwise seek any
recovery from the
<PAGE>
31
Zurich Group, the Trygg-Hansa Group, Home Insurance, or their respective
property, whether for tort, fraud, contract, violations of federal or state
securities laws, or otherwise, based in whole or in part upon any act or
omission, transaction, or other occurrence taking place on or before the
Effective Date in any way relating to the Debtor, the Chapter 11 Case, or the
Plan or (2) assert against any of the Zurich Group, the Trygg-Hansa Group, Home
Insurance, or their respective property any claim, obligation, right, cause of
action, or liability which any such holder of a Claim against or Equity Interest
in the Debtor may be entitled to assert in any case, whether for tort, fraud,
contract, violations of federal or state securities laws, or otherwise, whether
known or unknown, foreseen or unforeseen, existing or hereafter arising, based
in whole or in part upon any act or omission, transaction, or other occurrence
taking place on or before the Effective Date in any way relating to the Debtor,
the Chapter 11 Case, or the Plan and (y) are permanently enjoined, on and after
the Effective Date, from commencing or continuing in any manner any action or
other proceeding of any kind with respect to such Claims, obligations, rights,
causes of action, or liabilities released hereunder.
(b) Effective as of the Confirmation Date, but subject to the
occurrence of the Effective Date, and except as otherwise provided in the Plan
or the Confirmation Order, each of the Debtor, Reorganized Home, the Trygg-Hansa
Group, the Zurich Group, Home Insurance, the Department, and each of their
respective officers, directors, agents, financial advisors, attorneys,
employees, and representatives and their respective property shall be released
from any and all Claims, obligations, rights, causes of action, and liabilities
which any holder of a Claim against or Equity Interest in the Debtor may be
entitled to assert in any case, whether for tort, fraud, contract, violations of
federal or state securities laws, or otherwise, whether known or unknown,
whether foreseen or unforeseen, existing or hereafter arising, based in whole or
in part upon any act or omission, transaction, or other occurrence taking place
on or before the Effective Date in any way relating to the Debtor, the Chapter
11 Case, or the Plan.
(c) Effective as of the Confirmation Date, but subject to the
occurrence of the Effective Date, and except as otherwise provided in the Plan
or the Confirmation Order, each of the Trygg-Hansa Group, the Zurich Group, Home
Insurance, the Department, and each of their respective officers, directors,
agents, financial advisors, attorneys, employees, and representatives and their
respective property shall be released from any and all Claims, obligations,
rights, causes of action, and liabilities which the Debtor or the
Debtor-in-Possession may be entitled to assert in any case, whether for tort,
fraud, contract, violations of federal or state securities laws, or otherwise,
whether known or unknown, whether foreseen or unforeseen, existing or hereafter
arising, based in whole or in part upon any act or omission, transaction, or
other occurrence taking place on or before the Effective Date in any way
relating to the Debtor, the Chapter 11 Case, or the Plan.
(d) The waivers and covenants set forth in subsections (a), (b), and
(c) above shall not be applicable to (i) any obligations of any such Person or
group pursuant to the Plan, or pursuant to any of the documents contained in the
Plan
<PAGE>
32
Supplement, or under any of the documents listed on Exhibit G hereto, (ii) any
continuing obligations and liabilities of each applicable member of the Zurich
Group to Home Insurance under the contracts and agreements between such member
of the Zurich Group and Home Insurance, or (iii) any Claim, obligation, right,
cause of action, or other liability arising out of any contract of insurance or
reinsurance or other similar agreement.
8.11 Professional Fees. The Senior Noteholders' Committee shall be
required to seek an award by the Bankruptcy Court for reimbursement for its
professional fees incurred prior to the Chapter 11 Case, including the fees and
expenses of Anderson Kill & Olick, P.C. and Houlihan Lokey Howard & Zukin, Inc.,
attorneys and financial advisors, respectively, for the Senior Noteholders'
Committee, together with any other advisor so designated by such committee,
under section 503(b) of the Bankruptcy Code, by filing an application for
allowance for reimbursement of all its professional fees and expenses by the
date that is 60 days after the Effective Date or such other date as may be fixed
by the Bankruptcy Court and, if granted, such award by the Bankruptcy Court will
be Allowed in an amount not to exceed $2.2 million in the aggregate. The Allowed
amount of such award shall not be paid by the Debtor unless and until the
Effective Date has occurred, in which event, the Allowed amount of such award
shall be paid by the Debtor on the later of (x) the date such award becomes an
Allowed Administrative Expense Claim, or as soon thereafter as is practicable
and (y) the Initial Distribution Date. The Debtor shall agree to support the
Senior Noteholders' Committee's application for such fees and expenses up to an
amount not to exceed $2.2 million in the aggregate.
IX
SETTLEMENT OF HOME INSURANCE CLAIM
9.1 Home Insurance Settlement. On the Effective Date, and in
accordance with the Plan, the Home Insurance Settlement shall be effective. In
accordance with the Home Insurance Settlement, the Home Insurance Claim against
the Debtor will be resolved and compromised and Home Insurance will exchange the
Home Insurance Claim against the Debtor as follows:
(a) On the Effective Date, the Home Insurance Claim shall be
deemed an Allowed Unsecured Claim in Group 4-E in the amount of $14,145,407.
(b) On the Initial Distribution Date, or as soon thereafter as
is practicable, in full satisfaction of the Home Insurance Claim, Home Insurance
shall receive the Earn Out Notes Series III.
(c) In exchange for the Earn Out Notes Series III, Home
Insurance shall release the Home Insurance Claim.
<PAGE>
33
9.2 Mutual Release. In addition, on the Effective Date, the Debtor
and Home Insurance shall each execute general releases in favor of the other
party, except with respect to obligations under or pursuant to the Plan.
9.3 Release Under Plan. Home Insurance shall also receive a release
under Section 8.10 hereof.
X
EFFECTIVENESS OF THE PLAN
10.1 Conditions Precedent To Effectiveness. The Plan shall not
become effective unless and until the following conditions shall have been
satisfied or waived pursuant to Section 10.3 of the Plan:
(a) the Bankruptcy Court shall have entered an order approving
the Disclosure Statement with respect to the Plan as containing adequate
information within the meaning of section 1125 of the Bankruptcy Code;
(b) the Confirmation Order, in form and substance acceptable
to the Debtor, Zurich, Trygg-Hansa, and the Creditors' Committee, shall have
been entered, and no stay or injunction shall be in effect with respect thereto;
(c) the New Notes Indenture shall have been qualified under
the Trust Indenture Act of 1939, as amended;
(d) the Earn Out Notes Indenture shall have been qualified
under the Trust Indenture Act of 1939, as amended;
(e) all actions, documents, and agreements necessary to
implement the Plan shall have been effected or executed;
(f) the Debtor shall have received all authorizations,
consents, regulatory approvals, rulings, letters, no-action letters, opinions,
or documents that are determined by the Debtor (with Zurich's, Trygg-Hansa's,
and the Creditors' Committee's consent) to be necessary to implement the Plan,
including, without limitation, no-action letters from the Securities and
Exchange Commission and letter or other rulings from the Internal Revenue
Service;
(g) each of the Amended Home Certificate of Incorporation, the
Amended Home Bylaws, the New Notes, the New Notes Indenture, the Earn Out Notes,
the Earn Out Notes Indenture, the Home Insurance Holdings, LLC Documents, the
Acquisition Agreement, the Membership Units, and the Keepwell Agreement, in form
and substance acceptable to the Debtor, Zurich, Trygg-Hansa, and the Creditors'
Committee, as applicable, shall have been effected or executed;
<PAGE>
34
(h) the aggregate Allowed General Unsecured Claims shall not
exceed $12,500,000 as of the Effective Date;
(i) no order for rehabilitation or liquidation shall have been
filed or obtained by or against Home Insurance;
(j) (i) the Insurance Commissioner shall have consented to the
Plan and the transactions contemplated thereby and (ii) such consent shall be in
form and substance reasonably acceptable to the Debtor, Zurich, Trygg-Hansa, and
the Creditors' Committee;
(k) all transactions involving the sale of the Acquired Assets
to be sold pursuant to the Acquisition Agreement shall have been consummated;
(l) each of the contracts and agreements described on Schedule
10.1(l) hereto shall have been terminated or amended to release the Debtor from
all obligations thereunder; and
(m) no ownership change of Home Holdings shall have occurred
within the meaning of section 382(g) of the Internal Revenue Code prior to the
Effective Date.
10.2 Effect Of Failure Of Conditions. In the event that one or more
of the conditions specified in Section 10.1 of the Plan have not occurred on or
before 60 days after the Confirmation Date and the same shall not have been
waived pursuant to Section 10.3 hereof, upon notification submitted by the
Debtor to the Bankruptcy Court, Zurich, Trygg-Hansa, and counsel for the
Creditors' Committee, (a) the Confirmation Order shall be vacated, (b) the Plan
shall be null and void and of no further force and effect, (c) the Debtor and
all holders of Claims and Equity Interests shall be restored to the status quo
ante as of the day immediately preceding the Confirmation Date as though the
Confirmation Date had never occurred, and (d) the Debtor's obligations with
respect to the Claims and Equity Interests shall remain unchanged and nothing
contained herein shall constitute or be deemed a waiver or release of any Claims
or Equity Interests by or against the Debtor or any other person or to prejudice
in any manner the rights of the Debtor or any person in any further proceedings
involving the Debtor.
10.3 Waiver Of Conditions. The Debtor may waive, with the consent of
Zurich and Trygg-Hansa, by a writing signed by an authorized representative of
the Debtor and subsequently filed with the Bankruptcy Court, one or more of the
conditions precedent to effectiveness of the Plan set forth in Sections 10.2
(h), (i), (k), and (l) of the Plan. The Debtor, with the written consent of
Zurich, Trygg-Hansa, and the Creditors' Committee, may waive, by a writing
signed by an authorized representative of the Debtor and subsequently filed with
the Bankruptcy Court, the conditions precedent to effectiveness of the Plan set
forth in Sections 10.2(b), (e), (f), (g), (j)(ii), and (m) of the Plan.
<PAGE>
35
XI
RETENTION OF JURISDICTION
The Bankruptcy Court shall have exclusive jurisdiction of all
matters arising out of, and related to, the Chapter 11 Case and the Plan
pursuant to, and for the purposes of, sections 105(a) and 1142 of the Bankruptcy
Code and for, among other things, the following purposes:
(a) To hear and determine pending applications for the
assumption or rejection of executory contracts or unexpired leases, if any are
pending, and the allowance of Claims resulting therefrom;
(b) To hear and determine any objection to Administrative
Expense Claims, Claims, or Equity Interests;
(c) To enter and implement such orders as may be appropriate
in the event the Confirmation Order is for any reason stayed, revoked, modified,
or vacated;
(d) To issue such orders as may aid in the execution and
consummation of the Plan, to the extent authorized by section 1142 of the
Bankruptcy Code;
(e) To consider any amendments to or modifications of the
Plan, to cure any defect or omission thereof, or to reconcile any inconsistency
in any order of the Bankruptcy Court, including, without limitation, the
Confirmation Order;
(f) To hear and determine all applications for compensation
and reimbursement of expenses of professionals under sections 330, 331, and
503(b) of the Bankruptcy Code;
(g) To hear and determine disputes arising in connection with
the interpretation, implementation, or enforcement of the Plan;
(h) To recover all assets of the Debtor and property of the
Debtor's estate, wherever located;
(i) To hear and determine matters concerning state, local, and
federal taxes in accordance with sections 346, 505, and 1146 of the Bankruptcy
Code;
(j) To hear any other matter not inconsistent with the
Bankruptcy Code; and
(k) To enter a final decree closing the Chapter 11 Case.
<PAGE>
36
XII
MISCELLANEOUS PROVISIONS
12.1 Effectuating Documents And Further Transactions. The Debtor or
Reorganized Home is authorized to execute, deliver, file, or record such
contracts, instruments, releases, indentures, and other agreements or documents
and take such actions as may be necessary or appropriate to effectuate and
further evidence the terms and conditions of the Plan and any notes or
securities issued pursuant to the Plan.
12.2 Corporate Action. On the Effective Date, all matters provided
for under the Plan that would otherwise require approval of the stockholders,
directors, or members of one or more of the Debtor or Reorganized Home or its
successors in interest under the Plan, including, without limitation, the
authorization to issue or cause to be issued New Common Stock, Earn Out Notes,
and New Notes, the effectiveness of the Amended Home Certificate of
Incorporation and the Amended Home Bylaws, the election or appointment, as the
case may be, of directors and officers of the Debtor pursuant to the Plan, shall
be deemed to have occurred and shall be in effect from and after the Effective
Date pursuant to the applicable general corporation law of the state of
Delaware, without any requirement of further action by the stockholders or
directors of the Debtor or Reorganized Home. On the Effective Date or as soon
thereafter as is practicable, Reorganized Home shall, if required, file an
amended certificate of incorporation with the Secretary of State of Delaware, in
accordance with the applicable general corporation law of such state.
12.3 Exemption From Transfer Taxes. Pursuant to section 1146(c) of
the Bankruptcy Code, the issuance, transfer, or exchange of notes or equity
securities under the Plan, the creation of any mortgage, deed of trust, or other
security interest, the making or assignment of any lease or sublease, or the
making or delivery of any deed or other instrument of transfer under, in
furtherance of, or in connection with, the Plan, including, without limitation,
any merger agreements or agreements of consolidation, deeds, bills of sale, or
assignments executed in connection with any of the transactions contemplated
under the Plan shall not be subject to any stamp, real estate transfer, mortgage
recording, or other similar tax.
12.4 Injunction Regarding Worthless Stock Deduction And
Reattribution Of NOLs To The Debtor Or Reorganized Home. At the Confirmation
Hearing, the Debtor may request that the Bankruptcy Court include in the
Confirmation Order a provision enjoining (i) any "50-percent shareholder" of the
Debtor within the meaning of section 382(g)(4)(D) of the Internal Revenue Code
of 1986, as amended, from claiming a worthless stock deduction with respect to
its Equity Interest for any taxable year of such shareholder ending prior to the
Effective Date and thereby causing an ownership change under section
382(g)(4)(D) of the Internal Revenue Code and (ii) Home Insurance from claiming
the benefit of NOLs reattributed from Home Insurance to the Debtor or
Reorganized Home.
<PAGE>
37
12.5 Exculpation. Neither the Debtor, Reorganized Home, the Zurich
Group, the Trygg-Hansa Group, Home Insurance, the Department, the Creditors'
Committee, the Senior Noteholders' Committee, the Disbursing Agent, the
Information and Tabulation Agent, nor any of their respective members,
representatives, officers, directors, employees, attorneys, financial advisors,
or agents shall have or incur any liability to any holder of a Claim or Equity
Interest for any act or omission in connection with, related to, or arising out
of, the Chapter 11 Case, the pursuit of confirmation of the Plan, the
consummation of the Plan, or the administration of the Plan or the property to
be distributed under the Plan, and, in all respects, the Debtor, Reorganized
Home, the Zurich Group, the Trygg-Hansa Group, Home Insurance, the Creditors'
Committee, the Disbursing Agent, the Information and Tabulation Agent, and each
of their respective members, officers, directors, employees, financial advisors,
and agents shall be entitled to rely in good faith upon the advice of counsel
with respect to their duties and responsibilities under the Plan. Nothing
contained herein shall be deemed to release or otherwise exculpate any such
party for any liability under any contract of insurance or reinsurance or other
similar agreement.
12.6 Termination Of Committee. The appointment of the Creditors'
Committee shall terminate on the later of the sixtieth day following the
Effective Date and the first date on which there exists a Final Order with
respect to the applications for final allowances of compensation and
reimbursement of expenses of the attorneys and financial advisors to the
Creditors' Committee.
12.7 Post-Confirmation Date Fees And Expenses. From and after the
Confirmation Date, the Debtor until the Effective Date and thereafter
Reorganized Home shall, in the ordinary course of business and without the
necessity for any approval by the Bankruptcy Court, pay the reasonable fees and
expenses of professional persons thereafter incurred by the Debtor and
Reorganized Home including, without limitation, those fees and expenses incurred
in connection with the implementation and consummation of the Plan.
12.8 Payment Of Statutory Fees. All fees payable pursuant to section
1930 of title 28 of the United States Code, as determined by the Bankruptcy
Court at the Confirmation Hearing, shall be paid on the Effective Date.
12.9 Amendment Or Modification Of The Plan. Alterations, amendments,
or modifications of the Plan may be proposed in writing by the Debtor, with the
consent of Zurich, Trygg-Hansa, and the Creditors' Committee, at any time prior
to the Confirmation Date, provided that the Plan, as altered, amended, or
modified, satisfies the conditions of sections 1122 and 1123 of the Bankruptcy
Code, and the Debtor shall have complied with section 1125 of the Bankruptcy
Code; provided, however, that, prior to the date of the commencement of
solicitation of votes to accept or reject the Plan, (a) no alteration,
amendment, or modification of the Plan that would materially and adversely
affect the Senior Note Claims or General Unsecured Claims may be made without
prior approval of the Creditors' Committee and (b) no alteration, amendment or
modification of the Plan that would materially
<PAGE>
38
and adversely affect Trygg-Hansa may be made without prior approval of
Trygg-Hansa; provided, further, that alterations, amendments, or modifications
of the Plan proposed by the Debtor that are immaterial and non-adverse in nature
may be made upon notice to, but without the consent of any of the aforesaid
parties. The Plan may be altered, amended, or modified at any time after the
Confirmation Date and before substantial consummation, with the consent of
Zurich, Trygg-Hansa, and the Creditors' Committee, provided that the Plan, as
altered, amended, or modified, satisfies the requirements of sections 1122 and
1123 of the Bankruptcy Code and the Bankruptcy Court, after notice and a
hearing, confirms the Plan, as altered, amended, or modified, under section 1129
of the Bankruptcy Code and the circumstances warrant such alterations,
amendments, or modifications. A holder of a Claim that has accepted the Plan
shall be deemed to have accepted the Plan, as altered, amended, or modified, if
the proposed alteration, amendment, or modification does not materially and
adversely change the treatment of the Claim of such holder.
12.10 Severability. In the event that the Bankruptcy Court
determines, prior to the Confirmation Date, that any provision in the Plan is
invalid, void, or unenforceable, such provision shall be invalid, void, or
unenforceable with respect to holder or holders of such Claims or Equity
Interests as to which the provision is determined to be invalid, void, or
unenforceable. The invalidity, voidness, or unenforceability of any such
provision shall in no way limit or affect the enforceability and operative
effect of any other provision of the Plan.
12.11 Revocation Or Withdrawal Of The Plan And Termination. The
Debtor reserves the right to revoke or withdraw the Plan prior to the
Confirmation Date and such right shall only be exercised with the prior consent
of Zurich, Trygg-Hansa, and the Creditors' Committee. If the Debtor revokes or
withdraws the Plan prior to the Confirmation Date, then the Plan shall be deemed
null and void. In such event, nothing contained herein shall constitute or be
deemed a waiver or release of any claims by or against the Debtor or to
prejudice in any manner the rights of the Debtor or any person in any further
proceedings involving the Debtor. If the Effective Date shall not have occurred
prior to July 1, 1998, the Plan shall terminate unless the Debtor and Zurich,
with the consent of Trygg-Hansa and the Creditors' Committee, agree otherwise.
12.12 Waiver Of Federal Rule Of Civil Procedure 62(a). Home Holdings
intends to request that the Confirmation Order include (a) a finding that Fed.
R. Civ. P. 62(a) shall not apply to the Confirmation Order and (b) authorization
for the Debtor to consummate the Plan immediately after entry of the
Confirmation Order.
12.13 Binding Effect. The Plan shall be binding upon and inure to
the benefit of the Debtor, the holders of Claims and Equity Interests, and their
respective successors and assigns, including, without limitation, Reorganized
Home.
12.14 Notices. All notices, requests, and demands hereunder to be
effective shall be in writing and, unless otherwise expressly provided herein,
shall be
<PAGE>
39
deemed to have been duly given or made when actually delivered or, in the case
of notice by facsimile transmission, when received and telephonically confirmed,
addressed as follows:
If to the Debtor:
Home Holdings Inc.
c/o Risk Enterprise Management Limited
59 Maiden Lane
New York, New York 10038
Attention: Roger M. Moak, Esq.
Telephone: (212) 530-7700
Facsimile: (212) 530-3413
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022-3897
Attention: Kayalyn A. Marafioti, Esq.
Telephone: (212) 735-3000
Facsimile: (212) 735-2000
If to Zurich:
Zurich Centre Resource Limited
One Chase Manhattan Plaza
New York, New York 10005
Attention: Louis Feldman
Telephone: (212) 898-5300
Facsimile: (212) 898-5202
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Alan W. Kornberg, Esq.
Telephone: (212) 373-3000
Facsimile: (212) 757-3990
<PAGE>
40
If to the Creditors' Committee:
CS First Boston
11 Madison Avenue
New York, New York 10010
Attention: Dave J. Matlin
Telephone: (212) 325-2223
Facsimile: (212) 325-8290
with a copy to:
Anderson Kill & Olick, P.C.
1251 Avenue of the Americas
New York, New York 10020-1182
Attention: Anthony Princi, Esq.
Telephone: (212) 278-1000
Facsimile: (212) 278-1733
12.15 Governing Law. Except to the extent the Bankruptcy Code,
Bankruptcy Rules, or other federal law is applicable, or to the extent an
Exhibit to the Plan provides otherwise, the rights and obligations arising under
this Plan shall be governed by, and construed and enforced in accordance with,
the laws of the State of New York, without giving effect to the principles of
conflicts of law of such jurisdiction.
12.16 Withholding And Reporting Requirements. In connection with the
consummation of the Plan, the Debtor or Reorganized Home, as the case may be,
shall comply with all withholding and reporting requirements imposed by any
federal, state, local, or foreign taxing authority and all distributions
hereunder shall be subject to any such withholding and reporting requirements.
12.17 Plan Supplement. Forms of the documents relating to the
Amended Home Certificate of Incorporation, the Amended Home Bylaws, the Earn Out
Notes, the Earn Out Notes Indenture, the Keepwell Agreement, the Membership
Units, the Home Insurance Holdings, LLC Agreement, the Offer to Purchase, the
Letter of Transmittal, the New Notes, the New Notes Indenture, the investment
guidelines referred to in Sections 5.3(h)(ii) of the Plan, Schedules 6.1(a)(x)
and 6.1(a)(y) referred to in Section 6.1 of the Plan, and Schedule 10.1(l)
referred to in Section 10.1 of the Plan, and the transfer documentation for the
shares of Home Insurance shall be contained in the Plan Supplement and filed
with the Clerk of the Bankruptcy Court at least 10 days prior to the date of the
Confirmation Hearing. Upon its filing with the Bankruptcy Court, the Plan
Supplement may be inspected in the office of the Clerk of the Bankruptcy Court
during normal court hours. Holders of Claims or Equity Interests may obtain a
copy of the Plan Supplement upon written request to the Debtor in accordance
with Section 12.14 of the Plan.
<PAGE>
41
12.18 Allocation Of Plan Distributions Between Principal And
Interest. To the extent that any Allowed Claim entitled to a distribution under
the Plan is comprised of indebtedness and accrued but unpaid interest thereon,
such distribution shall, for federal income tax purposes, be allocated to the
principal amount of the Claim first and then, to the extent the consideration
exceeds the principal amount of the Claim, to accrued but unpaid interest.
12.19 Headings. Headings are used in the Plan for convenience and
reference only, and shall not constitute a part of the Plan for any other
purpose.
12.20 Exhibits/Schedules. All Exhibits and Schedules to the Plan,
including the Plan Supplement, are incorporated into and constitute a part of
the Plan as if set forth in full herein.
12.21 Filing Of Additional Documents. On or before substantial
consummation of the Plan, the Debtor shall file with the Bankruptcy Court such
agreements and other documents as may be necessary or appropriate to effectuate
and further evidence the terms and conditions of the Plan.
Dated: New York, New York
March 3, 1998
HOME HOLDINGS INC.,
Debtor and Debtor-in-Possession
By: s/ Arthur D. Wilson
-----------------------------------------
Name: Arthur D. Wilson
Title: Treasurer through the services of Risk
Enterprise Management Limited
SKADDEN, ARPS, SLATE, MEAGHER
& FLOM LLP
Attorneys for Home Holdings Inc.,
Debtor and Debtor-in-Possession
By: s/ Kayalyn A. Marafioti
------------------------------
Kayalyn A. Marafioti (KM 9362)
(A Member of the Firm)
919 Third Avenue
New York, New York 10022-3897
(212) 735-3000
<PAGE>
Exhibit A
REORGANIZED HOME HOLDINGS INC.
Earn Out Notes Series I
Term Sheet
Issuer: Reorganized Home Holdings Inc. ("Reorganized Home").
Issue: Units of Earn Out Notes Series I ("Series I EONS")
Number Of Units: 315,000 Units to be issued on a pro-rata basis to
holders of Allowed Claims based upon the 7% Senior Notes
due 1998, the 7-7/8% Senior Sinking Fund Notes due 2003,
and the 7-7/8% Senior Notes due 2003 (the "Senior
Notes") issued and outstanding immediately prior to the
effective date (the "Effective Date") of the proposed
reorganization plan (the "Plan") for Home Holdings Inc.
("Home Holdings") under Chapter 11 of title 11 of the
United States Code plus amounts due on the Senior Notes,
including interest accrued through the date on which the
Chapter 11 petition is filed (the "Commencement Date")
and to holders of Allowed General Unsecured Claims.
Participation Of The Series I EONS will participate in the Federal, state
Series I EONS: and local income tax savings (the "Tax Savings")
realized by Reorganized Home through the actual or
deemed utilization by the consolidated group of which
Reorganized Home, or its successor in a merger with
another entity in which Reorganized Home is not the
surviving entity, is a member (the "Home Group") of the
net operating loss carryforwards available to
Reorganized Home immediately after the Effective Date as
set forth in the Plan after taking into account
adjustments required by reason of the consummation of
the Plan, including the reductions required pursuant to
sections 108(b) and 382(l)(5) of the Internal Revenue
Code of 1986, as amended (the "Specified NOL
Carryovers").
Tax Savings: The Tax Savings will be the difference between
the consolidated Federal, state and local income tax
liability of the Home Group with or without the
Specified NOL Carryovers.
A-1
<PAGE>
Amount Of The Series I EONS issued in exchange for Senior Notes
Participation: will be entitled in the aggregate to 50% of the Tax
Savings and Series I EONS issued to holders of Allowed
General Unsecured Claims will be entitled in the
aggregate to a percentage of the Tax Savings that is in
the same ratio to their aggregate allowed claims as 50%
is to the aggregate Allowed Senior Note Claims (such
aggregate portion of the Tax Savings, the "Allocated
Participation").
Computation Of Tax The Tax Savings will be computed each taxable year based
Savings: upon the Federal, state and local income tax returns (a
"Tax Return") of the Home Group filed with respect to
such year and certified (a "Certification") by the Chief
Financial Officer of the Home Group on September 25 of
the following taxable year.
A-2
<PAGE>
Payments To Series Subject to the third following sentence, upon the
I EONS-Holders: issuance by the Home Group of a Certification with
respect to any of its Tax Returns, Series I EONS-holders
shall be entitled to payments with respect to their
Series I EONS as follows:
(a) with respect to the actual or deemed utilization of
the first $200 million of Specified NOL Carryovers: (i)
on October 15 following the issuance of each
Certification (the "Initial Payment Date"), an aggregate
amount equal to 35% of the Allocated Participation
thereby certified and (ii) upon the October 15 following
the expiration of the statute of limitations with
respect to the Tax Return to which the Certification
relates, an aggregate amount equal to the excess, if
any, of the Allocated Participation for such taxable
year as finally determined over the amounts previously
paid pursuant to clause (i) plus interest on the amount
paid pursuant to this clause (ii) at a fixed rate equal
to the 5-year Treasury Notes rate as of the Initial
Payment Date with respect to such taxable year, plus 35
basis points, from the Initial Payment Date with respect
to such taxable year; and
(b) thereafter: (i) on the Initial Payment Date with
respect to a taxable year, an aggregate amount equal to
20% of the Allocated Participation thereby certified and
(ii) upon the October 15 following the expiration of the
statute of limitations with respect to the Tax Return to
which the Certification relates, an aggregate amount
equal to the excess, if any, of the Allocated
Participation for such taxable year as finally
determined over the amounts previously paid pursuant to
clause (i), plus interest on the amount paid pursuant to
this clause (ii) at a fixed rate equal to the 5-year
Treasury Notes rate as of the Initial Payment Date with
respect to such taxable year, plus 35 basis points, from
the Initial Payment Date with respect to such taxable
year.
Credit support for payments due, including interest
accrued thereon, shall be provided in the form of a
Keepwell Agreement by a member of the group comprised of
Zurich Insurance Company and its worldwide affiliates
with creditworthiness satisfactory to the Senior
Noteholders' Committee (the "Zurich Entity").
A-3
<PAGE>
In the event that payment of the first installment on
the Series I EONS with respect to any Taxable Year is
not made on the Initial Payment Date other than for the
reason set forth in the following paragraph, Reorganized
Home shall pay interest thereon monthly at a rate of
8.31%, accruing from the Initial Payment Date.
In the event that the Internal Revenue Service (or, if
relevant, any state or local taxing authority) issues a
notice of proposed adjustment (or any procedurally later
notice, such as a notice of proposed deficiency or
notice of deficiency) which, if sustained, would
disallow all or a portion of the Tax Savings in
question, payments with respect to the challenged Tax
Savings will be suspended to the extent of such
challenge, taking into account the effect of such
challenge on other taxable years (or, in the case of Tax
Savings described in clause (a), above, reduced to 20%
of the Allocated Participation) until a final
determination. Once a final determination has been made,
the Allocated Participation with respect to the Tax
Savings as finally determined shall be paid (to the
extent not previously paid), plus interest thereon at a
fixed rate equal to the 5-year Treasury Notes rate as of
the Initial Payment Date, plus 35 basis points from the
Initial Payment Date.
A-4
<PAGE>
Minimum Pursuant to the terms of the Series I EONS, the Home
Cumulative Group will agree, solely in favor of the Series I
Operating Income EONS-holders, that it will utilize its best efforts to
Of Reorganized generate cumulative taxable income (determined without
Home: regard to the Specified NOL Carryovers) at least as
follows:
From the Effective Date $200 million(1)
through the end of the (the "First
first taxable year Target")
ending on or after the
thirty-third month after
the Effective Date (the
"First Target Date")
From the Effective Date $400 million
through the end of the (the "Second
first taxable year Target")
ending on or after the
fifty-seventh month
after the Effective Date
(the "Second Target
Date")
From the Effective Date $700 million
through the end of the (the "Third
first taxable year Target")
ending on or after the
ninety-third month after
the Effective Date (the
"Third Target Date")(2)
From the Effective Date the lesser of $1 billion
through the last year of the and 90% of the
NOL carryforward period amount of the
of the Specified NOL Specified NOL
Carryovers (the "Fourth Carryovers as
Target Date")(3) finally determined (the
"Fourth Target")
- ----------
(1) In the event that the Effective Date falls after the first quarter of
1998, the First Target Date will be December 31, 2000, with the First
Target reduced by a fraction, the numerator of which is the number of days
after March 31 that the Effective Date occurs and the denominator of which
is 731 (the total number of days in 1999 and 2000). To the extent that
there is any such reduction in the First Target, December 31, 2001 will
constitute an Supplemental First Target Date ("Supplemental First Target
Date") by which the Home Group will utilize its best efforts to generate
cumulative taxable income of $200 million ("Supplemental First Target").
The Supplemental First Target will be subject to the same conditions and
limitations, and will provide the same remedies for the Series I
EONS-Holders, as the other Targets set forth in this Term Sheet.
(2) Based on the current estimated amount of the Specified NOL Carryovers of
approximately $560-610 million, the Third Target will effectively be lower
than $700 million.
A-5
<PAGE>
(a) In the event that such Targets are not met other
than by reason of a Material Change of Law, the sole
remedy for the Series I EONS-holders shall be to receive
payments with respect to the Series I EONS in an amount
equal to the amounts that would have been payable were
the minimum income levels met at the times at which such
amounts would have been payable. To the extent that the
actual taxable income of the Home Group is less than the
amounts specified above, the excess deemed income shall
be deemed to have the same characteristics as the actual
income of the Home Group from the Effective Date through
the relevant Target Date.
(b) In the event that such Targets are not met by reason
of a Material Change of Law, the Series I EONS-holders
shall have no remedy. For this purpose, a Material
Change of Law shall mean: a change in any Federal, state
or local statute, unappealable and final court decision,
regulation, ruling or other administrative practice or
order, or any lapse or reinterpretation of existing law
(a "Change of Law"), that prohibits or effectively
proscribes the Zurich Group from conducting its business
in the U.S.
(c) In the event of the disallowance, in whole or in
part, of the deductibility of the Specified NOL
Carryovers, or if, as a result of a Change of Law, the
deductibility of the Specified NOL Carryovers is
limited, the targets above will be adjusted so that they
do not exceed the amount of Specified NOL Carryovers
that can be utilized by Home Holdings to offset its
income.
(d) In the event that the Home Group fails to generate
any taxable income, for purposes of calculating payments
due with respect to the Targets, the amount of the
Specified NOL Carryovers shall be deemed to be equal to
the amount shown as such on the Tax Return of Home
Holdings for the first taxable year ending after the
Effective Date.
Any payments made pursuant to this section shall be
credited against future amounts otherwise payable with
respect to the Series I EONS.
- ----------
(3) Based on the current estimated amount of the Specified NOL Carryovers of
$560-610 million, the Fourth Target will not be operative.
A-6
<PAGE>
In the preparation of the Tax Returns of the Home Group
or any proceeding relating thereto, Reorganized Home
will seek realization of Tax Savings relating to the
Specified NOL Carryovers in good faith; provided that
this paragraph shall not give any Series I EONS-holders
or any other person any rights with respect to the
preparation or filing of any Tax Return of the Home
Group or the conduct of any proceeding with respect
thereto or any rights to be provided with confidential
information of Reorganized Home or its Affiliates.
Transfers Of (a) In the event that holders of common stock of
Reorganized Home Reorganized Home transfer more than 20% of such stock
Common Equity: during the first two years following the Effective Date,
or any such stock thereafter, and such transfer causes
an ownership change within the meaning of section 382 of
the Internal Revenue Code of 1986, as amended, such
holders will make, or cause Reorganized Home to make,
payments with respect to the Series I EONS with respect
to the First, Supplemental First, Second, Third, and
Fourth Target Dates, as applicable, that are no less
than the amounts that would have been due if such
ownership change had not occurred, and subject to the
Material Change of Law, taxable income in the taxable
year ending on the relevant Target Date before deducting
the Specified NOL Carryovers equaled the excess of the
respective Target (where appropriate) for such year over
the amount of taxable income with respect to which the
Tax Savings have previously been taken into account.
(b) Transfers of Common Stock shall not affect the
Zurich Entity's Keepwell obligations hereunder unless
those obligations are assumed by another entity with an
equivalent or better AM Best rating for claims paying
ability at the time of transfer.
Transfers Of Series Certain limited restrictions on transferability under
I EONS: certain limited circumstances to the extent necessary to
prevent adverse consequences under section 382.
Order For Relief In the event of an order for relief under title 11 of
Against Reorganized the United States Code entered against Reorganized Home
Home: within five years of the Effective Date, the Series I
EONS will be puttable to the Zurich Put Entity at a
price to be determined pursuant to the formula set forth
on Schedule 1-A annexed to this Exhibit A.
A-7
<PAGE>
Expiration: The Series I EONS will expire upon the final payment
made by Reorganized Home to the Series I EONS with
respect to the last year of the NOL carryforward period
of the Specified NOL Carryovers.
A-8
<PAGE>
SCHEDULE I-A
TO EXHIBIT A
Put Price Formula:
If the Calculation Date occurs before the First Target Date:
A*50%*T B*50%*T C*50%*T D*50%*T
- ------- + ----------- + ------------ + -------------
(1+r)^t (1+r)^(t+2) (1+r)^(t+5) (1+r)^(t+10)
If the Calculation Date occurs after the First Target Date:
B*50%*T C*50%*T D*50%*T
- --------- + ------------ + --------------
(1+r)^t (1+r)^(t+3) (1+r)^(t+8)
Symbols/Definitions
A = the excess, if any, of (x) the lesser of (i) N and (ii) the First Target
over (y) the amount of cumulative taxable income generated by Reorganized
Home that has been offset by Specified NOL Carryovers up to the
Calculation Date (the "Utilized NOL Amount").
B = the excess, if any, of (x) the lesser of (i) N and (ii) the Second Target,
over (y) the greater of (i) the Utilized NOL Amount and (ii) the First
Target.
C = the excess, if any, of (x) the lesser of (i) N and (ii) the Third Target
over (y) the greater of (i) the Utilized NOL Amount and (ii) the Second
Target.
D = the excess, if any, of (x) the lesser (i) 90% of N and (ii) the Fourth
Target over (y) the greater of (z) the Third Target and (ii) the Utilized
NOL Amount.
N = the Specified NOL Carryovers, as finally determined.
T = the maximum marginal Federal corporate tax rate as of the Calculation
Date.
t = the time in years from the Calculation Date to the next Target Date (i.e.,
either the First Target Date or the Second Target Date, whichever the case
may be).
r = 13.5%.
^ = the exponential sign.
* = the multiplication sign.
A-9
<PAGE>
Exhibit B
REORGANIZED HOME HOLDINGS INC.
Earn Out Notes Series II
Term Sheet
Issuer: Reorganized Home.
Issue: The Plan shall provide for the issuance to Trygg-Hansa
in exchange for its Junior Subordinated Note of Series
II EONS which shall provide for the Series II EONS
Payments.
Series II EONS The "Series II EONS Payment" shall mean payments which
Payment: Reorganized Home will be required to make pursuant to
the Series II EONS on October 31 of each year, equal to
(i) until Trygg-Hansa has received payments with a net
present value (calculated from the Effective Date) of
$20 million, the greater of (A) 50% of the Zurich Tax
Benefits with respect to the taxable year ending
immediately prior to such October 31 or (B) 20.5% of the
Tax Benefits for such taxable year, and (ii) 10% of the
Zurich Tax Benefits thereafter; provided that the net
present value (calculated from the Effective Date) of
the Series II EONS Payments shall not exceed $50
million. "Zurich Tax Benefits" means (a) 85%, multiplied
by (b) Tax Benefits reduced by amounts payable with
respect thereto to holders of the Series I EONS. "Tax
Benefits" means the difference between (x) the
consolidated Federal, state, and local income tax
liability of the Home Group with the Home NOLs and (y)
the consolidated Federal, state, and local income tax
liability of the Home Group without the Home NOLs
computed each taxable year, which shall initially be
based upon the Federal, state, and local income tax
returns of the Home Group filed with respect to such
year and shall initially certified by the Chief
Financial Officer of Reorganized Home on September 25 of
the following taxable year. "Home NOLs" means the net
operating loss carryforwards and built-in losses
available to Reorganized Home immediately after the
Effective Date. "Home Group" means any affiliated,
consolidated, combined, or unitary group of which the
Reorganized Home is or would become a member. "Net
present value" hereunder shall be calculated using a
7.5% discount rate compounded quarterly.
B-1
<PAGE>
So long as Trygg-Hansa or any of its Affiliates owns the
Series II EONS, Series II EONS Payments shall be made to
Trygg-Hansa, by wire transfer in immediately available
funds to an account designated by Trygg-Hansa, on
October 31 of each year and shall be accompanied by a
certification by the Chief Financial Officer of
Reorganized Home as described in the definition of "Tax
Benefits." Series II EONS Payments with respect to
Series II EONS not held by Trygg-Hansa or any of its
Affiliates shall be made on the same basis as payments
pursuant to other EONS.
Minimum (a) Pursuant to the Series II EONS, the Home Group will
Cumulative agree, solely in favor of Trygg-Hansa and its successors
Operating Income Of and assigns, that it will utilize its best efforts to
The Home Group: generate cumulative taxable income (determined without
regard to the Reorganized Home's NOLs) at least as
follows:
(i) $200 million for the period from the Effective Date
through the end of the first taxable year ending on or
after the thirty-third month after the Effective Date
(the "First Target");
(ii) $400 million for the period from the Effective Date
through the end of the first taxable year ending on or
after the fifty-seventh month after the Effective Date
(the "Second Target");
(iii) $700 million for the period from the Effective
Date through the end of the first taxable year ending on
or after the ninety-third month after the Effective Date
(the "Third Target"); and
(iv) the lesser of $1 billion and ninety percent of the
Home NOLs as finally determined for the period from the
Effective Date through the last year of the carryforward
period of the Home NOLs (the "Final Target").
B-2
<PAGE>
(b) (i) If the Targets described in (a)(i)-(iv) above
are not met, then, subject to clause (ii) below, the
remedy (which shall be the sole remedy) of the Series II
EONS-holders as a result of such failure shall be to
receive Series II EONS Payments in the amounts that
would have been payable were the Targets met at the time
when such amounts would have been payable. To the extent
that the actual taxable income of the Home Group is less
than the amounts specified above, the excess deemed
income shall be deemed to have the same characteristics
as the actual income of the Home Group from the
Effective Date through the date specified in the
relevant clause above. Any amounts paid solely by reason
of the application of this clause (b) shall be credited
against future amounts otherwise payable pursuant to the
Series II EONS. Deemed income shall not be taken into
account in determining the cumulative taxable income of
the Home Group under (a)(i)-(iv).
(ii) To the extent that the Targets described in
(a)(i)-(iv) above are not met by reason of a Material
Change of Law, the Series II EONS-holders shall have no
remedy. For this purpose, a "Material Change in Law"
shall mean: a change in any Federal, state, or local
statute, unappealable and final court decision,
regulation, ruling, or other administrative practice or
order, or any lapse or reinterpretation of existing law
that prohibits or effectively proscribes Zurich from
conducting its business in the United States.
(c) Pursuant to the Pre-Reorganization Agreement, if,
subsequent to the making of a Series II EONS Payment
there is a Final Tax Determination or the filing of an
amended tax return that results in the reduction or
elimination in whole or in part of the Tax Benefit that
gave rise to such Payment, the amount of the Series II
EONS Payment shall be recomputed and Trygg-Hansa shall
repay to Home Holdings an amount (the "Repayment
Amount") equal to the excess of the Series II EONS
Payment actually paid over the amount of the Series II
EONS Payment as so recomputed based upon such Final Tax
Determination or amended Tax Return (together with an
allocable portion of any interest payable to the
Internal Revenue Service or other relevant taxing
authority); provided, however, that the aggregate
repayments pursuant to this (c) (exclusive of amounts
relating to interest) shall not exceed the aggregate
amounts paid pursuant to the Series II EONS.
B-3
<PAGE>
In the preparation of the Tax Returns of the Home Group
or any proceeding relating thereto, Reorganized Home
will seek realization of the Tax Benefits relating to
the Reorganized Home's NOLs in good faith; provided that
neither this paragraph nor any other provision of the
Pre-Reorganization Agreement shall give Trygg-Hansa or
any other person any rights with respect to the
preparation or filing of any Tax Return of the Home
Group or the conduct of any proceeding with respect
thereto or any rights to be provided with confidential
information of Reorganized Home or its Affiliates.
Transfers Of Series Certain limited restrictions on transferability under
II EONS certain limited circumstances to the extent necessary to
prevent adverse consequences under section 382 of the
Internal Revenue Code of 1986, as amended; provided that
Trygg-Hansa may transfer Series II EONS to Trygg-Hansa
Forsakrings AB or any of their respective Affiliates.
Transfers Of New See "Earn Out Notes Series I--Transfers Of New Common
Common Stock: Stock."
B-4
<PAGE>
Exhibit C
REORGANIZED HOME HOLDINGS INC.
Earn Out Notes Series III
Term Sheet
Issuer: Reorganized Home Holdings Inc. ("Reorganized Home").
Issue: Units of Earn Out Notes Series III ("Series III EONS").
Number Of Units: One Note to be issued for release of Class 4-E claims
under the proposed reorganization plan (the "Plan") for
Home Holdings Inc. ("Home Holdings") under Chapter 11 of
title 11 of the United States Code.
Participation Of The Series III EONS will participate in the Federal,
Series III EONS: state, and local income tax savings (the "Tax Savings")
realized by Reorganized Home through the utilization by
the consolidated group of which Reorganized Home or its
successor is a member (the "Home Group") of the net
operating loss carryforwards available to Reorganized
Home immediately after the Effective Date as set forth
in the Plan after taking into account any adjustments
required by reason of consummation of the Plan,
including the reductions required pursuant to sections
108(b) and 382(l)(5) of the Internal Revenue Code of
1986, as amended (the "Specified NOL Carryovers").
Tax Savings: The Tax Savings will be the difference between the
consolidated Federal, state, and local income tax
liability of the Home Group with or without the
Specified NOL Carryovers.
Amount Of The Series III EONS will be entitled in the aggregate to
Participation: 6.89% of the Tax Savings realized by Reorganized Home
(the "Series III EONS Allocated Participation").
C-1
<PAGE>
Computation Of Tax The Tax Savings for each year will be calculated as of
Savings: the earlier of: a) the expiration of the statute of
limitations with respect to the relevant taxable year;
or b) the time at which a Final Determination (within
the meaning of section 1313(a) of the Internal Revenue
Code of 1986, as amended) is made with respect to the
tax liability of Reorganized Home for the relevant
taxable year (a "Calculation Date") and will be
certified (a "Certification") by the Chief Financial
Officer of Reorganized Home within 30 days of the
Calculation Date.
Payments To Series Upon the issuance by Reorganized Home of a Certification
III EONS-Holders: with respect to its Tax Savings for a taxable year,
Series III EONS-holders shall be entitled to payments
with respect to their Series III EONS in the amount of
the Series III EONS Allocated Participation relating to
such Certification plus interest thereon at a fixed rate
equal to the Specified Treasury Rate plus 35 basis
points, from October 15 of the taxable year following
the taxable year to which the Certification relates.
"Specified Treasury Rate" shall mean the 5-Year Treasury
Notes rate as of October 15 of the taxable year
following the taxable year to which the Certification
relates.
Transfers Of Series Certain limited restrictions on transferability under
III EONS: certain limited circumstances to the extent necessary
prevent adverse consequences under section 382.
Expiration: The Series III EONS will expire upon the final payment
made by Reorganized Home with respect to the Series III
EONS with respect to the last year of the NOL
carryforward period of the Specified NOL Carryovers.
C-2
<PAGE>
Exhibit D
REORGANIZED HOME HOLDINGS INC.
Senior Notes due 2005
Term Sheet
Issuer: New Home Holdings Inc. ("Reorganized Home").
Issue: Senior Notes due 2005 (the "New Notes").
Issuance: New Notes to be issued to holders of (i) general
unsecured claims ("General Unsecured Claims") not
included in Subclasses 4B, 4C, 4D, 4E, or Classes 5, 6,
or 7 under the Plan (as defined below) and (ii) the 7%
Senior Notes due 1998, the 7-7/8% Senior Sinking Fund
Notes due 2003, and the 7-7/8% Senior Notes due 2003
(collectively, the "Senior Note Claims") on or as soon
as practicable after the effective date (the "Effective
Date") of the proposed reorganization plan (the "Plan")
for Home Holdings Inc. ("Home Holdings") under Chapter
11 of title 11 of the United States Code.
Price: The product of the Percentage Formula (as defined below)
and each holder's Allowed General Unsecured Claim or
Allowed Senior Note Claim, as the case may be.
"Percentage Formula" as used herein means (A/B) / .99
when
A = the sum of
(i) 61,271,875 and
(ii) .25 x (((280,000,000 x .083125)/360) x N1),
N1 = the number of days from and including June 16,
1997 to and including the Effective Date,
B = the sum of
(i) 280,000,000 and
(ii) (((280,000,000 x .083125) / 360) x N2), and
N2 = the number of days from and including June
16, 1997 to and excluding the
Commencement Date.
Denominations: $1,000 and integral multiples thereof.
D-1
<PAGE>
Interest: The interest rate per annum shall be a fixed rate equal
to the 5-year Treasury Notes rate as of the Effective
Date. Interest for the first 3 years following the
Effective Date may at Home Holdings's option, be paid in
the form of additional New Notes.
Maturity: 8 years (2005).
Mandatory None prior to maturity.
Redemption:
Optional The New Notes may be redeemed at the option of
Redemption: Reorganized Home, in whole or in part, at any time on
not less than 30 nor more than 60 days' notice, at par
plus accrued and unpaid interest, if any, to the
redemption date.
Ranking: The New Notes will be senior unsecured obligations of
Reorganized Home, ranking pari passu with all other
existing and future senior unsecured obligations of
Reorganized Home and will rank senior to all existing
and future subordinated debt of Reorganized Home.
Covenants: Same as in the Indenture dated as of December 22, 1993
(the "Old Indenture"), relative to Home Holdings's 7%
Senior Notes due December 15, 1998.
Events Of Default: Same as in the Old Indenture.
Defeasance Or Market Terms.
Covenant
Defeasance:
Modification Of Same as in the Old Indenture.
New Indenture:
Credit Support: Credit support for payments due, including interest
accrued thereon, shall be provided in the form of a
Keepwell Agreement by a member of the group comprised of
Zurich Insurance Company and its worldwide affiliates
with creditworthiness satisfactory to the Senior
Noteholders' Committee.
D-2
<PAGE>
Exhibit E
FORM OF
NEW NOTE TENDER OFFER UNDERTAKING
NEW NOTE TENDER OFFER UNDERTAKING (the "Undertaking"), dated as of January
15, 1998, by ZURICH REINSURANCE CENTRE HOLDINGS, a Delaware corporation (the
"Purchaser"), in favor of the holders of New Notes of HOME HOLDINGS INC., a
Delaware corporation (the "Company"). Capitalized terms used herein but not
otherwise defined shall have the respective meanings ascribed to them in the
Company's Plan of Reorganization dated January 15, 1998, as amended on March 3,
1998 (the "Plan"), to which this Undertaking is an Exhibit.
WHEREAS, on the date hereof the Company filed the Chapter 11 Case and has
filed the Plan with the Bankruptcy Court; and
WHEREAS, the Plan contemplates that (i) on the Initial Distribution Date,
or as soon thereafter as is practicable, holders of certain Claims shall receive
New Notes and (ii) the Purchaser shall provide this Undertaking pursuant to
which the Purchaser shall offer to purchase any and all outstanding New Notes as
provided herein.
NOW THEREFORE, in order to fulfill its obligations under the Plan, the
Purchaser is willing to provide this Undertaking, and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the Purchaser hereby agrees as follows:
E-1
<PAGE>
(a) Tender Offer.
(i) Not later than the sixtieth day after the Effective Date,
the Purchaser shall offer to purchase any and all outstanding New Notes and the
Purchaser shall keep such offer open for a period of not less than 20 days.
(ii) In the event that any holder of New Notes shall accept
the Purchaser's offer and deliver to the Purchaser a fully executed letter of
transmittal together with New Notes and any other customary documents required
pursuant to the offer to purchase, the Purchaser shall pay the Purchase Price
(as defined below) for such tendered New Notes, in Cash, to the tendering holder
of New Notes.
(iii) "Purchase Price" means an amount equal to the sum of 99%
of (i) the face amount of the New Notes tendered by any holder of the New Notes
and (ii) all accrued and unpaid interest on such New Notes as of the date that
the Purchaser makes the payment to the tendering holder of the New Notes.
(b) Purchaser's Representations And Warranties. The Purchaser
represents and warrants, as to itself, that:
(i) this Undertaking is a legal, valid and binding obligation
of the Purchaser, enforceable against the Purchaser in accordance with its
terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforceability of creditors' rights generally and by general principles of
equity; and
(ii) no consent, authorization or order of, or filing or
registration with, any court or governmental agency or other party is
E-2
<PAGE>
required to be obtained by the Purchaser for the execution or delivery of this
Undertaking or the performance of the transactions contemplated hereby.
(c) Conditions To Obligations. The obligations of the Purchaser
hereunder shall not have any force or effect unless and until the Effective Date
shall have occurred under the Plan.
(d) Assignment; Binding Effect. The Purchaser may assign all or part
of its rights or delegate any or all of its obligations hereunder to one or more
of its affiliates; provided, however, that no such assignment or delegation
shall relieve the Purchaser of its obligations hereunder; provided, further,
however, that upon (x) any assignment by the Purchaser of all of its rights and
delegation of all of its duties hereunder to an affiliate of the Purchaser if
but only if at the time of such assignment and after giving effect to such
assignment such affiliate has a credit rating which is "A" (or higher) from A.M.
Best Company or "A-" (or higher) from Standard & Poor's Ratings Group (or if
such credit ratings are no longer applicable, substantially equivalent credit
ratings, or if such entities no longer provide credit ratings, substantially
equivalent credit ratings from their successors), and (y) the execution by such
assignee of an instrument of assumption, in form reasonably satisfactory to the
Trustee, pursuant to which such assignee assumes all obligations of the
Purchaser hereunder, the Purchaser shall be released from any obligations or
duties hereunder. This Undertaking shall be binding upon the Purchaser and its
successors and assigns.
(e) Headings. The Section headings have been prepared for
convenience only and are not part of this Undertaking and shall not be taken as
an interpretation of any provision of this Undertaking.
E-3
<PAGE>
(f) Notices. All demands, notices and communications hereunder shall
be in writing and shall be delivered or mailed by registered or certified mail,
postage prepaid, or telecopied by facsimile transmission, and addressed in each
such case as follows:
to:
Zurich Reinsurance Centre Holdings
One Chase Manhattan Plaza
New York, New York 10005
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Albert P. Hand
Telephone: (212) 373-3000
Telecopy: (212) 757-3990
Any of the foregoing persons may change its address for notices hereunder by
giving notice of such change to the Company. All notices and demands shall be
deemed to have been given either at the time of the delivery thereof to any
person entitled to receive such notices and demands at the address of such
person for notices hereunder, or on the third day after the mailing thereof to
such address, as the case may be.
(g) Governing Law. THIS UNDERTAKING SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE WHOLLY PERFORMED WITHIN SUCH STATE.
(h) Beneficiaries Of This Undertaking. This Undertaking is made for
the benefit of the holders of New Notes. The obligations of the Purchaser
hereunder may be enforced by the trustee under any indenture relating to the New
Notes and, to
E-4
<PAGE>
the extent permitted by the indenture relating to the New Notes, by any holder
of New Notes.
(i) Keepwell Agreement. The Purchaser agrees that upon the
occurrence of the Effective Date it shall cause an Affiliate whose
creditworthiness shall be satisfactory to the Creditors' Committee to execute
the Keepwell Agreement in substantially the form attached hereto as Exhibit A.
(j) Plan. The Purchaser shall support, and shall cause its
Affiliates to support, the Plan, and vote its claims, if any, and cause its
Affiliates to vote their claims, if any, in favor of the Plan. The Purchaser's
agreements contained in this Section 10, (i) are conditioned on the Plan not
being amended, supplemented, waived or modified in any manner that materially
adversely affects the Zurich Group without its prior written consent and (ii)
shall be effective on the date hereof notwithstanding Section 3 hereof.
IN WITNESS WHEREOF, the Purchaser has caused this New Note Tender
Offer Undertaking to be duly executed and delivered as of the day and year first
above written.
ZURICH REINSURANCE CENTRE HOLDINGS
By:
------------------------------
Name:
Title:
E-5
<PAGE>
Exhibit A to
New Note Tender Offer Undertaking
FORM OF
KEEPWELL AGREEMENT
This KEEPWELL AGREEMENT, dated as of ____________ __, 1998 (as
amended, modified and supplemented from time to time in accordance with its
terms, this "Agreement"), is made by and between [Zurich Entity], a ____________
(the "Parent") and Home Holdings Inc., a Delaware corporation (the "Company").
On January 15, 1998, the Company filed a voluntary petition for
relief under Chapter 11 of title 11 of the United States Code, 11 U.S.C. ss.ss.
101 et seq., in the United States Bankruptcy Court for the Southern District of
New York (the "Bankruptcy Court") commencing Chapter 11 Case No. 98 B 40319
(JHG) (the "Chapter 11 Case"). On _____________ __, the Bankruptcy Court entered
an Order confirming the Company's Plan of Reorganization dated ___________ (the
"Plan"). Capitalized terms, unless otherwise defined herein, are used herein as
defined in the Plan.
The Plan provides that Senior Noteholders are to receive, among
other things,___ units of Earn Out Notes Series I under the Earn Out Notes
Indenture.
The Plan also provides that Senior Noteholders are to receive, among
other things, New Notes under the New Notes Indenture.
The Parent desires to provide assurance to the current and
subsequent holders of the Earn Out Notes Series I and New Notes (collectively,
the "Holders") that the Company shall be able to satisfy its payment obligations
under the Earn Out Notes Series I and New Notes.
In consideration of the foregoing and the Senior Noteholders'
acceptance of the Plan and the mutual promises herein contained, the Parent
hereby covenants and agrees with the Company as follows:
(a) Maintenance Of Liquidity. The Parent shall cause the Company to
have at all times sufficient cash and cash equivalents to satisfy its payment
obligations under the Earn Out Notes Series I and New Notes and the Parent shall
make available to the Company sufficient cash and cash equivalents to enable the
Company to meet such obligations.
(b) Holders As Beneficiaries. The Parent agrees that the Holders are
third party beneficiaries of the performance and satisfaction of the obligations
of the Parent set forth herein. Subject to Section 7 hereof, the Parent
therefore agrees that the Company, each Trustee and the Holders (to the extent
permitted under the
E-6
<PAGE>
Earn Out Notes Indenture and New Notes Indenture, as applicable) shall have the
right to enforce this Agreement and any or all of the obligations of the Parent
hereunder or to exercise any other remedies available in the event of a default
under this Agreement.
(c) No Third Party Beneficiary. Except as expressly provided in
Section 2 hereof, this Agreement and the obligations of the Parent hereunder are
not for the benefit of any third party. No party other than the Company, each
Trustee and the Holders (to the extent permitted under the Earn Out Notes
Indenture and New Notes Indenture, as applicable) shall have the right to
enforce this Agreement or to receive the benefit of any payments to be made by
the Parent hereunder.
(d) No Assignment. No rights, remedies or claims arising under or
related to this Agreement may be transferred or assigned (whether by operation
of law or otherwise) in whole or in part, by the Company, any Trustee or the
Holders. Parent shall be permitted to assign its rights and obligations
hereunder, without a prior consent of any of the other parties hereto, to any of
its affiliates if but only if at the time of such assignment and after giving
effect to such assignment such affiliate has a credit rating which is "A" (or
higher) from A.M. Best Company or "A-" (or higher) from Standard & Poor's
Ratings Group (or if such credit ratings are no longer applicable, substantially
equivalent credit ratings, or if such entities no longer provide credit ratings,
substantially equivalent credit ratings from their successors), and upon the
execution by such assignee of an instrument of assumption, in form reasonably
satisfactory to each Trustee, pursuant to which such assignee assumes all
obligations of Parent hereunder, Parent shall be released from any obligations
hereunder.
(e) Term. This Agreement shall terminate at such times as the Earn
Out Notes Series I and New Notes no longer remain outstanding.
(f) Not A Guarantee. This Agreement is not a guarantee by Parent of
the payment of the Earn Out Notes Series I or New Notes or any other
liabilities, obligations or indebtedness of any kind or character of the
Company.
(g) Keepwell. The Company hereby agrees that it shall only seek
payments from the Parent hereunder in order to satisfy its obligations under the
Earn Out Notes Series I and New Notes. Any payments made by the Parent hereunder
shall be held by the Company in trust for the sole benefit of the Holders;
provided, however, that any such payments which are in excess of the Company's
obligations under the Earn Out Notes Series I and New Notes shall (x) be held by
the Company in trust for the Parent and (y) be promptly returned by the Company
to the Parent. The Parent agrees that all payments made hereunder shall be made
to a separate, segregated account (the "Account") maintained by the Trustee for
the Earn Out Notes Series I for the benefit of both Trustees and all holders.
Subject to (x) the Trustee's continued maintenance of the Account and (y) the
Parent's receipt of notice that the Account is being maintained, payments made
by the Parent to the Company that are not paid into the Account or that are not
applied to the payment of the Company's obligations to the Holders shall not be
deemed payments made in satisfaction of the Parent's obligations under this
Agreement.
E-7
<PAGE>
(h) Security Agreement. On the date hereof, the Company shall
execute a security agreement in favor of each Trustee and the Holders pursuant
to which the Company shall (x) grant to each Trustee for the benefit of the
applicable Holders a security interest in all of its right, title and interest
in, to and under this Agreement and the payments due hereunder and the proceeds
thereof, including without limitation, the right to sue on behalf of the Company
to enforce this Agreement and (y) agree that it shall not accept any payments
due hereunder which are not made to the Account.
(i) Amendments, Etc. No amendment or waiver of any provision of this
Agreement, nor consent to any departure by the Parent therefrom, shall in any
event be effective unless the same shall be in writing and signed by the Parent,
the Company and each Trustee, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
(j) GOVERNING LAW. THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT
REFERENCE TO THE CONFLICTS OF LAWS PROVISIONS THEREOF).
IN WITNESS WHEREOF, the Parent and the Company have caused this
Agreement to be executed and delivered as of the date first above written.
HOME HOLDINGS INC.
By:
----------------------------
Name:
Title:
[ZURICH ENTITY]
By:
----------------------------
Name:
Title:
E-8
<PAGE>
Exhibit F
FORM OF
PUT OPTION UNDERTAKING
PUT OPTION UNDERTAKING (the "Undertaking"), dated as of January 15,
1998, by ZURICH REINSURANCE CENTRE HOLDINGS, a Delaware corporation (the
"Purchaser"), in favor of the holders (the "Holders") of Series I Earn Out Notes
(the "Notes") of HOME HOLDINGS INC., a Delaware corporation (the "Company").
Capitalized terms used herein but not otherwise defined shall have the
respective meanings ascribed to them in the Company's Plan of Reorganization
dated January 15, 1998, as amended on March 3, 1998 (the "Plan"), to which this
Undertaking is an Exhibit.
WHEREAS, on the date hereof the Company filed the Chapter 11 Case
and has filed the Plan with the Bankruptcy Court; and
WHEREAS, the Plan contemplates that (i) on the Initial Distribution
Date, or as soon thereafter as is practicable, holders of certain Allowed Claims
shall receive Notes and (ii) the Purchaser shall provide this Undertaking
pursuant to which, in the event of an order for relief under the Bankruptcy Code
entered against the Company within five years of the Effective Date, the Notes
will be puttable to the Purchaser as provided herein.
NOW THEREFORE, in order to fulfill its obligations under the Plan,
the Purchaser is willing to provide this Undertaking, and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the Purchaser hereby agrees as follows:
F-1
<PAGE>
(a) Definitions. As used in this Undertaking, the following terms
shall have the following meanings:
"Bankruptcy Default" means an event subsequent to the Effective Date
whereby (A) the Company pursuant to or within the meaning of any Bankruptcy Law
(i) commences a voluntary case or proceeding, (ii) consents to, or acquiesces
in, the institution of a bankruptcy or an insolvency proceeding against it or
the entry of a judgment, decree or order for relief against it in an involuntary
case or proceeding, (iii) applies for, consents to or acquiesces in the
appointment of or taking possession by a Custodian of the Company or of all or
substantially all of its property or (iv) makes a general assignment for the
benefit of its creditors or (B) a court of competent jurisdiction enters a
judgment, decree or order under any Bankruptcy Law which (i) is for relief
against the Company in an involuntary case, (ii) appoints a Custodian of the
Company or a Custodian for all or substantially all of its property or (iii)
orders the winding-up or liquidation of the Company, and such judgment, decree
or order shall remain unstayed and in effect for a period of 60 consecutive
days.
"Bankruptcy Law" means title 11 of the United States Code, 11 U.S.C.
ss.ss. 101 et seq., or any similar federal or state law for the relief,
supervision, conservation, reorganization or liquidation of debtors or for the
benefit of creditors.
"Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
"Paying Agent" means the Trustee or the Company, as applicable.
"Trustee" means the trust company or bank then acting as Trustee
under the Earn Out Notes Indenture.
F-2
<PAGE>
(b) Purchase Of Notes In The Event Of Bankruptcy.
(i) If a Bankruptcy Default occurs prior to the fifth
anniversary of the Effective Date, each Holder shall have the right, at such
Holder's option, to require the Purchaser to purchase such Holder's Notes on the
date (the "Bankruptcy Purchase Date") (or if such date is not a Business Day,
the next succeeding Business Day) that is 75 days after the date of the
Purchaser's notice of such Bankruptcy Default as provided in Section 2(b) below.
The Purchaser shall purchase such Notes at a price (the "Purchase Price") to be
determined pursuant to the formula set forth on Exhibit A hereto.
(ii) The Purchaser, or at its request (which must be received
by the Trustee at least three Business Days prior to the date the Trustee is
requested to give such notice as described below) the Trustee in the name of and
at the expense of the Purchaser, shall mail to all Holders of record of the
Notes a notice ("Bankruptcy Notice") of the occurrence of a Bankruptcy Default
and of the right arising hereunder as a result thereof on or before the tenth
Business Day after the occurrence of such Bankruptcy Default. The Purchaser
shall promptly furnish the Trustee a copy of such notice.
(iii) For a Note to be so purchased at the option of the
Holder, the Paying Agent must receive such Note with the form entitled "Option
to Elect Purchase Upon a Bankruptcy Default" on the reverse thereof duly
completed, together with such Note duly endorsed for transfer, on or before the
60th day after the date of the Bankruptcy Notice (or if such 60th day is not a
Business Day, the immediately preceding Business Day). All questions as to the
validity, eligibility (including time of receipt) and acceptance of any Note for
purchase shall be
F-3
<PAGE>
determined by the Purchaser in its reasonable judgment and whose determination
shall be final and binding.
(iv) Upon receipt by the Paying Agent of the Note in proper
form for purchase, the former Holder of the Note shall thereafter be entitled to
receive solely the Purchase Price with respect to such Note and all other rights
with respect thereto shall be canceled and extinguished. Such Purchase Price
shall be paid to such Holder promptly following the later of (A) the Bankruptcy
Purchase Date and (B) the time of delivery of such Note to the Paying Agent by
the Holder thereof in the manner required by this Undertaking.
(v) On or before the Business Day following the Bankruptcy
Purchase Date, the Purchaser shall deposit with the Trustee or with the Paying
Agent (or, if the Purchaser or one of its Affiliates is acting as the Paying
Agent, shall segregate and hold in trust as provided for in the Earn Out Notes
Indenture) an amount of money sufficient to pay the aggregate Purchase Price of
all the Notes to be purchased as of the Bankruptcy Purchase Date in accordance
with this Undertaking.
(vi) The Purchaser will comply with the provisions of Section
14(e), Rule 14e-1 and any other tender offer rules under the Securities Exchange
Act of 1934, as amended, which may then be applicable in connection with any
offer by the Purchaser to purchase Notes at the option of the Holders thereof as
described above. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of this Section, the Purchaser shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations hereunder by virtue thereof.
F-4
<PAGE>
(c) Conditions To Obligations. The obligations of the Purchaser
hereunder shall not have any force or effect unless and until the Effective Date
shall have occurred under the Plan.
(d) Assignment; Binding Effect. The Purchaser may assign all or part
of its rights or delegate all or any of its duties hereunder to one or more of
its affiliates; provided, however, that no such assignment or delegation shall
relieve the Purchaser of its obligations hereunder; provided, further, however,
that upon (x) any assignment by the Purchaser of all of its rights and
delegation of all of its duties hereunder to an affiliate of the Purchaser if
but only if at the time of such assignment and after giving effect to such
assignment such affiliate has a credit rating which is "A" (or higher) from A.M.
Best Company or "A-" (or higher) from Standard & Poor's Ratings Group (or if
such credit ratings are no longer applicable, substantially equivalent credit
ratings, or if such entities no longer provide credit ratings, substantially
equivalent credit ratings from their successors), and (y) the execution by such
assignee of an instrument of assumption, in form reasonably satisfactory to the
Trustee, pursuant to which such assignee assumes all obligations of the
Purchaser hereunder, the Purchaser shall be released from any obligations or
duties hereunder. This Undertaking shall be binding upon the Purchaser and its
successors and assigns.
(e) Headings. The Section headings have been prepared for
convenience only and are not part of this Undertaking and shall not be taken as
an interpretation of any provision of this Undertaking.
(f) Notices. All demands, notices and communications hereunder shall
be in writing and shall be delivered or mailed by registered or certified mail,
F-5
<PAGE>
postage prepaid, or telecopied by facsimile transmission, and addressed in each
such case as follows:
to:
Zurich Reinsurance Centre Holdings
One Chase Manhattan Plaza
New York, New York 10005
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Albert P. Hand
Telephone: (212) 373-3000
Telecopy: (212) 757-3990
Any of the foregoing persons may change its address for notices hereunder by
giving notice of such change to the Company. All notices and demands shall be
deemed to have been given either at the time of the delivery thereof to any
person entitled to receive such notices and demands at the address of such
person for notices hereunder, or on the third day after the mailing thereof to
such address, as the case may be.
(g) Governing Law. THIS UNDERTAKING SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE WHOLLY PERFORMED WITHIN SUCH STATE.
(h) Beneficiaries Of This Undertaking. This Undertaking is made for
the benefit of the Holders. The obligations of the Purchaser hereunder may be
enforced by the Trustee under any indenture relating to the Notes and, to the
extent permitted by the indenture relating to the Notes, by any Holder.
F-6
<PAGE>
IN WITNESS WHEREOF, the Purchaser has caused this Put Option
Undertaking to be duly executed and delivered as of the day and year first above
written.
ZURICH REINSURANCE CENTRE HOLDINGS
By:
------------------------------
Name:
Title:
F-7
<PAGE>
Exhibit A to
Put Option Undertaking
Capitalized terms used in this Exhibit but not otherwise defined in the
Undertaking shall have the respective meanings ascribed to them in the Exhibit
to the Plan describing the Earn Out Notes and for the purposes of this Exhibit
"Calculation Date" shall mean Bankruptcy Purchase Date.
Put Price Formula:
If the Calculation Date occurs before the First Target Date:
A*50%*T B*50%*T C*50%*T D*50%*T
- --------- + ------------ + ------------ + -------------
(1+r)^t (1+r)^(t+2) (1+r)^(t+5) (1+r)^(t+10)
If the Calculation Date occurs after the First Target Date:
B*50%*T C*50%*T D*50%*T
- -------- + ------------ + ------------
(1+r)^t (1+r)^(t+3) (1+r)^(t+8)
Symbols/Definitions
A = the excess, if any, of (x) the lesser of (i) N and (ii) the First Target
over (y) the amount of cumulative taxable income generated by the
Reorganized Company that has been offset by Specified NOL Carryovers up to
the Calculation Date (the "Utilized NOL Amount").
B = the excess, if any, of (x) the lesser of (i) N and (ii) the Second Target,
over (y) the greater of (i) the Utilized NOL Amount and (ii) the First
Target.
C = the excess, if any, of (x) the lesser of (i) N and (ii) the Third Target
over (y) the greater of (i) the Utilized NOL Amount and (ii) the Second
Target.
D = the excess, if any, of (x) the lesser of (i) 90% of N and (ii) the Fourth
Target over (y) the greater of (z) the Third Target and (ii) the utilized
NOL Amount.
N = the Specified NOL Carryovers, as finally determined.
T = the maximum marginal Federal corporate tax rate as of the Calculation
Date.
t = the time in years from the Calculation Date to the next Target Date (i.e.,
either the First Target Date or the Second Target Date, whichever the case
may be).
F-8
<PAGE>
r = 13.5%.
^ = the exponential sign
* = the multiplication sign
F-9
<PAGE>
Exhibit G
Surviving Documents
1) New Note Tender Offer Undertaking
2) Put Option Tender Offer Undertaking
3) Pre-Reorganization Agreement, dated as of November 15, 1997, by and among
Trygg-Hansa Holding B.V., Trygg Hansa AB, Zurich Home Investments Limited,
Zurich Centre Investments Limited, Centre Reinsurance (Bermuda) Limited,
and Insurance Partners Advisors, L.P.
4) Keepwell Agreement
5) Affiliates Agreement, dated as of November 15, 1997, between Trygg-Hansa
Forsakrings AB and Zurich Centre Investments Limited
6) Amended and Restated Securities Purchase Agreement, dated as of April 26,
1995, between Trygg-Hansa AB and ZCI Investments Limited.
G-1
EXHIBIT B
TO
AMENDED DISCLOSURE STATEMENT WITH RESPECT TO AMENDED PLAN
OF REORGANIZATION OF HOME HOLDINGS INC.
PROJECTIONS
<PAGE>
EXHIBIT B
HOME HOLDINGS INC.
PROJECTED FINANCIAL INFORMATION
A. Introduction
These projected financial statements (the "Projections") were prepared by
Zurich Insurance Company or an affiliate ("Zurich") in order to show the results
of the operations of Reorganized Home following consummation of the Plan,
assuming the Merger by Reorganized Home with and into ZRNA. No assurance can be
given that such Merger will occur or, if so, when. The Projections are based on
the assumptions discussed below. The Projections should be read in conjunction
with the Disclosure Statement, including "CERTAIN FACTORS TO BE CONSIDERED--Risk
Factors."
All capitalized terms not defined in this exhibit have the same meanings
ascribed to them in the Disclosure Statement to which this exhibit is attached.
THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARD COMPLIANCE WITH THE
GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS, THE FINANCIAL ACCOUNTING STANDARDS BOARD, OR THE RULES AND
REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION REGARDING PROJECTIONS.
FURTHERMORE, THE PROJECTIONS HAVE NOT BEEN AUDITED OR REVIEWED BY THE DEBTOR'S
OR ZURICH'S INDEPENDENT CERTIFIED ACCOUNTANTS. ALTHOUGH PRESENTED WITH NUMERICAL
SPECIFICITY, THE PROJECTIONS ARE BASED UPON A VARIETY OF ASSUMPTIONS, WHICH MAY
NOT BE REALIZED, AND ARE SUBJECT TO SIGNIFICANT BUSINESS, LITIGATION, ECONOMIC,
AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE
CONTROL OF THE DEBTOR, REORGANIZED HOME, AND ZURICH. CONSEQUENTLY, THE
PROJECTIONS SHOULD NOT BE REGARDED AS A REPRESENTATION OR WARRANTY BY THE
DEBTOR, ZURICH, OR ANY OTHER PERSON, THAT THE PROJECTIONS WILL BE REALIZED.
ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE PRESENTED IN THE PROJECTIONS.
The Projections included herein are:
1. Projected Income Statement of Reorganized Home for each of the five
fiscal years in the period ending December 31, 2002.
2. Projected Balance Sheets of Reorganized Home as of the fiscal years
ending in December 31, 1998, 1999, 2000, 2001, and 2002.
The Projections present, to the best of Zurich's knowledge and belief, the
expected financial position, results of operations and flows of Reorganized Home
for the periods shown assuming the Merger described herein, which Merger may or
may not occur. Accordingly, the Projections reflect Zurich's judgment, as of the
date of this Disclosure Statement, of expected future operating conditions. All
estimates and assumptions shown within the projections were developed by Zurich.
The assumptions disclosed here are those that Zurich believes are significant to
the Projections. There will normally be differences between projected and actual
results because events and circumstances frequently do not occur as expected.
The Projections are based on a number of estimates and assumptions that,
although developed and considered reasonable by Zurich, are inherently subject
to significant economic and competitive uncertainties and contingencies, some of
which are beyond the control of Reorganized Home and Zurich. The Projections are
based upon assumptions of future business decisions which are subject to change.
Accordingly, there can be no assurance that the projected results will be
realized, and actual results may vary materially from those projected. If actual
results are lower than those shown or if the assumptions used in formulating the
Projections are not realized, Reorganized Home's operating results and cash
flows, and hence its ability to perform under the Plan, may be materially
adversely affected.
B-1
<PAGE>
Neither the Debtor nor Zurich intend to revise the Projections solely to
reflect circumstances existing after the date of this Disclosure Statement or to
reflect the occurrence of unanticipated events. The Debtor and Zurich assume no
responsibility to advise users of the Projections about any subsequent changes.
WHILE ZURICH BELIEVES THAT THE ASSUMPTIONS UNDERLYING THE PROJECTED
FINANCIAL STATEMENTS FOR THE PERIOD SHOWN, WHEN CONSIDERED ON AN OVERALL BASIS,
ARE REASONABLE IN LIGHT OF CURRENT CIRCUMSTANCES AND EXPECTATIONS, NO ASSURANCE
CAN BE GIVEN THAT THE PROJECTIONS WILL BE REALIZED. THE DEBTOR AND ZURICH URGE
THAT THE UNDERLYING ASSUMPTIONS BE CONSIDERED CAREFULLY BY HOLDERS OF CLAIMS IN
REACHING THEIR DETERMINATION OF WHETHER TO ACCEPT OR REJECT THE PLAN.
B. Reorganized Home's Business
It is anticipated that, following the Effective Date, Reorganized Home
will be merged (the "Merger") with and into Zurich Reinsurance North America, a
Connecticut insurance company ("ZRNA"). Zurich's current intention, subject to
certain conditions, including receipt of all necessary regulatory approvals, is
to consummate the Merger after the Effective Date, however no assurances can be
given that such merger will occur, or, if it does occur, when.
ZRNA is the principal underwriting affiliate of Zurich in the North
American market for traditional property and casualty reinsurance. Zurich
anticipates that, following the Merger, the assets, business, and operations of
ZRNA will be continued substantially as they are currently being conducted.
Management of ZRNA may, however, cause ZRNA to make such changes as are deemed
appropriate and intends to continue to review ZRNA and its assets, businesses,
operations, properties, policies, corporate structure, capitalization, and
management and consider whether any changes would be desirable in light of the
circumstances then existing. In addition, Zurich intends to continue to review
the business of ZRNA and identify synergies and potential cost savings.
C. Assumptions For Projections For the Five Fiscal Years In The Period
Ending December 31, 2002
ZRNA is facing an increasingly competitive U.S. reinsurance market. This
competition is taking place on two levels: the first is on the corporate level,
where acquisitions continue to drive the consolidation of the reinsurance
industry; and the second (somewhat the result of such consolidation) is on the
continuing competition for business at the customer level. The U.S. reinsurance
industry is still rapidly consolidating as evidenced by the significant
acquisitions recently completed or in progress. In general, the rationale given
for these transactions has been market presence, security, and strength, and the
ability to serve customers.
ZRNA believes that the reinsurance market continues to suffer from over
capacity and soft pricing conditions in many lines of both the primary and
reinsurance markets. As the larger, better-capitalized reinsurers are improving
their industry standing versus smaller, weakly-capitalized firms, smaller
companies are striving to compete through inadequate pricing and weakening of
coverage terms. The eventual result of this consolidation should be to remove
excess capital from the market, however it is difficult to forecast when that
will occur. ZRNA believes that it is in an advantageous position relative to
most of its competitors. Its strong capitalization, ability and desire to
underwrite lead lines, and past commitment to developing a customer service
oriented culture and infrastructure distinguishes ZRNA from other reinsurers.
Given that overall growth in reinsurance premiums has slowed, this
competitive environment should continue as companies with under-utilized capital
try to capture premium volume with low prices. ZRNA has emphasized to customers
its lead line capability, the range of services it provides, its specialization
approach to underwriting, and its ability to compete with direct reinsurers. The
results of this strategy can be seen in ZRNA's growth in written premium and
percent of treaties led. Premiums have
B-2
<PAGE>
increased over seven-fold in the last three years. As part of ZRNA's customer
focused strategy, ZRNA continues to lead on a large majority of treaties.
Based on these objectives, and expected market conditions, ZRNA has
developed a forecast for 1998 and beyond. There are two sets of assumptions that
drive the financial projections: underwriting and investments. The underwriting
assumptions are determined by aggregating the anticipated underwriting activity
of each underwriting (i.e., sales) department of ZRNA within the context of the
current market environment. These department-level assumptions are then
aggregated into a company forecast which is evaluated for reasonableness.
Investment assumptions are done at a company level, where the investment
portfolio is managed. These assumptions are conservative and non-predicative. In
other words, ZRNA makes no predictions that interest rates will rise or fall.
The investment assumptions are based on current investment conditions, and the
investment returns are driven by cash flows into or out of the portfolio, not
changes in investment performance.
These projections are obviously forward-looking statements. While these
forecasts are ZRNA's best estimate of the future results of the company, ZRNA
anticipates that there will be material differences from the actual results.
Underwriting conditions, competitive activities and the investment environment
will all vary over the projection period and there are significant uncertainties
with respect to each of the assumptions made in these projections.
B-3
<PAGE>
Zurich Reinsurance North America Pro Forma Projections
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Income Statement 1997 1998 1999 2000 2001 2002
- ---------------- ---- ---- ---- ---- ---- ----
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earned Premium 1,090,716 1,114,644 1,181,432 1,323,135 1,430,382 1,508,948
Losses and LAE (779,691) (868,439) (903,866) (993,293) (1,048,009) (1,100,962)
Operating Expenses (incl. Commissions) (352,707) (300,589) (323,577) (372,941) (406,527) (427,251)
---------- ---------- ---------- ---------- ---------- ----------
Total Underwriting Income (41,682) (54,384) (46,011) (43,098) (24,154) (19,266)
Interest Income 153,024 186,074 215,447 252,300 291,274 330,221
Capital Gains 35,020 20,000 20,000 20,000 20,000 20,000
Interest Expense & Amort. of Goodwill (1,483) (1,483) (1,483) (1,483) (1,483) (1,483)
---------- ---------- ---------- ---------- ---------- ----------
Pretax ordinary income 144,879 150,207 187,953 227,719 285,638 329,472
Other income 28,837 23,100 21,700 26,150 30,338 32,638
---------- ---------- ---------- ---------- ---------- ----------
Net Income (pre tax) 173,716 173,307 209,653 253,869 315,975 362,110
Taxes (43,324) (59,505) (72,929) (91,885) (110,016) (121,487)
---------- ---------- ---------- ---------- ---------- ----------
Net Income (after tax) 130,392 113,802 136,724 161,984 205,959 240,622
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-4
<PAGE>
Zurich Reinsurance North America Pro Forma Projections
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Balance Sheet 1997 1998 1999 2000 2001 2002
- ------------- ---- ---- ---- ---- ---- ----
($ 000s)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Invested Assets 2,812,385 3,257,633 3,723,283 4,274,367 4,842,712 5,429,244
Reinsurance Assets 1,221,588 1,303,099 1,342,027 1,409,951 1,477,846 1,549,663
Deferred Policy Acquisition Cost 100,325 99,683 97,465 108,905 117,875 128,954
Accrued Investment Income 30,660 35,181 38,592 42,310 46,398 50,641
Deferred Taxes 19,000 26,168 27,675 29,508 31,863 34,622
Due (to)/from Affiliates 9,253 3,000 3,000 3,000 3,000 3,000
Property Plant & Equipment 8,861 8,861 8,861 8,861 8,861 8,861
Intangible Assets / Goodwill 123,795 117,577 111,359 105,141 98,923 92,705
Other Assets 19,731 20,531 21,371 22,253 23,179 24,152
-------- -------- -------- -------- -------- --------
Total Assets 4,345,598 4,871,734 5,373,634 6,004,297 6,650,657 7,321,840
Liabilities
Loss and loss adjustment expenses 1,968,070 2,193,080 2,407,066 2,644,966 2,885,040 3,119,669
Reinsurance Balances payable 1,777,840 1,357,319 1,496,081 1,706,174 1,887,023 2,066,055
Long term debt 196,000 196,150 196,300 196,450 196,600 196,750
Short term debt 0 0 0 0 0 0
Deferred Income tax (34,142) (34,142) (34,142) (34,142) (34,142) (34,142)
Income Tax payable 10,877 15,010 24,987 35,405 44,296 50,000
Dividends payable 0 0 0 0 0 0
Other liabilities 79,343 80,373 84,645 89,819 96,153 103,846
Shareholders' Equity
-------- -------- -------- -------- -------- --------
Shareholders Equity 947,610 1,063,945 1,198,698 1,365,625 1,575,688 1,819,663
-------- -------- -------- -------- -------- --------
Total Liab. & Equity 4,345,598 4,871,735 5,373,635 6,004,297 6,650,657 7,321,840
- -----------------------------------------------------------------------------------------------------------
</TABLE>
B-5
EXHIBIT C
TO
AMENDED DISCLOSURE STATEMENT WITH RESPECT TO AMENDED PLAN
OF REORGANIZATION OF HOME HOLDINGS INC.
LIQUIDATION ANALYSIS
<PAGE>
Exhibit C
HOME HOLDINGS INC.
LIQUIDATION ANALYSIS
As of January 15, 1998
REM has prepared this liquidation analysis (the "Liquidation Analysis") to
help holders of Claims decide whether to accept or reject the Plan. The
Liquidation Analysis indicates the values which may be obtained by Classes of
Claims if assets of Home Holdings are sold, pursuant to a Chapter 7 liquidation,
as an alternative to continued operation of the business and payments under a
plan of reorganization. The Liquidation Analysis is based on the assumptions
discussed below. All capitalized terms not defined in this exhibit have the same
meanings ascribed to them in the Disclosure Statement to which this exhibit is
attached.
<TABLE>
<CAPTION>
Estimated Liquidation
Assets Recorded Amount Recovery % Value
------ --------------- ---------- ---------------------
<S> <C> <C> <C>
Cash 741,336 100% 741,336
Debt Issue Expense 1,686,866 0% 0
Investments In Subsidiaries (Note 1)
Sterling Forest 2,000,000 100% 2,000,000
Maiden Lane Realty 6,640 100% 6,640
Home Group Funding Corp. 1,000 100% 1,000
Home Group Financial Services 100 100% 100
The Home Insurance Company (Note 3) -- 100% --
--------- ---------
Total Investment In Subsidiaries 2,007,740 2,007,740
Judgments In Favor Of The Debtor 78,956 0
--------- ------- ---------
Total 4,514,898 2,749,076
========= ======= =========
</TABLE>
C-1
<PAGE>
Estimated Liquidation Value Per Page 1 2,749,076
---------
To Be Distributed To
Secured Claims 0
---------
Balance available 2,749,076
Chapter 7 Estate Expenses
Chapter 7 Trustee Commission
First 5,000 25% -1,250
Next 45,000 10% -4,500
Next 950,000 5% -47,500
Amount In Excess Of 1,000,000 3% -52,472
Estimated Chapter 7 Costs -25,000
---------
Total Chapter 7 Costs -130,722
---------
Available For Distribution To Unsecured Creditors 2,618,354
Priority Claims 0
---------
Balance Available For Distribution To Unsecured Creditors 2,618,354
=========
Estimated
Allowable Estimated
Unsecured Creditors Claim Distribution
- ------------------- --------- ------------
Priority Creditors 0 0
General Unsecured Creditors (Note 4) 638,662,068 2,618,354
Contingent Liquidated Liabilities 0 0
General Electric Capital Corporation (Note 4)
Pension Benefit Guaranty Corporation (Note 4) -- --
Subordinated Claims (Note 2) 4,568 0
Sterling Forest
Contingent Unliquidated Liabilities (Note 4) 0
-----------
0
Total Distribution To Unsecured Creditors 2,618,354
===========
Percentage Dividend To
Priority Creditors 0.000%
General Unsecured Creditors 0.410%
Subordinated Claims (Note 2) 0.000%
Contingent Unliquidated Liabilities (Note 4) 0.000%
Contingent Liquidated Liabilities (Note 4) 0.000%
C-2
<PAGE>
Home Holdings Inc.
Notes to Liquidation Analysis
As of January 15, 1998
Note 1-Investments In Subsidiaries
The estimated liquidation values of the Debtor's investments in its subsidiaries
are based on the estimated values of each subsidiary's assets less each
subsidiary's outstanding liabilities. The following table summarizes each
subsidiary's financial position as of January 15, 1998:
Home Home
Sterling Group Group
Forest Maiden Lane Funding Financial
Assets LLC Realty Corp. Services
- ------ ---------- ----------- ------- ---------
Land 22,562,682 0 0 0
Accounts
Receivable -- 4,168 1,000 100
Prepaid
Expenses 0 2,472 0 0
---------- ----------- ------- ---------
Total 22,562,682 6,640 1,000 100
Less: Liabilities 20,562,682 0 0 0
---------- ----------- ------- ---------
Estimated Liquidation Value 2,000,000 6,640 1,000 100
========== =========== ======= =========
Note 2-Investment In And Amounts Due To Sterling Forest LLC
The estimated liquidation value of the Debtor's investment in Sterling Forest
LLC is based on the estimated value of approximately 3,200 acres of unimproved
land owned by Sterling Forest LLC, less the outstanding first mortgage interest
of $20,562,682. The estimated value ranges from $24,000,000 to the current
estimated value of $22,562,682 which for conservatism has been used in the
determination of liquidation value.
The Debtor's bankruptcy schedules include a liability to Sterling Forest LLC in
the amount of $4,568. The accompanying analysis includes this amount as an
allowed claim that is subordinate to the claims of General Unsecured Creditors.
Note 3 - Home Insurance
The Debtor carries its investment in its insurance subsidiary, Home Insurance,
at a book value of ($729,354,726). The Debtor knows of no claims that may arise
in connection with such negative balance in this account. The Debtor believes
that any attempt in this Disclosure Statement to establish a liquidation value
for its equity interest in Home Insurance would be more misleading than
informative. As of January, 1998, the Debtor carried Home Insurance on its
balance sheet at a book value of ($729,354,726) on a GAAP basis. Under the
unique statutory accounting principles prescribed or permitted by the New
Hampshire Insurance Department, Home Insurance has reported a special statutory
surplus of $58.5 million as of year end 1997. The unique accounting the
Department has permitted includes the booking of the full $1.3 billion Excess of
Loss Reinsurance treaty as an asset, and the discounting of loss reserves.
Without those special adjustments, Home Insurance would have a negative surplus.
For reasons explained in detail in the Debtor's 1996 Form 10K (Exhibit D to this
Disclosure Statement) at pages 10-16, 38-41, and 63-66, the high degree of
uncertainty in the estimation of loss reserves would make speculative any
representation of Home Insurance's value. The value of Home Insurance upon
completion of the runoff of its assets may be more or less than the GAAP or
special statutory amounts set forth herein.
C-3
<PAGE>
Note 4 - Contingent Liabilities
Proposed Tax Assessment
The City of New York is currently examining the General Corporation Tax returns
filed for the years 1993 through 1995 and the State of New York is examining the
General Business Corporation Franchise Tax returns filed for the years 1992
through 1994. Preliminary assessments have been proposed and the Debtor disputes
these assessments; however, to be conservative, an estimate based on the
proposed assessments has been included by the Debtor in determining allowed
claims to General Unsecured Creditors.
Liability On Guaranty
Until February 27, 1998, the Debtor was contingently liable for certain of lease
obligations of its subsidiaries, Home Insurance and Home Group Financial
Services, pursuant to a guaranty. On February 27, 1998, the beneficiary of the
guaranty, GECC, entered into an agreement with Home Insurance and Home Group
Financial Services pursuant to which the lease obligations, the guaranty, and
all documents executed in connection therewith were terminated and discharged.
GECC stated its intention to file a notice of withdrawal of its claim against
the Debtor. Accordingly, the accompanying analysis does not include any
provision for this claim.
Liability Under Title IV Of ERISA
The Debtor is a contributing sponsor of The Home Insurance Company Retirement
Plan (the "Pension Plan"), a tax-qualified, defined benefit pension plan, which
is covered by Title IV of ERISA (29 U.S.C. ss. 1301 et seq.). The Debtor is a
member of Home Insurance's controlled group. All members of the controlled group
are obligated to contribute to the Pension Plan at least the amounts necessary
to satisfy ERISA's minimum funding standards, ERISA ss. 302; I.R.C. ss. 412. In
addition, in the event of a termination of the Pension Plan, the Debtor and all
members of the controlled group will be jointly and severally liable for the
unfunded benefit liabilities, if any, of the Pension Plan. See 29 U.S.C. ss.
1362(a). As of December 31, 1997, the Pension Plan is estimated to be 80% funded
on a "PBGC plan termination" basis. The fair market value of assets on that date
was $140.8 million. The Pension Plan's benefit liabilities on a "PBGC
termination" basis on that date was an estimated $176.2 million, as determined
using interest rate (5.6% immediate), mortality (GAM83), and retirement age
(weighted average equal to 56) assumptions required by the PBGC under Title IV
of ERISA in calculating pension plan benefit liabilities in standard
terminations. It is anticipated that a resolution will be reached to assure that
unfunded benefits of the Pension Plan will be funded in accordance with the
requirements of ERISA. Accordingly, the accompanying analysis does not include
any provision for this claim.
Note 5-Judgments In Favor Of Debtor
Subject to further evaluation the Debtor has obtained various judgments in the
principal amount of $78,956 that have been outstanding from dates that range
from 1993 to 1995. Based on the age of these judgments, the Debtor is not
estimating any recovery of these amounts.
Note 6-Avoidance Actions
Subject to further evaluation the Debtor does not believe that there are any
preference recoveries or actions to avoid transfers or conveyances available to
the Debtor.
C-4
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - x
:
In re :
: Chapter 11
HOME HOLDINGS INC., : Case No. 98 B 40319 (JHG)
:
Debtor. :
:
- - - - - - - - - - - x
ORDER (A) PURSUANT TO 11 U.S.C. ss. 1125 AND BANKRUPTCY
RULE 3017(b) APPROVING DEBTOR'S DISCLOSURE
STATEMENT AND (B) APPROVING SOLICITATION
LETTER OF OFFICIAL COMMITTEE OF UNSECURED CREDITORS
Upon the record of the hearing held on March 3, 1998 (the
"Disclosure Statement Hearing") to consider the request of the above-captioned
Debtor for approval of the Debtor's Disclosure Statement With Respect To Plan Of
Reorganization Of Home Holdings Inc. Under Chapter 11 of The Bankruptcy Code,
dated January 15, 1998, as amended on February 27 and March 3, 1998 (the
"Disclosure Statement"); and each of the objections filed with respect to the
Disclosure Statement having been withdrawn, overruled by the court, or rendered
moot by reason of modifications made to the Disclosure Statement; and the Debtor
having amended and modified the Disclosure Statement and, to the extent
necessary, the Plan Of Reorganization Of Home Holdings Inc. Under Chapter 11 of
The Bankruptcy Code, dated January 15, 1998 (the "Plan"), to reflect the
resolution of certain issues; and the request of the Official Committee of
Unsecured Creditors (the "Creditors' Committee") to include a solicitation
letter having been filed (the "Committee's Request"); and the court having found
that notice of the Disclosure Statement Hearing has been provided by the Debtors
as directed by the court pursuant
<PAGE>
2
to an order, dated January 15, 1998, fixing the date, time, and place for a
hearing to consider approval of the Debtor's Disclosure Statement; and it
appearing that notice of the Committee's Request was good and sufficient under
the particular circumstances and that no other or further notice need be given;
and upon the record of this case; and after due deliberation thereon; and the
court having determined that the Disclosure Statement contains adequate
information as such term is defined in section 1125 of the Bankruptcy Code; and
good cause appearing therefor, it is hereby
ORDERED that, in accordance with section 1125 of the Bankruptcy Code
and Bankruptcy Rule 3017(b), the Disclosure Statement (and all exhibits and
attachments
<PAGE>
3
thereto), as the same may be amended and modified from time to time to
incorporate immaterial modifications, fill in blanks, and reflect any
modifications that the Debtor determines to be appropriate which do not
materially change the Disclosure Statement or materially affect any rights of a
party in interest, including cover letters from both the Creditors' Committee
and the Senior Noteholders' Committee (as defined in the Disclosure Statement)
to their respective constituencies, substantially in the form of the letters
(collectively, the "Letters") which are annexed, respectively, to the Com
mittee's Request and the Debtor's Motion For Order Establishing Solicitation,
Voting, and Tabulation Procedures and Deadlines (the "Solicitation Procedures
Order"), be, and they hereby are, approved as containing adequate information as
such term is defined in section 1125 of the Bankruptcy Code; and it is further
ORDERED that the Debtor be, and it hereby is, authorized and
directed to cause to be delivered a Solicitation Package, as that term is
defined in the Solicitation Procedures Order, which shall contain the documents
set forth in the Solicitation Procedures Order and all
<PAGE>
4
Letters approved herein, to the entities set forth in the Solicitation
Procedures Order, in the manner set forth therein; and it is further
ORDERED that the filing of certain exhibits and schedules to the
Disclosure Statement and the Plan which were not annexed thereto (collectively,
the "Plan Supplement") by the Debtors not less than ten (10) days prior to the
Confirmation Hearing and allowing for (i) inspection of the Plan Supplement
during normal court hours and (ii) interested parties to receive copies of the
Plan Supplement upon written request is deemed good and sufficient notice of the
contents of the Plan Supplement and no other further notice of the Plan
Supplement need be given; and it is further
ORDERED that the Debtor be, and it hereby is, authorized and
empowered to take such steps and perform such acts as may be necessary to
implement and effectuate this Order.
Dated: New York, New York
March 4, 1998 at 7:30 AM
S/Jeffry H. Gallet
----------------------------------
United States Bankruptcy Judge
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - - x
In re :
: Chapter 11
HOME HOLDINGS INC., : Case No. 98 B 40319 (JHG)
:
Debtor. :
:
- - - - - - - - - - - - - - - - - - - - - - x
NOTICE OF (a) HEARING ON CONFIRMATION OF
PLAN AND (b) DEADLINES AND PROCEDURES FOR
FILING OBJECTIONS TO CONFIRMATION OF PLAN
TO ALL CREDITORS, EQUITY SECURITY HOLDERS, AND OTHER
PARTIES IN INTEREST:
PLEASE TAKE NOTICE that Home Holdings Inc. (the "Debtor"), as debtor
and debtor-in-possession, is seeking confirmation of its proposed Amended Plan
Of Reorganization, dated March 3, 1998 (the "Plan");
PLEASE TAKE FURTHER NOTICE that on March 4, 1998, the United States
Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court")
entered an order approving the Debtor's Disclosure Statement, dated January 15,
1998, as amended on February 26 and March 3, 1998 (the "Disclosure Statement"),
as containing adequate information and authorized the Debtor to solicit
acceptances of its Plan;
PLEASE TAKE FURTHER NOTICE that the terms of the Plan, once
confirmed by the court, will be binding on all holders of claims against the
Debtor and on all holders of equity security interests in the Debtor;
PLEASE TAKE FURTHER NOTICE that holders of equity security interests
in the Debtor will receive NO distributions or other property under the Plan on
account of their claims or interests arising from their present or former
ownership of the Debtor's equity securities; and
PLEASE TAKE FURTHER NOTICE that on the Debtor's motion, dated
January 15, 1998 (the "Scheduling Motion"), the Bankruptcy Court entered an
order, dated January 15, 1998 (the "Scheduling Order"), providing, among other
things, that:
<PAGE>
2
HEARING ON CONFIRMATION OF PLAN
1. The hearing to consider confirmation of the Plan (the
"Confirmation Hearing") will commence on April 3, 1998 at 9:30 a.m. Eastern
Standard Time before the Honorable Jeffry H. Gallet, United States Bankruptcy
Judge, United States Bankruptcy Court for the Southern District of New York,
Alexander Hamilton Custom House, One Bowling Green, New York, New York
10004-1408. The Confirmation Hearing may be continued from time to time by
announcing such continuance in open court or otherwise, all without further
notice to parties in inter est.
DEADLINES AND PROCEDURES FOR FILING OBJECTIONS
TO CONFIRMATION OF THE PLAN
2. March 27, 1998 at 5:00 p.m. Eastern Standard Time (the "Plan
Confirmation Objection Deadline") is fixed as the last date and time for filing
and serving objections to confirmation of the Plan. Objections to the Plan not
filed and served by the Plan Confirmation Deadline, and in the manner set forth
below, will not be considered by the court and shall be overruled.
3. In order to be considered by the court, objections (if any) to
confirmation of the Plan must be in writing, must set forth the name of the
objector and the nature and the amount of any claim or interest asserted by the
objector against the estate or property of the Debtor, must state with
particularity the legal and factual basis for such objection, and must be both
(a) filed with the Clerk of the Bankruptcy Court, Alexander Hamilton Custom
House, One Bowling Green, New York, New York 10004-1408 on or prior to the Plan
Confirmation Deadline and (b) served, so that they are ACTUALLY RECEIVED on or
prior to the Plan Confirmation Deadline by (i) Skadden, Arps, Slate, Meagher &
Flom LLP, Attorneys for the Debtor, 919 Third Avenue, New York, New York
10022-3897 (Att'n: Kayalyn A. Marafioti, Esq.); (ii) Anderson Kill & Olick,
P.C., Counsel for the Committee of Unsecured Creditors, 1251 Avenue of the
Americas, New York, New York 10020- 1182 (Att'n: Anthony Princi, Esq.); (iii)
Paul, Weiss, Rifkind, Wharton & Garrison, Counsel for Zurich Centre Resource
Limited, 1285 Avenue of the Americas, New York, New York 10019-6064 (Att'n: Alan
W. Kornberg, Esq.); (iv) Simpson Thacher & Bartlett, Counsel for Trygg-Hansa AB,
425 Lexington Avenue, New York, New York 10017-3909 (Att'n: Lillian Kraemer,
Esq.); (v) White & Case, Counsel for the New Hampshire Insurance Department,
1155 Avenue of the Americas, New York, New York 10036 (Att'n: Nicholas R.
Williams, Esq.) and Sheehan Phinney Bass & Green, 1000 Elm Street, P.O. Box
3701, Manchester, New Hampshire 03105-3701 (Att'n: Bruce A. Harwood, Esq.); and
(vi) the Office of the United States Trustee, 80 Broad Street, Third Floor, New
York, New York 10004 (Att'n: Paul K. Schwartzberg, Esq.).
<PAGE>
3
COPIES AND REVIEW OF DOCUMENTS
PLEASE TAKE FURTHER NOTICE that any party in interest wishing to
obtain a copy of the Disclosure Statement, the Plan, any exhibits to those
documents, the Scheduling Motion, or the Scheduling Order may request such
copies by contacting the Information Agent, MacKenzie Partners, Inc., 156 Fifth
Avenue, New York, New York 10010, (212) 929-5500 or (800) 322-2885 (Att'n: Edith
A. Lohman). All such copies shall be provided at the expense of the party
requesting the documents unless otherwise specifically required by Bankruptcy
Rule 3017(d). All documents that are filed with the court may be reviewed during
regular business hours (from 9:30 a.m. to 4:30 p.m. weekdays, except legal
holidays) at the Bankruptcy Court, Alexander Hamilton Custom House, One Bowling
Green, New York, New York 10004-1408, or, alternatively, they can be viewed and
retrieved by accessing the Bankruptcy Court's Internet site at
www.nysb.uscourts.gov.
Dated: New York, New York
March 4, 1998
By Order of the Court
Hon. Jeffry H. Gallet
United States Bankruptcy Court
Southern District of New York
Alexander Hamilton Custom House
One Bowling Green, Room 528
New York, New York 10004-1408
For questions, please contact:
Kayalyn A. Marafioti, Esq. Anthony Princi, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP Anderson Kill & Olick, P.C.
Attorneys for Home Holdings Inc., Attorneys for the Committee of
Debtor and Debtor-in-Possession Unsecured Creditors
919 Third Avenue 1251 Avenue of the Americas
New York, New York 10022-3897 New York, New York 10020-1182
(212) 735-3000 (212) 278-1000
Official Committee of Unsecured Creditors
of Home Holdings, Inc.
c/o Anderson Kill & Olick, P.C.
1251 Avenue of the Americas
New York, New York 10020-1182
March 4, 1998
To: The Senior Noteholders of Home Holdings Inc.
(the "Debtor"):
The United States Trustee has appointed See More Light Investments,
CS First Boston, Cerberus Partners and Contrarian Capital Management, LLC, as
holders of the Debtor's 7% Senior Notes, due 1998, 7 7/8% Senior Notes due 2003,
and/or 7 7/8% Senior Sinking Fund Notes (collectively, the "Senior Notes"), and
The Bank of New York, as Indenture Trustee for the Senior Notes, to the Official
Committee of Unsecured Creditors of Home Holdings Inc. (the "Committee"). The
Committee has studied the Debtor's proposed Plan of Reorganization (the "Plan")
and the accompanying Disclosure Statement and is writing to urge you to vote in
favor of the Plan.
As more fully set forth in the Disclosure Statement, under the Plan
holders of Senior Notes will receive new notes with an aggregate principal value
of approximately $70 million, earn-out notes (with payments based on potential
tax savings related to net operating loss carryforwards), and membership units
in a limited liability company which is to acquire stock of The Home Insurance
Company ("Home Insurance"). Within sixty days of the Plan's effective date,
Zurich Centre Group will commence a tender offer for the new notes at 99% of the
principal amount plus accrued interest. A projection of the percentage recovery
that holders of Senior Notes will receive is set forth on page vi of the
Disclosure Statement. The
<PAGE>
2
Committee strongly recommends that you carefully examine the enclosed Disclosure
Statement and Plan fully.
BASED UPON THE PRESENT FINANCIAL CONDITION OF THE DEBTOR AND ITS
MAIN ASSET, HOME INSURANCE, THE COMMITTEE BELIEVES THAT THE PLAN IS IN THE BEST
INTERESTS OF THE HOLDERS OF SENIOR NOTES AND URGES YOU TO VOTE TO APPROVE THE
PLAN.
---------------------------
Unofficial Committee
of Holders of Home Holdings, Inc.
7% Senior Notes due in 1998, 7-7/8% Senior Sinking Fund
Notes due in 2003
and 7-7/8% Senior Notes due in 2003
c/o Anderson Kill & Olick, P.C.
1251 Avenue of the Americas
New York, New York 10020-1182
_______________, 1998
To: The Creditors of Home Holdings Inc.
(the "Debtor"):
On January 15, 1998, the Debtor filed a petition seeking Chapter 11
protection and a related Plan of Reorganization (the "Plan") and accompanying
Disclosure Statement (the "Disclosure Statement") in the United States
Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court").
The undersigned entities are members of an unofficial committee (the
"Committee") of holders of the Debtor's 7% Senior Notes, due 1998, 7 7/8% Senior
Notes due 2003, and/or 7 7/8 Senior Sinking Fund Notes (collectively, the
"Senior Notes"). The Committee holds in the aggregate approximately 72% of the
Senior Notes.
The Bankruptcy Court has approved the transmission of the enclosed
Plan and Disclosure Statement to the Debtor's known creditors in order to
solicit acceptances of the Plan.
We are writing to urge you to examine the enclosed documents
carefully and to vote to approve the Plan. The Plan has been accomplished
through negotiations among a number of parties that have a significant interest
in the Debtor. These parties include Zurich Insurance Company, the New Hampshire
Insurance Department, the Debtor and the Committee. The Plan represents a
long-sought consensus achieved by this diverse group. All of these parties,
including the Debtor and the Committee, fully support the Plan and urge you to
vote in favor of the Plan.
<PAGE>
__________, 1998
Page Two
If the Plan is not approved, it will further delay resolution of the
Debtor's Chapter 11 case and could result in a reorganization or liquidation of
the Debtor on terms less favorable than as proposed in the Plan. In such an
event, we believe that the recovery to the holders of Senior Notes, if any, will
likely be less than as proposed in the Plan. Please keep this in mind as you
review the enclosed documents and make your decision on approval of the Plan.
The accompanying package contains voting materials and instructions for
executing and returning your ballot. The ballot must be RECEIVED by no later
than 5:00 p.m. Eastern Standard Time, on ______________ 1998, by the Debtor's
voting agent,
On behalf of the Committee, we thank you for your patience during
the Debtor's reorganization and urge you to participate in voting and to approve
the Plan. The Committee looks forward to the confirmation and successful
implementation of the Plan.
Sincerely,
------------------------------------
CS FIRST BOSTON
------------------------------------
LEHMAN BROTHERS, INC.
------------------------------------
CERBERUS PARTNERS
------------------------------------
BEA ASSOCIATES
------------------------------------
CONSECO CAPITAL MANAGEMENT
------------------------------------
CONTRARIAN CAPITAL MANAGEMENT,
LLC
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR ADVICE, OR TO MAKE ANY
REPRESENTATION, OTHER THAN WHAT IS CONTAINED IN THE MATERIALS MAILED WITH THIS
BALLOT OR OTHER MATERIALS AUTHORIZED BY THE BANKRUPTCY COURT
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - x
In re :
: Chapter 11
HOME HOLDINGS INC., : Case No. 98 B 40319 (JHG)
:
Debtor. :
:
- - - - - - - - - - - - - - - - - - - x
BALLOT FOR ACCEPTING OR REJECTING
AMENDED PLAN OF REORGANIZATION OF HOME HOLDINGS INC.
(Class 4 Unsecured Claims -- Group 4-A)
You are receiving this Ballot either because Home Holdings Inc. (the
"Debtor") has listed you as a creditor in its Chapter 11 schedules or because
you filed a proof of claim with the Bankruptcy Court.
If your claim has not been paid and is liquidated, undisputed, and
not contingent, your claim has been provisionally allowed for the purpose of
voting as a Class 4 (Group 4-A) creditor to accept or reject the Debtor's
Amended Plan of Reorganization, dated March 3, 1998 (the "Plan"), in the amount
for which such claim has been scheduled or filed. The Ballot is neither a proof
of claim form, nor an admission by the Debtor of the nature, validity, or amount
of your claim. Under the Plan, Class 4 Unsecured Claims (Group 4-A) are
impaired, and the holders of such claims therefore are entitled to vote to
accept or reject the Plan.
The Plan can be confirmed by the Bankruptcy Court and thereby made
binding on you if it is accepted by the holders of two-thirds in amount and more
than one-half in number of claims in each class voting on the Plan. In the event
the requisite acceptances are not obtained, the Bankruptcy Court may
nevertheless confirm the Plan if the court finds that the Plan accords fair and
equitable treatment to the class or classes rejecting it and otherwise satisfies
the requirements of 11 U.S.C. ss. 1129(b). To have your vote count, you must
complete and return this ballot.
PLEASE READ AND FOLLOW THE ATTACHED INSTRUCTIONS CAREFULLY.
COMPLETE, SIGN, AND DATE THIS BALLOT AND RETURN IT SO THAT IT IS RECEIVED BY
5:00 P.M., EASTERN STANDARD TIME, ON MARCH 27, 1998 BY THE INFORMATION AGENT,
MACKENZIE PARTNERS, INC., AT THE FOLLOWING ADDRESS:
<PAGE>
2
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, NY 10010
Att'n: Home Holdings Inc.
Ballot Tabulation
BALLOTS CAST BY FACSIMILE WILL NOT BE COUNTED.
PLEASE READ THE ATTACHED INSTRUCTIONS ON RETURNING YOUR BALLOT.
Creditors may not split their vote on the Plan. If you are
submitting a vote with respect to a Class 4 Unsecured Claim (Group 4-A) that you
hold, you must vote your entire claim in the same way (i.e., all "accept" or all
"reject").
An authorized signatory of a holder of a Class 4 Unsecured Claim
(Group 4-A) may execute this Ballot, but must provide the name and address of
the holder of such claim on this Ballot and may be required to submit evidence
to the Bankruptcy Court demonstrating such signatory's authorization to vote on
behalf of such holder. Authorized signatories voting on behalf of more than one
holder of a Class 4 Unsecured Claim (Group 4-A) must complete a separate Ballot
for each such holder.
You may receive multiple mailings containing Ballots. You should
vote only one Ballot that you receive for all of your Class 4 Unsecured Claim
(Group 4-A). You must provide all of the information requested by this Ballot.
Failure to do so may result in the disqualification of your vote.
Item 1. Face Amount Of Claim.
I hereby certify that I am a creditor holding a General Unsecured
Claim against the Debtor in the amount of $_____________ [fill in blank], or
such creditor's authorized signatory.
Item 2. Vote On Plan. (Please check one.)
The undersigned: |_| ACCEPTS (votes FOR) the Plan.
|_| REJECTS (votes AGAINST) the Plan.
<PAGE>
3
Item 3. Election Regarding Membership Units In Home Insurance Holdings, LLC.
(Please check one.)
Should the Plan be confirmed and distributions made thereunder, the
undersigned:
|_| AGREES TO ACCEPT Membership Units in Home
Insurance Holdings, LLC and to be bound by
the terms of the Home Insurance Holdings,
LLC Agreement.
|_| WAIVES his/her/its right to receive Membership
Units in Home Insurance Holdings, LLC.
Item 4. Convenience Claim Election. (Please check one.)
The undersigned, the holder of a Class 4 Unsecured Claim (Group 4-A)
in excess of $2,000, hereby elects to accept $2,000 in cash in full
satisfaction, settlement, and release of, and in exchange for, its Class 4
Unsecured Claim (Group 4-A).
|_| ACCEPT |_| DECLINE
Item 5. By signing this Ballot, the undersigned hereby certifies that he/she is
the owner of the claim to which this ballot pertains, or the authorized
signatory of such owner and has full power and authority to vote to accept or
reject the Plan.
The undersigned also acknowledges that his/her vote to accept or
reject the Plan is subject to all the terms and conditions set forth in the
Disclosure Statement.
Name Of Voter:________________________________________
(Print Or Type)
Social Security Or Federal Tax I.D. No.:______________
Signature: ___________________________________________
By: __________________________________________________
Print Or Type Name:___________________________________
Title:________________________________________________
Address: _____________________________________________
Telephone Number: ____________________________________
Date Completed:_______________________________________
<PAGE>
4
THE VOTING DEADLINE IS 5:00 P.M., EASTERN STANDARD TIME, ON MARCH 27, 1998.
PLEASE MAKE SURE YOU HAVE PROVIDED
ALL INFORMATION REQUESTED BY THIS BALLOT.
<PAGE>
5
INSTRUCTIONS FOR COMPLETING THE BALLOT
Home Holdings Inc. is soliciting your vote on its Amended Plan Of
Reorganization, dated March 3, 1998 (the "Plan"), referred to in its Amended
Disclosure Statement, dated January 15, 1998, as amended on February 26 and
March 3, 1998 (the "Disclosure Statement"). Please review the Disclosure
Statement and Plan carefully before you vote. Unless otherwise defined,
capitalized terms used herein and in the Ballot have the meanings ascribed to
them in the Plan.
To have your vote count, you must complete, sign, and return this
Ballot to the address set forth on the enclosed, pre-addressed, return envelope
provided. Unsigned Ballots will not be counted. Ballots must be received by the
Information Agent, by 5:00 P.M., Eastern Standard Time, on March 27, 1998. Do
not deliver completed Ballots to the Voting Agent by facsimile. Ballots cast by
facsimile will not be counted.
To complete the Ballot properly, take the following steps:
(1) Make sure that the information required by Item 1 has been
inserted. If you do not have the amount of your claim, please contact the
Information Agent at (212) 929-5500 or (800) 322-2885, Att'n: Edith A. Lohman.
(2) Cast your vote either to accept or reject the Plan by checking
the proper box in Item 2 for the Class 4 Unsecured Claim (Group 4-A) held by
you.
(3) Indicate whether you wish to receive your pro rata share of
Membership Units in Home Insurance Holdings, LLC, by checking the appropriate
box in item 3.
(4) Indicate your choice either to accept or decline the Convenience
Claim Election by checking the proper box in Item 4 for the Class 4 Unsecured
Claim (Group 4-A) held by you.
(5) Read Item 5 carefully.
(6) Sign and date your Ballot.
(7) If you believe that you have received the wrong ballot, please
contact the Information Agent at (212) 929-5500 or (800) 322-2885, immediately.
(8) If you are completing this Ballot on behalf of another person or
entity, indicate your relationship with such person or entity and the capacity
in which you are signing.
(9) Provide your name and mailing address (i) if different from the
printed address that appears on the Ballot, or (ii) if no pre-printed address
appears on the Ballot.
(10) Return your Ballot using the enclosed return envelope.
The Ballot should be returned by mail in the pre-addressed envelope
provided with the Ballot so that it will be received by the Information Agent by
the Voting Deadline.
PLEASE MAIL YOUR BALLOT PROMPTLY!
IF YOU HAVE ANY QUESTIONS REGARDING THIS BALLOT OR THE VOTING
PROCEDURES,
PLEASE CALL THE INFORMATION AGENT AT (212) 929-5500 OR (800) 322-2885.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR ADVICE, OR TO MAKE ANY
REPRESENTATION, OTHER THAN WHAT IS CONTAINED IN THE MATERIALS MAILED WITH THIS
BALLOT OR OTHER MATERIALS AUTHORIZED BY THE BANKRUPTCY COURT.
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - - - - - - x
:
In re :
: Chapter 11
HOME HOLDINGS INC., : Case No. 98 B 40319 (JHG)
:
Debtor. :
:
- - - - - - - - - - - - - - - - - - - - - - - - - - x
BENEFICIAL OWNER BALLOT FOR ACCEPTING OR REJECTING
AMENDED PLAN OF REORGANIZATION OF HOME HOLDINGS INC.
(Class 4 Unsecured Claims -- Group 4-B)
7% Senior Notes Due December 15, 1998
This Ballot is being sent to beneficial owners or entitlement
holders(1) of 7% Senior Notes Due December 15, 1998 (the "7% Senior Notes") of
Home Holdings Inc. (the "Debtor"). The Debtor's Amended Plan Of Reorganization,
dated March 3, 1998 (the "Plan"), can be confirmed by the Bank ruptcy Court and
thereby made binding on beneficial owners if it is accepted by the holders of at
least two-thirds in dollar amount and more than one-half in number of claims in
each class voting on the Plan. In the event the requisite acceptances are not
obtained, the Bankruptcy Court may nevertheless confirm the Plan if the
Bankruptcy Court finds that the Plan accords fair and equitable treatment to the
class or classes rejecting it and otherwise satisfies the requirements of 11
U.S.C. ss. 1129(b). To have the votes of beneficial owners count, you must
complete and return this Ballot.
PLEASE READ AND FOLLOW THE ATTACHED INSTRUCTIONS CAREFULLY.
COMPLETE, SIGN, AND DATE THIS BALLOT AND RETURN IT IN THE ENCLOSED ENVELOPE.
YOUR FINANCIAL INSTITUTION IS REQUIRED TO PROCESS YOUR BALLOT AND SUBMIT A
MASTER BALLOT SO THAT IT IS RECEIVED BY 5:00 P.M., EASTERN STANDARD TIME, ON
MARCH 27, 1998 (THE "VOTING DEADLINE"). PLEASE MAIL YOUR BALLOT SUFFICIENTLY IN
ADVANCE OF THE VOTING DEADLINE TO ENABLE YOUR FINANCIAL INSTITUTION TO PROCESS
YOUR VOTE.
BALLOTS CAST BY FACSIMILE WILL NOT BE COUNTED.
PLEASE READ THE ATTACHED INSTRUCTIONS ON RETURNING YOUR BALLOT.
- --------
(1) In light of the revised Article 8 of the Uniform Commercial Code (the
"UCC"), the term "beneficial owner(s)" also includes entitlement holders
for purposes of completing this Ballot.
<PAGE>
2
By signing below, you are certifying that either you were the
beneficial owner on February 19, 1998 of the 7% Senior Notes in the face amount
set forth below or you are an authorized signatory for someone who was a
beneficial owner of such face amount of such 7% Senior Notes on February 19,
1998.
Beneficial owners may not split their vote on the Plan with respect
to their 7% Senior Notes. If you are submitting a vote with respect to any 7%
Senior Notes that you beneficially own, you must vote all of your 7% Senior
Notes in the same way (i.e., all "accept" or all "reject").
An authorized signatory of an eligible beneficial owner may execute
this Ballot, but must provide the name and address of the beneficial owner on
this Ballot and may be required to submit evidence to the Bankruptcy Court
demonstrating such signatory's authorization to vote on behalf of the beneficial
owner. Authorized signatories voting on behalf of more than one beneficial owner
must complete a separate Ballot for each owner.
You may receive multiple mailings containing Ballots, especially if
you own your 7% Senior Notes through more than one bank, broker, or other
intermediary. You should vote each Ballot that you receive for all of the 7%
Senior Notes that you beneficially own.
You must provide all of the information requested by this Ballot.
Failure to do so may result in the disqualification of your vote.
Item 1. Face Amount Of 7% Senior Note Claims.
I hereby certify that I am the beneficial owner (or authorized
signatory for a beneficial owner) of $__________________ face amount [fill in
blank] of 7% Senior Notes.
Item 2. Vote On Plan. (Please check one.)
The undersigned: |_| ACCEPTS (votes FOR) the Plan.
|_| REJECTS (votes AGAINST) the Plan.
Item 3. Election Regarding Membership Units In Home Insurance Holdings, LLC.
(Please check one.)
Should the Plan be confirmed and distributions made thereunder, the
undersigned:
|_| AGREES TO ACCEPT Membership Units in Home
Insurance Holdings, LLC and to be bound by
the terms of the Home Insurance Holdings,
LLC Agreement.
|_| WAIVES his/her/its right to receive
Membership Units in Home Insurance Holdings,
LLC.
<PAGE>
3
Item 4. Certification As To 7% Senior Notes Held In Additional Accounts.
By returning this Ballot, the beneficial owner certifies that either
(1) he/she has not submitted any other Ballots for 7% Senior Notes held in other
accounts or other record names, or (2) he/she/its has provided the information
specified in the following table for all other 7% Senior Notes for which he/she
has submitted additional Ballots (please use additional sheets of paper if
necessary):
ONLY COMPLETE THIS SECTION IF YOU HAVE VOTED
BALLOTS OTHER THAN THIS BALLOT
Name Of Holder(2) Account Number (If Applicable) Principal Amount
- ----------------- ------------------------------ ----------------
1. __________________________ $
2. __________________________ $
3. __________________________ $
Item 5. By signing this Ballot, the undersigned hereby certifies that he/she
either (a) is the registered or record holder or securities intermediary(3) and
the beneficial owner of the 7% Senior Notes to which this Ballot pertains and is
sending this Ballot directly to the Information Agent, MacKenzie Partners, Inc.,
156 Fifth Avenue, New York, New York 10010 (Att'n: Home Holdings, Ballot
Tabulation) or (b) is the beneficial owner of the 7% Senior Notes, but not the
registered or record holder, to which this Ballot pertains and is sending this
Ballot to the registered or record holder of, or other nominee of the
undersigned with respect to, the 7% Senior Notes to which this Ballot pertains,
whom the undersigned hereby authorizes and instructs to (x) execute a Master
Ballot reflecting this Ballot and (y) deliver such Master Ballot to the
Information Agent.
- --------
(2) Insert your name if the 7% Senior Notes are held by you in record name or,
if held in street name, insert name of broker or bank (or their agent).
(3) In light of the revised Article 8 of the UCC, the term "registered
owner(s)" also includes security intermediaries for purposes of completing
this Ballot.
<PAGE>
4
The undersigned also acknowledges that his/her vote to accept or
reject the Plan is subject to all the terms and conditions set forth in the
Disclosure Statement.
Name Of Voter:_______________________________________
(Print Or Type)
Social Security Or Federal Tax I.D. No.:_____________
Signature: __________________________________________
By: _________________________________________________
Print or Type Name:__________________________________
Title:_______________________________________________
Address: ____________________________________________
____________________________________________
Telephone Number: ___________________________________
Date Completed:______________________________________
THE VOTING DEADLINE IS 5:00 P.M., EASTERN STANDARD TIME, ON MARCH 27, 1998.
PLEASE MAKE SURE YOU HAVE PROVIDED
ALL INFORMATION REQUESTED BY THIS BALLOT.
YOU SHOULD NOT SUBMIT 7% SENIOR NOTES WITH THIS BALLOT.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR ADVICE, OR TO MAKE ANY
REPRESENTATION, OTHER THAN WHAT IS CONTAINED IN THE MATERIALS MAILED WITH THIS
BALLOT OR OTHER MATERIALS AUTHORIZED BY THE BANKRUPTCY COURT.
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - - - - - - x
:
In re :
: Chapter 11
HOME HOLDINGS INC., : Case No. 98 B 40319 (JHG)
:
Debtor. :
:
- - - - - - - - - - - - - - - - - - - - - - - - - - x
BENEFICIAL OWNER BALLOT FOR ACCEPTING OR REJECTING
AMENDED PLAN OF REORGANIZATION OF HOME HOLDINGS INC.
(Class 4 Unsecured Claims -- Group 4-C)
7-7/8% Senior Sinking Fund Notes Due December 15, 2003
This Ballot is being sent to beneficial owners or entitlement
holders(1) of 7-7/8% Senior Sinking Fund Notes Due December 15, 2003 (the
"7-7/8% Senior Sinking Fund Notes") of Home Holdings Inc. (the "Debtor"). The
Debtor's Amended Plan Of Reorganization, dated March 3, 1998 (the "Plan"), can
be confirmed by the Bankruptcy Court and thereby made binding on beneficial
owners if it is accepted by the holders of at least two-thirds in dollar amount
and more than one-half in number of claims in each class voting on the Plan. In
the event the requisite acceptances are not obtained, the Bankruptcy Court may
nevertheless confirm the Plan if the Bankruptcy Court finds that the Plan
accords fair and equitable treatment to the class or classes rejecting it and
otherwise satisfies the requirements of 11 U.S.C. ss. 1129(b). To have the votes
of beneficial owners count, you must complete and return this Ballot.
PLEASE READ AND FOLLOW THE ATTACHED INSTRUCTIONS CAREFULLY.
COMPLETE, SIGN, AND DATE THIS BALLOT AND RETURN IT IN THE ENCLOSED ENVELOPE.
YOUR FINANCIAL INSTITUTION IS REQUIRED TO PROCESS YOUR BALLOT AND SUBMIT A
MASTER BALLOT SO THAT IT IS RECEIVED BY 5:00 P.M., EASTERN STANDARD TIME, ON
MARCH 27, 1998. PLEASE MAIL YOUR BALLOT SUFFICIENTLY IN ADVANCE OF THE VOTING
DEADLINE TO ENABLE YOUR FINANCIAL INSTITUTION TO PROCESS YOUR VOTE.
- --------
(1) In light of the revised Article 8 of the Uniform Commercial Code (the
"UCC"), the term "beneficial owner(s)" also includes entitlement holders
for purposes of completing this Ballot.
<PAGE>
2
BALLOTS CAST BY FACSIMILE WILL NOT BE COUNTED.
PLEASE READ THE ATTACHED INSTRUCTIONS ON RETURNING YOUR BALLOT.
By signing below, you are certifying that either you were the
beneficial owner on February 19, 1998 of the 7-7/8% Senior Sinking Fund Notes in
the face amount set forth below or you are an authorized signatory for someone
who was a beneficial owner of such face amount of such 7-7/8% Senior Sinking
Fund Notes on February 19, 1998.
Beneficial owners may not split their vote on the Plan with respect
to their 7-7/8% Senior Sinking Fund Notes. If you are submitting a vote with
respect to any 7-7/8% Senior Sinking Fund Notes that you beneficially own, you
must vote all of your 7-7/8% Senior Sinking Fund Notes in the same way (i.e.,
all "accept" or all "reject").
An authorized signatory of an eligible beneficial owner may execute
this Ballot, but must provide the name and address of the beneficial owner on
this Ballot and may be required to submit evidence to the Bankruptcy Court
demonstrating such signatory's authorization to vote on behalf of the beneficial
owner. Authorized signatories voting on behalf of more than one beneficial owner
must complete a separate Ballot for each owner.
You may receive multiple mailings containing Ballots, especially if
you own your 7-7/8% Senior Sinking Fund Notes through more than one bank,
broker, or other intermediary. You should vote each Ballot that you receive for
all of the 7-7/8% Senior Sinking Fund Notes that you beneficially own.
You must provide all of the information requested by this Ballot.
Failure to do so may result in the disqualification of your vote.
Item 1. Face Amount Of 7-7/8% Senior Note Claims.
I hereby certify that I am the beneficial owner (or authorized
signatory for a beneficial owner) of $__________________ face amount [fill in
blank] of 7-7/8% Senior Sinking Fund Notes.
Item 2. Vote On Plan. (Please check one.)
The undersigned: |_| ACCEPTS (votes FOR) the Plan.
|_| REJECTS (votes AGAINST) the Plan.
Item 3. Election Regarding Membership Units In Home Insurance Holdings, LLC.
(Please check one.)
<PAGE>
3
Should the Plan be confirmed and distributions made thereunder, the
undersigned:
|_| AGREES TO ACCEPT Membership Units in Home
Insurance Holdings, LLC and to be bound by
the terms of the Home Insurance Holdings,
LLC Agreement.
|_| WAIVES his/her/its right to receive
Membership Units inHome Insurance Holdings,
LLC.
Item 4. Certification As To 7-7/8% Senior Sinking Fund Notes Held In Additional
Accounts.
By returning this Ballot, the beneficial owner certifies that either
(1) he/she/it has not submitted any other Ballots for 7-7/8% Senior Sinking Fund
Notes held in other accounts or other record names, or (2) he/she/it has
provided the information specified in the following table for all other 7-7/8%
Senior Sinking Fund Notes for which he/she/it has submitted additional Ballots
(please use additional sheets of paper if necessary):
ONLY COMPLETE THIS SECTION IF YOU HAVE VOTED
BALLOTS OTHER THAN THIS BALLOT
Name Of Holder(2) Account Number (If Applicable) Principal Amount
- ----------------- ------------------------------ ----------------
1. __________________________ $
2. __________________________ $
3. __________________________ $
Item 5. By signing this Ballot, the undersigned hereby certifies that he/she
either (a) is the registered or record holder or securities intermediary(3) and
the beneficial owner of the 7-7/8% Senior Sinking Fund Notes to which this
Ballot pertains and is sending this Ballot directly to the Information Agent,
MacKenzie Partners, Inc., 156 Fifth Avenue, New York, New York 10010 (Att'n:
Home Holdings, Ballot Tabulation) or (b) is the beneficial owner of the 7-7/8%
Senior Sinking Fund Notes, but not the registered or record holder, to which
this Ballot pertains and is sending this Ballot to the registered or record
holder of, or other nominee of the undersigned with respect to, the 7-7/8%
Senior Sinking Fund Notes to which this Ballot pertains, whom the undersigned
hereby authorizes and instructs to (x) execute a Master Ballot reflecting this
Ballot and (y) deliver such Master Ballot to the Information Agent.
The undersigned also acknowledges that his/her vote to accept or
reject the Plan is subject to all the terms and conditions set forth in the
Disclosure Statement.
- --------
(2) Insert your name if the 7-7/8% Senior Sinking Fund Notes are held by you
in record name or, if held in street name, insert name of broker or bank
(or their agent).
(3) In light of the revised Article 8 of the UCC, the term "registered
owner(s)" also includes security intermediaries for purposes of completing
this Ballot.
<PAGE>
4
Name Of Voter:_______________________________________
(Print Or Type)
Social Security Or Federal Tax I.D. No.:_____________
Signature: __________________________________________
By: _________________________________________________
Print or Type Name:__________________________________
Title:_______________________________________________
Address: ____________________________________________
____________________________________________
Telephone Number: ___________________________________
Date Completed:______________________________________
THE VOTING DEADLINE IS 5:00 P.M., EASTERN STANDARD TIME, ON MARCH 27, 1998.
PLEASE MAKE SURE YOU HAVE PROVIDED
ALL INFORMATION REQUESTED BY THIS BALLOT.
YOU SHOULD NOT SUBMIT 7-7/8% SENIOR SINKING FUND NOTES WITH THIS
BALLOT.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR ADVICE, OR TO MAKE ANY
REPRESENTATION, OTHER THAN WHAT IS CONTAINED IN THE MATERIALS MAILED WITH THIS
BALLOT OR OTHER MATERIALS AUTHORIZED BY THE BANKRUPTCY COURT.
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - x
:
In re :
: Chapter 11
HOME HOLDINGS INC., : Case No. 98 B 40319 (JHG)
:
Debtor. :
:
- - - - - - - - - - - - - - - - - - - x
BENEFICIAL OWNER BALLOT FOR ACCEPTING OR REJECTING
AMENDED PLAN OF REORGANIZATION OF HOME HOLDINGS INC.
(Class 4 Unsecured Claims -- Group 4-D)
7-7/8% Senior Notes Due December 15, 2003
This Ballot is being sent to beneficial owners or entitlement
holders(1) of 7-7/8% Senior Notes Due December 15, 2003 (the "7-7/8% Senior
Notes") of Home Holdings Inc. (the "Debtor"). The Debtor's Amended Plan Of
Reorganization, dated March 3, 1998 (the "Plan"), can be confirmed by the
Bankruptcy Court and thereby made binding on beneficial owners if it is accepted
by the holders of at least two-thirds in dollar amount and more than one-half in
number of claims in each class voting on the Plan. In the event the requisite
acceptances are not obtained, the Bankruptcy Court may nevertheless confirm the
Plan if the Bankruptcy Court finds that the Plan accords fair and equitable
treatment to the class or classes rejecting it and otherwise satisfies the
requirements of 11 U.S.C. ss. 1129(b). To have the votes of beneficial owners
count, you must complete and return this Ballot.
PLEASE READ AND FOLLOW THE ATTACHED INSTRUCTIONS CAREFULLY.
COMPLETE, SIGN, AND DATE THIS BALLOT AND RETURN IT IN THE ENCLOSED ENVELOPE.
YOUR FINANCIAL INSTITUTION IS REQUIRED TO PROCESS YOUR BALLOT AND SUBMIT A
MASTER BALLOT SO THAT IT IS RECEIVED BY 5:00 P.M., EASTERN STANDARD TIME, ON
MARCH 27, 1998. PLEASE MAIL YOUR BALLOT SUFFICIENTLY IN ADVANCE OF THE VOTING
DEADLINE TO ENABLE YOUR FINANCIAL INSTITUTION TO PROCESS YOUR VOTE.
BALLOTS CAST BY FACSIMILE WILL NOT BE COUNTED.
PLEASE READ THE ATTACHED INSTRUCTIONS ON RETURNING YOUR BALLOT.
By signing below, you are certifying that either you were the
beneficial owner on February 19, 1998 of the 7- 7/8% Senior Notes in the face
amount set forth below or you are an authorized signatory for someone who was a
beneficial owner of such face amount of such 7-7/8% Senior Notes on February 19,
1998.
Beneficial owners may not split their vote on the Plan with respect
to their 7-7/8% Senior Notes. If you are submitting a vote with respect to any
7-7/8% Senior Notes that you beneficially own, you must vote all of your 7-7/8%
Senior Notes in the same way (i.e., all "accept" or all "reject").
An authorized signatory of an eligible beneficial owner may execute
this Ballot, but must provide the name and address of the beneficial owner on
this Ballot and may be required to submit evidence to the Bankruptcy Court
demonstrating such
- --------
(1) In light of the revised Article 8 of the Uniform Commercial Code (the
"UCC"), the term "beneficial owner(s)" also includes entitlement holders
for purposes of completing this Ballot.
<PAGE>
signatory's authorization to vote on behalf of the beneficial owner. Authorized
signatories voting on behalf of more than one beneficial owner must complete a
separate Ballot for each owner.
You may receive multiple mailings containing Ballots, especially if
you own your 7-7/8% Senior Notes through more than one bank, broker, or other
intermediary. You should vote each Ballot that you receive for all of the 7-7/8%
Senior Notes that you beneficially own.
You must provide all of the information requested by this Ballot.
Failure to do so may result in the disqualification of your vote.
Item 1. Face Amount Of 7-7/8% Senior Note Claims.
I hereby certify that I am the beneficial owner (or authorized
signatory for a beneficial owner) of $__________________ face amount [fill in
blank] of 7-7/8% Senior Notes.
Item 2. Vote On Plan. (Please check one.)
The undersigned: |_| ACCEPTS (votes FOR) the Plan.
|_| REJECTS (votes AGAINST) the Plan.
Item 3. Election Regarding Membership Units In Home Insurance Holdings, LLC.
(Please check one.)
Should the Plan be confirmed and distributions made thereunder, the
undersigned:
|_| AGREES TO ACCEPT Membership Units in Home
Insurance Holdings, LLC and to be bound by
the terms of the Home Insurance Holdings,
LLC Agreement.
|_| WAIVES his/her/its right to receive
Membership Units in Home Insurance Holdings,
LLC.
Item 4. Certification As To 7-7/8% Senior Notes Held In Additional Accounts.
By returning this Ballot, the beneficial owner certifies that either
(1) he/she/it has not submitted any other Ballots for 7-7/8% Senior Notes held
in other accounts or other record names, or (2) he/she/it has provided the
information specified in the following table for all other 7-7/8% Senior Notes
for which he/she/it has submitted additional Ballots (please use additional
sheets of paper if necessary):
ONLY COMPLETE THIS SECTION IF YOU HAVE VOTED
BALLOTS OTHER THAN THIS BALLOT
Name Of Holder(2) Account Number (If Applicable) Principal Amount
- ----------------- ------------------------------ ----------------
1. _____________________ ___________________________ $ __________________
2. _____________________ ___________________________ $ __________________
3. _____________________ ___________________________ $ __________________
- --------
(2) Insert your name if the 7-7/8% Senior Notes are held by you in record name
or, if held in street name, insert name of broker or bank (or their
agent).
2
<PAGE>
Item 5. By signing this Ballot, the undersigned hereby certifies that he/she
either (a) is the registered or record holder or securities intermediary(3) and
the beneficial owner of the 7-7/8% Senior Notes to which this Ballot pertains
and is sending this Ballot directly to the Information Agent, MacKenzie
Partners, Inc., 156 Fifth Avenue, New York, New York 10010 (Att'n: Home
Holdings, Ballot Tabulation) or (b) is the beneficial owner of the 7-7/8% Senior
Notes, but not the registered or record holder, to which this Ballot pertains
and is sending this Ballot to the registered or record holder of, or other
nominee of the undersigned with respect to, the 7-7/8% Senior Notes to which
this Ballot pertains, whom the undersigned hereby authorizes and instructs to
(x) execute a Master Ballot reflecting this Ballot and (y) deliver such Master
Ballot to the Information Agent.
The undersigned also acknowledges that his/her vote to accept or
reject the Plan is subject to all the terms and conditions set forth in the
Disclosure Statement.
Name Of Voter:_______________________________________
(Print Or Type)
Social Security Or Federal Tax I.D. No.:_____________
Signature: __________________________________________
By: _________________________________________________
Print or Type Name:__________________________________
Title:_______________________________________________
Address: ____________________________________________
____________________________________________
Telephone Number: ___________________________________
Date Completed:______________________________________
THE VOTING DEADLINE IS 5:00 P.M., EASTERN STANDARD TIME, ON MARCH 27, 1998.
PLEASE MAKE SURE YOU HAVE PROVIDED
ALL INFORMATION REQUESTED BY THIS BALLOT.
YOU SHOULD NOT SUBMIT 7-7/8% SENIOR NOTES WITH THIS BALLOT.
- --------
(3) In light of the revised Article 8 of the UCC, the term "registered
owner(s)" also includes security intermediaries for purposes of completing
this Ballot.
3
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR ADVICE, OR TO MAKE ANY
REPRESENTATION, OTHER THAN WHAT IS CONTAINED IN THE MATERIALS MAILED WITH THIS
BALLOT OR OTHER MATERIALS AUTHORIZED BY THE BANK RUPTCY COURT
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - x
In re :
: Chapter 11
HOME HOLDINGS INC., : Case No. 98 B 40319 (JHG)
:
Debtor. :
:
- - - - - - - - - - - - - - - - x
BALLOT FOR ACCEPTING OR REJECTING
AMENDED PLAN OF REORGANIZATION OF HOME HOLDINGS INC.
(Class 4 Unsecured Claims -- Group 4-E)
You are receiving this Ballot either because Home Holdings Inc. (the
"Debtor") has listed you as a creditor in its Chapter 11 schedules or because
you filed a proof of claim with the Bankruptcy Court.
If your claim has not been paid and is liquidated, undisputed, and
not contingent, your claim has been provisionally allowed for the purpose of
voting as a Class 4 Unsecured Claim (Group 4-E) creditor to accept or reject the
Debtor's Amended Plan of Reorganization, dated March 3, 1998 (the "Plan"), in
the amount for which such claim has been scheduled or filed. The Ballot is
neither a proof of claim form, nor an admission by the Debtor of the nature,
validity, or amount of your claim. Under the Plan, Class 4 Unsecured Claims
(Group 4-E) are impaired, and the holders of such claims therefore are entitled
to vote to accept or reject the Plan.
The Plan can be confirmed by the Bankruptcy Court and thereby made
binding on you if it is accepted by the holders of two-thirds in amount and more
than one-half in number of claims in each class voting on the Plan. In the event
the requisite acceptances are not obtained, the Bankruptcy Court may
nevertheless confirm the Plan if the court finds that the Plan accords fair and
equitable treatment to the class or classes rejecting it and otherwise satisfies
the requirements of 11 U.S.C. ss. 1129(b). To have your vote count, you must
complete and return this ballot.
PLEASE READ AND FOLLOW THE ATTACHED INSTRUCTIONS CAREFULLY.
COMPLETE, SIGN, AND DATE THIS BALLOT AND RETURN IT SO THAT IT IS RECEIVED BY
5:00 P.M., EASTERN STANDARD TIME, ON MARCH 27, 1998 BY THE INFORMATION AGENT,
MACKENZIE PARTNERS, INC., AT THE FOLLOWING ADDRESS:
<PAGE>
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
Att'n: Home Holdings Inc.
Ballot Tabulation
BALLOTS CAST BY FACSIMILE WILL NOT BE COUNTED.
PLEASE READ THE ATTACHED INSTRUCTIONS ON RETURNING YOUR BALLOT.
Creditors may not split their vote on the Plan. If you are
submitting a vote with respect to a Class 4 Unsecured Claim (Group 4-E) that you
hold, you must vote your entire claim in the same way (i.e., all "accept" or all
"reject").
An authorized signatory of a holder of a Class 4 Unsecured Claim
(Group 4-E) may execute this Ballot, but must provide the name and address of
the holder of such claim on this Ballot and may be required to submit evidence
to the Bankruptcy Court demonstrating such signatory's authorization to vote on
behalf of such holder. Authorized signatories voting on behalf of more than one
holder of a Class 4 Unsecured Claim (Group 4-E) must complete a separate Ballot
for each such holder.
You may receive multiple mailings containing Ballots. You should
vote only one Ballot that you receive for all of your Class 4 Unsecured Claim
(Group 4-E). You must provide all of the information requested by this Ballot.
Failure to do so may result in the disqualification of your vote.
Item 1. Face Amount Of Claim.
I hereby certify that I am a creditor holding a General Unsecured
Claim against the Debtor in the amount of $___________________ [fill in blank],
or such creditor's authorized signatory.
Item 2. Vote On Plan. (Please check one.)
The undersigned: |_| ACCEPTS (votes FOR) the Plan.
|_| REJECTS (votes AGAINST) the Plan.
Item 3. Convenience Claim Election. (Please check one.)
The undersigned, the holder of a Class 4 Unsecured Claim (Group 4-E)
in excess of $2,000, hereby elects to accept $2,000 in cash in full
satisfaction, settlement, and release of, and in exchange for, its Class 4
Unsecured Claim (Group 4-E).
|_| ACCEPT |_| DECLINE
2
<PAGE>
Item 4. By signing this Ballot, the undersigned hereby certifies that he/she
is the owner of the claim to which this ballot pertains, or the authorized
signatory of such owner and has full power and authority to vote to accept or
reject the Plan.
The undersigned also acknowledges that his/her/its vote to accept or
reject the Plan is subject to all the terms and conditions set forth in the
Disclosure Statement.
Name Of Voter:________________________________________
(Print Or Type)
Social Security Or Federal Tax I.D. No.:______________
Signature: ___________________________________________
By: __________________________________________________
Print Or Type Name:___________________________________
Title:________________________________________________
Address: _____________________________________________
Telephone Number: ____________________________________
Date Completed:_______________________________________
THE VOTING DEADLINE IS 5:00 P.M., EASTERN STANDARD TIME, ON MARCH 27, 1998.
PLEASE MAKE SURE YOU HAVE PROVIDED
ALL INFORMATION REQUESTED BY THIS BALLOT.
3
<PAGE>
INSTRUCTIONS FOR COMPLETING THE BALLOT
Home Holdings Inc. is soliciting your vote on its Amended Plan Of
Reorganization, dated March 3, 1998 (the "Plan"), referred to in its Disclosure
Statement, dated January 15, 1998, as amended on February 26 and March 3, 1998
(the "Disclosure Statement"). Please review the Disclosure Statement and Plan
carefully before you vote. Unless otherwise defined, capitalized terms used
herein and in the Ballot have the meanings ascribed to them in the Plan.
To have your vote count, you must complete, sign, and return this
Ballot to the address set forth on the enclosed, pre-addressed, return envelope
provided. Unsigned Ballots will not be counted. Ballots must be received by the
Information Agent, by 5:00 P.M., Eastern Standard Time, on March 27, 1998. Do
not deliver completed Ballots to the Information Agent by facsimile. Ballots
cast by facsimile will not be counted.
To complete the Ballot properly, take the following steps:
(a) Make sure that the information required by Item 1 has been
inserted. If you do not have the amount of your claim, please contact the
Information Agent at (212) 929-5500 or (800) 322-2885.
(b) Cast your vote either to accept or reject the Plan by checking
the proper box in Item 2 for the Class 4 Unsecured Claim (Group 4-E) held by
you.
(c) Indicate your choice either to accept or decline the Convenience
Claim Election by checking the proper box in Item 3 for the Class 4 Unsecured
Claim (Group 4-E) held by you.
(d) Read Item 4 carefully.
(e) Sign and date your Ballot.
(f) If you believe that you have received the wrong ballot, please
contact the Information Agent at (212) 929-5500, immediately.
(g) If you are completing this Ballot on behalf of another person or
entity, indicate your relationship with such person or entity and the capacity
in which you are signing.
(h) Provide your name and mailing address (i) if different from the
printed address that appears on the Ballot, or (ii) if no pre-printed address
appears on the Ballot.
(i) Return your Ballot using the enclosed return envelope.
The Ballot should be returned by mail in the pre-addressed envelope
provided with the Ballot so that it will be received by the Information Agent by
the Voting Deadline.
PLEASE MAIL YOUR BALLOT PROMPTLY!
IF YOU HAVE ANY QUESTIONS REGARDING THIS BALLOT OR THE VOTING PROCEDURES,
PLEASE CALL THE INFORMATION AGENT AT (212) 929-5500 OR (800) 322-2885.
4
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR ADVICE, OR TO MAKE ANY
REPRESENTATION, OTHER THAN WHAT IS CONTAINED IN THE MATERIALS MAILED WITH THIS
BALLOT OR OTHER MATERIALS AUTHORIZED BY THE BANKRUPTCY COURT.
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - x
In re :
: Chapter 11
HOME HOLDINGS INC., : Case No. 98 B 40319 (JHG)
:
Debtor. :
:
- - - - - - - - - - - - - - - - x
BALLOT FOR ACCEPTING OR REJECTING
AMENDED PLAN OF REORGANIZATION OF HOME HOLDINGS INC.
(Class 5 Senior Working Capital Note Claims)
You are receiving this Ballot either because Home Holdings Inc. (the
"Debtor") has listed you as a creditor in its Chapter 11 schedules or because
you filed a proof of claim with the Bankruptcy Court.
If your claim has not been paid and is liquidated, undisputed, and
not contingent, your claim has been provisionally allowed for the purpose of
voting as a Class 5 creditor to accept or reject the Debtor's Amended Plan of
Reorganization, dated March 3, 1998 (the "Plan"), in the amount for which such
claim has been scheduled or filed. The Ballot is neither a proof of claim form,
nor an admission by the Debtor of the nature, validity, or amount of your claim.
Under the Plan, Class 5 claims are impaired, and the holders of such claims
therefore are entitled to vote to accept or reject the Plan.
The Plan can be confirmed by the Bankruptcy Court and thereby made
binding on you if it is accepted by the holders of two-thirds in amount and more
than one-half in number of claims in each class voting on the Plan. In the event
the requisite acceptances are not obtained, the Bankruptcy Court may
nevertheless confirm the Plan if the court finds that the Plan accords fair and
equitable treatment to the class or classes rejecting it and otherwise satisfies
the requirements of 11 U.S.C. ss. 1129(b). To have your vote count, you must
complete and return this ballot.
PLEASE READ AND FOLLOW THE ATTACHED INSTRUCTIONS CAREFULLY.
COMPLETE, SIGN, AND DATE THIS BALLOT AND RETURN IT SO THAT IT IS RECEIVED BY
5:00 P.M., EASTERN STANDARD TIME, ON MARCH 27, 1998 BY THE INFORMATION AGENT,
MACKENZIE PARTNERS, INC., AT THE FOLLOWING ADDRESS:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
Att'n: Home Holdings Inc.
Ballot Tabulation
BALLOTS CAST BY FACSIMILE WILL NOT BE COUNTED.
PLEASE READ THE ATTACHED INSTRUCTIONS ON RETURNING YOUR BALLOT.
Creditors may not split their vote on the Plan. If you are
submitting a vote with respect to a Class 5 Senior Working Capital Note Claim
that you hold, you must vote your entire claim in the same way (i.e., all
"accept" or all "reject").
An authorized signatory of a holder of a Class 5 Senior Working
Capital Note Claim may execute this Ballot, but must provide the name and
address of the holder of such claim on this Ballot and may be required to submit
evidence to the Bankruptcy Court demonstrating such signatory's authorization to
vote on behalf of such holder. Authorized signatories voting
<PAGE>
on behalf of more than one holder of a Class 5 Senior Working Capital Note Claim
must complete a separate Ballot for each such holder.
You may receive multiple mailings containing Ballots. You should
vote only one Ballot that you receive for all of your Class 5 Senior Working
Capital Note Claim. You must provide all of the information requested by this
Ballot. Failure to do so may result in the disqualification of your vote.
Item 1. Face Amount Of Claim.
I hereby certify that I am a creditor holding a claim on account of
Senior Working Capital Notes in the face amount of $ [fill in blank], or such
creditor's authorized agent.
Item 2. Vote On Plan. (Please check one.)
The undersigned: |_| ACCEPTS (votes FOR) the Plan.
|_| REJECTS (votes AGAINST) the Plan.
Item 3. By signing this Ballot, the undersigned certifies that he/she is either
(i) a creditor with a claim to which this Ballot pertains that is designated in
the class of Class 5 Senior Working Capital Note Claims, or (ii) an authorized
signatory for such a creditor, and has full power and authority to vote to
accept or reject the Plan.
The undersigned also acknowledges that his/her vote to accept or
reject the Plan is subject to all the terms and conditions set forth in the
Disclosure Statement.
Name Of Voter:________________________________________
(Print Or Type)
Social Security Or Federal Tax I.D. No.:______________
Signature: ___________________________________________
By: __________________________________________________
Print Or Type Name:___________________________________
Title:________________________________________________
Address: _____________________________________________
Telephone Number: ____________________________________
Date Completed:_______________________________________
THE VOTING DEADLINE IS 5:00 P.M., EASTERN STANDARD TIME, ON MARCH 27, 1998.
PLEASE MAKE SURE YOU HAVE PROVIDED ALL INFORMATION REQUESTED BY THIS BALLOT.
IF YOU HAVE ANY QUESTIONS REGARDING THIS BALLOT OR THE VOTING PROCEDURES,
PLEASE CALL THE VOTING AGENT AT (212) 929-5500 OR (800) 322-2885.
2
<PAGE>
INSTRUCTIONS FOR COMPLETING THE BALLOT
Home Holdings Inc. is soliciting your vote on its Amended Plan Of
Reorganization, dated March 3, 1998 (the "Plan"), referred to in its Amended
Disclosure Statement, dated January 15, 1998, as amended on February 26 and
March 3, 1998 (the "Disclosure Statement"). Please review the Disclosure
Statement and Plan carefully before you vote. Unless otherwise defined,
capitalized terms used herein and in the Ballot have the meanings ascribed to
them in the Plan.
To have your vote count, you must complete, sign, and return this
Ballot to the address set forth on the enclosed, pre-addressed, return envelope
provided. Unsigned Ballots will not be counted. Ballots must be received by the
Information Agent, by 5:00 P.M., Eastern Standard Time, on March 27, 1998. Do
not deliver completed Ballots to the Voting Agent by facsimile. Ballots cast by
facsimile will not be counted.
To complete the Ballot properly, take the following steps:
(a) Make sure that the information required by Item 1 has been
inserted. If you do not have the amount of your claim, please contact the
Information Agent at (212) 929-5500 or (800) 322-2885.
(b) Cast your vote either to accept or reject the Plan by checking
the proper box in Item 2.
(c) Read Item 3 carefully.
(d) Sign and date your Ballot.
(e) If you believe that you have received the wrong ballot, please
contact the Information Agent at (212) 929-5500, immediately.
(f) If you are completing this Ballot on behalf of another person or
entity, indicate your relationship with such person or entity and the capacity
in which you are signing.
(g) Provide your name and mailing address (i) if different from the
printed address that appears on the Ballot, or (ii) if no pre-printed address
appears on the Ballot.
(h) Return your Ballot using the enclosed return envelope.
The Ballot should be returned by mail in the pre-addressed envelope
provided with the Ballot so that it will be received by the Information Agent by
the Voting Deadline.
PLEASE MAIL YOUR BALLOT PROMPTLY!
IF YOU HAVE ANY QUESTIONS REGARDING THIS BALLOT OR THE VOTING PROCEDURES,
PLEASE CALL THE INFORMATION AGENT AT (212) 929-5500 OR (800) 322-2885.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR ADVICE, OR TO MAKE ANY
REPRESENTATION, OTHER THAN WHAT IS CONTAINED IN THE MATERIALS MAILED WITH THIS
BALLOT OR OTHER MATERIALS AUTHORIZED BY THE BANKRUPTCY COURT.
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - x
In re :
: Chapter 11
HOME HOLDINGS INC., : Case No. 98 B 40319 (JHG)
:
Debtor. :
:
- - - - - - - - - - - - - - - - x
BALLOT FOR ACCEPTING OR REJECTING
AMENDED PLAN OF REORGANIZATION OF HOME HOLDINGS INC.
(Class 6 Junior Note Claims)
You are receiving this Ballot either because Home Holdings Inc. (the
"Debtor") has listed you as a creditor in its Chapter 11 schedules or because
you filed a proof of claim with the Bankruptcy Court.
If your claim has not been paid and is liquidated, undisputed, and
not contingent, your claim has been provisionally allowed for the purpose of
voting as a Class 6 creditor to accept or reject the Debtor's Amended Plan of
Reorganization, dated March 3, 1998 (the "Plan"), in the amount for which such
claim has been scheduled or filed. The Ballot is neither a proof of claim form,
nor an admission by the Debtor of the nature, validity, or amount of your claim.
Under the Plan, Class 6 claims are impaired, and the holders of such claims
therefore are entitled to vote to accept or reject the Plan.
The Plan can be confirmed by the Bankruptcy Court and thereby made
binding on you if it is accepted by the holders of two-thirds in amount and more
than one-half in number of claims in each class voting on the Plan. In the event
the requisite acceptances are not obtained, the Bankruptcy Court may
nevertheless confirm the Plan if the court finds that the Plan accords fair and
equitable treatment to the class or classes rejecting it and otherwise satisfies
the requirements of 11 U.S.C. ss. 1129(b). To have your vote count, you must
complete and return this ballot.
PLEASE READ AND FOLLOW THE ATTACHED INSTRUCTIONS CAREFULLY.
COMPLETE, SIGN, AND DATE THIS BALLOT AND RETURN IT SO THAT IT IS RECEIVED BY
5:00 P.M., EASTERN STANDARD TIME, ON MARCH 27, 1998 BY THE INFORMATION AGENT,
MACKENZIE PARTNERS, INC., AT THE FOLLOWING ADDRESS:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
Att'n: Home Holdings Inc.
Ballot Tabulation
BALLOTS CAST BY FACSIMILE WILL NOT BE COUNTED.
PLEASE READ THE ATTACHED INSTRUCTIONS ON RETURNING YOUR BALLOT.
Creditors may not split their vote on the Plan. If you are
submitting a vote with respect to a Class 6 Junior Note Claim that you hold, you
must vote your entire claim in the same way (i.e., all "accept" or all
"reject").
An authorized signatory of a holder of a Class 6 Junior Note Claim
may execute this Ballot, but must provide the name and address of the holder of
such claim on this Ballot and may be required to submit evidence to the
Bankruptcy Court
<PAGE>
demonstrating such signatory's authorization to vote on behalf of such holder.
Authorized signatories voting on behalf of more than one holder of a Class 6
Junior Note Claim must complete a separate Ballot for each such holder.
You may receive multiple mailings containing Ballots. You should
vote only one Ballot that you receive for all of your Class 6 Junior Note Claim.
You must provide all of the information requested by this Ballot. Failure to do
so may result in the disqualification of your vote.
Item 1. Face Amount Of Claim.
I hereby certify that I am a creditor holding a claim on account of Junior Note
Claims in the face amount of $__________________ [fill in blank], or such
creditor's authorized agent.
Item 2. Vote On Plan. (Please check one.)
The undersigned: |_| ACCEPTS (votes FOR) the Plan.
|_| REJECTS (votes AGAINST) the Plan.
Item 3. By signing this Ballot, the undersigned certifies that he/she is either
(i) a creditor with a claim to which this Ballot pertains that is designated in
the class of Class 6 Junior Note Claims, or (ii) an authorized signatory for
such a creditor, and has full power and authority to vote to accept or reject
the Plan.
The undersigned also acknowledges that his/her vote to accept or
reject the Plan is subject to all the terms and conditions set forth in the
Disclosure Statement.
Name Of Voter:________________________________________
(Print Or Type)
Social Security Or Federal Tax I.D. No.:______________
Signature: ___________________________________________
By: __________________________________________________
Print Or Type Name:___________________________________
Title:________________________________________________
Address: _____________________________________________
Telephone Number: ____________________________________
Date Completed:_______________________________________
THE VOTING DEADLINE IS 5:00 P.M., EASTERN STANDARD TIME, ON MARCH 27, 1998.
PLEASE MAKE SURE YOU HAVE PROVIDED ALL INFORMATION REQUESTED BY THIS BALLOT.
IFYOU HAVE ANY QUESTIONS REGARDING THIS BALLOT OR THE VOTING PROCEDURES,
PLEASE CALL THE INFORMATION AGENT AT (212) 929-5500 OR (800) 322-2885.
INSTRUCTIONS FOR COMPLETING THE BALLOT
<PAGE>
Home Holdings Inc. is soliciting your vote on its Amended Plan Of
Reorganization, dated March 3, 1998 (the "Plan"), referred to in its Amended
Disclosure Statement, dated January 15, 1998, as amended on February 26 and
March 3, 1998 (the "Disclosure Statement"). Please review the Disclosure
Statement and Plan carefully before you vote. Unless otherwise defined,
capitalized terms used herein and in the Ballot have the meanings ascribed to
them in the Plan.
To have your vote count, you must complete, sign, and return this
Ballot to the address set forth on the enclosed, pre-addressed, return envelope
provided. Unsigned Ballots will not be counted. Ballots must be received by the
Information Agent, by 5:00 P.M., Eastern Standard Time, on March 27, 1998. Do
not deliver completed Ballots to the Information Agent by facsimile. Ballots
cast by facsimile will not be counted.
To complete the Ballot properly, take the following steps:
(a) Make sure that the information required by Item 1 has been
inserted. If you do not have the amount of your claim, please contact the
Information Agent at (212) 929-5500 or (800) 322-2885.
(b) Cast your vote either to accept or reject the Plan by checking
the proper box in Item 2.
(c) Read Item 3 carefully.
(d) Sign and date your Ballot.
(e) If you believe that you have received the wrong ballot, please
contact the Information Agent at (212) 929-5500 or (800) 322-2885, immediately.
(f) If you are completing this Ballot on behalf of another person or
entity, indicate your relationship with such person or entity and the capacity
in which you are signing.
(g) Provide your name and mailing address (i) if different from the
printed address that appears on the Ballot, or (ii) if no pre-printed address
appears on the Ballot.
(h) Return your Ballot using the enclosed return envelope.
The Ballot should be returned by mail in the pre-addressed envelope
provided with the Ballot so that it will be received by the Information Agent by
the Voting Deadline.
PLEASE MAIL YOUR BALLOT PROMPTLY!
IF YOU HAVE ANY QUESTIONS REGARDING THIS BALLOT OR THE VOTING PROCEDURES,
PLEASE CALL THE INFORMATION AGENT AT (212) 929-5500.
2
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - - - x
:
In re : Chapter 11
: Case No. 98 B 40319 (JHG)
HOME HOLDINGS INC., :
:
Debtor. :
:
- - - - - - - - - - - - - - - - - - - - - - - x
SECOND AMENDED PLAN OF REORGANIZATION OF HOME HOLDINGS
INC. UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
SKADDEN, ARPS, SLATE, MEAGHER
& FLOM LLP
Attorneys for Home Holdings Inc.,
Debtor and Debtor-in-Possession
Kayalyn A. Marafioti (KM 9362)
Stephanie R. Schwartz (SS 3000)
919 Third Avenue
New York, New York 10022
(212) 735-3000
Dated: New York, New York
April 29, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
I
DEFINITIONS AND CONSTRUCTION OF TERMS
1.1 Definitions.............................................................1
1.2 Interpretation; Application Of Definitions And Rules Of Construction...10
II
TREATMENT OF ADMINISTRATIVE
EXPENSE CLAIMS AND PRIORITY TAX CLAIMS
2.1 Administrative Expense Claims..........................................10
2.2 Professional Compensation And Reimbursement Claims.....................11
2.3 Priority Tax Claims....................................................11
III
CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS
3.1 Introduction...........................................................11
3.2 Unclassified Claims....................................................11
3.3 Unimpaired Classes Of Claims...........................................12
3.4 Impaired Classes Of Claims.............................................12
3.5 Impaired Classes Of Claims And Equity Interests........................13
==
IV
TREATMENT OF CLAIMS AND EQUITY INTERESTS
4.1 Class 1 -- Other Priority Claims.......................................13
4.2 Class 2 -- Convenience Claims..........................................13
4.3 Class 3 -- Secured Claims..............................................14
4.4 Class 4 -- Unsecured Claims............................................14
4.5 Class 5 -- Senior Working Capital Note Claims..........................16
4.6 Class 6 -- Junior Note Claims..........................................16
4.7 Class 7 -- Senior Subordinated Note Claims.............................17
4.8 Class 8 -- Equity Interests............................................17
4.9 Class 9 -- AmBase Claim................................................17
V
PROVISIONS REGARDING VOTING AND DISTRIBUTIONS
UNDER THE PLAN AND TREATMENT OF DISPUTED,
CONTINGENT, AND UNLIQUIDATED CLAIMS AND
ADMINISTRATIVE EXPENSE CLAIMS
5.1 Voting Of Claims.......................................................17
5.2 Nonconsensual Confirmation.............................................17
5.3 Method Of Distributions Under The Plan.................................18
5.4 Objections To And Resolution Of Administrative Expense Claims,
Claims, And Equity Interests...........................................19
5.5 Administrative Claims Reserve..........................................20
5.6 Cancellation And Surrender Of Existing Securities And Agreements.......20
i
<PAGE>
Page
----
VI
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
6.1 Assumption Or Rejection Of Executory Contracts And Unexpired Leases....21
6.2 Releases...............................................................22
6.3 Indemnification Obligations............................................22
==
VII
PROVISIONS REGARDING CORPORATE GOVERNANCE
AND MANAGEMENT OF REORGANIZED HOME
7.1 General................................................................22
7.2 Meetings Of Reorganized Home Stockholders..............................22
7.3 Directors And Officers Of Reorganized Home.............................22
7.4 Amended Bylaws And Amended Certificate Of Incorporation...............23
7.5 Issuance Of New Securities.............................................23
VIII
IMPLEMENTATION AND EFFECT OF CONFIRMATION OF PLAN
8.1 Term Of Bankruptcy Injunction Or Stays.................................23
8.2 Sources Of Payment.....................................................23
8.3 Tender Offer...........................................................24
8.4 Consummation Of Acquisition............................................24
8.5 Revesting Of Assets....................................................24
8.6 Causes Of Action.......................................................24
8.7 Discharge Of Debtor....................................................24
8.8 Injunction.............................................................25
8.9 Termination Of Subordination Rights....................................25
8.10 Waiver Of Claims; Covenant Not To Sue; Releases........................25
8.11 Professional Fees......................................................27
8.12 Transfer of Trademarks.................................................27
IX
SETTLEMENT OF HOME INSURANCE CLAIM
9.1 Home Insurance Settlement..............................................27
9.2 Mutual Release.........................................................27
9.3 Release Under Plan.....................................................27
==
X
EFFECTIVENESS OF THE PLAN
10.1 Conditions Precedent To Effectiveness..................................28
10.2 Effect Of Failure Of Conditions........................................29
10.3 Waiver Of Conditions...................................................29
XI
RETENTION OF JURISDICTION
ii
<PAGE>
Page
----
XII
MISCELLANEOUS PROVISIONS
12.1 Effectuating Documents And Further Transactions........................30
12.2 Corporate Action.......................................................30
12.3 Exemption From Transfer Taxes..........................................30
12.4 Injunction Regarding Worthless Stock Deduction And Reattribution Of
NOLs To The Debtor Or Reorganized Home.................................31
12.5 Exculpation............................................................31
12.6 Termination Of Committee...............................................31
12.7 Post-Confirmation Date Fees And Expenses...............................31
12.8 Payment Of Statutory Fees..............................................31
12.9 Amendment Or Modification Of The Plan..................................31
12.10 Severability...........................................................32
12.11 Revocation Or Withdrawal Of The Plan And Termination...................32
12.12 Waiver Of Federal Rule Of Civil Procedure 62(a)........................32
12.13 Binding Effect.........................................................32
12.14 Notices................................................................32
12.15 Governing Law..........................................................34
12.16 Withholding And Reporting Requirements.................................34
12.17 Plan Supplement........................................................34
12.18 Allocation Of Plan Distributions Between Principal And Interest........34
12.19 Headings...............................................................34
12.20 Exhibits/Schedules.....................................................34
12.21 Filing Of Additional Documents.........................................35
Exhibits
Exhibit A - Term Sheet - Earn Out Notes Series I
Exhibit B - Term Sheet - Earn Out Notes Series II
Exhibit C - Term Sheet - Earn Out Notes Series III
Exhibit D - Term Sheet - New Notes
Exhibit E - Form Of New Note Tender Offer Undertaking
Exhibit F - Form Of Put Option Undertaking
Exhibit G - Surviving Documents
iii
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UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - x
:
In re : Chapter 11
: Case No. 98 B 40319 (JHG)
HOME HOLDINGS INC., :
:
Debtor. :
:
- - - - - - - - - - - - - - - - - - - - - x
SECOND AMENDED PLAN OF REORGANIZATION OF HOME HOLDINGS
INC. UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
Home Holdings Inc. proposes the following plan of reorganization
under section 1121(a) of title 11 of the United States Code:
I
DEFINITIONS AND CONSTRUCTION OF TERMS
1.1 Definitions. As used herein, the following terms have the
respective meanings specified below, unless the context otherwise requires:
7% Senior Note Indenture means that certain Indenture, dated as of
December 28, 1993, between Home Holdings, as issuer, and the Trustee, pursuant
to which the 7% Senior Notes were issued, together with any amendments or
supplements thereto.
7% Senior Notes means the 7% Senior Notes, due 1998, of Home
Holdings, issued and outstanding under the 7% Senior Note Indenture.
7% Series A Senior Working Capital Notes means the 7% Series A
Senior Working Capital Notes of Home Holdings, issued and outstanding under the
Amended and Restated Standby Working Capital Agreement.
7% Series B Senior Working Capital Notes means the 7% Series B
Senior Working Capital Notes of Home Holdings, issued and outstanding under the
Amended and Restated Standby Working Capital Agreement.
7 7/8% Senior Note Indenture means that certain Indenture, dated as
of December 28, 1993, between Home Holdings, as issuer, and the Trustee,
pursuant to which the 7 7/8% Senior Notes were issued, together with any
amendments or supplements thereto.
7 7/8% Senior Notes means the 7 7/8% Senior Notes, due 2003, of Home
Holdings, issued and outstanding under the 7 7/8% Senior Note Indenture.
<PAGE>
7 7/8% Senior Sinking Fund Note Indenture means that certain
Indenture, dated as of August 22, 1995, between Home Holdings, as issuer, and
the Trustee, pursuant to which the 7 7/8% Senior Sinking Fund Notes were issued,
together with any amendments or supplements thereto.
7 7/8% Senior Sinking Fund Notes means the 7 7/8% Senior Sinking
Fund Notes, due 2003, of Home Holdings, issued and outstanding under the 7 7/8%
Senior Sinking Fund Note Indenture.
12% Senior Subordinated Note Agreement means that certain Amended
and Restated Note Purchase Agreement, dated as of April 26, 1995, between Home
Holdings and ZCI Investments Limited.
12% Senior Subordinated Notes means the 12% Senior Subordinated
Notes, due 2004, of Home Holdings, issued and outstanding under the 12% Senior
Subordinated Note Agreement.
12% Senior Subordinated Working Capital Notes means the 12% Senior
Subordinated Working Capital Notes, due 2004, of Home Holdings, issued and
outstanding under the Amended and Restated Standby Working Capital Agreement.
Acquisition Agreement means the Stock Purchase Agreement, to be
dated on or before the Effective Date, between the Debtor and Home Insurance
Holdings, LLC, which shall be substantially in the form contained in the Plan
Supplement.
Acquired Assets means all of the issued and outstanding shares of
common stock of Home Insurance owned by the Debtor.
Administrative Expense Claim means any right to payment constituting
a cost or expense of administration of the Chapter 11 Case of a kind specified
under section 503(b) and entitled to priority under section 507(a)(1) of the
Bankruptcy Code, including, without limitation, any actual and necessary costs
and expenses of preserving the estate of the Debtor, any actual and necessary
costs and expenses of operating the business of the Debtor, any indebtedness or
obligations incurred or assumed by the Debtor-in-Possession in connection with
the conduct of its business, including, without limitation, for the acquisition
or lease of property or an interest in property or the rendition of services,
all compensation and reimbursement of expenses to the extent Allowed by the
Bankruptcy Court under sections 330 or 503 of the Bankruptcy Code, and any fees
or charges assessed against the estate of the Debtor under section 1930 of
chapter 123 of title 28 of the United States Code.
Administrative Claims Reserve means the reserve maintained by
Reorganized Home to pay Administrative Expense Claims, Priority Tax Claims, and
Other Priority Claims that first become Allowed Claims after the Effective Date.
Amended and Restated Standby Working Capital Agreement means that
certain Amended and Restated Standby Working Capital Agreement, dated as of
April 26, 1995, between Home Holdings and ZCI Investments Limited.
Affiliate means as to any Person, any other Person which, directly
or indirectly, is in control of, is controlled by, or is under common control
with, such Person. For purposes of this definition, "control" of a Person means
the power, directly or indirectly, either to (a) vote 10% or more of the
securities having ordinary voting power for the election of directors of such
Person or (b) direct or cause the direction of the management and policies of
such Person whether by contract or otherwise.
2
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Allowed means, with reference to any Claim or Equity Interest, (a)
any Claim against or Equity Interest in the Debtor which has been listed by the
Debtor in its Schedules, as such Schedules may be amended by the Debtor from
time to time in accordance with Bankruptcy Rule 1009, as liquidated in amount
and not disputed or contingent and with respect to which no contrary proof of
claim or interest has been filed, (b) any Claim or Equity Interest Allowed under
this Plan, (c) any Claim or Equity Interest which is not Disputed or (d) any
Claim or Equity Interest the amount or existence of which, if Disputed, (i) has
been determined by a final order of a court of competent jurisdiction other than
the Bankruptcy Court pursuant to the Plan or a Final Order of the Bankruptcy
Court, or (ii) has been Allowed by Final Order; provided, however, that any
Claims or Equity Interests allowed solely for the purpose of voting to accept or
reject the Plan pursuant to an order of the Bankruptcy Court shall not be
considered "Allowed Claims" or "Allowed Equity Interests" hereunder.
AmBase means AmBase Corporation.
AmBase Claim means any and all Claims which AmBase may have against
the Debtor or Debtor-in-Possession.
AmBase Keepwell Agreement means that certain Keepwell Agreement to
be entered into between a member of the Zurich Group and Reorganized Home, which
shall be substantially in the form contained in the Plan Supplement.
Amended Home Bylaws means the amended and restated Bylaws of
Reorganized Home, which shall be substantially in the form contained in the Plan
Supplement.
Amended Home Certificate of Incorporation means the amended and
restated Certificate of Incorporation of Reorganized Home, which shall be
substantially in the form contained in the Plan Supplement.
Ballot means the form distributed to each holder of an impaired
Claim (other than to holders of impaired Claims deemed to have rejected the
Plan) upon which is to be indicated acceptance or rejection of the Plan.
Bankruptcy Code means title 11 of the United States Code, as amended
from time to time, as applicable to the Chapter 11 Case.
Bankruptcy Court means the United States District Court for the
Southern District of New York or such other court as may have jurisdiction over
the Chapter 11 Case and, to the extent of any reference under section 157 of
title 28 of the United States Code, the unit of such District Court under
section 151 of title 28 of the United States Code.
Bankruptcy Rules means the Federal Rules of Bankruptcy Procedure as
promulgated by the United States Supreme Court under section 2075 of title 28 of
the United States Code, and any local rules of the Bankruptcy Court, as the
context may require.
Business Day means any day other than a Saturday, Sunday, or any
other day on which commercial banks in New York, New York are required or
authorized to close by law or executive order.
Cash means legal tender of the United States of America and
equivalents thereof.
Chapter 11 Case means the case under Chapter 11 of the Bankruptcy
Code commenced by the Debtor, styled In re Home Holdings Inc., Chapter 11 Case
No. 98 B 40319 (JHG).
3
<PAGE>
Class means a category of holders of Claims or Equity Interests as
set forth in Article III of the Plan.
Class 4 Keepwell Agreement means that certain Keepwell Agreement to
be entered into between a member of the Zurich Group and Reorganized Home, which
shall be substantially in the form of Exhibit G contained in the Plan
Supplement.
Collateral means any property or interest in property of the estate
of the Debtor subject to a Lien to secure the payment or performance of a Claim,
which Lien is not subject to avoidance under the Bankruptcy Code or otherwise
invalid under the Bankruptcy Code or applicable state law.
Commencement Date means January 15, 1998, the date on which the
Debtor commenced the Chapter 11 Case.
Confirmation Date means the date on which the Clerk of the
Bankruptcy Court enters the Confirmation Order on the docket.
Confirmation Hearing means the hearing held by the Bankruptcy Court
to consider confirmation of the Plan pursuant to section 1129 of the Bankruptcy
Code, as such hearing may be adjourned or continued from time to time.
Confirmation Order means the order of the Bankruptcy Court
confirming the Plan pursuant to section 1129 of the Bankruptcy Code.
Convenience Claim means any General Unsecured Claim in the amount of
$2,000 or less and any General Unsecured Claim that is reduced to $2,000 by the
election of the holder thereof on such holder's Ballot.
Creditors' Committee means the statutory committee of unsecured
creditors appointed in the Chapter 11 Case pursuant to section 1102 of the
Bankruptcy Code.
Debtor means Home Holdings Inc.
Department means the New Hampshire Insurance Department.
Debtor-in-Possession means the Debtor in its capacity as debtor in
possession in the Chapter 11 Case pursuant to sections 1101, 1107(a), and 1108
of the Bankruptcy Code.
Disbursing Agent has the meaning set forth in Section 5.3(j) of the
Plan.
Disclosure Statement means the disclosure statement relating to the
Plan, including, without limitation, all exhibits and schedules thereto, as
approved by the Bankruptcy Court pursuant to section 1125 of the Bankruptcy
Code.
Disputed means, with reference to any Claim or Equity Interest, (a)
any Claim or Equity Interest proof of which was timely and properly filed and
which either (i) has been or hereafter is listed on the Schedules as
unliquidated, disputed, or contingent (and in such cases or, in the case of an
Administrative Expense Claim, any Administrative Expense Claim, Claim, or Equity
Interest which is disputed under the Plan) or (ii) as to which the Debtor or, if
not prohibited by the Plan, any other party in interest has interposed a timely
objection and/or request for
4
<PAGE>
estimation in accordance with section 502(c) of the Bankruptcy Code and
Bankruptcy Rule 3018, which objection and/or request for estimation has not been
withdrawn or determined by a Final Order, or (b) any Claim or Equity Interest
proof of which was required to be filed by order of the Bankruptcy Court but as
to which a proof of claim or interest was not timely or properly filed.
Disputed Claim Amount means the amount set forth in the proof of
claim relating to a Disputed Claim or, if an amount is estimated in respect of a
Disputed Claim in accordance with section 502(c) of the Bankruptcy Code and
Bankruptcy Rule 3018 for purposes of, among other things, Section 5.3(h) of the
Plan, the amount so estimated pursuant to an order of the Bankruptcy Court.
Earn Out Notes means, collectively, the Earn Out Notes Series I,
Earn Out Notes Series II, and Earn Out Notes Series III.
Earn Out Notes Indenture means the trust indenture between
Reorganized Home, as issuer, and the Trustee, which shall relate to the Earn Out
Notes Series I and which shall be substantially in the form contained in the
Plan Supplement.
Earn Out Notes Series I means the Earn Out Notes Series I authorized
and to be issued pursuant to the Plan on the terms and subject to the conditions
described in Exhibit A hereto, and which shall be substantially in the form
contained in the Plan Supplement.
Earn Out Notes Series II means the Earn Out Notes Series II
authorized and to be issued pursuant to the Plan on the terms and subject to the
conditions described in Exhibit B hereto, and which shall be substantially in
the form contained in the Plan Supplement.
Earn Out Notes Series III means the Earn Out Notes Series III
authorized and to be issued pursuant to the Plan on the terms and subject to the
conditions described in Exhibit C hereto, and which shall be substantially in
the form contained in the Plan Supplement.
Effective Date means the first Business Day on which the conditions
specified in Section 10.1 of the Plan have been satisfied or waived.
Equity Interest means any share of preferred stock or common stock
or other instrument evidencing an ownership interest in the Debtor, whether or
not transferable, and any option, warrant, or right, contractual or otherwise,
to acquire any such interest.
Face Amount means, when used in reference to a Disputed Claim, the
full stated amount claimed by the holder of such Claim in any proof of claim
timely filed with the Bankruptcy Court or otherwise deemed timely filed by any
Final Order of the Bankruptcy Court or other applicable bankruptcy law.
Final Order means an order of the Bankruptcy Court as to which the
time to appeal, to petition for certiorari, or to move for reargument or
rehearing has expired and as to which no appeal, petition for certiorari, or
other proceedings for reargument or rehearing shall then be pending or as to
which any right to appeal, petition for certiorari, reargue, or rehear shall
have been waived in writing in form and substance satisfactory to the Debtor or
Reorganized Home or, in the event that an appeal, writ of certiorari,
reargument, or rehearing thereof has been sought, such order of the Bankruptcy
Court shall have been affirmed by the highest court to which such order was
appealed, or certiorari, reargument, or rehearing shall have been denied and the
time to take any further appeal, petition for certiorari or move for reargument
or rehearing shall have expired; provided, however, that the possibility that a
motion under Rule 59 or Rule 60 of the Federal Rules of Civil Procedure, or any
analogous rule under the Bankruptcy Rules, may be filed with respect to such
order shall not cause such order not to be a Final Order.
5
<PAGE>
General Unsecured Claim means any Unsecured Claim other than a
Convenience Claim, a Senior Note Claim, a Senior Working Capital Note Claim, a
Senior Subordinated Note Claim, a Junior Note Claim, the Home Insurance Claim,
or the AmBase Claim.
Home Holdings means Home Holdings Inc., a Delaware corporation.
Home Insurance means The Home Insurance Company, a New Hampshire
corporation.
Home Insurance Claim means any and all claims which Home Insurance
may have against the Debtor or Debtor-in-Possession arising out of that certain
Consolidated Group Tax Agreement, dated February 13, 1991, between Home Holdings
and Home Insurance.
Home Insurance Holdings, LLC means Home Insurance Holdings, LLC, a
New Hampshire limited liability company, which shall acquire all of the
outstanding stock of Home Insurance pursuant to the Acquisition Agreement.
Home Insurance Holdings, LLC Agreement means the Home Holdings
Limited Liability Company Agreement.
Home Insurance Holdings, LLC Documents means the Home Holdings, LLC
Agreement and the documents and agreements executed in connection therewith
(including, without limitation, the organizational documents of the manager of
the Home Insurance Holdings, LLC), substantially in the form contained in the
Plan Supplement.
Home Insurance Settlement means the compromise and settlement with
Home Insurance to be effected in accordance with Section 9.1 hereof.
Information and Tabulation Agent means MacKenzie Partners, Inc.
having offices at 156 Fifth Avenue, New York, New York 10010.
Initial Distribution Date means the Effective Date or as soon
thereafter as is practicable.
Insurance Commissioner means the New Hampshire Commissioner of
Insurance.
Junior Note Claim means a Claim of a Junior Noteholder arising under
or as a result of the Junior Notes.
Junior Noteholder means a holder of Junior Notes.
Junior Notes means the 8% Junior Subordinated Notes, due 2004, of
Home Holdings, issued and outstanding under the Junior Subordinated Note
Agreement.
Junior Subordinated Note Agreement means that certain Amended and
Restated Note Exchange Agreement, dated as of April 26, 1995, between
Trygg-Hansa and Home Holdings.
Letter of Transmittal means the Letter of Transmittal to Tender New
Notes of Reorganized Home, which shall be substantially in the form contained in
the Plan Supplement.
6
<PAGE>
Membership Units means the membership units in Home Insurance
Holdings, LLC.
New Common Stock means the common stock of Reorganized Home
authorized and to be issued pursuant to the Plan, having a par value of $.01 per
share and such rights with respect to dividends, liquidation, voting, and other
matters as are provided for by applicable nonbankruptcy law or in the Amended
Home Certificate of Incorporation and the Amended Home Bylaws.
New Common Stock Distribution Pool means 100 shares of New Common
Stock.
New Notes means the Senior Notes due 2005 authorized and to be
issued pursuant to the Plan on the terms and subject to the conditions described
in Exhibit D hereto, and which shall be substantially in the form contained in
the Plan Supplement.
New Notes Indenture means the trust indenture between Reorganized
Home, as issuer, and the Trustee, which shall be substantially in the form
contained in the Plan Supplement.
New Note Tender Offer Undertaking means the undertaking by Zurich
Note Entity to purchase all of the New Notes on the terms and conditions
contained therein, a copy of which is annexed hereto as Exhibit E.
Offer to Purchase means the Offer to Purchase any and all
outstanding New Notes, which shall be substantially in the form contained in the
Plan Supplement.
Other Priority Claim means any Claim, other than an Administrative
Expense Claim and a Priority Tax Claim, entitled to priority in right of payment
under section 507(a) of the Bankruptcy Code.
Percentage Formula means (A/B) when .99
A = the sum of (i) 61,271,875, and
(ii) .25 x (((280,000,000 x .083125) / 360) x N1), and
(iii) .25 x (((280,000,000 x .12) / 360) x N1a, and
(iv) .25 x (((280,000,000 x .083125) / 360) x N1b)
N1 = the number of days from and including June 16, 1997 to and including
May 1, 1998,
N1a = the number of days from and excluding May 1, 1998 to and including the
Confirmation Date.
N1b = the number of days from and excluding the Confirmation Date to and
including the Effective Date.
RB = the sum of (i) 280,000,000 and
(ii) (((280,000,000 x .083125) / 360) x N2), and
N2 = the number of days from and including June 16, 1997 to and excluding the
Commencement Date.
7
<PAGE>
Person means an individual, partnership, limited liability company,
corporation, business trust, joint stock company, trust, unincorporated
association, joint venture, or other entity of whatever nature.
Plan means this Chapter 11 plan of reorganization, including,
without limitation, the Plan Supplement and all exhibits, supplements,
appendices, and schedules hereto, either in its present form or as the same may
be altered, amended, or modified from time to time in accordance with its terms.
Plan Supplement means the forms of documents specified in Section
12.17 of the Plan.
Priority Tax Claim means any Claim of a governmental unit of the
kind specified in sections 502(i) and 507(a)(8) of the Bankruptcy Code.
Pro Rata Share means a proportionate share, so that the ratio of the
consideration distributed on account of an Allowed Claim in a Class to the
amount of such Allowed Claim is the same as the ratio of the amount of the
consideration distributed on account of all Allowed Claims in such Class to the
amount of all Allowed Claims in such Class.
Put Option Undertaking means the undertaking by Zurich Put Entity to
redeem the Earn Out Notes Series I on the terms and conditions continued
therein, a copy of which is annexed hereto as Exhibit F.
Quarter means the period beginning on the Effective Date and ending
on the immediately succeeding March 31, June 30, September 30, or December 31,
and each three-month period thereafter, as the context may require.
Record Date means the day that is five days from and after the
Confirmation Date.
Reorganized Home means Home Holdings, or any successor thereto by
merger, consolidation, or otherwise, on and after the Effective Date.
Reserve has the meaning set forth in Section 5.3(h) of the Plan.
Schedules means the schedules of assets and liabilities, the list of
holders of Equity Interests, and the statements of financial affairs filed by
the Debtor under section 521 of the Bankruptcy Code and Bankruptcy Rule 1007,
and all amendments and modifications thereto through the Confirmation Date.
Secured Claim means any Claim, to the extent reflected in the
Schedules or a proof of claim as a Secured Claim, which is secured by a Lien on
Collateral to the extent of the value of such Collateral, as determined in
accordance with section 506(a) of the Bankruptcy Code, or, in the event that
such Claim is subject to setoff under section 553 of the Bankruptcy Code, to the
extent of such setoff.
Senior 7% Note Claim means a Claim of a Senior Noteholder arising
under or as a result of the 7% Senior Notes.
Senior 7 7/8% Note Claim means a Claim of a Senior Noteholder
arising under or as a result of the 7 7/8% Senior Notes.
8
<PAGE>
Senior 7 7/8% Sinking Fund Note Claim means a Claim of a Senior
Noteholder arising under or as a result of the 7 7/8% Senior Sinking Fund Notes.
Senior Note Claim means a Claim of a Senior Noteholder arising under
the Senior Notes.
Senior Noteholder means a holder of one or more 7% Senior Notes, 7
7/8% Senior Sinking Fund Notes, or 7 7/8% Senior Notes.
Senior Noteholders' Committee means the unofficial committee that
was formed by certain holders of the Senior Notes prior to the Commencement
Date.
Senior Notes means, collectively, the 7% Senior Notes, 7 7/8% Senior
Sinking Fund Notes, and 7 7/8% Senior Notes.
Senior Subordinated Note Claim means a Claim of a Senior
Subordinated Noteholder arising under or as a result of the Senior Subordinated
Notes.
Senior Subordinated Noteholder means a holder of one or more 12%
Senior Subordinated Notes or 12% Senior Subordinated Working Capital Notes.
Senior Subordinated Notes means, collectively, the 12% Senior
Subordinated Notes and 12% Senior Subordinated Working Capital Notes.
Senior Working Capital Note Claim means a Claim of a Senior Working
Capital Noteholder arising under the Senior Working Capital Notes.
Senior Working Capital Noteholder means a holder of one or more 7%
Series A Senior Working Capital Notes or 7% Series B Senior Working Capital
Notes.
Senior Working Capital Notes means, collectively, the 7% Series A
Senior Working Capital Notes and 7% Series B Senior Working Capital Notes.
Subordination Related Rights has the meaning ascribed to such term
in Section 8.9 of the Plan.
Subsequent Distribution Date means the twentieth day after the end
of the Quarter following the Quarter in which the Initial Distribution Date
occurs and the twentieth day after the end of each subsequent Quarter.
Tax Savings has the meaning set forth in Exhibit A to the Plan.
Trustee means, (i) with respect to the 7% Senior Note Indenture, the
7 7/8% Senior Note Indenture, and the 7 7/8% Senior Sinking Fund Note Indenture,
The Bank of New York, in its capacity as trustee under each such indenture, (ii)
with respect to the New Notes, the trust company or bank which is initially
appointed by the issuer as trustee under the New Note Indenture, and (iii) with
respect to the Earn Out Notes Series I, the trust company or bank which is
initially appointed by the issuer as trustee under the Earn Out Notes Indenture.
Trygg-Hansa means Trygg-Hansa AB.
Trygg-Hansa Group means Trygg-Hansa and each of its Affiliates.
9
<PAGE>
Unsecured Claim means any Claim that is not a Secured Claim,
Administrative Expense Claim, Priority Tax Claim, or Other Priority Claim.
Zurich means Zurich Insurance Company.
Zurich Group means Zurich and each of its Affiliates, including,
without limitation, Risk Enterprise Management Limited.
Zurich Home Investments means Zurich Home Investments Limited, a
Bermuda corporation.
Zurich Note Entity means Zurich Reinsurance Centre Holdings, a
Delaware Corporation.
Zurich Put Entity means Zurich Reinsurance Centre Holdings, a
Delaware Corporation.
1.2 Interpretation; Application Of Definitions And Rules Of
Construction. Wherever from the context it appears appropriate, each term stated
in either the singular or the plural shall include both the singular and the
plural and pronouns stated in the masculine, feminine, or neuter gender shall
include the masculine, feminine, and neuter. Unless otherwise specified, all
section, article, schedule, or exhibit references in the Plan are to the
respective Section in, Article of, Schedule to, or Exhibit to, the Plan. The
words "herein," "hereof," "hereto," "hereunder," and other words of similar
import refer to the Plan as a whole and not to any particular section,
subsection, or clause contained in the Plan. The rules of construction contained
in section 102 of the Bankruptcy Code shall apply to the construction of the
Plan. A term used herein that is not defined herein, but that is used in the
Bankruptcy Code or the Bankruptcy Rules, shall have the meaning ascribed to that
term in the Bankruptcy Code or the Bankruptcy Rules. The headings in the Plan
are for convenience of reference only and shall not limit or otherwise affect
the provisions of the Plan.
II
TREATMENT OF ADMINISTRATIVE
EXPENSE CLAIMS AND PRIORITY TAX CLAIMS
2.1 Administrative Expense Claims. Except to the extent that any
entity entitled to payment of any Allowed Administrative Expense Claim agrees to
a different treatment, each holder of an Allowed Administrative Expense Claim
shall receive Cash in an amount equal to such Allowed Administrative Expense
Claim on the later of the Effective Date and the date such Administrative
Expense Claim becomes an Allowed Administrative Expense Claim, or as soon
thereafter as is practicable; provided, however, that Allowed Administrative
Expense Claims representing liabilities incurred in the ordinary course of
business by the Debtor-in-Possession or liabilities arising under loans or
advances to or other obligations incurred by the Debtor-in-Possession (to the
extent authorized and approved by the Bankruptcy Court if such authorization and
approval was required under the Bankruptcy Code) shall be paid in full and
performed by Reorganized Home in the ordinary course of business in accordance
with the terms and subject to the conditions of any agreements governing,
instruments evidencing, or other documents relating to, such transactions.
2.2 Professional Compensation And Reimbursement Claims. All entities
seeking an award by the Bankruptcy Court of compensation for services rendered
or reimbursement of expenses incurred through and including the Confirmation
Date under sections 503(b)(2), 503(b)(3),
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503(b)(4), or 503(b)(5) of the Bankruptcy Code (a) shall file their respective
final applications for allowances of compensation for services rendered and
reimbursement of expenses incurred through the Confirmation Date by the date
that is 60 days after the Effective Date or such other date as may be fixed by
the Bankruptcy Court and (b) if granted, such an award by the Bankruptcy Court
shall be paid in full in such amounts as are Allowed by the Bankruptcy Court (i)
on the date such Administrative Expense Claim becomes an Allowed Administrative
Expense Claim, or as soon thereafter as is practicable or (ii) upon such other
terms as may be mutually agreed upon between such holder of an Administrative
Expense Claim and the Debtor-in-Possession or, on and after the Effective Date,
Reorganized Home.
2.3 Priority Tax Claims. Except to the extent that a holder of an
Allowed Priority Tax Claim has been paid by the Debtor prior to the Effective
Date or agrees to a different treatment, each holder of an Allowed Priority Tax
Claim shall receive, at the sole option of Reorganized Home, (a) Cash in an
amount equal to such Allowed Priority Tax Claim on the later of the Effective
Date and the date such Priority Tax Claim becomes an Allowed Priority Tax Claim,
or as soon thereafter as is practicable or (b) equal annual Cash payments in an
aggregate amount equal to such Allowed Priority Tax Claim, together with
interest at a fixed annual rate equal to 8 1/4%, over a period through the sixth
anniversary of the date of assessment of such Allowed Priority Tax Claim,
commencing on the first anniversary of the Effective Date, or upon such other
terms as may be determined by the Bankruptcy Court to provide the holder of such
Allowed Priority Tax Claim deferred Cash payments having a value, as of the
Effective Date, equal to such Allowed Priority Tax Claim.
III
CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS
3.1 Introduction. All Claims and Equity Interests, except
Administrative Expense Claims and Priority Tax Claims, are placed in the Classes
set forth below. In accordance with section 1123(a)(1) of the Bankruptcy Code,
Administrative Expense Claims and Priority Tax Claims, as described below, have
not been classified.
A Claim or Equity Interest is placed in a particular Class only to
the extent that the Claim or Equity Interest falls within the description of
that Class, and is classified in other Classes to the extent that any portion of
the Claim or Equity Interest falls within the description of such other Classes.
A Claim is also placed 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 such Claim has not been paid, released, or
otherwise settled prior to the Effective Date.
3.2 Unclassified Claims (not entitled to vote on the Plan).
(a) Administrative Expense Claims.
(b) Priority Tax Claims.
3.3 Unimpaired Classes Of Claims (deemed to have accepted the Plan
and, therefore, not entitled to vote on the Plan).
(a) Class 1: Other Priority Claims.
Class 1 consists of all Other Priority Claims.
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(b) Class 2: Convenience Claims.
Class 2 consists of all Convenience Claims.
(c) Class 3: Secured Claims.
Class 3 consists of all Secured Claims. Each Class 3 Secured
Claim is deemed to be in a separate subclass for all purposes under the
Bankruptcy Code.
(d) Class 9: AmBase Claim.
Class 9 consists of the AmBase Claim.
3.4 Impaired Classes Of Claims (entitled to vote on the Plan).
(a) Class 4: Unsecured Claims.
Class 4 consists of all Unsecured Claims. Class 4 Unsecured
Claims have been divided into separate groups below. Together, all of the groups
of Unsecured Claims constitute a single Class of Claims for voting purposes
under the Plan and the Bankruptcy Code.
(i) Group 4-A: Group 4-A consists of all General
Unsecured Claims.
(ii) Group 4-B: Group 4-B consists of all Senior 7%
Note Claims.
(iii) Group 4-C: Group 4-C consists of all Senior 7 7/8%
Sinking Fund Note Claims.
(iv) Group 4-D: Group 4-D consists of all Senior 7 7/8%
Note Claims.
(v) Group 4-E: Group 4-E consists of the Home
Insurance Claim.
(b) Class 5: Senior Working Capital Note Claims.
Class 5 consists of all Senior Working Capital Note Claims.
(c) Class 6: Junior Note Claims.
Class 6 consists of all Junior Note Claims.
3.5 Impaired Classes Of Claims And Equity Interests (deemed to have
rejected the Plan and, therefore, not entitled to vote on the Plan).
(a) Class 7: Senior Subordinated Note Claims.
Class 7 consists of all Senior Subordinated Note Claims.
(b) Class 8: Equity Interests.
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Class 8 consists of all Equity Interests.
IV
TREATMENT OF CLAIMS AND EQUITY INTERESTS
4.1 Class 1 -- Other Priority Claims.
(a) Impairment And Voting. Class 1 is unimpaired by the Plan.
Each holder of an Allowed Other Priority Claim is conclusively presumed to have
accepted the Plan and is not entitled to vote to accept or reject the Plan.
(b) Distributions. Each holder of an Allowed Other Priority
Claim shall receive Cash in an amount equal to such Allowed Other Priority Claim
on the later of the Effective Date and the date such Allowed Other Priority
Claim becomes an Allowed Other Priority Claim, or as soon thereafter as is
practicable.
4.2 Class 2 -- Convenience Claims.
(a) Impairment And Voting. Class 2 is unimpaired by the Plan.
Each holder of an Allowed Convenience Claim is conclusively presumed to have
accepted the Plan and is not entitled to vote to accept or reject the Plan.
(b) Distributions. Each holder of an Allowed Convenience Claim
shall receive Cash in an amount equal to 100% of such Allowed Convenience Claim
on the later of the Effective Date and the date such Allowed Convenience Claim
becomes an Allowed Convenience Claim, or as soon thereafter as is practicable.
(c) Election To Be Treated As Convenience Claim. By checking
the appropriate box on a timely cast Ballot, the holder of an Allowed General
Unsecured Claim in an amount greater than $2,000 may elect to reduce the amount
of such holder's Allowed General Unsecured Claim to $2,000 and to receive a
distribution upon such Allowed Class 2 Convenience Claim in the amount of $2,000
as described in Section 4.2(b) above. Such an election shall constitute a waiver
of the right to collect, and a release of, the amount of the Allowed General
Unsecured Claim in excess of $2,000, and the holder of such Allowed Class 2
Convenience Claim shall be deemed to have released the Debtor and its estate,
Reorganized Home, and their property from any and all liability for such excess
amount. The holder of an Allowed General Unsecured Claim which timely elects to
reduce the amount of its Allowed Claim shall be deemed to be the holder of an
Allowed Class 2 Convenience Claim for classification, voting, and all other
purposes under the Plan.
4.3 Class 3 -- Secured Claims.
(a) Impairment And Voting. Class 3 is unimpaired by the Plan.
Each holder of an Allowed Secured Claim is conclusively presumed to have
accepted the Plan and is not entitled to vote to accept or reject the Plan.
(b) Distributions/Reinstatement Of Claims. Except to the
extent that a holder of an Allowed Secured Claim agrees to a different
treatment, at the sole option of Reorganized Home, (i) each Allowed Secured
Claim shall be reinstated and rendered unimpaired in accordance with section
1124(2) of the Bankruptcy Code, notwithstanding any contractual provision or
applicable nonbankruptcy law that entitles the holder of an Allowed Secured
Claim to demand or receive payment
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of such Allowed Secured Claim prior to the stated maturity of such Allowed
Secured Claim from and after the occurrence of a default, (ii) each holder of an
Allowed Secured Claim shall receive Cash in an amount equal to such Allowed
Secured Claim, including any interest on such Allowed Secured Claim required to
be paid pursuant to section 506(b) of the Bankruptcy Code, on the later of the
Effective Date and the date such Allowed Secured Claim becomes an Allowed
Secured Claim, or as soon thereafter as is practicable, or (iii) each holder of
an Allowed Secured Claim shall receive the Collateral securing its Allowed
Secured Claim and any interest on such Allowed Secured Claim required to be paid
pursuant to section 506(b) of the Bankruptcy Code, in full and complete
satisfaction of such Allowed Secured Claim on the later of the Effective Date
and the date such Allowed Secured Claim becomes an Allowed Secured Claim, or as
soon thereafter as is practicable.
4.4 Class 4 -- Unsecured Claims.
(a) Impairment And Voting. Class 4 is impaired by the Plan.
Each holder of an Allowed Unsecured Claim is entitled to vote to accept or
reject the Plan.
(b) Distributions.
(i) Group 4-A.
(1) On the Initial Distribution Date or as soon
thereafter as is practicable, each holder of an Allowed General Unsecured
Claim as of the Record Date shall receive (x) New Notes in a principal
amount equal to the product of the Percentage Formula and such holder's
Allowed General Unsecured Claim, (y) its Pro Rata Share of units of Earn
Out Notes Series I, and (z) its Pro Rata Share of Membership Units.
(2) On each Subsequent Distribution Date, each
holder of an Allowed General Unsecured Claim which was a Disputed Claim on
the Initial Distribution Date or the prior Subsequent Distribution Date
shall receive a Pro Rata Share of the amount of Earn Out Notes Series I,
New Notes, and Membership Units in the Reserve in accordance with Section
5.3(i) of the Plan.
(3) Each holder of an Allowed General Unsecured
Claim, by accepting the distributions provided for under the Plan, shall
be deemed to have (i) requested that it be admitted as a member of Home
Insurance Holdings, LLC and (ii) agreed to be bound by the terms of the
Home Insurance Holdings, LLC Agreement, unless such holder elects not to
be a member by checking the appropriate box on a timely cast Ballot or so
advising the Debtor in writing prior to the Effective Date. Such an
election shall constitute a waiver of the right to receive its Pro Rata
Share of Membership Units.
(ii) Group 4-B.
(1) On the Initial Distribution Date or as soon
thereafter as is practicable, each holder of an Allowed Senior 7% Note
Claim as of the Record Date shall receive (x) New Notes in a principal
amount equal to the product of the Percentage Formula and such holder's
Allowed Senior 7% Note Claim, (y) its Pro Rata Share of units of Earn Out
Notes Series I, and (z) its Pro Rata Share of Membership Units.
(2) Each holder of an Allowed Senior 7% Note
Claim, by accepting the distributions provided for under the Plan, shall
be deemed to have (i) requested that it be admitted as a member of Home
Insurance Holdings, LLC and (ii) agreed to be bound by the terms of the
Home Insurance Holdings, LLC Agreement, unless such
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holder elects not to be a member by checking the appropriate box on a
timely cast Ballot or so advising the Debtor in writing prior to the
Effective Date. Such an election shall constitute a waiver of the right to
receive its Pro Rata Share of Membership Units.
(3) On the Effective Date, the Senior 7% Note
Claims shall be deemed Allowed Unsecured Claims in Group 4-B in the
aggregate amount of $104,545,859.37.
(iii) Group 4-C.
(1) On the Initial Distribution Date or as soon
thereafter as is practicable, each holder of an Allowed Senior 7 7/8%
Sinking Fund Note Claim as of the Record Date shall receive (x) New Notes
in a principal amount equal to the product of the Percentage Formula and
such holder's Allowed Senior 7 7/8% Sinking Fund Note Claim, (y) its Pro
Rata Share of units of Earn Out Notes Series I, and (z) its Pro Rata Share
of Membership Units.
(2) Each holder of an Allowed Senior 7 7/8%
Sinking Fund Note Claim, by accepting the distributions provided for under
the Plan, shall be deemed to have (i) requested that it be admitted as a
member of Home Insurance Holdings, LLC and (ii) agreed to be bound by the
terms of the Home Insurance Holdings, LLC Agreement, unless such holder
elects not to be a member by checking the appropriate box on a timely cast
Ballot or so advising the Debtor in writing prior to the Effective Date.
Such an election shall constitute a waiver of the right to receive its Pro
Rata Share of Membership Units.
(3) On the Effective Date, the Senior 7 7/8%
Sinking Fund Note Claims shall be deemed Allowed Unsecured Claims in Group
4-C in the aggregate amount of $188,568,871.16.
(iv) Group 4-D.
(1) On the Initial Distribution Date or as soon
thereafter as is practicable, each holder of an Allowed Senior 7 7/8% Note
Claim as of the Record Date shall receive (x) New Notes in a principal
amount equal to the product of the Percentage Formula and such holder's
Allowed Senior 7 7/8% Note Claim, (y) its Pro Rata Share of units of Earn
Out Notes Series I, and (z) its Pro Rata Share of Membership Units.
(2) Each holder of an Allowed Senior 7 7/8% Note
Claim, by accepting the distributions provided for under the Plan, shall
be deemed to have (i) requested that it be admitted as a member of Home
Insurance Holdings, LLC and (ii) agreed to be bound by the terms of the
Home Insurance Holdings, LLC Agreement, unless such holder elects not to
be a member by checking the appropriate box on a timely cast Ballot or so
advising the Debtor in writing prior to the Effective Date. Such an
election shall constitute a waiver of the right to receive its Pro Rata
Share of Membership Units.
(3) On the Effective Date, the Senior 7 7/8% Note
Claims shall be deemed Allowed Unsecured Claims in Group 4-D in the
aggregate amount of $543,171.81.
(v) Group 4-E
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(1) On the Initial Distribution Date, or as soon
thereafter as is practicable, in full satisfaction of the Home Insurance
Claim, Home Insurance shall receive the consideration provided in the Home
Insurance Settlement described in Section 9.1 hereof.
(2) On the Effective Date, the Home Insurance
Claim shall be deemed an Allowed Unsecured Claim in Group 4-E in the
amount of $14,145,407.
4.5 Class 5 -- Senior Working Capital Note Claims.
(a) Impairment And Voting. Class 5 is impaired by the Plan.
Each holder of an Allowed Senior Working Capital Note Claim is entitled to vote
to accept or reject the Plan.
(b) Distributions.
(i) On the Initial Distribution Date or as soon
thereafter as is practicable, each holder of an Allowed Senior Working Capital
Note Claim as of the Record Date shall receive (i) its Pro Rata Share of the New
Common Stock in the New Common Stock Distribution Pool and (ii) its Pro Rata
Share of Earn Out Notes Series I entitled in the aggregate to 2% of the Tax
Savings.
(ii) On the Effective Date, the Senior Working Capital
Note Claims shall be deemed Allowed Unsecured Claims in Class 5 in the aggregate
amount of $71,424,889.
4.6 Class 6 -- Junior Note Claims.
(a) Impairment And Voting. Class 6 is impaired by the Plan.
The holder of the Allowed Junior Note Claims (other than Zurich Home
Investments) is entitled to vote to accept or reject the Plan.
(b) Distributions.
(i) On the Initial Distribution Date or as soon
thereafter as is practicable, the holder of the Allowed Junior Note Claims
(other than Zurich Home Investments) as of the Record Date shall receive the
Earn Out Notes Series II. Zurich Home Investments has waived its Junior Note
Claims and the right to receive a distribution on account of its Junior Note
Claims.
(ii) On the Effective Date, the Junior Note Claims
(other than of Zurich Home Investments) shall be deemed an Allowed Unsecured
Claim in Class 6 in the aggregate amount of $41,340,232.
4.7 Class 7 -- Senior Subordinated Note Claims.
(a) Impairment And Voting. Class 7 is impaired by the Plan.
Class 7 is deemed to have rejected the Plan, and, therefore, is not entitled to
vote to accept or reject the Plan.
(b) Distributions. On the Effective Date, the holders of
Senior Subordinated Notes shall not be entitled to, and shall not, receive or
retain any property or interest in property on account of such Senior
Subordinated Notes.
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4.8 Class 8 -- Equity Interests.
(a) Impairment And Voting. Class 8 is impaired by the Plan.
Class 8 is deemed to have rejected the Plan, and, therefore, is not entitled to
vote to accept or reject the Plan.
(b) Distributions. On the Effective Date, the Equity Interests
shall be canceled and the holders of Equity Interests shall not be entitled to,
and shall not, receive or retain any property or interest in property on account
of such Equity Interests.
4.9 Class 9 -- AmBase Claim.
(a) Impairment And Voting. Class 9 is unimpaired by the Plan.
AmBase is conclusively presumed to have accepted the Plan and is not entitled to
vote to accept or reject the Plan.
(b) Treatment Of Claim. The AmBase Claim shall be rendered
unimpaired in accordance with section 1124(1) of the Bankruptcy Code.
(c) AmBase Keepwell Agreement. Credit support for any payments
that shall be due to AmBase by Reorganized Home on account of the AmBase Claim
shall be provided in the form of the AmBase Keepwell Agreement.
V
PROVISIONS REGARDING VOTING AND DISTRIBUTIONS
UNDER THE PLAN AND TREATMENT OF DISPUTED,
CONTINGENT, AND UNLIQUIDATED CLAIMS AND
ADMINISTRATIVE EXPENSE CLAIMS
5.1 Voting Of Claims. Each holder of an Allowed Claim in an impaired
Class of Claims, other than holders of Claims deemed to have rejected the Plan,
shall be entitled to vote separately to accept or reject the Plan as provided in
such order as may be entered by the Bankruptcy Court establishing certain
procedures with respect to the solicitation and tabulation of votes to accept or
reject the Plan, or any other order or orders of the Bankruptcy Court.
5.2 Nonconsensual Confirmation. Home Holdings hereby requests
confirmation of the Plan, as it may be modified from time to time in accordance
with its terms, under section 1129(b) of the Bankruptcy Code.
5.3 Method Of Distributions Under The Plan.
(a) In General. Subject to Bankruptcy Rule 9010, all
distributions under the Plan shall be made by Reorganized Home to the holder of
each Allowed Claim at the address of such holder as listed on the Schedules as
of the Record Date, unless the Debtor or Reorganized Home has been notified in
writing of a change of address, including, without limitation, by the filing of
a proof of claim by such holder that provides an address for such holder
different from the address reflected on the Schedules.
(b) Distributions Of Cash. Any payment of Cash made by
Reorganized Home pursuant to the Plan shall be made by check drawn on a domestic
bank.
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(c) Timing Of Distributions. If the day when any payment or
distribution required to be made under the Plan is not a Business Day, such
payment or distribution shall be made on the next succeeding Business Day.
(d) Minimum Distributions. No payment of Cash less than
one-hundred dollars shall be made by Reorganized Home to any holder of a Claim
unless a request therefor is made in writing to Reorganized Home.
(e) Fractional Shares; Multiples Of New Notes. New Notes shall
only be issued in multiples of $1,000. Any New Notes that would otherwise have
been distributed in multiples of other than $1,000 shall be aggregated by the
Trustee under the New Notes Indenture or the Disbursing Agent and sold. The Cash
proceeds from such sale shall be distributed on a pro rata basis to those
holders of Allowed General Unsecured Claims and Senior Note Claims which would
have been entitled to New Notes in multiples of other than $1,000. No fractional
units of Earn Out Notes or of Membership Units shall be distributed under the
Plan. When any distribution on account of an Allowed Claim pursuant to the Plan
would otherwise result in the issuance of a number of units of Earn Out Notes or
of Membership Units that is not a whole number, the actual distribution of
shares of Earn Out Notes or of Membership Units shall be rounded as follows: (i)
fractions of one-half or greater shall be rounded to the next higher whole
number and (ii) fractions of less than one-half shall be rounded to the next
lower whole number. The total number of units of Earn Out Notes or of Membership
Units to be distributed to a Class of Claims shall be adjusted as necessary to
account for the rounding as provided in this Section 5.3(e).
(f) Unclaimed Distributions. Any distributions to holders of
Allowed Unsecured Claims of New Notes, Earn Out Notes, or Membership Units under
the Plan that are unclaimed for a period of one year after distribution thereof
shall revest in Reorganized Home, such New Notes, Earn Out Notes, or Membership
Units shall be deemed canceled, and any entitlement of such holders of Allowed
Unsecured Claims to such distributions shall be extinguished and forever barred.
(g) Distributions To Holders As Of The Record Date. As at the
close of business on the Record Date, the claims register shall be closed, and
there shall be no further changes in the record holders of any Claims. The
Debtor and Reorganized Home shall have no obligation to recognize any transfer
of any Claims occurring after the Record Date. The Debtor and Reorganized Home
shall instead be entitled to recognize and deal for all purposes under the Plan
(except as to voting to accept or reject the Plan pursuant to Section 5.1 of the
Plan) with only those record holders stated on the claims register as of the
close of business on the Record Date.
(h) Distributions Withheld For Disputed General Unsecured
Claims.
(i) Establishment And Maintenance Of Reserve. On the
Initial Distribution Date, Reorganized Home shall place into a reserve an amount
of Earn Out Notes Series I, New Notes, and Membership Units equal to 100% of the
distributions to which holders of Disputed General Unsecured Claims would be
entitled under the Plan as of such date if such Disputed General Unsecured
Claims were Allowed General Unsecured Claims in their Disputed Claim Amounts
(the "Reserve"). Such amount shall be determined by reference to the aggregate
Face Amount of all Disputed General Unsecured Claims that have Face Amounts,
plus an amount to be determined by the Bankruptcy Court to be reserved for any
given Disputed General Unsecured Claims that do not have Face Amounts.
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(ii) Property Held In Reserve. Cash held in the Reserve
(including interest paid on New Notes held in the Reserve) shall be deposited in
a segregated bank account or accounts in the name of Reorganized Home and
designated as held in trust for the benefit of holders of Allowed General
Unsecured Claims. Cash held in the Reserve shall not constitute property of
Reorganized Home. Reorganized Home shall invest the Cash held in the Reserve in
a manner consistent with investment guidelines to be included in the Plan
Supplement. Reorganized Home shall pay, or cause to be paid, out of the funds
held in the Reserve, any tax imposed on the Reserve by any governmental unit
with respect to income generated by the property held in the Reserve. The yield
earned on such invested Cash (net of applicable taxes) shall be distributed to
each holder of a Disputed Claim that has become an Allowed General Unsecured
Claim on the final Subsequent Distribution Date under the Plan. New Notes, Earn
Out Notes Series I, and Membership Units held in the Reserve shall be held in
trust by Reorganized Home for the benefit of the potential claimants of such
securities and shall not constitute property of Reorganized Home. Any Cash, New
Notes, Earn Out Notes Series I, and Membership Units held in the Reserve after
all Allowed General Unsecured Claims have been Allowed or disallowed shall
revest to Reorganized Home, such New Notes, Earn Out Notes, or Membership Units
shall be deemed canceled, and any entitlement of such holders of Allowed
Unsecured Claims to such distributions shall be extinguished and forever barred.
(i) Distributions Upon Allowance Of Disputed Unsecured Claims.
The holder of a Disputed General Unsecured Claim that becomes an Allowed Claim
subsequent to the Initial Distribution Date shall receive distributions of New
Notes, Earn Out Notes Series I, and Membership Units, as applicable, from the
Reserve on the next Subsequent Distribution Date that follows the Quarter during
which such Disputed General Unsecured Claim becomes an Allowed Claim pursuant to
a Final Order. Such distributions shall be made in accordance with the Plan
based upon the distributions that would have been made to such holder under the
Plan if the Disputed General Unsecured Claim had been an Allowed Claim on or
prior to the Effective Date, without any post-Effective Date interest thereon
(without regard to interest earned on property held in the Reserve pursuant to
Section 5.3(h)(ii) of the Plan).
(j) Disbursing Agent. The Debtor or Reorganized Home will
appoint or will become the disbursing agent (the "Disbursing Agent") to fulfill
the obligations that Reorganized Home will have under the Plan with respect to
distributions to holders of Allowed General Unsecured Claims, including, without
limitation, holding all reserves and accounts pursuant to the Plan, including
the Reserve.
5.4 Objections To And Resolution Of Administrative Expense Claims,
Claims, And Equity Interests. Except as to applications for allowances of
compensation and reimbursement of expenses under sections 330 and 503 of the
Bankruptcy Code, the Debtor, Reorganized Home, and Zurich shall have the
exclusive right to make and file objections to Administrative Expense Claims and
Claims, subsequent to the Confirmation Date. All objections shall be litigated
to Final Order; provided, however, that Reorganized Home or Zurich shall have
the authority to compromise, settle, otherwise resolve or withdraw any
objections, without approval of the Bankruptcy Court. Unless otherwise ordered
by the Bankruptcy Court, the Debtor, Reorganized Home, or Zurich shall file all
objections to Administrative Expense Claims that are the subject of proofs of
claim or requests for payment filed with the Bankruptcy Court (other than
applications for allowances of compensation and reimbursement of expenses) and
Claims and serve such objections upon the holder of the Administrative Expense
Claim or Claim, as to which the objection is made as soon as is practicable, but
in no event later than 60 days after the Effective Date or such later date as
may be approved by the Bankruptcy Court.
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5.5 Administrative Claims Reserve.
(a) Establishment of Administrative Claims Reserve. On the
Effective Date, Reorganized Home shall create and fund the Administrative Claims
Reserve with an amount of Cash equal to (i) the sum of the aggregate Face Amount
of all Disputed Administrative Claims, Disputed Priority Tax Claims, and
Disputed Other Priority Claims that have Face Amounts, plus (ii) an amount to be
determined by the Bankruptcy Court to be reserved for any given Disputed
Administrative Claims, Disputed Priority Tax Claims, and Disputed Other Priority
Claims that do not have Face Amounts.
(b) Cash Held In Administrative Claims Reserve. Cash held in
the Reserve shall be deposited in a segregated bank account or accounts in the
name of Reorganized Home and designated as held in trust for the benefit of
holders of Allowed Administrative Claims. Cash held in the Reserve shall not
constitute property of Reorganized Home. Reorganized Home shall invest the Cash
held in the Reserve in a manner consistent with investment guidelines to be
included in the Plan Supplement. Reorganized Home shall pay, or cause to be
paid, out of the funds held in the Reserve, any tax imposed on the Reserve by
any governmental unit with respect to income generated by the Cash held in the
Reserve. Any Cash held in the Administrative Claims Reserve after all
Administrative Claims have been Allowed or disallowed shall be transferred to
and become the property of Reorganized Home.
5.6 Cancellation And Surrender Of Existing Securities And
Agreements.
(a) On the Effective Date, the promissory notes, share
certificates, bonds, and other instruments evidencing any Claim against or
Equity Interest in the Debtor shall be deemed canceled without further act or
action under any applicable agreement, law, regulation, order, or rule, and the
obligations of the Debtor under the agreements, indentures, and certificates of
designations governing such Claims and Equity Interests, as the case may be,
shall be discharged.
(b) Each holder of a promissory note, bond, or other
instrument evidencing a Claim shall surrender such promissory note, bond, or
instrument to Reorganized Home, unless such requirement is waived by Reorganized
Home. No distribution of property hereunder shall be made to or on behalf of any
such holders unless and until such promissory note, bond, or instrument is
received by Reorganized Home or the unavailability of such promissory note,
bond, or instrument is established to the reasonable satisfaction of Reorganized
Home or such requirement is waived by Reorganized Home. Reorganized Home may
require any holder which is unable to surrender or cause to be surrendered any
such promissory notes, bonds, or instruments to deliver an affidavit of loss and
indemnity and/or furnish a bond in form and substance (including, without
limitation, with respect to amount) reasonably satisfactory to Reorganized Home.
Any holder which fails within the later of one year after the Confirmation Date
and the date of Allowance of its Claim (i) if possible, to surrender or cause to
be surrendered such promissory note, bond, or instrument, (ii) if requested, to
execute and deliver an affidavit of loss and indemnity reasonably satisfactory
to Reorganized Home, and (iii) if requested, to furnish a bond reasonably
satisfactory to Reorganized Home, shall be deemed to have forfeited all rights,
claims, and causes of action against the Debtor and Reorganized Home and shall
not participate in any distribution hereunder.
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VI
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
6.1 Assumption Or Rejection Of Executory Contracts And Unexpired
Leases.
(a) Executory Contracts And Unexpired Leases. Pursuant to
sections 365(a) and 1123(b)(2) of the Bankruptcy Code, all executory contracts
and unexpired leases that exist between the Debtor and any person shall be
deemed assumed by Reorganized Home as of the Effective Date, except for any
executory contract or unexpired lease (i) which has been assumed pursuant to an
order of the Bankruptcy Court entered prior to the Confirmation Date, (ii) which
has been rejected pursuant to an order of the Bankruptcy Court entered prior to
the Confirmation Date, (iii) as to which a motion for approval of the rejection
of such executory contract or unexpired lease has been filed and served prior to
the Confirmation Date, or (iv) which is set forth in Schedule 6.1(a)(x)
(executory contracts) or Schedule 6.1(a)(y) (unexpired leases), which Schedules
shall be included in the Plan Supplement; provided, however, that the Debtor or
Reorganized Home reserves the right, on or prior to the Confirmation Date, to
amend Schedules 6.1(a)(x) or 6.1(a)(y) to delete any executory contract or
unexpired lease therefrom or to add any executory contract or unexpired lease
thereto, in which event such executory contract(s) or unexpired lease(s) shall
be deemed to be, respectively, assumed or rejected. The Debtor or Reorganized
Home shall provide notice of any amendments to Schedules 6.1(a)(x) or 6.1(a)(y)
to the parties to the executory contracts and unexpired leases affected thereby.
The listing of a document on Schedules 6.1(a)(x) and 6.l(a)(y) shall not
constitute an admission by the Debtor or Reorganized Home that such document is
an executory contract or an unexpired lease or that the Debtor or Reorganized
Home have any liability thereunder.
(b) Approval Of Assumption Or Rejection Of Executory Contracts
And Unexpired Leases. Entry of the Confirmation Order shall constitute (i) the
approval, pursuant to sections 365(a) and 1123(b)(2) of the Bankruptcy Code, of
the assumption of the executory contracts and unexpired leases assumed pursuant
to Section 6.1(a) hereof, (ii) the extension of time, pursuant to section
365(d)(4) of the Bankruptcy Code, within which the Debtor may assume or reject
the unexpired leases specified in Section 6.1(a) hereof through the date of
entry of an order approving the assumption or rejection of such unexpired
leases, and (iii) the approval, pursuant to sections 365(a) and 1123(b)(2) of
the Bankruptcy Code, of the rejection of the executory contracts and unexpired
leases rejected pursuant to Sections 6.1(a) hereof.
(c) Cure Of Defaults. Except as may otherwise be agreed to by
the parties, within 60 days after the Effective Date, Reorganized Home shall
cure any and all undisputed defaults under any executory contract or unexpired
lease assumed pursuant to the Plan in accordance with section 365(b)(1) of the
Bankruptcy Code. All disputed defaults that are required to be cured shall be
cured either within 30 days of the entry of a Final Order determining the
amount, if any, of the Debtor's or Reorganized Home's liability with respect
thereto, or as may otherwise be agreed to by the parties.
(d) Bar Date For Filing Proofs Of Claim Relating To Executory
Contracts And Unexpired Leases Rejected Pursuant To The Plan. Claims arising out
of the rejection of an executory contract or unexpired lease pursuant to Section
6.1 of the Plan must be filed with the Bankruptcy Court and/or served upon the
Debtor or Reorganized Home or as otherwise may be provided
in the Confirmation Order, by no later than 30 days after the later of (i)
notice of entry of an order approving the rejection of such executory contract
or unexpired lease, (ii) notice of entry of the Confirmation Order, and (iii)
notice of an amendment to Schedule 6.1(a)(x) or 6.1(a)(y). Any Claims not filed
within such time will be forever barred from assertion against the Debtor, its
estate, Reorganized Home, and their respective property. Unless otherwise
ordered by the Bankruptcy Court,
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all Claims arising from the rejection of executory contracts and unexpired
leases shall be treated as General Unsecured Claims under the Plan.
6.2 Releases. The Debtor hereby releases and is permanently enjoined
from any prosecution or attempted prosecution of any and all causes of action
which it has, may have, or claims to have against any present or former
director, officer, or employee of the Debtor; provided, however, that the
foregoing shall not operate as a waiver of or release from any causes of action
arising out of (a) any express contractual obligation owing by any such
director, officer, or employee to the Debtor or (b) the willful misconduct or
gross negligence of such director, officer, or employee in connection with,
related to, or arising out of the Chapter 11 Case, the pursuit of confirmation
of the Plan, the consummation of the Plan, the administration of the Plan, or
the property to be distributed under the Plan.
6.3 Indemnification Obligations. For purposes of the Plan, the
obligations of the Debtor to defend, indemnify, reimburse, or limit the
liability of their present and any former directors, officers, or employees who
were directors, officers, or employees, respectively, on or after the
Commencement Date against any claims or obligations pursuant to the Debtor's
certificate of incorporation or bylaws, applicable state law, or specific
agreement, or any combination of the foregoing, shall survive confirmation of
the Plan, remain unaffected thereby, and not be discharged irrespective of
whether indemnification, defense, reimbursement, or limitation is owed in
connection with an event occurring before, on or after the Commencement Date.
VII
PROVISIONS REGARDING CORPORATE GOVERNANCE
AND MANAGEMENT OF REORGANIZED HOME
7.1 General. On the Effective Date, the management, control, and
operation of Reorganized Home shall become the general responsibility of the
Board of Directors of Reorganized Home, who shall, thereafter, have the
responsibility for the management, control, and operation of Reorganized Home.
7.2 Meetings Of Reorganized Home Stockholders. In accordance with
the Amended Home Certificate of Incorporation and the Amended Home Bylaws, as
the same may be amended from time to time, the first annual meeting of the
stockholders of Reorganized Home shall be held on a date in 1998 selected by the
Board of Directors of Reorganized Home, and subsequent meetings of the
stockholders of Reorganized Home shall be held at least once annually each year
thereafter.
7.3 Directors And Officers Of Reorganized Home.
(a) Board Of Directors.
(i) Reorganized Home. The initial Board of Directors of
Reorganized Home shall consist of two individuals whose names shall be disclosed
10 days prior to the date of the Confirmation Hearing. Each of the members of
such initial Board of Directors shall serve until the first annual meeting of
stockholders of Reorganized Home or their earlier resignation or removal in
accordance with the Amended Home Certificate of Incorporation or Amended Home
Bylaws, as the same may be amended from time to time.
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(b) Officers. The individuals listed below shall serve as the
initial officers of Reorganized Home on and after the Effective Date.
Name Title
---- -----
Steven M. Gluckstern Chairman
Richard E. Smith President and CEO
Brian E. Kensil Senior Vice President
Isaac Mashitz Senior Vice President
Gerald S. King Senior Vice President
Adrienne W. Reid Senior Vice President
Michael E. Maloney Senior Vice President
Corcoran Byrne Vice President and Secretary
7.4 Amended Bylaws And Amended Certificate Of Incorporation. The
Amended Home Bylaws and Amended Home Certificate of Incorporation shall be
amended and restated as of the Effective Date to the extent necessary (a) to
prohibit the issuance of nonvoting equity securities as required by section
1123(a)(6) of the Bankruptcy Code, subject to further amendment of such
certificates of incorporation and bylaws as permitted by applicable law and (b)
to effectuate the provisions of the Plan, in each case without any further
action by the stockholders or directors of the Debtor, the Debtor-in-Possession,
or Reorganized Home.
7.5 Issuance Of New Securities. The issuance of the following
securities , notes, or interests by Reorganized Home or Home Insurance Holdings,
LLC, as the case may be, is hereby authorized without further act or action
under applicable law, regulation, order, or rule:
(a) 100 shares of New Common Stock;
(b) the New Notes;
(c) the Earn Out Notes; and
(d) the Membership Units.
VIII
IMPLEMENTATION AND EFFECT OF CONFIRMATION OF PLAN
8.1 Term Of Bankruptcy Injunction Or Stays. All injunctions or stays
provided for in the Chapter 11 Case under sections 105 or 362 of the Bankruptcy
Code, or otherwise, and in existence on the Confirmation Date, shall remain in
full force and effect until the Effective Date.
8.2 Sources Of Payment. Allowed Administrative Expense Claims ,
Other Priority Claims, Convenience Claims, and, subject to the terms set forth
in Section 8.11 hereof, the Allowed amount of the professional fees referred to
in Section 8.11 of the Plan shall be paid by the Debtor by means of one or more
dividends to the Debtor from two of its subsidiaries: Home Insurance (whose
dividends are subject to the approval of the Department), and Sterling Forest
Management LLC. All such payments shall be made on the Effective Date, or as
incurred by the Debtor-in-Possession (to the extent authorized and approved by
the Bankruptcy Court if such authorization and approval was required by the
Bankruptcy Code) or as otherwise provided in the terms of the Plan. Payments to
be made under the Plan with respect to all other Classes of Claims shall be
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made pursuant to the Earn Out Notes and the other instruments and securities
that are issued and delivered to the respective Class under the Plan.
8.3 Tender Offer. As provided in the New Note Tender Offer
Undertaking, the Zurich Note Entity shall offer to purchase any and all
outstanding New Notes upon the terms and subject to the conditions set forth
below and in the Offer to Purchase and Letter of Transmittal.
(a) Tender Offer. Not later than the sixtieth day after the
Effective Date, the Zurich Note Entity shall offer to purchase any and all
outstanding New Notes.
(b) Offer Price. The Zurich Note Entity shall offer to
purchase the New Notes at a price equal to the sum of 99% of (i) the face amount
of the New Notes tendered by any holder of New Notes and (ii) all accrued and
unpaid interest on such New Notes as of the date that the Zurich Note Entity
makes the payments described in Section 8.3(c) below.
(c) Payment. In the event that a holder of the New Notes
accepts the Zurich Note Entity's offer and delivers a Letter of Transmittal and
such holder's New Notes to the Zurich Note Entity, the Zurich Note Entity shall
pay the purchase price for such New Notes in Cash to such holder.
8.4 Consummation Of Acquisition. Pursuant to the Acquisition
Agreement and the Plan, prior to the Effective Date, the Consummation of the
Acquisition Agreement shall occur and in connection therewith, Home Insurance
Holdings, LLC shall acquire the Acquired Assets.
8.5 Revesting Of Assets.
(a) The property of the estate of the Debtor shall revest in
Reorganized Home on the Effective Date, except as provided in Sections
5.3(h)(ii), 5.5, and 8.4 of the Plan.
(b) From and after the Effective Date, Reorganized Home may
operate its business, and may use, acquire, and dispose of property free of any
restrictions imposed under the Bankruptcy Code.
(c) As of the Effective Date, all property of the Debtor and
Reorganized Home shall be free and clear of all liens, claims, and interests of
holders of Claims and Equity Interests, except as provided in the Plan.
8.6 Causes Of Action. Except as otherwise expressly provided in the
Plan, as of the Effective Date, pursuant to section 1123(b)(3)(B) of the
Bankruptcy Code, any and all causes of action accruing to the Debtor and
Debtor-in-Possession, including, without limitation, actions under sections 544,
547, 548, 549, 550, 551, and 553 of the Bankruptcy Code, shall become assets of
Reorganized Home, and Reorganized Home shall have the authority to prosecute (or
not prosecute) such causes of action for the benefit of Reorganized Home as it
shall determine in its sole and absolute discretion. Reorganized Home shall have
the authority to compromise and settle, otherwise resolve, discontinue, abandon,
or dismiss all such causes of action without approval of the Bankruptcy Court.
8.7 Discharge Of Debtor. The rights afforded herein and the
treatment of all Claims and Equity Interests herein shall be in exchange for and
in complete satisfaction, discharge, and release of Claims and Equity Interests
of any nature whatsoever, including any interest accrued on such Claims from and
after the Commencement Date, against the Debtor and the Debtor-in-Possession, or
any of its assets or properties, arising on or prior to the Effective Date.
Except as otherwise provided herein, (a) on the Effective Date, all such Claims
against and Equity Interests in the Debtor shall be
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satisfied, discharged, and released in full and (b) all persons shall be
precluded from asserting against Reorganized Home, its successors, or its assets
or properties any other or further Claims or Equity Interests based upon any act
or omission, transaction, or other activity of any kind or nature that occurred
prior to the Confirmation Date.
8.8 Injunction. Except as otherwise expressly provided in the Plan,
the Confirmation Order, or a separate order of the Bankruptcy Court, all
entities who have held, hold, or may hold Claims against or Equity Interests in
the Debtor which arose before or were held as of the Effective Date, are
permanently enjoined, on and after the Effective Date, from (a) commencing or
continuing in any manner any action or other proceeding of any kind against the
Debtor with respect to any such Claim or Equity Interest, (b) the enforcement,
attachment, collection, or recovery by any manner or means of any judgment,
award, decree, or order against the Debtor on account of any such Claim or
Equity Interest, (c) creating, perfecting, or enforcing any encumbrance of any
kind against the Debtor or against the property or interests in property of the
Debtor on account of any such Claim or Equity Interest and (d) asserting any
right of setoff, subrogation, or recoupment of any kind against any obligation
due from the Debtor or against the property or interests in property of the
Debtor on account of any such Claim or Equity Interest. Such injunction shall
extend to successors of the Debtor (including, without limitation, Reorganized
Home) and their respective properties and interests in property.
8.9 Termination Of Subordination Rights. All claims of the Senior
Noteholders, Senior Working Capital Noteholders, Senior Subordinated
Noteholders, and Junior Noteholders against the Debtor and all rights and claims
between or among the Senior Noteholders, Senior Working Capital Noteholders,
Senior Subordinated Noteholders, and Junior Noteholders relating in any manner
whatsoever to claimed subordination rights, rights to post-petition and default
interest, or similar rights, if any (collectively, "Subordination-Related
Rights"), shall be deemed satisfied by the distributions under, described in,
contemplated by, and/or implemented by, this Plan to holders of such Claims and
such rights shall be deemed waived, released, discharged, and terminated as of
the Effective Date, and all actions related to the enforcement of such
Subordination-Related Rights shall be permanently enjoined. Distributions under,
described in, contemplated by, and/or implemented by, this Plan shall not be
subject to levy, garnishment, attachment, or like legal process by any holder of
a Claim, including, but not limited to, holders of Senior Note Claims, Senior
Working Capital Note Claims, Senior Subordinated Note Claims, and Junior Note
Claims by reason of any claimed Subordination-Related Rights or otherwise, so
that each holder of a Claim shall have and receive the complete benefit of the
distributions in the manner set forth and described in this Plan.
8.10 Waiver Of Claims; Covenant Not To Sue; Releases. (a) Effective
as of the Confirmation Date, but subject to the occurrence of the Effective
Date, and except as otherwise provided in this Plan or the Confirmation Order,
(i) the Debtor and Debtor-in-Possession and (ii) all Persons who have held,
hold, or may hold Claims against or Equity Interests in the Debtor (x) shall be
deemed to have covenanted with each member of the Zurich Group, the Trygg-Hansa
Group, and Home Insurance to waive and not to (1) sue or otherwise seek any
recovery from the Zurich Group, the Trygg-Hansa Group, Home Insurance, or their
respective property, whether for tort, fraud, contract, violations of federal or
state securities laws, or otherwise, based in whole or in part upon any act or
omission, transaction, or other occurrence taking place on or before the
Effective Date in any way relating to the Debtor, the Chapter 11 Case, or the
Plan or (2) assert against any of the Zurich Group, the Trygg-Hansa Group, Home
Insurance, or their respective property any claim, obligation, right, cause of
action, or liability which any such holder of a Claim against or Equity Interest
in the Debtor may be entitled to assert in any case, whether for tort, fraud,
contract, violations of federal or state securities laws, or otherwise, whether
known or unknown, foreseen or unforeseen, existing or hereafter arising, based
in whole or in part upon any act or omission, transaction, or other occurrence
taking place on or before the Effective Date in any way relating to the Debtor,
the Chapter 11 Case, or
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the Plan and (y) are permanently enjoined, on and after the Effective Date, from
commencing or continuing in any manner any action or other proceeding of any
kind with respect to such Claims, obligations, rights, causes of action, or
liabilities released hereunder.
(b) Effective as of the Confirmation Date, but subject to the
occurrence of the Effective Date, and except as otherwise provided in the Plan
or the Confirmation Order, each of the Debtor, Reorganized Home, the Trygg-Hansa
Group, the Zurich Group, Home Insurance, and each of their respective officers,
directors, agents, financial advisors, attorneys, employees, and representatives
and their respective property shall be released from any and all Claims,
obligations, rights, causes of action, and liabilities which any holder of a
Claim against or Equity Interest in the Debtor may be entitled to assert in any
case, whether for tort, fraud, contract, violations of federal or state
securities laws, or otherwise, whether known or unknown, whether foreseen or
unforeseen, existing or hereafter arising, based in whole or in part upon any
act or omission, transaction, or other occurrence taking place on or before the
Effective Date in any way relating to the Debtor, the Chapter 11 Case, or the
Plan.
(c) Effective as of the Confirmation Date, but subject to the
occurrence of the Effective Date, and except as otherwise provided in the Plan
or the Confirmation Order, each of the Trygg-Hansa Group, the Zurich Group, Home
Insurance, and each of their respective officers, directors, agents, financial
advisors, attorneys, employees, and representatives and their respective
property shall be released from any and all Claims, obligations, rights, causes
of action, and liabilities which the Debtor or the Debtor-in-Possession may be
entitled to assert in any case, whether for tort, fraud, contract, violations of
federal or state securities laws, or otherwise, whether known or unknown,
whether foreseen or unforeseen, existing or hereafter arising, based in whole or
in part upon any act or omission, transaction, or other occurrence taking place
on or before the Effective Date in any way relating to the Debtor, the Chapter
11 Case, or the Plan.
(d) The waivers , covenants, and releases set forth in
subsections (a), (b), and (c) above shall not be applicable to (i) any
obligations of any such Person or group pursuant to the Plan, or pursuant to any
of the documents contained in the Plan Supplement, or under any of the documents
listed on Exhibit G hereto, (ii) any continuing obligations and liabilities of
each applicable member of the Zurich Group to Home Insurance under the contracts
and agreements between such member of the Zurich Group and Home Insurance, (iii)
any Claim, obligation, right, cause of action, or other liability arising out of
any contract of insurance or reinsurance or other similar agreement, (iv) any
Claim, obligation, right, cause of action, or other liability which AmBase may
be entitled to assert against the Debtor, Reorganized Home, the Zurich Group,
the Trygg-Hansa Group, or Home Insurance and each of their respective officers,
directors, agents, financial advisors, attorneys, employees, and representatives
and their respective property, or (v) any right, Claim, or cause of action of
the Department arising under or in connection with its duties and
responsibilities as regulator of Home Insurance.
(e) Notwithstanding any other provision in the Disclosure
Statement, the Plan, or the Confirmation Order, nothing in the Disclosure
Statement, the Plan, or the Confirmation Order shall release, discharge, or
exculpate any non-debtor party from any debt owed to the United States
Government and/or its agencies (the "Government") for any liability arising
under the Internal Revenue Code, the Employee Retirement Income Security Act of
1974, as amended, the environmental laws, or any criminal laws of the United
States. In addition, notwithstanding any other provision in the Disclosure
Statement, the Plan, or the Confirmation Order, nothing in the Disclosure
Statement, the Plan, or the Confirmation Order shall enjoin or prevent the
Government from collecting any such liability from any such non-debtor party.
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8.11 Professional Fees. The Senior Noteholders' Committee shall be
required to seek an award by the Bankruptcy Court for reimbursement for its
professional fees incurred prior to the Chapter 11 Case, including the fees and
expenses of Anderson Kill & Olick, P.C. and Houlihan Lokey Howard & Zukin, Inc.,
attorneys and financial advisors, respectively, for the Senior Noteholders'
Committee, together with any other advisor so designated by such committee,
under section 503(b) of the Bankruptcy Code, by filing an application for
allowance for reimbursement of all its professional fees and expenses by the
date that is 60 days after the Effective Date or such other date as may be fixed
by the Bankruptcy Court and, if granted, such award by the Bankruptcy Court will
be Allowed in an amount not to exceed $2.2 million in the aggregate. The Allowed
amount of such award shall not be paid by the Debtor unless and until the
Effective Date has occurred, in which event, the Allowed amount of such award
shall be paid by the Debtor on the later of (x) the date such award becomes an
Allowed Administrative Expense Claim, or as soon thereafter as is practicable
and (y) the Initial Distribution Date. The Debtor shall agree to support the
Senior Noteholders' Committee's application for such fees and expenses up to an
amount not to exceed $2.2 million in the aggregate.
8.12 Transfer of Trademarks. On the Effective Date, or as soon
thereafter as is practicable, the Debtor or Reorganized Home, as the case may
be, shall transfer, assign, and convey to the Person or Persons designated on
Schedule 8.12 contained in the Plan Supplement the trademarks specified on such
Schedule to be transferred, assigned, and conveyed to such designated Person or
Persons.
IX
SETTLEMENT OF HOME INSURANCE CLAIM
9.1 Home Insurance Settlement. On the Effective Date, and in
accordance with the Plan, the Home Insurance Settlement shall be effective. In
accordance with the Home Insurance Settlement, the Home Insurance Claim against
the Debtor will be resolved and compromised and Home Insurance will exchange the
Home Insurance Claim against the Debtor as follows:
(a) On the Effective Date, the Home Insurance Claim shall be
deemed an Allowed Unsecured Claim in Group 4-E in the amount of $14,145,407.
(b) On the Initial Distribution Date, or as soon thereafter as
is practica ble, in full satisfaction of the Home Insurance Claim, Home
Insurance shall receive the Earn Out Notes Series III.
(c) In exchange for the Earn Out Notes Series III, Home
Insurance shall release the Home Insurance Claim.
9.2 Mutual Release. In addition, on the Effective Date, the Debtor
and Home Insurance shall each execute general releases in favor of the other
party, except with respect to obligations under or pursuant to the Plan.
9.3 Release Under Plan. Home Insurance shall also receive a release
under Section 8.10 hereof.
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X
EFFECTIVENESS OF THE PLAN
10.1 Conditions Precedent To Effectiveness. The Plan shall not
become effective unless and until the following conditions shall have been
satisfied or waived pursuant to Section 10.3 of the Plan:
(a) the Bankruptcy Court shall have entered an order approving
the Disclosure Statement with respect to the Plan as containing adequate
information within the meaning of section 1125 of the Bankruptcy Code;
(b) the Confirmation Order, in form and substance acceptable
to the Debtor, Zurich, Trygg-Hansa, and the Creditors' Committee, shall have
been entered, and no stay or injunction shall be in effect with respect thereto;
(c) the New Notes Indenture shall have been qualified under
the Trust Indenture Act of 1939, as amended;
(d) the Earn Out Notes Indenture shall have been qualified
under the Trust Indenture Act of 1939, as amended;
(e) all actions, documents, and agreements necessary to
implement the Plan shall have been effected or executed;
(f) the Debtor shall have received all authorizations,
consents, regulatory approvals, rulings, letters, no-action letters, opinions,
or documents that are determined by the Debtor (with Zurich's, Trygg-Hansa's,
and the Creditors' Committee's consent) to be necessary to implement the Plan,
including, without limitation, no-action letters from the Securities and
Exchange Commission and letter or other rulings from the Internal Revenue
Service;
(g) each of the Amended Home Certificate of Incorporation, the
Amended Home Bylaws, the New Notes, the New Notes Indenture, the Earn Out Notes,
the Earn Out Notes Indenture, the Home Insurance Holdings, LLC Documents, the
Acquisition Agreement, the Membership Units, the Class 4 Keepwell Agreement, and
the AmBase Keepwell Agreement in form and substance acceptable to the Debtor,
Zurich, Trygg-Hansa, and the Creditors' Committee, as applicable, shall have
been effected or executed;
(h) [RESERVED];
(i) no order for rehabilitation or liquidation shall have been
filed or obtained by or against Home Insurance;
(j) (i) the Insurance Commissioner shall have consented to the
Plan and the transactions contemplated thereby and (ii) such consent shall be in
form and substance reasonably acceptable to the Debtor, Zurich, Trygg-Hansa, and
the Creditors' Committee;
(k) all transactions involving the sale of the Acquired Assets
to be sold pursuant to the Acquisition Agreement shall have been consummated;
(l) each of the contracts and agreements described on Schedule
10.1(l) hereto shall have been terminated or amended to release the Debtor from
all obligations thereunder; and
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(m) no ownership change of Home Holdings shall have occurred
within the meaning of section 382(g) of the Internal Revenue Code prior to the
Effective Date.
10.2 Effect Of Failure Of Conditions. In the event that one or more
of the conditions specified in Section 10.1 of the Plan have not occurred on or
before 60 days after the Confirmation Date and the same shall not have been
waived pursuant to Section 10.3 hereof, upon notification submitted by the
Debtor to the Bankruptcy Court, Zurich, Trygg-Hansa, and counsel for the
Creditors' Committee, (a) the Confirmation Order shall be vacated, (b) the Plan
shall be null and void and of no further force and effect, (c) the Debtor and
all holders of Claims and Equity Interests shall be restored to the status quo
ante as of the day immediately preceding the Confirmation Date as though the
Confirmation Date had never occurred, and (d) the Debtor's obligations with
respect to the Claims and Equity Interests shall remain unchanged and nothing
contained herein shall constitute or be deemed a waiver or release of any Claims
or Equity Interests by or against the Debtor or any other person or to prejudice
in any manner the rights of the Debtor or any person in any further proceedings
involving the Debtor.
10.3 Waiver Of Conditions. The Debtor may waive, with the consent of
Zurich and Trygg-Hansa, by a writing signed by an authorized representative of
the Debtor and subsequently filed with the Bankruptcy Court, one or more of the
conditions precedent to effectiveness of the Plan set forth in Sections 10.2
(i), (k), and (l) of the Plan. The Debtor, with the written consent of Zurich,
Trygg-Hansa, and the Creditors' Committee, may waive, by a writing signed by an
authorized representative of the Debtor and subsequently filed with the
Bankruptcy Court, the conditions precedent to effectiveness of the Plan set
forth in Sections 10.2(b), (e), (f), (g), (j)(ii), and (m) of the Plan.
XI
RETENTION OF JURISDICTION
The Bankruptcy Court shall have exclusive jurisdiction of all
matters arising out of, and related to, the Chapter 11 Case and the Plan
pursuant to, and for the purposes of, sections 105(a) and 1142 of the Bankruptcy
Code and for, among other things, the following purposes:
(a) To hear and determine pending applications for the
assumption or rejection of executory contracts or unexpired leases, if any are
pending, and the allowance of Claims resulting therefrom;
(b) To hear and determine any objection to Administrative
Expense Claims, Claims, or Equity Interests;
(c) To enter and implement such orders as may be appropriate
in the event the Confirmation Order is for any reason stayed, revoked, modified,
or vacated;
(d) To issue such orders as may aid in the execution and
consummation of the Plan, to the extent authorized by section 1142 of the
Bankruptcy Code;
(e) To consider any amendments to or modifications of the
Plan, to cure any defect or omission thereof, or to reconcile any inconsistency
in any order of the Bankruptcy Court, including, without limitation, the
Confirmation Order;
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(f) To hear and determine all applications for compensation
and reimbursement of expenses of professionals under sections 330, 331, and
503(b) of the Bankruptcy Code;
(g) To hear and determine disputes arising in connection with
the interpretation, implementation, or enforcement of the Plan;
(h) To recover all assets of the Debtor and property of the
Debtor's estate, wherever located;
(i) To hear and determine matters concerning state, local, and
federal taxes in accordance with sections 346, 505, and 1146 of the Bankruptcy
Code;
(j) To hear any other matter not inconsistent with the
Bankruptcy Code; and
(k) To enter a final decree closing the Chapter 11 Case.
XII
MISCELLANEOUS PROVISIONS
12.1 Effectuating Documents And Further Transactions. The Debtor or
Reorganized Home is authorized to execute, deliver, file, or record such
contracts, instruments, releases, indentures, and other agreements or documents
and take such actions as may be necessary or appropriate to effectuate and
further evidence the terms and conditions of the Plan and any notes or
securities issued pursuant to the Plan.
12.2 Corporate Action. On the Effective Date, all matters provided
for under the Plan that would otherwise require approval of the stockholders,
directors, or members of one or more of the Debtor or Reorganized Home or its
successors in interest under the Plan, including, without limitation, the
authorization to issue or cause to be issued New Common Stock, Earn Out Notes,
and New Notes, the effectiveness of the Amended Home Certificate of
Incorporation and the Amended Home Bylaws, the election or appointment, as the
case may be, of directors and officers of the Debtor pursuant to the Plan, shall
be deemed to have occurred and shall be in effect from and after the Effective
Date pursuant to the applicable general corporation law of the state of
Delaware, without any requirement of further action by the stockholders or
directors of the Debtor or Reorganized Home. On the Effective Date or as soon
thereafter as is practicable, Reorganized Home shall, if required, file an
amended certificate of incorporation with the Secretary of State of Delaware, in
accordance with the applicable general corporation law of such state.
12.3 Exemption From Transfer Taxes. Pursuant to section 1146(c) of
the Bankruptcy Code, the issuance, transfer, or exchange of notes or equity
securities under the Plan, the creation of any mortgage, deed of trust, or other
security interest, the making or assignment of any lease or sublease, or the
making or delivery of any deed or other instrument of transfer under, in
furtherance of, or in connection with, the Plan, including, without limitation,
any merger agreements or agreements of consolidation, deeds, bills of sale, or
assignments executed in connection with any of the transactions contemplated
under the Plan shall not be subject to any stamp, real estate transfer, mortgage
recording, or other similar tax.
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12.4 Injunction Regarding Worthless Stock Deduction And
Reattribution Of NOLs To The Debtor Or Reorganized Home. At the Confirmation
Hearing, the Debtor may request that the Bankruptcy Court include in the
Confirmation Order a provision enjoining (i) any "50-percent shareholder" of the
Debtor within the meaning of section 382(g)(4)(D) of the Internal Revenue Code
of 1986, as amended, from claiming a worthless stock deduction with respect to
its Equity Interest for any taxable year of such shareholder ending prior to the
Effective Date and thereby causing an ownership change under section
382(g)(4)(D) of the Internal Revenue Code and (ii) Home Insurance from claiming
the benefit of NOLs reattributed from Home Insurance to the Debtor or
Reorganized Home.
12.5 Exculpation. Neither the Debtor, Reorganized Home, the Zurich
Group, the Trygg-Hansa Group, Home Insurance, the Department, the Creditors'
Committee, the Senior Noteholders' Committee, the Disbursing Agent, the
Information and Tabulation Agent, nor any of their respective members,
representatives, officers, directors, employees, attorneys, financial advisors,
or agents shall have or incur any liability to any holder of a Claim or Equity
Interest for any act or omission in connection with, related to, or arising out
of, the Chapter 11 Case, the pursuit of confirmation of the Plan, the
consummation of the Plan, or the administration of the Plan or the property to
be distributed under the Plan, and, in all respects, the Debtor, Reorganized
Home, the Zurich Group, the Trygg-Hansa Group, Home Insurance, the Creditors'
Committee, the Disbursing Agent, the Information and Tabulation Agent, and each
of their respective members, officers, directors, employees, financial advisors,
and agents shall be entitled to rely in good faith upon the advice of counsel
with respect to their duties and responsibilities under the Plan. Nothing
contained herein shall be deemed to release or otherwise exculpate any such
party for any liability under any contract of insurance or reinsurance or other
similar agreement.
12.6 Termination Of Committee. The appointment of the Creditors'
Committee shall terminate on the later of the sixtieth day following the
Effective Date and the first date on which there exists a Final Order with
respect to the applications for final allowances of compensation and
reimbursement of expenses of the attorneys and financial advisors to the
Creditors' Committee.
12.7 Post-Confirmation Date Fees And Expenses. From and after the
Confirmation Date, the Debtor until the Effective Date and thereafter
Reorganized Home shall, in the ordinary course of business and without the
necessity for any approval by the Bankruptcy Court, pay the reasonable fees and
expenses of professional persons thereafter incurred by the Debtor and
Reorganized Home including, without limitation, those fees and expenses incurred
in connection with the implementation and consummation of the Plan.
12.8 Payment Of Statutory Fees. All fees payable pursuant to section
1930 of title 28 of the United States Code, as determined by the Bankruptcy
Court at the Confirmation Hearing, shall be paid on the Effective Date.
12.9 Amendment Or Modification Of The Plan. Alterations, amendments,
or modifications of the Plan may be proposed in writing by the Debtor, with the
consent of Zurich, Trygg-Hansa, and the Creditors' Committee, at any time prior
to the Confirmation Date, provided that the Plan, as altered, amended, or
modified, satisfies the conditions of sections 1122 and 1123 of the Bankruptcy
Code, and the Debtor shall have complied with section 1125 of the Bankruptcy
Code; provided, however, that, prior to the date of the commencement of
solicitation of votes to accept or reject the Plan, (a) no alteration,
amendment, or modification of the Plan that would materially and adversely
affect the Senior Note Claims or General Unsecured Claims may be made without
prior approval of the Creditors' Committee and (b) no alteration, amendment or
modification of the Plan that would materially and adversely affect Trygg-Hansa
may be made without prior approval of Trygg-Hansa; provided, further, that
alterations, amendments, or modifications of the Plan proposed by the Debtor
that are immaterial and non-adverse in nature may be made upon notice to, but
without the
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consent of any of the aforesaid parties. The Plan may be altered, amended, or
modified at any time after the Confirmation Date and before substantial
consummation, with the consent of Zurich, Trygg-Hansa, and the Creditors'
Committee, provided that the Plan, as altered, amended, or modified, satisfies
the requirements of sections 1122 and 1123 of the Bankruptcy Code and the
Bankruptcy Court, after notice and a hearing, confirms the Plan, as altered,
amended, or modified, under section 1129 of the Bankruptcy Code and the
circumstances warrant such alterations, amendments, or modifications. A holder
of a Claim that has accepted the Plan shall be deemed to have accepted the Plan,
as altered, amended, or modified, if the proposed alteration, amendment, or
modification does not materially and adversely change the treatment of the Claim
of such holder.
12.10 Severability. In the event that the Bankruptcy Court
determines, prior to the Confirmation Date, that any provision in the Plan is
invalid, void, or unenforceable, such provision shall be invalid, void, or
unenforceable with respect to holder or holders of such Claims or Equity
Interests as to which the provision is determined to be invalid, void, or
unenforceable. The invalidity, voidness, or unenforceability of any such
provision shall in no way limit or affect the enforceability and operative
effect of any other provision of the Plan.
12.11 Revocation Or Withdrawal Of The Plan And Termination. The
Debtor reserves the right to revoke or withdraw the Plan prior to the
Confirmation Date and such right shall only be exercised with the prior consent
of Zurich, Trygg-Hansa, and the Creditors' Committee. If the Debtor revokes or
withdraws the Plan prior to the Confirmation Date, then the Plan shall be deemed
null and void. In such event, nothing contained herein shall constitute or be
deemed a waiver or release of any claims by or against the Debtor or to
prejudice in any manner the rights of the Debtor or any person in any further
proceedings involving the Debtor. If the Effective Date shall not have occurred
prior to July 1, 1998, the Plan shall terminate unless the Debtor and Zurich,
with the consent of Trygg-Hansa and the Creditors' Committee, agree otherwise.
12.12 Waiver Of Federal Rule Of Civil Procedure 62(a). Home Holdings
intends to request that the Confirmation Order include (a) a finding that Fed.
R. Civ. P. 62(a) shall not apply to the Confirmation Order and (b) authorization
for the Debtor to consummate the Plan immediately after entry of the
Confirmation Order.
12.13 Binding Effect. The Plan shall be binding upon and inure to
the benefit of the Debtor, the holders of Claims and Equity Interests, and their
respective successors and assigns, including, without limitation, Reorganized
Home.
12.14 Notices. All notices, requests, and demands hereunder to be
effective shall be in writing and, unless otherwise expressly provided herein,
shall be deemed to have been duly given or made when actually delivered or, in
the case of notice by facsimile transmission, when received and telephonically
confirmed, addressed as follows:
If to the Debtor:
Home Holdings Inc.
c/o Risk Enterprise Management Limited
59 Maiden Lane
New York, New York 10038
Attention: Roger M. Moak, Esq.
Telephone: (212) 530-7700
Facsimile: (212) 530-3413
32
<PAGE>
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022-3897
Attention: Kayalyn A. Marafioti, Esq.
Telephone: (212) 735-3000
Facsimile: (212) 735-2000
If to Zurich:
Zurich Centre Resource Limited
One Chase Manhattan Plaza
New York, New York 10005
Attention: Louis Feldman
Telephone: (212) 898-5300
Facsimile: (212) 898-5202
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Alan W. Kornberg, Esq.
Telephone: (212) 373-3000
Facsimile: (212) 757-3990
If to the Creditors' Committee:
CS First Boston
11 Madison Avenue
New York, New York 10010
Attention: Dave J. Matlin
Telephone: (212) 325-2223
Facsimile: (212) 325-8290
with a copy to:
Anderson Kill & Olick, P.C.
1251 Avenue of the Americas
New York, New York 10020-1182
Attention: Anthony Princi, Esq.
Telephone: (212) 278-1000
Facsimile: (212) 278-1733
12.15 Governing Law. Except to the extent the Bankruptcy Code,
Bankruptcy Rules, or other federal law is applicable, or to the extent an
Exhibit to the Plan provides otherwise, the rights and obligations arising under
this Plan shall be governed by, and construed and enforced in accordance with,
the laws of the State of New York, without giving effect to the principles of
conflicts of law of such jurisdiction.
33
<PAGE>
12.16 Withholding And Reporting Requirements. In connection with the
consummation of the Plan, the Debtor or Reorganized Home, as the case may be,
shall comply with all withholding and reporting requirements imposed by any
federal, state, local, or foreign taxing authority and all distributions
hereunder shall be subject to any such withholding and reporting requirements.
12.17 Plan Supplement. Forms substantially in the form of the
documents relating to the Amended Home Certificate of Incorporation, the Amended
Home Bylaws, the Earn Out Notes, the Earn Out Notes Indenture, the Class 4
Keepwell Agreement, AmBase Keepwell Agreement, the Membership Units, the Home
Insurance Holdings, LLC Agreement, the Offer to Purchase, the Letter of
Transmittal, the New Notes, the New Notes Indenture, the investment guidelines
referred to in Sections 5.3(h)(ii) of the Plan, Schedules 6.1(a)(x) and
6.1(a)(y) referred to in Section 6.1 of the Plan, Schedule 8.12 referred to in
Section 8.12 of the Plan, Schedule 10.1(l) referred to in Section 10.1 of the
Plan, and the transfer documentation for the shares of Home Insurance shall be
contained in the Plan Supplement and electronically filed with the Clerk of the
Bankruptcy Court at least 10 days prior to the date of the Confirmation Hearing.
Upon its filing with the Bankruptcy Court, the Plan Supplement and any
supplement thereto may be inspected in the office of the Clerk of the Bankruptcy
Court during normal court hours. Holders of Claims or Equity Interests may
obtain a copy of the Plan Supplement and any supplement thereto upon written
request to the Debtor in accordance with Section 12.14 of the Plan.
12.18 Allocation Of Plan Distributions Between Principal And
Interest. To the extent that any Allowed Claim entitled to a distribution under
the Plan is comprised of indebtedness and accrued but unpaid interest thereon,
such distribution shall, for federal income tax purposes, be allocated to the
principal amount of the Claim first and then, to the extent the consideration
exceeds the principal amount of the Claim, to accrued but unpaid interest.
12.19 Headings. Headings are used in the Plan for convenience and
reference only, and shall not constitute a part of the Plan for any other
purpose.
12.20 Exhibits/Schedules. All Exhibits and Schedules to the Plan,
including the Plan Supplement, are incorporated into and constitute a part of
the Plan as if set forth in full herein.
34
<PAGE>
12.21 Filing Of Additional Documents. On or before substantial
consummation of the Plan, the Debtor shall file with the Bankruptcy Court such
agreements and other documents as may be necessary or appropriate to effectuate
and further evidence the terms and conditions of the Plan.
Dated: New York, New York
April 29, 1998
HOME HOLDINGS INC.,
Debtor and Debtor-in-Possession
By: /s/ Arthur D. Wilson
-------------------------------------
Name: Arthur D. Wilson
Title: Treasurer through the services of
Risk Enterprise Management Limited
SKADDEN, ARPS, SLATE, MEAGHER
& FLOM LLP
Attorneys for Home Holdings Inc.,
Debtor and Debtor-in-Possession
By: /s/ Kayalyn A. Marafioti
------------------------------------
Kayalyn A. Marafioti (KM 9362)
(A Member of the Firm)
919 Third Avenue
New York, New York 10022-3897
(212) 735-3000
35
<PAGE>
Exhibit A
REORGANIZED HOME HOLDINGS INC.
Earn Out Notes Series I
Term Sheet
Issuer: Reorganized Home Holdings Inc. ("Reorganized
Home").
Issue: Units of Earn Out Notes Series I ("Series I EONS")
Number Of Units: 315,000 Units to be issued on a pro-rata
basis to holders of Allowed Claims based upon the
7% Senior Notes due 1998, the 7-7/8% Senior
Sinking Fund Notes due 2003, and the 7-7/8% Senior
Notes due 2003 (the "Senior Notes") issued and
outstanding immediately prior to the effective
date (the "Effective Date") of the proposed
reorganization plan (the "Plan") for Home Holdings
Inc. ("Home Holdings") under Chapter 11 of title
11 of the United States Code plus amounts due on
the Senior Notes, including interest accrued
through the date on which the Chapter 11 petition
is filed (the "Commencement Date") , to holders of
Allowed General Unsecured Claims, and to holders
of Senior Working Capital Note Claims.
Participation Of Series I The Series I EONS will participate in the Federal,
EONS: state and local income tax savings (the "Tax
Savings") realized by Reorganized Home through the
actual or deemed utilization by the consolidated
group of which Reorganized Home, or its successor
in a merger with another entity in which
Reorganized Home is not the surviving entity, is a
member (the "Home Group") of the net operating
loss carryforwards available to Reorganized Home
immediately after the Effective Date as set forth
in the Plan after taking into account adjustments
required by reason of the consummation of the
Plan, including the reductions required pursuant
to sections 108(b) and 382(l)(5) of the Internal
Revenue Code of 1986, as amended (the "Specified
NOL Carryovers").
Tax Savings: The Tax Savings will be the difference
between the consolidated Federal, state and local
income tax liability of the Home Group with or
without the Specified NOL Carryovers.
Amount Of
Participation: The Series I EONS issued in exchange for Senior
Notes will be entitled in the aggregate to 50% of
the Tax Savings , the Series I EONS issued to
holders of Allowed General Unsecured Claims will
be entitled in the aggregate to a percentage of
the Tax Savings that is in the same ratio to their
aggregate allowed claims as 50% is to the
aggregate Allowed Senior Note Claims and the
Series I EONS issued in exchange for Senior
Working Capital Notes will be entitled in the
aggregate to 2% of the Tax Savings (such aggregate
portion of the Tax Savings, the "Allocated
Participation").
A-1
<PAGE>
Computation Of Tax The Tax Savings will be computed each
taxable year based upon the Savings: Federal,
state and local income tax returns (a "Tax
Return") of the Home Group filed with respect to
such year and certified (a "Certification") by the
Chief Financial Officer of the Home Group on
September 25 of the following taxable year.
Payments To Series I Subject to the third following sentence, upon the
EONS-Holders: issuance by the Home Group of a Certification with
respect to any of its Tax Returns, Series I
EONS-holders shall be entitled to payments with
respect to their Series I EONS as follows:
(a) with respect to the actual or deemed
utilization of the first $200 million of Specified
NOL Carryovers: (i) on October 15 following the
issuance of each Certification (the "Initial
Payment Date"), an aggregate amount equal to 35%
of the Allocated Participation thereby certified
and (ii) upon the October 15 following the
expiration of the statute of limitations with
respect to the Tax Return to which the
Certification relates, an aggregate amount equal
to the excess, if any, of the Allocated
Participation for such taxable year as finally
determined over the amounts previously paid
pursuant to clause (i) plus interest on the amount
paid pursuant to this clause (ii) at a fixed rate
equal to the 5-year Treasury Notes rate as of the
Initial Payment Date with respect to such taxable
year, plus 35 basis points, from the Initial
Payment Date with respect to such taxable year;
and
(b) thereafter: (i) on the Initial Payment Date
with respect to a taxable year, an aggregate
amount equal to 20% of the Allocated Participation
thereby certified and (ii) upon the October 15
following the expiration of the statute of
limitations with respect to the Tax Return to
which the Certification relates, an aggregate
amount equal to the excess, if any, of the
Allocated Participation for such taxable year as
finally determined over the amounts previously
paid pursuant to clause (i), plus interest on the
amount paid pursuant to this clause (ii) at a
fixed rate equal to the 5-year Treasury Notes rate
as of the Initial Payment Date with respect to
such taxable year, plus 35 basis points, from the
Initial Payment Date with respect to such taxable
year.
Credit support for payments due, including
interest accrued thereon, shall be provided in the
form of the Class 4 Keepwell Agreement by a member
of the group comprised of Zurich Insurance Company
and its worldwide affiliates with creditworthiness
satisfactory to the Senior Noteholders' Committee
(the "Zurich Entity").
A-2
<PAGE>
In the event that payment of the first installment
on the Series I EONS with respect to any Taxable
Year is not made on the Initial Payment Date other
than for the reason set forth in the following
paragraph, Reorganized Home shall pay interest
thereon monthly at a rate of 8.31%, accruing from
the Initial Payment Date.
In the event that the Internal Revenue Service
(or, if relevant, any state or local taxing
authority) issues a notice of proposed adjustment
(or any procedurally later notice, such as a
notice of proposed deficiency or notice of
deficiency) which, if sustained, would disallow
all or a portion of the Tax Savings in question,
payments with respect to the challenged Tax
Savings will be suspended to the extent of such
challenge, taking into account the effect of such
challenge on other taxable years (or, in the case
of Tax Savings described in clause (a), above,
reduced to 20% of the Allocated Participation)
until a final determination. Once a final
determination has been made, the Allocated
Participation with respect to the Tax Savings as
finally determined shall be paid (to the extent
not previously paid), plus interest thereon at a
fixed rate equal to the 5-year Treasury Notes rate
as of the Initial Payment Date, plus 35 basis
points from the Initial Payment Date.
A-3
<PAGE>
Minimum Cumulative Pursuant to the terms of the Series I EONS, the
Operating Income Of Home Group will agree, solely in favor of the
Reorganized Home: Series I EONS-holders, that it will utilize its
best efforts to generate cumulative taxable income
(determined without regard to the Specified NOL
Carryovers) at least as follows:
From the Effective Date through December 31, 2000
(the "First Target Date") An amount equal to (A)
$200 million multiplied by (B) a fraction, the
numerator of which is 731 minus the excess of (i)
the number of days after March 31 that the
Effective Date occurs over (ii) the number of days
after May 1, 1998 that the Confirmation Date
occurs, and (y) the denominator of which is 731
(the "First Target")
From the Effective Date $200 million of
through December 31, 2001 Cumulative Adjusted
(the "Supplemental First Taxable Income (the
Target Date") "Supplemental First
Target")
From the Effective Date $400 million
through the end of the (the "Second
first taxable year ending Target")
on or after the fifty-seventh
month after the Effective Date
(the "Second Target Date")
From the Effective Date $700 million
through the end of the (the "Third
first taxable year ending on Target")
or after the ninety-third month
after the Effective Date (the
"Third Target Date")(1)
From the Effective Date the lesser of
through the last year of the $1 billion and
NOL carryforward period 90% of the
of the Specified NOL amount of the
Carryovers (the "Fourth Specified NOL
Target Date")(2) Carryovers as
(the "Fourth Target")
- ----------
1 Based on the current estimated amount of the Specified NOL Carryovers of
approximately $560- 610 million, the Third Target will effectively be
lower than $700 million.
2 Based on the current estimated amount of the Specified NOL Carryovers of
$560-610 million, the Fourth Target will not be operative.
A-4
<PAGE>
(a) In the event that such Targets are not met
other than by reason of a Material Change of Law,
the sole remedy for the Series I EONS-holders
shall be to receive payments with respect to the
Series I EONS in an amount equal to the amounts
that would have been payable were the minimum
income levels met at the times at which such
amounts would have been payable. To the extent
that the actual taxable income of the Home Group
is less than the amounts specified above, the
excess deemed income shall be deemed to have the
same characteristics as the actual income of the
Home Group from the Effective Date through the
relevant Target Date.
(b) In the event that such Targets are not met by
reason of a Material Change of Law, the Series I
EONS-holders shall have no remedy. For this
purpose, a Material Change of Law shall mean: a
change in any Federal, state or local statute,
unappealable and final court decision, regulation,
ruling or other administrative practice or order,
or any lapse or reinterpretation of existing law
(a "Change of Law"), that prohibits or effectively
proscribes the Zurich Group from conducting its
business in the U.S.
(c) In the event of the disallowance, in whole or
in part, of the deductibility of the Specified NOL
Carryovers, or if, as a result of a Change of Law,
the deductibility of the Specified NOL Carryovers
is limited, the targets above will be adjusted so
that they do not exceed the amount of Specified
NOL Carryovers that can be utilized by Home
Holdings to offset its income.
(d) In the event that the Home Group fails to
generate any taxable income, for purposes of
calculating payments due with respect to the
Targets, the amount of the Specified NOL
Carryovers shall be deemed to be equal to the
amount shown as such on the Tax Return of Home
Holdings for the first taxable year ending after
the Effective Date.
Any payments made pursuant to this section shall
be credited against future amounts otherwise
payable with respect to the Series I EONS.
In the preparation of the Tax Returns of the Home
Group or any proceeding relating thereto,
Reorganized Home will seek realization of Tax
Savings relating to the Specified NOL Carryovers
in good faith; provided that this paragraph shall
not give any Series I EONS-holders or any other
person any rights with respect to the preparation
or filing of any Tax Return of the Home Group or
the conduct of any proceeding with respect thereto
or any rights to be provided with confidential
information of Reorganized Home or its Affiliates.
A-5
<PAGE>
Transfers Of (a) In the event that holders of common stock
Reorganized Home of Reorganized Home transfer more
Common Equity: than 20% of such stock during the first two years
following the Effective Date, or
any such stock thereafter, and such transfer
causes an ownership change within the meaning of
section 382 of the Internal Revenue Code of 1986,
as amended, such holders will make, or cause
Reorganized Home to make, payments with respect to
the Series I EONS with respect to the First,
Supplemental First, Second, Third, and Fourth
Target Dates, as applicable, that are no less than
the amounts that would have been due if such
ownership change had not occurred, and subject to
the Material Change of Law, taxable income in the
taxable year ending on the relevant Target Date
before deducting the Specified NOL Carryovers
equaled the excess of the respective Target (where
appropriate) for such year over the amount of
taxable income with respect to which the Tax
Savings have previously been taken into account.
(b) Transfers of Common Stock shall not affect the
Zurich Entity's Keepwell obligations hereunder
unless those obligations are assumed by another
entity with an equivalent or better AM Best rating
for claims paying ability at the time of transfer.
Transfers Of Series I Certain limited restrictions on transferability
EONS under certain limited EONS: circumstances to the
extent necessary to prevent adverse consequences
under section 382.
Order For Relief In the event of an order for relief under title 11
Against Reorganized of the United States Code entered against
Home: Reorganized Home within five years of the
Effective Date, the Series I will be puttable to
the Zurich Put Entity at a price to be determined
pursuant to the formula set forth on Schedule 1-A
annexed to this Exhibit A.
Expiration: The Series I EONS will expire upon the final
payment made by Reorganized Home to the Series I
EONS with respect to the last year of the NOL
carryforward period of the Specified NOL
Carryovers.
A-6
<PAGE>
SCHEDULE I-A
TO EXHIBIT A
Put Price Formula:
If the Calculation Date occurs before the First Target Date:
A*50%*T B*50%*T C*50%*T D*50%*T
- ------------ + --------------- + --------------- + ----------------
= (1+r)^t (1+r)^(t+2) (1+r)^(t+5) (1+r)^(t+10)
If the Calculation Date occurs after the First Target Date:
B*50%*T C*50%*T D*50%*T
- ------- + ----------- + ---------------
=(1+r)^t (1+r)^(t+3) (1+r)^(t+8^)
Symbols/Definitions
A = the excess, if any, of (x) the lesser of (i) N and (ii) the First
Target over (y) the amount of cumulative taxable income generated by
Reorganized Home that has been offset by Specified NOL Carryovers up to
the Calculation Date (the "Utilized NOL Amount").
B = the excess, if any, of (x) the lesser of (i) N and (ii) the Second
Target, over (y) the greater of (i) the Utilized NOL Amount and (ii) the
First Target.
C = the excess, if any, of (x) the lesser of (i) N and (ii) the Third
Target over (y) the greater of (i) the Utilized NOL Amount and (ii) the
Second Target.
D = the excess, if any, of (x) the lesser (i) 90% of N and (ii) the Fourth
Target over (y) the greater of (z) the Third Target and (ii) the
Utilized NOL Amount.
N = the Specified NOL Carryovers, as finally determined.
T = the maximum marginal Federal corporate tax rate as of the Calculation
Date.
t = the time in years from the Calculation Date to the next Target Date
(i.e., either the First Target Date or the Second Target Date, whichever
the case may be).
r = 13.5%.
^ = the exponential sign.
* = the multiplication sign.
A-7
<PAGE>
Exhibit B
REORGANIZED HOME HOLDINGS INC.
Earn Out Notes Series I I
Term Shee t
Issuer: Reorganized Home.
Issue: The Plan shall provide for the issuance to Trygg-Hansa
in exchange for its Junior Subordinated Note of Series
II EONS which shall provide for the Series II EONS
Payments.
Series II EONS The "Series II EONS Payment" shall mean payments
which Payment: Reorganized Home will be required to make
pursuant to the Series II EONS on October 31 of each
year, equal to (i) until Trygg-Hansa has received
payments with a net present value (calculated from the
Effective Date) of $20 million, the greater of (A) 50%
of the Zurich Tax Benefits with respect to the taxable
year ending immediately prior to such October 31 or (B)
20.5% of the Tax Benefits for such taxable year, and
(ii) 10% of the Zurich Tax Benefits thereafter; provided
that the net present value (calculated from the
Effective Date) of the Series II EONS Payments shall not
exceed $50 million. "Zurich Tax Benefits" means (a) 85%,
multiplied by (b) Tax Benefits reduced by amounts
payable with respect thereto to holders of the Series I
EONS. "Tax Benefits" means the difference between (x)
the consolidated Federal, state, and local income tax
liability of the Home Group with the Home NOLs and (y)
the consolidated Federal, state, and local income tax
liability of the Home Group without the Home NOLs
computed each taxable year, which shall initially be
based upon the Federal, state, and local income tax
returns of the Home Group filed with respect to such
year and shall initially certified by the Chief
Financial Officer of Reorganized Home on September 25 of
the following taxable year. "Home NOLs" means the net
operating loss carryforwards and built-in losses
available to Reorganized Home immediately after the
Effective Date. "Home Group" means any affiliated,
consolidated, combined, or unitary group of which the
Reorganized Home is or would become a member. "Net
present value" hereunder shall be calculated using a
7.5% discount rate compounded quarterly.
So long as Trygg-Hansa or any of its Affiliates owns the
Series II EONS, Series II EONS Payments shall be made to
Trygg-Hansa, by wire transfer in immediately available
funds to an account designated by Trygg-Hansa, on
October 31 of each year and shall be accompanied by a
certification by the Chief Financial Officer of
Reorganized Home as described in the definition of "Tax
Benefits." Series II EONS Payments with respect to
Series II EONS not held by Trygg-Hansa or any of its
Affiliates shall be made on the same basis as payments
pursuant to other EONS.
B-1
<PAGE>
Minimum Cumulative (a) Pursuant to the Series II EONS, the Home Group will
Operating Income Of agree, solely in favor of Trygg-Hansa and its successors
The Home Group: and assigns, that it will utilize its best efforts to
generate cumulative taxable income (determined without
regard to the Reorganized Home's NOLs) at least as
follows:
(i) $200 million for the period from the Effective Date
through the end of the first taxable year ending on or
after the thirty-third month after the Effective Date
(the "First Target");
(ii) $400 million for the period from the Effective Date
through the end of the first taxable year ending on or
after the fifty-seventh month after the Effective Date
(the "Second Target");
(iii) $700 million for the period from the Effective
Date through the end of the first taxable year ending on
or after the ninety-third month after the Effective Date
(the "Third Target"); and
(iv) the lesser of $1 billion and ninety percent of the
Home NOLs as finally determined for the period from the
Effective Date through the last year of the carryforward
period of the Home NOLs (the "Final Target").
(b) (i) If the Targets described in (a)(i)-(iv) above
are not met, then, subject to clause (ii) below, the
remedy (which shall be the sole remedy) of the Series II
EONS-holders as a result of such failure shall be to
receive Series II EONS Payments in the amounts that
would have been payable were the Targets met at the time
when such amounts would have been payable. To the extent
that the actual taxable income of the Home Group is less
than the amounts specified above, the excess deemed
income shall be deemed to have the same characteristics
as the actual income of the Home Group from the
Effective Date through the date specified in the
relevant clause above. Any amounts paid solely by reason
of the application of this clause (b) shall be credited
against future amounts otherwise payable pursuant to the
Series II EONS. Deemed income shall not be taken into
account in determining the cumulative taxable income of
the Home Group under (a)(i)-(iv).
B-2
<PAGE>
(ii) To the extent that the Targets described in
(a)(i)-(iv) above are not met by reason of a Material
Change of Law, the Series II EONS-holders shall have no
remedy. For this purpose, a "Material Change in Law"
shall mean: a change in any Federal, state, or local
statute, unappealable and final court decision,
regulation, ruling, or other administrative practice or
order, or any lapse or reinterpretation of existing law
that prohibits or effectively proscribes Zurich from
conducting its business in the United States.
(c) Pursuant to the Pre-Reorganization Agreement, if,
subsequent to the making of a Series II EONS Payment
there is a Final Tax Determination or the filing of an
amended tax return that results in the reduction or
elimination in whole or in part of the Tax Benefit that
gave rise to such Payment, the amount of the Series II
EONS Payment shall be recomputed and Trygg-Hansa shall
repay to Home Holdings an amount (the "Repayment
Amount") equal to the excess of the Series II EONS
Payment actually paid over the amount of the Series II
EONS Payment as so recomputed based upon such Final Tax
Determination or amended Tax Return (together with an
allocable portion of any interest payable to the
Internal Revenue Service or other relevant taxing
authority); provided, however, that the aggregate
repayments pursuant to this (c) (exclusive of amounts
relating to interest) shall not exceed the aggregate
amounts paid pursuant to the Series II EONS.
In the preparation of the Tax Returns of the Home Group
or any proceeding relating thereto, Reorganized Home
will seek realization of the Tax Benefits relating to
the Reorganized Home's NOLs in good faith; provided that
neither this paragraph nor any other provision of the
Pre-Reorganization Agreement shall give Trygg-Hansa or
any other person any rights with respect to the
preparation or filing of any Tax Return of the Home
Group or the conduct of any proceeding with respect
thereto or any rights to be provided with confidential
information of Reorganized Home or its Affiliates.
Transfers Of Series II Certain limited restrictions on transferability under
EONS certain limited circumstances to the extent necessary to
prevent adverse consequenc es under section 382 of the
Internal Revenue Code of 1986, as amended; provided that
Trygg-Hansa may transfer Series II EONS to Trygg-Hansa
Forsakrings AB or any of their respective Affiliates.
Transfers Of New See "Earn Out Notes Series I--Transfers Of New Common
Common Stock: Stock."
B-3
<PAGE>
Exhibit C
REORGANIZED HOME HOLDINGS I NC.
Earn Out Notes Series III
Term Sheet
Issuer: Reorganized Home Holdings Inc. ("Reorganized Home").
Issue: Units of Earn Out Notes Series III ("Series III EONS").
Number Of Units: One Note to be issued for release of Class 4-E claims
under the proposed reorganization plan (the "Plan") for
Home Holdings Inc. ("Home Holdings") under Chapter 11 of
title 11 of the United States Code.
Participation Of Series The Series III EONS will participate in the Federal,
III EONS: state, and local income tax savings (the "Tax Savings")
realized by Reorganized Home through the utilization by
the consolidated group of which Reorganized Home or its
successor is a member (the "Home Group") of the net
operating loss carryforwards available to Reorganized
Home immediately after the Effective Date as set forth
in the Plan after taking into account any adjustments
required by reason of consummation of the Plan,
including the reductions required pursuant to sections
108(b) and 382(l)(5) of the Internal Revenue Code of
1986, as amended (the "Specified NOL Carryovers").
Tax Savings: The Tax Savings will be the difference between the
consolidated Federal, state, and local income tax
liability of the Home Group with or without the
Specified NOL Carryovers.
Amount Of The Series III EONS will be entitled in the aggregate to
Participation: 6.89% of the Tax Savings realized by Reorganized Home
(the "Series III EONS Allocated Participation").
Computation Of Tax The Tax Savings for each year will be calculated as of
Savings: the earlier of: a) the expiration of the statute of
limitations with respect to the relevant taxable year;
or b) the time at which a Final Determination (within
the meaning of section 1313(a) of the Internal Revenue
Code of 1986, as amended) is made with respect to the
tax liability of Reorganized Home for the relevant
taxable year (a "Calculation Date") and will be
certified (a "Certification") by the Chief Financial
Officer of Reorganized Home within 30
days of the Calculation Date.
C-1
<PAGE>
Payments To Series III Upon the issuance by Reorganized Home of a Certification
EONS-Holders: with respect to its Tax Savings for a taxable year,
Series III EONS-holders shall be entitled to payments
with respect to their Series III EONS in the amount of
the Series III EONS Allocated Participation relating to
such Certification plus interest thereon at a fixed rate
equal to the Specified Treasury Rate plus 35 basis
points, from October 15 of the taxable year following
the taxable year to which the Certification relates.
"Specified Treasury Rate" shall mean the 5-Year Treasury
Notes rate as of October 15 of the taxable year
following the taxable year to which the Certification
relates.
Transfers Of Series III Certain limited restrictions on transferability under
EONS: certain limited circumstances to the extent necessary
prevent adverse consequences under section 382.
Expiration: The Series III EONS will expire upon the final payment
made by Reorganized Home with respect to the Series III
EONS with respect to the last year of the NOL
carryforward period of the Specified NOL Expiration:
Carryovers.
C-2
<PAGE>
Exhibit D
REORGANIZED HOME HOLDINGS INC.
Senior Notes due 2005
Term Sheet
Issuer: New Home Holdings Inc. ("Reorganized Home").
Issue: Senior Notes due 2005 (the "New Notes").
Issuance: New Notes to be issued to holders of (i) general unsecured
claims ("General Unsecured Claims") not included in Subclasses
4B, 4C, 4D, 4E, or Classes 5, 6, or 7 under the Plan (as
defined below) and (ii) the 7% Senior Notes due 1998, the
7-7/8% Senior Sinking Fund Notes due 2003, and the 7-7/8%
Senior Notes due 2003 (collectively, the "Senior Note Claims")
on or as soon as practicable after the effective date (the
"Effective Date") of the proposed reorganization plan (the
"Plan") for Home Holdings Inc. ("Home Holdings") under Chapter
11 of title 11 of the United States Code.
Price: The product of the Percentage Formula (as defined below) and
each holder's Allowed General Unsecured Claim or Allowed
Senior Note Claim, as the case may be.
"Percentage Formula" as used herein means (A/B) / .99 when
A = the sum of
(i) 61,271,875, and
(ii).25 x (((280,000,000 x .083125)/360)x N1), and
(iii) .25 x (((280,000,000 x .12) / 360) x N1a), and
(iv) .25 x (((280,000,000 x .083125) / 360) x N1b)
N1 = the number of days from and including June 16, 1997 to
and including May 1, 1998.
N1a = the number of days from and excluding May 1, 1998 to and
including the Confirmation Date.
N1b = the number of days from and excluding the Confirmation
Date to and including the Effective Date.
B = the sum of
(i) 280,000,000 and
(ii) (((280,000,000 x .083125) / 360) x N2), and
N2 = the number of days from and including June 16, 1997 to
and excluding the Commencement Date.
Denominations: $1,000 and integral multiples thereof.
D-1
<PAGE>
Interest: The interest rate per annum shall be a fixed rate
equal to the 5-year Treasury Notes rate as of the
Effective Date. Interest for the first 3 years following
the Effective Date may at Home Holdings's option, be
paid in the form of additional New Notes.
Maturity: 8 years (2005).
Mandatory Redemption: None prior to maturity.
Optional Redemption: The New Notes may be redeemed at the option of
Reorganized Home, in whole or in part, at any time on
not less than 30 nor more than 60 days' notice, at par
plus accrued and unpaid interest, if any, to the
redemption date.
Ranking: The New Notes will be senior unsecured obligations of
Reorganized Home, ranking pari passu with all other
existing and future senior unsecured obligations of
Reorganized Home and will rank senior to all existing
and future subordinated debt of Reorganized Home.
Covenants: Same as in the Indenture dated as of December 22, 1993
(the "Old Indenture"), relative to Home Holdings's 7%
Senior Notes due December 15, 1998.
Events Of Default: Same as in the Old Indenture.
Defeasance Or Covenant Market Terms.
Defeasance:
Modification Of Same as in the Old Indenture.
New Indenture:
Credit Support: Credit support for payments due, including interest
accrued thereon, shall be provided in the form of the
Class 4 Keepwell Agreement by a member of the group
comprised of Zurich Insurance Company and its worldwide
affiliates with creditworthiness satisfactory to the
Senior Noteholders' Committee.
D-2
<PAGE>
Exhibit E
FORM OF
NEW NOTE TENDER OFFER UNDERTAKING
NEW NOTE TENDER OFFER UNDERTAKING (the "Undertaking"), dated as of
January 15, 1998, by ZURICH REINSURANCE CENTRE HOLDINGS, a Delaware corporation
(the "Purchaser"), in favor of the holders of New Notes of HOME HOLDINGS INC., a
Delaware corporation (the "Company"). Capitalized terms used herein but not
otherwise defined shall have the respective meanings ascribed to them in the
Company's Plan of Reorganization dated January 15, 1998, as amended on March 3,
1998 (the "Plan"), to which this Undertaking is an Exhibit.
WHEREAS, on the date hereof the Company filed the Chapter 11 Case
and has filed the Plan with the Bankruptcy Court; and
WHEREAS, the Plan contemplates that (i) on the Initial Distribution
Date, or as soon thereafter as is practicable, holders of certain Claims shall
receive New Notes and (ii) the Purchaser shall provide this Undertaking pursuant
to which the Purchaser shall offer to purchase any and all outstanding New Notes
as provided herein.
NOW THEREFORE, in order to fulfill its obligations under the Plan,
the Purchaser is willing to provide this Undertaking, and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the Purchaser hereby agrees as follows:
(a) Tender Offer.
(i) Not later than the sixtieth day after the Effective Date,
the Purchaser shall offer to purchase any and all outstanding New Notes and the
Purchaser shall keep such offer open for a period of not less than 20 days.
(ii) In the event that any holder of New Notes shall accept
the Purchaser's offer and deliver to the Purchaser a fully executed letter of
transmittal together with New Notes
E-1
<PAGE>
and any other customary documents required pursuant to the offer to purchase,
the Purchaser shall pay the Purchase Price (as defined below) for such tendered
New Notes, in Cash, to the tendering holder of New Notes.
(iii) "Purchase Price" means an amount equal to the sum of 99%
of (i) the face amount of the New Notes tendered by any holder of the New Notes
and (ii) all accrued and unpaid interest on such New Notes as of the date that
the Purchaser makes the payment to the tendering holder of the New Notes.
(b) Purchaser's Representations And Warranties. The Purchaser
represents and warrants, as to itself, that:
(i) this Undertaking is a legal, valid and binding obligation
of the Purchaser, enforceable against the Purchaser in accordance with its
terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforceability of creditors' rights generally and by general principles of
equity; and
(ii) no consent, authorization or order of, or filing or
registration with, any court or governmental agency or other party is required
to be obtained by the Purchaser for the execution or delivery of this
Undertaking or the performance of the transactions contemplated hereby.
(c) Conditions To Obligations. The obligations of the Purchaser
hereunder shall not have any force or effect unless and until the Effective Date
shall have occurred under the Plan.
(d) Assignment; Binding Effect. The Purchaser may assign all or part
of its rights or delegate any or all of its obligations hereunder to one or more
of its affiliates; provided, however, that no such assignment or delegation
shall relieve the Purchaser of its obligations hereunder; provided, further,
however, that upon (x) any assignment by the Purchaser of all of its rights and
delegation of all of its duties hereunder to an affiliate of the Purchaser if
but only if at the time of such assignment and after giving effect to such
assignment such affiliate has a credit rating which is "A" (or higher) from A.M.
Best Company or "A-" (or higher) from Standard & Poor's Ratings Group (or if
such credit ratings are no longer applicable, substantially equivalent credit
ratings, or if such entities no longer provide credit ratings, substantially
equivalent credit ratings from their successors), and (y) the execution by such
assignee of an
E-2
<PAGE>
instrument of assumption, in form reasonably satisfactory to the Trustee,
pursuant to which such assignee assumes all obligations of the Purchaser
hereunder, the Purchaser shall be released from any obligations or duties
hereunder. This Undertaking shall be binding upon the Purchaser and its
successors and assigns.
(e) Headings. The Section headings have been prepared for
convenience only and are not part of this Undertaking and shall not be taken as
an interpretation of any provision of this Undertaking.
(f) Notices. All demands, notices and communications hereunder shall
be in writing and shall be delivered or mailed by registered or certified mail,
postage prepaid, or telecopied by facsimile transmission, and addressed in each
such case as follows:
to:
Zurich Reinsurance Centre Holdings
One Chase Manhattan Plaza
New York, New York 10005
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Albert P. Hand
Telephone: (212) 373-3000
Telecopy: (212) 757-3990
Any of the foregoing persons may change its address for notices hereunder by
giving notice of such change to the Company. All notices and demands shall be
deemed to have been given either at the time of the delivery thereof to any
person entitled to receive such notices and demands at the address of such
person for notices hereunder, or on the third day after the mailing thereof to
such address, as the case may be.
(g) Governing Law. THIS UNDERTAKING SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE WHOLLY PERFORMED WITHIN SUCH STATE.
E-3
<PAGE>
(h) Beneficiaries Of This Undertaking. This Undertaking is made for
the benefit of the holders of New Notes. The obligations of the Purchaser
hereunder may be enforced by the trustee under any indenture relating to the New
Notes and, to the extent permitted by the indenture relating to the New Notes,
by any holder of New Notes.
(i) Keepwell Agreement. The Purchaser agrees that upon the
occurrence of the Effective Date it shall cause an Affiliate whose
creditworthiness shall be satisfactory to the Creditors' Committee to execute
the Keepwell Agreement in substantially the form attached hereto as Exhibit A.
(j) Plan. The Purchaser shall support, and shall cause its
Affiliates to support, the Plan, and vote its claims, if any, and cause its
Affiliates to vote their claims, if any, in favor of the Plan. The Purchaser's
agreements contained in this Section 10, (i) are conditioned on the Plan not
being amended, supplemented, waived or modified in any manner that materially
adversely affects the Zurich Group without its prior written consent and (ii)
shall be effective on the date hereof notwithstanding Section 3 hereof.
IN WITNESS WHEREOF, the Purchaser has caused this New Note Tender
Offer Undertaking to be duly executed and delivered as of the day and year first
above written.
ZURICH REINSURANCE CENTRE HOLDINGS
By:
-----------------------------------
Name:
Title:
E-4
<PAGE>
Exhibit A to
New Note Tender Offer Undertaking
FORM OF
CLASS 4 KEEPWELL AGREEMENT
This KEEPWELL AGREEMENT, dated as of ____________ __, 1998 (as
amended, modified and supplemented from time to time in accordance with its
terms, this "Agreement"), is made by and between [Zurich Entity], a (the
"Parent") and Home Holdings Inc., a Delaware corporation (the "Company").
On January 15, 1998, the Company filed a voluntary petition for
relief under Chapter 11 of title 11 of the United States Code, 11 U.S.C. ss.ss.
101 et seq., in the United States Bankruptcy Court for the Southern District of
New York (the "Bankruptcy Court") commencing Chapter 11 Case No. 98 B 40319
(JHG) (the "Chapter 11 Case"). On _____________ __, the Bankruptcy Court entered
an Order confirming the Company's Plan of Reorganization dated ___________ (the
"Plan"). Capitalized terms, unless otherwise defined herein, are used herein as
defined in the Plan.
The Plan provides that Senior Noteholders are to receive, among
other things,___ units of Earn Out Notes Series I under the Earn Out Notes
Indenture.
The Plan also provides that Senior Noteholders are to receive, among
other things, New Notes under the New Notes Indenture.
The Parent desires to provide assurance to the current and
subsequent holders of the Earn Out Notes Series I and New Notes (collectively,
the "Holders") that the Company shall be able to satisfy its payment obligations
under the Earn Out Notes Series I and New Notes.
In consideration of the foregoing and the Senior Noteholders'
acceptance of the Plan and the mutual promises herein contained, the Parent
hereby covenants and agrees with the Company as follows:
(a) Maintenance Of Liquidity. The Parent shall cause the Company to
have at all times sufficient cash and cash equivalents to satisfy its payment
obligations under the Earn Out Notes Series I and New Notes and the Parent shall
make available to the Company sufficient cash and cash equivalents to enable the
Company to meet such obligations.
(b) Holders As Beneficiaries. The Parent agrees that the Holders are
third party beneficiaries of the performance and satisfaction of the obligations
of the Parent set forth herein. Subject to Section 7 hereof, the Parent
therefore agrees that the Company, each Trustee and the Holders (to the extent
permitted under the Earn Out Notes Indenture and New Notes Indenture, as
applicable) shall have the right to enforce this Agreement and any or all of the
obligations of the Parent hereunder or to exercise any other remedies available
in the event of a default under this Agreement.
(c) No Third Party Beneficiary. Except as expressly provided in
Section 2 hereof, this Agreement and the obligations of the Parent hereunder are
not for the benefit of any third party. No party other than the Company, each
Trustee and the Holders (to the extent permitted under the Earn Out Notes
Indenture and New Notes Indenture, as applicable) shall have the right to
enforce this Agreement or to receive the benefit of any payments to be made by
the Parent hereunder.
E-5
<PAGE>
(d) No Assignment. No rights, remedies or claims arising under or
related to this Agreement may be transferred or assigned (whether by operation
of law or otherwise) in whole or in part, by the Company, any Trustee or the
Holders. Parent shall be permitted to assign its rights and obligations
hereunder, without a prior consent of any of the other parties hereto, to any of
its affiliates if but only if at the time of such assignment and after giving
effect to such assignment such affiliate has a credit rating which is "A" (or
higher) from A.M. Best Company or "A-" (or higher) from Standard & Poor's
Ratings Group (or if such credit ratings are no longer applicable, substantially
equivalent credit ratings, or if such entities no longer provide credit ratings,
substantially equivalent credit ratings from their successors), and upon the
execution by such assignee of an instrument of assumption, in form reasonably
satisfactory to each Trustee, pursuant to which such assignee assumes all
obligations of Parent hereunder, Parent shall be released from any obligations
hereunder.
(e) Term. This Agreement shall terminate at such times as the Earn
Out Notes Series I and New Notes no longer remain outstanding.
(f) Not A Guarantee. This Agreement is not a guarantee by Parent of
the payment of the Earn Out Notes Series I or New Notes or any other
liabilities, obligations or indebtedness of any kind or character of the
Company.
(g) Keepwell. The Company hereby agrees that it shall only seek
payments from the Parent hereunder in order to satisfy its obligations under the
Earn Out Notes Series I and New Notes. Any payments made by the Parent hereunder
shall be held by the Company in trust for the sole benefit of the Holders;
provided, however, that any such payments which are in excess of the Company's
obligations under the Earn Out Notes Series I and New Notes shall (x) be held by
the Company in trust for the Parent and (y) be promptly returned by the Company
to the Parent. The Parent agrees that all payments made hereunder shall be made
to a separate, segregated account (the "Account") maintained by the Trustee for
the Earn Out Notes Series I for the benefit of both Trustees and all holders.
Subject to (x) the Trustee's continued maintenance of the Account and (y) the
Parent's receipt of notice that the Account is being maintained, payments made
by the Parent to the Company that are not paid into the Account or that are not
applied to the payment of the Company's obligations to the Holders shall not be
deemed payments made in satisfaction of the Parent's obligations under this
Agreement.
(h) Security Agreement. On the date hereof, the Company shall
execute a security agreement in favor of each Trustee and the Holders pursuant
to which the Company shall (x) grant to each Trustee for the benefit of the
applicable Holders a security interest in all of its right, title and interest
in, to and under this Agreement and the payments due hereunder and the proceeds
thereof, including without limitation, the right to sue on behalf of the Company
to enforce this Agreement and (y) agree that it shall not accept any payments
due hereunder which are not made to the Account.
(i) Amendments, Etc. No amendment or waiver of any provision of this
Agreement, nor consent to any departure by the Parent therefrom, shall in any
event be effective unless the same shall be in writing and signed by the Parent,
the Company and each Trustee, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
(j) GOVERNING LAW. THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT
REFERENCE TO THE CONFLICTS OF LAWS PROVISIONS THEREOF).
E-6
<PAGE>
IN WITNESS WHEREOF, the Parent and the Company have caused this
Agreement to be executed and delivered as of the date first above written.
HOME HOLDINGS INC.
By:
----------------------------
Name:
Title:
[ZURICH ENTITY]
By:
----------------------------
Name:
Title:
E-7
<PAGE>
Exhibit F
FORM OF
PUT OPTION UNDERTAKING
PUT OPTION UNDERTAKING (the "Undertaking"), dated as of January 15,
1998, by ZURICH REINSURANCE CENTRE HOLDINGS, a Delaware corporation (the
"Purchaser"), in favor of the holders (the "Holders") of Series I Earn Out Notes
(the "Notes") of HOME HOLDINGS INC., a Delaware corporation (the "Company").
Capitalized terms used herein but not otherwise defined shall have the
respective meanings ascribed to them in the Company's Plan of Reorganization
dated January 15, 1998, as amended on March 3, 1998 (the "Plan"), to which this
Undertaking is an Exhibit.
WHEREAS, on the date hereof the Company filed the Chapter 11 Case
and has filed the Plan with the Bankruptcy Court; and
WHEREAS, the Plan contemplates that (i) on the Initial Distribution
Date, or as soon thereafter as is practicable, holders of certain Allowed Claims
shall receive Notes and (ii) the Purchaser shall provide this Undertaking
pursuant to which, in the event of an order for relief under the Bankruptcy Code
entered against the Company within five years of the Effective Date, the Notes
will be puttable to the Purchaser as provided herein.
NOW THEREFORE, in order to fulfill its obligations under the Plan,
the Purchaser is willing to provide this Undertaking, and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the Purchaser hereby agrees as follows:
(a) Definitions. As used in this Undertaking, the following terms
shall have the following meanings:
"Bankruptcy Default" means an event subsequent to the Effective Date
whereby (A) the Company pursuant to or within the meaning of any Bankruptcy Law
(i) commences a voluntary case or proceeding, (ii) consents to, or acquiesces
in, the institution of a bankruptcy or an insolvency proceeding against it or
the entry of a judgment, decree or order for relief against it in an involuntary
case or proceeding, (iii) applies for, consents to or acquiesces in the
appointment of or taking possession by a Custodian of the Company or of all or
substantially all of
F-1
<PAGE>
its property or (iv) makes a general assignment for the benefit of its creditors
or (B) a court of competent jurisdiction enters a judgment, decree or order
under any Bankruptcy Law which (i) is for relief against the Company in an
involuntary case, (ii) appoints a Custodian of the Company or a Custodian for
all or substantially all of its property or (iii) orders the winding-up or
liquidation of the Company, and such judgment, decree or order shall remain
unstayed and in effect for a period of 60 consecutive days.
"Bankruptcy Law" means title 11 of the United States Code, 11 U.S.C.
ss.ss. 101 et seq., or any similar federal or state law for the relief,
supervision, conservation, reorganization or liquidation of debtors or for the
benefit of creditors.
"Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
"Paying Agent" means the Trustee or the Company, as applicable.
"Trustee" means the trust company or bank then acting as Trustee
under the Earn Out Notes Indenture.
(b) Purchase Of Notes In The Event Of Bankruptcy.
(i) If a Bankruptcy Default occurs prior to the fifth
anniversary of the Effective Date, each Holder shall have the right, at such
Holder's option, to require the Purchaser to purchase such Holder's Notes on the
date (the "Bankruptcy Purchase Date") (or if such date is not a Business Day,
the next succeeding Business Day) that is 75 days after the date of the
Purchaser's notice of such Bankruptcy Default as provided in Section 2(b) below.
The Purchaser shall purchase such Notes at a price (the "Purchase Price") to be
determined pursuant to the formula set forth on Exhibit A hereto.
(ii) The Purchaser, or at its request (which must be received
by the Trustee at least three Business Days prior to the date the Trustee is
requested to give such notice as described below) the Trustee in the name of and
at the expense of the Purchaser, shall mail to all Holders of record of the
Notes a notice ("Bankruptcy Notice") of the occurrence of a Bankruptcy Default
and of the right arising hereunder as a result thereof on or before the tenth
Business Day after the occurrence of such Bankruptcy Default. The Purchaser
shall promptly furnish the Trustee a copy of such notice.
F-2
<PAGE>
(iii) For a Note to be so purchased at the option of the
Holder, the Paying Agent must receive such Note with the form entitled "Option
to Elect Purchase Upon a Bankruptcy Default" on the reverse thereof duly
completed, together with such Note duly endorsed for transfer, on or before the
60th day after the date of the Bankruptcy Notice (or if such 60th day is not a
Business Day, the immediately preceding Business Day). All questions as to the
validity, eligibility (including time of receipt) and acceptance of any Note for
purchase shall be determined by the Purchaser in its reasonable judgment and
whose determination shall be final and binding.
(iv) Upon receipt by the Paying Agent of the Note in proper
form for purchase, the former Holder of the Note shall thereafter be entitled to
receive solely the Purchase Price with respect to such Note and all other rights
with respect thereto shall be canceled and extinguished. Such Purchase Price
shall be paid to such Holder promptly following the later of (A) the Bankruptcy
Purchase Date and (B) the time of delivery of such Note to the Paying Agent by
the Holder thereof in the manner required by this Undertaking.
(v) On or before the Business Day following the Bankruptcy
Purchase Date, the Purchaser shall deposit with the Trustee or with the Paying
Agent (or, if the Purchaser or one of its Affiliates is acting as the Paying
Agent, shall segregate and hold in trust as provided for in the Earn Out Notes
Indenture) an amount of money sufficient to pay the aggregate Purchase Price of
all the Notes to be purchased as of the Bankruptcy Purchase Date in accordance
with this Undertaking.
(vi) The Purchaser will comply with the provisions of Section
14(e), Rule 14e-1 and any other tender offer rules under the Securities Exchange
Act of 1934, as amended, which may then be applicable in connection with any
offer by the Purchaser to purchase Notes at the option of the Holders thereof as
described above. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of this Section, the Purchaser shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations hereunder by virtue thereof.
(c) Conditions To Obligations. The obligations of the Purchaser
hereunder shall not have any force or effect unless and until the Effective Date
shall have occurred under the Plan.
(d) Assignment; Binding Effect. The Purchaser may assign all or part
of its rights or delegate all or any of its duties hereunder to one or more of
its affiliates; provided, however, that no such
F-3
<PAGE>
assignment or delegation shall relieve the Purchaser of its obligations
hereunder; provided, further, however, that upon (x) any assignment by the
Purchaser of all of its rights and delegation of all of its duties hereunder to
an affiliate of the Purchaser if but only if at the time of such assignment and
after giving effect to such assignment such affiliate has a credit rating which
is "A" (or higher) from A.M. Best Company or "A-" (or higher) from Standard &
Poor's Ratings Group (or if such credit ratings are no longer applicable,
substantially equivalent credit ratings, or if such entities no longer provide
credit ratings, substantially equivalent credit ratings from their successors),
and (y) the execution by such assignee of an instrument of assumption, in form
reasonably satisfactory to the Trustee, pursuant to which such assignee assumes
all obligations of the Purchaser hereunder, the Purchaser shall be released from
any obligations or duties hereunder. This Undertaking shall be binding upon the
Purchaser and its successors and assigns.
(e) Headings. The Section headings have been prepared for
convenience only and are not part of this Undertaking and shall not be taken as
an interpretation of any provision of this Undertaking.
(f) Notices. All demands, notices and communications hereunder shall
be in writing and shall be delivered or mailed by registered or certified mail,
postage prepaid, or telecopied by facsimile transmission, and addressed in each
such case as follows:
to:
Zurich Reinsurance Centre Holdings
One Chase Manhattan Plaza
New York, New York 10005
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Albert P. Hand
Telephone: (212) 373-3000
Telecopy: (212) 757-3990
Any of the foregoing persons may change its address for notices hereunder by
giving notice of such change to the Company. All notices and demands shall be
deemed to have been given either at the time of the delivery thereof to any
person entitled to receive such notices and demands at the address of such
person for notices hereunder, or on the third day after the mailing thereof to
such address, as the case may be.
F-4
<PAGE>
(g) Governing Law. THIS UNDERTAKING SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE WHOLLY PERFORMED WITHIN SUCH STATE.
(h) Beneficiaries Of This Undertaking. This Undertaking is made for
the benefit of the Holders. The obligations of the Purchaser hereunder may be
enforced by the Trustee under any indenture relating to the Notes and, to the
extent permitted by the indenture relating to the Notes, by any Holder.
IN WITNESS WHEREOF, the Purchaser has caused this Put Option
Undertaking to be duly executed and delivered as of the day and year first above
written.
ZURICH REINSURANCE CENTRE HOLDINGS
By:
----------------------------------
Name:
Title:
F-5
<PAGE>
Exhibit A to
Put Option Undertaking
Capitalized terms used in this Exhibit but not otherwise defined in the
Undertaking shall have the respective meanings ascribed to them in the Exhibit
to the Plan describing the Earn Out Notes and for the purposes of this Exhibit
"Calculation Date" shall mean Bankruptcy Purchase Date.
Put Price Formula:
If the Calculation Date occurs before the First Target Date:
A*50%*T B*50%*T C*50%*T D*50%*T
- --------- + ---------------- + --------------- + -----------------
(1+r)^t (1+r)^(t+2) (1+r)^(t+5) (1+r)^(t+10)
If the Calculation Date occurs after the First Target Date:
B*50%*T C*50%*T D*50%*T
- ------------ + --------------- + ---------------
(1+r)^t (1+r)^(t+3) (1+r)^(t+8)
Symbols/Definitions
A = the excess, if any, of (x) the lesser of (i) N and (ii) the First
Target over (y) the amount of cumulative taxable income generated by
the Reorganized Company that has been offset by Specified NOL
Carryovers up to the Calculation Date (the "Utilized NOL Amount").
B = the excess, if any, of (x) the lesser of (i) N and (ii) the Second
Target, over (y) the greater of (i) the Utilized NOL Amount and (ii)
the First Target.
C = the excess, if any, of (x) the lesser of (i) N and (ii) the Third
Target over (y) the greater of (i) the Utilized NOL Amount and (ii)
the Second Target.
D = the excess, if any, of (x) the lesser of (i) 90% of N and (ii) the
Fourth Target over (y) the greater of (z) the Third Target and (ii)
the utilized NOL Amount.
N = the Specified NOL Carryovers, as finally determined.
T = the maximum marginal Federal corporate tax rate as of the
Calculation Date.
t = the time in years from the Calculation Date to the next Target Date
(i.e., either the First Target Date or the Second Target Date,
whichever the case may be).
r = 13.5%.
^ = the exponential sign
* = the multiplication sign
F-6
<PAGE>
Exhibit G
Surviving Documents
1) New Note Tender Offer Undertaking
2) Put Option Tender Offer Undertaking
3) Pre-Reorganization Agreement, dated as of November 15, 1997, by and among
Trygg-Hansa Holding B.V., Trygg Hansa AB, Zurich Home Investments Limited,
Zurich Centre Investments Limited, Centre Reinsurance (Bermuda) Limited,
and Insurance Partners Advisors, L.P.
4) Class 4 Keepwell Agreement
5) Affiliates Agreement, dated as of November 15, 1997, between Trygg-Hansa
Forsakrings AB and Zurich Centre Investments Limited
6) Amended and Restated Securities Purchase Agreement, dated as of April 26,
1995, between Trygg-Hansa AB and ZCI Investments Limited.
7) AmBase Keepwell Agreement
G-1
Hearing Date: May 26, 1998
Hearing Time: 9:30 a.m.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
Attorneys for Home Holdings Inc.,
Debtor and Debtor-in-Possession
919 Third Avenue
New York, New York 10022-3897
(212) 735-3000
Kayalyn A. Marafioti (KM 9362)
Stephanie R. Schwartz (SS 3000)
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - - x
:
In re :
: Chapter 11
HOME HOLDINGS INC., : Case No. 98 B 40319 (JHG)
:
Debtor. :
:
- - - - - - - - - - - - - - - - - - - - x
NOTICE OF MOTION REGARDING MODIFICATION OF PLAN OF
REORGANIZATION UNDER 11 U.S.C. ss. 1127 AND FED. R.
BANKR. P. 3019
PLEASE TAKE NOTICE that upon the annexed Motion, dated April 29,
1998, Home Holdings Inc. ("Home Holdings") will move this court before the
Honorable Jeffry H. Gallet, United States Bankruptcy Judge, at the United States
Bankruptcy Court, One Bowling Green, 5th Floor, New York, New York 10004, on May
26, 1998 at 9:30 a.m. or as soon thereafter as counsel may be heard, for an
order under 11 U.S.C. ss. 1127 and Fed. R. Bankr. P. 3019 determining that (i)
Home Holdings' Second Amended Plan (as defined in the Motion) does not adversely
change
<PAGE>
the treatment of the claim of any creditor, (ii) parties-in-interest which have
voted in favor of Home Holdings' initial Plan (as defined in the Motion) shall
be deemed to have accepted the Second Amended Plan, and (iii) disclosure
statement filed in connection with the Plan and approved by order of the court
on March 4, 1998 contains adequate information with respect to the Second
Amended Plan. A copy of the Second Amended Plan, marked to show changes from the
Plan, is annexed to the Motion.
PLEASE TAKE FURTHER NOTICE that objections, if any, to the Motion or
to confirmation of the Second Amended Plan must be made in writing and received
in the chambers of the Honorable Jeffry H. Gallet, One Bowling Green, 5th
Floor, New York, New York 10004 and by (i) the undersigned, (ii) the Office of
the United States Trustee, 80 Broad Street, 3rd Floor, New York, New York 10004,
Att'n: Paul K. Schwartzberg, Esq., (iii) Anderson Kill & Olick, P.C., attorneys
for the Creditors' Committee, 1251 Avenue of the Americas, New York, New York
10020-1182, Att'n: Anthony Princi, Esq., (iv) Paul, Weiss, Rifkind, Wharton &
Garrison, attorneys for the Zurich Group, 1285 Avenue of the Americas, New York,
New York 10019-6064, Att'n: Alan W. Kornberg, Esq., (v) Simpson Thacher &
Bartlett, attorneys for Trygg-Hansa AB, 425 Lexington Avenue, New York, New York
10017-3909,
2
<PAGE>
Att'n: Lillian Kraemer, Esq., (vi) White & Case, attorneys for the Department,
1155 Avenue of the Americas, New York, New York 10036-2787, Att'n: Allan L.
Gropper, Esq.; and (vii) Dewey Ballantine LLP, attorneys for The Home Insurance
Company, 1301 Avenue of the Americas, New York, New York 10019, Att'n: Sandor E.
Schick, Esq., no later than 5:00 p.m. on May 14, 1998.
Dated: New York, New York
April 29, 1998
SKADDEN, ARPS, SLATE, MEAGHER
& FLOM LLP
Attorneys for Home Holdings Inc.,
Debtor and Debtor-in-Possession
By: /s/ Kayalyn A. Marafioti
-----------------------------------
Kayalyn A. Marafioti (KM 9362)
(A Member of the Firm)
919 Third Avenue
New York, New York 10022-3897
(212) 735-3000
3
Hearing Date: May 26, 1998
Hearing Time: 9:30 a.m.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
Attorneys for Home Holdings Inc.,
Debtor and Debtor-in-Possession
919 Third Avenue
New York, New York 10022-3897
(212) 735-3000
Kayalyn A. Marafioti (KM 9362)
Stephanie R. Schwartz (SS 3000)
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - - x
:
In re :
: Chapter 11
HOME HOLDINGS INC., : Case No. 98 B 40319 (JHG)
:
Debtor. :
:
- - - - - - - - - - - - - - - - - - - - x
MOTION UNDER 11 U.S.C. ss. 1127 AND FED. R. BANKR. P. 3019
FOR DETERMINATION THAT MODIFICATIONS OF PLAN
SHALL BE DEEMED ACCEPTED AND THAT
DISCLOSURE STATEMENT CONTAINS ADEQUATE INFORMATION
TO THE HONORABLE JEFFRY H. GALLET, UNITED STATES BANKRUPTCY JUDGE:
Home Holdings Inc., debtor and debtor-in-possession ("Home Holdings" or
the "Debtor"), respectfully represents:
Background
1. On January 15, 1998 (the "Petition Date"), the Debtor filed with
the court a voluntary petition for relief
<PAGE>
under Chapter 11 of title 11 of the United States Code, 11 U.S.C. ss.ss.
101-1330, as amended (the "Bankruptcy Code").
2. On the Petition Date, Home Holdings filed a plan of
reorganization (as amended, modified, and supplemented, the "Plan") and a
disclosure statement with respect to the Plan (as amended, modified, and
supplemented, the "Disclosure Statement"). The Disclosure Statement was
approved by order of this court dated March 4, 1998, and Home Holdings
subsequently solicited votes on the Plan. The Debtor's official committee of
unsecured creditors (the "Creditors' Committee") supported the Plan, and Home
Holdings' creditors voted overwhelmingly in favor of the Plan.
The Plan Modification
3. Home Holdings filed a revised plan on April 29, 1998, which
modifies the Plan in certain limited respects (as modified, the "Second Amended
Plan"),(1) and the court scheduled a hearing on confirmation of the Second
Amended Plan for May 26, 1998 (the "Confirmation Hearing"). The primary purpose
of the modifications contained in the Second Amended Plan was to place the claim
of AmBase Corporation ("AmBase") in a separate class and render AmBase
unimpaired. In connection with the modifications relating
- ----------
(1) All capitalized terms not herein defined shall have the meanings ascribed
to them in the Second Amended Plan.
2
<PAGE>
to AmBase, certain other modifications were negotiated by the Creditors'
Committee, primarily to take into account the delay caused by the adjourned
confirmation date. In addition, other modifications were included in the Second
Amended Plan as a result of negotiations with, among others, the United States
Attorney's Office.(2) The Creditors' Committee supports the Second Amended Plan.
4. The principal modifications made by the Second Amended Plan are
as follows:
o The claim of AmBase Corporation ("AmBase") has been placed in a
separate class and rendered unimpaired by the Plan under section
1124(1) of the Bankruptcy Code. Credit support for any payments that
shall be due to AmBase by Reorganized Home on account of AmBase's
claim will be provided in the form of the AmBase Keepwell
Agreement.(3) To facilitate such arrangements, Section 8.10 of the
Plan has been modified to except AmBase and any claims it may hold
against the Debtor and any nondebtor parties from the discharge,
release, waiver of claims, and covenant not to sue provisions
contained in the Plan.
o The Percentage Formula, which is a formula that was derived to
calculate the recovery to be realized on the New Notes, has been
modified to provide for a higher notional interest rate factor
- ----------
(2) Certain immaterial technical changes have also been incorporated into the
Second Amended Plan.
(3) The "AmBase Keepwell Agreement" means an agreement to be entered into
between a member of the Zurich Group and Reorganized Home under which such
member will make available to Reorganized Home sufficient liquidity to
satisfy Reorganized Home's payment liabilities, if any, on account of
AmBase's claim.
3
<PAGE>
of 12% for the period from May 1, 1998 to the new confirmation date.
o The holders of the Class 5 Senior Working Capital Note Claims will
receive, in addition to the New Common Stock, their respective Pro
Rata Share of Earn Out Notes Series I entitled in the aggregate to
2% of the Tax Savings.
o The number of the initial directors of Reorganized Home has been
reduced from four to two.
o Section 8.10(d) of the Second Amended Plan excludes the New
Hampshire Insurance Department from the releases set forth in
Sections 8.10(b) and (c).
o Section 8.10(e) of the Second Amended Plan provides that no
nondebtor party will be released, discharged, or exculpated from any
debt owed to the United States Government for any liability arising
under the Internal Revenue Code, the Employee Retirement Income
Security Act of 1974, as amended, or the environmental or criminal
laws of the United States, and that the Government shall not be
enjoined or prevented from collecting any such liability from any
such nondebtor party.
o Section 8.12 of the Second Amended Plan provides for the assignment
of certain trademarks to the Debtor's subsidiaries which utilize
such trademarks.
o Section 10.1(h) of the Plan containing the condition precedent that
the aggregate Allowed General Unsecured Claims shall not exceed
$12.5 million has been deleted.
Technical Changes
o Section 8.2 of the Second Amended Plan clarifies that the Debtor's
payment of the Allowed amount of the professional fees referred to
in Section 8.11 of the Plan is subject to the terms of Section 8.11
of the Plan.
4
<PAGE>
o Section 12.17 of the Second Amended Plan has been modified to
provide for the filing of a Plan Supplement to contain, among other
things, the form of the AmBase Keepwell Agreement, and a schedule of
trademarks, specifying the entities designated to be assigned such
trademarks, at least 10 days prior to the Confirmation Hearing.
o The formula for determining Reorganized Home's minimum cumulative
operating income constituting the "First Target" under the Earn Out
Notes Series I has been clarified to take into account any delay
caused by the adjourned Confirmation Hearing.
o Various conforming changes have been made as a result of the
aforementioned changes.
5. In short, with exceptions of the modifications relating to the
technical aspects of the Plan, the modifications contained in the Second Amended
Plan are primarily threefold: (i) placing AmBase's claim in a separate class and
rendering its claim unimpaired, (ii) adjusting the recovery to the unsecured
creditors of Home Holdings to take into account the delay caused by the
adjourned Confirmation Hearing and the modification described in (i) above, and
(iii) excepting the United States Government from the releases against nondebtor
parties and excluding the Department from the scope of the releases. A copy of
the Second Amended Plan, blacklined to show changes from the Plan, is annexed
hereto as Exhibit A.
5
<PAGE>
Relief Requested
6. By this motion (the "Motion"), the Debtor seeks entry of an order
under section 1127 of the Bankruptcy Code and Fed. R. Bankr. P. 3019 determining
that (i) the Second Amended Plan shall be deemed accepted by parties-in-interest
and (ii) the Disclosure Statement contains adequate information with respect to
the Second Amended Plan. Section 1127 of the Bankruptcy Code provides, in
pertinent part, that:
(a) The proponent of a plan may modify such plan at any time
before confirmation, but may not modify such plan so that such plan
as modified fails to meet the requirements of sections 1122 and 1123
of this title. After the proponent of a plan files a modification of
such plan with the court, the plan as modified becomes the plan.
. . . .
(c) The proponent of a modification shall comply with section
1125 of this title with respect to the plan as modified.
(d) Any holder of a claim or interest that has accepted or
rejected a plan is deemed to have accepted or rejected, as the case
may be, such plan as modified, unless, within the time fixed by the
court, such holder changes such holder's previous acceptance or
rejection.
11 U.S.C. ss. 1127. Bankruptcy Rule 3019 provides, in pertinent part:
6
<PAGE>
In a . . . chapter 11 case, after a plan has been accepted and
before its confirmation, the proponent may file a modification of
the plan. If the court finds after hearing on notice to the trustee,
any committee appointed under the Code, and any other entity
designated by the court that the proposed modification does not
adversely change the treatment of the claim of any creditor or the
interest of any equity security holder who has not accepted in
writing the modification, it shall be deemed accepted by all
creditors and equity security holders who have previously accepted
the plan.
Fed. R. Bankr. P. 3019. Accordingly, this court is authorized to grant the
relief requested.
7. The modifications found in the Second Amended Plan do not
adversely alter in any respect the treatment accorded any creditor or equity
interest holder as fixed in the Plan. To the contrary, the Second Amended Plan
now renders AmBase's claim unimpaired, such that AmBase is deemed to have
accepted the Second Amended Plan. See 11 U.S.C. 1126(f).(4) The Second Amended
Plan also provides an
- ----------
(4) Section 1126(f) of the Bankruptcy Code provides:
(f) Notwithstanding any other provision of this section, a
class that is not impaired under a plan, and each holder of a claim
or interest of such class, are conclusively presumed to have
accepted the plan, and solicitation of acceptances with respect to
such class
(continued...)
7
<PAGE>
increased recovery to the Debtor's unsecured creditors that the previous Plan
did not provide. These modifications are the outcome of the consensual
resolution of claims through the plan negotiation process among the Debtor,
certain principal constituents, and the Creditors' Committee, which is
encouraged by the Bankruptcy Code. See In re Rhead, 179 B.R. 169, 176 (Bankr. D.
Ariz. 1995). Therefore, those creditors who previously voted in favor of the
Plan should be deemed to have accepted the Second Amended Plan. See In re Mount
Vernon Plaza Community Urban Redevelopment Corp., 79 B.R. 305 (Bankr. S.D. Ohio
1987) (holding that all creditors previously accepting plan of reorganization
were deemed to have accepted the plan as modified because "[n]one of the
changes negatively affects the repayment of creditors, the length of the Plan,
or the protected property interests of parties in interest"). See also Committee
Note to Bankruptcy Rule 3019 (noting that section 1127 of Bankruptcy Code "does
not deal with the minor modifications that do not adversely change any rights");
In re American Solar King Corp., 90 B.R. 808, 826 (Bankr. W.D. Tex. 1988)
- ----------
(4) (...continued)
from the holders of claims or interests of such class is not
required.
11 U.S.C. 1126(f).
8
<PAGE>
("if a modification does not 'materially' impact a claimant's treatment, the
change is not adverse").
8. The Disclosure Statement which was approved by order of this
court dated March 4, 1998 adequately reflects the nature and extent of AmBase's
claim. Moreover, the Disclosure Statement adequately describes the terms and
provisions of the Second Amended Plan other than the modifications, described in
this Motion, that do not adversely change the treatment of the claims of
creditors who previously voted on the Plan. Thus, no further disclosure is
required. Accordingly, Home Holdings submits that the relief requested herein is
wholly warranted.
Notice
9. Pursuant to Bankruptcy Rule 3019, the Debtor proposes to give
notice of the Motion to (i) Office of the United States Trustee, 80 Broad
Street, 3rd Floor, New York, New York 10004, Att'n: Paul K. Schwartzberg, Esq.,
(ii) Anderson Kill & Olick, P.C., attorneys for Creditors' Committee, 1251
Avenue of the Americas, New York, New York 10020-1182, Att'n: Anthony Princi,
Esq., (iii) Pryor, Cashman, Sherman & Flynn, attorneys for AmBase Corporation,
410 Park Avenue, New York, New York 10022-4441, Att'n: Peter D. Wolfson, Esq.,
(iv) all creditors who have requested notices of papers and pleadings in this
case, and (v) all
9
<PAGE>
other creditors and equity security holders of Home Holdings.
10. The Debtor submits that in view of the nature of the
modifications, no other or further notice of the Motion or modifications need be
given.
Waiver Of Memorandum Of Law
11. The Debtor requests that the court waive the submission of a
separate memorandum of law under Local Bankruptcy Rule 9013-1(b) because (i) the
most important authorities have already been cited herein and (ii) the relief
requested is neither novel nor unique.
WHEREFORE, Home Holdings respectfully requests that the court enter
an order (i) determining that the Second Amended Plan does not adversely change
the treatment of the claim of any creditor from that which it was to receive
under the Plan; (ii) determining that the parties-in-interest which have voted
in favor of the Plan shall be deemed to have accepted the Second Amended Plan,
(iii) determining that the Disclosure Statement approved by order of the court
on March 4, 1998 contains adequate information
10
<PAGE>
with respect to the Second Amended Plan, and (iv) granting Home Holdings such
other and further relief as is just.
Dated: New York, New York
April 29, 1998
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
Attorneys for Home Holdings Inc.,
Debtor and Debtor-in-Possession
By: /s/ Kayalyn A. Marafioti
-----------------------------------------
Kayalyn A. Marafioti (KM 9362)
(A Member of the Firm)
919 Third Avenue
New York, New York 10022-3897
(212) 735-3000
11
