SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 30, 1996
COMMISSION REGISTRANT, STATE OF INCORPORATION, I.R.S. EMPLOYER
FILE NUMBER ADDRESS AND TELEPHONE NUMBER IDENTIFICATION NO.
1-1443 CENTRAL AND SOUTH WEST CORPORATION 51-0007707
(A Delaware Corporation)
1616 Woodall Rodgers Freeway
Dallas, TX 75202-1234
(214) 777-1000
1-3146 SOUTHWESTERN ELECTRIC POWER COMPANY 72-0323455
(A Delaware Corporation)
428 Travis Street
Shreveport, Louisiana 71156-0001
(318) 222-2141
<PAGE>
ITEM 5. OTHER EVENTS
CAJUN ASSET PURCHASE PROPOSAL
As previously reported, Cajun Electric Power Cooperative, Inc. (Cajun)
filed a petition for reorganization under Chapter 11 of the United States
Bankruptcy Code on December 21, 1994 and is currently operating under the
supervision of the United States Bankruptcy Court (Bankruptcy Court) for the
Middle District of Louisiana.
On September 30, 1996, Southwestern Electric Power Company (SWEPCO), a
wholly-owned subsidiary of Central and South West Corporation (CSW), together
with Entergy Gulf States Utilities, Inc. (Entergy Gulf States) and the members
committee (Members Committee) of Cajun, which represents 10 of the 12 Louisiana
member distribution cooperatives that are served by Cajun, filed an amended
reorganization plan (Amended SWEPCO Plan) in the Bankruptcy Court. Under the
Amended SWEPCO Plan, a SWEPCO subsidiary or affiliate would acquire all of the
non-nuclear assets of Cajun, comprised of the Big Cajun I gas-fired plant, the
Big Cajun II coal-fired plant, and related non-nuclear assets, for approximately
$780 million in cash and up to an additional $20 million to pay certain other
bankruptcy claims and expenses. In addition, the Amended SWEPCO Plan provides
for SWEPCO and the Cajun member cooperatives to enter into new 25-year power
supply agreements which will provide the Cajun member cooperatives with
wholesale rates starting at approximately 3.74 cents per kilowatt-hour while
permitting the Cajun member cooperatives the flexibility to acquire power on the
open market when their requirements exceed mutually agreed upon levels of
generating capacity available from SWEPCO. The Amended SWEPCO Plan would settle
all claims and litigation in the bankruptcy case, including potentially
protracted litigation over power supply contract rights.
The filing of the Amended SWEPCO Plan complies with an amended
schedule of proceedings established by the Bankruptcy Court which provides for
the filing of amended plans, disclosure statements and related documents by
September 30, 1996 and for confirmation hearings to begin on December 16, 1996.
The Amended SWEPCO Plan amends the reorganization plan filed on April
19, 1996 (the Prior SWEPCO Plan) by the Members Committee, SWEPCO and Entergy
Gulf States in the Bankruptcy Court. Under the Prior SWEPCO Plan, SWEPCO had
proposed to acquire all of the non-nuclear assets of Cajun for approximately
$405 million in cash. In addition, under the Prior SWEPCO Plan, the Cajun member
cooperatives would have made future payments with a net present value ranging
from $497 million to $567 million to the Rural Utilities Service of the federal
government, Cajun's largest creditor, by using a portion of the cooperatives'
future income from their retail customers.
Two competing plans of reorganization with higher cash bid prices for
the non-nuclear assets of Cajun have been filed with the Bankruptcy Court at
<PAGE>
about the same time as the filing of the Amended SWEPCO Plan. Under one
competing plan, Cajun's non-nuclear assets would be acquired by Louisiana
Generating LLC, (the Louisiana Generating LLC Plan) which would be owned by
affiliates of SEI Holding, Inc., NRG Energy, Inc. and Zeigler Coal Holdings
Company. Cajun's court appointed trustee in bankruptcy is supporting the
Louisiana Generating LLC Plan. In addition, Enron Capital & Trade Resources
Corp. and the Official Committee of Unsecured Creditors have jointly filed a
competing plan of reorganization.
Consummation of the Amended SWEPCO Plan is conditioned upon
confirmation by the Bankruptcy Court, as well as the receipt by SWEPCO and CSW
of all requisite state and federal regulatory approvals. If the Amended SWEPCO
Plan is confirmed, CSW and SWEPCO expect initially to finance the $780 million
required to consummate the acquisition of Cajun's non-nuclear assets through a
combination of external borrowings and internally generated funds.
See CSW's and SWEPCO's Combined Annual Report on Form 10-K for the
year ended December 31, 1995, Combined Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1996 and June 30, 1996 and Combined Current Report on
Form 8-K dated April 19, 1996 for additional information related to the SWEPCO
Cajun asset proposal.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits.
Exhibit 99.1 CSW News Release announcing filing of Amended Plan of
Reorganization.
Exhibit 99.2 Amended Plan of Reorganization for Cajun Electric Power
Cooperative, Inc. Submitted Jointly by the Members Committee, SWEPCO and Entergy
Gulf States, Inc.
Exhibit 99.3 Supplemental Disclosure Statement in Support of the Joint
Plan of Reorganization of Southwestern Electric Power Company, Entergy Gulf
States and the Members Committee.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CENTRAL AND SOUTH WEST CORPORATION
Date: October 10, 1996
By: /S/ LAWRENCE B. CONNORS
Lawrence B. Connors
Controller
SOUTHWESTERN ELECTRIC POWER COMPANY
Date: October 10, 1996
By: /S/ R. RUSSELL DAVIS
R. Russell Davis
Controller
CSW
- ----------------------------------
Central and South West Corporation
- ----------------------------------
NEWS RELEASE
1616 Woodall Rodgers Freeway
P.O. Box 660164 - Dallas, Texas 75266-0164
Central Power and Light Company, Corpus Christi
Public Service Company of Oklahoma, Tulsa
Southwestern Electric Power Company, Shreveport
West Texas Utilities Company, Abilene
Central and South West Services, Inc., Dallas
and Tulsa
CSW Communications, Inc., Austin
CSW Credit, Inc., Dallas
CSW Energy, Inc., Dallas
CSW International, Inc., Dallas
CSW Leasing, Inc., Dallas
EnerShop Inc., Dallas
SEEBOARD plc, Crawley, West Sussex, U.K.
OCT. 1, 1996
FOR IMMEDIATE RELEASE
(For additional information,
see contacts at end of release)
MEMBERS COMMITTEE, SWEPCO, ENTERGY GULF STATES
FILE AMENDED REORGANIZATION PLAN FOR CAJUN
The Cajun Electric Members Committee, Southwestern Electric Power
Company (SWEPCO) and Entergy Gulf States, Inc. have filed an amended
reorganization plan for Cajun Electric Power Cooperative, Inc., in the U.S.
Bankruptcy Court for the Middle District of Louisiana (Case No. 94-11474).
The filing on Monday (Sept. 30) complies with a new schedule of
proceedings, which set a Sept. 30 deadline for filing amended plans, disclosure
statements and related documents, and a Dec. 16 date to begin confirmation
hearings.
Under the amended plan and related documents:
* A SWEPCO subsidiary or affiliate will acquire Cajun's non-nuclear
assets for $780 million in cash. Up to an additional $20 million would be funded
to pay certain other bankruptcy claims and expenses.
* SWEPCO and the Members will enter into new 25-year power supply
agreements which provide the cooperatives with competitive wholesale rates
starting at approximately 3.74 cents per kilowatt-hour. The cooperatives also
get the flexibility to acquire additional power on the open market when their
requirements exceed mutually agreed upon levels of generating capacity available
from SWEPCO.
"The Members/SWEPCO/Entergy Gulf States plan will provide significant
rate relief to the customers of the Cajun Member cooperatives across Louisiana,
<PAGE>
while maximizing value to the estate," said Marvin McGregor, SWEPCO's Cajun
Electric project manager.
"Higher rates proposed in other plans simply mean the cooperatives and
their customers will remain at a competitive disadvantage longer than necessary.
The new power supply agreements between the Members and SWEPCO will mean
long-term stability and increased competitiveness for the cooperatives,"
McGregor said.
In addition to spurring economic growth with competitive rates, the new
agreements also will give the cooperatives access to the open market for future
power supply needs. "Other bidders have proposed full-requirements contracts,
making the cooperatives captive customers for all future energy needs. SWEPCO
and the Members have mutually agreed to wholesale rates and market flexibility,
which will increase the cooperatives' competitiveness," McGregor said.
The Members/SWEPCO/Entergy Gulf States plan settles all claims and
litigation in the complex bankruptcy case, including potentially costly and
protracted litigation over power supply contract rights.
"We steadfastly maintain the existing contracts cannot be assumed by
another party without the Member cooperatives' consent," said David Kleiman,
attorney for the Members Committee. "However, the Members have chosen to
negotiate new power supply agreements with SWEPCO and present them as part of
the reorganization plan. This would render the contracts issue moot, and no
other plan can bring that to the table," Kleiman said.
McGregor said, "Bottom line, we can move forward with this plan now,
without years of litigation and delay. Cajun's largest creditor, the Rural
Utilities Service, faces a loss of several hundred million dollars in the value
of the estate due to delays, plus a risky nationwide precedent regarding the
Members' power supply agreements. The Members/SWEPCO/Entergy Gulf States plan
gives the estate the opportunity to avoid the costs of delay and receive
substantial value immediately."
"In addition, the competitive wholesale rates proposed in the plan mean
it can be supported by the Louisiana Public Service Commission," McGregor said.
<PAGE>
The plan also incorporates the terms of a global settlement of issues
related to Cajun Electric's interest in the River Bend nuclear generating
station.
SWEPCO is a wholly owned electric subsidiary of Central and South West
Corporation (NYSE: CSR). Entergy Gulf States, formerly known as Gulf States
Utilities, is a wholly owned subsidiary of Entergy Corporation (NYSE: ETR).
# # #
For more information, contact:
Cajun Electric Members Committee
David Kleiman of Dann Pecar Newman & Kleiman (Indianapolis)
(317) 632-3232
Southwestern Electric Power Company
Peter Main
(318) 673-3530
or Scott McCloud
(318) 673-3532
Central and South West Corporation
Gerald Hunter
(214) 777-1165
Financial community contact:
Sharon R. Peavy
Director, Investor Relations for Central and South West Corporation
UNITED STATES BANKRUPTCY COURT
MIDDLE DISTRICT OF LOUISIANA
IN RE: ss.
ss.
ss. CASE NO. 94-11474
CAJUN ELECTRIC POWER ss.
COOPERATIVE, INC., ss. Chapter 11
ss.
DEBTOR. ss. USDC NO. 94-CV-2763
PLAN OF REORGANIZATION FOR
CAJUN ELECTRIC POWER COOPERATIVE, INC.
SUBMITTED JOINTLY BY THE MEMBERS
COMMITTEE, SWEPCO AND ENTERGY GULF STATES, INC.
The Cajun Electric Members Committee ("Members Committee"),
Southwestern Electric Power Company ("SWEPCO") and Entergy Gulf States, Inc.
formerly known as Gulf States Utilities Company ("GSU") (collectively the
"Proponents") hereby propose the following plan of reorganization ("Plan") which
provides for the liquidation of Cajun Electric Power Cooperative, Inc., the
debtor herein ("Debtor" or "Cajun"):
SUMMARY OF THE PLAN
As more particularly described herein, the Plan submitted by the
Proponents is unique in that it is jointly submitted by two Louisiana electric
public utilities (SWEPCO and GSU) along with ten of Cajun's Members, which
jointly serve a population in the State of Louisiana of over two million. The
Proponents have joined together to present to the creditors of Cajun and the
Court a Plan that will resolve Cajun's bankruptcy through the disposition of
assets, the initiation of new power supply arrangements and the settlement of
all claims and litigation. The Plan has the goal of offering competitive
wholesale rates to the Members, while maximizing value to the Cajun estate. The
Plan, if confirmed by the Court, would resolve all existing and potential
litigation with respect to GSU and the member coops, allow the estate to
immediately receive substantial value, and satisfy the concerns of the Louisiana
Public Service Commission ("LPSC").
The Plan provides for the acquisition of Cajun's non-nuclear
assets by a subsidiary or affiliate of SWEPCO for $780 million in cash and the
funding of various bankruptcy claims and expenses by SWEPCO, as necessary, to
confirm the Plan, of up to $20 million. The Plan ends the GSU litigation by
incorporating the terms of a global settlement negotiated between the
Proponents. The Plan (i) is the only plan that has the support of the Members;
(ii) is the only plan that avoids litigation over the Members' contract rights;
and (iii) reduces rates to a competitive level and is therefore supportable by
<PAGE>
the LPSC. In short, the Proponents' Plan is the only feasible plan that can be
confirmed without years of litigation.
The distinguishing attribute of the Plan is that it will produce
competitive wholesale rates to cooperatives serving over one million Louisiana
residents and maximize the value of the Cajun estate. The cooperatives cannot
and will not remain viable at non-competitive rates, as evidenced by the
bankruptcy of Washington St.Tammany, the insolvency and acquisition of BREMCO,
the agreement of the Teche Board to sell to CLECO, and other cooperatives that
are experiencing financial difficulties.
The Plan includes consensually negotiated average wholesale rates
at a reasonably competitive level of approximately 37.4 mills, which would
immediately provide significant rate relief to Louisiana ratepayers while also
maximizing the value of the estate. Any plan that unilaterally proposes higher,
non-competitive rates in an effort to extract excessive value from Louisiana
ratepayers would not provide a permanent solution to the substantial rate
disparity between cooperatives on the one hand, and investor-owned and municipal
utilities on the other hand.
The Plan provides for an enterprise (hereinafter "SWECO") to be
formed by SWEPCO as a wholly owned subsidiary or affiliate to acquire Cajun's
non-nuclear assets more specifically defined in the Asset Purchase Agreement
(hereinafter the "Acquired Assets"). Under the Plan, SWECO will purchase the
Acquired Assets for the sum of $780 million, payable in cash (the "Sale
Proceeds") pursuant to the proposed Asset Purchase Agreement. The Asset Purchase
Agreement that will be executed by SWECO shall be substantially in the form of
the Asset Purchase Agreement which is attached as EXHIBIT "1" to the Plan. To
the extent that there are any conflicts with respect to the acquisition
transaction between the terms of the Plan and the Asset Purchase Agreement, the
provisions of the Asset Purchase Agreement shall control. The Plan contemplates
that any assets remaining in Cajun after the consummation of the Asset Purchase
Agreement and the River Bend Settlement will be (i) liquidated by the Trustee
with the proceeds of such liquidation distributed in accordance with the Plan;
or (ii) conveyed by the Trustee to the holder of the lien on such assets. The
sale proceeds, liquid assets and any proceeds of other assets liquidated by the
Trustee shall be distributed in accordance with the terms of this Plan.
A primary distinguishing feature of the Plan is that it
incorporates consensual power supply contracts with each of the Members thereby
avoiding costly litigation over the enforcement, assumption and/or assignment of
those contracts that is inherent in the other Competing Plans. The Members and
SWECO shall enter into new Power Supply Agreements substantially in the form of
EXHIBIT "2" attached to the Plan, whereby SWECO shall be obligated to supply and
the Members shall be obligated to purchase all of their power requirements up to
the capacity of the Acquired Assets. SWECO and the Members Committee contemplate
continued negotiation and refinement of the form of the Power Supply Agreement.
On August 26, 1996, Judge Polozola signed an Order and Judgment
Approving Settlement by and among Cajun Electric Power Cooperative, Inc.,
<PAGE>
Entergy Gulf States, Inc., Entergy Corporation, and the Rural Utilities Service
of the Department of Agriculture (the "Order"). A true and correct copy of the
Order is attached as EXHIBIT "3" to the Plan. The settlement approved by the
Order (hereinafter the "River Bend Settlement"), among other things, puts an end
to years of expensive litigation among Cajun, GSU, and the RUS, provides for the
transfer of Cajun's River Bend Interest at the discretion of the RUS to a
bidder, the RUS or GSU, provides for the establishment of a Decommissioning
Trust Fund, and settles the claims of GSU that put at issue the Trustee's
ability to transfer Cajun's non-River Bend assets apart from the River Bend
assets and obligations and free and clear of all liens and encumbrances. The
Order provides that the settlement could be consummated independent of any plan
of reorganization. The Order is the subject of an appeal to the United States
Court of Appeals for the Fifth Circuit, but no stay has been sought or entered
pending the appeal. If the Order is overturned and/or vacated on appeal before
the settlement has been concluded, the terms of the River Bend Settlement,
currently incorporated in the Plan, will be implemented through the confirmation
of the Plan.
TERMS OF THE PLAN
ARTICLE 1: DEFINITIONS
1.1 "ACQUIRED ASSETS" are defined in the Asset Purchase Agreement.
1.2 "ALLOWED CLAIM" means any Claim against the Debtor, (i) the proof of
which was filed on or before the Bar Date; or (ii) that was scheduled by the
Debtor as liquidated in amount and not disputed or contingent; and (iii) in
either case, a Claim to which no objection is timely filed or that is allowed by
a Final Order of the Court.
1.3 "ALLOWED SECURED CLAIM" means any Allowed Claim to the extent of the
value of (i) a lien on the assets which are property of the estate, or (ii) a
right of set-off under Code Section 553.
1.4 "ALLOWED UNSECURED CLAIM" means any Allowed Claim to the extent it
is not secured either by a lien on the Debtor's assets or a right of set-off
under Code Section 553.
1.5 "ASSET PURCHASE AGREEMENT" means the agreement by and between the
Trustee and SWECO providing for the sale of the Acquired Assets to SWECO
substantially in the form as attached hereto as EXHIBIT "1."
1.6 "BAR DATE" means October 1, 1995, the date designated by the Court
in its Order dated August 21, 1995 as the last day for filing a proof of Claim.
1.7 "CLAIM" means a claim as defined in Code Section 101(5) against
Cajun.
1.8 "COBANK" means CoBank, N.A., formerly National Bank for
Cooperatives.
<PAGE>
1.9 "CODE SECTION" means a section of the United States Bankruptcy Code,
11 U.S.C. ss.101 et seq., as in effect with respect to the Reorganization Case.
1.10 "CONFIRMATION ORDER" means the order of the Court confirming this
Plan.
1.11 "COURT" means the United States District Court for the Middle
District of ouisiana, exercising its original bankruptcy jurisdiction pursuant
to 28 U.S.C. ss.1334.
1.12 "DECOMMISSIONING TRUST FUND" means a segregated trust fund to be
established to satisfy obligations for Decommissioning Costs (as defined in the
River Bend Settlement).
1.13 "DISBURSEMENT FUND" means that certain interest bearing escrow
account to be established under the supervision of the Trustee, into which the
Purchase Price is deposited.
1.14 "EFFECTIVE DATE" means a date selected by the Proponents for this
Plan to become effective, and for documents to be executed to implement the
provisions of the Plan, which date shall be not later than 90 days after the
Confirmation Order becomes a Final Order and all required conditions to closing
set forth in the Asset Purchase Agreement and all conditions to effectiveness
specified herein are obtained.
1.15 "ESTATE" means the bankruptcy estate of the Debtor created by
Bankruptcy Code Section 541.
1.16 "EXCESS FUNDS" which is also sometimes characterized by the
Members' Committee as "Ratepayer Trust Fund," means the excess funds collected
by Debtor that are accumulating in a segregated fund pursuant to the Order
Concerning Use of Cash Collateral and Adequate Protection approved by the
Bankruptcy Court on February 13, 1995, and all interest thereon less any sums
withdrawn by the Trustee to fund the Decommissioning Trust Fund as provided in
the River Bend Settlement.
1.16 "EXCLUDED ASSETS" are defined in the Asset Purchase Agreement.
1.17 "FINAL ORDER" means an order or judgment (a) as to which the time
has expired within which a proceeding for review (whether by way of rehearing,
appeal, certiorari (or otherwise) may be commenced, without any such proceeding
having been commenced, or (b) which, if such a review proceeding was timely
commenced, has been affirmed by the highest tribunal in which review was sought
or remains in effect without modification following termination of such
proceeding for review, and the time has expired within which any further
proceeding for review may be commenced.
1.18 "GSU" means Entergy Gulf States Utilities, Inc., a Texas
corporation formerly known as Gulf States Utilities Company.
<PAGE>
1.19 "GSU SUBORDINATION ACTION" means the adversary proceeding filed by
GSU requesting subordination of RUS' claims, Civil Action No. 95-00080-B-M-2.
1.20 "INITIAL DISTRIBUTION DATE" shall mean a date no later than 30 days
after the Effective Date when the initial payments to Allowed Claims, as set
forth in this Plan, shall be made.
1.21 "LPSC" means the Louisiana Public Service Commission.
1.22 "MEMBERS" means Beauregard Electric Cooperative, Inc., Claiborne
Electric Cooperative, Inc., Concordia Electric Cooperative, Inc., Dixie Electric
Membership Corporation, Jefferson Davis Electric Cooperative, Inc., Northeast
Louisiana Power Cooperative, Inc., Pointe Coupee Electric Membership
Corporation, South Louisiana Electric Cooperative Association, Southwest
Louisiana Electric Membership Corporation, Teche Electric Cooperative, Inc.,
Valley Electric Membership Corporation and Washington-St. Tammany Electric
Cooperative, Inc.
1.23 "MEMBERS COMMITTEE" means an unofficial committee comprised of the
following 10 Members: Beauregard Electric Cooperative, Inc., Concordia Electric
Cooperative, Inc., Dixie Electric Membership Corporation, Jefferson Davis
Electric Cooperative, Inc., Northeast Louisiana Power Cooperative, Inc., Pointe
Coupee Electric Membership Corporation, South Louisiana Electric Cooperative
Association, Southwest Louisiana Electric Membership Corporation, Valley
Electric Membership Corporation and Washington-St. Tammany Electric Cooperative,
Inc.
1.24 "PETITION DATE" means December 21, 1994.
1.25 "PROPONENTS" means the Members Committee, SWEPCO and GSU.
1.26 "PURCHASE PRICE" is defined in the Asset Purchase Agreement.
1.27 "RUS" means the United States of America, acting through the Rural
Utilities Service (formerly the Rural Electrification Administration), an agency
within the United States Department of Agriculture.
1.28 "REORGANIZATION CASE" means this Chapter 11 case of Cajun (Case No.
94-11474; USDC No. 94-CV-2763).
1.29 "REPRESENTATIVE" means, with respect to any specified entity, the
officers, directors (or functional equivalent, if any), employees, agents,
attorneys, accountants, financial advisors, other representatives, subsidiaries,
affiliates or any person who controls any of these within the meaning of the
Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as
amended.
1.30 "RIVER BEND JOA" means the River Bend Joint Operating Agreement
between GSU and Cajun.
<PAGE>
1.32 "RIVER BEND SETTLEMENT" means the settlement between Cajun, GSU and
the RUS as currently defined in the Order and Judgment Approving Settlement by
and among Cajun Electric Power Cooperative, Inc., Entergy Gulf States, Inc.,
Entergy Corporation, and the Rural Utilities Service of the Department of
Agriculture, signed by the Honorable Frank J. Polozola on August 26, 1996, in
Civil Action No. 94 2763-B2 in the United States District Court for the Middle
District of Louisiana.
1.33 "SUPPLY CONTRACTS" means the long term all-requirements contracts
between the Debtor and each of its Members.
1.34 "SWECO" means Southwestern Wholesale Electric Company, a new entity
formed as a wholly owned subsidiary or affiliate by SWEPCO to acquire the
Acquired Assets.
1.35 "SWEPCO" means Southwestern Electric Power Company, a Louisiana
based investor owned utility.
1.36 "TRUSTEE" means the Chapter 11 trustee appointed herein by the
Court, or any successor Trustee that may be subsequently appointed by the Court.
1.37 "UNENCUMBERED EXCLUDED ASSETS" means the Excluded Assets and any
proceeds thereof that do not constitute property or proceeds which are subject
to valid, perfected and unavoidable liens.
1.38 "UNENCUMBERED PURCHASE PRICE" means that portion of the Purchase
Price that is allocable to Acquired Assets that are not subject to valid,
perfected and unavoidable liens.
ARTICLE II: TREATMENT OF UNCLASSIFIED CLAIMS.
2.1 TREATMENT OF ADMINISTRATIVE CLAIMS. The Trustee shall pay in cash on
the Initial Distribution Date or, if later, the date payable in the ordinary
course of business, the full amount of each Allowed Unsecured Claim entitled to
priority under Code Section 507(a)(1) that is outstanding on the Effective Date;
provided, however, that in the case of any Claim by a professional for
compensation or reimbursement of expenses, payment of such Claim shall be
subject to Court approval.
2.2 TREATMENT OF PRE-PETITION, PRIORITY TAX CLAIMS. The Trustee shall
pay in cash on the Initial Distribution Date the full amount of each Allowed
Unsecured Claim entitled to priority under Code Section 507(a)(8).
<PAGE>
ARTICLE III: CLASSIFICATION OF CLAIMS AND INTERESTS.
Claims required to be classified under Code Section 1123(a)(1) and
Member Interests are classified as follows:1
3.1 CLASS 1. ALL OTHER PRIORITY CLAIMS. All Allowed Unsecured Claims
entitled to priority under Code Section 507(a) (other than 507(a)(1) and (8))
shall be treated in Class 1. Class 1 is unimpaired.
3.2 CLASS 2. ALLOWED SECURED CLAIM OF RUS. Class 2 consists of the
Allowed Secured Claim of RUS. Class 2 is impaired.
3.3 CLASS 3. ALLOWED SECURED CLAIM OF COBANK. Class 3 consists of the
Allowed Secured Claim of CoBank. Class 3 is impaired
3.4 CLASS 4. ALLOWED SECURED CLAIM OF HIBERNIA BANK. Class 4 consists
of the Allowed Secured Claim of Hibernia. Class 4 is impaired.
3.5 CLASS 5. ALLOWED OTHER SECURED CLAIMS. Class 5 consists of all
other Allowed Secured Claims, if any. Each Secured Claim will be treated as a
separate class for purposes of voting and treatment under the Plan. Class 5 is
impaired.
3.6 CLASS 6. ALLOWED UNSECURED CLAIMS. Class 6 consists of all Allowed
Unsecured Claims, including but not limited to Member Claims, RUS deficiency
Claims, rejection Claims, and unsecured trade Claims. Class 6 is impaired.
3.7 CLASS 7. MEMBER INTERESTS. Class 7 consists of the interests of
the Members in the Debtor. Class 7 is impaired.
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1 The numerous claims of GSU against the estate have not been classified under
the Plan because all of GUS's claims have been dealt with in the River Bend
Settlement that was approved by Judge Polozola in the Order and Judgement
Approving Settlement by and among Cajun Electric Power Cooperative, Inc.,
Entergy Gulf States, Inc., Entergy Corporation, and the Rural Utilities
Service of the Department of Agriculture dated August 26, 1996 (the "Order").
The Order is now the subject of an appeal of the United States Circuit Court
of the Fifth Circuit, but no stay has been sought or entered pending the
appeal. If the Order is overturned on appeal before the settlement has been
consummated, the Plan will be modified to specifically provide for the
classification and treatment of GSU's claims according to the terms of the
River Bend Settlement.
<PAGE>
ARTICLE IV: CLASSES IMPAIRED BY THE PLAN.
Claimants in Class 1 are UNIMPAIRED under the Plan and, therefore, are
not being solicited to vote on the Plan pursuant to 11 U.S.C. ss. 1126(f).
Claimants and Interest holders in Classes 2, 3, 4, 5, 6, and 7 are IMPAIRED
under the Plan and are being solicited to accept or reject the Plan. Although
the Class 7 Members Interests are deemed to have rejected the Plan under ss.
1126(g), they are being solicited, and are expected to vote in favor of the
Plan.
The Proponents, however, specifically reserve the right to contest (1)
the impaired or unimpaired status of a class under the Plan; and (2) whether any
ballots cast by holders of claims or interests in of such class should be
allowed to be counted for purposes of Confirmation of the Plan.
ARTICLE V: TREATMENT OF CLASSES.
5.1 CLASS 1. ALL OTHER PRIORITY CLAIMS. All Allowed Other Priority
Claims shall be paid in cash and in full on the Initial Distribution Date.
5.2 CLASS 2. ALLOWED SECURED CLAIM OF RUS. In complete and full
satisfaction of the Allowed Secured Claim of the RUS, on the Initial
Distribution Date or such later date on which the RUS Secured Claim becomes an
Allowed Secured Claim, RUS will receive:
(A) that portion of the Sales Proceeds attributable to
the Acquired Assets upon which the RUS has a valid,
perfected and unavoidable lien;
(B) all property of the estate required to be transferred
to the RUS pursuant to the River Bend Settlement; and
(C) all Excluded Assets on which the RUS has a valid,
perfected and unavoidable lien.
By its agreement to the River Bend Settlement, RUS consents to the
disposition and transfer of assets on which the RUS claims a lien or security
interest and, where stipulated by the terms of the River Bend Settlement, said
transfer is to be free and clear of all claims, liens or security interests of
the RUS.
5.3 CLASS 3. ALLOWED SECURED CLAIM OF COBANK. CoBank filed a proof of
claim asserting a secured claim in the amount of $25,486,702.50 plus interest,
renewal fees, and expenses. In June 1983, pursuant to a Tax Benefit Transfer
Agreement, Cajun transferred federal income tax ownership of certain property to
the Clorox Company. In July 1983, Cajun entered into a similar transaction with
Eastman Kodak Company ("Kodak"). These Tax Benefit Transfer Agreements (the "TBT
Agreements") require Cajun to issue and maintain for the benefit of Clorox and
Kodak, respectively, letters of credit in scheduled amounts which were expedited
<PAGE>
to be sufficient to reimburse Clorox and Kodak for any losses of tax benefits
caused by Cajun.
In connection with each TBT Agreement, Cajun and New Orleans Bank for
Cooperatives ("NOBC"), CoBank's predecessor, executed a Letter of credit and
Reimbursement Agreement (collectively the "Letter of Credit Agreements")
pursuant to which NOBC issued letters of credit for the benefit of Clorox and
Kodak. CoBank and its predecessor have twice renewed the letters of credit. The
amounts now available to be drawn by Clorox and Kodak are $10,760,070 and
$21,309,848.00, respectively (the "LC Debt").
Cajun's obligation to reimburse CoBank for draws on the letters of
credit is purportedly secured by a Supplemental Mortgage; a Subordinated
Mortgage, Security Agreement and Financing Statements as amended and
supplemented from time to time, an Act of Collateral Pledge dated January 23,
1988 and certain statutory liens. It is believed that this claim of CoBank is
largely contingent and matures only if a disqualifying event occurs under the
TBT Agreements or if the letters of credit are not renewed prior to their
expiration.
Under the Plan, liability for the contingent claims of CoBank shall be
assumed by SWECO on the Effective Date as and to the extent provided in the
relevant asset purchase agreement, and SWECO will execute with CoBank new Letter
of Credit Agreements to further evidence the purchaser's assumption. SWECO will
seek to structure the asset purchase agreement in such a way as to avoid a
disqualifying event occurring under the tax benefit transfer agreements.
However, in the event that the sale of Cajun's assets to SWECO pursuant to the
acquisition of the implementation of the acquisition or the action or structure
of the purchaser on the Effective Date causes the indemnity obligation of Cajun
to Kodak and/or Clorox to mature and a subsequent draw on a letter of credit,
SWECO will assume the reimbursement obligation of the Estate to CoBank arising
solely as a result of an act or omission by SWECO (net of the existing cash
collateral held by CoBank). If such indemnity obligation so matures, CoBank
shall apply all cash collateral it then holds against the reimbursement
obligation, and SWECO shall immediately pay the balance of the reimbursement
obligation to CoBank, and SWECO shall be entitled to Cajun's rights to the
future retirement payments made by CoBank to retire the Class B Stock from time
to time whether or not the Class B Stock is held by purchaser or Cajun.
Under the Plan, the CoBank Class E Stock will be owned by SWECO.
Subsequent to the Effective Date, if no disqualifying event has occurred under
the tax benefit transfer agreements on or prior to the Effective Date, the
contingent claims of CoBank shall continue to be secured by the CoBank Class E
Stock, proceeds thereof and related collateral (including patronage, retirements
of Class E Stock, existing cash collateral, etc.) ("CoBank Collateral") as more
fully described in the Pledge Agreement to be entered into between SWECO and
CoBank, and CoBank's liens on CoBank Collateral and its proceeds shall not be
discharged or otherwise released or extinguished by confirmation of the Plan. In
addition, on the Effective Date CoBank shall be entitled to charge the existing
cash collateral account it holds for all unpaid letter of credit fees from the
inception of Cajun's Chapter 11 through the Effective Date, and SWECO shall pay
<PAGE>
all letter of credit fees thereafter. On the Effective Date, however, CoBank
shall be deemed to have released any other mortgage or lien on Cajun or
reorganized Cajun's assets securing CoBank's contingent claims, except for the
CoBank Collateral. Accordingly, on and after the Effective Date, CoBank shall
have no interest in any other assets, including, but not limited to, the sales
proceeds of Cajun's assets.
5.4 CLASS 4. ALLOWED SECURED CLAIM OF HIBERNIA BANK. The allowed Secured
Claim of Hibernia Bank representing the Industrial Development bonds, secured by
the Debtor's current headquarters, building and land, shall be paid in full in
accordance with the payment schedule required by such Industrial Development
Bonds. Any payment defaults, and any reasonable fees, costs or charges payable
under Code Section 506(b), shall be cured on the Effective Date, as an
administrative Claim in Section 2.1. SWECO shall cause the future payments on
the Industrial Development Bonds to be made to Hibernia Bank, but shall have no
personal liability or recourse for such payments. Hibernia Bank shall retain its
lien on the headquarters building and land, and may enforce such lien in event
of any default after the Effective Date. On the Effective Date, the Debtor shall
convey title to the headquarters and land to SWECO, subject to the lien of
Hibernia Bank, but free and clear of any and all other liens, claims, and
encumbrances including, but not limited to the liens of the RUS.
5.5 CLASS 5. ALLOWED OTHER SECURED CLAIMS. Each holder of an Allowed
Other Secured Claim shall, at the Trustee's option: (a) be paid, on the Initial
Distribution Date, on account of its allowed Secured Claim, cash totaling the
amount of such Allowed Secured Claim; (b) be paid, on account of its Allowed
Secured Claim, the net proceeds of the sale of any property which is subject to
the liens securing said Allowed Secured Claim, which sales shall be made in
accordance with section 1129(a)(2)(A)(ii) of the Bankruptcy Code; or (c) receive
the property which is subject to the liens securing said Allowed Secured Claim
in full satisfaction of the Allowed Secured Claim of such holder. In the event
of option (b) above, such amount shall be paid on the last to occur of (1) the
Effective Date, (2) within ten (10) days after the date on which an order
allowing such Allowed Secured Claim becomes a Final Order, or (3) within ten
(10) days after closing of a sale of the property which is subject to the liens
securing said Allowed Secured Claim. In the event of option (c) above, the
property which is subject to the liens securing said Allowed Secured Claim shall
be transferred on the later of (1) the Effective Date, or (2) as soon as
practicable after the date on which an order allowing such Allowed Secured Claim
becomes a Final Order. Any such property transferred to holders of Allowed
Secured Claims under this paragraph shall be transferred either by abandonment
of such property by the Trustee under section 554 of the Bankruptcy Code or by
transfer of such property "as-is, where-is," without representation or warranty
by Debtor or the Trustee, at the trustee's sole option and discretion.
5.6 CLASS 6. ALLOWED UNSECURED CLAIMS. In full and complete satisfaction
of all Allowed Unsecured Claims, Allowed Unsecured Claims will be paid a Pro
Rata share of the proceeds of all remaining unencumbered assets in accordance
with Section 6.2 hereof.
5.7 CLASS 7. MEMBER INTERESTS. The interests of the Members in the
Debtor shall be canceled as of the Effective Date.
<PAGE>
ARTICLE VI: MEANS FOR IMPLEMENTING PLAN.
6.1 CONSUMMATION OF THE RIVER BEND SETTLEMENT. The River Bend Settlement
shall be consummated pursuant to the Order and Judgment Approving Settlement by
and among Cajun electric Power Cooperative, Inc., Entergy Gulf States, Inc.,
Entergy corporation and the Rural Utilities Service of the Department of
Agriculture dated August 26, 1996. The Order provides the River Bend Settlement
may be consummated independent of any plan of reorganization. The Order is now
the subject of an appeal to the United States Court of Appeals for the Fifth
Circuit, but no stay has been sought or entered pending the appeal If the Order
is overturned on appeal before the settlement has been consummated, the terms of
the Order shall be implemented through the confirmation of the Plan.
6.2 SALE OF ACQUIRED ASSETS TO SWECO. On the Effective Date, SWECO shall
purchase the Acquired Assets pursuant to the terms and conditions of the Asset
Purchase Agreement in exchange for the Purchase Price. The Purchase Price shall
be deposited in the Disbursement Fund. On the Effective Date, the Acquired
Assets shall be transferred by the Trustee to SWECO free and clear of all liens,
claims and interests, except as provided in Sections 5.3 (CoBank) and 5.4
(Hibernia Bank). The Trustee shall be deemed to have entered into the Asset
Purchase Agreement as of the date of the Confirmation Order.
6.3 PAYMENTS UNDER THE PLAN. The Disbursement Fund and the Excluded
Assets on hand on the Effective Date shall be held and distributed by the
Trustee in accordance with the terms of the Plan.
Distributions under the Plan will be made as follows:
(1) Payments of the Allowed Secured Claim of RUS shall be
made in accordance with Section 5.2.
(2) Payments to holders of Allowed Other Secured Claims
shall be made in accordance with their treatment in
Section 5.5 above on the earlier of the Initial
Distribution Date or ten (10) days after the Secured
Claim becomes an Allowed Secured Claim.
(3) Payments required under 11 U.S.C. ss. 1129(a)(9),
Allowed Claims under Sections 2.1 (Administrative
Claims), 2.2 (Priority Tax Claims), and 5.1 (All Other
Priority Claims) shall be made from the following sources
of cash: FIRST, in accordance with and to the extent
authorized by that Cash Collateral Order signed on
February 13, 1995, as amended; SECOND, from Unencumbered
Excluded Assets; THIRD, from the Unencumbered Purchase
Price; and FOURTH, from an additional cash contribution
by SWECO not to exceed $20 million, such additional cash
<PAGE>
contribution to be made only as necessary to pay such
claims in full on the Initial Distribution Date.
(4) Payment of the Class 5 Allowed Unsecured Claims shall
be made Pro Rata from the Unencumbered Excluded Assets
and the Unencumbered Purchase Price after payment in full
of the expenses and claims set forth in (3) above.
6.4 RESOLUTION OF ADVERSARY PROCEEDING 96-1073. The Members Committee
and the RUS have asserted claims to the Excess Funds (or the Ratepayer Trust
Fund). These claims will be litigated in Adv. Proc. 96-1073 instituted by the
Trustee. If a Final Order is entered in favor of the Members Committee, the
funds will be disbursed to the Members subject to the approval of the LPSC.
Alternatively, if a Final Order is entered in favor of the RUS, the funds will
be distributed to RUS as part of its Class 2 Allowed Secured Claim. Finally, if
a Final Order is entered that neither the Members nor the RUS are entitled to
the funds, such funds will be available to satisfy priority and Allowed
Unsecured Claims.
6.5 IMPLEMENTATION. Pursuant to Code Section 1142(b) and Bankruptcy Rule
7070, the Trustee shall execute or deliver any and all documents or instruments,
or to perform any other act necessary to implement or consummate this Plan. If
the Trustee refuses to comply with such direction, the Court may direct the
Trustee's compliance with the Plan, or direct the U.S. Trustee to appoint a new
trustee to implement and consummate this Plan.
ARTICLE VII: EXECUTORY CONTRACTS.
7.1 SUPPLY CONTRACTS. On the Effective Date, SWECO and the Members shall
execute new power supply contracts to replace and supersede the Supply Contracts
with the Debtor. This effectively moots the legal challenges to the Supply
Contracts and preserves the market for the benefit of creditors.
7.2 RIVER BEND JOA. Disposition of the River Bend JOA depends on which
option RUS elects under the River Bend Settlement. If a transferee (other than
GSU) or RUS acquires River Bend, the River Bend JOA will be assumed by Cajun and
assigned to such transferee or RUS, as the case may be. If GSU is the transferee
of River Bend, Cajun shall be deemed to have rejected the River Bend JOA.
7.3 COLLECTIVE BARGAINING AGREEMENTS. As provided in the Asset Purchase
Agreement, SWECO will deliver to the Trustee a list of Collective Bargaining
Agreements to be assumed and assigned to SWECO, modified and assumed and
assigned to SWECO, or rejected on the Effective Date. If certain modifications
have been negotiated by SWECO consistent with Section 1113 of the Bankruptcy
Code prior to the Confirmation Date, such Collective Bargaining Agreements will
be assumed and assigned to SWECO on the Effective Date with such agreed <PAGE>
modifications pursuant to the terms of the Plan and the Asset Purchase
Agreement. Any rejection of a collective bargaining agreement shall conform to
the requirements of Section 1113 of the Bankruptcy Code.
7.4 ALL OTHER EXECUTORY CONTRACTS. On the Effective Date, the Trustee
shall be deemed to have assumed and assigned to SWECO all other executory
contracts of the Debtor, except for executory contracts identified on a list of
executory contracts to be rejected which shall be filed by SWEPCO on or before
twenty days prior to the date of the hearing on confirmation of this Plan. The
contracts so identified shall be deemed rejected on the Effective Date. All
payments necessary to cure any defaults on contracts to be assumed and assigned
to SWECO, shall be paid as administrative Claims under Section 2.1 on the
Initial Distribution Date.
ARTICLE VIII: MISCELLANEOUS PROVISIONS.
8.1 VOTING. All of the classes (except Class 1) are eligible to vote on
the Plan.
8.2 CRAMDOWN. In the event any class of creditors that is impaired does
not accept the Plan as provided in Code Section 1129(a)(8)(A), the Proponents
request that the Court confirm the Plan pursuant to Code Section 1129(b).
8.3 MODIFICATIONS OF THE PLAN. The Proponents may jointly modify the
Plan in accordance with Code Section 1127.
8.4 U.S. TRUSTEE FEES. All fees payable by the Debtor pursuant to 28
U.S.C. ss.1930 have been paid or shall be paid as of the Effective Date.
8.5 RELEASE. In consideration for agreements made by each of the parties
set forth herein in connection with the terms and conditions of the Plan, the
Trustee shall, on the Effective Date, release and discharge all direct or
derivative rights, claims and causes of action which constitute property of the
Estate, including but not limited to claims under Bankruptcy Code Sections 506,
510, 542, 543, 544, 545, 546, 547, 548, 549, 550, 551 and 553, and any state
laws corresponding thereto, arising prior to the Effective Date, against the
Members, the Members Committee, SWEPCO, SWECO, Central and South West
Corporation, GSU and their respective current and former Representatives.
8.6 SETOFFS. Subject to the limitations provided in Bankruptcy Code
Section 553, all parties retain their rights of setoff or recoupment pursuant to
applicable law. Neither the failure to set off the estate's claim nor the
allowance of any Claim hereunder shall constitute a waiver or release by the
estate of any such claim that the estate may have against the holder, nor shall
it constitute a bar by res judicata and/or collateral estoppel to the assertions
of claims, either prepetition or postpetition, by the estate as the case may be.
8.7 SURRENDER OF INSTRUMENTS AND RELEASE OF LIENS. Each claimant who is
to receive distributions under the Plan in satisfaction of a Claim shall not
<PAGE>
receive such distributions until such claimant executes a release of any lien(s)
(in recordable form if appropriate) and delivers the same to the Trustee. Any
such holder that fails to surrender such instrument or satisfactorily explain
its non-availability or to execute such release of liens shall be deemed to have
no further Claim and shall not participate in any distribution under the Plan.
8.8 GSU AND SWEPCO AGREEMENT. The agreements between GSU and SWEPCO
dated March 28, 1996 and April 19, 1996 shall remain in full force and effect in
accordance with their terms and conditions.
ARTICLE IX: RESERVATION OF RIGHTS AND PROPERTY.
9.1 CAUSES OF ACTION. Except for claims expressly settled or released
pursuant to this Plan, and claims set forth in the following sentence, the
Trustee shall retain all causes of action it may have under state or federal law
including the United States Bankruptcy Code, and the Trustee shall be authorized
to prosecute such actions as fully and completely as if the same were being
prosecuted by a Trustee in bankruptcy. All claims and causes of actions of any
nature or kind, known or unknown, asserted or unasserted which arise from or
relate to the assets purchased by and conveyed to SWECO, shall on the Effective
Date be deemed assigned and conveyed to SWECO.
9.2 CLAIMS ADJUDICATION. Each Claim as to which a proof of claim has
been filed prior to the Bar Date or that is listed as undisputed, liquidated and
non-contingent in the Schedules filed by the Debtor shall be allowed without
order of the Court unless an objection thereto is filed in accordance with
Bankruptcy Rule 3007 no later than 90 days after the Confirmation.
Notwithstanding any term contained in the Plan requiring payment or issuance of
any instrument on account of any particular Claim on any particular date, such
payment or issuance shall not take place except to the extent that (a) in the
case of a Claim by a professional person for compensation and reimbursement of
expenses, such Claim has been allowed by order of the court, or (b) in the case
of any other Claim, such Claim has been allowed by Final Order of the Court or
by operation of the preceding sentence.
9.3 VESTING OF PROPERTY IN TRUSTEE AND SWECO. On the Effective Date, all
of the property of the estate that is not sold to SWECO, if any, or otherwise
liquidated shall be vested in the Trustee, free and clear of all Claims and
interests of creditors except as provided for in the Plan, and Cajun shall be
entitled to liquidate such assets without further order of the Court pursuant to
Code Section 1141(b). Upon the completion of the liquidation of the assets
re-vesting in the Trustee, if any, the Trustee shall cause and implement the
dissolution of Cajun under Louisiana law. All assets conveyed to SWECO (i.e. the
Acquired Assets) shall be conveyed free and clear of all liens, claims,
interests and encumbrances, whether lien claims or otherwise, unless
specifically authorized by this Plan. The conveyance to SWECO shall further be
free and clear of any claims of successorship liability, and SWECO shall have no
successor liability as a result of its purchase of the Acquired Assets, or as a
result of any provisions of this Plan. <PAGE>
ARTICLE X. REQUIRED REGULATORY APPROVAL.
The effectiveness of the Plan and the obligations of the Proponents
hereunder are subject to regulatory approvals by Final Order and other
conditions, as set forth in the Asset Purchase Agreement. The Boards of
Directors of the Proponents have authorized the filing of the Plan, but reserve
the right to approve all final closing documents.
ARTICLE XI. RETENTION OF JURISDICTION.
After confirmation of the Plan, the Court shall retain jurisdiction for
the following purposes:
(1) For the classification of Claims and for the re-examination of
any Claims that have been allowed for purposes of voting, and the
determination of such objections as may be filed to Claims. The
failure to object to or to examine any Claim for the purpose of
voting shall not be deemed to be a waiver of the right to object
to, or re-examine the Claim in whole or in part;
(2) For determination of all questions and disputes regarding title
to the assets of the estate, determination of all causes of
action, controversies, disputes, or conflicts, whether or not
subject to action pending as of the date the Confirmation Order
is entered, between the Debtor and any other party, including but
not limited to, any rights of the Debtor to recover assets
pursuant to the provisions of the Bankruptcy Code;
(3) For the correction of any defect, the curing of any omission, or
the reconciliation of any inconsistency in this Plan or the
Confirmation Order as may be necessary to carry out the purposes
and intent of this Plan;
(4) To consider any matters brought before the Court by an interested
party necessary to carry out the terms, conditions and intent of
this Plan;
(5) For the modification of this Plan after confirmation pursuant to
the Bankruptcy Rules and the Bankruptcy Code;
(6) To enforce and interpret the terms and conditions of this Plan;
(7) To enter any order, including injunctions, necessary to enforce
the title, rights and powers of the Debtor and to impose such
limitations, restrictions, terms and conditions of such title,
rights, and powers as this Court may deem necessary;
<PAGE>
(8) To determine whether a default has occurred under the Plan or the
Asset Purchase Agreement, and make such orders as the Court deems
necessary to enforce the provisions of the Plan or the Asset
Purchase Agreement; and
(9) To enter an order concluding and terminating this case.
Respectfully submitted on this 30th day of September, 1996.
CAJUN ELECTRIC MEMBERS COMMITTEE
By:
David H. Kleiman, One of its Counsel
David H. Kleiman (Indiana Bar No. 5244-49)
James P. Moloy (Indiana Bar No. 10301-49)
DANN PECAR NEWMAN & KLEIMAN, Professional Corporation
One American Square, Suite 2300
Indianapolis, Indiana 46282
(317) 632-3232
John M. Sharp (Bar No. 19149)
A Professional Law Corporation
14481 Old Hammond Highway, Suite 2
Baton Rouge, LA 70816
504-273-8510
SOUTHWESTERN ELECTRIC POWER
COMPANY, INC.
By:
Henry J. Kaim, One of its Counsel
Bobby S. Gilliam (Bar No. 6227)
Wilkinson, Carmody & Gilliam
1700 Beck Building
Shreveport, La 71166
318-221-4196
<PAGE>
Myron M. Sheinfeld
Henry J. Kaim
Sheinfeld Maley & Kay
1001 Fannin, Suite 3700
Houston, TX 77002
713-658-8881
ENTERGY GULF STATES INC.
By:
Tom F. Phillips, One of its Counsel
Tom F. Phillips (Bar No. 7532)
Courtney DeBlieux
Taylor, Porter, Brooks & Phillips, L.L.P.
P. O. Box 2471
Baton Rouge, LA 70821
504-387-3221
<PAGE>
CERTIFICATE OF SERVICE
The undersigned hereby certifies that a copy of the foregoing has been
served on this 30th day of September, 1996, to all parties on the attached
distribution list.
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE MIDDLE DISTRICT OF LOUISIANA
IN RE: ss. CIVIL ACTION NO. 94-2763-B2
ss.
CAJUN ELECTRIC POWER ss.
COOPERATIVE, INC., ss. BANKRUPTCY CASE NO. 94-11474
ss.
DEBTOR. ss. CHAPTER 11
ss.
Federal Tax Id. No. 72-0655799 ss.
SUPPLEMENTAL DISCLOSURE STATEMENT IN SUPPORT OF THE JOINT PLAN
OF REORGANIZATION OF SOUTHWESTERN ELECTRIC POWER COMPANY,
ENTERGY GULF STATES AND THE MEMBERS COMMITTEE
<PAGE> i
TABLE OF CONTENTS
I. INTRODUCTION 1
A. Introduction 1
B. Overview of Plan 2
1. Summary of transactions to occur pursuant to Plan. 2
2. Summary of classification, treatment, and likely
distributions under the Plan 4
a. Unclassified Claims. 4
b. Classified Claims 4
3. Summary of Impairment and Voting Rights 6
a. Definition of Impairment. 7
b. Classes Impaired Under the Plan. 8
II. SUMMARY OF THE PLAN 8
A. Identification of Proponents and Purchaser. 8
1. Members Committee. 8
2. Entergy Gulf States (formerly GSU). 9
3. SWEPCO/CSW/SWECO. 10
B. Description of Proposed Asset Purchase Agreement. 11
C. Liquidation of Cajun 12
D. Summary of Plan 12
1. Classification of Claims 13
2. Treatment of Classified Claims. 14
3. Member Rates and the Proposed Power Sales Agreement 18
4. Executory Contracts and Unexpired Leases 18
a. Supply Contracts. 18
b. River Bend JOA. 18
c. Collective Bargaining Agreements 18
d. All Other Executory Contracts 19
5. Distributions Under the Plan. 19
6. Discharge of Cajun. 20
7. Conditions to Confirmation and Effectiveness of
the Plan. 20
E. Means for Implementation of the Plan 21
1. Sale of Acquired Assets to SWECO 21
2. Disbursement Fund 21
3. New Power Supply Contracts with SWECO 21
4. Other Actions 22
<PAGE> ii
III. CONFIRMATION AND TECHNICAL ISSUES RELATIVE TO THE PLAN 22
A. Classification Issues under Section 1122. 22
B. Confirmation Issues under Section 1123 and 1129. 23
C. Risk Factors 25
1. Reorganized Cajun's Continued Operations. 25
2. Conditions Precedent 25
3. Regulation. 26
a. Regulatory Background 26
b. Regulatory Issues Applicable to SWECO 27
c. Public Utility Holding Company Act 28
4. Other Issues 30
D. Supplemental Tax Analysis 30
1. Statutory Overview 30
2. Tax Consequences To Cajun. 31
a. Cajun's Tax Status. 31
b. Cajun's Tax Attributes 32
c. Gain or Loss on Sale of Assets 33
d. Other Income 34
e. Section 382 Limitation on Losses. 35
f. Alternative Minimum Tax 36
g. Discharge of Indebtedness 37
3. Tax Consequences to Creditors 37
4. Backup Withholding. 38
5. Tax Benefit Agreement. 39
6. Other IRS Ruling Requests. 39
IV. COMPARISON TO THE OTHER PLANS 40
A. Overview of Significant Comparability Issues 40
1. Enforceability and Assignability of Supply
Contracts 40
2. Impact of Rates on Competitiveness and Viability
of Cooperatives 42
B. Comparison of Plans 44
V. CONCLUSION 49
<PAGE> 1
I. INTRODUCTION AND OVERVIEW
A. INTRODUCTION
Pursuant to 11 U.S.C. 1125, the Proponents provide this Supplemental
Disclosure Statement to disclose adequate information so that the creditors of
Cajun Electric Power Cooperative, Inc., the debtor herein ("Cajun") may make a
reasonably informed decision in exercising their right to vote for acceptance of
the Plan. A copy of the Plan accompanies this Supplemental Disclosure Statement.
This Supplemental Disclosure Statement, although detailed, has been drafted in
the spirit of 11 U.S.C. ss. 1125(a)(1), which defines "adequate information"
within the context of the debtor's particular circumstances and typical
creditors. In this case, the creditors are sophisticated, have access to vast
amounts of information, and already possess a virtually complete understanding
of Cajun and its business. This Supplemental Disclosure Statement contains
information that is pertinent to the Plan, while general information relevant to
Cajun and its business is contained in the Master Disclosure Statement submitted
by the Trustee (the "Master Disclosure Statement"). The Proponents have reserved
the right under the Plan to ask that the Plan be confirmed by the Court pursuant
to 11 U.S.C. ss. 1129(b), notwithstanding the failure of all impaired classes to
vote in favor of the Plan.
All terms defined in Article I of the Plan shall have the same meanings
when used herein. The reader is advised to review such definitions prior to
reviewing this Supplemental Disclosure Statement.
THIS SUPPLEMENTAL DISCLOSURE STATEMENT, THE TRUSTEE'S DISCLOSURE STATEMENT AND
THE PLAN ARE AN INTEGRAL PACKAGE AND ALL MUST BE CONSIDERED IN ORDER FOR THE
CREDITOR TO BE ADEQUATELY INFORMED.
<PAGE> 2
NO REPRESENTATIONS CONCERNING THE DEBTOR, ITS FUTURE BUSINESS OPERATIONS, THE
VALUE OF PROPERTY OR THE VALUE OF ANY PROMISSORY NOTES OR OTHER SECURITY OR
PROPERTY TO BE ISSUED OR EXCHANGED UNDER THE PLAN ARE AUTHORIZED OTHER THAN AS
SET FORTH IN THIS SUPPLEMENTAL DISCLOSURE, OR THE MASTER DISCLOSURE STATEMENT.
ANY REPRESENTATIONS OR INDUCEMENTS MADE TO SECURE YOUR ACCEPTANCE WHICH ARE
OTHER THAN AS CONTAINED IN THIS SUPPLEMENTAL DISCLOSURE STATEMENT, OTHER
APPROVED SUPPLEMENTAL DISCLOSURE STATEMENTS, AND THE MASTER DISCLOSURE STATEMENT
SHOULD NOT BE RELIED UPON BY YOU IN ARRIVING AT YOUR DECISION, AND SUCH
ADDITIONAL REPRESENTATIONS AND INDUCEMENTS SHOULD BE REPORTED TO COUNSEL FOR THE
PROPONENTS WHO IN TURN SHALL DELIVER SUCH INFORMATION TO THE BANKRUPTCY COURT
FOR SUCH ACTION AS MAY BE DEEMED APPROPRIATE.
NOT ALL OF THE INFORMATION CONTAINED HEREIN HAS BEEN SUBJECT TO A
CERTIFIED AUDIT. THE PROPONENTS DO NOT WARRANT OR REPRESENT THAT SUCH
INFORMATION IS WITHOUT INACCURACY, ALTHOUGH REASONABLE EFFORT HAS BEEN MADE TO
BE ACCURATE.
B. OVERVIEW OF PLAN
1. SUMMARY OF TRANSACTIONS TO OCCUR PURSUANT TO PLAN.
As more particularly described herein, the Plan submitted by the
Proponents is unique in that it is jointly submitted by two Louisiana electric
public utilities (SWEPCO and GSU) along with ten of Cajun's Members, which
jointly serve a population in the State of Louisiana of over two million. The
Proponents have joined together to present to the creditors of Cajun and the
Court a Plan that will resolve Cajun's bankruptcy through the disposition of
assets, the initiation of new power supply arrangements and the settlement of
all claims and litigation. The Plan has the goal of offering competitive
wholesale rates to the Members, while maximizing value to the Cajun estate. The
Plan, if confirmed by the Court, would resolve all existing and potential
<PAGE> 3
litigation, allow the estate to immediately receive substantial value, and
satisfy the concerns of the Louisiana Public Service Commission ("LPSC").
The Plan provides for the acquisition of Cajun's non-nuclear
assets (the "Acquired Assets") by a subsidiary or affiliate of SWEPCO for $780
million in cash. The Plan ends the GSU litigation by incorporating the terms of
a global settlement negotiated among the Proponents. The Plan has a higher
probability of being confirmed than the other plans that have been filed in the
case because: (i) it is the only plan that has the support of the Members; (ii)
it is the only plan that avoids litigation over the Members' contract rights;
and (iii) it reduces rates to a competitive level and is therefore supportable
by the LPSC. In short, the Proponents' Plan is the only feasible plan that can
be confirmed without years of litigation.
The distinguishing attribute of the Plan is that it will produce
competitive wholesale rates to cooperatives serving over one million Louisiana
residents and maximize the value of the Cajun estate. The cooperatives cannot
and will not remain viable at non-competitive rates, as evidenced by the
bankruptcy of Washington St.Tammany, the insolvency and acquisition of BREMCO,
the agreement of the Teche Board to sell to CLECO, and other cooperatives that
are experiencing financial difficulties.
The Plan would reduce the wholesale rates to an above-market, but
reasonably competitive, level of approximately 37.4 mills, which would
immediately provide significant rate relief to Louisiana ratepayers while also
maximizing the value of the estate. Any plan that proposes higher,
non-competitive rates in an effort to extract excessive value from Louisiana
ratepayers would not provide a permanent solution to the substantial rate
disparity between cooperatives on the one hand, and investor-owned and municipal
utilities on the other hand.
<PAGE> 4
2. SUMMARY OF CLASSIFICATION, TREATMENT, AND LIKELY DISTRIBUTIONS
UNDER THE PLAN.
A. UNCLASSIFIED CLAIMS.
Allowed Administrative Expense Claims will be paid in
full in cash on the Effective Date. Allowed Priority Tax Claims will be paid in
full in cash on the Effective Date or through different cash payments over six
years after the date of assessment.
B. CLASSIFIED CLAIMS.
The following summarizes the classification of the Claims
and Equity Interests under the Plan. For a detailed description of each Class,
see Section II--Description of the Plan.
CLASS 1: All Other Priority Claims
CLASS 2: Allowed Secured Claim of RUS
CLASS 3: Allowed Secured Claim of CoBank
CLASS 4: Allowed Secured Claim of Hibernia Bank
CLASS 5: Allowed Other Secured Claims
CLASS 6: Allowed Unsecured Claims
CLASS 7: Member Interests
The following table summarizes the treatment of Allowed Claims against and
Allowed Interests in the Debtor and corresponding distributions as the
Proponents are best able to estimate at this time. Reference is made to the more
detailed descriptions in the Plan attached hereto as EXHIBIT "A" and in Section
II hereof. Each class is treated as a separate and distinct class for all
purposes under the Plan, including for voting purposes.
The amounts of Claims in the various classes and the number of
holders of such claims cannot now be exactly determined. In addition, the actual
Distributions under the Plan may vary from the recoveries noted below for a
variety of reasons. The following chart is the Proponents' estimate of creditor
recoveries from the cash Purchase Price, collection and liquidation of other
<PAGE> 5
assets of Cajun and distribution of specific items of property. Furthermore, the
Proponents cannot estimate with complete accuracy the amount of claims that
ultimately will be allowed.
<PAGE> 6
ESTIMATED RECOVERIES UNDER THE PLAN
- ----- ------------------------------------- ------- ---------------------------
Impair-
Class Description of Class ment Treatment
- ----- ------------------------------------- ------- ---------------------------
1 All Other Priority Claims No Paid in full on Effective
Date
- ----- ------------------------------------- ------- ---------------------------
2 Allowed Secured Claim of RUS Yes Payment of Purchase Price
attributable to lien
interests in Acquired Assets
and transfer of property in
accordance with the River
Bend Settlement.
- --- --------------------------------------- ------- ---------------------------
3 Allowed Secured Claim of CoBank Yes SWECO will enter into a new
agreement with CoBank
intended to avoid a
disqualifying even under the
Tax Benefit Transfer
Agreements, and to allow
SWECO to acquire the
Debtor's ownership in Big
Cajun, Unit 3 and the
Debtor's ownership of equity
in CoBank. CoBank shall
release its liens on all
assets other than the equity
in CoBank.
- --- --------------------------------------- ------- ---------------------------
4 Allowed Secured Claim of Hibernia Bank Yes Payment in accordance with
payment schedule on
outstanding bonds; or from
cash upon sale of assets
securing such claim.
- --- --------------------------------------- ------- ---------------------------
5 Allowed Other Secured Claims Yes Payment in cash upon sale of
assets, or transfer of
property securing such claim
in full satisfaction of
claim.
- --- --------------------------------------- ------- ---------------------------
6 Allowed Unsecured Claims Yes Share pro rata in proceeds
of unencumbered assets and
Purchase Price attributable
to unencumbered Acquired
Assets.
- --- --------------------------------------- ------- ---------------------------
7 Member Interests Yes No distribution.
- --- --------------------------------------- ------- ---------------------------
3. SUMMARY OF IMPAIRMENT AND VOTING RIGHTS
Any creditor or interest holder of the Debtor whose Claim or
Interest is impaired under the Plan is being solicited to vote, except for
Disputed Claims or Disallowed Claims. Any Claim as to which an objection has
been filed, and such objection is still pending on the voting date, is not
entitled to have its vote counted, unless the Bankruptcy Court temporarily
<PAGE> 7
allows the Claim or Interest upon motion by such party whose Claim or Interest
has been objected to, in an amount which the Bankruptcy Court deems proper for
the purpose of accepting or rejecting the Plan. Such motion must be heard and
determined by the Bankruptcy Court prior to the date and time established by the
Bankruptcy Court to confirm the Plan. In addition, a Claimant's or Equity
Interest Holder's vote may be disregarded if the Bankruptcy Court determines a
party's acceptance or rejection was not solicited or procured in good faith or
in accordance with the provisions of the Bankruptcy Code.
A. DEFINITION OF IMPAIRMENT.
Under section 1124 of the Bankruptcy Code, a class of claims or
equity interests is IMPAIRED under a plan of reorganization UNLESS, with respect
to each claim or equity interest of such class, the plan:
(1) leaves unaltered the legal, equitable, and contractual
rights to which such claim or interest entitles the holder of such claim
or interest;
(2) notwithstanding any contractual provision or applicable law
that entitles the holder of such claim or interest to demand or receive
accelerated payment of such claim or interest after the occurrence of a
default:
(A) cures any such default that occurred before or after
the commencement of the case under this title, other than a
default of a kind specified in section 365(b)(2) of this title;
(B) reinstates the maturity of such claim or interest as
such maturity existed before such default;
(C) compensates the holder of such claim or interest for
any damages incurred as a result of any reasonable reliance by
such holder on such contractual provision or such applicable law;
and
(D) does not otherwise alter the legal, equitable, or
contractual rights to which such claim or interest entitles the
holder of such claim or interest; or
<PAGE> 8
(3) provides that, on the effective date of the plan, the holder
of such claim or interest receives, on account of such claim or
interest, cash equal to -
(A) with respect to a claim, the allowed amount of
such claim; or
(B) with respect to an interest, if applicable, the
greater of -
(i) any fixed liquidation preference to
which the terms of any security representing such
interest entitle the holder of such interest; or
(ii) any fixed price at which the debtor, under
the terms of such security, may redeem such security from
such holder.
B. CLASSES IMPAIRED UNDER THE PLAN.
Claimants in Class 1 are UNIMPAIRED under the Plan and,
therefore, are not being solicited to vote on the Plan pursuant to 11 U.S.C. ss.
1126(f). Claimants and Equity Interest holders in Classes 2, 3, 4, 5, 6, and 7
are IMPAIRED under the Plan and are being solicited to accept or reject the
Plan. Although the Class 7 Members Interests are deemed to have rejected the
Plan under ss. 1126(g), they are being solicited, and are expected to vote in
favor of the Plan.
The Proponents, however, specifically reserve the right
to contest (1) the impaired or unimpaired status of a class under the Plan; and
(2) whether any ballots cast by such class should be allowed to be counted for
purposes of Confirmation of the Plan.
II. SUMMARY OF THE PLAN
A. IDENTIFICATION OF PROPONENTS AND PURCHASER.
1. MEMBERS COMMITTEE.
The Members Committee is an association of 10 Members that
intervened in Cajun's Chapter 11 Case. The distribution coops represented by the
<PAGE> 9
Members Committee provide electricity to 90% of the total cooperative retail
customers. The Members Committee is comprised of all of the cooperatives, except
for Teche Electric Cooperative, Inc. and Claiborne Electric Cooperative, Inc.
The Members Committee has filed Adv. Proceeding 96-1052,
requesting a declaratory judgment that the Supply Contracts are a nullity, that
they may not be assumed or assigned, and that the obligations thereunder may not
be altered without the Members' consent. However, the Members Committee supports
the Plan, and the Members are prepared to execute new contracts with SWECO that
will (i) moot the issues regarding the Supply Contracts; (ii) avoid costly
litigation; and (iii) preserve Cajun's market for the benefit of Creditors.
It should be noted that at a recent meeting of the LPSC, a
witness sponsored by the Trustee acknowledged that, without the market
represented by the Members, Cajun's assets are worth only a "couple of hundred
million dollars." Only the willingness of the Members to pay above market rates
allows the additional value offered in this Plan to be paid to the creditors.
The Members will not agree to, and if necessary will litigate, any attempt to
establish rates that are not competitive.
2. ENTERGY GULF STATES (FORMERLY GSU).
Entergy Gulf States, Inc. is a regulated public utility that is
headquartered in Beaumont, Texas and is a wholly-owned subsidiary of Entergy,
Inc. Pursuant to the River Bend JOA, GSU owns 70% of River Bend, and is
responsible for operating the plant. Entergy Gulf States owns 42% of Big Cajun
II, Unit 3, and Cajun is responsible for operating the plant pursuant to the Big
Cajun II, Unit 3, JOA. Entergy Gulf States was a party to extensive ongoing
litigation involving Cajun, including Big Cajun II, Unit 3 litigation, and
various other suits. (See Master Disclosure Statement). The GSU Litigation has
been resolved by a settlement approved by Judge Frank Polozola on August 26,
1996 (the "River Bend Settlement"). GSU has made it clear that involvement in
<PAGE> 10
negotiations of SWEPCO and the Members Committee with GSU led to this
settlement. The Plan incorporates the River Bend Settlement.
SWEPCO, GSU and the Members had entered into an agreement
resolving the GSU Litigation with Cajun, subject to Bankruptcy Court approval on
March 28, 1996. An agreement between the same parties dated April 19, 1996
authorizes GSU to incorporate the settlement negotiated with SWEPCO into a
settlement agreement with the Trustee, and seek approval by Motion. This has
occurred. These agreements are attached hereto as EXHIBIT "B".
3. SWEPCO/CSW/SWECO.
Southwestern Wholesale Electric Company ("SWECO"), as a newly
incorporated subsidiary or affiliate of SWEPCO, is the buyer of the assets under
the Plan. SWEPCO is a regulated public utility operating in the States of
Arkansas, Louisiana and Texas, and headquartered in Shreveport, Louisiana. It
serves a population of approximately one million with a service territory of
over 25,000 square miles. SWEPCO has a total capacity of 4,464 MW which is
fueled by a combination of lignite, coal, and gas, and operates in the Southwest
Power Pool ("SPP"). The company has operated in the State of Louisiana for 84
years and has consistently offered some of the lowest retail rates in the state.
SWEPCO is also a highly competitive supplier of wholesale power and a
significant portion (25%) of its business today is dedicated to wholesale power
sales. SWEPCO also has extensive experience in operating coal and gas-fired
generating units in a cost-effective manner. In an independent study conducted
in 1995 by Utility Data Institute, a SWEPCO coal-fired plant was recognized as
having the lowest production cost of any coal-fired plant in the United States.
In fact, three of its plants are ranked within the top 20 of the 700 studied for
low-cost production. The Cajun coal fire units are very similar to certain
<PAGE> 11
SWEPCO units and SWEPCO will provide the benefits of low-cost production to
wholesale purchasers and ratepayers including all Louisiana cooperatives.
CSW is a public utility holding company that owns all of the
common stock of four U.S. electric operating subsidiaries, namely, Central Power
and Light Company, Public Service Company of Oklahoma, West Texas Utilities
Company, and SWEPCO. The Central and South West System provides electrical
service to approximately 4.3 million people in a widely diversified area
covering some 152,000 square miles. The total generating capacity of CSW
operating companies, including SWEPCO, is 14,177 MW, and the CSW System operates
in both the Electric Reliability Council of Texas and the SPP. CSW also owns
SEEBOARD, an electric distribution company in the United Kingdom which serves
approximately 2,000,000 customers.
B. DESCRIPTION OF PROPOSED ASSET PURCHASE AGREEMENT.
Under the Plan, SWECO will purchase certain non-nuclear assets referred
to as the Acquired Assets for the sum of $780 million, payable in cash (the
"Purchase Price") pursuant to the Asset Purchase Agreement. A true and correct
copy of the Asset Purchase Agreement is attached as EXHIBIT "1" to the Plan.
In addition to the Asset Purchase Agreement, SWEPCO and the Members have
agreed that, in the event the Plan is confirmed and consummated, as soon as
practicable after the closing of the transaction whereby SWECO acquires the
Acquired Assets, SWEPCO shall reimburse the Members that are constituents of the
Members' Committee for their reasonable attorneys fees and expenses incurred in
this bankruptcy proceeding, not to exceed $1 million in the aggregate.
<PAGE> 12
C. LIQUIDATION OF CAJUN
The Plan contemplates that the any assets remaining in Cajun after the
consummation of the Asset Purchase Agreement, the River Bend Settlement will be
(i) liquidated by the Trustee with the proceeds of such liquidation distributed
in accordance with the Plan; or (ii) conveyed by the Trustee to the lienholder
of such assets.
D. SUMMARY OF PLAN
A portion of the Purchase Price attributable to Acquired Assets on which
the RUS has a valid, perfected and unavoidable lien will be paid to the RUS,
along with other assets of the Debtor pursuant to the River Bend Settlement in
full satisfaction of the Allowed Secured Claim of RUS. The Plan also provides
for payment in full of all Allowed Administrative and Priority Claims. Unsecured
Creditors will receive a Pro Rata share of the proceeds of unencumbered assets
and that portion of the Purchase Price attributable to unencumbered Acquired
Assets.
The Plan also provides an end to years of expensive litigation among
Cajun, GSU, RUS and the Members by incorporating the terms and conditions of the
previously announced River Bend Settlement which provides for the establishment
and funding of a Decommissioning Trust Fund, and for the transfer of the Cajun
River Bend Interest to the highest bidder or RUS (with a possible reversion to
GSU). River Bend-related and transmission-related litigation is also settled in
connection with the Plan. A primary distinguishing feature of the Plan is that
it incorporates consensual power supply contracts with each of the Members
thereby avoiding costly litigation over the enforcement, assumption and/or
assignment of those contracts that is inherent in the other Competing Plans.
<PAGE> 13
1. CLASSIFICATION OF CLAIMS . The Members have asserted that all
"Excess Funds" and surplus cash (as defined in the Cash Collateral Order) are
property of the Members, subject to turnover and refund (except for funds
released by the Members to facilitate the GSU settlement and pay River Bend
decommissioning costs). This issue will be litigated in Adv. Proc. 96-1073. To
the extent the Members prevail, the funds will be disbursed to the members on a
pro-rata basis.
Post-petition administrative claims entitled to priority
under Code Section 507(a)(1) are dealt with in Section 2.1 of the Plan.
Administrative claims will be paid in cash on the later of the date allowed, the
Initial Distribution Date or the date on which such Claim is payable in the
ordinary course of business; provided however that all claims for professional
compensation and expenses must be approved by the Court. Section 2.2. of the
Plan provides that priority tax claims under Code Section 507(a)(8) shall be
paid in cash on the Initial Distribution Date.
Article III of the Plan classifies the Claims of other
creditors and the Member's interests into eight classes as follows:1
CLASS 1. ALL OTHER PRIORITY CLAIMS. All Allowed Unsecured Claims
entitled to priority under Code Section 507(a) (other than 507(a)(1)
and (8)) shall be treated in Class 1. Class 1 is unimpaired.
- --------
1 The numerous claims of GSU against the estate have not been
classified under the Plan because all of GUS's claims have been dealt
with in the River Bend Settlement that was approved by Judge Polozola
in the Order and Judgement Approving Settlement by and among Cajun
Electric Power Cooperative, Inc., Entergy Gulf States, Inc., Entergy
Corporation, and the Rural Utilities Service of the Department of
Agriculture dated August 26, 1996 (the "Order"). The Order is now the
subject of an appeal to the United States Circuit Court for the Fifth
Circuit, but no stay has been sought or entered pending the appeal. If
the Order is overturned on appeal before the settlement has been
consummated, the Plan will be modified to specifically provide for the
classification and treatment of GSU's claims according to the terms of
the River Bend Settlement.
<PAGE> 14
CLASS 2. ALLOWED SECURED CLAIMS OF RUS. Class 2 consists of all
Allowed Secured Claims of RUS, including but not limited to the
Secured Claim related to (a) direct loans of RUS to Debtor; (b)
guaranties by RUS of CoBank loans to Debtor in an aggregate principal
amount of approximately $500 million; (c) guaranties by RUS of FIBA
loans to Debtor in an aggregate principal amount of approximately $1
billion; and (d) guaranties by RUS of various F.B. loans to Debtor.
Class 2 is impaired.
CLASS 3. ALLOWED SECURED CLAIM OF COBANK. CoBank's Allowed
Secured Claim is dealt with in Class 3. CoBank has a secured Claim
arising out of two letters of credit issued in favor of Clorox and
Kodak, respectively. Said Claim is secured by (a) Debtor's pledge of
CoBank Class E Stock and (b) a mortgage shared with the RUS that
purports to encumber substantially all of the Debtor's assets. Class 3
is impaired
CLASS 4. ALLOWED SECURED CLAIM OF HIBERNIA BANK. Hibernia Bank's
allowed Secured Claim is dealt with in Class 4. Hibernia Bank is
scheduled as having a secured Claim arising out of the issuance of
Industrial Development bonds to finance construction of Debtor's
headquarters building. Said Claim is secured by the headquarters
building. Class 4 is impaired.
CLASS 5. ALLOWED OTHER SECURED CLAIMS. Class 5 consists of all
other Secured Claims, if any. Each Secured Claim will be treated as a
separate class for purposes of voting and treatment under the Plan.
Class 5 is impaired.
CLASS 6. ALLOWED UNSECURED CLAIMS. Class 6 consists of all
Unsecured Claims, not otherwise classified, including but not limited
to Member claims, deficiency claims and claims arising from the
rejection of executory contracts.
CLASS 7. MEMBER INTERESTS. The interests of the Members in the
Debtor shall be dealt with in Class 7.
2. TREATMENT OF CLASSIFIED CLAIMS.
Article V of the Plan describes the treatment of the various
Classes. The Treatment of Claims is summarized below:
CLASS 1. ALL OTHER PRIORITY CLAIMS. The Plan (ss.5.1) provides
that all allowed priority Claims under Code section 507(a) (except
administrative Claims in ss. 2.2) shall be paid in cash on the Initial
Distribution Date. Class 1 could include for example, priority wage
and pension plan Claims; however the Debtor's Schedules do not list
any Claims that would be classified in Class 1.
<PAGE> 15
CLASS 2. ALLOWED SECURED CLAIM OF RUS. In complete and full
satisfaction of the Allowed Secured Claim of the RUS, on the Initial
Distribution Date or such later date on which the RUS Secured Claim
becomes an Allowed Secured Claim, RUS will receive:
(A) that portion of the Sales Proceeds attributable to
the Acquired Assets upon which the RUS has a valid,
perfected and unavoidable lien;
(B) all property of the estate required to be
transferred to the RUS pursuant to the River Bend
Settlement; and
(C) all Excluded Assets on which the RUS has a valid,
perfected and unavoidable lien.
By its agreement to the River Bend Settlement, RUS consents to
the disposition and transfer of assets on which the RUS claims a lien or
security interest and, where stipulated by the terms of the River Bend
Settlement, said transfer is to be free and clear of all claims, liens
or security interests of the RUS.
CLASS 3. ALLOWED SECURED CLAIM OF COBANK. CoBank filed a proof of
claim asserting a secured claim in the amount of $25,486,702.50 plus
interest, renewal fees, and expenses. In June 1983, pursuant to a Tax
Benefit Transfer Agreement, Cajun transferred federal income tax
ownership of certain property to the Clorox Company. In July 1983,
Cajun entered into a similar transaction with Eastman Kodak Company
("Kodak"). These Tax Benefit Transfer Agreements (the "TBT
Agreements") require Cajun to issue and maintain for the benefit of
Clorox and Kodak, respectively, letters of credit in scheduled amounts
which were expedited to be sufficient to reimburse Clorox and Kodak
for any losses of tax benefits caused by Cajun.
In connection with each TBT Agreement, Cajun and New Orleans Bank
for Cooperatives ("NOBC"), CoBank's predecessor, executed a Letter of
credit and Reimbursement Agreement (collectively the "Letter of Credit
Agreements") pursuant to which NOBC issued letters of credit for the
benefit of Clorox and Kodak. CoBank and its predecessor have twice
renewed the letters of credit. The amounts now available to be drawn by
Clorox and Kodak are $10,760,070 and $21,309,848.00, respectively (the
"LC Debt").
Cajun's obligation to reimburse CoBank for draws on the letters
of credit is purportedly secured by a Supplemental Mortgage; a
Subordinated Mortgage, Security Agreement and Financing Statements as
amended and supplemented from time to time, an Act of Collateral Pledge
dated January 23, 1988 and certain statutory liens. It is believed that
this claim of CoBank is largely contingent and matures only if a
<PAGE> 16
disqualifying event occurs under the TBT Agreements or if the letters of
credit are not renewed prior to their expiration.
Under the Plan, liability for the contingent claims of CoBank
shall be assumed by SWECO on the Effective Date as and to the extent
provided in the relevant asset purchase agreement, and SWECO will
execute with CoBank new Letter of Credit Agreements to further evidence
the purchaser's assumption. SWECO will seek to structure the asset
purchase agreement in such a way as to avoid a disqualifying event
occurring under the tax benefit transfer agreements. However, in the
event that the sale of Cajun's assets to SWECO pursuant to the
acquisition of the implementation of the acquisition or the action or
structure of the purchaser on the Effective Date causes the indemnity
obligation of Cajun to Kodak and/or Clorox to mature and a subsequent
draw on a letter of credit, SWECO will assume the reimbursement
obligation of the Estate to CoBank arising solely as a result of an act
or omission by SWECO (net of the existing cash collateral held by
CoBank). If such indemnity obligation so matures, CoBank shall apply all
cash collateral it then holds against the reimbursement obligation, and
SWECO shall immediately pay the balance of the reimbursement obligation
to CoBank, and SWECO shall be entitled to Cajun's rights to the future
retirement payments made by CoBank to retire the Class B Stock from time
to time whether or not the Class B Stock is held by purchaser or Cajun.
Under the Plan, the CoBank Class E Stock will be owned by SWECO.
Subsequent to the Effective Date, if no disqualifying event has occurred
under the tax benefit transfer agreements on or prior to the Effective
Date, the contingent claims of CoBank shall continue to be secured by
the CoBank Class E Stock, proceeds thereof and related collateral
(including patronage, retirements of Class E Stock, existing cash
collateral, etc.) ("CoBank Collateral") as more fully described in the
Pledge Agreement to be entered into between SWECO and CoBank, and
CoBank's liens on CoBank Collateral and its proceeds shall not be
discharged or otherwise released or extinguished by confirmation of the
Plan. In addition, on the Effective Date CoBank shall be entitled to
charge the existing cash collateral account it holds for all unpaid
letter of credit fees from the inception of Cajun's Chapter 11 through
the Effective Date, and SWECO shall pay all letter of credit fees
thereafter. On the Effective Date, however, CoBank shall be deemed to
have released any other mortgage or lien on Cajun or reorganized Cajun's
assets securing CoBank's contingent claims, except for the CoBank
Collateral. Accordingly, on and after the Effective Date, CoBank shall
have no interest in any other assets, including, but not limited to, the
sales proceeds of Cajun's assets.
CLASS 4. ALLOWED SECURED CLAIM OF HIBERNIA BANK. The allowed
Secured Claim of Hibernia Bank representing the Industrial Development
<PAGE> 17
bonds, secured by the Debtor's current headquarters, building and
land, shall be paid in full in accordance with the payment schedule
required by such Industrial Development Bonds. Any payment defaults,
and any reasonable fees, costs or charges payable under Code section
506(b), shall be cured on the Effective Date, as an administrative
Claim in Section 2.1. SWECO shall cause the future payments on the
Industrial Development Bonds to be made to Hibernia Bank, but shall
have no personal liability or recourse for such payments. Hibernia
Bank shall retain its lien on the headquarters building and land, and
may enforce such lien in event of any default after the Effective
Date. On the Effective Date, the Debtor shall convey title to the
headquarters and land to SWECO, subject to the lien of Hibernia Bank,
but free and clear of any and all other liens, claims, and
encumbrances including, but not limited to the liens of the RUS.
CLASS 5. ALLOWED OTHER SECURED CLAIMS. Each holder of an Allowed
Other Secured Claim shall, at the Trustee's option: (a) be paid, on
the Initial Distribution Date, on account of its allowed Secured
Claim, cash totaling the amount of such Allowed Claim; (b) be paid, on
account of its Allowed Secured Claim, the net proceeds of the sale of
any property which is subject to the liens securing said Allowed
Claim, which sales shall be made in accordance with section
1129(a)(2)(A)(ii) of the Bankruptcy Code; or (c) receive the property
which is subject to the Liens securing said allowed Claim in full
satisfaction of the allowed Secured Claim of such holder. In the event
of option (b) above, such amount shall be paid on the last to occur of
(1) the Effective Date, (2) within ten (10) days after the date on
which an order allowing such Secured Claim becomes a final Order, or
(3) within ten (10) days after closing of a sale of the property which
is subject to the Liens securing said Allowed Claim. In the event of
option (c) above, the property which is subject to the Liens securing
said Allowed Claim shall be transferred on the later of (1) the
Effective Date, or (2) as soon as practicable after the date on which
an order allowing such Secured Claim becomes a Final Order. Any such
property transferred to holders of Allowed Secured Claims under this
paragraph shall be transferred either by abandonment of such property
by the Trustee under section 554 of the Bankruptcy Code or by transfer
of such property "as-is, where-is," without representation or warranty
by Debtor or the Trustee, at the trustee's sole option and discretion.
CLASS 6. ALLOWED UNSECURED CLAIMS. In full and complete
satisfaction of all Allowed Unsecured Claims, Allowed Unsecured Claims
will be paid a Pro Rata share in the proceeds of any unencumbered
assets in accordance with Section 6.2 of the Plan.
CLASS 7. MEMBER INTERESTS. The interests of the Members in the
Debtor shall be canceled as of the Effective Date.
<PAGE> 18
3. MEMBER RATES AND THE PROPOSED POWER SALES AGREEMENT
SWECO and the Members shall enter into new Power Supply
Contracts substantially in the form as attached to the Plan as EXHIBIT "2." The
new power supply contracts shall supersede and replace the existing Supply
Contracts by and between the Members and the Debtor.
4. EXECUTORY CONTRACTS AND UNEXPIRED LEASES
A. SUPPLY CONTRACTS. Pursuant to section 7.3 of the Plan,
on the Effective Date, SWECO and the Members shall execute new
all-requirements contracts to replace and supersede the Supply
Contracts with the Debtor. This Effectively moots the legal
challenges to the Supply Contracts and preserves the market for the
benefit of creditors.
B. RIVER BEND JOA. Disposition of the River Bend JOA depends on
which option RUS elects under section 6.2 of the Plan. If a transferee
(other than GSU) or RUS acquire River Bend, the River Bend JOA will be
assumed by Cajun and assigned to such transferee or RUS, as the case
may be. If GSU is the transferee of River Bend, Cajun shall be deemed
to have rejected the River Bend JOA.
C. COLLECTIVE BARGAINING AGREEMENTS . As provided in the Asset
Purchase Agreement, SWECO will deliver to the Trustee a list of
Collective Bargaining Agreements to be assumed and assigned to SWECO
on the Effective Date pursuant to the terms of the Plan. If certain
modifications have been negotiated by SWECO consistent with Section
1113 of the Bankruptcy Code prior to the Confirmation Date, such
Collective Bargaining Agreements will be assumed and assigned to SWECO
<PAGE> 19
on the Effective Date with such agreed modifications pursuant to the
terms of the Plan and the Asset Purchase Agreement.
D. ALL OTHER EXECUTORY CONTRACTS . On the Effective Date, the
Trustee shall be deemed to have assumed and assigned to SWECO all
other executory contracts of the Debtor, except for executory
contracts identified on a list of executory contracts to be rejected
which shall be filed by SWEPCO on or before twenty days prior to the
date of the hearing on confirmation of the Plan. The contracts so
identified shall be deemed rejected on the Effective Date. All
payments necessary to cure any defaults on contracts to be assumed and
assigned to SWECO shall be paid as Administrative Claims under section
2.1 of the Plan on the Initial Distribution Date.
5. DISTRIBUTIONS UNDER THE PLAN.
A Claim or Interest will receive a Distribution under the Plan
only if it is "Allowed." An "Allowed Claim" or "Allowed Interest" when used
herein with respect to a Claim or Interest, shall mean any Claim or Interest,
allowable under section 502 or 507, as applicable, of the Bankruptcy Code (i)
for which a proof of claim was filed on or before the Bar Date or (ii) which has
been or hereafter is listed by Debtor in its bankruptcy schedules as liquidated
in amount and not disputed or contingent and, in case of both (i) and (ii)
above, as to which no objection to the allowance thereof has been timely filed,
or, if an objection has been timely filed, such Claim is allowed by order or
judgment, or (iii) which is deemed allowed by the terms of the Plan. For
purposes of determining the amount of an Allowed Claim or Interest there shall
be deducted therefrom an amount equal to the amount of any claim which Debtor
<PAGE> 20
may hold against the party pursuant to section 553 of the Bankruptcy Code.
Unless otherwise specified in the Plan, "Allowed" with regard to a Claim or
Interest shall not, for the purposes of computation of Distributions under the
Plan, include postpetition interest.
6. DISCHARGE OF CAJUN.
The Plan provides for the liquidation of substantially all of the
assets of Cajun. Consequently, Cajun will not receive a discharge of its debts.
However, all transfers of assets contemplated under the Plan are made free and
clear of all liens, claims and encumbrances unless otherwise specified in the
Plan. Distributions will be made from the proceeds of such transfers pursuant to
the terms of the Plan in full and complete satisfaction of such liens, claims
and encumbrances except as otherwise expressly specified in the Plan.
7. CONDITIONS TO CONFIRMATION AND EFFECTIVENESS OF THE PLAN.
The sale transaction is contingent upon several conditions to
closing set forth in the Asset Purchase Agreement including, but not limited to,
obtaining the necessary regulatory approvals necessary to consummate the
transaction. These regulatory approvals are discussed in detail in section
III.C.3 below. The Proponents believe that because the Plan provides for the
most competitive rate path of any of the competing plans and enhances the
continued viability of the Members, the Plan strikes a proper balance between
competitive rates and value to creditors and is therefore more likely to be
approved by the various regulatory bodies which must approve the disposition of
Cajun's assets.
<PAGE> 21
E. MEANS FOR IMPLEMENTATION OF THE PLAN
1. SALE OF ACQUIRED ASSETS TO SWECO .
The Acquired Assets (or the Non-Nuclear Assets) will be
transferred to SWECO for the cash consideration of $780 million (the "Purchase
Price") pursuant to an agreement substantially in the form of that Asset
Purchase Agreement attached as EXHIBIT "1" to the Plan. This sale will have the
effect of extinguishing all liens, claims and encumbrances affecting the
Acquired Assets except for as provided in section 5.4 (CoBank) and 5.5 (Hibernia
Bank) of the Plan. The Trustee shall be deemed to have entered into such Asset
Purchase Agreement as of the date of the Confirmation Order.
2. DISBURSEMENT FUND .
The Disbursement Fund shall be funded with the Purchase Price,
and all other proceeds (if any) from the liquidation, sale or collection of
assets of the Debtor. The Trustee will make distributions from the Disbursement
Fund in accordance with the terms of the Plan, and, unless otherwise provided in
the Plan, all Plan distributions shall be made from the Disbursement Fund. The
segregated funds at issue in Adv. Proc. 96-1073 shall not be transferred to the
Disbursement Fund. These segregated funds shall only be disbursed pursuant to an
order resolving the issues and claims in Adv. Proc. 96-1073.
3. NEW POWER SUPPLY CONTRACTS WITH SWECO .
SWECO and the Members shall enter into new Power Supply Contracts
substantially in the form as attached to the Plan as EXHIBIT "2." The new power
supply contracts shall supersede and replace the existing Supply Contracts by
and between the Members and the Debtor.
<PAGE> 22
4. OTHER ACTIONS.
The River Bend Settlement shall be consummated pursuant to the Order and
Judgment Approving Settlement by and among Cajun electric Power Cooperative,
Inc., Entergy Gulf States, Inc., Entergy corporation and the Rural Utilities
Service of the Department of Agriculture dated August 26, 1996. The Order
provides the River Bend Settlement may be consummated independent of any plan of
reorganization. The Order is now the subject of an appeal to the United States
Court of Appeals for the Fifth Circuit, but no stay has been sought or entered
pending the appeal If the Order is overturned on appeal before the settlement
has been consummated, the terms of the Order shall be implemented through the
confirmation of the Plan.
Pursuant to 11 U.S.C. ss. 1142(b) and Bankr. R. 7070, the Court
confirming the Plan may direct the Trustee or any other party to execute or
deliver any and all documents or instruments or to perform any other act
necessary to implement or consummate this Plan. In consideration for agreements
made by each of the parties set forth herein in connection with the terms and
conditions of the Plan, the Trustee shall, on the Effective Date, release and
discharge all direct or derivative rights, claims and causes of action which
constitute property of the Estate, including but not limited to claims under
Bankruptcy Code Sections 506, 510, 542, 543, 544, 545, 546, 547, 548, 549, 550,
551 and 553, and any state laws corresponding thereto, arising prior to the
Effective Date, against the Members, the Members Committee, SWEPCO, SWECO,
Central and South West Corporation, GSU and their respective current and former
Representatives.
III. CONFIRMATION AND TECHNICAL
ISSUES RELATIVE TO THE PLAN
<PAGE> 23
A. CLASSIFICATION ISSUES UNDER SECTION 1122.
In accordance with 11 U.S.C. ss. 1122, the Plan classifies Claims
and Interests into eight (8) separate classes according to such creditors' and
interest holders' rights and priorities with respect to assets of Cajun. Section
1122 requires that each class contain claims which are "substantially similar"
to the other claims or interests of such class.
B. CONFIRMATION ISSUES UNDER SECTION 1123 AND 1129.
The Bankruptcy Code defines acceptance of a plan by a class of creditors
as acceptance by holders of two-thirds in dollar amount and a majority in number
of the claims of that class which actually cast ballots for acceptance or
rejection of the plan. In other words, acceptance takes place only if two-thirds
in amount and majority in number of the creditors in a given class who vote cast
their ballots in favor of acceptance.
At the Confirmation Hearing, the Bankruptcy Court shall determine
whether the confirmation requirements of section 1129 of the Bankruptcy Code
have been satisfied, in which event the Bankruptcy Court shall enter an order
confirming the Plan. These applicable requirements are enumerated and explained
in the Trustee's Disclosure Statement.
At the Confirmation Hearing, the Bankruptcy Court must, among other
things, determine whether Claimants or Interest holders would receive at least
as much under the Plan as they would receive in a liquidation under chapter 7.
The Trustee has submitted his Liquidation Analysis which is attached to the
Master Disclosure Statement as an exhibit.
Certain provisions of the Bankruptcy Code permit confirmation of a plan
even if one or more Classes do not accept. These provisions set forth in
Bankruptcy Code ss. 1129(b), impose certain requirements and if these
requirements are satisfied, the Plan may be confirmed even though one or more
Classes vote to reject the Plan. The Court may still confirm the Plan if, as to
<PAGE> 24
each impaired Class which has not accepted the Plan, the Plan "does not
discriminate unfairly" and is "fair and equitable."
If an impaired Class of Secured Claims rejects or is deemed to reject
the Plan, the Plan may still be confirmed if the Plan provides that (a) each
holder of a claim in the Class retains the liens securing such claim to the
extent of the amount of its Allowed claim and receives on account of such claim
deferred cash payments totaling at least the amount of its Allowed Claim with a
present value, as of the Effective Date of the Plan, of at least the value of
such holder's interest in Debtor's interest in the property; (b) if the property
subject to the liens of such holder is sold free and clear of those liens, such
liens are to be attached to the proceeds of such sale and such liens will be
treated in accordance with (a) or (c) hereof; or (c) the holder of the impaired
Allowed Secured Claim realizes the "indubitable equivalent" of its claim under
the Plan.
Likewise, if an impaired Class of Unsecured Claims rejects or is deemed
to reject the Plan, the Plan may still be confirmed as long as the Plan provides
(a) for each holder of a Claim included in the rejecting Class to 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 Class will
not receive or retain on account of such junior Claim or interest any property
at all.
The Bankruptcy Code provides that because Debtor's Interest holders will
not receive or retain any property under the Plan, Class 7 is deemed not to have
accepted the Plan, however, since the Members are Proponents of the Plan, and
are expected to accept the Plan, ballots for voting on the Plan will be
distributed to Class 7 Interest holders.
<PAGE> 25
The Plan provides for claims to receive treatment consistent with
Section 1129(b) of the Bankruptcy Code. If any class of claims does not accept
the Plan, the Proponents may either ask the Court to rule that the Plan may be
confirmed notwithstanding any vote of such class or may modify the Plan as
necessary to confirm the Plan under the provisions of 1129(b).
C. RISK FACTORS.
Certain risk factors are inherent in any plan of reorganization. The
Plan should be evaluated in much the same manner as a purchase of a security
would be evaluated. The advice and assistance of competent professionals should
be sought. The Proponents have attempted to discern foreseeable risks peculiar
to this reorganization and this Plan as discussed below.
1. REORGANIZED CAJUN'S CONTINUED OPERATIONS.
Payments to Cajun's creditors will be made in cash from the
proceeds of the sale of Cajun's non-nuclear assets to SWECO and from other cash
proceeds, if any. Therefore, payments to creditors are not dependent upon the
financial statements of projections of any of the entities included in the
Disclosure Statement. However, the feasibility of continued operations in SWECO
which, in turn, will affect performance under the proposed Supply Contracts, is
subject to business, economic and competitive uncertainties and contingencies,
many of which are beyond the control of the Proponents.
2. CONDITIONS PRECEDENT.
The Asset Purchase Agreement and the Plan contain certain
conditions precedent to confirmation and consummation of the Plan. There are no
guaranties that such conditions will occur. The Proponents are working to ensure
that conditions precedent in the Plan and in the Asset Purchase Agreement are
met and believe that such conditions can be met in a timely fashion.
<PAGE> 26
3. REGULATION.
A. REGULATORY BACKGROUND .
(I) JURISDICTION OF LPSC. The LPSC's jurisdiction to
regulate Cajun was firmly established in CAJUN ELEC.. POWER CO-OP.,
INC. V. LOUISIANA PUB. SERV. COMM'N, 544 So. 2d 362 (La. 1989), CERT.
DENIED, 493 U.S. 991 (1989). The LPSC has historically applied the
traditional "used and useful rule" to utilities under its
jurisdiction. SEE GULF STATES UTILITIES CO. V. LOUISIANA PUBLIC
SERVICE COMM'N, 364 So. 2d 1266, 1269-71 (La. 1978); CLECO V. PUBLIC
SERVICE COMM'N, 508 So. 2d 1361, 1367 (La. 1987).
(II) USED AND USEFUL ORDER. On June 17, 1994, the LPSC
issued Order No. U-17735-C, 1994 WL 363622 (La. P.S.C.) (the "Used and
Useful Order"), which analyzed Cajun's participation in River Bend.
The LPSC found that the decision to participate in River Bend was
imprudent because it was contrary to the advice of Cajun's engineers
and was based on an incomplete analysis, without considering the
special risks associated with nuclear power. The LPSC further found
that Cajun does not need ANY of the River Bend power and that,
therefore, Cajun's interest in River Bend is not used and useful under
traditional regulatory principles. The LPSC found that allowing
recovery of the River Bend investment would be catastrophic for the
cooperatives and the rural economy of Louisiana. Accordingly, the LPSC
held that River Bend must be excluded from Cajun's rates. The Used and
Useful Order has been appealed to the state district court.
(III) RATE ORDER. Based on the Used and Useful Order, on
December 16, 1994, the LPSC issued Order No. U-17735-E, 1994 WL 794132
(La. P.S.C.) (the "Rate Order"). The Rate Order established that the
value of all of Cajun's assets (excluding Cajun's interest in River
Bend) was $803,842,416.00. The Rate Order directed Cajun to reduce its
annual revenues by $30.23 million, effective December 21, 1994, which
reduced Cajun's average rates from approximately 54.4 mills to 48.81
mills. The Rate Order further directed the Members to flow through the
reductions to the ultimate consumers. Accordingly, Cajun and the
Members filed the appropriate tariffs with the LPSC and implemented
the 48.81 mill rate. Cajun appealed the Rate Order alleging that the
rate is too low, and several Members filed cross-appeals alleging that
the 48.81 mill rate is excessive.
(IV) RUS PREEMPTION. On December 20, 1994, the RUS sent a
letter to Cajun stating that the Rate Order conflicts with the
purposes of the Rural Electrification Act and, therefore, is
"implicitly preempted by federal law." On December 21, 1994, Cajun
filed its petition for relief under Chapter 11 of the Bankruptcy Code
and an adversary proceeding requesting a declaratory judgment as to
whether its wholesale rates were under the jurisdiction of the LPSC or
the RUS. On July 20, 1995, the District Court entered summary judgment
<PAGE> 27
against RUS on the preemption issue. The RUS appealed to the Fifth
Circuit Court of Appeals, No. 95-30941, and the matter has been fully
briefed. The matter is presently pending before the Fifth Circuit
Court of Appeals.
The Members Committee (an appellee in the preemption
appeal) believes that the preemption appeal may be moot for several
reasons. First, under the Plan (or any other plan) Cajun's assets will
be sold to a FERC-regulated utility, thereby obviating RUS's
preemption claim. Second, RUS' preemption claim was precipitated when
the RUS asserted that a 48.8 mill rate was too low. Now, however, the
Trustee's plan assumes a rate of approximately 40 mills. The Members
Committee believes that it would be inconsistent to assert that a 40
mill rate is acceptable, but a 48.8 mill rate is preempted. The
Members also contend that the Cajun's rates may not be changed without
the approval of Cajun's Board -- which is controlled by the Members.
If the summary judgment in the preemption appeal is
reversed prior to a sale of Cajun's assets as part of a plan, the
Fifth Circuit could either (i) remand the matter to the District Court
for a trial on the merits, or (ii) enter judgment on the issue of
whether the Rate Order is preempted. If the LPSC's jurisdiction is
preempted, Cajun's wholesale rates would be set by its board of
directors pursuant to the terms of the Supply Contracts. It is the
position of the Members that under no circumstances would the Trustee,
the RUS or the Court have jurisdiction or authority to establish
rates.
(V) NEW LPSC RATE CASE. The LPSC has reopened Docket
No. U-17735 to evaluate the reasonableness of Cajun's current rates.
LPSC Staff have recommended a rate reduction to approximately 44.53
mills, based on an alleged revenue requirement surplus of $26 million.
The Members have intervened and filed a petition to further reduce
rates to approximately 36 mills based on the fact that Cajun is
collectively approximately $50 million for interest expense that is
not a revenue requirement. The LPSC hearing is set to begin on
September 17, 1996.
B. REGULATORY ISSUES APPLICABLE TO SWECO.
As the owner of interstate transmission facilities to be
acquired from Cajun, SWECO will be subject to regulation as a public utility
under the Federal Power Act, 16 U.S.C. ss. 824 (1994) (FPA). Under the FPA,
SWECO must file with the Federal Energy Regulatory Commission ("FERC") the
Supply Contracts with the Members for review by the FERC for conformance with
<PAGE> 28
the rate making standards of the FPA. Under the FPA, the rates for wholesale
sales of electricity in interstate commerce must be based on the costs incurred
to provide service unless the filing utility is permitted to charge rates
negotiated in the marketplace. SWECO expects to receive permission from the FERC
to charge the rates under the proposed Supply Contracts described above on the
basis that such rates have been set in a marketplace in which SWECO exercised no
market power by reason of its control of generating or interstate transmission
facilities.
In order to obtain FERC permission to charge such
"market-based" rates for wholesale electric sales, SWECO must demonstrate to the
FERC that neither SWECO nor its affiliates, the operating electric utility
subsidiaries of Central and South West Corporation, exercise such market power.
To reach this conclusion, the FERC must first find that open access transmission
service tariffs filed by the CSW Operating Companies provide open comparable
access to the transmission facilities the CSW Operating Companies own or
otherwise control. Under FERC's Order No. 888, the CSW Operating Companies are
required to file by December 31, 1996 a tariff for transmission service that
will provide such comparable open access. Accordingly, SWECO expects to be able
to make the necessary showing in support of a request for "market-based" rate
treatment for sales made under the proposed supply contracts.
As a public utility, SWECO must also file a tariff
offering open access transmission service on the transmission facilities SWECO
controls or seek a waiver from the obligation to file such a tariff. SWECO
anticipates seeking waiver based on the nature of the transmission facilities it
would control under the Plan, if consummated.
<PAGE> 29
C. PUBLIC UTILITY HOLDING COMPANY ACT
CSW, the parent of SWEPCO, is a public utility holding company
registered under the Public Utility Holding Company Act of 1935, as amended (the
"1935 Act"). The 1935 Act requires, with certain exceptions, prior approval by
the Securities and Exchange Commission (the "SEC") for the direct or indirect
acquisition of any securities or utility assets or any other interest in any
business by a registered holding company or its subsidiaries. Additionally, with
certain exceptions, the 1935 Act prohibits the issuance of securities of a
registered holding company or its subsidiaries, without, in each case, prior SEC
approval. Although a registered holding company or its subsidiaries may acquire
the securities, or an interest in the business, of an exempt wholesale generator
(an "EWG") without prior SEC approval, the issuance of securities by a
registered holding company for purposes of financing the acquisition of an EWG,
or the guarantee of securities of an EWG by a registered holding company,
requires prior SEC approval. At present, SWECO does not plan to seek
certification by the FERC as an EWG due to existing limitations on the aggregate
investment of CSW in EWGs and foreign utility companies. However, SWECO may
nonetheless seek EWG status to avoid certain requirements of the 1935 Act.
It is a condition to SWEPCO's obligations under the Asset
Purchase Agreement that all required regulatory approvals shall have been
received on or prior to the Effective Date specified in the Plan. Required
regulatory approvals may include:
(i) At SWECO's election, either (1) the approval of the SEC for
SWEPCO or an affiliate of SWEPCO to acquire the outstanding stock of
SWECO, and for SWECO to acquire the Cajun assets (unless the SEC concurs
that an exemption is available under Section 9(b)(1) of the 1935 Act),
or (2) a determination by the Federal Energy Regulatory Commission that
SWECO is an EWG (both before and after giving effect to the acquisition
contemplated by the Plan); and
(ii) If SWECO is determined to be an EWG, the approval of the SEC
of the issuance of securities by SWEPCO or CSW or an affiliate thereof
<PAGE> 30
to finance the acquisition and, if such financing involves a guarantee
by SWEPCO or CSW or an affiliate thereof of securities issued by SWECO,
the approval of the SEC of such guarantee; provided, however, that CSW
may rely on existing SEC authority to finance the acquisition depending
upon circumstances existing at the time of consummation.
4. OTHER ISSUES.
In addition to utility regulation, SWEPCO has received a civil
information request from the Justice Department in connection with SWEPCO's
proposed acquisition of the assets of the Debtor. The reasons behind this
request have not been revealed, however SWEPCO believes that this information
request may pertain to either preparation for an anticipated request for
approval under Hart-Scott-Rodino or may be an investigation of possible
anti-competitive effects of Cajun's acquisition by a purchaser. SWEPCO does not
believe this request for information will affect its ability to confirm this
Plan. However, the Proponents submit this information in the interest of full
disclosure.
D. SUPPLEMENTAL TAX ANALYSIS
1. STATUTORY OVERVIEW .
Under the Tax Code and income tax regulations (the "Regulations")
promulgated thereunder, there are certain significant federal income tax
consequences associated with the Plan described in this Disclosure Statement.
Certain of these consequences are discussed below. Due to the unsettled nature
of several of the tax issues presented by the Plan, including the changes made
by the Bankruptcy Tax Act of 1980 ("BTA80"), the Tax Reform Act of 1984, the Tax
Reform Act of 1986 ("TRA86"), the Omnibus Reconciliation Act of 1987 ("ORA87"),
the Technical and Miscellaneous Revenue Act of 1988 ("TAMRA"), the Omnibus
Budget Reconciliation Act of 1989 ("OBRA89") and the Revenue Reconciliation Act
of 1990 ("RRA90") and the Revenue Reconciliation Act of 1993 ("RRA93"), the
<PAGE> 31
differences in the nature of the Claims of the various Claimants, their taxpayer
status, residence and methods of accounting (including Claimants within the same
class of Claims) and prior actions taken by Claimants with respect to their
Claims, as well as the possibility that events or legislation subsequent to the
date hereof could change the federal tax consequences of the transactions, the
federal tax consequences described herein are subject to significant
uncertainties.
No administrative rulings will be sought from the IRS with
respect to any of the federal income tax aspects of the Plan. Consequently,
there can be no assurance that the treatment described in this Disclosure
Statement will be accepted by the IRS. No opinion of counsel has either been
sought or obtained with respect to the federal income tax aspects of the Plan.
THE DISCUSSION SET FORTH IN THIS DISCLOSURE STATEMENT IS INCLUDED FOR
GENERAL INFORMATION ONLY. ALL CLAIMANTS AND STOCKHOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISORS REGARDING THE FEDERAL INCOME TAX CONSEQUENCES CONTEMPLATED
UNDER OR IN CONNECTION WITH THE PLAN, INCLUDING STATE AND LOCAL TAX
CONSEQUENCES.
2. TAX CONSEQUENCES TO CAJUN.
A. CAJUN'S TAX STATUS. Prior to 1983, Cajun qualified for
exemption from federal income taxation under Section 501(c)(12) of the IRC. From
1983 to the present, Cajun has been a taxable, not-for-profit rural electric
cooperative ("REC") engaged in the generation and transmission of electricity to
its distribution members. Neither the IRC nor the Regulations provide specific
guidance for the tax treatment of RECs. Section 501(c)(12) of the IRC
<PAGE> 32
specifically covers only exempt RECs. Subchapter T of the IRC, which generally
covers the tax treatment of organizations operating on a cooperative basis,
specifically excludes RECs from its treatment under IRC Section 1381(a)(2)(C).
Accordingly, RECs are taxed in accordance with the law as it existed in 1962
when Subchapter T was enacted. This law consists of court cases and various
administrative pronouncements of the Internal Revenue Service ("IRS").
In general, a REC determines the source of taxable
income, either member or nonmember, and allocates its deductible expenses for
tax purposes between member and nonmember activities based on electricity sold
to each group. A REC may avoid tax on transactions with its members by
application of a principle of cooperative taxation known as the patronage
dividend exclusion. A cooperative with income from transactions with its members
may allocate this income to its members and exclude the allocated amount from
the computation of taxable income.
Section 277 of the IRC provides that a membership
organization (such as a REC) cannot deduct expenses in excess of income from
transactions with its members. The disallowed deduction may be carried forward
indefinitely to be used to offset income from member transactions in the future
("Section 277 Loss Carryforwards").
The nonmember portion of a REC's operations is taxed in
the same manner as the income of any other corporation. The excess of tax
deductions over nonmember revenues creates a net operating loss which may be
carried back three years and forward fifteen years (an "NOL").
B. CAJUN'S TAX ATTRIBUTES . As of December 31, 1995, Cajun had
reported NOLs of approximately $681 million and Section 277 Loss Carryforwards
of approximately $1.1 billion for regular tax purposes, and reported NOLs of
approximately $532 million and Section 277 Loss Carryforwards of approximately
<PAGE> 33
$1.1 billion for AMT purposes (collectively the NOLs and the Section 277 Loss
Carryforwards are referred to herein as the "Losses"). The NOLs expire over a
period of time beginning in 2004, while the Section 277 Loss Carryforwards
continue indefinitely. See, "Discharge of Indebtedness" for a description of the
effect of the Plan on Cajun's tax attributes. The IRS has not audited any years
in which the Losses were incurred nor did the IRS file a substantial proof of
claim for the pre-petition period. The amount and the allocation of the Losses
may be challenged by the IRS at the time they are used by Cajun without regard
to prior audits and without regard to whether the years in which the Losses were
incurred are closed.
As described above, from 1983 to the present, Cajun has,
under the IRC, been an REC engaged in the generation and transmission of
electricity to its distribution members. Cajun has, over the years, sold power
to both members and nonmembers, allocating expenses between the two classes of
sales on the basis of kilowatt hours sold or, in the case of unit power sales,
on the basis of the contractual provisions of the sale. While a common practice
in the industry, the IRS has not ruled on Cajun's allocation methodology.
C. GAIN OR LOSS ON SALE OF ASSETS . As described herein, the
Plan contemplates the sale of Cajun's Acquired Assets. In general, Cajun will
recognize gain on the sale of such assets equal to the difference between the
amount realized by Cajun and its adjusted tax basis in those assets. Cajun
intends to take the position that its NOLs and Section 277 Loss Carryforwards
will be sufficient to offset all or substantially all of the gain from the sale.
See, however, "Alternative Minimum Tax" below.
The Plan anticipates that Cajun will sell its River Bend
assets to a third party or, alternatively, transfer them to (1) RUS, the
<PAGE> 34
creditor whose claim they secure or (2) if RUS does not exercise its option to
take title to River Bend, to GSU. The transfer of the River Bend assets may
result in gain or loss depending on the purchase price, if any. While the sale
price of the River Bend assets is unknown, the price anticipated by Cajun is
such that the Losses remaining (after the projected gain on the sale of the
Acquired Assets) should be sufficient to offset any income. In any event, Cajun
believes that any disposition of River Bend should be treated under the IRC as a
foreclosure by RUS, with the result that the disposition should be treated as in
part a sale (to the extent of the fair market value of Cajun's interest in River
Bend) and in part as cancellation of indebtedness (to the extent that the
discharged RUS debt under the Plan exceeds such fair market value).
In the case of the River Bend assets, it is possible
that the IRS will assert that Cajun has realized an additional amount of income
on the sales component of the disposition (up to, it is believed, the fair
market value of Cajun's interest in River Bend) to the extent that in connection
with the disposition certain contingent liabilities of Cajun are assumed by the
third party purchaser or RUS in connection with the transactions relating to
River Bend contemplated by the Plan. Such additional purchase price may arise
after the Effective Date and after Cajun's NOLs have been utilized or eliminated
as a result of gain recognition or tax attribute reduction, respectively.
However, if such a position were successfully asserted, Cajun would be entitled
to an offsetting deduction equal to the amount of such assumed liability,
provided the payment of such assumed liability would have been deductible.
D. OTHER INCOME . Cajun may have taxable income as the result of
other events. For example, Cajun may give up a claim against another in return
<PAGE> 35
for the other's claim against Cajun. Depending upon the nature of Cajun's claim,
this exchange could result in income to Cajun as the result of Cajun
transferring its claim in exchange for a release of its obligation. Such income
could be offset if the value given for the release were deductible. In any
event, Cajun believes that the Losses are sufficient to offset any such income.
E. SECTION 382 LIMITATION ON LOSSES. Section 382 of the IRC
imposes certain limitations on the use of a corporation's pre-change NOLs
against the corporation's post-change income when the corporation undergoes an
"ownership change." If IRC Section 382 applies to Cajun, the pre-change losses
of the corporation would be limited each year to an amount equal to the value of
the corporation at the time of the ownership change multiplied by a prescribed
percentage (____ percent for ownership changes occurring in ______ 1996), plus
the amount of the corporation's "net unrealized built-in gain" at the time of
the ownership change provided such gain is recognized by the corporation within
five years of the change of ownership.
An ownership change generally occurs when there is more
than a 50 percentage point change in the ownership of the corporation's stock in
a three-year period. While it is not clear whether or how IRC Section 382 should
be applied to an REC, Cajun believes that no ownership change has occurred
during the period preceding the date hereof and that there should not be an
ownership change under the Plan for IRC Section 382 purposes.
Even if the implementation of the Plan were to result in
an ownership change, the potentially adverse tax impact of Section 382 may be
alleviated. Provided that the asset sales occur on or before the Effective Date,
Cajun would benefit from a "closing-of-the-books" election. Under this election,
Cajun would treat the asset sales as occurring in a year which closes on the
Effective Date. As a result, the existing NOLs could be fully utilized to offset
any gains generated by the asset sales. Also, assuming that Cajun would have
NOLs remaining after reflecting the Debt Discharge Income under the Plan, Cajun
<PAGE> 36
may benefit from the "built in gain" rule which permits a corporation that has
undergone an ownership change to fully utilize its NOLs to offset unrealized
gain that existed at the time of the change provided certain conditions are met.
This provision would be helpful if the disposition of the River Bend assets
occurs after the Effective Date and gives rise to taxable gains.
F. ALTERNATIVE MINIMUM TAX . As discussed above, for purposes of
computing a corporation's regular federal income tax liability, all taxable
income recognized in a taxable year may be fully offset by NOL Carryforwards,
subject in certain cases to limitations under, among other sections, Section 382
of the IRC. Despite elimination of Cajun's regular tax liability for a given
year by reason of NOL Carryforwards, Cajun may nonetheless be subject to the
alternative minimum tax ("AMT"). The AMT imposes a tax equal to the amount by
which 20 percent of a corporation's alternative minimum taxable income ("AMTI")
exceeds the corporation's regular tax liability. AMTI is calculated pursuant to
specific rules in the IRC that eliminate or limit the availability of certain
tax deductions and other beneficial allowances and which include as income
certain amounts not generally included in computing regular tax liability. Of
particular importance to Cajun is that in calculating AMTI, only 90 percent of a
corporation's AMTI may be offset by an AMT NOL, the effect of which is to
prevent taxpayers from eliminating all corporate income tax liability by the use
of NOLs or AMT NOLs. Accordingly, notwithstanding Cajun's position that the
available NOLs and AMT NOLs will be sufficient to offset any nonmember income
attributable to the asset sales, any net income or gain recognized on the sale
of assets by Cajun (subject to reduction for losses and deductions from
operations, if any, incurred in the taxable year of the sale) will be taxable at
an effective rate of 2 percent [i.e., 10 percent of AMTI (without regard to AMT
<PAGE> 37
NOLs) multiplied by the 20 percent AMT tax rate]. It is possible that Cajun will
be able to avoid some portion of this 2 percent obligation. In a ruling request
filed on September 14, l995, Cajun asked the IRS to rule that it be allowed to
offset its AMT member income with AMT Section 277 losses. No formal response has
as yet been received on this ruling request.
G. DISCHARGE OF INDEBTEDNESS . Under the IRC, a taxpayer
generally must include in gross income the amount of any debt discharge income
realized during the taxable year. Section 108 of the IRC provides, however, that
gross income does not include any amount that would otherwise be included in
gross income by reason of the discharge of indebtedness if such discharge occurs
in a case under Title 11 (the Bankruptcy Code). Instead, the debt discharge
income in a bankruptcy case generally is applied to reduce certain tax
attributes of the taxpayer, the most relevant being NOLs, capital loss
carryforwards, and basis in property. Any reduction in tax attributes is made
after the determination of the tax imposed for the taxable year of the
discharge; i.e., Cajun's tax attributes will be applied first to offset income
or gain recognized on the sale of Cajun's assets under the Plan and any other
income or gain of Cajun for such taxable year, with any remaining tax attributes
subject to reduction as previously described.
Under the Plan, all of Cajun's assets will be sold and
Cajun will be liquidated. Accordingly, Cajun will technically not be in receipt
of debt discharge income as a result of the confirmation or effectiveness of the
Chapter 11 Plan. However, as discussed earlier, it is likely that the
disposition of the River Bend assets will give rise to debt discharge income.
SEE SECTION III.D.2.C. GAIN OR LOSS ON SALE OF ASSETS.
<PAGE> 38
3. TAX CONSEQUENCES TO CREDITORS.
Generally, a creditor who receives cash or property in
satisfaction of its Allowed Claim will recognize ordinary income to the extent
that the amount is allocable to interest that accrued while the claim was held
by it (to the extent not previously taken into income). In addition, such
creditor generally will recognize gain or loss on the exchange equal to the
difference between the creditor's tax basis in its Allowed Claim and the amount
of consideration allocable thereto. The character 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.
Cajun believes that the effectiveness of the Plan should have no
effect on a Member with a continuing interest in Cajun. However, even if the
receipt by a Member of a continuing interest in Reorganized Cajun in exchange
for its Member Claim is treated as an exchange under the IRC, it should be
tax-free under IRC Section 368(a)(1)(E) (a recapitalization). The Member under
such circumstances would not recognize gain or loss. Cajun understands that the
Members may be exempt from federal taxation under Section 501(c)(12) of the IRC
and that as a consequence the deferral of income or a deduction is irrelevant.
4. BACKUP WITHHOLDING.
Under backup withholding rules, a holder of an Allowed Claim may
be subject to backup withholding at the rate of 31 percent with respect to
payments made pursuant to the Plan unless such holder (a) is a corporation or
comes within certain other categories and when required, demonstrates this fact,
or (b) 14a provides a correct taxpayer identification number and certifies under
penalties of perjury that the taxpayer identification number is correct and that
the holder is not subject to backup withholding because of the failure to report
all dividends or interest income.
<PAGE> 39
5. TAX BENEFIT AGREEMENT.
Cajun entered into two agreements in accordance with Section
168(f)(8) of the Internal Revenue Code of 1954 (the "TBT Agreements"). The TBT
Agreements had the effect of transferring the tax benefits relating to the
ownership of certain of the non-River Bend assets to the other parties in the
TBT Agreements (the "TBT Parties"). Under certain circumstances, the sale of
assets subject to a TBT Agreement by Cajun may cause adverse tax consequences to
the TBT Parties. The TBT Agreements provide that, in such a case, Cajun will
indemnify the TBT Parties on an after-tax basis. The Plan provides that the
purchaser of the Acquired Assets will . . . after-tax costs of such indemnity
obligation.
6. OTHER IRS RULING REQUESTS.
In addition to the ruling request submitted to the IRS described
above under "Alternative Minimum Tax", Cajun, on September 14, 1995, applied to
the IRS for the following rulings:
(i) For calendar year 1994 and thereafter until it is certain
whether Cajun will not be required to make payments of postpetition
interest to its creditors, Cajun may continue to accrue as a deduction
for federal income tax purposes postpetition interest expense on its
outstanding indebtedness
(ii) Upon confirmation by order of the Court that the excess
segregated funds under the cash collateral order are property of Cajun's
bankruptcy estate and that RUS has a first priority security interest in
those funds, the excess funds account will be treated, effective as of
February 13, 1995 (the date of the first cash collateral order), as a
liquidating trust under Treas. Reg. 301.77014(d) in accordance with the
<PAGE> 40
principles of Rev. Proc. 94-45, with the grantor of that liquidating
trust or fund being RUS. Therefore, all income attributable to the
excess funds will be treated as owned by RUS and will not be subject to
federal income tax (subject to any Members' claims to ownership of such
funds).
(iii) Cajun's property will not be treated as public utility
property under the IRC. As of the date of the Disclosure Statement, no
formal response has been received by the IRS on these requested rulings.
IV. COMPARISON TO THE OTHER PLANS
A. OVERVIEW OF SIGNIFICANT COMPARABILITY ISSUES
1. ENFORCEABILITY AND ASSIGNABILITY OF SUPPLY CONTRACTS.
There are serious legal issues regarding the enforceability and
assignability of the Supply Contracts. SEE Adv. Proc. 96-1052. The Plan moots
all of said issues, and avoids costly litigation, because the Plan is supported
by the Members and requires the execution of new contracts that will supersede
the Supply Contracts. Only the Plan has the support of the Members, and only the
Plan preserves Cajun's market for the benefit of Creditors. The legal position
of the Members Committee regarding the Supply Contracts is summarized below.
It is the position of the Members Committee, now substantiated
by the WABASH VALLEY decision, that the Supply Contracts include the following
material provisions: (1) the seller of power (i.e. Cajun) is not permitted to
earn a profit, and rates may only produce revenues that are sufficient, but no
more than sufficient, to pay allowed expenditures and provide reasonable
reserves; (2) the Members must retain control of the Cajun Board; (3) all rates
must be pre-approved by the Cajun Board (which represents the Members); and (4)
the Supply Contracts are subject to applicable state regulatory law. As
<PAGE> 41
discussed below, the Members Committee contends that the terms of the Supply
Contracts make them legally nonassumable and nonassignable without the Members'
and the LPSC's consent and, as a practical matter, of little or no value to a
third party absent the consent of the Members.
The assumability and assignability of contracts in bankruptcy is
governed by 11 U.S.C. ss. 365. Pursuant to 365(c)(1), an executory contract is
not assumable or assignable if "(A) applicable law excuses a party, other than
the debtor, to such contract ... from accepting performance from or rendering
performance to an entity other than the debtor or the debtor in possession,
whether or not such contract or lease prohibits or restricts assignment of
rights or delegation of duties; and (B) such party does not consent to such
assumption or assignment."
In addition, even if a contract is otherwise assignable under
bankruptcy law, the assignment is an "all or nothing" proposition, and no
assignment will be permitted unless all of the terms and burdens of the contract
are accepted by the assignee. SEE IN RE CHICAGO. R.I. & P. RY. CO., 860 F.2d
267, 272 (7th Cir. 1988); WABASH VALLEY, 72 F.3d at 1310.
The Members Committee vigorously contends that the Supply
Contracts are not assumable or assignable for several reasons. First, any
conceivable assignment would obliterate the essential terms of the Supply
Contracts. The Supply Contracts would be nullified by any assignment that alters
the essential cooperative structure of Cajun and the Members, allows the buyer
to make a profit, strips the Members of their right to control the seller's
board (which effectively allows the Members to control rates), and/or violates
applicable state regulatory law. SEE WABASH VALLEY, 72 F.3d at 1311.
<PAGE> 42
Second, the Members Committee contends that, pursuant to the
LPSC's General Order (mentioned above), the Supply Contracts are not assignable
without the consent of the LPSC. SEE IN RE BRANIFF AIRWAYS, INC., 700 F.2d 935
(5th Cir. 1983). Third, the Members Committee contends that the Electric
Cooperative Law bars an involuntary assignment of the Supply Contracts, and that
the contracts are also not assignable because they were entered into in reliance
on special qualifications that only Cajun possessed. SEE GENERALLY, Louisiana
Civil Code Articles 1984, 2642 and 1776. Further, it is the Members' position
that any attempt to circumvent the asserted state law limitations on
assignability through an artificial restructuring of Cajun would be form over
substance and should be rejected by the Court as a de facto assignment.
In addition, the Members Committee contends that the Supply
Contracts are an absolute nullity under Louisiana law because the LPSC never
approved said contracts as required by the LPSC's General Order (1968, amended
1994). The General Order expresses a public policy, which is not waivable,
requiring the LPSC's preapproval of (or non-opposition to) such contracts.
Southwest Louisiana Electric Membership Corporation ("SLEMCO") contends that its
1976 Supply Contract is a nullity because the contract was not approved by the
LPSC, even though the LPSC had jurisdiction over SLEMCO in 1976. The other
Members executed new, superseding Supply Contracts in 1976 that they contend are
a nullity under state law because they were not approved by the LPSC.
2. IMPACT OF RATES ON COMPETITIVENESS AND VIABILITY OF COOPERATIVES.
The importance of competition in today's electric industry
cannot be overstated. The Seventh Circuit in WABASH VALLEY took "judicial notice
that a trend toward competition is running strong in the electric utility
industry -- which at some point may make it even more difficult to maintain
<PAGE> 43
substantial rate differentials between utilities in adjoining territories." 72
F.3d at 1311 n.2. In addition to conducting an exhaustive internal review of the
relevant market data, SWEPCO has obtained an opinion from ICF Kaiser, a
preeminent rate and power supply consulting firm, to determine the rate levels a
wholesale supplier to the Members must offer to be competitive. These studies
have confirmed that wholesale rates must be established at a level significantly
lower than Cajun's previously established average effective wholesale rate of
48.8 mills. In response to the internal review and independent study, the
Members and SWEPCO have negotiated an approximate effective rate of 37.4 mills
that will allow the cooperatives to be competitive and viable suppliers of
electrical energy, although even at that rate many of the cooperatives will have
rates significantly higher than those investor-owned companies and municipals
with which they compete.
Competition is a significant issue which must be considered when
evaluating the feasibility of any plan and its ability to deliver value to the
estate. Competition is currently present in the form of the 300 foot rule,
cogeneration, wholesale access and competition for new industrial loads. Retail
competition is being tested in certain parts of the country and is being
considered in Louisiana. The LPSC has opened two dockets, one directly
addressing retail wheeling and the second, a petition by an industrial concern
to require an investor-owned utility ("IOU") to wheel self-generated energy. All
utilities, including IOUs and cooperatives, must provide a competitively priced
kilowatt hour in order to remain viable, and to compete in the near future.
The new power contracts with SWECO will provide the Members with
competitive wholesale rates, so as to improve their competitive position and
long-term viability, while also assuring a maximum sustainable recovery to the
creditors. The contracts by and between SWECO and the Members will provide a
stable and long-term solution to the continuing problem in the State of
<PAGE> 44
Louisiana resulting from the substantial rate differential between IOUs and
municipals on the one hand, and cooperatives on the other hand. Further,
competition is increasing in the industry and competitive rates will allow the
cooperatives to survive in a competitive environment.
B. COMPARISON OF PLANS
This bankruptcy proceeding is unusual in that four separate bidders for
the nonnuclear assets of Cajun have each filed a Plan of Reorganization. Aside
from SWEPCO, the other bidders who have filed Plans are NRG/Zeigler (through the
Trustee), Enron Capital & Trade Resources Corp., and Southern Electric
International, Inc. The SWEPCO Plan was the first plan of reorganization filed
in the case. The SWEPCO Plan is the only plan that enjoys the support of the
unofficial Members Committee, which is made up of ten of the twelve member
cooperatives that comprise Cajun itself. The SWEPCO Plan also has the support of
Entergy/Gulf States, which was the second largest creditor of Cajun. The
NRG/Zeigler bid has the support of the Trustee, who has no economic interest in
these proceedings (aside from Court-approved fees and expenses) and is
essentially a stakeholder whose duties arise from the Bankruptcy Code. No
creditor group or group of member cooperatives have expressed support for the
NRG/Zeigler Plan. The Enron Plan is supported by the Official Creditors
Committee. However, the aggregate unsecured trade creditors represented by the
committee according to Cajun's schedules do not exceed $7 million. Moreover, no
member cooperative or group of member cooperatives has expressed support for the
Enron Plan. The Southern Plan has not drawn express support from the Trustee,
the Creditors Committee, the Members Committee or any significant creditor or
member cooperative.
<PAGE> 45
The following table reflects a comparison of key elements of the four
bids:
<TABLE>
<CAPTION>
COMPARISON OF BIDS IN CAJUN BANKRUPTCY
<S> <C> <C> <C> <C>
- -------------- ----------------------- --------------------------------- ------------------------------------ ---------------------
SWEPCO/Members/Entergy NRG/Zeigler Enron Southern
- -------------- ----------------------- --------------------------------- ------------------------------------ ---------------------
Financial Cash $780 million Cash $1.09 B Cash $525 M and $513 M Cash Flow Cash $1.04 B
Adjusted for variance in US Cash flow is from future debt Adjusted for variance
Treasury securities service and equity interest (subject in US Treasuries
to unspecified adjustments) securities
- -------------- ----------------------- --------------------------------- ------------------------------------ ---------------------
Support Members and GSU Trustee Official Unsecured Creditors No support
Committee (Claim total of $7 M)
- -------------- ----------------------- --------------------------------- ------------------------------------ ---------------------
Rate Initially 37.4 mills Initially at 40 mills with steep Flat rate (40 mills) Initially 38.9 mills
escalation with steep escalation
- -------------- ----------------------- --------------------------------- ------------------------------------ ---------------------
Contingencies Minimal standard Many contingencies (financing, Release dates, reimbursement of Assignment of
contingencies break-up fees, release dates, administrative fees, assignment of contracts at current
assignment of contracts) contracts rates, unless Members
agree to rates
- -------------- ----------------------- --------------------------------- ------------------------------------ ---------------------
Litigation Resolves all Assumes continued Member Assumes continued Member litigation Assumes continued
litigation, current litigation, alludes to second and incorporates Trustee's Member litigation
and proposed Cajun bankruptcy and establishes litigation trust fund
litigation trust fund
- -------------- ----------------------- --------------------------------- ------------------------------------ ---------------------
Structure Cajun is terminated; Paper G&T used to assign Paper G&T used to assign existing Cajun is terminated.
Members agree to new existing Member contracts Member contracts Seeking new contracts
contracts on mutually with Members or
agreeable terms capture existing
Member contracts
- -------------- ----------------------- --------------------------------- ------------------------------------ ---------------------
Term 20-25 year wholesale Assumption of three 25-year and Assumption of contracts for 15 25-year contracts if
contracts nine 30-year contracts years Members agree, else
assume existing
contracts
- -------------- ----------------------- --------------------------------- ------------------------------------ ---------------------
Member Members agreeable to Members filed for Declaratory Members filed for Declaratory Members filed for
Contracts new contracts on Judgment, contending contracts Judgment, contending contracts are Declaratory Judgment,
mutually agreeable are null and void -- nonassumable null and void -- nonassumable and contending contracts
terms and conditions and unassignable and setting unassignable and setting adverse are null and void --
adverse precedent for the RUS precedent for the RUS throughout nonassumable and
throughout the US the US unassignable and
setting adverse
precedent for the RUS
throughout the US
- -------------- ----------------------- --------------------------------- ------------------------------------ ---------------------
Load Growth Members have an option No access to market Limited access to market. No access to market
to access the market
for future load growth
- -------------- ----------------------- --------------------------------- ------------------------------------ ---------------------
Programs Economic development Economic development tariff Economic development tariff Economic development
tariff proposed proposed. proposed tariff proposed.
- -------------- ----------------------- --------------------------------- ------------------------------------ ---------------------
</TABLE>
<PAGE> 46
The SWEPCO Plan provides an overall cost to the member cooperatives, and
ultimately to the Louisiana consumer that is significantly lower than the rates
to be charged by the other bidders. This will produce more competitive and
financially viable member cooperatives, lower rates to the Louisiana consumer,
and fair value to the Cajun bankruptcy estate and creditors. Under all plans
filed, the assets will be sold by Cajun and conveyed to the bidder whose plan is
confirmed. Under all plans filed it appears that the $7 million in unsecured
creditors will be paid in full. Under all plans filed it appears that the RUS
will have to discharge or remain unpaid on approximately $3 billion in debt.
However, under the SWEPCO Plan the sale and resulting payment to creditors will
occur with a lower and fair rate path agreed upon by the member cooperatives,
and subsequently passed on to the Louisiana consumer.
The key element that distinguishes the SWEPCO Plan is the support of the
member cooperatives. Under the terms of the three other plans, the plan
proponents are seeking to impose or "cramdown" their plans on the members
without their consent. This cramdown comes in the form of the continued
existence of Cajun as a "paper G&T" without any employees or tangible assets.
Cajun is kept alive under these plans solely to prop up and "assume" the
benefits (but not the burdens) of the all requirements contracts by which these
plan proponents seek to service the members. Without the power market
represented by the members, it is undisputed that the assets of Cajun have
materially less value than is being offered by any of the plan proponents. In an
effort to capture the members as customers, the other plan proponents have
resorted to a scheme whereby Cajun is kept alive to ostensibly "assume" the
contracts. Under these proposals, the acquiror would enter into a uncompetitive
power agreement with Cajun, and Cajun would assume the all requirements
contracts and "pass on" these higher rates to the member cooperatives.
<PAGE> 47
However these plans keep Cajun alive solely on paper, and even then
Cajun is left as a "puppet regime" to do the bidding of the acquiror. While only
the NRG/Zeigler Plan documents spell out the paper G&T scheme, it appears that
the Southern and Enron Plans may also rely on the paper G&T scheme to capture
the members as customers. The NRG/Zeigler Plan calls for the Articles of
Incorporation and Bylaws of Cajun to be amended such that NRG/Zeigler will
control the makeup of the Board of Directors of Cajun. Moreover, the plan calls
for unspecified conditions to be imposed on Cajun's future operations to ensure
that NRG/Zeigler receives the benefit of its bargain in this transaction. The
result of these unusual and overreaching provisions is that the reorganized
Cajun will be a paper shell, operating at the discretion of its corporate
acquiror. Cajun will not be a cooperative as required by Louisiana cooperative
law, federal cooperative law or federal tax law. The Members Committee on July
15, 1996, filed a Complaint for Declaratory Judgment styled THE CAJUN ELECTRIC
MEMBERS COMMITTEE, ET AL. V. RALPH R. MABEY, TRUSTEE FOR CAJUN ELECTRIC POWER
COOPERATIVE INC., Adv. No. 96-1052 whereby the Members Committee sets forth
seven counts or causes of action establishing that the proper G&T mechanism for
assumption and assignment cannot lawfully be accomplished. Moreover, the
Complaint asserts that the all requirements contracts have never been approved
by the LPSC as required by Louisiana law, and are therefore a "nullity." The
Complaint emphasized that under the all requirements contracts it is the Board
of Cajun that sets the rates that Cajun may charge its members, and that by its
Bylaws the Cajun Board must consist of representatives of the members. Therefore
no acquiror can force or impose on the Cajun Board what rates it may charge its
members. To be a lawful cooperative only the members may be Board members, and
the Cajun board alone may initiate any change in rates. A buyer may acquire
assets, but it may not impose a rate path that Cajun as a lawful cooperative
<PAGE> 48
must pass on to its members. The SWEPCO Plan alone avoids this dispute and
prolonged litigation with the Members. Under the SWEPCO Plan the members will
voluntarily enter into new power supply agreements with SWEPCO directly at a
fair and competitive rate path. There will be no prolonged litigation seeking to
impose all requirement contracts on unwilling member customers.
SWEPCO and the Members Committee believe that any plan which is not
supported by the Members must obtain:
(i) A final nonappealable order finding that Members' wholesale
power supply contracts are not null under Louisiana law.
(ii) A final nonappealable order determining that the payer G&T
scheme is not an improper assumption or assignment of the contracts.
(iii) A final nonappealable order determining that the paper G&T
scheme is not an improper modification of the contracts.
(iv) A final nonappealable order determining that approval of the
Louisiana Public Service Commission and the Members is not required to
meet the "applicable law" requirement of 11 U.S.C. ss.ss. 365(c) and
1123(b)(2).
(v) A determination by the court that the post-confirmation
voting scheme meets the requirements of 11 U.S.C.ss. 1123(a)(7).
(vi) A commitment for a purchaser for the assets that is willing
and able to close the purchase of the assets for an amount substantially
in excess of the market value of said assets in light of the announced
position of the Members that they will not allow a reorganized Cajun to
implement any plan which they do not support.
(vii) An approval by the Louisiana Public Service Commission
pursuant to 15 U.S.C. ss. 79Z-5a for the creation of an exempt wholesale
power generator for the purchase of the assets.
(viii) The approval by the Federal Energy Regulatory Commission
establishing a rate structure that is substantially above a market rate
over the objection of the members-customers.
<PAGE> 49
(ix) The approval by the Louisiana Public Service Commission of
the purchaser as the appropriate source of power supply to the
reorganized Cajun pursuant to the Pike County doctrine.
(x) A final non-appealable order of the Bankruptcy Court
determining that the provision of the Cajun By-Laws requiring Member
approval of a sale of the assets can be disregarded. Normally in a
bankruptcy case such approvals are preempted by the Bankruptcy Code, but
the Cajun By-Laws (Article VII, ss. 2 at 13) constitute a contract with
the Members, which contract must be assumed or rejected. If the contract
is rejected, the Members contend that they are thereby relieved any
further obligations to Cajun, including the obligation to purchase
power. Further, in the event of rejection, the Members would be entitled
to claim damages in an amount equal to the difference between the
ultimate sale price of the assets and the sale price that the Members
would approve. With regard to this and other claims of the Members, they
would assert their subordination rights as identified in a letter dated
May 9, 1995. If the contract is assumed, the Members will have the right
to approve any sale of assets.
(xi) A determination by the Court that a plan opposed by the
Members, rate payers and LPSC and which provides non-competitive rates
is the appropriate plan to approve under 11 U.S.C. 1129(c).
V. CONCLUSION
The Proponents submit that their Plan is the only plan that is feasible
and confirmable under applicable law and is the only plan which avoids years of
costly and risky litigation over the Supply Contracts. Moreover, the Plan
strikes a proper balance between creditor compensation and competitive rates
that are of paramount importance in obtaining regulatory approvals and
necessitated by Cajun s reorganization. The Proponents urge you to vote in favor
of the Plan that will not be delayed indefinitely by the outcome of risky,
expensive litigation.
<PAGE> 50
DATED: September 30, 1996.
CAJUN ELECTRIC MEMBERS COMMITTEE
By:
David H. Kleiman, One of its Counsel
David H. Kleiman (Indiana Bar No. 5244-49)
James P. Moloy (Indiana Bar No. 10301-49)
DANN PECAR NEWMAN & KLEIMAN, Professional Corporation
One American Square, Suite 2300
Indianapolis, Indiana 46282 (317) 632-3232
John M. Sharp (Bar No. 19149)
A Professional Law Corporation
14481 Old Hammond Highway, Suite 2
Baton Rouge, LA 70816
504-273-8510
SOUTHWESTERN ELECTRIC POWER COMPANY
By:
Henry J. Kaim, One of its Counsel
Bobby S. Gilliam (Bar No. 6227)
Wilkinson, Carmody & Gilliam
1700 Beck Building
Shreveport, LA 71166
318-221-4196
Myron M. Sheinfeld
Henry J. Kaim (Texas Bar No. 11075400)
Sheinfeld Maley & Kay
1001 Fannin, Suite 3700
Houston, TX 77002
713-658-8881
<PAGE> 51
GULF STATES UTILITIES COMPANY
By:
Tom F. Phillips, One of its Counsel
Tom F. Phillips (Bar No. 7532)
Taylor, Porter, Brooks & Phillips, L.L.P.
P. O. Box 2471
Baton Rouge, LA 70821
504-387-3221
<PAGE> 52
CERTIFICATE OF SERVICE
The undersigned hereby certifies that a copy of the foregoing has been
served on this 27th day of September, 1996, to all parties on the attached
distribution list.
Patricia B. Tomasco
