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Washington Group International Inc · 8-K · For 7/24/01 · EX-99.2

Filed On 8/2/01, 4:34pm ET   ·   Accession Number 912057-1-526327   ·   SEC File 1-12054

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  As Of                Filer                Filing    For/On/As Docs:Size              Issuer               Agent

 8/02/01  Washington Group Int'l Inc        8-K:5       7/24/01    3:1.9M                                   Merrill Corp/FA

Current Report   —   Form 8-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 8-K         Current Report                                         5     16K 
 2: EX-99.1     Miscellaneous Exhibit                                 39    238K 
 3: EX-99.2     Miscellaneous Exhibit                                955±  5.67M 


EX-99.2   —   Miscellaneous Exhibit
Exhibit Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
19Table of Appendices
20I. Introduction
"Ii. Plan Voting Instructions and Procedures
"A. Definitions
"B. Notice to Holders of Claims and Interests
21C. Solicitation Package
"D. Voting Procedures, Ballots and Voting Deadline
22E. Confirmation Hearing and Deadline for Objections to Confirmation
"Iii. History and Structure of the Debtors
"A. Overview of Business Operations
"1. Description of the Company's Businesses
"2. Brief History
233. Prepetition Financial Results
27B. Capital Structure of the Company
"1. Equity
"2. the Prepetition Senior Secured Credit Facility
283. Unsecured Debentures
"C. Corporate Structure of the Company
"1. Current Corporate Structure
303. Senior Officers
31Iv. Events Leading to Commencement of the Chapter 11 Cases
"A. the Raytheon Transaction
32B. Liquidity Issues
"C. Negotiations With Prepetition Secured Lenders
"V. Chapter 11 Cases
"A. Continuation of Business; Stay of Litigation
33B. First Day Orders
34C. Debtor in Possession Financing
"1. the Dip Facility
"2. Authorization to Use Cash Collateral
353. Exit Financing
"D. Appointment of Creditors' Committee
38F. Appointment of An Examiner
"G. Negotiations and Agreement With Mr. Washington
40H. Summary of Claims Process and Bar Date
"1. Schedules and Statements of Financial Affairs
"2. Claims Bar Date and Proofs of Claim
41I. Summary of Material Litigation Matters
"1. Claims Against Raytheon
422. Mitsubishi Litigation
"J. Foreign Actions
43K. Motion of the Creditors' Committee to Terminate the Debtors' Exclusive Period to File and Solicit Acceptances of the Plan
"L. Development and Summary of the Business Plan
"1. Summary of the Business Plan
52Vi. Summary of the Plan of Reorganization
53A. Overall Structure of the Plan
"B. Substantive Consolidation for Purposes of Treating Impaired Claims
54C. Classification and Treatment of Claims and Interests
551. Treatment of Unclassified Claims Under the Plan
"A. DIP FACILITY CLAIMS
"B. ADMINISTRATIVE CLAIMS
56C. PRIORITY TAX CLAIMS
"2. Treatment of Classified Claims and Interests Under the Plan
"A. UNIMPAIRED CLASSES OF CLAIMS
57B. IMPAIRED CLAIMS AND INTERESTS
583. Reservation of Rights Regarding Claims
"4. Raytheon Asserted Claims
"D. Distributions Under the Plan
"1. Distributions for Claims Allowed as of the Effective Date
"A. DISTRIBUTION DATE
59B. RECORD DATE FOR DISTRIBUTIONS TO HOLDERS OF SECURED LENDER CLAIMS AND OLD NOTES
"C. CALCULATION OF DISTRIBUTION AMOUNTS OF NEW COMMON SHARES
"D. DELIVERY OF DISTRIBUTIONS
"E. OLD NOTES
60F. LOST, MUTILATED OR DESTROYED OLD NOTES
"G. FAILURE TO SURRENDER CANCELED OLD NOTES
"2. Resolution and Treatment of Disputed, Contingent, and Unliquidated Claims and Disputed Interests
"A. PROSECUTION OF OBJECTIONS
"B. NO DISTRIBUTIONS PENDING ALLOWANCE
"C. DISPUTED DISTRIBUTION RESERVE; RESERVE FOR SUBSEQUENT DISTRIBUTIONS TO QUALIFYING CLASS 7 CREDITORS
"D. DISTRIBUTIONS AFTER ALLOWANCE OF CLASS 7 CLAIMS
"E. Post-Consummation Operations of the Debtors
"1. Continued Corporate Existence
612. Cancellation of Old Securities and Agreements
"3. Certificates of Incorporation and Bylaws
"4. Restructuring Transactions
"F. Summary of Securities to Be Issued in Connection With the Plan
"1. New Common Shares
622. Registration Rights Agreement
"G. Exit Facility
"H. Summary of Releases Under the Plan
"1. Releases by Debtors
632. Releases by Holders of Lender Claims
"3. Injunction Related to Releases
"I. Compensation and Benefit Programs
64J. Directors and Officers of Reorganized Debtors
"1. Appointment
"2. Terms
"3. Vacancies
"4. Treatment of Director and Officer Indemnification Obligations Under the Plan
"K. Revesting of Assets
65L. Preservation of Rights of Action
"M. Other Matters
"1. Treatment of Executory Contracts and Unexpired Leases
"A. ASSUMED CONTRACTS AND LEASES
66B. PAYMENTS RELATED TO ASSUMPTION OF CONTRACTS AND LEASES
"C. REJECTED CONTRACTS AND LEASES
"D. REJECTION DAMAGES BAR DATE
"2. Special Provisions for Warranty and Indemnity Obligations Arising Out of Completed Projects
"3. Administrative Claims
674. Professional Fee Claims
"5. Withholding and Reporting Requirements
"6. Setoffs
"7. Continuation of Certain Orders
"N. Confirmation And/Or Consummation
"1. Requirements for Confirmation of the Plan
682. Conditions to Confirmation and Consummation
"A. CONDITIONS TO CONFIRMATION
"B. CONDITIONS TO EFFECTIVE DATE
69C. WAIVER OF CONDITIONS
"O. Effects of Confirmation
"1. Binding Effect
"2. Discharge of the Debtors
703. Permanent Injunction
"4. Exculpation and Limitation on Liability; Indemnity
"P. Retention of Jurisdiction
72Q. Payment of Statutory Fees
"A. Appointment of Trustee
"B. Transfer of Trust Assets to the Wgi Creditor Trust
"C. the Wgi Creditor Trust
73D. the Trust Advisory Board
"E. Funding of the Wgi Creditor Trust
"F. Reimbursement Obligation
74G. Distributions of Trust Assets
"Viii. Certain Factors to Be Considered
"A. General Considerations
"B. Certain Bankruptcy Considerations
"1. Failure to Confirm or Consummate the Plan
"2. Disruption of Operations Due to the Filing of the Chapter 11 Cases
75C. Inherent Uncertainty of Financial Projections
"D. Integration Issues
76E. Lack of Established Market for the New Securities
"F. Restricted Resale of the New Securities
"G. Environmental Matters
"H. Unimpaired and Unknown Claims
77I. Industry Cyclicality
"J. Business and Competition
"K. Government Contracts
78L. Fixed Price Contracts and Other Project Risks
"M. International Operations
"N. Bonding
79O. Reliance on Key Personnel
"P. Certain Litigation
"Ix. Applicability of Federal and Other Securities Laws
"A. Offer and Sale of New Securities, Pursuant to the Plan: Bankruptcy Code Exemption From Registration Requirements
80B. Subsequent Transfers of New Securities
"1. Federal Securities Laws: Section 1145(C) of the Bankruptcy Code
"2. Subsequent Transfers of New Common Shares Under State Securities Laws
"X. Income Tax Consequences of the Plan
81A. Federal Income Tax Consequences to the Debtors
"1. Cancellation of Indebtedness Income
"2. Net Operating Losses and Other Attributes
823. Federal Alternative Minimum Tax
"B. Federal Income Tax Consequences to Claim Holders
831. United States Federal Income Tax Consequences
"A. GENERAL
"B. MARKET DISCOUNT
"C. REORGANIZATION TREATMENT
842. Non-United States Persons
"3. Information Reporting and Backup Withholding
"C. United States Federal Income Tax Consequences of the Wgi Creditor Trust
85D. Importance of Obtaining Professional Tax Assistance
"Xi. Feasibility of the Plan and Best Interests of Creditors
"A. Feasibility of the Plan
86B. Acceptance of the Plan
"C. Best Interests Test
87D. Liquidation Analysis
"E. Valuation of the Reorganized Debtors
881. Reorganized Company
"2. Summary of Financial Analysis
89F. Application of the "Best Interests" of Creditors Test to the Liquidation Analysis and the Valuation
90G. Confirmation Without Acceptance of All Impaired Classes: the "Cramdown" Alternative
"Xii. Alternatives to Confirmation and Consummation of the Plan
91A. Alternative Plan(S) of Reorganization
"B. Liquidation Under Chapter 7 or Chapter 11
"Xiii. the Solicitation; Voting Procedure
"A. Parties in Interest Entitled to Vote
92B. Classes Impaired Under the Plan
"C. Waivers of Defects, Irregularities, Etc
"D. Withdrawal of Ballots; Revocation
"E. Further Information; Additional Copies
93F. Internet Access to Bankruptcy Court Documents
94Xiv. Recommendation and Conclusion
96Liquidation Analysis
116Financing activities
121Retained Claims
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Exhibit 99.2 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF NEVADA ------------------------------------- ) Case No. BK-N-01-31627 In re ) (Chapter 11) ) WASHINGTON GROUP ) DISCLOSURE STATEMENT WITH INTERNATIONAL, INC., ET AL., ) RESPECT TO SECOND AMENDED JOINT ) PLAN OF REORGANIZATION OF ) WASHINGTON GROUP INTERNATIONAL, ) INC., ET AL. ) ) Debtors. ) -------------------------------------) David S. Kurtz Jennifer A. Smith (State Bar No. 610) Timothy R. Pohl Etta L. Walker (State Bar No. 5537) SKADDEN, ARPS, SLATE, MEAGHER LIONEL SAWYER & COLLINS & FLOM (ILLINOIS) 1100 Bank of America Plaza 333 West Wacker Drive 50 W. Liberty St. Chicago, Illinois 60606 Reno, Nevada 89501 (312) 407-0700 (775) 788-8666 Gregg M. Galardi Eric M. Davis SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP One Rodney Square Wilmington, Delaware 19899 (302) 651-3000 Attorneys for the Debtors and Debtors-in-Possession Dated: July 24, 2001
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DISCLAIMER THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT IS INCLUDED HEREIN FOR PURPOSES OF SOLICITING ACCEPTANCES OF THE SECOND AMENDED JOINT PLAN OF REORGANIZATION (THE "PLAN") OF WASHINGTON GROUP INTERNATIONAL, INC. AND ITS AFFILIATED DEBTORS AND DEBTORS IN POSSESSION AND MAY NOT BE RELIED UPON FOR ANY PURPOSE OTHER THAN TO DETERMINE HOW TO VOTE ON THE PLAN. NO PERSON MAY GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS, OTHER THAN THE INFORMATION AND REPRESENTATIONS CONTAINED IN THIS DISCLOSURE STATEMENT, REGARDING THE PLAN OR THE SOLICITATION OF ACCEPTANCES OF THE PLAN. ALL CREDITORS ARE ADVISED AND ENCOURAGED TO READ THIS DISCLOSURE STATEMENT AND THE PLAN IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR REJECT THE PLAN. PLAN SUMMARIES AND STATEMENTS MADE IN THIS DISCLOSURE STATEMENT ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE PLAN AND THE EXHIBITS AND SCHEDULES ANNEXED TO THE PLAN AND THIS DISCLOSURE STATEMENT. THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE ONLY AS OF THE DATE HEREOF, AND THERE CAN BE NO ASSURANCE THAT THE STATEMENTS CONTAINED HEREIN WILL BE CORRECT AT ANY TIME AFTER THE DATE HEREOF. THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH SECTION 1125 OF THE UNITED STATES BANKRUPTCY CODE AND RULE 3016 OF THE FEDERAL RULES OF BANKRUPTCY PROCEDURE AND NOT NECESSARILY IN ACCORDANCE WITH FEDERAL OR STATE SECURITIES LAWS OR OTHER NON-BANKRUPTCY LAW. THIS DISCLOSURE STATEMENT HAS BEEN NEITHER APPROVED NOR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC"), NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN. PERSONS OR ENTITIES TRADING IN OR OTHERWISE PURCHASING, SELLING OR TRANSFERRING SECURITIES OR CLAIMS OF WASHINGTON GROUP INTERNATIONAL, INC. OR ANY OF THE AFFILIATED DEBTORS AND DEBTORS-IN-POSSESSION IN THESE CASES SHOULD EVALUATE THIS DISCLOSURE STATEMENT AND THE PLAN IN LIGHT OF THE PURPOSE FOR WHICH THEY WERE PREPARED. AS TO CONTESTED MATTERS, ADVERSARY PROCEEDINGS AND OTHER ACTIONS OR THREATENED ACTIONS, THIS DISCLOSURE STATEMENT SHALL NOT CONSTITUTE OR BE CONSTRUED AS AN ADMISSION OF ANY FACT OR LIABILITY, STIPULATION OR WAIVER, BUT RATHER AS A STATEMENT MADE IN SETTLEMENT NEGOTIATIONS. THIS DISCLOSURE STATEMENT SHALL NOT BE ADMISSIBLE IN ANY NON-BANKRUPTCY PROCEEDING NOR SHALL IT BE CONSTRUED TO BE CONCLUSIVE ADVICE ON THE TAX, SECURITIES OR OTHER LEGAL EFFECTS OF THE PLAN AS TO HOLDERS OF CLAIMS AGAINST, OR EQUITY INTERESTS IN, WASHINGTON GROUP INTERNATIONAL, INC. OR ANY OF THE AFFILIATED DEBTORS AND DEBTORS-IN-POSSESSION IN THESE CASES. -ii-
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OVERVIEW OF THE PLAN AND CHAPTER 11 CASES THE FOLLOWING INTRODUCTION AND SUMMARY IS A GENERAL OVERVIEW ONLY, WHICH IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED DISCUSSIONS, INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS DISCLOSURE STATEMENT AND THE SECOND AMENDED JOINT PLAN OF REORGANIZATION OF WASHINGTON GROUP INTERNATIONAL, INC. AND ITS AFFILIATED DEBTORS AND DEBTORS IN POSSESSION (THE "PLAN"). All capitalized terms not defined in this Disclosure Statement have the meanings ascribed to such terms in the Plan. A copy of the Plan is annexed hereto as APPENDIX A. This Disclosure Statement contains, among other things, descriptions and summaries of provisions of the Plan being proposed by the Debtors dated as of July 24, 2001. Negotiations with respect to certain issues are ongoing, and the Debtors reserve the right to modify the Plan consistent with section 1127 of the Bankruptcy Code and Bankruptcy Rule 3019. A. BUSINESS OVERVIEW Washington Group International, Inc. ("WGI") and its direct and indirect subsidiaries, together with the various partnerships and joint ventures in which WGI or its subsidiaries participate (collectively, the "Subsidiaries" and, together with WGI, the "Company"), is an international provider of a broad range of design, engineering, construction, construction management, facilities and operations management, environmental remediation and mining services to diverse public and private sector clients. In fiscal 2000, the Company had revenue of approximately $3.2 billion. As discussed in more detail below, as a result of the acquisition of certain businesses from Raytheon Company in July 2000, the Company experienced a liquidity crisis beginning in early 2001, which ultimately led to the commencement, on May 14, 2001, of reorganization cases (the "Chapter 11 Cases") under Chapter 11 of the United States Bankruptcy Code for WGI and certain of WGI's direct and indirect Subsidiaries (collectively, the "Debtors"). COMPANIES OR ENTITIES (SUCH AS JOINT VENTURES AND WESTINGHOUSE GOVERNMENT SERVICES COMPANY LLC AND ITS SUBSIDIARIES) THAT ARE NOT WHOLLY-OWNED BY WGI, AND FOREIGN ENTITIES, (COLLECTIVELY, THE "NON-DEBTOR SUBSIDIARIES"), HAVE NOT COMMENCED CASES UNDER CHAPTER 11 OF THE BANKRUPTCY CODE AND CONTINUE TO OPERATE THEIR BUSINESSES IN THE ORDINARY COURSE UNAFFECTED BY THE DEBTORS' CHAPTER 11 CASES. THE NON-DEBTOR SUBSIDIARIES ARE LISTED ON SCHEDULE 1.67 TO THE PLAN. During the quarter ended September 1, 2000, the Company reorganized its businesses to operate through five operating units: Power, Infrastructure & Mining, Industrial/Process, Government, and Petroleum & Chemicals. These units serve different markets and customers, and differ in their expertise, technology and resources necessary to perform their services. POWER provides engineering, construction and operations and maintenance services in both nuclear and fossil power markets for turnkey new power plant construction, plant expansion, retrofit and modification, decontamination and decommissioning, general planning, siting and licensing and environmental permitting. INFRASTRUCTURE & MINING provides diverse engineering and construction and construction management services on highways and bridges, airports and seaports, tunnels and tube tunnels, railroad and transit lines, water storage and transport, water treatment, site development, mine operations and hydroelectric facilities. The group generally performs as a general contractor or as a joint venture partner with other contractors on domestic and international projects. INDUSTRIAL/PROCESS provides engineering, design, procurement, construction services and total facilities management for general manufacturing, pharmaceutical and biotechnology, process, metal processing, institutional buildings, food, automotive and consumer products for the aerospace, telecommunications and pulp and paper industries. GOVERNMENT provides a complete range of technical services to the U.S. Departments of Energy and Defense, including operations and management services, environmental and chemical demilitarization services, waste handling and storage and weapons stockpile support. Services provided for commercial clients include design and manufacture of components of nuclear power facilities, safety management services, waste and environmental technology, design and manufacture of radioactive waste containers and licensing. PETROLEUM & CHEMICALS provides technology, engineering, procurement and construction services to the petroleum and chemical industries worldwide. Major markets include commodity-organic chemicals, polymers, Fischer-Tropsch chemistry, fertilizers, oleochemicals, petroleum processing and lube oil processing. The Company's core businesses have been financially sound and profitable, and the need for a financial restructuring in Chapter 11 is the direct result of the significant unknown liabilities embedded in certain construction projects acquired in the Raytheon -iii-
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transaction. Generally, the Company's customers include, to a large degree, Fortune 500 companies and government entities. Projects on which the Company works often take years to complete, and may require financial commitments of up to hundreds of millions of dollars from the project owners. As discussed in more detail below, many of these project owners are understandably reluctant to award new work to a company in Chapter 11, and the ability to procure new work on an ongoing basis is the lifeblood of an engineering and construction company. Accordingly, the Company believes that in order to maintain and create new value in its businesses, the Debtors' Chapter 11 Cases must proceed on a fast-track basis, with the restructuring under the Plan completed as quickly as practicable. B. THE RAYTHEON TRANSACTION On July 7, 2000, WGI acquired the businesses of Raytheon Engineers & Constructors International, Inc. ("RECI") from Raytheon Company ("Raytheon"). The acquisition was pursuant to a Stock Purchase Agreement, dated as of April 14, 2000 (the "Stock Purchase Agreement"), among WGI, Raytheon and RECI. Under the Stock Purchase Agreement, WGI purchased the capital stock of the subsidiaries of RECI and certain other assets of RECI and assumed certain liabilities of RECI (the "RE&C Businesses"). Prior to such purchase, RECI provided engineering, design, procurement, construction, operation, maintenance and other services on a worldwide basis. Because of the size and complexity of the businesses being sold to WGI, the Stock Purchase Agreement did not contain a fixed purchase price for the transaction, but rather provided that the purchase price would be calculated using an audited balance sheet and a cut-off balance sheet for the RE&C Businesses, both as of April 30, 2000, along with other related documents, and that the price paid at closing of the transaction would be subject to a purchase price adjustment. The acquisition of the RE&C Businesses closed on July 7, 2000 (the "RE&C Businesses Acquisition"). WGI paid a cash purchase price of $53 million at closing and assumed certain liabilities, which, in the preliminary unaudited April 30, 2000 balance sheet provided by Raytheon, were estimated to be approximately $450 million. After closing, WGI obtained access to the complete books and records of the RE&C Businesses acquired from Raytheon and to key project management. WGI took over the management and administration of the RE&C Businesses and began to uncover the true state of the RE&C Businesses. Additionally, post-closing, WGI expected Raytheon to comply with its obligations to diligently pursue the purchase price adjustment process. Pursuant to various agreements reached between WGI and Raytheon, the date by which Raytheon and RECI were to deliver to WGI the audited April 30, 2000 balance sheet and related certifications for the purchase price adjustment process was extended to January 14, 2001. Such documents were not delivered to WGI at that time and had not been delivered by May 14, 2001. As a result of the litigation pursued by WGI in the District Court for Ada County, Idaho (the "Idaho Court") against Raytheon, as discussed below and in SECTION V.I.1, Raytheon was ordered to provide to WGI documents necessary to commence the purchase price adjustment process by June 5, 2001, and the Idaho Court appointed an independent accountant to resolve any disputes. On June 5, 2001, Raytheon provided, pursuant to court orders, an unaudited April 30, 2000 balance sheet and cut-off balance sheet, which are the starting documents for the purchase price adjustment process. WGI responded to those documents on June 29, 2001. Both WGI and Raytheon are required to present materials to the independent accountant supportive of their respective positions on or before July 30, 2001. Accordingly, WGI has not been able to finalize the purchase price for the transaction consummated by the Stock Purchase Agreement, but that process is being pursued. On October 23, 2000, WGI reported its results for the third quarter of 2000. In its Form 10Q filing, WGI reported that, as a result of its preliminary assessment of the RE&C Businesses, WGI increased the amount of the liabilities it assumed by over $700 million, and increased its goodwill arising out of the acquisition by over $700 million from the amount WGI had expected to book to approximately $1.2 billion. WGI's review is ongoing and it continues to uncover significant, previously undisclosed, adverse facts about the assets acquired, as well as Raytheon's inappropriate accounting for those assets. As a result of its continuing post-acquisition in-depth review of the RE&C Businesses acquired, the Debtors believe that Raytheon management consistently engaged in inappropriate accounting practices and intentional earnings manipulation by overstating revenue and assets, understating costs, avoiding recognition of losses and thereby severely overstating profits and assets and understating losses on numerous projects. Consequently, on March 8, 2001, WGI filed suit against Raytheon and RECI in the Idaho Court, alleging fraud and seeking rescission and, alternatively, unspecified damages and specific performance for breach of the Stock Purchase Agreement. Other than the preliminary injunction related to the Purchase Price Adjustment process, that dispute was stayed in favor of an arbitration commenced by Raytheon on March 27, 2001 seeking declaratory relief as to which a counterclaim was filed by WGI involving the same issues raised in the Idaho Court action. The arbitration is being held in abeyance, at this time, as a result of WGI's Chapter 11 filing. The Debtors also will assert claims against Raytheon pursuant to an action that will be commenced in the Bankruptcy Court on or before August 3, 2001 under, among others, sections 544, 547, 548 and 550 of the Bankruptcy Code. See SECTION V.I.1 for a summary of the Raytheon litigation. As discussed in Section VII.C, under the Plan, all such claims and causes of action will be assigned to the WGI Creditor Trust, which will be funded with $20 million to prosecute such claims. -iv-
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The results of WGI's acquisition of the RE&C Businesses were disastrous for the Company. As a direct result, the Company encountered a severe near-term liquidity crisis, defaulted on certain covenants in its credit facilities, and became unable to secure performance bonds necessary to obtain certain new jobs, thus impeding the Company's ability to obtain certain future work. Contrary to Raytheon's stated annual $140 million EBITDA that would be produced from the acquisition of the RE&C Businesses, these assets have failed to produce the represented results and Raytheon's failure to disclose losses embedded in certain contracts is directly responsible for the Company's deteriorated financial condition and the commencement of these Chapter 11 Cases. Raytheon disputes all claims asserted against it by the Company and asserts significant claims against the Debtors. SECTION C of this Overview immediately below, and APPENDIX D to this Disclosure Statement, were drafted by Raytheon and contain statements by Raytheon regarding its disputes with the Debtors. The Debtors dispute Raytheon's assertions in these statements in virtually all material respects. C. RAYTHEON STATEMENT REGARDING DISPUTES WITH THE DEBTORS Raytheon vigorously disputes WGI's claims of misrepresentation and fraud by Raytheon and believes that those charges are a subterfuge for WGI's mismanagement of a huge acquisition that it now regrets. Raytheon is WGI's largest creditor, and expects to present a proof of claim in the range of $900 million. Claims against Raytheon are not a net asset, as the Debtor would have creditors believe; at best they may serve to reduce the amount of Raytheon's claim. Accordingly, Raytheon believes that no class 7 creditor will receive any value under the plan. The plan proposed by WGI is a going concern collateral liquidation proposed by WGI solely for the benefit of the banks and WGI management. At the core of all of the disputes between Raytheon and the Debtors is a Stock Purchase Agreement dated as of April 14, 2000 ("SPA"). Pursuant to the SPA, Raytheon and an affiliate on July 7, 2000 conveyed to one of the Debtors the stock of a variety of subsidiaries constituting its E&C business, as well as certain related assets. In addition, the SPA contains a detailed set of substantial obligations that remained executory as of the Petition Date. Some of these run in favor of Raytheon; some in favor of the Debtors. The financially-significant items running in favor of Raytheon are (i) the Debtors' absolute obligation to indemnify Raytheon against all project risk on most of the sold business, including exposure under letters of credit, guaranties, and surety bonds that have since been called, and (ii) the Debtors' obligation to pay to Raytheon a 75% share of all moneys received on a class of Debtor claims, the ("Retained Claims") after the first $30 million. The financially-significant items running in favor of the Debtors are (iii) Raytheon's obligation to indemnify WGI against its actual out-of-pocket expenditure on a certain class of potential third-party claims against the Debtor ("Specified Seller Liabilities"), (iv) a specific, project-by-project list of indemnities undertaken by Raytheon (as to which Raytheon has fully performed), (v) Raytheon's obligation to repurchase a class of Debtor receivables (the "RR Assets"), and (vi) a set of specific representations made by Raytheon as to which, in the event the Debtors could prove the elements of misrepresentation, they may receive up to (but no more than) $87.5 million. ITEM (vii). In addition, the SPA contains a purchase price adjustment clause. Raytheon has presented an analysis showing that it is owed approximately $13 million. The Debtor has presented an analysis claiming an adjustment in its favor in the amount of $469 million. While at this point, it is unclear which party that clause will benefit, it appears that the disparity in the analysis derives chiefly from the Debtor's failure to apply the deal-specific rules on project accounting, set forth in Schedule 3.3(a) to the SPA. Raytheon believes that the netting of the claims will result in the members of Class 7 receiving no value under the Plan. Please see APPENDIX D for a brief summary of Raytheon's position with respect to the disputes between it and the Debtors. D. EXISTING CAPITAL STRUCTURE In order to finance the acquisition of the RE&C Businesses, to refinance existing indebtedness outstanding at that time, and to provide additional working capital, WGI, various subsidiary guarantors of WGI (the "Guarantors"), Credit Suisse First Boston ("CSFB") as administrative and collateral agent, and various lenders (the "Prepetition Secured Lenders"), entered into a secured credit facility (the "Prepetition Senior Secured Credit Facility") that provided for $1.2 billion in availability. As of the Petition Date, obligations to the Prepetition Secured Lenders under the Prepetition Senior Secured Credit Facility totaled approxi mately $702 million, inclusive of approximately $130 million in undrawn letters of credit outstanding. The obligations under the Prepetition Senior Secured Credit Facility are secured by liens on the assets of WGI and the Guarantors, subject to certain specific exceptions, which assets the Debtors and the Prepetition Secured Lenders believe constitute substantially all of the value of the Company's businesses. The Prepetition Secured Lenders assert that they have liens on certain of the claims against Raytheon to be transferred to the WGI Creditor Trust. Such liens, if any, will be released upon consummation of the Plan. See SECTION III.B.2 for a description of the Prepetition Senior Secured Credit Facility. -v-
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As of the Petition Date, WGI and the Guarantors were the issuer and guarantors, respectively, of WGI's senior notes due July 1, 2010, in the principal amount of $300 million (the "Old Notes"). The Old Notes were issued pursuant to an Indenture dated as of July 7, 2000 and are unsecured. United States Trust Company of New York is the Indenture Trustee under that Indenture, and is a member of the Creditors' Committee. See SECTION III.B.3 for a description of the Old Notes. As of the Petition Date, the Debtors collectively were indebted to vendors, subcontractors and other creditors as a result of ordinary course obligations in amounts exceeding $150 million. The Debtors also have disputed and/or contingent prepetition liabilities related to a variety of pending litigation claims. All of these obligations are unsecured. As discussed below and in SECTION V.B, the Debtors sought and obtained authority during the Chapter 11 Cases to pay certain of such claims in the ordinary course of business. WGI's existing common stock (the "Old Common Stock") was traded on the New York Stock Exchange. Approximately 39% of the Old Common Stock is owned or controlled by Mr. Dennis Washington. SEE SECTION III.B.1. On May 14, 2001, the New York Stock Exchange ("NYSE") suspended trading of the Old Common Stock and initiated delisting procedures. E. EXPLORATION OF STRATEGIC ALTERNATIVES AND PROCUREMENT OF DIP FINANCING Faced with a severe liquidity crisis resulting from the acquisition of the RE&C Businesses, in the months prior to the commencement of the Chapter 11 Cases, the Company began exploring alternatives to obtain additional liquidity and to preserve and maximize the value of their businesses for the benefit of creditors. In early 2001, the Company attempted to negotiate a settlement with Raytheon, which efforts were unsuccessful. In March, 2001, the Company took the unprecedented step suspending performance on two projects acquired as part of the acquisition of the RE&C Businesses, but with respect to which Raytheon retained liability under guaranty agreements with the project owners. Those projects, which had particularly large cash flow requirements to complete, are projects to build two power plants in Massachusetts for entities affiliated with Sithe Energies, Inc. (collectively, "Sithe"). See SECTION V.I.2 for a discussion of litigation commenced against the Debtors in the Bankruptcy Court by Mitsubishi Heavy Industries, Ltd. and Mitsubishi Heavy Industries America, Inc. (collectively "Mitsubishi"), a large vendor with respect to the Sithe projects. Despite taking this action in an effort to preserve cash resources, by April 2001, the Company had an acute need for additional cash liquidity to be able to continue to operate its businesses. Alternatives explored at that time included a sale of business units and the entire Company to potentially interested third parties, and obtaining additional debt financing from the Prepetition Secured Lenders as well as from other lending institutions. The Company was unable to obtain a proposal from any potential buyer that the Company and its Prepetition Secured Lenders believed reflected the fair value of the businesses, and was unable to obtain a commitment for additional financing from any source outside of a Chapter 11 filing. Certain parties in interest dispute the adequacy of the Debtors' prepetition efforts to solicit potential sale proposals. SEE SECTION XII.B. The only committed financing proposal received by the Debtors was a proposal for debtor-in-possession financing (the "DIP Facility") from a group of lenders (the "DIP Lenders"), many of whom are lenders under the Prepetition Senior Secured Credit Facility. The DIP Facility provides for up to $350 million of availability, of which $220 million is fully committed and the balance is to be made available upon request by the Debtors if sufficient commitments can be obtained from lenders. Obligations under the DIP Facility are secured by first priority liens on substantially all of the Debtors' assets, senior to the liens securing the obligations to the Prepetition Secured Lenders. Borrowing availability and use of funds under the DIP Facility is tied to an operating budget agreed to by the Debtors and the DIP Lenders. See SECTION V.C for a description of the DIP Facility. F. PREPETITION PLAN NEGOTIATIONS AND COMMENCEMENT OF THE CHAPTER 11 CASES As noted above, the Company concluded that the only way to maintain its going concern value for the benefit of creditors, if a Chapter 11 filing was to occur, was to seek to complete the Chapter 11 Cases and emerge from Chapter 11 as quickly as possible. Doing so is critical for numerous reasons, including that it is extremely difficult for the Company to be awarded new work while in Chapter 11. The difficulty in obtaining new work from project owners is exacerbated by the difficulty in obtaining surety bonds to assure project performance while in Chapter 11. Surety bonds are very often required by project owners. As a result, in conjunction with negotiations to obtain the DIP Facility, the Company also conducted negotiations regarding the terms of a restructuring plan with the Prepetition Secured Lenders. In fact, the Prepetition Secured Lenders and the DIP Lenders conditioned their willingness to provide the DIP Facility and the requisite consents thereto upon the Debtors filing a restructuring plan acceptable to them concurrent with the filing of the Chapter 11 Cases. The Company also believed that commencing the Chapter 11 Cases on a prearranged basis would expedite the process, benefitting all creditors. Accordingly, the Company negotiated the terms of a restructuring plan with such lenders prior to commencing these Chapter 11 Cases. That restructuring plan was -vi-
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filed on May 14, 2001. On May 14, 2001, to obtain the ability to borrow funds under the DIP Facility and to begin the process of restructuring the Company's balance sheet, the Chapter 11 Cases were commenced. The Debtors immediately sought approval by the Bankruptcy Court of a number of motions designed to provide a smooth transition into Chapter 11 for the Debtors and to provide certain substantive relief designed to preserve the value of the Debtors' businesses. SEE SECTION I.G. This relief included interim approval of the DIP Facility, final approval of which was obtained on June 13, 2001. In addition, at the outset of the Chapter 11 Cases, the Bankruptcy Court established certain dates designed to result in consummation of the Debtors' reorganization plan as quickly as practicable. July 24, 2001 was set as the date for the Bankruptcy Court to consider approving this Disclosure Statement, and September 6, 2001 was set as the date to consider confirmation of the reorganization plan. Subsequently, the Debtors, the Steering Committee for the Prepetition Secured Lenders and Mr. Dennis Washington reached an agreement regarding continued participation by Mr. Washington in the management of the Company and the consideration to be given to Mr. Washington in exchange for his agreement to remain with the Company, which agreement is described below and in SECTION V.G. As a result, on June 22, 2001, the Debtors filed the First Amended Joint Plan of Reorganization, which reflected modifications to the plan as filed on May 14, 2001, to encompass the agreement with Mr. Washington, but also contained a number of open items that at the time remained subject to ongoing negotiations. Additional modifications reflecting the results of those ongoing negotiations have been incorporated into the Plan. G. PAYMENT OF CRITICAL VENDOR CLAIMS Trade creditors are the lifeblood of the engineering and construction industry. Accordingly, the Debtors believe that it is critical to their ability to maintain operations and going concern value that certain "Critical Vendors" be paid in the ordinary course of business. These Critical Vendors include subcontractors and vendors that provide goods and services to the Debtors with respect to ongoing projects. To preserve the value of the Company's businesses, the Debtors must continue to pay the Critical Vendors in ordinary course of business, for a number of reasons. For example, if the Debtors are unable to pay subcontractors and vendors relating to an ongoing project in the ordinary course of business, project owners will likely cease paying to the Debtors the payments owing to them under their underlying construction contracts. These payments would likely be diverted to the subcontractors and vendors directly. Also, subcontractors would literally stop working on the Debtors' projects absent payment in full, causing defaults by the Debtors and allowing project owners to call on surety bonds that assure the Debtors' performance. Doing so would trigger equitable subrogation rights of those sureties, which include the right to receive future project payments from owners. These events would eliminate the Debtors' ongoing revenue stream, crippling operations and destroying enterprise value. As a result, at the commencement of the Chapter 11 Cases, the Debtors sought and received authorization from the Bankruptcy Court to continue to pay substantially all subcontractors and vendors on ongoing projects in the ordinary course of business. SEE SECTION V.B. A list of the Critical Vendors that have received payments to date or that are anticipated to receive such payments during these Chapter 11 Cases is attached hereto as APPENDIX E, which list is as current as practicable as of the date hereof. Total payments under the Critical Vendor order entered by the Bankruptcy Court are, as of the date hereof, approximately between $160 - $168 million. H. GENERAL STRUCTURE OF THE PLAN The Plan is premised upon the strategic business plan for the Company going forward prepared by WGI's management (the "Business Plan"). The Business Plan and accompanying pro forma financial projections through fiscal year 2004 (the "Projections") are described in detail in SECTION V.L. While the Company believes that the Business Plan and Projections are reasonable and appropriate, they include a number of assumptions that may differ from actual results and are subject to a number of risk factors. SEE SECTIONS V.L.3 AND VIII. The Business Plan and Projections for the Company incorporate the Company's forecasts of the anticipated business performance of the Non-Debtor Subsidiaries. The Plan provides for WGI's balance sheet to be restructured by converting the obligations to the Prepetition Secured Lenders to equity, and by discharging the unsecured Claims of holders of the Old Notes and other general unsecured creditors (the "General Unsecured Claims"). General Unsecured Claims include all prepetition unsecured Claims other than Employee Claims. Under the Plan, Employee Claims will be Reinstated. The Plan also provides for the continued payment in the ordinary course -vii-
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of business of Claims authorized to be paid during the Chapter 11 Cases pursuant to orders entered by the Bankruptcy Court, such as the Claims of Critical Vendors. Under the Plan, WGI will issue New Common Shares for distribution to the Prepetition Secured Lenders, and the Old Notes and Old Common Stock will be cancelled. The distribution under the Plan of 100% of the New Common Shares of Reorganized WGI to the Prepetition Secured Lenders is premised upon the valuation of the Company prepared by the Debtors' financial advisors. See discussion below and SECTION XI.E. That valuation establishes the enterprise value of the Company as $555 million, at the midpoint of a range (exclusive of the value of claims and causes of action against Raytheon and its subsidiaries). Because the amount of funded debt projected by the Debtors to be on the Reorganized Debtors' consolidated balance sheet upon emergence from Chapter 11 is $50 million, the value of the New Common Shares to be issued under the Plan, in the aggregate, has been established at approximately $505 million, subject to being reduced as a result of the issuance of the Washington Stock Options, which are described below. The Claims of the Prepetition Secured Lenders exceed $570 million of funded debt, and also include approximately $130 million of contingent liabilities for undrawn letters of credit outstanding. Because the Prepetition Secured Lenders assert (and the Debtors do not contest) that the Prepetition Secured Lenders have liens on assets that comprise substantially all of the value of the Company, and consistent with the valuation of the Company and the New Common Stock described above, under the Plan, (i) the Prepetition Secured Lenders' Claims are bifurcated into Secured Lender Claims and Lender Deficiency Claims, pursuant to section 506 of the Bankruptcy Code, (ii) the Secured Lender Claims are established in an amount equal to the value of the New Common Shares to be issued and the Prepetition Secured Lenders are to receive under the Plan, which is approximately $505 million, which may be adjusted downward by the Confirmation Hearing as a result of the issuance of the Washington Stock Options (discussed below) and (iii) the Lender Deficiency Claims will be established by the Confirmation Hearing, based primarily upon the amount of the Prepetition Secured Lenders' funded debt at that time minus the amount of the Secured Lender Claims. The Creditors' Committee contests that the Prepetition Secured Lenders have liens on assets that comprise substantially all of the value of the Debtors' businesses. The Creditors' Committee has filed a complaint to require the Senior Secured Lenders to establish the extent and validity of their liens. The Creditors' Committee also asserts that the valuation of the Company is higher than the valuation prepared by the Debtors' financial advisors. SEE SECTION XI.E. The Debtors and the Senior Secured Lenders dispute the Creditors' Committee's contentions. In addition, the Plan (i) provides for a trust (the "WGI Creditor Trust") to be created to which substantially all claims and causes of action against Raytheon and its affiliates, agents and\or representatives, including the claims and causes of action to be asserted under sections 544, 547, 548, 550 or any other section of the Bankruptcy Code (the "Raytheon Claims"), will be assigned and which will be funded with $20 million in cash to pursue such claims and (ii) provides for holders of General Unsecured Claims (which include, without limitation, the Lender Deficiency Claims, Old Note Claims, and any Claims asserted by Raytheon or its subsidiaries to the extent Allowed and not subordinated) to receive WGI Creditor Trust recoveries, if any, after repayment to Reorganized WGI of the $20 million funding advance, with interest at the rate of 20% per annum, compounded quarterly. As discussed above and in SECTION V.I.1, the Debtors assert substantial claims against Raytheon and contest the validity and enforceability of all claims asserted by Raytheon against the Debtors. Any WGI Creditor Trust assets remaining after payment of all trust expenses, repayment of the $20 million funding advance (with interest) and payment in full of all General Unsecured Claims (with interest from the Petition Date to the date of payment), if any (the "WGI Creditor Trust Equity Residual"), will be distributed pro rata to holders of Old Common Stock and other Allowed Claims (if any) in Class 8. The Plan is premised on the substantive consolidation of the Debtors only with respect to the treatment of Class 6 and 7 Claims for voting, confirmation and distribution purposes. SEE SECTION VI.B. Certain parties have stated that they may oppose, and Mitsubishi has stated that it will oppose, the substantive consolidation proposed under the Plan on the grounds that they believe that certain creditors may be adversely affected by such substantive consolidation including creditors that hold a claim against a single Debtor or, that substantive consolidation is improper under the circumstances. These situations may be fact specific. The Debtors do not believe that the substantive consolidation proposed in the Plan will negatively impact creditor recoveries. The Bankruptcy Court will hear any objections to the substantive consolidation proposed in the Plan at the Confirmation Hearing. Therefore, any creditor who opposes the substantive consolidation proposed under the Plan must file an objection to the Plan or enter into an agreement with the Debtors reserving their rights prior to the Confirmation Hearing. See SECTION II.E for instructions as to how to file an objection to the Plan. -viii-
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I. NEGOTIATIONS AND AGREEMENT WITH MR. DENNIS WASHINGTON As set forth above and in SECTION III.B.1 , approximately 39% of the Old Common Stock is held by Mr. Dennis Washington. Mr. Washington is Chairman of WGI's board of directors and as of the Petition Date was WGI's Chief Executive Officer. Under the Plan, the Old Common Stock will be cancelled, and no distributions will be made to the holders thereof, other than, potentially, the WGI Creditor Trust Equity Residual. The Steering Committee for the Prepetition Secured Lenders and the Debtors believe that Mr. Washington's continued involvement in managing the Company's businesses will be highly beneficial to these estates and the Company's future prospects. Mr. Washington has a long history of involvement in construction and other industries, and has been Chairman of WGI since September, 1996. Mr. Washington's reputation and contacts in the industry have been instrumental in the Company being awarded numerous significant contacts. Accordingly, after the Chapter 11 Cases were commenced, the Steering Committee for the Prepetition Secured Lenders and Mr. Washington began negotiations regarding Mr. Washington's involvement with the Company during the Chapter 11 Cases and after the Effective Date. At the outset, Mr. Washington indicated that he was not interested in continuing to be involved with the Company unless he could acquire an economic stake in the reorganized Company. As a result of these negotiations, Mr. Washington and the Steering Committee for the Prepetition Secured Lenders reached agreement on terms and conditions for Mr. Washington to render ongoing services to the Company, and the consideration to be provided to Mr. Washington in exchange for his agreement to remain with the Company (the "Washington Agreement"). The Debtors support that agreement, which is embodied in the Plan. The principal terms of the Washington Agreement provide for Mr. Washington to continue as Chairman of WGI and to remain as Chairman of Reorganized WGI's Board of Directors for at least two years after the Effective Date, without compensation. Mr. Washington will be granted, on the Effective Date, options to acquire New Common Shares in amounts aggregating 15% of the total outstanding New Common Shares (on a fully diluted basis) (the "Washington Stock Options"). The Washington Stock Options are divided into three tranches, with each tranche comprised of options to purchase 5% of the New Common Shares outstanding, at different strike prices. One third of each tranche of the Washington Stock Options vest on the Effective Date, and one-third vest of each tranche vests on each of the first two anniversaries of the Effective Date. A full description of the terms and conditions of the Washington Stock Options, as well as other components of the Washington Agreement, is set forth in SECTION V.G of the Plan. Lazard has calculated the value of the Washington Stock Options, based upon a Black-Scholes analysis, to be between $35 million and $40 million. Certain creditors have reserved their right to dispute this valuation. Importantly, and as described in SECTION V.G, the Washington Agreement includes provision for a cash payment to Mr. Washington if the Debtors sell substantially all of their assets prior to consummation of the Plan, and for the Washington Stock Options to vest immediately if the Company enters into an agreement before consummation of the Plan to sell certain material assets. SEE SECTION V.G. Finally, as discussed in SECTION V.G, as part of the Washington Agreement, Mr. Washington agreed to participate in the DIP Facility by providing a commitment for $10 million on the same terms as the other DIP Lenders except that Mr. Washington will not participate in lender calls and is not entitled to vote on matters requiring 100% lender approval. J. SUMMARY OF TREATMENT OF CLAIMS AND INTERESTS UNDER THE PLAN As contemplated by the Bankruptcy Code, Administrative Claims and Priority Tax Claims are not classified under the Plan. Under the Plan, Allowed Administrative Claims are to be paid in full on the Effective Date, or, for ordinary course Administrative Claims, when such claims become due. See SECTION VI.C.1 for a summary of the treatment proposed under the Plan for Administrative Claims and Priority Tax Claims. The estimated amount of non-ordinary course Administrative Claims to be incurred during the Chapter 11 Cases (which are primarily comprised of professional fees and which will be paid, in part, during the Chapter 11 Cases pursuant to Bankruptcy Court orders), is approximately $20 million, and the estimated amount of Priority Tax Claims is $18 to $20 million. The table below summarizes the classification and treatment of the prepetition Claims and Interests under the Plan. For certain classes of Claims, estimated percentage recoveries are also set forth. Estimated percentage recoveries have been estimated based upon a review by the Debtors' management of the books and records, as well as a number of assumptions, including the value -ix-
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of the New Securities to be issued under the Plan. Based, in part, on information provided to it by the Company, Lazard Freres & Co. LLC ("Lazard"), the investment banker for the Company, has evaluated the enterprise value of the Company (exclusive of claims against Raytheon and its subsidiaries). Lazard's valuation establishes that the value of the Company on a going concern basis is between $470 and $640 million, with a midpoint of $555 million. As discussed above, this midpoint value is less than the amount of funded debt owed to the Prepetition Secured Lenders. Because the amount of funded debt of the Company projected on its pro forma consolidated balance sheet upon emergence from Chapter 11 is $50 million, Lazard has valued the New Common Shares to be issued under the Plan, in the aggregate, at approximately $505 million, subject to downward adjustment as a result of the Washington Stock Options. The valuation is based upon numerous assumptions, including, among other things, an assumption that the operating results projected for Reorganized WGI will be achieved in all material respects, including revenue growth and improvements in operating margins, earnings and cash flow. The valuation assumptions also consider, among other matters, (i) market valuation information concerning certain publicly traded equity securities of certain other companies that are considered relevant, (ii) certain general economic and industry information considered relevant to the business of Reorganized WGI and (iii) such other investigations and analyses deemed necessary or appropriate. The Debtors and Lazard believe these valuation assumptions are reasonable. THE VALUATION ASSUMPTIONS ARE NOT A PREDICTION OR REFLECTION OF POST-CONFIRMATION TRADING PRICES OF THE NEW COMMON SHARES OR ANY OTHER SECURITIES. SUCH SECURITIES MAY TRADE AT SUBSTANTIALLY HIGHER OR LOWER PRICES BECAUSE OF A NUMBER OF FACTORS, INCLUDING THOSE DISCUSSED IN SECTION VIII. THE TRADING PRICES OF SECURITIES ISSUED UNDER A PLAN OF REORGANIZATION ARE SUBJECT TO MANY UNFORESEEABLE CIRCUMSTANCES AND THEREFORE CANNOT BE PREDICTED. Solely for purposes of estimating potential recoveries to holders of Claims in Class 7, it has been assumed that there will be no recovery from Raytheon or its subsidiaries pursuant to the Raytheon Claims, and thus that there will be no proceeds paid to creditors from the WGI Creditor Trust. This assumption has been made because of the inherently uncertain nature of estimating recoveries from ongoing litigation. The Debtors believe that the Raytheon Claims are valid and that such litigation will be successful, although there can be no assurance of any result in such litigation and it is possible that there will not be any recoveries obtained from Raytheon or its subsidiaries. Raytheon disputes that the Raytheon Claims have value. Also, for certain Classes of Claims, the actual amounts of Allowed Claims could materially exceed or could be materially less than the estimated amounts shown in the table that follows. The Debtors do not anticipate having reviewed and full analyzed all proofs of claim filed in these cases by the Confirmation Date. Estimated Claim amounts for each Class set forth below are based upon the Debtors' review of their books and records, and includes estimates of a number of Claims that are contingent, disputed and/or unliquidated. SEE SECTION VI.D.2. Accordingly, for these reasons, no representation can be or is being made with respect to whether the estimated percentage recoveries shown in the table below will actually be realized by the holders of Allowed Claims in any particular Class. [Download Table] CLASS DESCRIPTION TREATMENT UNDER PLAN ----------------- -------------------- CLASS 1 - OTHER PRIORITY CLAIMS Class 1 consists of all Claims entitled to priority pursuant to section 507(a) Estimated Allowed Claims: of the Bankruptcy Code other than DIP Less than $5 million. Facility Claims, Priority Tax Claims or Administrative Claims. Under the Plan, on or as soon as reasonably practicable after, the latest of (i) the Distribution Date, (ii) the date such Class 1 Claim becomes an Allowed Class 1 Claim, or (iii) the date such Class 1 Claim becomes payable pursuant to any agreement between a Debtor and the holder of such Class 1 Claim, each holder of an Allowed Class 1 Claim will receive in full satisfac tion, settlement, release and discharge of and in exchange for such Allowed Class 1 Claim (a) Cash equal to the unpaid portion of such Allowed Class 1 Claim or (b) such other treatment as to which a Debtor and such holder shall have agreed upon in writing. CLASS 1 CLAIMS ARE UNIMPAIRED AND THEREFORE NOT ENTITLED TO VOTE ON THE PLAN. ESTIMATED PERCENTAGE RECOVERY: 100%. -x-
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[Download Table] CLASS DESCRIPTION TREATMENT UNDER PLAN ----------------- -------------------- CLASS 2 - OTHER SECURED CLAIMS Class 2 consists of separate subclasses of claims that are secured by a lien upon property in which the Estate has an Estimated Allowed Claims: interest, to the extent of the value of Less than $5 million. the Claim holders' interest in the Estate's interest in such property, as determined pursuant to section 506(a) of the Bankruptcy Code against the Debtors, other than the Secured Lender Claims included in Class 6 below ("Other Secured Claims"). Each subclass is deemed to be a separate class for all purposes under the Bankruptcy Code. On the Effective Date, the legal, equitable and contractual rights of holders of an Allowed Class 2 Claim shall be Reinstated, subject to the provisions of ARTICLE VII of the Plan. The Debtors' failure to object to any such Class 2 Claims in the Chapter 11 Cases shall be without prejudice to the rights of WGI or the Reorganized Debtors to contest or otherwise defend against such Claim in the appropriate forum when and if such Claim is sought to be enforced by the Other Secured Claim holder. Notwithstanding section 1141(c) or any other provision of the Bankruptcy Code, all prepetition liens on property of any Debtor held by or on behalf of the Other Secured Claim holders with respect to such Claims shall survive the Effective Date and continue in accordance with the contractual terms of the underlying agreements with such Claim holders until, as to each such Claim holder, the Allowed Claims of such Other Secured Claim holder are paid in full, subject to the provisions of ARTICLE VII of the Plan. CLASS 2 CLAIMS ARE UNIMPAIRED AND THERE FORE NOT ENTITLED TO VOTE ON THE PLAN. ESTIMATED PERCENTAGE RECOVERY: 100%. CLASS 3 - UNIMPAIRED UNSECURED Class 3 consists of unsecured Claims of CLAIMS any of the Debtors' employees as of the Petition Date other than Claims arising Estimated Allowed Claims: as a result of the assumption of any Less than $5 million. contract or agreement or rejection of any contract or agreement specifically listed on SCHEDULE 6.3 of the Plan, or any tort claims of such employees. Under the Plan, each holder of an Allowed Class 3 Claim shall have its Claim Reinstated. CLASS 3 CLAIMS ARE UNIMPAIRED AND THEREFORE NOT ENTITLED TO VOTE ON THE PLAN. ESTIMATED PERCENTAGE RECOVERY: 100%. CLASS 4 - INTERCOMPANY CLAIMS Class 4 consists of, as the case may be, any Claim (a) by a Debtor against another Debtor or (b) by a Non-Debtor Subsid iary against a Debtor. Under the Plan and except as provided therein, each holder of an Allowed Class 4 Claim shall have its Claim Reinstated. CLASS 4 CLAIMS ARE UNIMPAIRED AND THEREFORE NOT ENTITLED TO VOTE ON THE PLAN. ESTIMATED PERCENTAGE RECOVERY: 100%. -xi-
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CLASS DESCRIPTION TREATMENT UNDER PLAN ----------------- -------------------- CLASS 5 - SUBSIDIARY INTERESTS Class 5 consists of the issued and outstanding shares of stock of the subsidiaries directly or indirectly owned by WGI, as of the Petition Date. Under the Plan, subject to the Restructuring Transactions (if any), all Class 5 Interests will be Reinstated. CLASS 5 INTERESTS ARE UNIMPAIRED AND THEREFORE NOT ENTITLED TO VOTE ON THE PLAN. ESTIMATED PERCENTAGE RECOVERY: 100%. CLASS 6 - SECURED LENDER CLAIMS Class 6 consists of all Secured Claims of the Prepetition Secured Lenders Allowed Claims: arising under or as a result of the Prepetition Senior Secured Credit Approximately $505 million, subject to Facility, which Claims will be deemed downward adjustment as a result of the Allowed pursuant to the Plan in the Washington Stock Options amount of approximately $505 million, subject to downward adjustment as a result of the Washington Stock Options. Under the Plan, on the Effective Date, each holder of an Allowed Class 6 Claim, in full satisfaction, settlement, release, and discharge of and in exchange for such Allowed Class 6 Claim, will receive on or as soon as practicable after the Distribution Date, its Pro Rata share of one-hundred percent (100%) of the New Common Shares issued and outstanding as of the Effective Date, subject to Dilution. CLASS 6 CLAIMS ARE IMPAIRED AND ENTITLED TO VOTE ON THE PLAN. ESTIMATED PERCENTAGE RECOVERY: 100%. CLASS 7 - GENERAL UNSECURED CLAIMS Class 7 consists of any Claim against the Debtors that is not a DIP Facility Estimated Allowed Claims: Claim, Administrative Claim, Priority $650 million to $1.1 billion Tax Claim, Other Priority Claim, Other (excluding any Claims Secured Claim, Intercompany Claim, asserted by Raytheon or its Secured Lender Claim or Unimpaired subsidiaries, all of which are Unsecured Claim, and includes, without disputed by the Debtors) limitation, the Lender Deficiency Claims, the Old Note Claims and the Raytheon Asserted Claims (if any). Under the Plan, each holder of an Allowed Class 7 Claim shall receive in full satisfaction, settlement, release and discharge of and in exchange for such Allowed Class 7 Claim, a beneficial pro rata interest in the WGI Creditor Trust, and shall be entitled to receive pro rata distributions from the WGI Creditor Trust pursuant to the terms and conditions set forth in SECTION 9.7 of the Plan and the WGI Creditor Trust Agreement until such Claim is paid in full plus interest accruing from the Petition Date until the date payment is made, at a rate of 20% per annum, compounded quarterly. CLASS 7 CLAIMS ARE IMPAIRED AND ENTITLED TO VOTE ON THE PLAN. ESTIMATED PERCENTAGE RECOVERY: 0% -xii-
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CLASS DESCRIPTION TREATMENT UNDER PLAN ----------------- -------------------- CLASS DESCRIPTION Treatment Under Plan Class 8 consists of CLASS 8 - WGI INTERESTS AND all WGI Interests and all Subordinated SUBORDINATED CLAIMS Claims. Under the Plan, the holders of such Claims or Interests shall not receive or retain any property on account of such Claim or Interests, except for a distribution of the WGI Creditor Trust Equity Residual, if any. On the Effective Date, all of the WGI Interests shall be deemed cancelled and extinguished. CLASS 8 INTERESTS AND SUBORDINATED CLAIMS ARE IMPAIRED AND WILL RECEIVE NO DISTRIBUTION UNDER THE PLAN (EXCEPT FOR A DISTRIBUTION OF THE WGI CREDITOR TRUST EQUITY RESIDUAL, IF ANY) AND ARE THEREFORE DEEMED TO REJECT THE PLAN AND ARE NOT ENTITLED TO VOTE ON THE PLAN. ESTIMATED PERCENTAGE RECOVERY: 0%.
As of the date hereof, the Plan is not supported by the Creditors' Committee. Negotiations among the Debtors, the Prepetition Secured Lenders and the Creditors' Committee are ongoing. If a settlement among those parties is reached, it is possible that the Plan will be modified, pursuant to section 1127 of the Bankruptcy Code and Bankruptcy Rule 3019, to incorporate such a settlement. In that case, the Debtors intend seek a determination by the Bankruptcy Court that the solicitation of votes on the Plan pursuant to this Disclosure Statement applies to the Plan as so modified, and that a resolicitation of votes from holders of Claims in Class 7 is not required, as authorized by Bankruptcy Rule 3019. THE DEBTORS BELIEVE THAT THE PLAN PROVIDES THE BEST RECOVERIES POSSIBLE FOR HOLDERS OF CLAIMS AGAINST THE DEBTORS AND THUS STRONGLY RECOMMEND THAT YOU VOTE TO ACCEPT THE PLAN. -xiii-
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TABLE OF CONTENTS [Enlarge/Download Table] PAGE ---- TABLE OF APPENDICES..........................................................................................................-XVIII- I. INTRODUCTION...................................................................................................................1 II. PLAN VOTING INSTRUCTIONS AND PROCEDURES.....................................................................................1 A. DEFINITIONS......................................................................................................1 B. NOTICE TO HOLDERS OF CLAIMS AND INTERESTS........................................................................1 C. SOLICITATION PACKAGE.............................................................................................2 D. VOTING PROCEDURES, BALLOTS AND VOTING DEADLINE...................................................................2 E. CONFIRMATION HEARING AND DEADLINE FOR OBJECTIONS TO CONFIRMATION.................................................3 III. HISTORY AND STRUCTURE OF THE DEBTORS.........................................................................................3 A. OVERVIEW OF BUSINESS OPERATIONS..................................................................................3 1. DESCRIPTION OF THE COMPANY'S BUSINESSES........................................................3 2. BRIEF HISTORY..................................................................................3 3. PREPETITION FINANCIAL RESULTS..................................................................4 B. CAPITAL STRUCTURE OF THE COMPANY.................................................................................8 1. EQUITY.........................................................................................8 2. THE PREPETITION SENIOR SECURED CREDIT FACILITY.................................................8 3. UNSECURED DEBENTURES...........................................................................9 C. CORPORATE STRUCTURE OF THE COMPANY...............................................................................9 1. CURRENT CORPORATE STRUCTURE....................................................................9 2. BOARD OF DIRECTORS............................................................................10 3. SENIOR OFFICERS...............................................................................11 IV. EVENTS LEADING TO COMMENCEMENT OF THE CHAPTER 11 CASES.......................................................................12 A. THE RAYTHEON TRANSACTION........................................................................................12 B. LIQUIDITY ISSUES................................................................................................13 C. NEGOTIATIONS WITH PREPETITION SECURED LENDERS...................................................................13 V. CHAPTER 11 CASES..............................................................................................................13 A. CONTINUATION OF BUSINESS; STAY OF LITIGATION....................................................................13 B. FIRST DAY ORDERS ...............................................................................................14 C. DEBTOR IN POSSESSION FINANCING .................................................................................15 1. THE DIP FACILITY..............................................................................15 2. AUTHORIZATION TO USE CASH COLLATERAL..........................................................15 3. EXIT FINANCING................................................................................16 D. APPOINTMENT OF CREDITORS' COMMITTEE.............................................................................16 1. EMPLOYEE RETENTION PROGRAM AND CONTINUANCE OF PTO PROGRAM.....................................16 2. INTERIM ARRANGEMENTS REGARDING RED OAK AND ILIJAN PROJECTS....................................17 3. EXTENSION OF TIME TO ASSUME OR REJECT UNEXPIRED LEASES........................................18 4. POSTPETITION BONDING FACILITY.................................................................18 F. APPOINTMENT OF AN EXAMINER......................................................................................18 G. NEGOTIATIONS AND AGREEMENT WITH MR. WASHINGTON..................................................................19 1. GRANT OF WASHINGTON STOCK OPTIONS.............................................................19 2. EARLY VESTING OF WASHINGTON STOCK OPTIONS.....................................................20 3. PAYMENT UPON SALE OF ASSETS...................................................................20 5. BOARD, MANAGEMENT AND RELATED MATTERS.........................................................20 6. PARTICIPATION IN THE DIP FACILITY.............................................................20 7. PERMITTED ACCUMULATION OF ADDITIONAL EQUITY...................................................20 -xiv-
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PAGE ---- H. SUMMARY OF CLAIMS PROCESS AND BAR DATE ..................................................................................21 1. SCHEDULES AND STATEMENTS OF FINANCIAL AFFAIRS.................................................21 2. CLAIMS BAR DATE AND PROOFS OF CLAIM...........................................................21 I. SUMMARY OF MATERIAL LITIGATION MATTERS..........................................................................21 1. CLAIMS AGAINST RAYTHEON.......................................................................22 2. MITSUBISHI LITIGATION.........................................................................23 J. FOREIGN ACTIONS.................................................................................................23 K. MOTION OF THE CREDITORS' COMMITTEE TO TERMINATE THE DEBTORS' EXCLUSIVE PERIOD TO FILE AND SOLICIT ACCEPTANCES OF THE PLAN........................................................................23 L. DEVELOPMENT AND SUMMARY OF THE BUSINESS PLAN....................................................................24 1. SUMMARY OF THE BUSINESS PLAN..................................................................24 2. FINANCIAL HIGHLIGHTS..........................................................................30 3. PRINCIPAL ASSUMPTIONS UNDERLYING THE PROJECTIONS..............................................31 VI. SUMMARY OF THE PLAN OF REORGANIZATION........................................................................................33 A. OVERALL STRUCTURE OF THE PLAN...................................................................................33 B. SUBSTANTIVE CONSOLIDATION FOR PURPOSES OF TREATING IMPAIRED CLAIMS..............................................34 C. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS............................................................35 1. TREATMENT OF UNCLASSIFIED CLAIMS UNDER THE PLAN...............................................36 a. DIP FACILITY CLAIMS..........................................................36 b. ADMINISTRATIVE CLAIMS........................................................36 c. PRIORITY TAX CLAIMS..........................................................36 2. TREATMENT OF CLASSIFIED CLAIMS AND INTERESTS UNDER THE PLAN...................................37 a. UNIMPAIRED CLASSES OF CLAIMS.................................................37 b. IMPAIRED CLAIMS AND INTERESTS................................................38 3. RESERVATION OF RIGHTS REGARDING CLAIMS........................................................38 4. RAYTHEON ASSERTED CLAIMS......................................................................38 D. DISTRIBUTIONS UNDER THE PLAN....................................................................................39 1. DISTRIBUTIONS FOR CLAIMS ALLOWED AS OF THE EFFECTIVE DATE.....................................39 a. DISTRIBUTION DATE............................................................39 b. RECORD DATE FOR DISTRIBUTIONS TO HOLDERS OF SECURED LENDER CLAIMS AND OLD NOTES..........................................39 c. CALCULATION OF DISTRIBUTION AMOUNTS OF NEW COMMON SHARES.....................39 d. DELIVERY OF DISTRIBUTIONS....................................................40 e. OLD NOTES....................................................................40 f. LOST, MUTILATED OR DESTROYED OLD NOTES.......................................40 g. FAILURE TO SURRENDER CANCELED OLD NOTES......................................40 2. RESOLUTION AND TREATMENT OF DISPUTED, CONTINGENT, AND UNLIQUIDATED CLAIMS AND DISPUTED INTERESTS.....................................................................................40 a. PROSECUTION OF OBJECTIONS....................................................40 b. NO DISTRIBUTIONS PENDING ALLOWANCE...........................................41 c. DISPUTED DISTRIBUTION RESERVE; RESERVE FOR SUBSEQUENT DISTRIBUTIONS TO QUALIFYING CLASS 7 CREDITORS................................41 d. DISTRIBUTIONS AFTER ALLOWANCE OF CLASS 7 CLAIMS..............................41 E. POST-CONSUMMATION OPERATIONS OF THE DEBTORS.....................................................................41 1. CONTINUED CORPORATE EXISTENCE.................................................................41 2. CANCELLATION OF OLD SECURITIES AND AGREEMENTS.................................................41 3. CERTIFICATES OF INCORPORATION AND BYLAWS......................................................41 4. RESTRUCTURING TRANSACTIONS....................................................................41 F. SUMMARY OF SECURITIES TO BE ISSUED IN CONNECTION WITH THE PLAN..................................................42 1. NEW COMMON SHARES.............................................................................42 2. REGISTRATION RIGHTS AGREEMENT.................................................................42 -xv-
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PAGE ---- G. EXIT FACILITY...................................................................................................42 H. SUMMARY OF RELEASES UNDER THE PLAN..............................................................................43 1. RELEASES BY DEBTORS...........................................................................43 2. RELEASES BY HOLDERS OF LENDER CLAIMS..........................................................43 3. INJUNCTION RELATED TO RELEASES................................................................44 I. COMPENSATION AND BENEFIT PROGRAMS...............................................................................44 J. DIRECTORS AND OFFICERS OF REORGANIZED DEBTORS...................................................................44 1. APPOINTMENT...................................................................................44 2. TERMS.........................................................................................44 3. VACANCIES.....................................................................................44 4. TREATMENT OF DIRECTOR AND OFFICER INDEMNIFICATION OBLIGATIONS UNDER THE PLAN..................45 K. REVESTING OF ASSETS.............................................................................................45 L. PRESERVATION OF RIGHTS OF ACTION................................................................................45 M. OTHER MATTERS...................................................................................................45 1. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES.........................................45 a. ASSUMED CONTRACTS AND LEASES.................................................46 b. PAYMENTS RELATED TO ASSUMPTION OF CONTRACTS AND LEASES.......................46 c. REJECTED CONTRACTS AND LEASES................................................46 d. REJECTION DAMAGES BAR DATE...................................................46 2. SPECIAL PROVISIONS FOR WARRANTY AND INDEMNITY OBLIGATIONS ARISING OUT OF COMPLETED PROJECTS.............................................................47 3. ADMINISTRATIVE CLAIMS.........................................................................47 4. PROFESSIONAL FEE CLAIMS.......................................................................47 5. WITHHOLDING AND REPORTING REQUIREMENTS........................................................47 6. SETOFFS.......................................................................................47 7. CONTINUATION OF CERTAIN ORDERS................................................................48 N. CONFIRMATION AND/OR CONSUMMATION................................................................................48 1. REQUIREMENTS FOR CONFIRMATION OF THE PLAN.....................................................48 2. CONDITIONS TO CONFIRMATION AND CONSUMMATION...................................................49 a. CONDITIONS TO CONFIRMATION...................................................49 b. CONDITIONS TO EFFECTIVE DATE.................................................49 c. WAIVER OF CONDITIONS.........................................................49 O. EFFECTS OF CONFIRMATION.........................................................................................50 1. BINDING EFFECT................................................................................50 2. DISCHARGE OF THE DEBTORS......................................................................50 3. PERMANENT INJUNCTION..........................................................................50 4. EXCULPATION AND LIMITATION ON LIABILITY; INDEMNITY............................................51 P. RETENTION OF JURISDICTION.......................................................................................51 Q. PAYMENT OF STATUTORY FEES.......................................................................................52 VII. WGI CREDITOR TRUST..........................................................................................................52 A. APPOINTMENT OF TRUSTEE..........................................................................................52 B. TRANSFER OF TRUST ASSETS TO THE WGI CREDITOR TRUST..............................................................52 C. THE WGI CREDITOR TRUST..........................................................................................53 D. THE TRUST ADVISORY BOARD........................................................................................53 E. FUNDING OF THE WGI CREDITOR TRUST...............................................................................54 F. REIMBURSEMENT OBLIGATION........................................................................................54 G. DISTRIBUTIONS OF TRUST ASSETS...................................................................................54 VIII. CERTAIN FACTORS TO BE CONSIDERED...........................................................................................54 A. GENERAL CONSIDERATIONS..........................................................................................54 B. CERTAIN BANKRUPTCY CONSIDERATIONS...............................................................................55 1. FAILURE TO CONFIRM OR CONSUMMATE THE PLAN.....................................................55 2. DISRUPTION OF OPERATIONS DUE TO THE FILING OF THE CHAPTER 11 CASES............................55 C. INHERENT UNCERTAINTY OF FINANCIAL PROJECTIONS...................................................................55 -xvi-
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PAGE ---- D. INTEGRATION ISSUES..............................................................................................56 E. LACK OF ESTABLISHED MARKET FOR THE NEW SECURITIES...............................................................56 F. RESTRICTED RESALE OF THE NEW SECURITIES.........................................................................56 G. ENVIRONMENTAL MATTERS...........................................................................................57 H. UNIMPAIRED AND UNKNOWN CLAIMS...................................................................................57 I. INDUSTRY CYCLICALITY............................................................................................57 J. BUSINESS AND COMPETITION........................................................................................57 K. GOVERNMENT CONTRACTS............................................................................................58 L. FIXED PRICE CONTRACTS AND OTHER PROJECT RISKS...................................................................58 M. INTERNATIONAL OPERATIONS........................................................................................58 N. BONDING.........................................................................................................59 O. RELIANCE ON KEY PERSONNEL.......................................................................................59 P. CERTAIN LITIGATION .............................................................................................59 IX. APPLICABILITY OF FEDERAL AND OTHER SECURITIES LAWS...........................................................................60 A. OFFER AND SALE OF NEW SECURITIES, PURSUANT TO THE PLAN: BANKRUPTCY CODE EXEMPTION FROM REGISTRATION REQUIREMENTS........................................................................60 B. SUBSEQUENT TRANSFERS OF NEW SECURITIES..........................................................................60 1. FEDERAL SECURITIES LAWS: SECTION 1145(C) OF THE BANKRUPTCY CODE...............................60 2. SUBSEQUENT TRANSFERS OF NEW COMMON SHARES UNDER STATE SECURITIES LAWS.........................61 X. INCOME TAX CONSEQUENCES OF THE PLAN...........................................................................................61 A. FEDERAL INCOME TAX CONSEQUENCES TO THE DEBTORS..................................................................61 1. CANCELLATION OF INDEBTEDNESS INCOME...........................................................61 2. NET OPERATING LOSSES AND OTHER ATTRIBUTES.....................................................62 3. FEDERAL ALTERNATIVE MINIMUM TAX...............................................................63 B. FEDERAL INCOME TAX CONSEQUENCES TO CLAIM HOLDERS................................................................63 1. UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.................................................63 a. GENERAL......................................................................63 b. MARKET DISCOUNT..............................................................63 c. REORGANIZATION TREATMENT.....................................................63 2. NON-UNITED STATES PERSONS.....................................................................64 3. INFORMATION REPORTING AND BACKUP WITHHOLDING..................................................64 C. UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE WGI CREDITOR TRUST.........................................65 D. IMPORTANCE OF OBTAINING PROFESSIONAL TAX ASSISTANCE.............................................................65 XI. FEASIBILITY OF THE PLAN AND BEST INTERESTS OF CREDITORS......................................................................65 A. FEASIBILITY OF THE PLAN.........................................................................................65 B. ACCEPTANCE OF THE PLAN..........................................................................................66 C. BEST INTERESTS TEST.............................................................................................66 D. LIQUIDATION ANALYSIS............................................................................................67 E. VALUATION OF THE REORGANIZED DEBTORS............................................................................67 1. REORGANIZED COMPANY...........................................................................68 2. SUMMARY OF FINANCIAL ANALYSIS.................................................................69 F. APPLICATION OF THE "BEST INTERESTS" OF CREDITORS TEST TO THE LIQUIDATION ANALYSIS AND THE VALUATION.............70 G. CONFIRMATION WITHOUT ACCEPTANCE OF ALL IMPAIRED CLASSES: THE "CRAMDOWN" ALTERNATIVE.............................70 XII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN...................................................................71 A. ALTERNATIVE PLAN(S) OF REORGANIZATION...........................................................................71 B. LIQUIDATION UNDER CHAPTER 7 OR CHAPTER 11.......................................................................71 -xvii-
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PAGE ---- XIII. THE SOLICITATION; VOTING PROCEDURE.........................................................................................72 A. PARTIES IN INTEREST ENTITLED TO VOTE............................................................................72 B. CLASSES IMPAIRED UNDER THE PLAN.................................................................................72 C. WAIVERS OF DEFECTS, IRREGULARITIES, ETC.........................................................................72 D. WITHDRAWAL OF BALLOTS; REVOCATION...............................................................................72 E. FURTHER INFORMATION; ADDITIONAL COPIES..........................................................................73 F. INTERNET ACCESS TO BANKRUPTCY COURT DOCUMENTS...................................................................73 XIV. RECOMMENDATION AND CONCLUSION...............................................................................................74
-xviii-
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TABLE OF APPENDICES APPENDIX NAME -------- ---- Appendix A Second Amended Joint Plan of Reorganization of Washington Group International, Inc., et al. Appendix B Liquidation Analysis Appendix C Pro Forma Financial Projections Appendix D Raytheon's Statement Concerning Its Disputes with Washington Group International, (Delaware) Appendix E Current Schedule of Critical Vendor Claims Paid or To Be Paid During the Chapter 11 Cases -xix-
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I. INTRODUCTION Washington Group International, Inc. ("WGI") and certain of its direct and indirect subsidiaries that are also debtors and debtors-in-possession (the "Subsidiary Debtors") in the above-referenced Chapter 11 cases (collectively, the "Debtors") submit this disclosure statement (the "Disclosure Statement") pursuant to section 1125 of the Bankruptcy Code, for use in the solicitation of votes on the Second Amended Joint Plan of Reorganization of Washington Group International, Inc. et al. dated as of July 24, 2001 (the "Plan"), proposed by the Debtors and filed with the United States Bankruptcy Court for the District of Nevada (the "Bankruptcy Court"). A copy of the Plan is annexed as APPENDIX A to this Disclosure Statement. This Disclosure Statement sets forth certain information regarding the Debtors' prepetition operating and financial history, the need to seek Chapter 11 protection, significant events that are expected to occur during the Chapter 11 Cases, and the anticipated organization, operations and financing of the Debtors upon successful emergence from Chapter 11 (the "Reorganized Debtors"). This Disclosure Statement also describes terms and provisions of the Plan, including certain alternatives to the Plan, certain effects of confirmation of the Plan, certain risk factors associated with securities to be issued under the Plan, and the manner in which distributions will be made under the Plan. In addition, this Disclosure Statement discusses the confirmation process and the voting procedures that holders of Claims entitled to vote under the Plan must follow for their votes to be counted. Except as otherwise provided herein, capitalized terms not otherwise defined in this Disclosure Statement have the meanings ascribed to them in the Plan. Unless otherwise noted herein, all dollar amounts provided in this Disclosure Statement and in the Plan are given in United States dollars. FOR A DESCRIPTION OF THE PLAN AND VARIOUS RISKS AND OTHER FACTORS PERTAINING TO THE PLAN AS IT RELATES TO HOLDERS OF CLASS 6 AND 7 CLAIMS, PLEASE SEE SECTION VI OF THE DISCLOSURE STATEMENT, ENTITLED "SUMMARY OF THE PLAN OF REORGANIZATION," AND SECTION VIII OF THE DISCLO SURE STATEMENT, ENTITLED "CERTAIN FACTORS TO BE CONSIDERED." THIS DISCLOSURE STATEMENT CONTAINS SUMMARIES OF CERTAIN PROVISIONS OF THE PLAN, CERTAIN STATUTORY PROVISIONS, CERTAIN DOCUMENTS RELATING TO THE PLAN, CERTAIN EVENTS EXPECTED TO OCCUR IN THE CHAPTER 11 CASES AND CERTAIN FINANCIAL INFORMATION. ALTHOUGH THE DEBTORS BELIEVE THAT THE SUMMARIES OF THE PLAN AND RELATED DOCUMENT SUMMARIES ARE FAIR AND ACCURATE, SUCH SUMMARIES ARE QUALIFIED TO THE EXTENT THAT THEY DO NOT SET FORTH THE ENTIRE TEXT OF SUCH DOCUMENTS OR STATUTORY PROVISIONS. FACTUAL INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT HAS BEEN PROVIDED BY THE DEBTORS' MANAGEMENT, EXCEPT WHERE OTHERWISE SPECIFICALLY NOTED. THE DEBTORS DO NOT WARRANT OR REPRESENT THAT THE INFORMATION CONTAINED HEREIN, INCLUDING THE FINANCIAL INFORMATION, IS WITHOUT ANY MATERIAL INACCURACY OR OMISSION. THE DEBTORS BELIEVE THAT THE PLAN WILL ENABLE THE DEBTORS TO SUCCESSFULLY REORGANIZE AND ACCOMPLISH THE OBJECTIVES OF CHAPTER 11 AND THAT ACCEPTANCE OF THE PLAN IS IN THE BEST INTERESTS OF THE DEBTORS AND THE HOLDERS OF CLASS 6 CLAIMS AND CLASS 7 CLAIMS. THE DEBTORS URGE HOLDERS OF CLASS 6 AND 7 CLAIMS TO VOTE TO ACCEPT THE PLAN. FOR FURTHER INFORMATION AND INSTRUCTION ON VOTING TO ACCEPT OR REJECT THE PLAN, SEE SECTION XIII OF THE DISCLOSURE STATEMENT, ENTITLED "THE SOLICITATION; VOTING PROCEDURE." II. PLAN VOTING INSTRUCTIONS AND PROCEDURES A. DEFINITIONS Except as otherwise defined herein, capitalized terms not otherwise defined in this Disclosure Statement have the meanings ascribed to them in the Plan. B. NOTICE TO HOLDERS OF CLAIMS AND INTERESTS This Disclosure Statement will be transmitted to holders of Claims that are entitled under the Bankruptcy Code to vote on the Plan. See SECTION XIII for a discussion and listing of those holders of Claims that are entitled to vote on the Plan and those holders of Claims and Interests that are not entitled to vote on the Plan. The purpose of this Disclosure Statement is to provide adequate information to enable such Claim holders to make a reasonably informed decision with respect to the Plan prior to exercising 1
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their right to vote to accept or reject the Plan. The Bankruptcy Court has approved the Disclosure Statement as containing information of a kind and in sufficient and adequate detail to enable such Claim holders to make an informed judgment with respect to acceptance or rejection of the Plan. THE BANKRUPTCY COURT'S APPROVAL OF THIS DISCLOSURE STATEMENT DOES NOT CONSTITUTE EITHER A GUARANTY OF THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED HEREIN OR AN ENDORSEMENT OF THE PLAN BY THE BANKRUPTCY COURT. ALL HOLDERS OF CLAIMS AGAINST THE DEBTORS ARE ENCOURAGED TO READ THIS DISCLO SURE STATEMENT AND ITS APPENDICES CAREFULLY AND IN THEIR ENTIRETY BEFORE DECIDING TO VOTE EITHER TO ACCEPT OR TO REJECT THE PLAN. This Disclosure Statement contains important information about the Plan, considerations pertinent to acceptance or rejection of the Plan, and developments concerning the Chapter 11 Cases. THIS DISCLOSURE STATEMENT IS THE ONLY DOCUMENT TO BE USED IN CONNECTION WITH THE SOLICITATION OF VOTES ON THE PLAN. No solicitation of votes may be made except after distribution of this Disclosure Statement, and no person has been authorized to distribute any information concerning the Debtors other than the information contained herein. CERTAIN OF THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT IS BY ITS NATURE FORWARD LOOKING AND CONTAINS ESTIMATES, ASSUMPTIONS AND PROJECTIONS THAT MAY BE MATERIALLY DIFFERENT FROM ACTUAL, FUTURE RESULTS. Except with respect to the projections set forth in APPENDIX C annexed hereto (the "Projections") and except as otherwise specifically and expressly stated herein, this Disclosure Statement does not reflect any events that may occur subsequent to the date hereof and that may have a material impact on the information contained in this Disclosure Statement. The Debtors do not intend to update the Projections; thus, the Projections will not reflect the impact of any subsequent events not already accounted for in the assumptions underlying the Projections. Further, the Debtors do not anticipate that any amendments or supplements to this Disclosure Statement will be distributed to reflect such occurrences. Accordingly, the delivery of this Disclosure Statement shall not under any circumstance imply that the information herein is correct or complete as of any time subsequent to the date hereof. EXCEPT WHERE SPECIFICALLY NOTED, THE FINANCIAL INFORMATION CONTAINED HEREIN HAS NOT BEEN AUDITED BY A CERTIFIED PUBLIC ACCOUNTING FIRM AND HAS NOT BEEN PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. C. SOLICITATION PACKAGE Along with the mailing of this Disclosure Statement, as part of the solicitation of acceptances of the Plan, the Debtors will send copies of (1) the Plan; (2) the notice of, among other things, the time for submitting Ballots to accept or reject the Plan, the date, time and place of the hearing to consider confirmation of the Plan and related matters, and the time for filing objections to confirmation of the Plan (the "Confirmation Hearing Notice"); and (3) if you are the holder of Claim(s) entitled to vote on the Plan, one or more Ballots (and return envelopes) to be used by you in voting to accept or to reject the Plan. D. VOTING PROCEDURES, BALLOTS AND VOTING DEADLINE After carefully reviewing the Plan, this Disclosure Statement and the detailed instructions accompanying your Ballot, please indicate your acceptance or rejection of the Plan by voting in favor of or against the Plan on the enclosed Ballot. You must complete and sign your original Ballot (copies will not be accepted) and return it in the envelope provided. Each Ballot has been coded to reflect the Class of Claims it represents. Accordingly, in voting to accept or reject the Plan, you must use only the coded Ballot or Ballots sent to you with this Disclosure Statement. IN ORDER FOR YOUR VOTE TO BE COUNTED, YOUR BALLOT MUST BE PROPERLY COMPLETED AS SET FORTH ABOVE AND IN ACCORDANCE WITH THE VOTING INSTRUCTIONS ON THE BALLOT AND RECEIVED NO LATER THAN AUGUST 27, 2001, AT 4:00 P.M. (PACIFIC TIME) (THE "VOTING DEADLINE") BY ROBERT L. BERGER & ASSOCIATES, LLC (THE "VOTING AGENT"). DO NOT RETURN ANY STOCK CERTIFICATES OR DEBT INSTRUMENTS WITH YOUR BALLOT. If you have any questions about (1) the procedure for voting your Claim or Interest or with respect to the packet of 2
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materials that you have received or (2) the amount of your Claim, or if you wish to obtain, at your own expense, unless otherwise specifically required by Federal Rule of Bankruptcy Procedure 3017(d), an additional copy of the Plan, this Disclosure Statement or any appendices or exhibits to such documents, please contact: Washington Group International, Inc. c/o Robert L. Berger & Associates, LLC PMB 1007 10351 Santa Monica Boulevard, Suite 101A Los Angeles, CA 90025 Phone: (818) 771-7469 Fax: (818) 905-6542 FOR FURTHER INFORMATION AND INSTRUCTION ON VOTING TO ACCEPT OR REJECT THE PLAN, SEE SECTION XIII. E. CONFIRMATION HEARING AND DEADLINE FOR OBJECTIONS TO CONFIRMATION Pursuant to section 1128 of the Bankruptcy Code and Federal Rule of Bankruptcy Procedure 3017(c), the Bankruptcy Court has scheduled a Confirmation Hearing for September 6, 2001, at 9:30 a.m. The Confirmation Hearing may be adjourned from time to time by the Bankruptcy Court without further notice except for the announcement of the adjournment date made at the Confirmation Hearing or at any subsequent adjourned Confirmation Hearing. Objections to Confirmation of the Plan must be filed with the Bankruptcy Court not later than August 24, 2001. III. HISTORY AND STRUCTURE OF THE DEBTORS A. OVERVIEW OF BUSINESS OPERATIONS 1. DESCRIPTION OF THE COMPANY'S BUSINESSES The Company is an international provider of a broad range of design, engineering, construction, construction management, facilities and operations management, environmental remediation and mining services to diverse public and private sector clients. The Company operates its businesses through five operating units, each of which comprises a separate reportable business segment: Power, Infrastructure & Mining, Industrial/Process, Government, and Petroleum & Chemicals. The reportable segments serve different markets and customers, and differ in their expertise, technology and resources necessary to perform their services. See SECTION V.L for a description of each business segment. The Company's customers include Fortune 500 companies and government entities, and projects often take years to complete and substantial financial commitments by project owners. Often, to be awarded a contract, the Company must be able to have issued for the benefit of the project owner, payment, performance or other types of bonds. SEE SECTION V.E.4. 2. BRIEF HISTORY WGI was originally formed as a Delaware corporation on April 28, 1993 under the name Kasler Holding Company to become the parent company of WCG Holdings, Inc. ("WCG") and Kasler Corporation ("Kasler"), which were active in the infrastructure, contract mining, environmental remediation, commercial construction and construction materials markets. In April 1996, the name was changed from Kasler Holding Company to Washington Construction Group, Inc. ("Washington Construction"). On September 11, 1996, Washington Construction acquired the net assets and the engineering and construction operations of Morrison Knudsen Corporation, a Delaware corporation ("Old MK"), in a transaction structured as a merger of Old MK with and into Washington Construction, and changed its name to Morrison Knudsen Corporation. Old MK had a historic legacy of projects over the last 90 years, including the Hoover Dam, the San Francisco Bay Bridge, the Trans-Alaska Pipeline, and major features of the Kennedy Space Center. The acquisition of Old MK was an integral part of the reorganization of Old MK pursuant to a plan of reorganization (the "Old MK Plan") filed by Old MK in the United States Bankruptcy Court for the District of Delaware. The Old MK Plan was confirmed by the Delaware Bankruptcy Court on August 26, 1996, and became effective concurrently with the merger on September 11, 1996. The Company has no remaining obligations under the Old MK Plan. 3
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On March 22, 1999, the Company, in a joint venture with British Nuclear Fuels, Ltd., acquired the operations of the government and environmental services businesses (the "Westinghouse Group") of CBS Corporation. The Westinghouse Group manages highly complex facilities and programs for the United States Departments of Energy and Defense, and a wide range of services at government installations. The acquisition of the Westinghouse Group was accounted for as a purchase business combination. WGI has a 60% economic ownership interest in the Westinghouse Group. THE ENTITIES THAT COMPRISE THE WESTINGHOUSE GROUP ARE NOT DEBTORS, HAVE NOT COMMENCED CHAPTER 11 CASES, AND THUS CONTINUE TO OPERATE IN THE ORDINARY COURSE OF BUSINESS UNAFFECTED BY THE CHAPTER 11 CASES. On July 7, 2000, pursuant to an agreement, dated as of April 14, 2000 (the "Stock Purchase Agreement"), among Raytheon Company ("Raytheon"), Raytheon Engineers & Constructors International, Inc., a wholly-owned subsidiary of Raytheon ("RECI" and, together with Raytheon, the "Sellers"), and WGI, the Debtors purchased the capital stock of the subsidiaries of RECI (the "RECI Subsidiaries") and certain other assets of RECI and assumed certain liabilities of RECI (collectively the "RE&C Businesses"). Prior to such purchase, RECI provided engineering, design, procurement, construction, operation, maintenance and other services on a worldwide basis, and reported annual revenues of approximately $2.7 billion for the year ended December 31, 1999. The purchase price paid at the closing of the acquisition ("Closing") on July 7, 2000 for the RE&C Businesses was $53 million in cash and the assumption of net liabilities estimated by the Sellers at the time of the transaction of approximately $450 million. In addition, the Debtors paid the Sellers $83 million, representing the net amount of cash advanced or paid by the Sellers for the use or benefit of the RE&C Businesses between April 30, 2000 and Closing. Finally, the Stock Purchase Agreement provided that RECI would retain all non-restricted cash and cash equivalents held by RECI and the RECI Subsidiaries as of the close of business on April 30, 2000. At Closing, for purposes of administrative convenience, the RECI Subsidiaries retained all cash held by them, and the Debtors paid to the Sellers approximately $30.8 million, which amount was subject to post-Closing verification by the Debtors and adjustment. See SECTIONS IV.A AND V.I.1 for a discussion of subsequent disputes and litigation with Raytheon and APPENDIX D for a statement of position by Raytheon. As a result of liquidity issues resulting from Raytheon's failure to disclose known losses, WGI and 71 Subsidiary Debtors each filed a voluntary petition in the United States Bankruptcy Court for the District of Nevada on May 14, 2001 (the "Petition Date") for reorganization relief under Chapter 11 of title 11 of the United States Code, 11 U.S.C. Sections 101-1330, as amended (the "Bankruptcy Code"). The Debtors continue to manage and operate their business as debtors-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code. IN ADDITION TO THE SUBSIDIARY DEBTORS, WGI HAS DIRECT OR INDIRECT INTERESTS IN MANY SUBSIDIARIES (INCLUDING FOREIGN ENTITIES, JOINT VENTURES AND THE WESTINGHOUSE GROUP) THAT HAVE NOT COMMENCED CASES UNDER THE BANKRUPTCY CODE (COLLECTIVELY, THE "NON-DEBTOR SUBSIDIARIES") AND ACCORDINGLY CONTINUE TO OPERATE THEIR BUSINESSES IN THE ORDINARY COURSE WITHOUT BEING MATERIALLY IMPACTED BY THE DEBTORS' CHAPTER 11 CASES. FOR A LIST OF THE NON-DEBTOR SUBSIDIARIES, SEE SCHEDULE 1.67 OF THE PLAN. 3. PREPETITION FINANCIAL RESULTS Set forth below is selected financial data for WGI, including its direct and indirect Subsidiaries, on a consolidated basis for the nine months ended September 1, 2000 and for the year ended December 3, 1999. The financial data for the nine months ended September 1, 2000 is unaudited. The financial data for the year ended December 3, 1999 was audited for inclusion in WGI's Form 10-K filed with the SEC. 4
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TOTAL COMPANY STATEMENT OF OPERATIONS ($ US THOUSANDS) [Enlarge/Download Table] September 1, 2000 December 3, 1999 (unaudited) Revenue $ 2,051,344 $ 2,291,967 Cost of revenue (1,945,719) (2,180,315) ------------ ------------ Gross profit 105,625 124,087 General and administrative expenses (24,366) (25,999) Goodwill amortization (21,608) (12,576) Integration and merger costs (10,056) -- ------------ ------------ Operating income 49,525 85,512 Investment income 5,828 3,429 Interest expense (17,730) (7,642) Other income, net 1,358 9,681 ------------ ------------ Income before income taxes and minority interests in income of consolidated subsidiaries 39,051 90,980 Income tax expense (15,510) (33,924) Minority interests in income of consolidated subsidiaries (3,523) (8,771) ------------ ------------ Net income $ 20,018 $ 48,285 ============ ============ 5
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TOTAL COMPANY BALANCE SHEETS ($ US THOUSANDS, EXCEPT PER SHARE DATA) [Download Table] ASSETS September 1, 2000 December 3, 1999 (unaudited) Current Assets Cash and cash equivalents 372,114 52,475 Accounts receivable 346,690 245,088 Unbilled receivables 434,815 154,039 Inventories, net of progress payments 24,030 20,096 Refundable income taxes 2,638 3,055 Investments in and advances to construction joint ventures 71,052 61,160 Deferred income taxes 42,675 41,043 Other 12,384 18,826 ------------ ------------ Total current assets 1,306,398 595,782 ------------ ------------ Investments and Other Assets Securities available for sale, at fair value 41,774 41,640 Investments in mining ventures 64,798 69,063 Cost in excess of net assets acquired 1,486,092 351,869 Deferred income taxes 50,539 48,606 Other 109,678 21,114 ------------ ------------ Total investments and other assets 1,752,881 532,292 ------------ ------------ Property and Equipment, at Cost Construction equipment 303,011 195,833 Land and improvements 8,049 7,970 Buildings and improvements 36,209 17,154 Equipment and fixtures 99,204 82,745 ------------ ------------ Total property and equipment 446,793 303,702 Less accumulated depreciation (175,833) (164,630) ------------ ------------ Property and equipment, net 270,640 139,072 ------------ ------------ Total assets 3,329,919 1,267,146 ============ ============ 6
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LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities [Download Table] Current portion of long-term debt 4,000 -- Accounts payable and subcontracts payable 662,332 179,686 Billings in excess of cost and estimated earnings on uncompleted contracts 746,763 61,805 Estimated costs to complete long-term contracts 292,331 46,905 Accrued salaries, wages and benefits, including compensated absences 100,726 79,727 Income taxes payable 1,288 1,079 Other accrued liabilities 30,797 68,806 ------------ ------------ Total current liabilities 1,838,227 438,008 ------------ ------------ Non-Current Liabilities Long-term debt 693,818 100,000 Postretirement benefit obligation 82,538 80,685 Accrued workers' compensation 41,411 36,181 Pension and deferred compensation liabilities 91,621 100,116 Environmental remediation obligations 4,430 6,016 Other non-current liabilities 75,733 -- ------------ ------------ Total non-current liabilities 989,551 322,998 ------------ ------------ Contingencies and Commitments Minority Interests 86,721 103,050 ------------ ------------ Total stockholders' equity 415,420 403,090 ------------ ------------ Total liabilities and stockholders' equity 3,329,919 1,267,146 ============ ============ 7
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B. CAPITAL STRUCTURE OF THE COMPANY 1. EQUITY Prior to September 18, 2000, WGI's stock (the "Old Common Stock") traded on the New York Stock Exchange (the "NYSE") under the ticker symbol "MK". Since that date, the Debtors' stock has traded on the NYSE under the ticker symbol "WNG." On May 14, 2001, the NYSE suspended trading of the Old Common Stock and initiated delisting procedures. As of the Petition Date, there were approximately 52,349,872 shares of common stock of WGI issued and outstanding. Approximately 39% of the Old Common Stock is held by, or for the benefit of, Dennis Washington. Mr. Washington is the Chairman of the Board of Directors of WGI. SEE SECTIONS III.C.1 AND V.G. Under the Plan, the holders of Interests on account of the Old Common Stock will be classified in Class 8. Under the Plan, holders of Claims and Interests in Class 8 will not receive or retain any property under the Plan on account of such Claims or Interests, unless there is a distribution on account of a WGI Creditor Trust Equity Residual. On the business day on which all conditions to consummation of the Plan have been satisfied or waived, as set forth in the Plan (the "Effective Date"), all of the Old Common Stock will be deemed cancelled and extinguished. 2. THE PREPETITION SENIOR SECURED CREDIT FACILITY Prior to the acquisition of the RE&C Businesses, the Company had uncollateralized revolving credit facilities providing an aggregate borrowing capacity of $325 million, of which $99.9 million was outstanding at June 2, 2000. On July 7, 2000, in order to finance the RE&C Businesses acquisition, refinance such existing revolving credit facilities, fund working capital requirements and pay related fees and expenses, WGI obtained new senior secured credit facilities, providing for an aggregate of $1.2 billion of term loans and revolving borrowing capacity (the "Prepetition Senior Secured Credit Facility") from certain lenders, including Credit Suisse First Boston ("CSFB"), as administrative agent, collateral agent and an issuing bank and as arranger (the "Agent"), Bank of Montreal, as syndication agent, Bank of America, N.A. and U.S. Bank National Association, as documentation agents, and various other persons from time to time parties to the Prepetition Senior Secured Credit Facility as lenders (collectively, the "Prepetition Secured Lenders"). WGI's obligations under the Prepetition Senior Secured Credit Facility are guaranteed by certain of WGI's direct and indirect subsidiaries, all of which are Debtors. The Prepetition Senior Secured Credit Facility provided for, on the terms and subject to the conditions thereof, (i) two senior secured term loan facilities in an aggregate principal amount of up to $500 million, including a multi-draw Tranche A term loan facility in an aggregate principal amount of $100 million that matures July 7, 2005 and a Tranche B term loan facility in an aggregate principal amount of $400 million that matures July 7, 2007, and (ii) a five-year senior secured revolving credit facility in an aggregate principal amount of up to $500 million, all of which was available in the form of letters of credit. Initial borrowings under the Prepetition Senior Secured Credit Facility totaled $400 million, representing the full amount available under the Tranche B term loan facility. The Prepetition Senior Secured Credit Facility contained affirmative, negative and financial covenants and specified events of default which are typical for a credit agreement governing credit facilities of the size, type and tenor of the Prepetition Senior Secured Credit Facility. Among the covenants were those limiting the ability of WGI and certain of its subsidiaries to incur debt or liens, provide guarantees, make investments and pay dividends or repurchase shares. On October 5, 2000, the Company terminated the Tranche A term loan facility due to its determination that near term borrowing capacity was sufficient and to eliminate ongoing related commitment fees. As of the Petition Date, the total amount outstanding under the Prepetition Senior Secured Credit Facility was approximately $702 million, comprised of approximately $400 million in term loans outstanding and approximately $302 million in letter of credit advances. As of July 19, 2001, approximately $172 million of the letter of credit advances had been funded (for a total of $572 million of funded debt) and approximately $130 million of undrawn letters of credit under the Prepetition Senior Secured Credit Facility remained outstanding. Borrowings under the Prepetition Senior Secured Credit Facility are secured by WGI and the guarantors pursuant to a grant of a security interest in the property, interests in property and proceeds thereof now owned or hereafter acquired by those entities, subject to certain specified exceptions (the "Prepetition Collateral"). The Debtors and the Prepetition Secured Lenders believe that Prepetition Collateral constitutes substantially all of the value of the Company. Based upon the valuation of the Company by Lazard (see SECTION XI.E), such value is less than the amount of funded debt owed to the Prepetition Secured Lenders. Accordingly, under the Plan, the Claims of the Prepetition Secured Lenders under the Prepetition Senior Secured Credit Facility are bifurcated into the Secured Lender Claims and the Lender Deficiency Claims, consistent with section 506(a) of the Bankruptcy Code. The amount of Secured Lender Claims Allowed under the Plan is approximately $505 million (subject to adjustment (if any) by the Confirmation Hearing based upon issuance of the Washington Stock Options), based on the 8
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valuation discussion below. Lender Deficiency Claims will be established by the Confirmation Hearing based primarily upon the amount of funded debt owed to the Prepetition Secured Lenders (including any additional draws prior to the Confirmation Hearing on the letters of credit that have not as yet been drawn, which currently total $130 million) MINUS the amount of the Secured Lender Claims. The Secured Lender Claims are classified as Class 6 Claims. Under the Plan, on the Effective Date, each holder of an Allowed Class 6 Claim, in full satisfaction, settlement, release, and discharge of and in exchange for such Allowed Class 6 Claim, will receive on or as soon as practicable after the Distribution Date, its Pro Rata share of 100% of the New Common Shares (subject to dilution by the Management Options and the Washington Stock Options). Lender Deficiency Claims are classified as Class 7 Claims. SEE SECTION VI.C.2.(B). The Creditors' Committee disagrees with both the conclusion concerning the value of the Company and the scope of the liens and security interests claimed by the Prepetition Secured Lenders as set forth in this Disclosure Statement. The Committee has advised the Debtors that, based upon a preliminary evaluation of the Debtors' business plan by the Creditors' Committee's financial advisor, Chanin Capital Partners, it believes that the enterprise value of WGI and the other Debtors to be well in excess of the amount necessary to fully compensate the Prepetition Secured Lenders. In addition, the Creditors' Committee believes that substantial assets were not included in the Collateral securing the Prepetition Senior Secured Credit Facility by agreement and that no attempt was made to perfect the liens or security interests of the Prepetition Secured Lenders in other assets which are also of substantial value. The Creditors' Committee is continuing to investigate these issues. The Creditors' Committee has commenced an adversary proceeding against CSFB, as Agent for the Prepetition Secured Lenders, to determine the validity, priority and extent of the liens and security interests asserted by the Prepetition Secured Lenders in the property of the Debtors and to determine the effect of section 552(b)(1) of the Bankruptcy Code on the Secured Lender Claims. While the matter is in litigation, if the Creditors' Committee prevails, the result may be to determine that a significant amount of the Debtors' property is (a) not Collateral securing the Prepetition Senior Secured Credit Facility and available to the holders of Allowed Class 7 Claims or (b) must be equitably shared between the Prepetition Secured Lenders and the holders of Allowed Class 7 Claims. The Creditors' Committee's contentions are disputed by the Debtors and the Prepetition Secured Lenders. 3. UNSECURED DEBENTURES In connection with the acquisition of the RE&C Businesses, WGI also issued and sold $300 million aggregate principal amount of senior notes due July 1, 2010 (the "Old Notes"). The Old Notes were issued pursuant to an Indenture dated as of July 7, 2000 and are unsecured. United States Trust Company of New York is the Indenture Trustee under that Indenture. The Old Notes are unsecured senior obligations of WGI and are guaranteed by the same subsidiaries that guaranteed the obligations under the Prepetition Senior Secured Credit Facility. The Old Notes mature on July 1, 2010. Interest on the Old Notes was payable semiannually in arrears on January 1 and July 1, commencing January 1, 2001. The Old Notes were sold in a private offering to CSFB, BMO Nesbitt Burns Corp., and U.S. Bancorp Libra. The The Old Notes accrued interest at a rate of 11% per annum through September 20, 2000, and at a rate of 11.5% per annum thereafter. The Old Notes effectively rank junior to all of WGI's secured indebtedness and to all liabilities of the subsidiaries of WGI that are not guarantors of the Old Notes. The Old Notes, however, are not contractually subordinated to the obligations under the Prepetition Senior Secured Credit Facility. The indenture under which the Old Notes were issued contains affirmative, restrictive and financial covenants and specifies events of default which are typical for an indenture governing an issue of high-yield senior unsecured notes. Among the covenants are those limiting the ability of WGI and certain of its subsidiaries to incur debt or liens, provide guarantees, make investments and pay dividends or repurchase shares. As of the Petition Date, outstanding Old Note principal obligations total $313 million. The Old Note Claims are classified in the Plan as Class 7 Claims, and thus the recovery under the Plan to holders of the Old Notes is a pro rata share in the WGI Creditor Trust. Under the Plan, on the Effective Date, the Old Notes shall be terminated automatically without any further action by any party and shall no longer be of any force or effect. C. CORPORATE STRUCTURE OF THE COMPANY 1. CURRENT CORPORATE STRUCTURE WGI was originally incorporated in Delaware on April 28, 1993 under the name Kasler Holding Company. In April 1996, the name of the corporation was changed from Kasler Holding Company to Washington Construction Group, Inc. On September 11, 1996, Washington Construction Group, Inc. merged with Morrison Knudsen Corporation, and changed its name to Morrison Knudsen Corporation. On September 15, 2000, Morrison Knudsen Corporation changed its name to Washington Group International, Inc. WGI is a holding company with approximately 97 direct and indirect subsidiaries in the United States and throughout the world. In addition, WGI has ownership interests in approximately 68 limited liability companies or joint ventures throughout the world. The Debtors consist of WGI and 71 of its subsidiary affiliates. The Debtors' primary base of operation is in the United States. 9
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4. BOARD OF DIRECTORS The following is a list, as of July 23, 2001, of the names of each of the Directors of WGI. Name Title ---- ----- Dennis R. Washington Chairman and Director David H. Batchelder Director Stephen G. Hanks Director Robert S. Miller, Jr. Vice Chairman and Director Dorn Parkinson Vice Chairman and Director Terry W. Payne Director Mr. Washington has been a Director of WGI since 1996, and was appointed Chairman of WGI in September 1996. He also is founder and principal shareholder of Washington Corporations (interstate trucking and repair and sale of machinery and equipment), Missoula, Montana; and is founder and/or principal stockholder or partner in entities, the principal businesses of which, include rail transportation, shipping, barging and ship assist, mining, heavy construction, environmental remediation and real estate development. Mr. Washington's principal business is to make, manage and hold investments in operating entities. Mr. Batchelder has been a Director of WGI since 1993. He is also Chairman and Chief Executive Officer of Batchelder & Partners, Inc. (an investment advisory and consulting firm) and Managing Member of Relational Investors LLC (general partner of active investment fund), San Diego, California. Mr. Stephen G. Hanks was named a Director of WGI in June, 2001. Mr. Hanks joined the Company in 1978 as an attorney in the legal department. He earned a Bachelor of Science Degree in Accounting from Brigham Young University, an MBA from the University of Utah, and a Juris Doctor from the University of Idaho, was named President of WGI in April, 2000, and was named Chief Executive Officer of WGI in June, 2001. Mr. Miller has been a Director of WGI since 1996 and was appointed a Vice Chairman in September 1996. He is also an advisor to Aetna, Inc. (health benefits and insurance and financial services), Hartford, Connecticut. Mr. Miller formerly served as President of Reliance Group Holdings, Inc. (fire, marine and casualty insurance), New York, New York; Chairman and Chief Executive Officer of Waste Management, Inc. (environmental services), Houston, Texas; Acting Chief Executive Officer of Federal-Mogul Corp. (motor vehicle parts and accessories), Detroit, Michigan; and Chairman of Old MK. Mr. Parkinson has been a Director of WGI since 1993 and was appointed a Vice Chairman in September 1996. He is also chairman of and consultant to Washington Corporations (interstate trucking and repair and sale of machinery and equipment), Missoula, Montana. Mr. Parkinson formerly served as President of Washington Corporations. Mr. Payne has been a Director of WGI since 1993. He is also Chairman and owner of Terry Payne & Co., Inc. (insurance and construction bonding), Missoula, Montana. Mr. Payne also serves as a Director of Washington Corporations and First Interstate Bank - Montana, as well as a Director and President of Hoiness LaBar Insurance Co., Inc. 10
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3. SENIOR OFFICERS The following is a list, as of July 23, 2001, of the names of the executive officers and the positions with WGI held by each officer. Title Name ----- ---- Chief Executive Officer and President Stephen G. Hanks Sr. Executive Vice President and Vincent L. Kontny Chief Operating Officer Sr. Executive Vice President and Charles R. Oliver Chief Business Development Officer Executive Vice President and George H. Juetten Chief Financial Officer Executive Vice President G. Bretnell Williams Executive Vice President Robert C. Wiesel Executive Vice President David L. Myers of Corporate Affairs Executive Vice President Ambrose L. Schwallie Executive Vice President Thomas H. Zarges Stephen G. Hanks was named President of WGI in April 2000. Mr. Hanks was named Chief Executive Officer in June, 2001. Prior to that date, Mr. Washington was Chief Executive Officer. Vincent L. Kontny was named chief operating officer of WGI in April 2000 with overall responsibility for the company's operating groups. He is also a member of the Office of the Chairman. Mr. Kontny is the former president and chief operating officer of Irvine, California-based Fluor Corporation and president of Fluor Daniel, Inc. He earned a civil engineering degree and doctor of science honoris causa from the University of Colorado. He also attended the Stanford Executive Program. Charles R. Oliver was named chief business development officer in January 2001 and is a member of the Office of the Chairman. Mr. Oliver has served the engineering and construction industry for 35 years. Prior to joining Washington Group International, Mr. Oliver spent 30 years with Fluor Daniel and retired in late 1999 as group president of Sales, Strategic Planning, and Regions. Mr. Oliver has a degree in civil engineering from Auburn University and from Stanford University's Executive Program. George Juetten, formerly Senior Vice President and Chief Financial Officer of Dresser Industries, Inc., was appointed an Executive Vice President and Chief Financial Officer in January 2001. Mr. Juetten spent six years with Dresser Industries, where he also served as Vice President - Controller from 1993 to 1996. Prior to joining Dresser Industries, Mr. Juetten spent 24 years with Price Waterhouse as an Audit Partner with multinational clients, including Dresser Industries. He joined Price Waterhouse in 1969 and served in The Hague, Netherlands, from 1974 to 1977. Mr. Juetten holds an accounting degree from Marquette University. G. Bretnell Williams, formerly Executive Vice President of Washington Industrial/Process Operations, was appointed President and Chief Executive Officer of Washington Industrial/Process in January 2001. Mr. Williams, who has been engaged in business development and operations of industrial projects for more than four decades, started his career with Washington Group as Vice President of Marketing in 1976. He later served as President of the company's H.K. Ferguson Company and was named to his present position in 1991. Mr. Williams graduated from Yale University with an engineering degree in 1951. Robert C. Wiesel is president and chief executive officer of the Petroleum & Chemicals unit of Washington Group. Joining Stone & Webster Engineering Corporation (SWEC) in 1972, Mr. Wiesel began his career as a civil engineer in the engineering and design of power generating projects throughout the United States. Named the executive vice president of Stone & Webster, Inc., and vice chairman of SWEC in 1998, he was one of the four senior executives that comprised the company's core management team. After 27 years with Stone & Webster, Mr. Wiesel joined Raytheon Engineers & Constructors in May of 1999 as senior vice president of Petroleum and 11
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Chemicals. Mr. Wiesel earned a bachelor of science degree in civil engineering from the University of Massachusetts and a master's in civil engineering from Northeastern University. David L. Myers, formerly President and Chief Executive Officer of the Washington Power unit, was named Executive Vice President of Corporate Affairs in January 2001. Prior to joining Washington Group, Mr. Myers served as Chief Operating Officer at RE&C and as President of Fluor Daniel's Environmental Strategies Operating Company. Mr. Myers served for seven years in the nuclear submarine service, joining Fluor Engineers & Constructors in 1975. Mr. Myers oversees key strategic and financial initiatives and provides his industry expertise to the Debtors' corporate affairs in the United States and abroad. Mr. Myers holds a bachelor of sciences degree in electrical engineering from the United States Naval Academy, a masters of electrical engineering degree from the United States Postgraduate School, a masters in administration degree from the University of California at Irvine, and attended the Executive Program in International Management at Columbia University. Ambrose L. Schwallie was named president and chief executive officer of Government unit in August of 1999. He directs the operations that serve the United States Departments of Energy and Defense, and other clients in the nuclear-services and environmental markets. He had served as president of the Westinghouse Savannah River Company (WSRC) since August 1991. Before being named president of WSRC, Mr. Schwallie served as the company's executive vice president. Previously, Mr. Schwallie was engineering manager for Westinghouse Electric Company's Advanced Energy Systems Division. Since beginning his career with Westinghouse Electric in 1972, Mr. Schwallie has performed a variety of research and engineering activities. He earned bachelor of science and master of science degrees in Mechanical Engineering from The Ohio State University. Thomas H. Zarges, formerly President and Chief Executive Officer of WGI's Industrial/Process unit, was named President and Chief Executive Officer of Washington Power in January 2001. Mr. Zarges is a 27-year veteran of the engineering and construction industry who joined the company in 1991 as President and Chief Executive Officer of the company's Power and Industrial/Manufacturing Divisions. He previously served 17 years with Raytheon's former subsidiary United Engineers & Constructors, with supervisory and management positions in field construction, engineering, and project management. His experience includes major nuclear and fossil-power projects, high-technology projects in the steel and process industries, industrial manufacturing, and heavy civil construction. He is a 1970 engineering graduate of the Virginia Military Institute. IV. EVENTS LEADING TO COMMENCEMENT OF THE CHAPTER 11 CASES A. THE RAYTHEON TRANSACTION As discussed in SECTION III.A.2 above, on July 7, 2000, pursuant to the Stock Purchase Agreement, WGI purchased the RE&C Businesses. Because of the size and complexity of the businesses being sold to WGI, the Stock Purchase Agreement did not contain a fixed purchase price for the transaction, but rather provided that the cash portion of the purchase price paid would be calculated using selected audited balance sheet items of the acquired businesses as of April 30, 2000, and that the price paid at closing of the transaction would be subject to a purchase price adjustment. Following the closing, WGI undertook a comprehensive review of existing contracts that were acquired for the purpose of making a preliminary allocation of the acquisition price to the net assets acquired. As part of this review, WGI evaluated, among other matters, estimates at completion for long-term contracts in process as of the acquisition date. The preliminary results of this review raised questions about the RE&C Businesses and indicated that the estimates at completion of numerous RE&C long-term contracts required substantial adjustment. As a result, in its Form 10-Q Quarterly Report for the period ended September 1, 2000, WGI significantly decreased the carrying value of the net assets acquired and increased the goodwill associated with the transaction. WGI's investigation of the RE&C Businesses continued thereafter, and, based on the results of that review, WGI expected that the purchase price adjustment would be significant. Under agreements between Raytheon and WGI, Raytheon agreed to provide the April 30, 2000 audited balance sheet of the RE&C Businesses by January 14, 2001. Delivery by Raytheon of this balance sheet was required to begin the purchase price adjustment process under the Stock Purchase Agreement. The balance sheet was not delivered at that time and had not been delivered as of May 14, 2001. As a result of Raytheon's failure to comply with the purchase price adjustment process, WGI did not obtain any adjustment to the purchase price by May 14, 2001. As a result of WGI's post-closing review of the RE&C Businesses, WGI also believes that Raytheon committed fraud in connection with the sale of the RE&C businesses. In a lawsuit filed on March 8, 2001, WGI alleges that Raytheon's management consistently engaged in inappropriate accounting practices and intentional earnings manipulation by overstating revenue, understating 12
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costs, avoiding recognition of losses and thereby severely overstating profits and understating losses on numerous projects. These activities concealed significant cost overruns and negative cash flows at many of the RE&C projects acquired. These undisclosed cost overruns and negative cash flows, combined with WGI's inability to receive a purchase price adjustment from Raytheon in a timely manner, created a severe, near-term liquidity crisis for the Company. It is anticipated that, during the Chapter 11 Cases, the Debtors will reject the Stock Purchase Agreement and certain related agreements, after notice and a hearing by the Bankruptcy Court. See APPENDIX D for a statement of position by Raytheon. B. LIQUIDITY ISSUES The Company's liquidity crisis became acute by late February and early March, 2001. Two projects with respect to which Raytheon retained liability under guaranty agreements with the project owners - projects to build power plants in Massachusetts for Sithe - had particularly negative cash flows. In order to preserve cash and be able to continue operations, the Company was forced to take the unprecedented action of suspending performance on those two projects in March, 2001. See SECTION V.I.2 for a discussion of the litigation commenced against the Debtors by Mitsubishi with respect to the Sithe project. The Company initially sought to solve its liquidity crisis by pursuing alternatives that could have avoided the need to commence the Chapter 11 Cases. First, the Company sought to negotiate some type of settlement with Raytheon. Those attempts were unsuccessful. Second, the Company attempted to negotiate with the Prepetition Secured Lenders as well as other lending institutions to procure additional financing outside of a Chapter 11 filing. Those efforts were also unsuccessful. Third, the Company retained Lazard to solicit interest from potential third parties in the sale of the Company. No offers were received that the Company and the Prepetition Secured Lenders believed reflected the fair value of the businesses. As a result, the Company's only alternative to obtain the additional liquidity to continue operations and preserve going concern value was the financing offered by the DIP Lenders pursuant to a Chapter 11 filing. See SECTION V.C for a summary of the DIP Facility. The Creditors' Committee and certain other parties have asserted that they dispute the adequacy of the Debtors' prepetition efforts to sell all or part of their businesses. The Debtors contest that assertion. See SECTION X.II.B. C. NEGOTIATIONS WITH PREPETITION SECURED LENDERS The ability of the Company, like any engineering and construction company, to maintain and grow its going concern value, depends, in large measure on the ability to continue to procure new work. The Company's projects are typically large, complex projects that take years to complete and, often involve investments of tens, if not hundreds, of millions of dollars by project owners. Not surprisingly, many customers are reluctant to award new work to a company in Chapter 11. The ability to procure bonds to secure performance, which is often required to be awarded new work by a project owner, is extremely difficult for a Chapter 11 debtor. As a result, prior to the Petition Date, the Company determined that if a Chapter 11 filing was unavoidable, the only way to preserve going concern value was to take steps designed to complete the restructuring process quickly. To that end, in conjunction with the negotiations with the Prepetition Secured Lenders for the DIP Facility, the Company began negotiations on the terms of a reorganization plan. The Company believed that it was imperative if value was to be preserved and maximized for the benefit of all creditors, that the commencement of the Chapter 11 Cases be accompanied by the filing of a reorganization plan, both to demonstrate to customers, vendors and contractors and employees that a restructuring would be completed quickly and to, in fact, attempt to complete the process as quickly as practicable. Consistent with that view, the DIP Lenders and Prepetition Secured Lenders expressly conditioned their willingness to provide and consent to, respectively, the DIP Facility, upon the concurrent filing of a reorganization plan acceptable to them in principle. As a result, a draft reorganization plan was filed on May 14, 2001, reflecting the results of the Company's negotiations with the Prepetition Secured Lenders and the DIP Lenders. Subsequently, that plan was amended to incorporate the agreement reached with Mr. Dennis Washington, as described in SECTION V.G, which agreement is embodied in the Plan. V. CHAPTER 11 CASES A. CONTINUATION OF BUSINESS; STAY OF LITIGATION On May 14, 2001, the Debtors filed petitions for relief under Chapter 11 of the Bankruptcy Code. Since the Petition Date, the Debtors have continued to operate as debtors-in-possession subject to the supervision of the Bankruptcy Court and in accordance with the Bankruptcy Code. Under the Bankruptcy Code, the Debtors are required to comply with certain statutory reporting requirements, 13
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including the filing of monthly operating reports. As of the date hereof, the Debtors have complied with such requirements and with which the Debtors will continue to comply. The Debtors are authorized to operate their business in the ordinary course of business, with transactions out of the ordinary course of business requiring Bankruptcy Court approval. An immediate effect of the filing of the Debtors' bankruptcy petitions is the imposition of the automatic stay under the Bankruptcy Code which, with limited exceptions, enjoins the commencement or continuation of all collection efforts by creditors, the enforcement of liens against property of the Debtors and the continuation of litigation against the Debtors. This relief provides the Debtors with the "breathing room" necessary to assess and reorganize their business. The automatic stay remains in effect, unless modified by the Bankruptcy Court, until consummation of a plan of reorganization. B. FIRST DAY ORDERS On the first day of these cases, the Debtors filed several motions seeking certain relief by virtue of so-called "first day orders." First day orders are intended to facilitate the transition between a debtor's prepetition and postpetition business operations by approving certain regular business practices that may not be specifically authorized under the Bankruptcy Code or as to which the Bankruptcy Code requires prior approval by the Bankruptcy Court. Many of the first day orders obtained in these cases are typical for large Chapter 11 cases. Other first day relief, as described more fully below, was atypical and was specifically designed to preserve the value of the Debtors' estates by enabling the Debtors to continue to work on ongoing projects and receive the revenue associated therewith in the ordinary course. THE DESCRIPTIONS OF THE RELIEF SOUGHT OR OBTAINED IN THE CHAPTER 11 CASES SET FORTH BELOW AND THROUGHOUT THIS DISCLOSURE STATEMENT ARE SUMMARIES ONLY. ALL PLEADINGS FILED IN THE CHAPTER 11 CASES, AND ALL ORDERS ENTERED BY THE BANKRUPTCY COURT, ARE PUBLICLY AVAILABLE AND MAY BE FOUND, DOWNLOADED AND PRINTED FROM THE WGI WEBSITE FOUND AT http//www.wgint.com. or http//www.nvb.uscourts.gov. The more typical first day orders in the Chapter 11 Cases authorized, among other things: a. the retention of the following professionals to serve on behalf of the Debtors: (i) Skadden, Arps, Slate, Meagher & Flom (Illinois) and its affiliated law practices, as bankruptcy counsel; (ii) Lionel Sawyer & Collins as local bankruptcy counsel; (iii) Zolfo Cooper, LLC ("Zolfo Cooper") as bankruptcy consultants and special financial advisors; (iv) Lazard as investment banker; and (v) Robert L. Berger & Associates, LLC, as solicitation and noticing agent (the "Claims Agent"); b. the continued retention of Jones, Day, Reavis & Pogue to provide legal services to the Debtors in connection with various corporate and litigation matters, including litigation arising from the acquisition of the RE&C Businesses; c. the continued retention of professionals regularly employed by the Debtors in the ordinary course of business; d. the maintenance of the Debtors' bank accounts and operation of their cash management systems substantially as such systems existed prior to the Petition Date; e. payment of employees' accrued prepetition wages and employee benefit claims; f. payment of prepetition shipping, warehouse, distributor or broker charges and related possessory liens; g. continued utility services during the pendency of the Chapter 11 Cases; h. payment of certain prepetition tax claims; i. confirmation that the Debtors' undisputed obligations arising from postpetition delivery of goods will have administrative expense priority status, administrative expense treatment for certain holders of valid reclamation claims, and authority to pay certain expenses in the ordinary course of business; j. joint administration of each of the Debtors' bankruptcy cases. 14
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Importantly, on the first day of the Chapter 11 Cases, the Debtors also obtained entry of an order by the Bankruptcy Court authorizing them to continue to pay, in the ordinary course of business, vendors, subcontractors and other creditors ("Critical Vendors") that provide goods and services for ongoing projects (the "Critical Vendor Order") subject to a cap of $170 million. Absent the ability to make such payments, the Debtors believe that continued receipt of payments from project owners would be jeopardized for a number of reasons. For example, absent payment of subcontractors, such subcontractors would be able to assert mechanics liens against project owner property, and such project owners could divert payments that would otherwise be made to the Debtors to subcontractors to satisfy such liens. Moreover, the Debtors would be unable to continue to force subcontractors to continue work on projects absent payment of their claims, which would result in the Debtors defaulting on project contracts, triggering the right of owners to call on performance or other bonds issued for their benefit by the Debtors' sureties. Such events would trigger equitable subrogation claims by such sureties to the future payments otherwise due to the Debtors under those contracts, severely compromising, if not eliminating, the Debtors' receipt of ongoing project revenue. As a result, the Debtors sought approval of the Critical Vendor Order. Importantly, by its terms, the Critical Vendor Order requires a vendor or subcontractor whose prepetition claim is paid thereunder to continue to provide goods and services to the Debtors on ordinary payment terms. This mechanism ensures that the Debtors continue to receive trade credit support from their Critical Vendors, which provides a significant liquidity benefit to the Debtors' estates. A list of each Critical Vendor that has received payments to date or that is anticipated to receive such payments during these Chapter 11 Cases is attached hereto as APPENDIX E. C. DEBTOR IN POSSESSION FINANCING 1. THE DIP FACILITY As noted above, the Company required substantial additional liquidity to fund operations during the Chapter 11 Cases. Accordingly, on the Petition Date, the Debtors sought and obtained interim authority to enter into the DIP Facility with CSFB as administrative agent, and the DIP Lenders. Final authority to enter into the DIP Facility was granted by the Bankruptcy Court on June 13, 2001. Specifically, the DIP Facility provides for secured postpetition financing from the DIP Lenders in an aggregate principal amount not to exceed $350 million, with $220 million fully committed as of the date hereof, and up to an additional $130 million to be sought to be made available. The DIP Facility has a term of nine months. The Debtors have and will continue to utilize the funds provided by the DIP Facility for general working capital and the Debtors' other general corporate purposes. As of the Effective Date, the Debtors' obligations under the DIP Facility are projected to equal approximately $30 million of funded loans plus approximately $40 million in outstanding letters of credit. Actual amounts may be higher or lower. The Debtors' draws on the DIP Facility to date have been lower than expected primarily due to the lack of deterioration in expected receipts from the Debtors' customers and better than anticipated postpetition trade credit being received by the Debtors. To secure the repayment of the borrowing and all other obligations arising under the DIP Facility, the Debtors granted the DIP Lenders first priority liens on substantially all of their assets, SENIOR to the liens of the existing Prepetition Secured Lenders, but junior to other valid liens existing on the Petition Date. Obligations under the DIP Facility were also granted "superpriority" claim status under section 364(c)(1) of the Bankruptcy Code, meaning they have priority over all other administrative expenses. The liens and claims granted to the DIP Lenders are subject to the fees and expenses of the Office of the United States Trustee under 28 U.S.C. Section 1930 and the Clerk of the Bankruptcy Court, as well as a $2 million carve-out for fees and disbursements of the professionals of the Debtors and the Creditors' Committee incurred after an event of default under the DIP Facility. The DIP Facility also contains covenants, representations and warranties, events of default, and other terms and conditions typical of credit facilities of a similar nature. Among the events of default is the failure of certain events to occur by designated deadlines, such as approval of the Disclosure Statement by the Bankruptcy Court and Confirmation of the Plan. Importantly, the DIP Facility limits the Debtors' borrowing ability to the terms of a budget agreed upon by the Debtors and the DIP Lenders. Pursuant to the Bankruptcy Court order approving the DIP Facility, the DIP Lenders and the Agent are provided certain releases. See SECTION V.B of this Disclosure Statement for information as to how to view this order (and other pleadings in these Chapter 11 Cases) on the Debtors' website. 2. AUTHORIZATION TO USE CASH COLLATERAL The cash the Debtors had on hand as of the Petition Date, and substantially all cash received by the Debtors during the Chapter 11 Cases, constitutes "cash collateral" of the Prepetition Secured Lenders. Cash collateral is defined in section 363 of the Bankruptcy Code and includes, but is not limited to, "cash, negotiable instruments, documents of title, securities, deposit accounts, . . . 15
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other cash equivalents . . . and . . . proceeds, products, offspring, rents or profits of property subject to a security interest . . . ." 11 U.S.C. Section 363(a). Under the Bankruptcy Code, the Debtors are prohibited from using, selling, or leasing cash collateral unless either the appropriate creditor(s) consent or the Bankruptcy Court, after notice and a hearing, authorizes such action. In connection with the DIP Facility, the Debtors obtained authority to enter into a stipulation to use the Cash Collateral to pay current operating expenses, including payroll and to pay subcontractors and other vendors to ensure that projects continue and to ensure a continued supply of materials essential to the Debtors' continued viability. 3. EXIT FINANCING On the Effective Date of the Plan, the Debtors anticipate entering into a new senior secured facility (the "Exit Facility") in order to (a) repay amounts outstanding on the Effective Date under the DIP Facility, (b) make other payments required to be made on the Effective Date or the Distribution Date, and (c) provide such additional borrowing capacity as is required by the Debtors following the Effective Date to maintain their operations. As of the date hereof, no commitment for an Exit Facility has been obtained. SEE SECTION V.L.1.(f). D. APPOINTMENT OF CREDITORS' COMMITTEE On May 21, 2001, the United States Trustee for the District of Nevada appointed, pursuant to section 1102(a) of the Bankruptcy Code, certain entities to the Official Committee of Unsecured Creditors of the Debtors (the "Creditors' Committee"). The members of the Creditors Committee are United States Trust Company of New York; Oaktree Capital Management, LLC; Principal Life Insurance Company; Teachers Insurance and Annuity Association of America; Toshiba International Corp.; MK Gold Company; Boccard USA Corporation; Kinetics Systems Inc.; and Mitsubishi. The Creditors' Committee retained Murphy Sheneman Julian & Rogers, PC as counsel and Chanin Capital Partners as financial advisors. E. OTHER MATERIAL RELIEF OBTAINED DURING THE CHAPTER 11 CASES In addition to the first day relief sought in these Chapter 11 Cases, the Debtors have sought or anticipate seeking authority with respect to a multitude of matters designed to assist in the administration of the Chapter 11 Cases, to maximize the value of the Debtors' estates and to provide the foundation for the Debtors' emergence from Chapter 11. Set forth below is a brief summary of certain of the principal motions the Debtors have filed during the pendency of the Chapter 11 Cases. 1. EMPLOYEE RETENTION PROGRAM AND CONTINUANCE OF PTO PROGRAM - On the Petition Date, the Debtors filed a motion (the "Retention and Severance Motion") with the Bankruptcy Court, requesting Bankruptcy Court approval of a program (the "Key Employee Retention Program") designed to retain key executives and employees. The Key Employee Retention Program consists of two separate components: (i) the implementation and\or continuation of an employee retention program (the "Retention Program") and (ii) an employee severance program (the "Severance Program"). The Retention and Severance Motion, as amended to reflect certain agreements with the Creditors' Committee, was approved by the Bankruptcy Court on June 25, 2001. The Key Employee Retention Program is an integral part of a comprehensive employee retention program designed by the Debtors to minimize management and employee turnover. The Retention Program consists of five separate components: (i) corporate and management retention ("Part I"); (ii) project retention ("Part II"); (iii) power group retention ("Part III"); (iv) Harquala retention ("Part IV"); and (v) former Raytheon Engineers & Constructors executive retention ("Part V"). Part I covers key personnel that provide strategic and administrative functions for the Debtors. Key employees included in Part I will receive three equal payments made at six month intervals, beginning in September, 2001, with the final payment conditioned upon confirmation of the Plan. Parts II, III, and IV cover key employees related to certain project work currently underway by the Debtors. Key employees covered under Part II will receive two equal payments made six months apart, beginning in September, 2001. Key employees covered under Part III will receive one payment in September, 2001. Key employees covered under Part IV will receive a lump sum payment in November, 2001. Under Part V, certain RE&C executives who are currently employed by the Debtors will receive the remaining two of three scheduled payments in July, 2001 and July, 2002. The first of the three scheduled payments was made in June, 2000 pursuant to a program designed by Raytheon to retain key RE&C executives after the acquisition of the RE&C Businesses. The maximum aggregate amount to by paid out under the Retention Program is $31,894,252. The Severance Program is necessary in order to ensure that employees will not be terminated without receiving some compensation in the form of severance. Under the Severance Program, the Debtors (i) may enter into severance 16
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agreements with employees hired to replace officers who previously had severance agreements and (ii) continue a severance program that was instituted prior to the Petition Date (the "Prepetition Severance Program"), assuring employees that any severance claims they may hold will be accorded postpetition administrative status. The Prepetition Severance Program began in March, 2001 and continues through December, 2002 and under its terms, a participant receives severance benefits if such participant suffers a decrease in pay or is forced to make an unacceptable relocation. The maximum aggregate amount of payments that could theoretically be required to be made under the Severance Program is $24,432,464, with limitations on the amount that can be paid prior to the Effective Date of the Plan. In addition, on the Petition Date, the Debtors filed a motion (the "PTO Motion") to continue a certain prepetition employee benefit program as modified, through which employees accrued paid time off ("PTO") during each pay period that could be used (subject to supervisory approval) for vacation, sick leave, bereavement, religious observances and certain other purposes (the "PTO Program"). Eligible employees may also buy or sell up to 40 hours of future PTO annually. Unused PTO carries over from year to year and can accrue up to a maximum of 12-20 weeks depending on the employee's length of service. Additionally, under the PTO Program, an eligible employee is entitled to payment of accrued paid time off upon termination. The Debtors believe that continuation of the PTO Program is essential to the continued employment, active participation, and dedication of the Debtors' employees who possess the knowledge, experience and skill to support the Debtors' business operations. The Debtors estimate that, as of the Petition Date, accrued unpaid PTO aggregates approximately $42.7 million or approximately $4,528 per employee. The PTO Motion was approved by the Bankruptcy Court on June 13, 2001. 2. INTERIM ARRANGEMENTS REGARDING RED OAK AND ILIJAN PROJECTS - The Red Oak project is a construction project in Sayerville, NJ, for the construction of a combined cycle electric generating plant (the "Red Oak Project"). The Ilijan project is a construction project in the Republic of Philippines, for the construction of a natural gas-fired generating plant (the "Ilijan Project"). Both projects were acquired as part of the RE&C Businesses Acquisition, and the Company's performance under both the Red Oak Project and the Ilijan Project is guaranteed by Raytheon pursuant to guarantees executed at the inception of the projects. The Ilijan Project and Red Oak Project are projected by the Company to be cash flow negative for the Company after the Petition Date. Due to budgetary constraints under the DIP Facility, the Company could not make further expenditures for costs and expenses on the Ilijan Project or the Red Oak Project unless and until the project owners, Raytheon and the DIP Lenders agreed to an arrangement that would allow the Company to continue work on the projects but would reform the structure of payments to be cash-flow neutral to the Company. Accordingly, on May 22, 2001, the Debtors, the DIP Lenders, Raytheon, and the respective Red Oak and Ilijan Project owners, reached interim agreements that allowed the Company to continue work on those projects on a cash-flow neutral basis. With respect to the Ilijan Project, the project owner agreed to make remaining contract payments to Raytheon and the Debtors' partner on the project, (Mitsubishi), rather than the Debtors. The Debtors, in turn, are paid by Raytheon and Mitsubishi weekly in advance for estimated costs and expenses on the project. All parties' respective rights to assert claims against one another arising out of the prepetition contracts, are fully preserved. This interim agreement currently expires on July 27, 2001, and a longer-term agreement, on substantially similar terms, is under negotiation. With respect to the Red Oak Project, the interim agreement reached provides for the project owner to make certain specified payments to the Company. The Company has agreed to segregate those funds and utilize them only for costs and expenses incident to the Red Oak Project, and to use no other funds for the project. As of the date hereof, this agreement extends through approximately August 3, 2001, and is expected to be extended. A longer-term arrangement is subject to pending negotiations. In addition, before the Petition Date, a letter of credit was issued under the Prepetition Senior Secured Credit Facility for the benefit of the project owner, to secure the Company's performance. Prior to the Petition Date, that letter of credit was drawn in the amount of approximately $95 million. The Prepetition Secured Lenders have asserted that the letter of credit should have been drawn in the amount of $82 million based on information provided to the Prepetition Secured Lenders by the Company. The Company disputes that contention. All parties' rights with respect to this issue, as well as any other claims arising out of the prepetition contracts for the Red Oak Project, have been fully preserved. These agreements allow the Company to continue working on the Red Oak and Ilijan Projects and to pay all employees, 17
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vendors and subcontractors in the ordinary course of business. At this time, there can be no assurance that long-term agreements for the continued performance of these projects by the Company and funding to the Company for that performance will be able to be reached. 3. EXTENSION OF TIME TO ASSUME OR REJECT UNEXPIRED LEASES - Given the size and complexity of these Chapter 11 Cases, the Debtors determined that they will be unable to complete their analysis of all nonresidential real property leases during the time limitation prescribed in section 365(d)(4) of the Bankruptcy Code. Accordingly, the Debtors sought an extension of the time by which the Debtors must assume or reject leases of nonresidential real property, which extension was granted by the Bankruptcy Court on July 9, 2001, and expires on the earlier of (i) November 15, 2001 or (ii) the effective date of any confirmed plan of reorganization in these Chapter 11 Cases. All such leases will be assumed under the Plan, except for those leases specified on SCHEDULE 6.3 of the Plan. SEE SECTION VI.M.1. 4. POSTPETITION BONDING FACILITY - The ability of a contractor to be awarded many types of construction projects depends upon the ability to have issued payment, performance and other types of bonds for the benefit of the project owners. The Debtors have outstanding many such bonds on existing projects, and need to be able to issue more of such bonds to be in a position to procure new contract awards and thus preserve and maximize the value of these estates. Bonding companies are sureties, and they expose themselves to significant financial risks when they issue a bond. If the principal to the construction contract defaults, the surety is required to perform the contract in place of the principal pursuant to the terms of the bonds. Under surety law, the surety essentially becomes the owner of future monies to be paid under the contract by the project owner; however, despite that protection, completion of a defaulted project may be at a substantial loss to the surety, because it bears all bonded costs and expenses of completion of the project. The surety has claims for its losses against the defaulting contractor. As a result, any surety cautiously screens applicants to minimize its potential exposure. Such screening obviously includes an examination of the principal's financial health. Not surprisingly, sureties are reluctant to incur bonding risk for a Chapter 11 debtor. The Debtors are not aware of any instance where a Chapter 11 debtor that is a large construction company has been able to obtain significant bonding capacity while in bankruptcy. In order to attempt to maintain and maximize value to the greatest extent possible under the circumstances, the Debtors began negotiations with one of their principal existing sureties, Federal Insurance Company (with its affiliates, "Federal"), to be able to have new bonds issued during the Chapter 11 Cases. The Debtors believe that the ability to do so, if obtained, would greatly increase the chances to be awarded new projects during the Chapter 11 Cases, to the ultimate benefit of all creditors. As a result of these efforts, on June 8, 2001, the Debtors filed a motion (the "Federal Motion") seeking approval of a term sheet with Federal and to enter into a bonding facility (the "Federal Bonding Facility") consistent therewith. The Federal Motion was approved be the Bankruptcy Court on July 9, 2001. The Federal Bonding Facility essentially provides for the issuance of up to $100 million of new bonds for Company projects. The Federal Bonding Facility also contemplates additional bonding for new projects of joint ventures in which the Company participates. Provisions for the replacement of certain existing Federal bonds are also included. The Federal Bonding Facility requires the Debtors to pay various fees and expenses to Federal including a $1.5 million commitment fee and a 1% fee on the amount of new bonds issued. Letter of credit and/or Cash collateralization of all stand-alone Company bonds in amounts averaging approximately 40% of the face amount of the bond is also required, with such collateral securing all new bond obligations as a pool. Further, the Federal Bonding Facility requires (i) that the Debtors grant liens on certain assets to secure obligations to Federal; (ii) the assumption of certain prepetition contracts under section 365 of the Bankruptcy Code; and (iii) that the Bankruptcy Court deem all Claims of Federal under bonds outstanding as of the Petition Date to be administrative priority claims under Section 503 of the Bankruptcy Code. The Federal Bonding Facility remains subject to agreement on final documentation by the Debtors, Federal, the DIP Lenders and the Creditors' Committee. 18
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F. APPOINTMENT OF AN EXAMINER On May 25, 2001, Mitsubishi filed a motion seeking appointment of an examiner under section 1104 of the Bankruptcy Code (the "Examiner Motion"). Mitsubishi requested that the examiner be appointed to conduct an investigation of, in essence, all of the Debtors' prepetition financial affairs. On June 7, 2001, the Debtors filed a response to the Examiner Motion. The Debtors did not believe that appointment of an examiner would be in the best interests of the Debtors' estates. Section 1104 of the Bankruptcy Code, however, has been held by some courts to require appointment of an examiner under certain circumstances if requested by a party in interest. As discussed in SECTION IV.C, the Debtors believe that an expeditious completion of these Chapter 11 Cases is critical to preserving the Debtors' ongoing concern enterprise value. As a result, the Debtors concluded not to contest appointment of an examiner, to avoid the potential for delay if the Debtors were to litigate the Examiner Motion on its merits. At a hearing conducted on June 13, 2001, the Bankruptcy Court directed the United States Trustee to appoint an examiner. Mr. Jeffrey Truitt of KPMG, and KPMG were appointed as examiners pursuant to an order entered by the Bankruptcy Court on June 28, 2001. The examiner is expected to file a report regarding the events leading to the commencement of the Chapter 11 Cases on or about August 22, 2001. G. NEGOTIATIONS AND AGREEMENT WITH MR. WASHINGTON Mr. Washington has been Chairman of WGI since September, 1996. He has a long history of involvement in the construction industry, and has been instrumental in the operating success of the Company. Mr. Washington indicated that he was interested in continuing his involvement with the Company, subject to agreement on compensation to be provided for his ongoing services. The Steering Committee for the Prepetition Lenders and the Debtors believe that Mr. Washington's continued commitment to the Company, both in terms of active participation in its management, as well as through ongoing economic investment, will be highly beneficial to the Company's future prospects. As a result, shortly after the Petition Date, the Steering Committee for the Prepetition Secured Lenders and Mr. Washington began negotiations regarding Mr. Washington's continued involvement with the Company during and after the Chapter 11 Cases. Mr. Washington's current equity stake in the Company - his ownership of Old Common Stock - will be cancelled under the Plan. Mr. Washington expressed, in those negotiations, his position that a condition to his willingness to continue to serve on the WGI's Board of Directors and allow the Company to utilize the "Washington" name and trademark, was dependent upon reaching agreement on the terms and conditions for consideration to be provided to him in exchange. The result of those negotiations is an agreement (the "Washington Agreement"), which is embodied in the Plan. The Washington Agreement is comprised of the following components: 1. GRANT OF WASHINGTON STOCK OPTIONS - On the Effective Date, Mr Washington will be granted options to purchase New Common Shares (the "Washington Stock Options"). The Washington Stock Options will consist of three (3) tranches of options as follows: a. The "Tranche A Washington Options" will be options to purchase New Common Shares consisting of five percent (5%) of the New Common Shares outstanding, on a fully diluted basis, with a per share strike price calculated based upon an assumed total enterprise value for Reorganized WGI and its subsidiaries of $300 million MINUS "Funded Debt" (as defined below). The Tranche A Washington Options will have a term expiring on the fifth (5th) anniversary of the Effective Date. b. The "Tranche B Washington Options" will be options to purchase New Common Shares consisting of five percent (5%) of the New Common Shares outstanding, on a fully diluted basis, with a per share strike price calculated based upon a total enterprise value for Reorganized WGI and its subsidiaries of $550 million MINUS Funded Debt. The Tranche B Washington Options will have a term expiring on the fifth (5th) anniversary of the Effective Date. c. The "Tranche C Washington Options" will be options to purchase New Common Shares consisting of five percent (5%) of the New Common Shares outstanding, on a fully diluted basis, with a per share strike price 19
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calculated based upon an assumed total enterprise value for Reorganized WGI and its subsidiaries of $720 million MINUS Funded Debt. The Tranche C Washington Options will have a term expiring on the seventh (7th) anniversary of the Effective Date. A sample calculation of the strike price for the Washington Stock Options is set forth on SCHEDULE 5.15(b) to the Plan. The Tranche A Washington Options, Tranche B Washington Options and Tranche C Washington Options will each vest in three (3) equal installments on each of the Effective Date and the first two (2) anniversaries of the Effective Date (if Mr. Washington is Chairman of the Board on such date); PROVIDED THAT, all such options will vest immediately upon Mr. Washington being removed as Chairman of the Reorganized WGI Board of Directors involuntarily, including through the failure to be renominated to the Board. For purposes of calculating the per share strike price for the Washington Group Options, "Funded Debt" will be determined as of the Confirmation Date and includes the amount of funded debt outstanding immediately after the Effective Date incurred to repay or retire outstanding obligations under the DIP Facility. Funded Debt shall be subject to adjustments, if necessary, to reflect a normalized level of working capital ("NLWC"). The NLWC will be determined by the financial advisors to the Debtors and the Prepetition Secured Lenders, and shall be set forth in the Confirmation Order. The NLWC will be such working capital as would be normal and customary for the Debtors' businesses as they exist at the time consistent with industry standards, the Debtors' past experience and benchmarking. The NLWC will be consistent with past practices and will neither accelerate nor defer cash receipts by, among other things, modifying billing cycles or the timing or terms of the collection of receivables or dividends from joint ventures. The Debtors will continue their historical cash management procedures including issuing letters of credit for retainage on accounts receivable collections. The NWLC will also adjust for any acceleration or deferral of cash disbursements including, among other things, modifying normal payment terms or timing of accounts payable, prepaying for services, pre-funding or deferring pension contributions or permitting substantial retainer payments or having cash balances higher or lower than customary. Funded debt and NLWC will be adjusted to exclude the impact of (A) the consolidation of previously unconsolidated investments, (B) acquisitions or dispositions of assets for fair value outside the normal course of business, (C) other transactions which would not be expected to modify enterprise value and (D) acquisition or disposition of fixed or other assets outside the ordinary course of business. 2. EARLY VESTING OF WASHINGTON STOCK OPTIONS - If, prior to the Effective Date, the Debtors enter into any agreement to sell more than twenty-five (25%) of the value (based upon revenue) of any business unit of the Debtors (excluding the Petroleum & Chemical business unit and the Mining division), (a) all of the Washington Stock Options will be issued and become fully vested on the Effective Date, (b) the Debtors will accept Mr. Washington's resignation from the Board of WGI and (c) the Debtors shall not utilize the Washington name or trademark after the Effective Date (following a reasonable period of transition). 3. PAYMENT UPON SALE OF ASSETS - If, prior to or as of the Effective Date (whether pursuant to a plan or reorganization or otherwise) substantially all of the assets of the Debtors are sold, Mr. Washington will receive a payment, in cash, in an amount equal to (i) the amount by which the aggregate net proceeds from such asset sales (including an adjustment for liabilities assumed, if any, in excess of the NWLC) (the "Sale Proceeds") exceed $300 million multiplied by .05, plus (ii) the amount by which the Sale Proceeds exceed $550 million multiplied by .05, plus (iii) the amount by which the Sale Proceeds exceed $720 million multiplied by .05. A sample calculation is attached as Schedule 5.15(b) to the Plan. 4. VALUATION OF WASHINGTON STOCK OPTIONS - Lazard has valued the Washington Stock Options, based on a Black-Scholes analysis, to be between $ 35 million and $40 million. Neither the Creditors' Committee nor other parties in interest have reviewed such valuation and reserve their rights to object to such valuation. 5. BOARD, MANAGEMENT AND RELATED MATTERS - Mr. Washington will remain as Chairman of the Board of Directors of WGI. The Board of Directors of Reorganized WGI will be comprised of nine (9) directors. Mr. Washington will be Chairman of the Board of Directors of Reorganized WGI without compensation for at least two (2) years after the Effective Date so long as desired by the Board. Mr. Hanks and Mr. Batchelder will also be appointed to the Board of Directors of Reorganized WGI. The remaining six (6) directors will be selected by the Prepetition Secured Lenders. SEE SECTION VI.J.1. In addition, pursuant to the Washington Agreement, the Plan provides for the continuation of benefit arrangements for Mr. Washington in existence as of the Petition Date, such as expense reimbursement practices and ongoing indemnification rights. 20
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6. PARTICIPATION IN THE DIP FACILITY - Under the Washington Agreement, Mr. Washington became a DIP Lender under the DIP Facility with a commitment of $10 million. As a DIP Lender, Mr. Washington participates in the DIP Facility on the same terms as all other DIP Lenders; PROVIDED THAT, Mr. Washington does not participate on lender calls and may not vote on matters requiring 100% DIP Lender approval. 7. PERMITTED ACCUMULATION OF ADDITIONAL EQUITY - Pursuant to the Washington Agreement, the Articles of Incorporation and Bylaws of Reorganized WGI will be amended to permit Mr. Washington to acquire (directly or indirectly) up to 40% of the New Common Stock outstanding, on a fully diluted basis, assuming the exercise of the Washington Group Stock Options. SEE SECTION VI.E.3. The Creditors' Committee and certain other parties in interest have asserted that the Plan violates the absolute priority rule of section 1129(b)(2)(B)(ii) of the Bankruptcy Code and two Supreme Court decisions because, if Class 7 votes against the Plan, under the Washington Agreement, Mr. Washington will receive despite the rejection of Class 7, a distribution of options to acquire New Common Shares and other benefits. The Debtors and the Prepetition Secured Lenders dispute this assertion and assert that the consideration to be provided to Mr. Washington is being provided solely in connection for future services to be rendered, and that he is not receiving or retaining any property under the Plan on account of his Old Common Stock, and that as a result, neither the absolute priority rule nor any Supreme Court decision is violated by the Plan whether or not Class 7 votes against the Plan. H. SUMMARY OF CLAIMS PROCESS AND BAR DATE 1. SCHEDULES AND STATEMENTS OF FINANCIAL AFFAIRS The Debtors filed Schedules of Assets and Liabilities and Statements of Financial Affairs (collectively, the "Schedules and Statements") with the Bankruptcy Court on June 29, 2001. Among other things, the Schedules and Statements set forth the Claims of known creditors against the Debtors as of the Petition Date, based upon the Debtors' books and records. The Schedules and Statements are consolidated for all Debtors, as authorized by order of the Bankruptcy Court. 2. CLAIMS BAR DATE AND PROOFS OF CLAIM On June 15, 2001, the Debtors filed a motion with the Bankruptcy Court to establish the general deadline for filing proofs of claim against the Debtors by those creditors required to do so (the "Bar Date"). On June 21, 2001 the Bankruptcy Court established the Bar Date as August 27, 2001. The Bankruptcy Court's order establishing the Bar Date (the "Bar Date Order") requires that the Debtors' Claims Agent provide notice of the Bar Date by mailing: (i) a notice of Bar Date; (ii) a proof of claim form; and (iii) a notice of either unliquidated, contingent and/or disputed claim or liquidated, non-contingent and undisputed claim upon the requisite persons or entities. The Bar Date and the Debtors' completion of their preliminary review of all Claims filed is anticipated to be completed after the Confirmation Date. Based upon a review of their books and records, the Debtors believe that the aggregate amount of Claims classified in Class 7 that will become Allowed Claims is in the range of $650 million to $1.1 billion. These Claims include (a) approximately $313 million of Claims under the Old Notes, (b) the Lender Deficiency Claims and (c) Claims arising primarily out of pending litigation and other contingent and/or disputed Claims in amounts estimated to be between $250 to $700 million. While the Debtors have endeavored to estimate the amount of Claims that will ultimately be Allowed in Class 7 based upon evaluations of such Claims and historical results of litigation and settlements, many such Claims are contingent, unliquidated and/or disputed and thus the amount that will ultimately be Allowed with respect to such Claims is highly speculative. Moreover, the Bar Date has not yet occurred, and thus the Debtors cannot know the amount of Claims that will ultimately be filed by creditors. Under section 502(b)(9) of the Bankruptcy Code, governmental units have until 180 days after the commencement of a case to file proofs of claim. Accordingly, the Bar Date for governmental units in these Chapter 11 Cases is November 12, 2001. That date has not yet occurred and thus the Debtors cannot know the amount of Claims that will be ultimately filed by governmental units. Certain governmental units have indicated that they intend to file Claims in excess of $200 million, which the Debtors may dispute in whole or in part. Finally, Raytheon has indicated that it will assert substantial Claims, which, to the extent Allowed and not subordinated, will be classified as Class 7. SEE SECTION VI.C.4 and APPENDIX D. While the Debtors intend to dispute the allowance of any Claims asserted by Raytheon on many grounds, including that the incurrence by the Debtors of indemnity obligations to Raytheon was a fraudulent transfer that is avoidable under applicable sections of the Bankruptcy Code, there can be no assurance that such efforts will be successful. 21
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The Debtors' estimate of the amount of Claims in Class 7 does not include any Claims asserted by Raytheon. SEE SECTION V.I.1. I. SUMMARY OF MATERIAL LITIGATION MATTERS During the Chapter 11 Cases to date, the Debtors commenced or were involved in a number of lawsuits. In addition, the Debtors are investigating other potential causes of action arising out of transactions involving Raytheon and other third parties. 1. CLAIMS AGAINST RAYTHEON On March 8, 2001, WGI filed suit against Raytheon and RECI alleging fraud and seeking rescission and, alternatively, unspecified damages and specific performance for breach of the Stock Purchase Agreement in the Idaho Court. For a description of the Raytheon transaction and its effects upon the Debtors, see SECTION III.A and SECTION IV.A. The Debtors believe Raytheon suppressed information that would lead a potential purchaser to discern the magnitude of the significant adverse problems facing the RE&C Businesses. During the course of negotiations and due diligence, Raytheon presented historical data, audited and unaudited financial statements, and projections that portrayed a healthy company with strong earnings potential going forward. The Debtors believe that the Company's due diligence was hampered by Raytheon's deliberate withholding of what later turned out to be material information by Raytheon limiting WGI's access to selected individuals, who Raytheon knew were not the key individuals, and by Raytheon permitting site visits to only a limited number of projects. Due diligence was further hampered by Raytheon's intentional misrepresentations about material facts with respect to projects, as well as the company's historical financial statements and financial projections. The Debtors believe that, throughout the period of due diligence, and, in fact, through the closing of the transaction, Raytheon continued to misrepresent the accuracy of the forecasted EBITDA potential of the RE&C Businesses by, among other things (i) refusing to permit the RECI Subsidiaries' project management to recognize material, known, cost growth on projects (thereby retaining false profit or low loss forecasts); (ii) violating Generally Accepted Accounting Principles by inflating revenue through unrealistic assumptions regarding expected claims recovery, which expectations were not achievable and which quickly had to be reversed by WGI; (iii) increasing EBITDA by assuming unrealistic expense reductions (e.g., removing training, facility and salary costs) which were vital to an on-going sustainable business; and (iv) by failing to take into account overhead under absorption rates in several facilities, all the while representing to WGI that projected EBITDA from ongoing RE&C Businesses' operations would be at least $140 million annually. Additionally, Raytheon justified limiting due diligence by representing that any discrepancies in the valuation of assets would be cured post-closing by virtue of a purchase price adjustment provision that was included in the Stock Purchase Agreement. As a result of its continuing post-acquisition in-depth review of the RE&C Businesses assets acquired, the Debtors believe that Raytheon management consistently engaged in inappropriate accounting practices and intentional earnings manipulation by overstating revenue, understating costs, avoiding recognition of losses and thereby severely overstating profits and understating losses on numerous projects. WGI's suit sought a preliminary injunction and specific performance of the purchase price adjustment provision of the Stock Purchase Agreement, as well as unspecified damages or recision as a result of alleged fraud. Raytheon moved to dismiss the suit (the "Motion to Dismiss") or, in the alternative, stay the suit in lieu of an arbitration proceeding that it had previously commenced. The Idaho Court denied the Motion to Dismiss, but stayed that portion of WGI's complaint relating to the fraud allegations. The Idaho Court allowed WGI's causes of action relating to specific performance to proceed, however, and hearings were held on May 2nd and 3rd, 2001 on WGI's specific performance claims. The Idaho Court ruled in favor of WGI and issued a mandatory injunction ordering Raytheon to produce those documents required to start the purchase price adjustment process. By Order dated June 1, 2001, the Idaho Court further ordered that Raytheon produce an audited and/or unaudited balance sheet and other related documents required under the Stock Purchase Agreement by June 5, 2001 and appointed William Palmer & Associates as an independent accounting firm to assist in resolving disputes in the purchase price adjustment process. Raytheon produced an unaudited April 30, 2000 balance sheet and a cut-off date balance sheet on June 5, 2001. WGI responded to those documents on June 29, 2001. WGI and Raytheon are required to present materials to the independent accountant supportive of their respective positions on or before July 30, 2001. On or before August 3, 2001, the Debtors will commence an Adversary Proceeding against Raytheon and its subsidiaries in the Bankruptcy Court under applicable sections of the Bankruptcy Code, seeking to, among other things, recover transfers and avoid obligations that the Debtors believe constitute fraudulent transfers. The Adversary Proceeding is expected to allege, among other things, that Raytheon was the transferee or beneficiary of numerous transfers that are avoidable under sections 544, 547, 548 and 550 of the Bankruptcy Code. That Adversary Proceeding will also seek to avoid as a fraudulent transfer the incurrence of any obligations to Raytheon under the Stock Purchase Agreement or related documents, such as indemnity obligations asserted by Raytheon. The Debtors believe that these claims have substantial merit and will be asserted in amounts aggregating hundreds of millions of dollars. The Debtors expect 22
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Raytheon to dispute all asserted claims against it, to assert hundreds of millions of dollars in claims against the Debtors, and to take the position that it is entitled to vote on the Plan as a Class 7 creditor. SEE APPENDIX D for a statement of position by Raytheon. Section 502(d) of the Bankruptcy Code provides, among other things, that any claims of an entity (a) from which property is recoverable under section 550, or (b) that is a transferee of a recoverable transfer, shall be disallowed. Accordingly, the Debtors believe and intend to take the position that (i) any claims that might be asserted by Raytheon or its subsidiaries against the Debtors must be disallowed unless and until Raytheon and its subsidiaries pay the amounts for which the Debtors assert they are liable on account of, among other things, fraudulent transfers, and (ii) Raytheon and its subsidiaries are not entitled to vote on the Plan on account of any such claims they might assert against the Debtors. The Bankruptcy Court has set a hearing to estimate Raytheon's alleged Claims for voting purposes only, for August 28, 2001, in accordance with Bankruptcy Rule 3018. There can be no assurance as to the amount of claims (if any), the Bankruptcy Court will allow Raytheon for voting purposes. As described in SECTION VII.B, all Company claims against Raytheon and its subsidiaries, including those described above, will be transferred to the WGI Creditor Trust, which will be funded with $20 million to pursue such claims. 2. MITSUBISHI LITIGATION On May 14, 2001, the day the Debtors commenced the Chapter 11 Cases, Mitsubishi filed an ex parte motion (the "Prohibition Motion") under section 363(e) of the Bankruptcy Code, together with supporting memorandum, affidavits, and discovery materials, with the Bankruptcy Court to prohibit the Debtors' use of $191,230,825 paid to the Debtors by Sithe relating to two power plant projects in Massachusetts. On the Petition Date, the Debtors' cash on hand was approximately $11 million. Mitsubishi, a member of the Creditors' Committee, is a vendor that sold equipment to the Debtors in connection with the Sithe projects pursuant to agreements signed by RE&C and later assumed by WGI. Mitsubishi asserts a substantial claim for the unpaid balance owed for the equipment. In the Prohibition Motion, Mitsubishi sought to collect payment on its claim by impressing current and future cash of the Debtors with a trust arising under New York lien law, agency law, the doctrine of earmarking, and constructive trust theories. Mitsubishi also sought an accounting of funds received from the Sithe projects and adequate protection of its interests in the Sithe payments. Pending final resolution of this litigation, the Debtors agreed to maintain minimum cash balances of approximately $11 million. Payment of the Mitsubishi's claim has been fully guaranteed by Raytheon pursuant to guarantees executed at the inception of the Sithe projects. Indeed, the Debtors believe that approximately $135 million has already been paid to Mitsubishi and substantially all of the balance is anticipated to be paid in the near future. The Debtors contested the validity of Mitsubishi's claims, as set forth in detail in the pleadings filed by the Debtors in the Chapter 11 Cases, on numerous legal and factual grounds. On June 13, 2001, the Bankruptcy Court denied the Prohibition Motion and related requests by Mitsubishi in their entirety. On June 20, 2001, Mitsubishi filed a notice of appeal regarding the Bankruptcy Court's decision, which appeal is pending. Mitsubishi also applied to the district court for a stay of Judge Zive's ruling pending appeal. Washington opposed the application but agreed to maintain minimum cash balances of approximately $11 million through July 31, 2001 to allow time for the district court to rule on Mitsubishi's application. Mitsubishi's application for a stay pending appeal was granted by the district court on July 19, 2001. Mitsubishi has also asserted that it has certain claims against certain of the Debtors' officers and directors as a result of the dissipation of such trust funds. The Debtors dispute that Mitsubishi has any valid claims against any officer or director, but no officer or director is receiving a discharge or release of any non-derivative, direct creditor claim under the Plan. SEE SECTION VI.H. Officers and directors' rights to be indemnified be the Debtors, are being assumed under the Plan and thus if the Plan is confirmed will be obligations of the Reorganized Debtors. SEE SECTIONS VI.H AND VI.J.4. J. FOREIGN ACTIONS On May 29, 2001, Washington International B.V., a Netherlands company and indirect wholly owned subsidiary of WGI, which is not a Debtor in these Chapter 11 Cases, was granted a provisional suspension of payment by the District Court of s-Gravenhage, the Netherlands, which provisional suspension of payment imposes a moratorium on non-preferential and unsecured creditors' claims as of the date of the suspension. This entity will be liquidated during 2001. The Debtors do not believe that this has had or will have a material impact on the Debtors or the Reorganized Debtors. 23
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K. MOTION OF THE CREDITORS' COMMITTEE TO TERMINATE THE DEBTORS' EXCLUSIVE PERIOD TO FILE AND SOLICIT ACCEPTANCES OF THE PLAN On July 5, 2001, the Creditors' Committee filed a motion to terminate the Debtors' exclusive period under section 1121(b) of the Bankruptcy Code to file a reorganization plan and to obtain its acceptance (the "Exclusivity Motion"). The Creditors' Committee has asserted a number of grounds in support of the Exclusivity Motion, each of which is contested by the Debtors. The Debtors do not believe that there are sufficient grounds to terminate their exclusive periods to file and solicit acceptances of the Plan. The Bankruptcy Court conducted a hearing on the Exclusivity Motion and the Debtors' objection thereto on July 24, 2001. The Exclusivity Motion was continued by agreement until September 6, 2001. If the Exclusivity Motion is granted, other parties in interest, including the Creditors' Committee, would have the right to file competing reorganization plans. L. DEVELOPMENT AND SUMMARY OF THE BUSINESS PLAN With the assistance of their financial advisors, investment bankers and legal counsel, the Debtors have developed a long-term Business Plan. A summary of the principal components of the Business Plan, and a description of the principal assumptions underlying the Business Plan, is set forth below. Attached to the Disclosure Statement as Appendix C are the Projections for the Debtors on a consolidated basis through fiscal 2004, based upon the Business Plan. These projections have not been reviewed nor commented on by the Creditors' Committee and other parties in interest. 1. SUMMARY OF THE BUSINESS PLAN Reorganized WGI will continue to be a leading international provider of design, engineering, construction, construction management, facilities and operations management, environmental remediation and mining services to the world's largest manufacturers, power companies and utilities and industrial companies. Reorganized WGI will have four operating divisions: POWER (Princeton, NJ) - will provide design, new construction and plant retrofit services to domestic and international power generating customers, including utilities and independent power producers. INFRASTRUCTURE & MINING (Boise, ID) - will provide heavy civil engineering services and serves as a general contractor for infrastructure projects in the transportation (bridges, highways, mass transit), marine and air (ports and terminals) and water resources (reservoirs, hydroelectric, pipelines) markets. GOVERNMENT (Aiken, SC)- will provide technical services to United States Department of Energy ("DOE") and United States Department of Defense ("DOD"), such as environmental clean-up, chemical demilitarization and nuclear fuel reprocessing. These services include the design, construction, management and operation, dismantling, decommission ing and closure of government facilities. INDUSTRIAL/PROCESS (Cleveland, OH) - will provide design/engineering, procurement and construction services, in addition to consulting services, to Fortune 500 companies in the general manufacturing, food and beverage, pharmaceutical, technology, pulp and paper and other markets. The current Petroleum & Chemicals group will be merged with the Industrial/Process group. The Business Plan contemplates a number of strategic actions, the most significant of which are: o Fully integrating Old MK, the Westinghouse Group and the RE&C Businesses into the four divisions, Power, Infrastructure, Government and Industrial/Process, to maximize business development, improving profitability and maintaining a positive work environment for the employees of Reorganized WGI. o Concentrating the Company's efforts on the higher profit, higher profile projects that will provide the most value to the Company's stakeholders. o Focusing on developing the business across North America with select pursuit of global opportunities during the short term and expanding Reorganized WGI's global presence over the long term. o Restructuring the business groups to be organized by function (market/industry/client) rather than geographic 24
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location. o Creating a disciplined and profit oriented business mindset driven by a professional sales organization with the ability to provide project finance capability where needed and ultimately expanding project financing capability to program development. o Revamping information technology ("IT") systems and process in order to affect savings and generate online data. o Changing cost structure to realize significant overhead savings. o Consolidating or closing overlapping/unprofitable offices and expanding the focus on client reimbursed outlying project offices. In addition, reducing annual real estate costs of $60 million to $40 million. o Establishing operation centers in the Northeast Corridor, the Midwest and the West for shared services (i.e. Finance, Administration, Human Resources, Legal and IT) and common engineering, procurement and cost scheduling services. WGI management believes that Reorganized WGI will emerge from chapter 11 with significant opportunities for growth in each of its four divisions. The growth opportunities for each of the four divisions of Reorganized WGI, together with the strategic initiatives contemplated by Reorganized WGI to realize such growth opportunities, are summarized below. a. POWER (i) Growth Opportunities - The Debtors believe that the power group ("Power") has many opportunities for growth as a result of the following: ANTICIPATED ENERGY SHORTAGE - Currently, demand for electricity outpaces the growth in supply. Management believes that the global market for Power's construction services could exceed $30 billion by 2010. Power provides a platform for Reorganized WGI to take advantage of the most favorable power market in two decades. STRENGTHENING OF SERVICES INDUSTRY - The recent mergers and acquisitions activity and the divestitures of utility assets to private power generators will bring about a wave of outsourcing possibilities for Power. Alliances are key to the outsourcing market for nuclear services, integrated design, maintenance and component replacement. Additionally, Power is one of two primary contractors for steam generator replacements, an expanding market due to the rise in nuclear plant life extensions. POWER'S EXTENSIVE, INTEGRATED CAPABILITIES - Power offers an extensive, integrated array of services in all stages of a power project, including design and engineering, construction, operation and maintenance, closure and decommissioning. The appeal of one-stop shopping also helps Power develop long-term relationships with customers. Power's full-service approach allows it to bid for and complete the most complex jobs. Power's large technical base of engineers provides instant capability for the largest, most complex projects and an engineering capacity few competitors can match. Additionally, Power is well situated to benefit as more project owners turn to the design-build and turnkey concepts of developing projects to improve the quality of execution, speed of delivery, cost effectiveness and enhancement of contractor accountability. MARKET REPUTATION - As the fourth largest engineering, construction and operations and maintenance company in the power business, Power is uniquely positioned to take advantage of the recent upswing in the power market. Power maintains its leading market position by forging strong customer and partner alliances, by maintaining low cost engineering centers in Europe and Asia and by having readily deployable experienced turnkey project execution teams. SHIFT IN THE MARKETPLACE - As U.S. developers combine with owners of licensed project sites, Power has the opportunity to build a profitable backlog of new work very rapidly. With contractor resources 25
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in the U.S. near capacity, opportunities exist for negotiated contracts due to limited competition, multiple orders and increased margins. These opportunities are less risky than the lump sum, turnkey projects that have historically characterized the industry. POTENTIAL NEW PROJECTS - Power has substantial new project opportunities. Those opportunities highlight the importance of Power's technical expertise and full-service capabilities. Realization of the new project opportunities will effectuate the revenue growth projected by Power over the 2002 fiscal year. (ii) Strategic Initiatives - Due to marketplace shifts, the power industry has become a seller's market. In a seller's market, projects are awarded based upon a contractor's record of performance and experience level. Power is poised to take advantage of this market dynamic and will pursue projects with the following characteristics: cost-reimbursable contracts, target/incentive pricing, "damages" limited to profit impact, and no guarantee of equipment performance. Additionally, Power is focusing on doing more work on a joint venture basis. By aligning with the proper joint venture partner, access to the bonding capacity becomes easier. Power will focus on developing partnerships/alliances with key customers to design and build multiple projects. Power's management is dedicated to reducing costs within the group. Cost cutting measures currently underway are expected to reduce general overhead costs from a fiscal 2000 level of $47 million to a projected run rate beginning in fiscal 2002 of $27 million. b. INFRASTRUCTURE AND MINING (i) Growth Opportunities - The Debtors believe that Infrastructure and Mining ("I&M") is well positioned in the long term because it offers clients the most comprehensive range of services available in the business, including project conception, cost estimation, design/engineering and construction, as well as operations and maintenance. Opportunities for the segment are being driven by the following: TRANSPORTATION EQUITY ACT ("TEA") - In the highway market, the Company's management forecasts that industry fundamentals will be aided by the recently enacted TEA and is projecting growth of 8% annually. In this market, I&M has begun to focus itself more on design-build "mega" projects and less on smaller, highly competitive basic construction projects where small regional contractors can undercut I&M bids. AIRPORT EXPANSION - The airport market is another strategic focus for I&M, primarily due to the tremendous need for increased capacity. With the introduction of recent legislation, management expects this segment to grow at a rate of 10% annually. In this market, providing a full continuum of services (design, construction and operations and maintenance) distinguishes I&M from its competition. RAIL AND TRANSIT UPGRADES AND EXPANSION - The rail and transit market is also expected to grow at 8% in the coming years and offers strong opportunities for design and construction as well as operation and maintenance ("O&M") services. Moreover, there are few competitors who can provide the necessary services needed to complete the major projects without partnering. DEMAND FOR CONTRACT MINING SERVICES - Demand for contract mining services is currently being driven by rising coal prices. I&M's position is enhanced in this arena due to its ability to provide "cradle-to-grave" services that few other competitors can offer. (ii) Strategic Initiatives - I&M is planning to take advantage of its ability to provide total project capabilities, including project development, financing, design-build and comprehensive service package by competing for high margin "mega" infrastructure projects. These "mega" projects, defined as having contract values in excess of $100 million, are generally unavailable to smaller engineering and construction firms that are unable to provide comprehensive capabilities. I&M will systematically 26
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reduce its emphasis on stand-alone construction and design services, refocusing these resources on more profitable, design-build projects. I&M will use its project presence in the Pacific Rim, Europe, and South America to expand its international opportunity base for large projects. Additionally, I&M is focusing on strategic joint ventures. By aligning with the proper joint venture partner, I&M will continue to be able to compete for a wide selection of the "mega" projects. Aligning with a joint venture partner allows for access to selected market niches and bonding required on most infrastructure projects. c. GOVERNMENT (i) Growth Opportunities - The Debtors believe that the Government group ("Government") should benefit from its strong position in the marketplace and several factors that will provide Government with significant opportunities to grow. These factors include: INCREASING DOE BUDGET - Over the last three years, DOE budgets have grown by $1 billion. Trends in the DOE market are being driven by the need to replace the aging domestic infrastructure; national security enhancements; hazardous facilities operations (particularly at the DOE's national laboratories); integrated safety management improvements; and management of nonproliferation programs for materials and weapons of mass destruction (driven by international political pressure). GLOBAL DEMILITARIZATION -The Global Demilitarization market is expecting significant funding increases for demilitarization and countering nuclear, biological and chemical ("NBC") weapon threats. Approximately $11 billion of anti-terrorism funding will create the need for NBC knowledge, weapon effects, and emergency planning consulting. Additionally, global plutonium disposition treaties create several opportunities for Government, given its unique plutonium expertise. Government currently commands 70 percent of the chemical demilitarization market. Government manages four of six chemical demilitarization sites for the U.S. Army as well as a site in the Ukraine that is managed through a joint venture. This market is projected to continue to be strong, especially on the international front. Key prospects are the demilitarization of the former Soviet Union and the cleanup of World War II vintage chemical weapons in the Peoples' Republic of China. Government's excellent track record, technical expertise and geographic reach position it well to capture new business in unexploded ordinance/de-mining. RETIREMENT OF AGING NUCLEAR PLANTS -The Energy Information Agency estimates that approximately 40% of currently operating nuclear capacity will be retired by 2020. This phenomenon creates a tremendous opportunity for Government. (ii) Strategic Initiatives - Government functions in all stages of the life cycle of a facility, including the design and engineering, construction, operation and maintenance, closure and decommissioning. Government is planning to take advantage of its ability to provide a broader service offering than any of its competitors by pursuing projects that many of its competitors cannot perform. These projects include managing complex facilities and working with dangerous materials in public arenas. Government will also exploit the opportunity develop and expand its commercial business division. The commercial business segment of the industry has substantial growth potential. Government intends to expand its relationship with the DOE and grow its demilitarization and DOD businesses. Additionally, as part of the overall asset disposition plan to improve liquidity, the Company is planning to sell its share of its electro-mechanical division. Restructuring Government will yield approximately $6 million in reduced annual overhead expenses. The savings will be generated primarily from reduction in the geographic "footprint" of the unit and personnel restructuring. Government is currently located in 19 cities throughout the United States in 39 leased facilities 27
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amounting to more than 500,000 square feet. The annual rental cost for such leases is approximately $7 million. As part of the restructuring process, the geographic "footprint" of Government will be reduced, resulting in approximately $1 million in annual savings in rental payments. A review of the Government Group's organizational structure is in process in an effort to determine the required resource load, and to exact efficiencies. Certain headcount reduction initiatives will be commenced, including attrition management; elimination of duplicate functions; and elimination of positions. It is anticipated that this review will result in annual savings of $2.75 million. Restructuring will yield additional administrative savings because of the reduced geographic "footprint" and through optimizing the organizational structure. Those savings will total approximately $2.4 million annually. d. INDUSTRIAL PROCESS (i) Growth Opportunities - The Industrial Process group ("I/P") is focused on adding value for customers and becoming the engineering/contractor of choice. I/P's growth opportunities focus on the following: EXPANSION OF THE PORTFOLIO OF SERVICES PROVIDED TO EXISTING CUSTOMERS - I/P currently provides only specific services to their core customers. Significant opportunities exist to expand the services provided to its core customers. For example, a key growth market exists in the areas of operations and maintenance and facilities management. I/P has the unique advantage of operating in both a union and non-union mode, and its broad geographic base allows it to serve clients worldwide. I/P intends to initiate a strong "cross-selling" program with its key clients. CONTINUED EXCELLENCE AND EXPANSION IN EXISTING CORE MARKETS - Core markets of biotechnology/pharmaceuticals, automotive, chemical process, food & beverage/consumer products, and pulp and paper account for 70% of sales for I/P. BIOTECHNOLOGY/PHARMACEUTICAL MARKET - This market has the strongest growth potential. All of the major customers in this market are multinationals, and to be a key player in this market you must be able to serve customers in the United States, Puerto Rico and Ireland. I/P is ideally situated geographically to meet this demand, with core pharmaceutical capabilities in Philadelphia to cover the New Jersey concentration of clients and strong operating capabilities in Puerto Rico, London and County Cork, Ireland. Additionally, I/P's strong Validation Group helps open doors with new clients. With 275 employees and a 15% market share, I/P is the leader in biotechnology/pharmaceuticals validation services. AUTOMOTIVE MARKET - Opportunities in this market will be fueled by technology driven projects and a continuous stream of plant modifications and upgrades as new models are introduced. CHEMICAL PROCESS MARKET - In this market, DuPont has been an I/P alliance partner for over 15 years. In the Fall of 2000, I/P received its fifth consecutive "Governor's Safety Council Award" for outstanding safety performance at DuPont's Parkersburg, West Virginia plant site. I/P's overall safety record translates to lower labor insurance (Workers' Compensation) costs. FOOD AND BEVERAGE/CONSUMER PRODUCTS MARKET - This is another core market for I/P. Major customers in the market include Anheuser-Busch, Kraft and Pillsbury. PULP AND PAPER MARKET - With a strong position in this market, I/P stands to benefit the most among its key competitors as market fundamentals improve. FURTHER UTILIZATION OF THE CAPABILITIES AND RELATIONSHIPS ADDED BY RECENT ACQUISITIONS - The addition of Rust Constructors as part of the acquisition of RE&C has given I/P an immediate presence in the Southeast U.S. through its Birmingham, Alabama office. Rust Constructors' non-union labor 28
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gives I/P "double-breasted" labor capabilities and allows customers to rely on I/P's services regardless of a project's locality and specific laws. This creates opportunities for I/P as existing clients relocate or expand to the Southeast (a traditionally non-union labor market) where I/P has historically been unable to compete for projects. NATURAL GAS PROCESSING - Based on the projected increase in consumption of natural gas over the next decade, I/P should be able to exploit its strong position in this market. (ii) Strategic Initiatives - I/P is a relationship-oriented business based upon long-term alliances and partnerships. I/P is a service-oriented business with design/engineering, procurement, construction management, quality programs (testing), construction, facility management, O&M and validation performed on a cost-plus, risk-free basis. I/P plans on taking advantage of its breadth of services by providing "one-stop shopping" for its customers. This will allow I/P to build and expand on long-term customer relationships which forms the core of its business - 75% of I/P's revenues are derived from repeat customers. I/P also plans on differentiating itself through its "double-breasted" labor capability, mobility and expertise of its workforce and strong track record of execution. Currently, I/P's mix of work is split 85% domestic and 15% international (outside the continental U.S.). Domestically, I/P now has a very strong presence in the Southeast U.S. due to Rust Contractors. I/P plans on dominating the Southeast corridor of the U.S. market by leveraging Rust's market strength. I/P's strategy for international work is to grow with its U.S. and U.K.-based clients who are expanding their operations into other areas of the world. In terms of the integration of the Petroleum and Chemical division ("P/C") into I/P and as part of the overall asset disposition to improve WGI's liquidity, the Company plans to sell the Cambridge, Massachusetts Technology Center. After that disposition, the remaining business of P/C will primarily be a Denver-based natural gas processing activity. The natural gas processing division will be folded into the I/P group. This will result in annual G&A savings of approximately $7 million. e. CAPITAL STRUCTURE / BONDING AVAILABILITY The Company has been and will continue to negotiate with surety companies to provide surety bonds during and after the Chapter 11 Cases. In order to obtain surety credit on a "normalized" basis, the surety companies have indicated that they will take several factors into consideration. They have indicated that they look at the following factors both alone and in conjunction with the status of the overall Company: (1) tangible net worth; (2) credit availability; (3) adequate working capital; (4) debt coverage; and (5) debt rating. If the Company does not meet certain standards, the surety companies may limit bonding, require collateralization with letters of credit to support the issuance of new surety bonds, and charge higher than "normal" premiums. Historically, the Company's bonding need has been approximately 10-15% of total revenue. Based on the projected revenue the Company estimates that it will need to obtain between $300-$500 million of surety bonds in 2002. f. EXIT FINANCING The Company intends to seek an Exit Facility consisting of a revolver in the amount of approximately $350 million, but there can be no assurance that an Exit Facility in this amount will be obtained. The Debtors believe that the Plan is feasible within the meaning of section 1129 of the Bankruptcy Code even if a smaller Exit Facility is ultimately obtained. The Exit Facility is anticipated to be utilized as follows: (i) Repay outstanding funded obligations under the DIP Facility and fund the WGI Creditor Trust (projected to be $50 million). (ii) Replace or backstop all outstanding letters of credit issued under the Prepetition Credit Agreement (projected to be $125 million at exit), all outstanding letters of credit issued under the DIP Facility 29
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(projected to be $44 million at exit), as well as all future letter of credit requirements. The balance of the Exit Facility is anticipated to be used to: (i) Fund an increase in working capital. (ii) Fund working capital fluctuations that may occur due to timing differences in receipts and disbursements. (iii) Provide excess capacity. As discussed in SECTION V.C.3, the Debtors have not yet received any commitment for an Exit Facility, but have commenced discussions with the DIP Lenders, the Prepetition Secured Lenders, and other financial institutions. 1. FINANCIAL HIGHLIGHTS The Projections were prepared by year for the period from December 1, 2001 through November 30, 2004. Each group (Power, Infrastructure and Mining, Government and Industrial Process) prepared their own projected balance sheets, income statements and schedules of receipts and disbursements. The schedules of receipts and disbursements consist of each group's significant current projects. The Company's corporate finance team consolidated each group's projected balance sheets, income statements and schedules of receipts and disbursements and prepared a statement of cash flows for each group and a consolidated statement of cash flows. The following are highlights from the Projections: Total revenue is expected to decline in the amount of $500 million from fiscal 2001 to 2002 due, in part, to the following: a. Power's projected revenue is expected to decline $112 million due to the rejection/reformation of 4 contracts acquired through the acquisition of the RE&C Businesses and the inability to win new work during the period of bankruptcy. b. Government's projected revenue is expected to decline by approximately $290 million due to the sale of the electro-mechanical division during the first quarter of fiscal 2002 and the completion of the construction phase of the projects at Umatilla and Anniston, and the reduced activity at Weldon Spring and RMRS. c. I/P's projected revenue is expected to decline by approximately $95 million due to the sale of the petroleum and chemical technology center and the impact of bankruptcy proceedings on the petroleum and chemical business in Europe. Additionally I/P does a significant amount of business with companies in the telecom industry, specifically Lucent and Corning, who have delayed and or cancelled certain projects. Total revenue is expected to increase by $65 million from fiscal 2002 to 2003. a. Power's projected revenue is expected to increase by approximately $114 million due to its success in booking new work, specifically its ability to win 2 "mega" projects (>$250 million) in 2002 and 4 "mega" projects in 2003, as Power is able to reestablish itself in the marketplace. The increase is also due to the continued strong market conditions and the lack of excess capacity within the power sector. b. Infrastructure and Mining's projected revenue is expected to decline $84 million due to the expected inability of Infrastructure and Mining to book sufficient new work during and just after the bankruptcy in order to maintain an adequate backlog. Typically, large Infrastructure and Mining projects require lead times of 6-9 months. Infrastructure and Mining revenue is not expected to be significantly affected during fiscal 2002, as they complete their existing backlog. c. I/P's projected revenues are expected to increase $68 million as I/P is expected to be able to re-establish itself in the marketplace and continue to grow its presence in the pharmaceutical industry. 30
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d. Government's projected revenue is expected to decline approximately $34 million due to the completion of the construction phase at the project at Pine Bluff and the final completion of the projects at Weldon Spring and RMRS. Total gross profit is expected to increase by approximately $18 million from fiscal 2001 to 2002. a. Power's projected gross profit is expected to increase approximately $18 million due to the implementation of certain overhead cost reductions and the booking of more profitable work now once all negative cash flow projects are either reformed or rejected. b. Infrastructure and Mining's projected gross profit is expected to increase $9 million due to run off of profitable projects in the pipeline, specifically E-470, the beginning of work on the profitable NW Parkway project and the completion of projects with losses during fiscal 2001 (which had a significant adverse affect on the gross profit in fiscal 2001). c. I/Ps projected gross profit is expected to increase by approximately $27 million due to the implementation of certain overhead cost reductions, a reduction in the unabsorbed labor due to an increase in the chargeability of engineering resources. d. The Company booked a management adjustment to reduce gross profit by $25 million (see assumptions). Billings in excess of cost was reduced by approximately $204 million from fiscal 2001 to 2002 due to the run off of Burlington Train 3, San Roque and Hudson Bergen, all of which had previously received large up front payments from the customer. The Projections do not assume that there are any projects that have large up front payments going forward. 2. PRINCIPAL ASSUMPTIONS UNDERLYING THE PROJECTIONS a. Although the Debtors anticipate emergence from Chapter 11 in September, 2001, there can be no assurance at this time that this will be accomplished. Accordingly, the Projections portray a financial condition and the results of operations and cash flows assuming that the Debtors will emerge from Chapter 11 on December 1, 2001 (the first day of the Company's 2002 fiscal year). Washington Group International, B.V. (formerly Raytheon Engineers and Constructors B.V.) is part of a separate bankruptcy filing in the Netherlands and will be liquidated during 2001. b. The Projections assume that the Exit Facility will consist of a revolving credit facility of approximately $350 million (the "Revolver") to fund working capital, letters of credit and general corporate purposes. As noted above, the Debtors have not obtained a commitment for an Exit Facility, and believe that the Plan will be feasible if a smaller Exit Facility is ultimately obtained. The term of the Revolver is assumed to be 3 years. The initial use of the Revolver will be to repay any funded debt under the DIP Facility and to replace any letters of credit issued under the DIP Facility or the Prepetition Credit Facility that remain outstanding. Funded borrowings under the revolver peak at approximately $100 million during fiscal year 2002. It is expected that there will bo no other debt outstanding outside of the Exit Facility. c. Bonding capacity will be made available and new work will not be constrained by any capacity issues. Future bonds will not require letter of credit support. The letter of credit collateral issued to the sureties during the period of bankruptcy will be released on the Effective Date. The amount of bonding available is expected to be inversely related to the amount of leverage. To the extent actual leverage exceeds the projected amounts, bonding, and the bonding dependent revenues and profit may be reduced (such reductions may be material). d. Historically, MK (before the RE&C acquisition) carried positive working capital of approximately 5% of annual revenues. The large power projects from RE&C, with the large advance payments, created negative working capital. In the long term, WGI management believes that Reorganized WGI will require positive working capital. The Projections reflect this shift from negative working capital to positive working capital. The working capital increase is expected to be funded with cash flow from operations and the Revolver. 31
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e. Fresh start accounting adjustments in accordance with SOP 90-7 are included in the Business Plan. The preliminary enterprise value was assumed when the Projections were prepared to be $550 million. See SECTION XI.E for a summary of the final valuation. $50 million has been allocated to debt arising from repaying the projected borrowings under the DIP Facility and to fund the WGI Creditor Trust on the Effective Date and $500 million to equity. Outstanding borrowings and accrued interest under the Prepetition Credit Agreement will be discharged under the Plan, and holders of such debt will receive equity in Reorganized WGI. All claims that WGI has against Raytheon will be transferred to the WGI Creditor Trust, and WGI will contribute $20 million to the WGI Creditor Trust to fund litigation. The goodwill on the balance sheet of approximately $523 million, which is part of the fresh start accounting and is based on the Valuation, will not be amortized, consistent with the recently proposed change in accounting by the FASB. f. The effective tax rate is estimated to be 40.0%. The cash taxes paid will be significantly less due to the continued amortization of goodwill ($65 million/yr) for tax purposes. This will result in the deferral of 85%, 60% and 50% of taxes in 2002, 2003 and 2004. g. The Petroleum and Chemicals Group will sell the Technology Center before year-end 2001 and leave Washington Group International, B.V. in receivership. The remainder of the Petroleum and Chemicals Group, which consists of the gas process business, will be combined with I/P. This combination results in significant overhead cost savings. h. The Estimated Operating Cash Flows have been developed on a project-by-project basis for major projects and estimated, by group and division, in the aggregate for smaller projects. i. In addition to the cost reductions included in the Projections, the Company will make further reductions overhead and office locations in 2001 and 2002. The Company will incur significant costs, including employee severance and relocation costs, related to these cost reductions. These costs, as well as the associated benefit, have not been measured, and consequently, have not been reflected in the Projections. j. During the Chapter 11 Cases, WGI is expected to reform or reject the following 3 projects: Red Oak, Ilijan and EELV. Performance on the Sithe Mystic and Fore River projects was terminated prepetition. As a result, ongoing negative cash flow from these projects is not projected. k. Burlington Resources (Burlington Train 3 project) is expected to continue to pay vendors and subcontractors directly until October 1, 2001. Thereafter, WGI will work under the original contract to complete the project. The Train 3 project received large advance payments in prior periods. Beyond 2001, the contract has a negative cash flow of approximately of $45 to $50 million. The reasons to continue this contract are: (i) Similar projects are very important to future growth potential from existing and new client, including Burlington Resources and Exxon/Mobil. (ii) As this is not a Raytheon guaranteed project, the adverse consequences to the Company's other businesses could be severe if this contract were rejected. l. The sale of the Electro Mechanical Division of the Westinghouse Group is assumed to occur in the first quarter of 2002 for $50 million of which $30 million (60%) would be paid to WGI. m. Capital expenditures are expected to be approximately $43.2 million in 2002. These capital expenditures are made up of approximately $33 million for the Infrastructure and Mining Group ($10 million to maintain the existing fleet and $23 million for new projects), approximately $6.0 million for the other groups and approximately $4.0 million at the corporate level. n. Management has made an adjustment to reduce 2002 gross profit by $25 million. This is an order of magnitude adjustment to take into account the potential impact of several risks that exist in the transition period as the Debtors emerge from the Chapter 11 Cases and return to more normal operations. Such risks include: (i) Although the Debtors currently expect to emerge from bankruptcy during its fiscal 2001 (in September, 32
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2001), events could occur that might delay confirmation of the Plan or their emergence from bankruptcy. Such delays could negatively impact the Company's successful acquisition of new contracts and extend bankruptcy related costs into 2002. (ii) While management has included in the Projections its best estimate of new work, it is possible that new work may not be obtained, or "ramp-up" as quickly as estimated and/or that the cost to obtain new work (sales and bid & proposal costs) may exceed estimates. Either possibility would negatively impact gross profit in 2002. (iii) In preparing the Projections, management has developed its best estimate of the costs of operating the business after the Effective Date. However, there may be unforeseen costs that arise during the initial period of operations that would negatively impact financial results. (iv) Management has undertaken a program to reduce overhead and general and administrative costs across the Company. It is possible that cost reduction efforts anticipated by the Projections may not be achieved as quickly as planned. (v) On Friday, June 22, 2001, the Defense Contract Audit Agency (DCAA) issued an audit report on the Company's financial suitability as a government contractor, in which it concluded that "WGI is in an adverse financial condition" and "may have difficulty meeting its near term financial obligations and may be unable to perform on government contracts without extraordinary management actions". The Company rebutted DCAA's opinion and the rebuttal was included as an appendix to the audit report. DCAA is obliged to update their report as the bankruptcy process proceeds and as the Debtors emerge from bankruptcy. Management expects Government's ability to obtain new work to be impacted by DCAA's audit report. Should the DCAA not provide a timely revision to their audit report as the Debtors emerge from bankruptcy, Government's operations may be negatively impacted. (vi) Management's evaluation of the I/P market indicates some current softness and an expectation of continued softness in the near future. While management has developed its best estimate of new work for I/P, it is possible that such new work levels may not be attained, which would negatively impact financial results. (vii) The Company's projected balance sheets indicate that at the end of 2002, the Company will have negligible tangible net worth. Tangible net worth is a key factor in the evaluation of bond worthiness by surety companies. Because the tangible net worth is negligible, it is possible that the Company may not be able to obtain all the bonds anticipated by the Projections or that the premiums charged may be greater than projected. o. The Projections include an increase in accounts receivable of $40 million in each of 2003 and 2004, which is reflected in corporate accounts receivable. These increases are to reflect Management's belief that overtime and working capital (exclusive of cash) will be approximately equal to 5% of revenues. While the actual increases will occur in the various components of each groups' working capital, for convenience of presentation, these estimates have been reflected only in accounts receivable and have not been pushed down to the respective groups. VI. SUMMARY OF THE PLAN OF REORGANIZATION THIS SECTION PROVIDES A SUMMARY OF THE STRUCTURE, CLASSIFICATION, TREATMENT AND IMPLEMENTATION OF THE PLAN AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PLAN, WHICH ACCOMPANIES THIS DISCLOSURE STATEMENT, AND TO THE EXHIBITS ATTACHED THERETO. THE PLAN ITSELF AND THE DOCUMENTS REFERRED TO THEREIN WILL CONTROL THE TREATMENT OF CREDITORS AND EQUITY SECURITY HOLDERS UNDER THE PLAN AND WILL, UPON THE EFFECTIVE DATE, BE BINDING UPON HOLDERS OF CLAIMS AGAINST, OR INTERESTS IN, THE DEBTORS, THE REORGANIZED DEBTORS AND OTHER PARTIES IN INTEREST. 33
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A. OVERALL STRUCTURE OF THE PLAN Chapter 11 is the principal business reorganization chapter of the Bankruptcy Code. Under Chapter 11, a debtor is authorized to reorganize its business for the benefit of its creditors and shareholders. Upon the filing of a petition for relief under Chapter 11, section 362 of the Bankruptcy Code provides for an automatic stay of substantially all acts and proceedings against the debtor and its property, including all attempts to collect claims or enforce liens that arose prior to the commencement of the Chapter 11 case. The consummation of a plan of reorganization is the principal objective of a Chapter 11 case. A plan of reorganization sets forth the means for satisfying claims against and interests in a debtor. Confirmation of a plan of reorganization by the Bankruptcy Court makes the plan binding upon the debtor, any issuer of securities under the plan, any person or entity acquiring property under the plan, and any creditor of or equity security holder in the debtor, whether or not such creditor or equity security holder (i) is impaired under or has accepted the plan or (ii) receives or retains any property under the plan. Subject to certain limited exceptions and other than as provided in the plan itself or the confirmation order, the confirmation order discharges the debtor from any debt that arose prior to the date of confirmation of the plan and substitutes therefor the obligations specified under the confirmed plan, and terminates all rights and interests of equity security holders. The terms of the Plan are based upon, among other things, the Debtors' assessment of their ability to achieve the goals of their Business Plan, make the distributions contemplated under the Plan and pay certain of their continuing obligations in the ordinary course of the Reorganized Debtors' businesses as approved by the Bankruptcy Court. Under the Plan, Claims against, and Interests in, the Debtors are divided into Classes according to their relative seniority and other criteria. If the Plan is confirmed by the Bankruptcy Court and consummated, (i) the Claims in certain Classes will be reinstated or modified and receive distributions equal to the full amount of such Claims, and (ii) the Claims in other Classes will be modified and receive distributions constituting a partial recovery on such Claims. On the Effective Date and at certain times thereafter, the Reorganized Debtors will distribute Cash, securities and other property in respect of certain Classes of Claims as provided in the Plan. The Classes of Claims against the Debtors created under the Plan, the treatment of those Classes under the Plan and the securities and other property to be distributed under the Plan are described below. B. SUBSTANTIVE CONSOLIDATION FOR PURPOSES OF TREATING IMPAIRED CLAIMS The Plan is premised upon the substantive consolidation of the Debtors only with respect to the treatment of Class 6 and 7 Claims under the Plan, for voting, confirmation and distribution purposes. The Plan does not contemplate the substantive consolidation of the Debtors with respect to other Classes of Claims or Interests set forth in the Plan. Substantive consolidation under the Plan will not effect a transfer or commingling of any assets of any Debtors, and all assets (whether tangible or intangible) will continue to be owned by the respective Debtors. Generally, substantive consolidation of the estates of multiple debtors in a bankruptcy case effectively combines the assets and liabilities of the multiple debtors for certain purposes under a plan. The effect of consolidation is the pooling the assets of, and claims against, the consolidated debtors; satisfying liabilities from a common fund; and combining the creditors of the debtors for purposes of voting on reorganization plans. There is no statutory authority specifically authorizing substantive consolidation. The authority of a bankruptcy court to order substantive consolidation is derived from its general equitable powers under section 105(a) of the Bankruptcy Code, which provides that the court may issue orders necessary to carry out the provisions of the Bankruptcy Code. Nor are there statutorily prescribed standards for substantive consolidation. Instead, judicially developed standards control whether substantive consolidation should be granted in any given case. The propriety of substantive consolidation must be evaluated on a case-by-case basis. The extensive list of elements and factors frequently cited and relied upon by courts in determining the propriety of substantive consolidation are may be viewed as variants on two critical factors, namely, (i) whether creditors dealt with the entities as a single economic unit and did not rely on their separate identity in extending credit or (ii) whether the affairs of the debtors are so entangled that consolidation will benefit all creditors. Some courts have viewed those elements and factors as examples of information that may be useful to courts charged with deciding whether there is substantial identity between the entities to be consolidated and whether consolidation is necessary to avoid some harm or to realize some benefit. Among the factors or elements looked to by courts are the following: o the degree of difficulty in segregating and ascertaining the individual assets and liabilities of the entities to be 34
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consolidated; o the presence or absence of consolidated financial statements among the entities to be consolidated; o the commingling of assets and business functions among the entities to be consolidated; o the unity of interests and ownership among the various entities; o the existence of parent and intercorporate guarantees on loans to the various entities; and o the transfer of assets to and from the various entities without formal observance of corporate formalities. The facts and circumstances surrounding the historical business operations of the WGI and the Subsidiary Debtors support substantive consolidation in these Chapter 11 Cases for the limited purposes of voting, confirmation and distributions to Classes 6 and 7. Creditors generally view the Company as a single economic unit, except for joint ventures and the Westinghouse Group, which are not Debtors in these cases. Importantly, all obligations to the Prepetition Secured Lenders and the holders of Old Notes are guaranteed by identical subsidiaries, which are the principal operating Debtor subsidiaries of the Company. WGI and the Subsidiary Debtors historically have issued consolidated financial statements and filed consolidated tax returns. WGI and its Subsidiary Debtors have common officers and directors, and have shared key employees and outside professionals, including, but not limited to, employees of WGI who perform human resources, legal, and risk management services for the benefit of all the Debtors and accounting firms, law firms, engineers and consultants who rendered services to all of the Debtors. In addition, the Debtors' cash management system is highly centralized. As an outgrowth of this consolidated cash management system, intercompany loans routinely are made by and between WGI and the Subsidiary Debtors (and by and between the Subsidiary Debtors themselves) in the ordinary course of the Debtors' business. Accordingly, the Debtors believe that substantive consolidation for limited purposes of voting, confirmation and distributions to Classes 6 and 7 is warranted in light of the criteria established by the courts in ruling on the propriety of substantive consolidation in other cases. Certain parties have stated that they may oppose, and Mitsubishi has stated that it will oppose, the substantive consolidation proposed under the Plan on the grounds that they believe that certain creditors may be adversely affected by such substantive consolidation including creditors that hold a claim against a single Debtor or that substantive consolidation is improper under the circumstances. These situations may be fact specific. The Debtors do not believe that the substantive consolidation proposed in the Plan will negatively impact creditor recoveries. The Bankruptcy Court will hear any objections to the substantive consolidation proposed in the Plan at the Confirmation Hearing. Therefore, any creditor who opposes the substantive consolidation proposed under the Plan must file an objection to the Plan or enter into an agreement with the Debtors reserving their right prior to the Confirmation Hearing. See SECTION II.E for instructions as to how to file an objection to the Plan. As part of their monthly operating reports, which are available on the Court's website, the Debtors file certain balance sheet information for individual Debtors. Additionally, certain creditors have asserted that if substantive consolidation of the Debtors as proposed under the Plan occurs, there would be no need for classification of Class 4 Claims. The Debtors dispute this assertion. C. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS Section 1122 of the Bankruptcy Code provides that a plan of reorganization must classify the claims and interests of a debtor's creditors and equity interest holders. In accordance with section 1122, the Plan divides Claims and Interests into Classes and sets forth the treatment for each Class (other than DIP Facility Claims, Administrative Claims and Priority Tax Claims which, pursuant to section 1123(a)(1), do not need to be classified). The Debtors also are required, under section 1122 of the Bankruptcy Code, to classify Claims against and Interests in the Debtors into Classes that contain Claims and Interests that are substantially similar to the other Claims and Interests in such Class. Under the Plan, unsecured Claims are placed into two classes - Class 3 and Class 7. Claims in Class 7 are General Unsecured Claims, excluding only Unimpaired Unsecured Claims, and include, without limitation, the Old Note Claims, the Raytheon Asserted Claims (if any) and the Lender Deficiency Claims. Class 7 Claims are designated as Impaired. Claims in Class 3 are comprised of Employee Claims, which are defined as unsecured Claims of any person employed by any of the Debtors on the Petition Date other than Claims arising as a result of the assumption of any contract or agreement or the rejection of any contract or agreement on Schedule 6.3 of the Plan, or that are tort claims.. Class 3 Claims are designated as Unimpaired. The Debtors believe that separate classification and treatment of the Employee Claims is appropriate because employees are the principal asset of the Debtors. Maintenance of normal employee relations and morale is critical to the Debtors' reorganization efforts and long-term value. 35
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The Debtors believe that the Plan has classified all Claims and Interests in compliance with the provisions of section 1122 and applicable case law, but it is possible that a holder of a Claim or Interest may challenge the Debtors' classification of Claims and Interests and that the Bankruptcy Court may find that a different classification is required for the Plan to be confirmed. In that event, the Debtors intend, to the extent permitted by the Bankruptcy Code, the Plan and the Bankruptcy Court, to make such reasonable modifications of the classifications under the Plan to permit confirmation and to use the Plan acceptances received in this Solicitation for purposes of obtaining the approval of the reconstituted Class or Classes of which each accepting holder ultimately is deemed to be a member. Any such reclassification could adversely affect the Class in which such holder initially was a member, or any other Class under the Plan, by changing the composition of such Class and the vote required of that Class for approval of the Plan. The amount of any Impaired Claim that ultimately is allowed by the Bankruptcy Court may vary from any estimated allowed amount of such Claim and accordingly the total Claims ultimately allowed by the Bankruptcy Court with respect to each Impaired Class of Claims may also vary from any estimates contained herein with respect to the aggregate Claims in any Impaired Class. Thus, the value of the property that ultimately will be received by a particular holder of an Allowed Claim under the Plan may be adversely or favorably affected by the aggregate amount of Claims ultimately allowed in the applicable Class. The classification of Claims and Interests and the nature of distributions to members of each Class are summarized below. The Debtors believe that the consideration, if any, provided under the Plan to holders of Claims and Interests reflects an appropriate resolution of their Claims and Interests, taking into account the differing nature and priority (including applicable contractual and statutory subordination) of such Claims and Interests and the fair value of the Debtors' assets. In view of the deemed rejection by Class 8, however, as set forth below, the Debtors will seek confirmation of the Plan pursuant to the "cramdown" provisions of the Bankruptcy Code. Specifically, section 1129(b) of the Bankruptcy Code permits confirmation of a Chapter 11 plan in certain circumstances even if the plan has not been accepted by all impaired classes of claims and interests. SEE SECTION VI.N.2. Although the Debtors believe that the Plan can be confirmed under section 1129(b), there can be no assurance that the Bankruptcy Court will find that the requirements to do so have been satisfied. 1. TREATMENT OF UNCLASSIFIED CLAIMS UNDER THE PLAN a. DIP FACILITY CLAIMS DIP Facility Claims are Claims arising under or as a result of the DIP Facility. On the Effective Date, each holder of an Allowed DIP Facility Claim shall receive in full satisfaction, settlement, release, and discharge of and in exchange for such Allowed DIP Facility Claim (i) Cash equal to the unpaid portion of such Allowed DIP Facility Claim or (ii) such other treatment as to which WGI and such holder shall have agreed upon in writing. b. ADMINISTRATIVE CLAIMS The Plan provides that for Administrative Claims to be paid in full. Administrative Claims consist of the actual and necessary costs and expenses of the Chapter 11 Cases that are allowed under sections 503(b) and 507(a)(1) of the Bankruptcy Code. They include, among other things, the cost of operating the Debtors' businesses following the Petition Date (E.G., the post-petition salaries and other benefits for the Debtors' employees which the Debtors have obtained an order allowing them to pay in the ordinary course of business, post-petition rent, amounts owed to vendors providing goods and services to the Debtors during the Chapter 11 Cases, tax obligations incurred after the Petition Date, certain statutory fees and charges assessed under 28 U.S.C. Section 1930) and the actual, reasonable fees and expenses of the professionals retained by the Debtors and the Creditors' Committee. All payments to professionals in connection with the Chapter 11 Cases for compensation and reimbursement of expenses and all payments to reimburse expenses of members of the Creditors' Committee will be made in accordance with the procedures established by the Bankruptcy Code and the Bankruptcy Rules and will be subject to approval of the Bankruptcy Court as being reasonable. The estimated amount of non-ordinary course Administrative Claims to be incurred during the Chapter 11 Cases (which are primarily comprised of professional fees and which will be paid, in part, during the Chapter 11 Cases pursuant to Bankruptcy Court orders), is approximately $20 million. Except as otherwise provided in and subject to the requirements of the Plan, the Plan provides that on or as soon as reasonably practicable after the latest of (i) the Distribution Date, (ii) the date an Administrative Claim becomes an Allowed Administrative Claim, or (iii) the date an Administrative Claim becomes payable pursuant to any agreement between a Debtor and the holder of such Administrative Claim, each holder of an Allowed Administrative Claim will receive in full satisfaction, settlement, release and discharge of and in exchange for such Allowed Administrative Claim (x) Cash equal to the unpaid portion of such Allowed Administrative Claim or (y) such other treatment as to which the applicable Debtor and such holder shall have agreed upon in writing; PROVIDED, HOWEVER, that Allowed 36
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Administrative Claims with respect to liabilities incurred by a Debtor in the ordinary course of business during the Chapter 11 Cases will be paid in the ordinary course of business in accordance with the terms and conditions of any agreements relating thereto. Holders of Administrative Claims based on liabilities incurred by the Debtors in the ordinary course of their businesses will not be required to file or serve any request for payment of such Claims, as these liabilities will be assumed by the applicable Reorganized Debtor and paid, performed or settled when due in accordance with the terms and conditions of the particular agreements governing such obligations. c. PRIORITY TAX CLAIMS Priority Tax Claims are Unsecured Claims asserted by federal and state governmental authorities for taxes specified in section 507(a)(8) of the Bankruptcy Code, such as certain income taxes, property taxes, excise taxes, and employment and withholding taxes. These Unsecured Claims are given a statutory priority in right of payment. Under the Plan, except to the extent that a holder of an Allowed Priority Tax Claim has been paid by the Debtors prior to the Distribution Date or has agreed in writing to a different treatment, each holder of an Allowed Priority Tax Claim will be paid, at the sole discretion of the Debtors, (i) equal Cash payments made on the last Business Day of every three-month period following the Effective Date, over a period not exceeding six years after the assessment of the tax on which such Claim is based, totaling the principal amount of such Claim plus simple interest on any outstanding balance from the Effective Date calculated at the interest rate available on ninety (90) day United States Treasuries on the Effective Date, or (ii) such other treatment as to which a Debtor and such holder shall have agreed upon in writing. The Debtors estimate that aggregate Priority Tax Claims are approximately $18 to $20 million. 2. TREATMENT OF CLASSIFIED CLAIMS AND INTERESTS UNDER THE PLAN a. UNIMPAIRED CLASSES OF CLAIMS (i) CLASS 1 -OTHER PRIORITY CLAIMS Class 1 consists of all Claims entitled to priority pursuant to section 507(a) of the Bankruptcy Code other than DIP Facility Claims, Priority Tax Claims or Administrative Claims. Under the Plan, on, or as soon as reasonably practicable after, the latest of (i) the Distribution Date, (ii) the date such Class 1 Claim becomes an Allowed Class 1 Claim, or (iii) the date such Class 1 Claim becomes payable pursuant to any agreement between a Debtor and the holder of such Class 1 Claim, each holder of an Allowed Class 1 Claim will receive in full satisfaction, settlement, release and discharge of and in exchange for such Allowed Class 1 Claim (x) Cash equal to the unpaid portion of such Allowed Class 1 Claim or (y) such other treatment as to which a Debtor and such holder shall have agreed upon in writing. Class 1 Claims are Unimpaired and therefore not entitled to vote on the Plan. (ii) CLASS 2 -OTHER SECURED CLAIMS Class 2 consists of separate subclasses of claims that are secured by a Lien upon property in which the Estate has an interest, to the extent of the value of the Claim holders' interest in the Estate's interest in such property, as determined pursuant to section 506(a) of the Bankruptcy Code against the Debtors other than the Secured Lender Claims included in Class 6 below ("Other Secured Claims"). Each subclass is deemed to be a separate Class for all purposes under the Bankruptcy Code. On the Effective Date, the legal, equitable and contractual rights of holders of an Allowed Class 2 Claim shall be Reinstated, subject to the provisions of ARTICLE VII of the Plan. The Debtors' failure to object to any such Class 2 Claims in the Chapter 11 Cases shall be without prejudice to the rights of WGI or the Reorganized Debtors to contest or otherwise defend against such Claim in the appropriate forum when and if such Claim is sought to be enforced by the Other Secured Claim holder. Notwithstanding section 1141(c) or any other provision of the Bankruptcy Code, all pre-petition liens on property of any Debtor held by or on behalf of the Other Secured Claim holders with respect to such Claims shall survive the Effective Date and continue in accordance with the contractual terms of the underlying agreements with such Claim holders until, as to each such Claim holder, the Allowed Claims of such Other Secured Claim holder are paid in full, subject to the provisions of ARTICLE VII of the Plan. 37
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Class 2 Claims are Unimpaired and therefore not entitled to vote on the Plan. (iii) CLASS 3 -UNIMPAIRED UNSECURED CLAIMS Class 3 consists of Employee Claims. Under the Plan, each holder of an Allowed Class 3 Claim shall have its Claim Reinstated. Class 3 Claims are Unimpaired and therefore not entitled to vote on the Plan. (iv) CLASS 4 -INTERCOMPANY CLAIMS Class 4 consists of, as the case may be, any Claim (a) by a Debtor against another Debtor or (b) by a Non-Debtor Subsidiary against a Debtor. Under the Plan and except as is provided therein, each holder of an Allowed Class 4 Claim shall have its Claim Reinstated. Class 4 Claims are Unimpaired and therefore not entitled to vote on the Plan. (v) CLASS 5 -SUBSIDIARY INTERESTS Class 5 consists of the issued and outstanding shares of stock the subsidiaries directly or indirectly owned by WGI, as of the Petition Date. Under the Plan, subject to the Restructuring Transactions, if any, all Class 5 Interests will be Reinstated. Class 5 Interests are Unimpaired and therefore not entitled to vote on the Plan. b. IMPAIRED CLAIMS AND INTERESTS (i) CLASS 6 -SECURED LENDER CLAIMS Class 6 consists of all Secured Claims of Prepetition Secured Lenders arising under or as a result of the Prepetition Senior Secured Credit Facility, which Claims will be deemed Allowed pursuant to the Plan in the approximate amount of $505 million, adjusted downward (if necessary) by the Confirmation Hearing as a result of the issuance of the Washington Stock Options. Under the Plan, on the Effective Date, each holder of an Allowed Class 6 Claim, in full satisfaction, settlement, release, and discharge of and in exchange for such Allowed Class 6 Claim, will receive on or as soon as practicable after the Distribution Date, its Pro Rata share one-hundred percent (100%) of the New Common Shares issued and outstanding as of the Effective Date subject to Dilution. Class 6 Claims are Impaired and entitled to vote on the Plan. (ii) CLASS 7 - GENERAL UNSECURED CLAIMS Claims in Class 7 are those Claims against the Debtors that are not DIP Facility Claims, Administrative Claims, Priority Tax Claims, Other Priority Claims, Other Secured Claims, Intercompany Claims, Secured Lender Claims or Unimpaired Unsecured Claims, and include, without limitation, the Old Note Claims, the Raytheon Asserted Claims (if any) and the Lender Deficiency Claims (which claims are deemed Allowed pursuant to the Plan in an amount to be established by the Confirmation Hearing). Lender Deficiency Claims will be established based primarily upon the amount of funded debt owed to the Prepetition Secured Lenders MINUS the amount of the Secured Lender Claims. Currently, there are approximately $130 million in undrawn letters of credit under the Prepetition Senior Secured Credit Facility. Significant draws upon the undrawn letters of credit under the Prepetition Senior Secured Credit Facility prior to the Confirmation Hearing are not anticipated, but if they were to occur, would increase the amount of the Lender Deficiency Claims on a dollar for dollar basis. Under the Plan, on the Effective Date, each holder of an Allowed Class 7 Claim shall be deemed to receive, in full satisfaction, settlement, release and discharge of and in exchange for such Allowed Class 7 Claim, a pro rata beneficial interest in the WGI Creditor Trust, and shall be entitled to receive pro rata distributions from the WGI Creditor Trust pursuant to the terms and conditions set forth in SECTION 9.7 of the Plan and the WGI Creditor Trust Agreement until such Claim is paid in full with interest accruing from the Petition Date, at a rate of 20% per annum, compounded quarterly. Class 7 Claims are Impaired and entitled to vote on the Plan. (iii) CLASS 8 - WGI INTERESTS AND SUBORDINATED CLAIMS 38
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Class 8 consists of all WGI Interests and any Claim subordinated pursuant to sections 510(b) or (c) of the Bankruptcy Code. Under the Plan, the holders of WGI Interests and Subordinated Claims shall not receive or retain any property under the Plan on account of such Interests or Claims, other than the WGI Creditor Trust Equity Residual, if any. The WGI Creditor Trust Equity Residual consists of any Net Trust Recovery remaining after payment in full of each Allowed General Unsecured Claim plus interest accruing from the Petition Date, at a rate of 20% per annum, compounded quarterly. On the Effective Date, all of the WGI Interests shall be deemed cancelled and extinguished. Class 8 Claims and Interests are Impaired and are presumed to receive no distribution under the Plan and are therefore deemed to reject the Plan and are not entitled to vote on the Plan. 3. RESERVATION OF RIGHTS REGARDING CLAIMS Except as otherwise explicitly provided in the Plan, nothing shall affect the Debtors' or Reorganized Debtors' rights and defenses, both legal and equitable, with respect to any Claims, including, but not limited to, all rights with respect to legal and equitable defenses to alleged rights of setoff or recoupment. Notwithstanding the substantive consolidation of the Debtors, the Claims of any particular Debtor that are Unimpaired shall remain the obligations solely of such Debtor and shall not become obligations of any other Debtor or Reorganized Debtor. 4. RAYTHEON ASSERTED CLAIMS Raytheon has indicated that it believes that it has valid claims against the Debtors. SEE APPENDIX D. The Debtors believe that, among other things, as a result of the Debtors claims against Raytheon, Raytheon is a debtor to the Debtors, not a creditor. Moreover, the Debtors dispute that Raytheon has any Claims that can or should be allowed, including, without limitation, by operation of section 502(d) of the Bankruptcy Code. In addition, notwithstanding anything in the Plan to the contrary, it is the Debtors' intention to commence an action and to seek an order of the Bankruptcy Court to object to and, if necessary, to seek to equitably subordinate all Raytheon Asserted Claims pursuant to section 510(c) of the Bankruptcy Code or otherwise. In the event such subordination is successful, any Raytheon Asserted Claims that would otherwise be Allowed will be classified in Class 8. SEE SECTION VI.C.4. D. DISTRIBUTIONS UNDER THE PLAN Except as set forth in the succeeding sentence, the Disbursing Agent shall make all distributions required under this Plan. Distributions provided for in the Plan on account of Allowed Class 7 Claims shall be made by the Trustee. The WGI Creditor Trust Agreement shall provide that any distributions to be made on account of Allowed Old Note Claims shall be made to the Indenture Trustee, as Disbursing Agent for Old Note Claims, for further distribution to holders of Allowed Old Note Claims. If the Disbursing Agent is an independent third party designated by the Reorganized Debtors to serve in such capacity, such Disbursing Agent shall receive, without further Bankruptcy Court approval, reasonable compensation for distribution services rendered pursuant to the Plan and reimbursement of reasonable out-of-pocket expenses incurred in connection with such services from the Reorganized Debtors on terms acceptable to the Reorganized Debtors. No Disbursing Agent shall be required to give any bond or surety or other security for the performance of its duties unless otherwise ordered by the Bankruptcy Court. Cash payments made pursuant to the Plan will be in U.S. funds by means agreed to by the payor and the payee, including by check or wire transfer, or, in the absence of an agreement, such commercially reasonable manner as the payor shall determine in its sole discretion. Except as otherwise provided in the Plan, any ancillary documents entered into in connection therewith, or the Confirmation Order, the Debtors shall have the right to prepay, without penalty, all or any portion of an Allowed Claim at any time; PROVIDED, HOWEVER, that any such prepayment shall not violate, or otherwise prejudice, the relative priorities among the classes of Claims. On the Effective Date, Reorganized WGI shall issue or distribute in accordance with the provisions of the Plan all of the New Common Shares 1. DISTRIBUTIONS FOR CLAIMS ALLOWED AS OF THE EFFECTIVE DATE a. DISTRIBUTION DATE Except as otherwise provided herein or as ordered by the Bankruptcy Court, distributions to be made on account of Claims that are Allowed Claims as of the Effective Date shall be made as soon as practicable after the Effective Date. Distributions on account of Claims that first become Allowed Claims after the Effective Date shall be made pursuant to ARTICLE VII of the Plan. 39
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Notwithstanding the date on which any distribution of securities is actually made to a holder of a Claim or Interest that is an Allowed Claim or Allowed Interest on the Effective Date, as of the date of the distribution such holder shall be deemed to have the rights of a holder of such securities distributed as of the Effective Date. b. RECORD DATE FOR DISTRIBUTIONS TO HOLDERS OF SECURED LENDER CLAIMS AND OLD NOTES Under the Plan, the Distribution Record Date is the Confirmation Date, unless determined to be otherwise in the Confirmation Order. At the close of business on the Distribution Record Date, the transfer records for the Secured Lender Claims and Old Note holder claims shall be closed, and there shall be no further changes in the record holders of Secured Lender Claims or Old Notes. None of Reorganized WGI, the Disbursing Agent, if any, the Trustee, nor the Administrative Agent for the Prepetition Secured Lenders shall have any obligation to recognize any transfer of such Secured Lender Claims or Old Note holder claims occurring after the Distribution Record Date and shall be entitled instead to recognize and deal for all purposes hereunder with only those record holders as of the close of business on the Distribution Record Date. c. CALCULATION OF DISTRIBUTION AMOUNTS OF NEW COMMON SHARES No fractional shares of New Common Shares shall be issued or distributed under the Plan. Each Person entitled to receive New Common Shares will receive the total number of whole shares of New Common Shares to which such Person is entitled. Whenever any distribution to a particular Person would otherwise call for distribution of a fraction of a share of New Common Shares the actual distribution of shares of such stock shall be rounded to the next higher or lower whole number as follows: (a) fractions 1/2 or greater shall be rounded to the next higher whole number, and (b) fractions of less than 1/2 shall be rounded to the next lower whole number. The total number of shares of New Common Shares to be distributed to Class 6 shall be adjusted as necessary to account for the rounding provided for in ARTICLE VII of the Plan. No consideration shall be provided in lieu of fractional shares that are rounded down. d. DELIVERY OF DISTRIBUTIONS Distributions to holders of Allowed Claims shall be made by the Disbursing Agent (a) at the addresses set forth on the Proofs of Claim filed by such holders (or at the last known addresses of such holders if no Proof of Claim is filed or if the Debtors have been notified of a change of address), (b) at the addresses set forth in any written notices of address changes delivered to the Disbursing Agent after the date of any related Proof of Claim, (c) at the addresses reflected in the Schedules if no Proof of Claim has been filed and the Disbursing Agent has not received a written notice of a change of address, or (d) at the addresses set forth in a properly completed letter of transmittal accompanying securities properly remitted to the Debtors. If any holder's distribution is returned as undeliverable, no further distributions to such holder shall be made unless and until the Disbursing Agent (or Trustee as applicable) is notified of such holder's then current address, at which time all missed distributions shall be made to such holder without interest. Amounts in respect of undeliverable distributions made by the Disbursing Agent (or the Trustee as applicable), shall be returned to the Reorganized Debtors (or the WGI Creditor Trust, as applicable) until such distributions are claimed. All claims for undeliverable distributions made by the Disbursing Agent must be made on or before the first (1st) anniversary of the Effective Date, after which date all unclaimed property shall revert to the Reorganized Debtors free of any restrictions thereon and the claim of any holder or successor to such holder with respect to such property shall be discharged and forever barred, notwithstanding any federal or state escheat laws to the contrary. Nothing contained in the Plan shall require the Debtors, Reorganized Debtors, any Disbursing Agent or the Indenture Trustee to attempt to locate any holder of an Allowed Claim. e. OLD NOTES Except as provided in ARTICLE VII of the Plan in connection with lost, stolen, mutilated or destroyed Old Notes, each holder of an Allowed Claim evidenced by an Old Note shall tender such Old Note to the Disbursing Agent in accordance with written instructions to be provided in a letter of transmittal to such holders by the Disbursing Agent as promptly as practicable following the Effective Date. Such letter of transmittal shall specify that delivery of such notes or Old Notes will be effected, and risk of loss and title thereto will pass, only upon the proper delivery of such notes or Old Notes with the letter of transmittal in accordance with such instructions. Such letter of transmittal shall also include, among other provisions, customary provisions with respect to the authority of the holder of the applicable note or Old Notes to act and the authenticity of any signatures required on the letter of transmittal. All surrendered notes and Old Notes shall be marked as canceled and delivered by the Trustee to Reorganized WGI. 40
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f. LOST, MUTILATED OR DESTROYED OLD NOTES In addition to any requirements under the applicable certificate or articles of incorporation or bylaws of the applicable Debtor, any holder of a Claim evidenced by an Old Note that has been lost, stolen, mutilated or destroyed shall, in lieu of surrendering Old Note, deliver to the Disbursing Agent (i) evidence satisfactory to the Disbursing Agent of the loss, theft, mutilation or destruction; and (ii) such indemnity as may be required by the Disbursing Agent to hold the Disbursing Agent harmless from any damages, liabilities or costs incurred in treating such individual as a holder of an Old Note. Upon compliance with ARTICLE VII of the Plan by a holder of a Claim evidenced by an Old Note, such holder shall, for all purposes under the Plan, be deemed to have surrendered its Old Note, as applicable. g. FAILURE TO SURRENDER CANCELED OLD NOTES Any holder of an Old Note that fails to surrender or be deemed to have surrendered such note or Old Note within the 2nd anniversary after the Effective Date shall have its claim for a distribution from the WGI Creditor Trust on account of such Old Note discharged and shall be forever barred from asserting any such claim against the WGI Creditor Trust, any Reorganized Debtor or their respective property. 2. RESOLUTION AND TREATMENT OF DISPUTED, CONTINGENT, AND UNLIQUIDATED CLAIMS AND DISPUTED INTERESTS a. PROSECUTION OF OBJECTIONS After the Confirmation Date, only the Debtors the Reorganized Debtors shall have the authority to file objections, settle, compromise, withdraw or litigate to judgment objections to Claims, other than the Raytheon Asserted Claims and Disputed Claims in Class 7, with respect to which the authority to object, settle, compromise or litigate to judgment shall be transferred to the WGI Creditor Trust pursuant to Section 9.2 of this Plan. From and after the Effective Date, the Reorganized Debtors or the Trustee, as applicable, may settle or compromise any Disputed Claim without approval of the Bankruptcy Court. b. NO DISTRIBUTIONS PENDING ALLOWANCE Notwithstanding any other provision of the Plan or the WGI Creditor Trust Agreement, no payments or distributions shall be made with respect to all or any portion of a Disputed Claim unless and until all objections to such Disputed Claim have been settled or withdrawn or have been determined by Final Order, and the Disputed Claim, or some portion thereof, has become an Allowed Claim. c. DISPUTED DISTRIBUTION RESERVE; RESERVE FOR SUBSEQUENT DISTRIBUTIONS TO QUALIFYING CLASS 7 CREDITORS Prior to making any distributions of Trust Assets, the Trustee shall establish appropriate reserves for Disputed Class 7 Claims, to withhold from any such distributions an amount in Cash equal to 100% of distributions to which holders of Disputed Class 7 Claims would be entitled under the Plan as of such date if such Disputed Class 7 Claims were Allowed Claims in their Disputed Class 7 Claim Amount. d. DISTRIBUTIONS AFTER ALLOWANCE OF CLASS 7 CLAIMS The Trustee shall make payments and distributions from the reserve established for Disputed Class 7 Claims to each holder of a Disputed Class 7 Claim that has become an Allowed Class 7 Claim in accordance with the provisions of the WGI Creditor Trust Agreement. After the date that the order or judgment of the Bankruptcy Court allowing such Claim becomes a Final Order, the Trustee shall distribute, subject to the WGI Creditor Trust Agreement, to the holder of such Claim any Cash in the reserve established for Disputed Class 7 Claims that would have been distributed to the holder of such claim had such Claim been an Allowed Class 7 Claim. E. POST-CONSUMMATION OPERATIONS OF THE DEBTORS 1. CONTINUED CORPORATE EXISTENCE Following confirmation and consummation of the Plan, subject to the Restructuring Transactions (if any), the Reorganized Debtors will continue to exist as separate corporate entities in accordance with the laws of their respective states of incorporation and pursuant to their respective certificates or articles of incorporation and bylaws in effect prior to the Effective Date, except to the extent such certificates or articles of incorporation and bylaws are amended under the Plan. 41
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2. CANCELLATION OF OLD SECURITIES AND AGREEMENTS On the Effective Date, except as otherwise provided for herein, (a) the Old Securities and any other note, bond, indenture, or other instrument or document evidencing or creating any indebtedness or obligation of a Debtor, except such notes or other instruments evidencing indebtedness or obligations of a Debtor that are Reinstated or amended and restated under the Plan, shall be canceled, and (b) the obligations of the Debtors under any agreements, indentures or certificates of designations governing the Old Securities and any other note, bond, indenture or other instrument or document evidencing or creating any indebtedness or obligation of a Debtor, except such notes or other instruments evidencing indebtedness or obligations of a Debtor that are Reinstated or amended and restated under the Plan, as the case may be, shall be discharged. 3. CERTIFICATES OF INCORPORATION AND BYLAWS The certificate or articles of incorporation and bylaws of each Debtor will be amended as necessary to satisfy the provisions of the Plan and the Bankruptcy Code and will include, among other things, pursuant to section 1123(a)(6) of the Bankruptcy Code, a provision prohibiting the issuance of non-voting equity securities, but only to the extent required by section 1123(a)(6) of the Bankruptcy Code. The Articles of Incorporation and Bylaws of Reorganized WGI will include provisions allowing Mr. Dennis Washington to acquire, directly or indirectly, up to 40% of the New Common Shares, on a fully diluted basis, assuming exercise of the Washington Stock Options. SEE SECTION V.G. The amended Articles of Incorporation and By-laws of Reorganized WGI shall be in substantially the form attached to the Plan as Exhibits A and B respectively. 4. RESTRUCTURING TRANSACTIONS On or after the Effective Date, the applicable Reorganized Debtors may enter into such transactions and may take such actions as may be necessary or appropriate to effect a corporate restructuring of their respective businesses, to otherwise simplify the overall corporate structure of the Reorganized Debtors, or to reincorporate certain of the Subsidiary Debtors under the laws of jurisdictions other than the laws of which the applicable Subsidiary Debtors are presently incorporated. Such restructuring may include one or more mergers, consolidations, restructures, dispositions, liquidations, or dissolutions, as may be determined by the Debtors or Reorganized Debtors to be necessary or appropriate (collectively, the "Restructuring Transactions"). The actions to effect the Restructuring Transactions may include: (a) the execution and delivery of appropriate agreements or other documents of merger, consolidation, restructuring, disposition, liquidation, or dissolution containing terms that are consistent with the terms of the Plan and that satisfy the applicable requirements of applicable state law and such other terms to which the applicable entities may agree; (b) the execution and delivery of appropriate instruments of transfer, assignment, assumption, or delegation of any asset, property, right, liability, duty, or obligation on terms consistent with the terms of the Plan and having such other terms to which the applicable entities may agree; (c) the filing of appropriate certificates or articles of merger, consolidation, or dissolution pursuant to applicable state law; and (d) all other actions that the applicable entities determine to be necessary or appropriate, including making filings or recordings that may be required by applicable state law in connection with such transactions. The Restructuring Transactions may include one or more mergers, consolidations, restructures, dispositions, liquidations, or dissolutions, as may be determined by the Reorganized Debtors to be necessary or appropriate to result in substantially all of the respective assets, properties, rights, liabilities, duties, and obligations of certain of the Reorganized Debtors vesting in one or more surviving, resulting, or acquiring corporations. In each case in which the surviving, resulting, or acquiring corporation in any such transaction is a successor to a Reorganized Debtor, such surviving, resulting, or acquiring corporation will perform the obligations of the applicable Reorganized Debtor pursuant to the Plan to pay or otherwise satisfy the Allowed Claims against such Reorganized Debtor, except as provided in any contract, instrument, or other agreement or document effecting a disposition to such surviving, resulting, or acquiring corporation, which may provide that another Reorganized Debtor will perform such obligations. F. SUMMARY OF SECURITIES TO BE ISSUED IN CONNECTION WITH THE PLAN 1. NEW COMMON SHARES As of the Effective Date, Reorganized WGI shall issue for distribution in accordance with the terms of the Plan the New Common Shares to the holders of Allowed Claims in Class 6. The issuance of the New Common Shares and the distribution thereof to holders of Allowed Claims in Class 6 shall be exempt from registration under applicable securities laws pursuant to section 1145(a) of the Bankruptcy Code. 42
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2. REGISTRATION RIGHTS AGREEMENT Without limiting the effect of section 1145 of the Bankruptcy Code, Reorganized WGI will enter into a Registration Rights Agreement with each Allowed Class 6 Claim holder (a) who by virtue of holding New Common Shares to be distributed under the Plan and/or its relationship with Reorganized WGI holds more than 10% of the New Common Shares or could reasonably be deemed to be an "affiliate" (as such term is used within the meaning of applicable securities laws) of Reorganized WGI (an "Affiliated Shareholder"), and (b) who requests in writing that Reorganized WGI execute such agreement. The Registration Rights Agreements shall contain certain shelf, demand and piggyback registration rights for the benefit of the signatories thereto. Subject to the terms and conditions of the Registration Rights Agreement, Affiliated Stockholders holding more than 15% of the New Common Stock subject to the Registration Rights Agreement ("Registrable Securities") shall be entitled to request the registration of their shares by the Company. Each Affiliated Stockholder shall receive one such "demand" right; provided that, in the aggregate, the Affiliated Stockholders shall be entitled to no more than two demand registrations. Subject to the terms and conditions of the Registration Rights Agreement, the Affiliated Stockholders shall also have the right to include their Registrable Securities in registrations by the Company or require the Company to file and maintain the effectiveness of a Form S-3 shelf registration statement providing for an offering of Registrable Securities to be made on a continuous basis. The Registration Rights Agreement shall also contain customary provisions regarding the registration rights, including, but not limited to, registration procedures, transfer restrictions, withdrawal rights, holdback agreements, registration expenses and indemnification. The Registration Rights Agreement shall be in substantially the form attached to the Plan as EXHIBIT D. Reorganized WGI will use reasonable commercial efforts to have the New Common Shares listed for trading on a national securities exchange. G. EXIT FACILITY On the Effective Date, the Debtors anticipate that they will enter into the Exit Facility. The Debtors anticipate that the Exit Facility will be used to (a) repay amounts outstanding on the Effective Date under the DIP Facility, (b) make other payments required to be made on the Effective Date or the Distribution Date, including, but not limited to, the Initial Deposit, and (c) provide such additional borrowing capacity as is required by the Debtors and the Subsidiaries following the Effective Date to maintain their operations. SEE SECTION V.L.1.(f). As of the date hereof, the Debtors have not obtained any commitment for Exit Financing, and as set forth in SECTION VI.N.2.(b), such a commitment and entering into such a facility is a condition to the Effective Date of the Plan. H. SUMMARY OF RELEASES UNDER THE PLAN 1. RELEASES BY DEBTORS The Plan provides for the Debtors to release certain parties from claims (if any) of the Debtors. Direct, non-derivative claims owned by creditors against such entities (if any) are not being released under the Plan, nor does the Plan provide for a discharge of any liabilities of any non-Debtor person or entity. See SECTION VI.O.2 for a description of the Plan's discharge provisions. Pursuant to the Plan, as of the Effective Date, the Debtors and Reorganized Debtors will be deemed to forever release, waive and discharge all claims, obligations, suits, judgments, damages, demands, debts, rights, causes of action and liabilities whatsoever in connection with or related to the Debtors and the Subsidiaries, the Chapter 11 Cases or the Plan (other than the rights of the Debtors or Reorganized Debtors to enforce the Plan and the contracts, instruments, releases, indentures, and other agreements or documents delivered thereunder) whether liquidated or unliquidated, fixed or contingent, matured or unmatured, known or unknown, foreseen or unforseen, then existing or thereafter arising, in law, equity or otherwise that are based in whole or part on any act, omission, transaction, event or other occurrence taking place on or prior to the Effective Date in any way relating to the Debtors, the Reorganized Debtors or their Subsidiaries, the Chapter 11 Cases or the Plan, and that may be asserted by or on behalf of the Debtors or their Estates or the Reorganized Debtors against (i) the Debtors' or Subsidiaries' present directors, officers, employees, agents and professionals as of the Petition Date, (ii) the holders of Lender Claims, (iii) CSFB, as administrative agent, collateral agent and arranger under the Prepetition Senior Secured Credit Facility, (iv) Bank of Montreal as syndication agent under the Prepetition Senior Secured Credit Facility, (v) BoA and U.S. Bank as documentation agent under the Prepetition Senior Secured Credit Facility, (vi) the DIP Agent and the holders of DIP Facility Claims, (vii) the respective current professionals of the entities released in subclauses (i)-(vi) above acting in such capacity, except for those persons and entities listed on SCHEDULE 5.13 to the Plan against which claims shall not be released under the Plan. The Debtors are unaware of any claims against any of the parties to be released by the Debtors that the Debtors believe have any material value to the Debtors' estates. Specifically, with respect to officers, directors or other agents and professionals involved in the transaction with Raytheon, the Debtors have concluded, after extensive investigation and analysis, that they believe that Raytheon committed a fraud upon the Company. Moreover, the Debtors believe that their directors and officers acted appropriately in all respects in connection with the Raytheon Transaction. 43
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With respect to professionals engaged by the Company before the Petition Date, including with respect to the Raytheon transaction, the Company's engagement agreements with such professionals contain broad indemnities granted by the Company in favor of such parties, which indemnities are typically required by professionals in engagement agreements. Officers and directors also have broad indemnities granted to them, which is typical for officers and directors of corporations. Under the Plan, certain Indemnification Obligations are being assumed, which means such obligations will become obligations of the Reorganized Debtors. SEE SECTION VI.J.4. The Debtors do not believe that any claims against the parties to be released by the Debtors (if any exist) would likely result in affirmative recoveries, because such parties would have the right to assert indemnity claims and offset those claims against their potential liability, whether or not such Indemnification Obligations are assumed under the Plan (as proposed), or rejected. SEE SECTION VI.J.4 for a discussion as to why the Debtors believe the Indemnification Obligations should be assumed. In the event that the Bankruptcy Court were to determine that Indemnification Obligations could not be assumed and must be rejected, the claims for indemnification by such parties, rather than being assumed and satisfied in the ordinary course of business, would be classified in Class 7, but such claim holders would retain the right to assert rights of setoff against any prepetition claims asserted against them. The Plan also provides for the "exculpation" of various parties with respect to their actions during the Chapter 11 Cases and their efforts to have the Plan confirmed. SEE SECTION VI.O.4. 2. RELEASES BY HOLDERS OF LENDER CLAIMS Pursuant to the Plan, to the fullest extent permissible under applicable law, as of the Effective Date, in consideration for the obligations of the Debtors and the Reorganized Debtors under the Plan and the Cash, securities, contracts, instruments, releases and other agreements or documents to be delivered in connection with the Plan, each of the Prepetition Secured Lenders, any individual, corporation or other entity that was at any time formerly a Lender and the DIP Lenders will be deemed to forever release, waive and discharge all claims, obligations, suits, judgments, damages, demands, debts, rights, causes of action and liabilities (other than the rights to enforce the Debtors' or the Reorganized Debtors' obligations under the Plan and the securities, contracts, instruments, releases and other agreements and documents delivered thereunder), whether liquidated or unliquidated, fixed or contingent, matured or unmatured, known or unknown, foreseen or unforseen, then existing or thereafter arising, in law, equity or otherwise that are based in whole or in part on any act, omission, transaction, event or other occurrence taking place on or prior to the Effective Date in any way relating to the Debtors or Subsidiaries, the Reorganized Debtors, the Chapter 11 Cases, or the Plan against (i) the Debtors, the Subsidiaries and the Reorganized Debtors, (ii) the present directors, officers and employees of the Debtors or Subsidiaries as of the Effective Date, or (iii) their respective current professionals as of the Effective Date (including the present and former officers, directors, employees, shareholders and professionals of the foregoing), acting in such capacity, except for those persons and entities listed on SCHEDULE 5.13 to the Plan against which claims shall not be released under the Plan. 3. INJUNCTION RELATED TO RELEASES As further provided in SECTION 12.11 of the Plan, the Confirmation Order will enjoin the prosecution, whether directly, derivatively or otherwise, of any claim, obligation, suit, judgment, damage, demand, debt, right, cause of action, liability or interest released, discharged or terminated pursuant to the Plan. I. COMPENSATION AND BENEFIT PROGRAMS Except and to the extent previously assumed by an order of the Bankruptcy Court on or before the Confirmation Date, all employee compensation and benefit programs of the Debtors, including programs subject to sections 1114 and 1129(a)(13) of the Bankruptcy Code, entered into before or after the Petition Date and not since terminated, shall be deemed to be, and shall be treated as though they are, executory contracts that are assumed except for (i) executory contracts or plans specifically rejected pursuant to the Plan (to the extent such rejection does not violate sections 1114 and 1129(a)(13) of the Bankruptcy Code) and (ii) executory contracts or plans as have previously been rejected, are the subject of a motion to reject, or have been specifically waived by the beneficiaries of any plans or contracts; PROVIDED, HOWEVER, that the Debtors' obligations, if any, to pay all "retiree benefits" (as defined in section 1114(a) of the Bankruptcy Code) shall continue. On the Effective Date, management and designated employees of Reorganized WGI and the other Reorganized Debtors shall receive stock options which are more specifically described in the Management Option Plan, in substantially the form attached to the Plan as EXHIBIT C. The principal terms of the Management Option Plan are as follows. Under the Management Option Plan, options to purchase up to 10% of the New Common Shares outstanding, on a fully diluted basis, shall be authorized to be granted. All options will 44
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vest over a 3 year period. One half of these options shall be issued on the Effective Date to members of existing management, as determined and to be announced prior to the Confirmation Hearing, with strike prices set based upon the value of the New Common Stock established in this Disclosure Statement. SEE SECTION XI.E. The remaining one half of the options issued under the Management Option Plan shall be available for issuance at the discretion of the Board of Directors of Reorganized WGI, with strike prices based upon then- current market conditions as determined by the Board of Reorganized WGI. J. DIRECTORS AND OFFICERS OF REORGANIZED DEBTORS 1. APPOINTMENT The initial board of directors of Reorganized WGI shall consist of nine (9) directors. Mr. Dennis Washington, Mr. Stephen Hanks and Mr. David Batchelder shall each be directors of Reorganized WGI with Mr. Washington serving as Chairman without cash compensation for at least two (2) years after the Effective Date so long as the Board desires him to do so. The Prepetition Secured Lenders shall be entitled to appoint six (6) directors. The Confirmation Order may contain provisions providing for a staggered board for Reorganized WGI, as agreed to by WGI and the Prepetition Secured Lenders. The Prepetition Secured Lenders shall file with the Bankruptcy Court and give to WGI written notice of the identities of such members on a date that is not less than five (5) days prior to the Confirmation Hearing. The boards of directors and executive officers of the remaining Reorganized Debtors shall consist of directors and officers as determined by Reorganized WGI on the Effective Date or thereafter. 2. TERMS Reorganized WGI board members shall serve for initial terms commencing on the Effective Date as determined be the Debtors and the Prepetition Secured Lenders and approved in the Confirmation Order. 3. VACANCIES Any vacancy in the directorship prior to the expiration of the initial term (i) selected by the Prepetition Secured Lenders shall in the case of the resignation of such director, be filled by a person designated by such director as his/her replacement to serve out the remainder of the applicable term; and (ii) selected by WGI shall be filled by a person designated by the Chief Executive Officer of Reorganized WGI to serve out the remainder of the applicable term. 4. TREATMENT OF DIRECTOR AND OFFICER INDEMNIFICATION OBLIGATIONS UNDER THE PLAN Indemnification Obligations are defined in SECTION 1.51 of the Plan as obligations of any of the Debtors or Subsidiaries to indemnify, reimburse or provide contribution to any present or former officer, director or employee, or any present or former professionals or advisors of the Debtors, pursuant to by-laws, articles of incorporation or otherwise as may be in existence immediately prior to the Petition Date, including, without limitation, accountants, auditors, financial consultants, underwriters or attorneys, whether pursuant to charter, by law, contract, statute or otherwise, regardless of whether the indemnification is owed in connection with a pre- petition or post-petition occurrence. Under the Plan, all Indemnification Obligations shall be treated as though they are executory contracts that are assumed pursuant to section 365 of the Bankruptcy Code under the Plan and such obligations shall remain unaffected and shall not be discharged or impaired hereby, except for the indemnification claims of Raytheon or any of its subsidiaries, officers, directors, employees, agents or professionals or any party listed on SCHEDULE 5.13 or SCHEDULE 6.3 to the Plan, which claims shall be deemed rejected pursuant to SECTION 6.3 of the Plan. The Debtors believe the Indemnification Obligations to be assumed should be assumed because doing so is in the best interests of these estates, and because the Debtors do not believe that their assumption will have a material adverse impact on the Reorganized Debtors. The Debtors believe that assuming these Indemnification Obligations is in the Debtors' best interests because the ability to retain management personnel, other employees, and professionals and advisors is critical to the ongoing viability of the Debtors. Maintaining standard indemnity agreements, which are common to large corporations, is necessary to be able to preserve employee morale and to ensure that key employees will not leave the Debtors' employ. Moreover, any director and officer liability insurance coverage in place prior to the Petition Date will remain in place during the Chapter 11 Cases and after the Effective Date. If the Indemnification Obligations are not assumed, Claims by indemnified parties would be General Unsecured Claims in Class 7, subject to claims of rights of setoff and/or recoupment. K. REVESTING OF ASSETS Pursuant to section 1141(b) of the Bankruptcy Code, all property of each Debtor's Estate, together with any property of each Debtor that is not property of its Estate and that is not specifically disposed of pursuant to the Plan, shall revest in the applicable 45
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Reorganized Debtor on the Effective Date. Thereafter, the Reorganized Debtors may operate their businesses and may use, acquire and dispose of property free of any restrictions of the Bankruptcy Code, the Bankruptcy Rules and the Bankruptcy Court. As of the Effective Date, all property of each Reorganized Debtor shall be free and clear of all Liens, Claims and Interests, except as specifically provided in the Plan or the Confirmation Order. Without limiting the generality of the foregoing, each Reorganized Debtor may, without application to or approval by the Bankruptcy Court, pay fees that it incurs after the Effective Date for professional services and expenses. L. PRESERVATION OF RIGHTS OF ACTION Except as otherwise provided in the Plan or the Confirmation Order, or in any contract, instrument, release, indenture or other agreement entered into in connection with the Plan, in accordance with section 1123(b) of the Bankruptcy Code, the Reorganized Debtors shall retain and may enforce, sue on, settle or compromise (or decline to do any of the foregoing) all Litigation Claims that the Debtors or the Estates may hold against any Person or entity. Each Debtor or its successor(s) may pursue such retained Litigation Claims as appropriate, in accordance with the best interests of the Reorganized Debtor or its successor(s) who hold such rights. The Debtors do not believe that the Litigation Claims will have a material impact on the businesses or value of the Reorganized Debtors. The Debtors have not undertaken a detailed analysis of any potential preference, fraudulent transfer or other actions they may have under sections 544, 546, 547, 548 and 550 of the Bankruptcy Code (other than with respect to Raytheon). The failure of the Debtors to specifically list any claim, right of action, suit, or proceeding herein or in the Plan does not, and will not be deemed to, constitute a waiver or release by the Debtors of such claim, right of action, suit, or proceeding, and the Reorganized Debtors will retain the right to pursue additional claims, rights of action, suits or proceedings. In addition, at any time before the Effective Date, notwithstanding anything in the Plan to the contrary, the Debtors or the Reorganized Debtors may settle some or all of the Litigation Claims with the approval of the Bankruptcy Court pursuant to Fed. R. Bankr. P. 9019. M. OTHER MATTERS 1. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES Under section 365 of the Bankruptcy Code, the Debtors have the right, subject to Bankruptcy Court approval, to assume or reject any executory contracts or unexpired leases. If the Debtors reject an executory contract or unexpired lease that was entered into before the Petition Date, the contract or lease will be treated as if it had been breached on the date immediately preceding the Petition Date, and the other party to the agreement will have an Impaired Unsecured Claim for damages incurred as a result of the rejection. In the case of rejection of employment severance agreements and real property leases, damages are subject to certain limitations imposed by sections 365 and 502 of the Bankruptcy Code. a. ASSUMED CONTRACTS AND LEASES Except as otherwise provided in the Plan, or in any contract, instrument, release, indenture or other agreement or document entered into in connection with the Plan, as of the Effective Date each Debtor shall be deemed to have assumed each executory contract and unexpired lease to which it is a party, unless such contract or lease (i) was previously assumed or rejected by such Debtor, (ii) previously expired or terminated pursuant to its own terms, (iii) is the subject of a motion pending before the Bankruptcy Court as of the Confirmation Date to assume or reject such contract or lease or (iv) is listed on SCHEDULE 6.3 attached to the Plan as being an executory contract or unexpired lease to be rejected, PROVIDED, HOWEVER, that the Debtors reserve their right, at any time prior to the Confirmation Date, to amend SCHEDULE 6.3 to delete any unexpired lease or executory contract therefrom or add any unexpired lease or executory contract thereto. To the extent that an executory contract or unexpired lease is not listed on SCHEDULE 6.3, such executory contract or unexpired lease shall be deemed assumed. The Confirmation Order shall constitute an order of the Bankruptcy Court under section 365 of the Bankruptcy Code approving the contract and lease assumptions described above, as of the Effective Date. Each executory contract and unexpired lease that is assumed and relates to the use, ability to acquire, or occupancy of real property shall include (i) all modifications, amendments, supplements, restatements, or other agreements made directly or indirectly by any agreement, instrument, or other document that in any manner affect such executory contract or unexpired lease and (ii) all executory contracts or unexpired leases appurtenant to the premises, including all easements, licenses, permits, rights, privileges, immunities, options, rights of first refusal, powers, uses, usufructs, reciprocal easement agreements, vaults, tunnel or bridge agreements or franchises, and any other interests in real estate or rights IN REM related to such premises, unless any of the foregoing agreements has been rejected pursuant to an order of the Bankruptcy Court. 46
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b. PAYMENTS RELATED TO ASSUMPTION OF CONTRACTS AND LEASES Any monetary amounts by which each executory contract and unexpired lease to be assumed pursuant to the Plan is in default will be satisfied, under section 365(b)(1) of the Bankruptcy Code, at the option of the Debtor party assuming such contract or lease, by Cure. If there is a dispute regarding (i) the nature or amount of any Cure, (ii) the ability of a Reorganized Debtor or any assignee to provide "adequate assurance of future performance" (within the meaning of section 365 of the Bankruptcy Code) under the contract or lease to be assumed, or (iii) any other matter pertaining to assumption, Cure will occur following the entry of a Final Order resolving the dispute and approving the assumption or assumption and assignment, as the case may be. c. REJECTED CONTRACTS AND LEASES On the Effective Date, each executory contract and unexpired lease listed on SCHEDULE 6.3 to the Plan shall be rejected pursuant to section 365 of the Bankruptcy Code. Each contract or lease listed on SCHEDULE 6.3 shall be rejected only to the extent that any such contract or lease constitutes an executory contract or unexpired lease; PROVIDED, HOWEVER, that the Debtors reserve their right, at any time prior to the Confirmation Date, to amend SCHEDULE 6.3 to delete any unexpired lease or executory contract therefrom or add any unexpired lease or executory contract thereto. To the extent that an executory contract or unexpired lease is not listed on SCHEDULE 6.3, such executory contract or unexpired lease shall be deemed assumed. Listing a contract or lease on SCHEDULE 6.3 shall not constitute an admission by a Debtor nor a Reorganized Debtor that such contract or lease is an executory contract or unexpired lease or that such Debtor or Reorganized Debtor has any liability thereunder. The Confirmation Order shall constitute an order of the Bankruptcy Court approving the rejections described above, pursuant to section 365 of the Bankruptcy Code, as of the Effective Date. d. REJECTION DAMAGES BAR DATE If the rejection by a Debtor, pursuant to the Plan or otherwise, of an executory contract or unexpired lease results in a Claim, then such Claim shall be forever barred and shall not be enforceable against any Debtor or Reorganized Debtor or the properties of any of them unless a proof of claim is filed with the clerk of the Bankruptcy Court and served upon counsel to the Debtors, counsel to the Creditors' Committee, within thirty (30) days after service of the earlier of (i) notice of the Confirmation Order, or (ii) other notice that the executory contract or unexpired lease has been rejected. If any party to a lease or contract has any questions regarding the status or treatment of such lease or contract, please call the following the telephone number: (866) 251-5464. 2. SPECIAL PROVISIONS FOR WARRANTY AND INDEMNITY OBLIGATIONS ARISING OUT OF COMPLETED PROJECTS Notwithstanding anything to the contrary in the Plan, all Completed Projects and all executory obligations thereunder (including warranty and/or indemnity obligations), other than those Completed Projects explicitly set forth on Schedule 6.5 to the Plan, shall be treated as executory contracts that are rejected pursuant to section 365 of the Bankruptcy Code. Those Completed Projects and all executory obligations thereunder (including warranty and/or indemnity obligations) explicitly set forth on Schedule 6.5 to the Plan shall be treated as executory contracts that are assumed pursuant to Section 365 of the Bankruptcy Code, and obligations thereunder shall be satisfied in the ordinary course of business. The Debtors reserve the right to amend Schedule 6.5 to the Plan to delete or add any Completed Project thereto, at any time prior to the Confirmation Date. The fact that a Completed Project is listed on Schedule 6.5 to the Plan shall not constitute an admission by a Debtor or a Reorganized Debtor that such Completed Project is an executory contract or that a Debtor or Reorganized Debtor has any liability thereunder. 3. ADMINISTRATIVE CLAIMS All requests for payment of an Administrative Claim (other than as set forth in Sections 3.1 and 12.1 of the Plan) must be filed with the Bankruptcy Court and served on counsel for the Debtors and counsel for the Trustee no later than forty-five (45) days after the Effective Date. Unless the Debtors object to an Administrative Claim within forty-five (45) Business Days after receipt, such Administrative Claim shall be deemed allowed in the amount requested. In the event that the Debtors object to an Administrative Claim, the Bankruptcy Court shall determine the Allowed amount of such Administrative Claim. Notwithstanding the foregoing, no request for payment of an Administrative Claim need be filed with respect to an Administrative Claim which is paid or payable by a Debtor in the ordinary course of business. 47
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4. PROFESSIONAL FEE CLAIMS All final requests for compensation or reimbursement of Professional Fees pursuant to sections 327, 328, 330, 331, 503(b) or 1103 of the Bankruptcy Code for services rendered to the Debtors or the Creditors' Committee prior to the Effective Date and Substantial Contribution Claims under section 503(b)(4) of the Bankruptcy Code must be filed and served on the Reorganized Debtors and their counsel no later than 60 days after the Effective Date, unless otherwise ordered by the Bankruptcy Court. Objections to applications of such Professionals or other entities for compensation or reimbursement of expenses must be filed and served on the Reorganized Debtors and their counsel and the requesting Professional or other entity no later than 60 days (or such longer period as may be allowed by order of the Bankruptcy Court) after the date on which the applicable application for compensation or reimbursement was served. 5. WITHHOLDING AND REPORTING REQUIREMENTS In connection with the Plan and all distributions hereunder, the Disbursing Agent shall, to the extent applicable, comply with all tax withholding and reporting requirements imposed by any federal, state, provincial, local or foreign taxing authority, and all distributions hereunder shall be subject to any such withholding and reporting requirements. The Disbursing Agent shall be authorized to take any and all actions that may be necessary or appropriate to comply with such withholding and reporting requirements. Notwithstanding any other provision of the Plan (i) each holder of an Allowed Claim that is to receive a distribution of New Common Shares pursuant to the Plan shall have sole and exclusive responsibility for the satisfaction and payment of any tax obligations imposed by any governmental unit, including income, withholding and other tax obligations, on account of such distribution, and (ii) no distribution shall be made to or on behalf of such holder pursuant to the Plan unless and until such holder has made arrangements satisfactory to the Disbursing Agent for the payment and satisfaction of such tax obligations. Any New Common Shares to be distributed pursuant to the Plan shall, pending the implementation of such arrangements, be treated as an undeliverable distribution pursuant to SECTION 7.7 of the Plan. 6. SETOFFS The Reorganized Debtors may, but shall not be required to, set off against any Claim and the payments or other distributions to be made pursuant to the Plan in respect of such Claim, claims of any nature whatsoever that the Debtors or Reorganized Debtors may have against the holder of such Claim; PROVIDED, HOWEVER, that neither the failure to do so nor the allowance of any Claim hereunder shall constitute a waiver or release by the Reorganized Debtors of any such claim that the Debtors or Reorganized Debtors may have against such holder. Notwithstanding anything to the contrary, the Debtors and Reorganized Debtors will not exercise any right of setoff against any Lender, any agents under the Prepetition Senior Secured Credit Facility or the DIP Facility, or the DIP Lenders. 7. CONTINUATION OF CERTAIN ORDERS Notwithstanding anything in the Plan to the contrary, the Debtors will continue to pay any Claims authorized to be paid by an order of the Bankruptcy Court during the Chapter 11 Cases, pursuant to the terms and conditions of any such order. N. CONFIRMATION AND/OR CONSUMMATION Described below are certain important considerations under the Bankruptcy Code in connection with confirmation of the Plan. 1. REQUIREMENTS FOR CONFIRMATION OF THE PLAN The Bankruptcy Court will determine at the hearing on confirmation of the Plan (the "Confirmation Hearing") whether the following requirements for confirmation, set forth in section 1129 of the Bankruptcy Code, have been satisfied: a. The Plan complies with the applicable provisions of the Bankruptcy Code. b. The Debtors have complied with the applicable provisions of the Bankruptcy Code. c. The Plan has been proposed in good faith and not by any means forbidden by law. 48
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d. Any payment made or promised by the Debtors or by a person issuing securities or acquiring property under the Plan for services or for costs and expenses in, or in connection with, the Chapter 11 Cases, or in connection with the Plan and incident to the Chapter 11 Cases, has been disclosed to the Bankruptcy Court, and any such payment made before confirmation of the Plan is reasonable, or if such payment is to be fixed after confirmation of the Plan, such payment is subject to the approval of the Bankruptcy Court as reasonable. e. The Debtors have disclosed (i) the identity and affiliations of (x) any individual proposed to serve, after confirmation of the Plan, as a director, officer, or voting trustee of the Reorganized Debtors, (y) any affiliate of the Debtors participating in a joint plan with the Debtors, or (z) any successor to the Debtors under the Plan (and the appointment to, or continuance in, such office of such individual(s) is consistent with the interests of Creditors and Interest holders and with public policy), and (ii) the identity of any insider that will be employed or retained by the Debtors and the nature of any compensation for such insider. f. With respect to each Class of Claims or Interests, each Impaired Creditor and Impaired Interest holder either has accepted the Plan or will receive or retain under the Plan on account of the Claims or Interests held by such entity, property of a value, as of the Effective Date, that is not less than the amount that such entity would receive or retain if the Debtors were liquidated on such date under Chapter 7 of the Bankruptcy Code. SEE SECTION XI.C. g. The Plan provides that Administrative Claims and Priority Claims other than Priority Tax Claims will be paid in full on the Effective Date and that Priority Tax Claims will receive on account of such Claims deferred cash payments, over a period not exceeding six years after the date of assessment of such Claims, of a value, as of the Effective Date, equal to the Allowed Amount of such Claims, except to the extent that the holder of any such Claim has agreed to a different treatment. SEE SECTION VI.C.2.(a). h. If a Class of Claims is Impaired under the Plan, at least one Class of Impaired Claims has accepted the Plan, determined without including any acceptance of the Plan by insiders holding Claims in such Class. i. Confirmation of the Plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the Debtors or any successor to the Debtors under the Plan, unless such liquidation or reorganization is proposed in the Plan. SEE SECTION XI.A. j. The Plan provides for the continuation after the Effective Date of all retiree benefits, if any, at the level established pursuant to section 1114(e)(1)(B) or 1114(g) of the Bankruptcy Code at any time prior to confirmation of the Plan, for the duration of the period the Debtors have obligated themselves to provide such benefits. The Debtors believe that, upon receipt of the votes required to confirm the Plan, the Plan will satisfy all the statutory requirements of Chapter 11 of the Bankruptcy Code, that the Debtors have complied or will have complied with all of the requirements of Chapter 11, and that the Plan has been proposed and submitted to the Bankruptcy Court in good faith. 2. CONDITIONS TO CONFIRMATION AND CONSUMMATION a. CONDITIONS TO CONFIRMATION The following are conditions precedent to the occurrence of the Confirmation Date: (i) the entry of an order finding that the Disclosure Statement contains adequate information pursuant to section 1125 of the Bankruptcy Code, and (ii) the proposed Confirmation Order shall be in form and substance acceptable to the Debtors and the Agent under the Prepetition Senior Secured Credit Facility. b. CONDITIONS TO EFFECTIVE DATE The following are conditions precedent to the occurrence of the Effective Date, each of which may be satisfied or waived in accordance with SECTION 10.2 of the Plan: (i) The Confirmation Order shall have been entered and become a Final Order in form and substance 49
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reasonably satisfactory to the Debtors and the Agent under the Prepetition Senior Secured Credit Facility and shall: (1) provide that the Debtors and Reorganized Debtors are authorized and directed to take all actions necessary or appropriate to enter into, implement and consummate the contracts, instruments, releases, leases, indentures and other agreements or documents created in connection with the Plan or the Restructuring Transactions; (2) authorize the issuance of the New Common Shares, the Washington Stock Options, and Management Options; (3) find that the New Common Shares issued under the Plan in exchange for Claims against the Debtors are exempt from registration under the Securities Act of 1933 pursuant to section 1145 of the Bankruptcy Code except to the extent that holders of the New Common Shares are "underwriters," as that term is defined in section 1145 of the Bankruptcy Code. (ii) The Reorganized Debtors shall have entered into the Exit Facility; (iii) All Plan Exhibits shall be in form and substance reasonably acceptable to the Debtors and the Agent under the Prepetition Senior Secured Credit Facility and shall have been executed and delivered. (iv) All actions, documents and agreements necessary to implement the Plan shall have been effected or executed. c. WAIVER OF CONDITIONS Each of the conditions set forth in SECTION 10.2 of the Plan may be waived in whole or in part by the Debtors with the written consent of the Agent under the Prepetition Senior Secured Credit Facility, without any other notice to parties in interest or the Bankruptcy Court and without a hearing. The failure to satisfy or waive any condition to the Effective Date may be asserted by the Debtors or Reorganized Debtors regardless of the circumstances giving rise to the failure of such condition to be satisfied (including any action or inaction by a Debtor or Reorganized Debtor). The failure of a Debtor or Reorganized Debtor to exercise any of the foregoing rights shall not be deemed a waiver of any other rights, and each such right shall be deemed an ongoing right that may be asserted at any time. O. EFFECTS OF CONFIRMATION 1. BINDING EFFECT The Plan will be binding upon and inure to the benefit of the Debtors, all present and former holders of Claims against the Debtors, whether or not such holders will receive or retain any property or interest in property under the Plan, their respective successors and assigns, including, but not limited to, the Reorganized Debtors, and all parties-in-interest in the Chapter 11 Cases. 2. DISCHARGE OF THE DEBTORS (a) Except as provided in the Confirmation Order, the rights afforded under the Plan and the treatment of Claims and Interests under the Plan shall be in exchange for and in complete satisfaction, discharge and release of all Claims and termination of all WGI Interests, including any interest accrued on Claims from the Petition Date. Except as provided in the Confirmation Order, Confirmation shall (a) discharge the Debtors from all Claims and other debts that arose before the Confirmation Date and all debts of the kind specified in section 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether or not (i) a proof of claim based on such debt is filed or deemed filed pursuant to section 501 of the Bankruptcy Code, (ii) a Claim based on such debt is allowed pursuant to section 502 of the Bankruptcy Code or (iii) the holder of a Claim based on such debt has accepted the Plan; and (b) terminate all Interests and other rights of equity security holders in WGI. (b) As of the Confirmation Date, except as provided in the Plan or the Confirmation Order, all entities shall be precluded from asserting against the Debtors, the Reorganized Debtors, their successors or their property, any other or further claims, debts, rights, causes of action, liabilities or equity interests based upon any act, omission, transaction or other activity of any nature that 50
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occurred prior to the Confirmation Date. In accordance with the foregoing, except as provided in the Plan of the Confirmation Order, the Confirmation Order shall be a judicial determination of discharge of all such rights of equity security holders in WGI, pursuant to sections 524 and 1141 of the Bankruptcy Code, and such discharge shall void any judgment obtained against the Debtors at any time, to the extent that such judgment relates to a discharged Claim or WGI Interest. The Plan does not provide for a discharge of any non-Debtor party. See SECTION VI.H for a description of release and indemnification provisions. The Plan does provide for certain Indemnification Obligations to be assumed, which means that if third party claims against non-Debtors are pursued, such non-Debtors that have rights to be indemnified by the Debtors for their costs or liabilities (if any) will continue to be indemnified by the Reorganized Debtors. 3. PERMANENT INJUNCTION Except as provided in the Plan or the Confirmation Order, as of the Confirmation Date, all entities that have held, currently hold or may hold a Claim or other debt or liability that is discharged or an Interest or other right of an equity security holder that is terminated pursuant to the terms of the Plan are permanently enjoined from the taking of any of the following actions against the Debtors, the Reorganized Debtors or their property on account of any such discharged Claims, debts or liabilities or terminated interests or rights: (a) commencing or continuing, in any manner or in any place, any action or other proceeding: (b) enforcing, attaching, collecting or recovering in any manner any judgment, award, decree or order; (c) creating, perfecting or enforcing any lien or encumbrance; (d) asserting a setoff, right of subrogation or recoupment of any kind against any debt, liability or obligation due to the Debtors and (e) commencing or continuing any action, in any manner, in any place that does not comply with or is inconsistent with the provisions of the Plan. As of the Effective Date, all entities that have held, currently hold or may hold a claim, demand, debt, right, cause of action or liability that is released pursuant to SECTION 5.13 of the Plan are permanently enjoined from taking any of the following actions on account of such released claims, obligations, suits, judgments, damages, demands, debts, rights, causes of action or liabilities: (a) commencing or continuing in any manner any action or other proceeding; (b) enforcing, attaching, collecting or recovering in any manner any judgment, award, decree or order; (c) creating, perfecting or enforcing any lien or encumbrance: (d) asserting a setoff, right of subrogation or recoupment of any kind against any debt, liability or obligation due to any released entity; and (e) commencing or continuing any action, in any manner, in any place that does not comply with or is inconsistent with the provisions of the Plan. By accepting distribution pursuant to the Plan, each holder of an Allowed Claim or Allowed Interest receiving distributions pursuant to the Plan will be deemed to have specifically consented to the injunctions set forth in SECTION 12.11 of the Plan. 4. EXCULPATION AND LIMITATION ON LIABILITY; INDEMNITY Neither the Debtors, Reorganized Debtors, Prepetition Secured Lenders, Creditors' Committee, DIP Lenders, or any of their respective present or former members, officers, directors, employees, advisors, attorneys, or agents, shall have or incur any liability to any holder of a Claim or an Interest, or any other party in interest, or any of their respective agents, employees, representatives, financial advisors, attorneys, or affiliates, or any of their successors or assigns, for any act or omission in connection with, relating to, or arising out of, the Chapter 11 Case, formulating, negotiating or implementing the Plan, the solicitation of acceptances of the Plan, the pursuit of confirmation of the Plan, the confirmation of the Plan, the consummation of the Plan, or the administration of the Plan or the property to be distributed under the Plan, except for their willful misconduct, and in all respects shall be entitled to reasonably rely upon the advice of counsel with respect to their duties and responsibilities under the Plan. Notwithstanding any other provision of the Plan, no holder of a Claim or Interest, no other party in interest, none of their respective agents, employees, representatives, financial advisors, attorneys, or affiliates, and no successors or assigns of the foregoing, shall have any right of action against any Debtor or Reorganized Debtor, the Creditors' Committee, the Prepetition Secured Lenders, the DIP Lenders, nor any of their respective present or former members, officers, directors, employees, advisors, attorneys, for any act or omission in connection with, relating to, or arising out of, the Chapter 11 Cases, formulating, negotiating or implementing the Plan, solicitation of acceptances of the Plan, the pursuit of confirmation of the Plan, the consummation of the Plan, the confirmation of the Plan, or the administration of the Plan or the property to be distributed under the Plan, except for their willful misconduct. The foregoing exculpation and limitation on liability shall not, however, limit, abridge, or otherwise affect the rights of the Reorganized Debtors to enforce, sue on, settle, or compromise the Litigation Claims retained pursuant to SECTION 5.10 of the Plan. P. RETENTION OF JURISDICTION Pursuant to sections 105(a) and 1142 of the Bankruptcy Code, and notwithstanding entry of the Confirmation Order and 51
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occurrence of the Effective Date, the Bankruptcy Court will retain exclusive jurisdiction over all matters arising out of, and related to, the Chapter 11 Cases and the Plan, including, among other things, jurisdiction to: a. Allow, disallow, determine, liquidate, classify, estimate or establish the priority or secured or unsecured status of any Claim or Interest not otherwise allowed under the Plan, including the resolution of any request for payment of any Administrative Claim and the resolution of any objections to the allowance or priority of Claims or Interests; b. Hear and determine all applications for compensation and reimbursement of expenses of Professionals under the Plan or under sections 330, 331, 503(b), 1103 and 1129(a)(4) of the Bankruptcy Code; PROVIDED, HOWEVER, that from and after the Effective Date, the payment of the fees and expenses of the retained Professionals of the Reorganized Debtors shall be made in the ordinary course of business and shall not be subject to the approval of the Bankruptcy Court; c. Hear and determine all matters with respect to the assumption or rejection of any executory contract or unexpired lease to which a Debtor is a party or with respect to which a Debtor may be liable, including, if necessary, the nature or amount of any required Cure or the liquidation or allowance of any Claims arising therefrom; d. Effectuate performance of and payments under the provisions of the Plan; e. Hear and determine any and all adversary proceedings, motions, applications, and contested or litigated matters arising out of, under, or related to, the Chapter 11 Case; f. Enter such orders as may be necessary or appropriate to execute, implement, or consummate the provisions of the Plan and all contracts, instruments, releases, and other agreements or documents created in connection with the Plan, the Disclosure Statement or the Confirmation Order; g. Hear and determine disputes arising in connection with the interpretation, implementation, consummation, or enforcement of the Plan, including disputes arising under agreements, documents or instruments executed in connection with the Plan; h. Consider any modifications of the Plan, cure any defect or omission, or reconcile any inconsistency in any order of the Bankruptcy Court, including, without limitation, the Confirmation Order; i. Issue injunctions, enter and implement other orders, or take such other actions as may be necessary or appropriate to restrain interference by any entity with implementation, consummation, or enforcement of the Plan or the Confirmation Order; j. Enter and implement such orders as may be necessary or appropriate if the Confirmation Order is for any reason reversed, stayed, revoked, modified, or vacated; k. Hear and determine any matters arising in connection with or relating to the Plan, the Disclosure Statement, the Confirmation Order, or any contract, instrument, release, or other agreement or document created in connection with the Plan, the Disclosure Statement or the Confirmation Order; l. Enforce all orders, judgments, injunctions, releases, exculpations, indemnifications and rulings entered in connection with the Chapter 11 Case; m. Except as otherwise limited herein, recover all assets of the Debtors and property of the Debtors' Estates, wherever located; n. Hear and determine matters concerning state, local, and federal taxes in accordance with sections 346, 505, and 1146 of the Bankruptcy Code; o. Hear and determine all disputes involving the existence, nature, or scope of the Debtors' discharge; 52
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p. Hear and determine such other matters as may be provided in the Confirmation Order or as may be authorized under, or not inconsistent with, provisions of the Bankruptcy Code; and q. Enter a final decree closing the Chapter 11 Case. Q. PAYMENT OF STATUTORY FEES Under the Plan, all fees payable pursuant to Section 1930 of title 28 of the United States Code, as determined by the Bankruptcy Court at the Confirmation Hearing will be paid on or before the Effective Date. After the Effective Date, the Reorganized Debtors shall pay all required fees pursuant to Section 1930 of title 28 of the United States Code or any other statutory requirement and comply with all statutory reporting requirements. XII. WGI CREDITOR TRUST A. APPOINTMENT OF TRUSTEE The Trustee for the WGI Creditor Trust shall be designated by the Creditors' Committee with the reasonable consent of the Agent under the Prepetition Senior Secured Credit Facility and the Debtors. Specifically, the Creditors' Committee shall file a notice on a date that is not less than five (5) days prior to the Confirmation Hearing designating the Person whom they have selected as Trustee and seeking approval of such designation. Any dispute regarding the designation of the Trustee shall be resolved by the Bankruptcy Court. If approved by the Bankruptcy Court, the Person so designated shall become the Trustee on the Effective Date. The Trustee shall have and perform all of the duties, responsibilities, rights and obligations set forth in the WGI Creditor Trust Agreement. B. TRANSFER OF TRUST ASSETS TO THE WGI CREDITOR TRUST The Trust Assets are comprised of the (i) Initial Deposit; (ii) the Raytheon Claims; and (iii) all of the Debtors' rights and standing to contest the Raytheon Asserted Claims and all other Disputed Claims in Class 7 on any basis and (iv) any and all proceeds of the foregoing and interest actually earned with respect thereto. On the Effective Date, the Debtors shall transfer and shall be deemed to have irrevocably transferred to the WGI Creditor Trust, for and on behalf of the beneficiaries of the Trust, the Trust Assets (subject to the obligation of the WGI Creditor Trust to pay the Reimbursement Obligation as set forth in SECTION 9.6 of the Plan). C. THE WGI CREDITOR TRUST Without any further action of the directors or shareholders of the Debtors, on the Effective Date, the WGI Creditor Trust Agreement, substantially in the form of Exhibit E to the Plan, shall become effective. The Trustee shall accept the WGI Creditor Trust and sign the WGI Creditor Trust Agreement on the Effective Date and the WGI Creditor Trust will then be deemed created and effective. The Trustee shall have full authority to take any steps necessary to administer the WGI Creditor Trust Agreement, including, without limitation, the duty and obligation to liquidate Trust Assets, to make distributions therefrom to the holders of Allowed Class 7 Claims and, if authorized by majority vote of those members of the Trust Advisory Board authorized to vote, to pursue and settle any of the Raytheon Claims, the Raytheon Asserted Claims and other Disputed Claims in Class 7. Upon such transfer, the Debtors, the Disbursing Agent and the Reorganized Debtors shall have no other further rights or obligations with respect thereto. All costs and expenses associated with the administration of the WGI Creditor Trust, including those rights, obligations and duties described in SECTION 9.3 of the Plan, shall be the responsibility of and paid by the WGI Creditor Trust. Notwithstanding the foregoing, the Reorganized Debtors shall make available to the Trustee reasonable access during normal business hours, upon reasonable notice, to personnel and books and records of the Reorganized Debtors to representatives of the WGI Creditor Trust to enable the Trustee to perform the Trustee's tasks under the WGI Creditor Trust Agreement and the Plan; PROVIDED, HOWEVER, that the Reorganized Debtors will not be required to make expenditures in response to such requests determined by them to be unreasonable. The Trustee may retain such law firms, accounting firms, experts, advisors, consultants, investigators, appraisers, auctioneers or other professionals as it may deem necessary, in its sole discretion, to aid in the performance of its responsibilities pursuant to the terms of the Plan including, without limitation, the liquidation and distribution of Trust Assets. For federal income tax purposes, it is intended that the WGI Creditor Trust be classified as a liquidating trust under section 301.7701-4 of the Procedure and Administration Regulations and that such trust is owned by its beneficiaries. Accordingly, for federal income tax purposes, it is intended that the beneficiaries be treated as if they had received a distribution of an undivided interest 53
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in the Trust Assets and then contributed such interests to the WGI Creditor Trust. The Trustee shall be responsible for filing all federal, state and local tax returns for the WGI Creditor Trust. D. THE TRUST ADVISORY BOARD The Trust Advisory Board will be comprised of three (3) members, all of which shall be designated by the Creditors' Committee with the reasonable consent of the Agent under the Prepetition Senior Secured Credit Facility and the Debtors. The Debtors will give written notice of the identity of each member and file such notice with the Bankruptcy Court on a date that is not less than five (5) days prior to the Confirmation Hearing. Any dispute regarding the designation of the members of the Trust Advisory Board shall be resolved by the Bankruptcy Court. The Trust Advisory Board shall adopt such bylaws as it may deem appropriate. The Trustee shall consult regularly with the Trust Advisory Board when carrying out the purpose and intent of the WGI Creditor Trust. Members of the Trust Advisory Board shall be entitled to compensation in accordance with the Trust Agreement and to reimbursement of the reasonable and necessary expenses incurred by them in carrying out the purpose of the Trust Advisory Board. Reimbursement of the reasonable and necessary expenses of the members of the Trust Advisory Board and their compensation to the extent provided for in the Trust Agreement shall be payable by the WGI Creditor Trust. In the case of an inability or unwillingness of any member of the Trust Advisory Board to serve, such member shall be replaced by designation of the remaining members of the Trust Advisory Board. If any position on the Trust Advisory Board remains vacant for more than thirty (30) days, such vacancy shall be filled within fifteen (15) days thereafter by the designation of the Trustee without the requirement of a vote by the other members of the Trust Advisory Board. Upon the certification by the Trustee that all Trust Assets have been distributed, abandoned or otherwise disposed of, the members of the Trust Advisory Board shall resign their positions, whereupon they shall be discharged from further duties and responsibilities. The Trust Advisory Board may, by majority vote, authorize the Trustee to invest the corpus of the Trust in prudent investments other than those described in section 345 of the Bankruptcy Code. The Trust Advisory Board may remove the Trustee in its discretion. In the event the requisite approval is not obtained, the Trustee may be removed by the Bankruptcy Court for cause shown. In the event of the resignation or removal of the Trustee, the Trust Advisory Board shall, by majority vote, designate a person to serve as successor Trustee. Notwithstanding anything to the contrary in this Plan, neither the Trust Advisory Board or any of its members, designees, counsel, financial advisors or any duly designated agent or representatives of any such party shall be liable for the act, default or misconduct of any other member of the Trust Advisory Board, nor shall any member be liable for anything other than such member's own gross negligence or willful misconduct. The Trust Advisory Board may, in connection with the performance of its duties, and in its sole and absolute discretion, consult with its counsel, accountants or other professionals, and shall not be liable for anything done or omitted or suffered to be done in accordance with such advice or opinions. If the Trust Advisory Board determines not to consult with its counsel, accountants or other professionals, it shall not be deemed to impose any liability on the Trust Advisory Board, or its members and/or designees. The Trust Advisory Board shall govern its proceedings through the adoption of by-laws, which the Trust Advisory Board may adopt by majority vote. No provision of such by-laws shall supersede any express provision of the Plan. E. FUNDING OF THE WGI CREDITOR TRUST The Initial Deposit shall be funded by the Debtors or Reorganized Debtors by delivering to the Trustee $20 million on the Effective Date. The Trustee shall use the Initial Deposit consistent with the purpose of the WGI Creditor Trust and subject to the terms and conditions of this Plan and the WGI Creditor Trust Agreement. F. REIMBURSEMENT OBLIGATION Immediately upon receipt of any and all Trust Recoveries by the WGI Creditor Trust, the Trustee shall pay such Trust Recoveries to Reorganized WGI until such time as the Reimbursement Obligation is paid in full, which includes interest at a rate of 20% 54
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per annum, compounded quarterly. The Creditors' Committee believes that a 20% interest rate is unreasonable. G. DISTRIBUTIONS OF TRUST ASSETS The Trustee shall make distributions of Net Trust Recoveries as, in accordance with the WGI Creditor Trust Agreement, which shall provide for distributions as follows: FIRST, to pay the Trust Expenses; SECOND, to repay the Reimbursement Obligation, THIRD, to holders of Allowed Claims in Class 7 on a pro rata basis. Such distributions shall be made at the times and in the manner set forth in the WGI Creditor Trust Agreement. If there is any Net Trust Recovery remaining after payment in full of each Allowed General Unsecured Claim plus simple interest at the rate of 20% per annum from the Petition Date to the date of payment of such Allowed General Unsecured Claim, such funds will be distributed by the Trustee to holders of Old Common Stock as of the Distribution Date on a pro rata basis. VIII. CERTAIN FACTORS TO BE CONSIDERED The holder of a Claim against a Debtor should read and carefully consider the following factors, as well as the other information set forth in this Disclosure Statement (and the documents delivered together herewith and/or incorporated by reference herein), before deciding whether to vote to accept or to reject the Plan. A. GENERAL CONSIDERATIONS The Plan sets forth the means for satisfying the Claims against each of the Debtors. Certain Claims and Interests receive no distributions pursuant to the Plan. Reorganization of certain of the Debtors' businesses and operations under the proposed Plan also avoids the potentially adverse impact of a liquidation on those Debtors' employees and other stakeholders. B. CERTAIN BANKRUPTCY CONSIDERATIONS 1. FAILURE TO CONFIRM OR CONSUMMATE THE PLAN Even if all Impaired voting classes vote in favor of the Plan, and with respect to any Impaired Class deemed to have rejected the Plan the requirements for "cramdown" are met, the Bankruptcy Court, which, as a court of equity, may exercise substantial discretion, may choose not to confirm the Plan. Section 1129 of the Bankruptcy Code requires, among other things, a showing that confirmation of the Plan will not be followed by liquidation or the need for further financial reorganization of the Debtors, (SEE SECTION XI.A), and that the value of distributions to dissenting holders of Claims and Interest may not be less than the value such holders would receive if the Debtors were liquidated under Chapter 7 of the Bankruptcy Code. SEE SECTION XI.C. Although the Debtors believe that the Plan will meet such tests, there can be no assurance that the Bankruptcy Court will reach the same conclusion. See APPENDIX B annexed hereto for a liquidation analysis of the Debtors. In addition, the Creditors' Committee has asserted that the Board of Directors of WGI has a duty to maximize value by marketing the Debtors' estates openly during the Chapter 11 Cases. The Debtors and Prepetition Secured Lenders dispute the Creditors' Committee's contention. Moreover, as described elsewhere in the Disclosure Statement, the Company did, in fact, solicit interest from potential third parties for a the sale of the Company or portions thereof and agreed to cooperate with the Creditors' Committee in its efforts to contact prospective purchasers. The Debtors believe that no meaningful offers were ever received. SEE SECTION IV.B. The Plan provides for certain conditions that must be fulfilled prior to confirmation of the Plan and the Effective Date. As of the date of this Disclosure Statement, there can be no assurance that any or all of the conditions in the Plan will be met (or waived) or that the other conditions to consummation, if any, will be satisfied. Accordingly, even if the Plan is confirmed by the Bankruptcy Court, there can be no assurance that the Plan will be consummated and the restructuring completed. If a liquidation or protracted reorganization were to occur, there is a substantial risk that the value of the Debtors' enterprise would be substantially eroded to the detriment of all stakeholders. 2. DISRUPTION OF OPERATIONS DUE TO THE FILING OF THE CHAPTER 11 CASES As part of the first day relief requested in the Chapter 11 Cases, the Bankruptcy Court entered orders allowing the Debtors to pay prepetition employee obligations and certain prepetition key vendor trade claims in the ordinary course of business. SEE SECTION I.G. The Debtors, therefore, believe that the solicitation with respect to the Plan will not have a material adverse affect the Debtors' relationships with customers, employees, and suppliers, provided that the Debtors demonstrate sufficient liquidity to continue to operate 55
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their businesses. The Debtors believe that relationships with their customers, suppliers and employees will be maintained, and the going concern value of the business will be preserved, if the Chapter 11 process is completed on the expedited timetable established at the outset of these cases. SEE SECTION IV.C. However, if there is a protracted Chapter 11 process, the Debtors' operations could be materially adversely affected. The filing of the Chapter 11 Cases by the Debtors and the publicity attendant thereto might also adversely affect the businesses of the Non-Debtor Subsidiaries. Because the business of WGI is closely related to the businesses of all its subsidiaries, any downturn in the business of Non-Debtor Subsidiaries could also affect the Debtors' prospects. Although WGI does not believe that the commencement of the Chapter 11 cases will adversely affect the businesses of any Non-Debtor Subsidiaries, if there is a protracted Chapter 11 Case, the possibility of adverse effects on such Non-Debtor Subsidiaries may increase. The Non-Debtor Subsidiaries do not have the benefit of the automatic stay. C. INHERENT UNCERTAINTY OF FINANCIAL PROJECTIONS The Projections set forth in APPENDIX C hereto cover the Debtors' operations through fiscal 2004. These Projections are based on numerous assumptions that are an integral part of the Projections, including confirmation and consummation of the Plan in accordance with its terms, realization of the operating strategy of the Reorganized Debtors, industry performance, no material changes in applicable legislation or regulations, exchange rates, or generally accepted accounting principles, general business and economic conditions, competition, adequate financing, absence of material contingent or unliquidated litigation or indemnity claims, and other matters, many of which are beyond the control of the Reorganized Debtors and some or all of which may not materialize. In addition, unanticipated events and circumstances occurring subsequent to the date of this Disclosure Statement may affect the actual financial results of the Reorganized Debtors' operations. Accordingly, the Projections are not necessarily indicative of the future financial condition or results of operations of the Reorganized Debtors, which may vary significantly from those set forth in the Projections. Consequently, the projected financial information contained herein should not be regarded as a representation by the Debtors, the Debtors' advisors, or any other person that the Projections can or will be achieved. SEE SECTION XI.A. D. INTEGRATION ISSUES Prior to the Petition Date, the Debtors deployed an aggressive strategy of growth through acquisitions. In connection with these acquisitions, there may be liabilities that WGI failed to discover, including liabilities arising from pollution of the environment or non-compliance with environmental laws by prior owners, and for which WGI, as a successor owner, may be responsible and that are not being discharged under the Plan. Indemnities and warranties for such liabilities from sellers, if obtained, may not fully cover the liabilities due to their limited scope, amounts, or duration, the financial limitations of the indemnitor or warrantor, or other reasons. There are significant uncertainties and risks relating to the integration of an acquired company's operations. Whether the anticipated benefits of an acquisition are ultimately achieved depends on a number of factors, including the ability of the combined companies to achieve administrative cost savings, insurance and bonding cost reductions, general economies of scale and, generally, to capitalize on the combined asset base and strategic position of the combined companies. The timing and manner of the implementation of decisions made with respect to the ongoing business of the combined companies following the acquisition will materially affect the operations of the combined companies. Given the range of potential outcomes arising from such decisions and the interrelationships among decisions to be made, it is difficult to quantify with precision the impact of such decisions on the results of operations and financial condition of the combined companies. There can be no assurance that any expected synergies will be realized or that the results of the combined operations will be improved in a timely manner, if at all. In addition, the process of integrating the acquired company's operations into those of the Debtors could cause the interruption of, or the loss of momentum in, the activities of either or both companies, which could have an adverse effect on the combined operations. The continuing process of integrating the businesses of WGI, the RE&C Businesses and the Westinghouse Group may involve unforeseen difficulties and may require a disproportionate amount of time and attention of the Debtors' management and financial and other resources. SEE SECTION IV.A. 56
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E. LACK OF ESTABLISHED MARKET FOR THE NEW SECURITIES There is no existing market for the New Common Shares or and there can be no assurance that an active market for such securities will develop or, if any such market does develop, that it will continue to exist, or as to the degree of price volatility in any such market that does develop. No assurance can be given as to the liquidity of the market for New Common Shares or the price at which any sales may occur. As of the Petition Date, WGI had 52,349,872 shares of Old Common Shares issued and outstanding, and which, at one time, were traded on the NYSE. The NYSE has certain listing criteria applicable to companies listed on such exchanges, including financial criteria and minimum requirements as to the number of holders of listed securities. Trading of Old Common Stock has been suspended by the NYSE and the Old Common Stock may be delisted. The Debtors will use reasonable commercial efforts to have the New Common Shares listed on a national securities exchange. However, there can be no assurance that Reorganized WGI will be successful in listing its securities with any exchange. In the event that Reorganized WGI is unable to cause any of the New Common Shares to be listed on any exchange or quoted on any quotation system, the liquidity of the New Common Shares would be materially impaired. F. RESTRICTED RESALE OF THE NEW SECURITIES The New Common Shares will be distributed pursuant to the Plan without registration under the Securities Act and without qualification or registration under the State Laws, pursuant to exemptions from such registration and qualification contained in section 1145(a) of the Bankruptcy Code. With respect to persons who receive such securities pursuant to the Plan, these Bankruptcy Code exemptions apply only to the distribution of such securities under the Plan and not to any subsequent sale, exchange, transfer or other disposition of such securities or any interest therein by such persons. Therefore, subsequent sales, exchanges, transfers or other disposition of such securities or any interest therein by "underwriters" or "affiliates" would not be exempted by section 1145 of the Bankruptcy Code from registration under the Securities Act or the State Laws. Additionally, New Common Shares may not be sold, exchanged, transferred, or otherwise disposed of without registration or qualification under the State Laws unless specific exemptions from such registration or qualification requirements are available with respect to such sale, exchange, transfer, or disposition. SEE SECTION IX.B.2. G. ENVIRONMENTAL MATTERS The Reorganized Debtors will be subject to a variety of environmental laws and regulations governing, among other things, discharges to air and water, the handling, storage, and disposal of hazardous or solid waste materials and the remediation of contamination associated with releases of hazardous substances. Such laws and regulations and the risk of attendant litigation can cause significant delays to a project and add significantly to its cost. Violations of these environmental laws and regulations could subject the Reorganized Debtors and their management to civil and criminal penalties and other liabilities. There can be no assurance that such laws and regulations will not become more stringent, or more stringently implemented, in the future. Various federal, state and local environmental laws and regulations, as well as common law, may impose liability for property damage and costs of investigation and cleanup of hazardous or toxic substances on property currently or previously owned by the Debtors or arising out of the Debtors' waste management activities. Such laws may impose responsibility and liability without regard to knowledge of or causation of the presence of the contaminants, and the liability under such laws is joint and several. The Debtors have potential liabilities associated with their past waste disposal activities and with their current and prior ownership of certain property. In general, the Debtors believe that the likely amount of such liabilities will not be material, because the Debtors may have a valid defense to liability with respect to a given site or the Debtors should only be responsible for a small percentage of the total cleanup costs with respect to a given site. However, because liability under such laws is joint and several, no assurances can be given that the Reorganized Debtors will not eventually be responsible for all or a substantial portion of the liabilities associated with one or more of these sites, which liabilities could be material either individually or in the aggregate. H. UNIMPAIRED AND UNKNOWN CLAIMS The Plan provides that the only claims against the Debtors that are Impaired are the claims set forth in Classes 6 and 7. All other claims against the Debtors are being left Unimpaired under the Plan. The Unimpaired Claims include, but are not limited to, Employee Claims. To the extent that such claims are required to be reflected on financial statements, the Debtors believe that their financial statements and projected financial statements properly reflect these claims in accordance with generally accepted accounting principles. However, the actual amount of such claims may materially differ from those set forth in the financial statements and projections. Further, there are likely to be Claims that exist which the Debtors are not aware of at this time. Some of such Claims (such as potential liability to 57
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unknown future asbestos claimants) may not be discharged under the Plan. The Debtors are taking no action in the Chapter 11 Cases to disallow, liquidate or otherwise cap any Unimpaired Claims. The liability of the Debtors as to Unimpaired Claims, and certain types of unknown claims that, under applicable law, may not be discharged after their emergence from Chapter 11 will not have been reduced or otherwise affected by the Chapter 11 Cases or the Plan. There can be no assurance that the Debtors' financial position and results of operations after emergence from Chapter 11 pursuant to the Plan could not be materially and adversely affected by the Unimpaired Claims or unknown Claims. I. INDUSTRY CYCLICALITY Demand for the services to be offered by the Reorganized Debtors has been, and is expected to continue to be, subject to significant fluctuations due to a variety of factors beyond the control of the Reorganized Debtors, including economic conditions. During economic downturns, the ability of both private and governmental entities in targeted markets to make capital expenditures on infrastructure improvement may decline significantly. There can be no assurance that economic conditions generally will be favorable or that there will not be significant fluctuations adversely affecting the industry as a whole or key markets targeted by the Reorganized Debtors and, as a result, the Reorganized Debtors and their financial results. J. BUSINESS AND COMPETITION The Debtors' competitive position in the markets that they serve has been adversely impacted by the difficulty in obtaining bonding capacity and their lack of financial flexibility that, among other things, inhibit their ability to secure project financing. The Debtors are engaged in highly competitive businesses, particularly those portions relating to engineering, construction and other service contracts that are awarded through competitive bidding processes. The Debtors compete with other general and specialty contractors, both foreign and domestic, including large international contractors and small local contractors. Many such competitors have a substantially stronger financial position than do the Debtors, which, in some instances, could give them a competitive advantage over the Debtors. While the Debtors' management believes that the Plan will greatly improve the Reorganized Debtors' ability to compete more effectively in the industries in which they conduct their business, there can be no assurance that the Reorganized Debtors will be able to compete successfully for new projects following the consummation of the Plan. K. GOVERNMENT CONTRACTS U.S. Government contracts historically have been a significant part of the Debtors' businesses. Contracts and subcontracts with various government entities accounted for nearly 30% of WGI's revenues for the nine months ended September 1, 2000. The Debtors' poor financial position may have a disproportionately adverse impact on the Debtors' ability to obtain new U.S. Government contracts during the period in which the Debtors are soliciting approvals of the Plan or are in court proceedings pursuant to the Plan. The Debtors' management believes that it is unlikely that any U.S. Government contract will be awarded to the Debtors during the period the Debtors are in Chapter 11. Although the Debtors' management believes that following the consummation of the Plan, the Reorganized Debtors should be in good position to obtain U.S. Government contracts, there can be no assurance that such will be the result. In the event that the Reorganized Debtors are unable to obtain new U.S. Government contracts, there would be a material adverse effect on the Reorganized Debtors. The Debtors have a number of cost reimbursement contracts with various agencies of the U.S. Government, the allowable costs of which are subject to audit by the U.S. Government. As a result of such audits, U.S. Government auditors assert from time to time that certain costs claimed as reimbursable under government contracts either were not allowable costs or were not allocable in accordance with federal government regulations. The resolution of these audits may result in various sanctions including repayments of amounts previously paid by the U.S. Government to the Debtors. Some audits have resulted in cost disallowances and claims for reimbursement by the government. The Debtors have a number of contracts and subcontracts with various agencies of the U.S. Government, principally for environmental remediation and restoration work, which extend beyond one year and for which government funding has not yet been approved. There can be no assurance that such funding will be approved. All contracts with agencies of the U.S. Government and some commercial and foreign contracts are subject to termination for convenience. In the event of a termination, the Debtors would not receive projected revenues or profits associated with the terminated portion of such contracts. 58
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L. FIXED PRICE CONTRACTS AND OTHER PROJECT RISKS In connection with their engineering and construction business, the Debtors enter into three basic types of contracts: (i) fixed-price or lump-sum contracts providing for a single price for the total amount of work to be performed, under which risk is typically highest; (ii) unit-price contracts providing for a specified price for each unit of work performed, under which anticipated income is the highest; (iii) and cost-type contracts (including cost-plus) providing for reimbursement of allowable or otherwise defined costs incurred plus a fee, under which risk is minimal and anticipated income is earned solely from the fee received for services provided. In connection with its engineering contracts, including design and program management, compensation is typically on a cost-plus-fee basis. Regardless of the type of contract, the construction business has always been subject to unusual risks, including unforeseen conditions encountered during construction, the impact of inflation upon costs and financing requirements of clients and changes in political and legal circumstances, particularly since contracts for major projects are performed over extended periods of time. Other risks include the failure of third party project participants, including joint venture partners and subcontractors, to obtain required permits or to perform essential functions on a timely basis, the failure of local governing authorities to take certain necessary actions, opposition by community groups in the locality of a project or by other interested third parties to the project's development, and the failure to obtain adequate financing for the project. The Debtors may be exposed to significant risks and uncertainties in the performance of contracts, particularly fixed-price contracts. Because of the size and complexity of major infrastructure projects, a relatively small number of projects may provide a significant percentage of the Debtors' revenue in a given year. The loss of one or more major contracts or the inability of the Debtors to perform profitably under one or more major contracts, could have a material adverse effect on the Debtors' financial condition, results of operations and cash flows. M. INTERNATIONAL OPERATIONS WGI pursues project opportunities throughout the world through foreign and domestic subsidiaries as well as agreements with foreign joint-venture partners. These foreign operations are subject to special risks, including: uncertain political and economic environments, potential incompatibility with foreign joint-venture partners, foreign currency controls and fluctuations, civil disturbances, and labor strikes. Although these projects are heavily concentrated in WGI's Non-Debtor Subsidiaries, these risks still weigh on the Company's overall financial health. Events outside of the Debtors' control may limit or disrupt operations, restrict the movement of funds, result in deprivation of contract rights, increase foreign taxation or limit repatriation of earnings. In addition, in certain cases, applicable law and joint-venture or other agreements may provide that each joint-venture partner is jointly and severally liable for all liabilities of the venture. N. BONDING The Debtors' business operations are highly dependent on their ability to obtain construction bond coverages sufficient to meet bid requirements imposed by potential customers. The Debtors' ability to obtain adequate bonding coverages has been severely impacted by the Debtors' poor financial position and lack of liquidity. Due to the Debtors' limited access to bonding capacity, the Debtors may be required to collaborate or partner with competitors to obtain adequate bonding capacity with which to bid on new projects. Such collaborations mean that Debtors would be forced to surrender some benefits from new bidding opportunities to their competitors at a cost to the Debtors' operating performance. The Debtors' management believes that the Plan will facilitate Reorganized WGI's access to adequate bonding capacity to meet the requirements of new project bids, without collaboration with its competitors. However, there can be no assurance that Reorganized WGI will obtain access to adequate bonding capacity following consummation of the Plan, or that such bonding will be available on terms acceptable to Reorganized WGI. If adequate bonding capacity is not available or if the terms of such bonding are too onerous, there would be a material adverse effect on Reorganized WGI. Negotiations with surety companies for go-forward bonding capacity are ongoing. Regardless of the outcome of such discussions, Reorganized WGI will continue to pursue environmental, construction and other projects in partnership arrangements with other contractors to support Reorganized WGI's performance of contracts. SEE SECTION V.E.4 59
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O. RELIANCE ON KEY PERSONNEL One of the Debtors' primary assets is their highly skilled professionals, who have the ability to leave the Debtors and so deprive them of the skill and knowledge essential for performance of new and existing contracts. The Debtors operate a service business which is highly dependent on their customers' belief that the Debtors will perform tasks of the highest standards over an extended period of time. Continued deterioration of the Debtors' business, or loss of a significant number of key professionals, will have a material adverse effect on the Debtors and may threaten their ability to survive as going concerns. The Debtors' successful transition through the restructuring process is dependent in part on their ability to retain and motivate their officers and key employees. There can be no assurance that the Debtors will be able to retain and employ qualified management and technical personnel. The Debtors are seeking Bankruptcy Court approval of a bonus program designed to retain certain of their key employees, but there is no guarantee that such program will be approved, or if approved that it will have the intended effect. SEE SECTION V.E. P. CERTAIN LITIGATION Although the Debtors believe that the Raytheon Claims are valid, if the Debtors are unsuccessful in prosecuting such claims, the corpus of the WGI Creditor Trust may not contain any realizable assets. The Debtors have filed suit against Raytheon alleging fraud and seeking rescission and, alternatively, unspecified damages and specific performance for breach of contract, and will file suit seeking the avoidance and recovery of transfers and obligations under applicable provisions of the Bankruptcy Code. SEE SECTION V.I.1. The Debtors believe that Raytheon intends to assert claims against the Debtors. SEE APPENDIX D. Litigation of this variety is inherently uncertain and there can be no guarantee of any outcome. The Trustee may decide that the best hope for recovery for the WGI Creditor Trust lies in settling the Raytheon Claims. Such settlement may be significantly less than the damages which were caused and/or the transfers to be recovered, or the total amount of Class 7 Claims. Representative plaintiffs John B. Blyler and Malcolm J. Corse are the representative plaintiffs in a class action pending in the United States District Court for the District of Idaho in which they were certified by the Idaho District Court on July 12, 2000, to represent a class consisting of all participants in the Morrison Knudsen Employee Stock Ownership Plan on and after September 22, 1993, and their beneficiaries, and all participants in the Morrison Knudsen Savings Plan (the "MK Savings Plan") for whose benefit the MK Savings Plan held MK common stock after September 22, 1993, and their beneficiaries, but excluding all of the Defendants and their beneficiaries (the "Idaho Class Plaintiffs"). The Idaho Class Plaintiffs have made the assertion that their claims represent potentially material obligations of the Reorganized Debtors. The Debtors dispute that assertion. Claims of the Idaho Class Plaintiffs against the Debtors (if any), would be Class 7 Claims. Claims against individual defendants (if any) would not be released or discharged under the Plan. Those individual defendants may have rights to be indemnified by the Debtors, which indemnification rights are being assumed under the Plan. SEE SECTION VI.H. Also, the Debtors maintain ERISA fiduciary insurance. In addition, there are certain other claims, lawsuits, disputes with third parties, investigations and administrative proceedings against the Debtors relating to matters in the ordinary course of its business activities which could materially and adversely affect the Debtors' reorganization. IX. APPLICABILITY OF FEDERAL AND OTHER SECURITIES LAWS No registration statement will be filed under the Securities Act or any state securities laws with respect to the issuance or subsequent transfer of the New Common Shares under the Plan. The Debtors believe that, subject to certain exceptions described below, various provisions of the Securities Act, the Bankruptcy Code and state securities laws exempt from federal and state securities registration requirements (i) the offer and the sale of such securities pursuant to the Plan; and (ii) subsequent transfers of such securities. A. OFFER AND SALE OF NEW SECURITIES, PURSUANT TO THE PLAN: BANKRUPTCY CODE EXEMPTION FROM REGISTRATION REQUIREMENTS Section 1145(a)(1) of the Bankruptcy Code exempts the offer and sale of securities under a plan of reorganization from registration under both the Securities Act and state securities laws, if three principal requirements are satisfied: (i) the securities must be issued "under a plan" of reorganization by the debtor or its successor under a plan or by an affiliate participating in a joint plan of reorganization with the debtor; (ii) the recipients of the securities must hold a pre-petition or administrative expense claim against the debtor or an interest in the debtor; and (iii) the securities must be issued entirely in exchange for the recipient's claim against or interest in the debtor, or "principally" in such exchange and "partly" for cash or property. The Debtors believe that the offer and sale of the New Common Shares under the Plan satisfies the requirements of section 1145(a)(1) of the Bankruptcy Code and is, therefore, exempt from registration under the Securities Act and state securities laws. 60
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B. SUBSEQUENT TRANSFERS OF NEW SECURITIES 1. FEDERAL SECURITIES LAWS: SECTION 1145(c) OF THE BANKRUPTCY CODE Section 1145(c) of the Bankruptcy Code deems any offer or sale of securities of the kind and in the manner specified in section 1145(a)(1) of the Bankruptcy Code to have been a public offering. Accordingly, the New Common Shares generally will be freely transferable by holders of Impaired Claims under the Securities Act unless the Holder is deemed, by section 1145(b) of the Bankruptcy Code, to be an "underwriter" for purposes of section 2(11) of the Securities Act with respect to such securities. Section 1145(b) of the Bankruptcy Code deems any entity to be an "underwriter" under section 2(11) of the Securities Act, if such entity: a. purchases a claim against, interest in, or claim for an administrative expense in the case concerning, the debtor, if such purchase is with a view to distributing any security received in exchange for such a claim or interest; b. offers to sell securities offered or sold under a plan for the holders of such securities; c. offers to buy securities offered or sold under the plan from the holders of such securities, if the offer to buy is: (A) with view to distribution of such securities; and (B) under an agreement made in connection with the plan, with the consummation of the plan, or with the offer or sale of securities under the plan; or d. is an "issuer" with respect to the securities, as the term "issuer" is defined in section 2(11) of the Securities Act. Under section 2(11) of the Securities Act, an "issuer" includes any person directly or indirectly controlling or controlled by the issuer, or any person under direct or indirect common control with the issuer. To the extent that holders of Impaired Claims who receive New Common Shares pursuant to the Plan are deemed to be "underwriters," such securities may not be resold by such persons unless such securities are registered under the Securities Act or an exemption from such registration requirements is available. However, it is anticipated that holders of a portion of the New Common Shares will be entitled to demand that the Reorganized Debtor register the resale of such shares under the Securities Act and that such holders of New Common Shares will be permitted to obtain registration of the sale of their New Common Shares in certain circumstances in connection with certain registered offerings of New Common Shares by Reorganized WGI. SEE SECTION VI.F.1. Whether or not any particular person would be deemed to be an "underwriter" with respect to the New Common Shares would depend upon various facts and circumstances applicable to that person. Accordingly, the Debtors express no view as to whether any particular person receiving New Common Shares under the Plan would be an "underwriter" with respect to the New Common Shares. GIVEN THE COMPLEX AND SUBJECTIVE NATURE OF THE QUESTION OF WHETHER A PARTICULAR HOLDER MAY BE AN UNDERWRITER, THE DEBTORS MAKE NO REPRESENTATION CONCERNING THE RIGHT OF ANY PERSON TO TRADE IN THE NEW COMMON SHARES. THE DEBTORS RECOMMEND THAT POTENTIAL RECIPIENTS OF THE NEW COMMON SHARES CONSULT THEIR OWN COUNSEL CONCERNING WHETHER THEY MAY FREELY TRADE NEW COMMON SHARES WITHOUT COMPLIANCE WITH THE SECURITIES ACT OR THE EXCHANGE ACT. 2. SUBSEQUENT TRANSFERS OF NEW COMMON SHARES UNDER STATE SECURITIES LAWS If the New Common Shares are listed on the New York Stock Exchange, the American Stock Exchange or the Nasdaq National Market, the New Common Shares will be generally freely tradeable under state securities laws. If the New Common Shares are not listed on any of the above exchanges or the Nasdaq National Market, the New Common Shares will not be freely tradeable under state securities laws unless there is an available exemption from registration under such laws. A majority of states provide an exemption from registration for secondary market transactions under the so-called "manual exemption" if financial and other information about an issuer is published in certain manuals published by Moody's Investor Service, Inc. or Standard & Poor's. If the New Common Shares are not listed on one of the above exchanges or the Nasdaq National Market, the Reorganized Debtors intend to provide the necessary information in order to be able to take advantage of such manual exemptions. X. INCOME TAX CONSEQUENCES OF THE PLAN A summary description of certain income tax consequences of the Plan is provided below. The description of tax consequences below is for informational purposes only and, due to a lack of definitive judicial or administrative authority or interpretation, substantial uncertainties exist with respect to various tax consequences of the Plan as discussed herein. Only the principal consequences 61
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of the Plan for certain Debtors and for holders of Claims who are entitled to vote to accept or reject the Plan are described below. No opinion of counsel has been sought or obtained with respect to any tax consequences of the Plan. No rulings or determinations of the Internal Revenue Service (the "IRS") or any other tax authorities have been sought or obtained with respect to the tax consequences of the Plan, and the discussion below is not binding upon the IRS or such other authorities. The Debtors are not making any representations regarding the particular tax consequences of the confirmation and consummation of the Plan as to any Claim holder, and are not rendering any form of legal opinion as to such tax consequences. The discussion of United States federal income tax consequences below is based on the Internal Revenue Code of 1986, as amended (the "IRC"), the Treasury regulations promulgated thereunder, judicial decisions, and published administrative rulings and pronouncements of the IRS as in effect on the date hereof. Legislative, judicial or administrative changes or interpretations enacted or promulgated after the date hereof could alter or modify the analyses set forth below with respect to the United States federal income tax consequences of the Plan. Any such changes or interpretations may be retroactive and could significantly affect the United States federal income tax consequences discussed below. EXCEPT TO A LIMITED EXTENT, THE FOLLOWING DISCUSSION DOES NOT ADDRESS FOREIGN, STATE OR LOCAL TAX CONSEQUENCES OF THE PLAN, NOR DOES IT PURPORT TO ADDRESS THE UNITED STATES FEDERAL TAX CONSEQUENCES OF THE PLAN TO SPECIAL CLASSES OF TAXPAYERS (SUCH AS FOREIGN ENTITIES, S CORPORATIONS, REGULATED INVESTMENT COMPANIES, INSURANCE COMPANIES, FINANCIAL INSTITUTIONS, SMALL BUSINESS INVESTMENT COMPANIES, BROKER-DEALERS AND TAX-EXEMPT ORGANIZATIONS). FURTHERMORE, UNITED STATES FEDERAL ESTATE AND GIFT TAX ISSUES ARE NOT ADDRESSED HEREIN. THE FOLLOWING DISCUSSION ASSUMES THAT CLAIM HOLDERS HOLD THEIR CLAIMS AS CAPITAL ASSETS FOR UNITED STATES FEDERAL INCOME TAX PURPOSES. EACH HOLDER OF A CLAIM IS STRONGLY URGED TO CONSULT ITS TAX ADVISOR REGARDING THE UNITED STATES FEDERAL, STATE, AND LOCAL AND ANY FOREIGN TAX CONSEQUENCES OF THE TRANSACTIONS DESCRIBED HEREIN AND IN THE PLAN. A. FEDERAL INCOME TAX CONSEQUENCES TO THE DEBTORS 1. CANCELLATION OF INDEBTEDNESS INCOME Under general United States federal income tax principles, each Debtor will realize cancellation of debt ("COD") income to the extent that its obligation to a Claim holder is discharged pursuant to the Plan for an amount less than the adjusted issue price (in most cases, the amount the Debtors received upon incurring the obligation, with certain adjustments) of such holder's Claim. For this purpose, the amount paid to a Claim holder in discharge of its Claim generally will equal the amount of Cash and the fair market value on the Effective Date of any other property paid to such Claim holder. Because the Debtors each will be debtors in a bankruptcy case at the time they realize COD income, they will not be required to include such COD income in their gross income, but rather will be required to reduce certain of their respective tax attributes by the amounts of COD income so excluded. Under the general rules of IRC section 108, the required attribute reduction will be applied to reduce the net operating losses ("NOLs") and NOL carryforwards, to the extent of such NOLs and carryforwards, and certain other tax attributes of the Debtors. IRC section 108(b)(5) permits a corporation in bankruptcy proceedings to elect to apply the required attribute reduction to reduce first the basis of its depreciable property to the extent of such basis, with any excess applied next to reduce its NOLs and NOL carryforwards, and then certain other tax attributes. The Debtors have not yet determined whether they will make the election under IRC section 108(b)(5). Although not free from doubt, based on existing authorities, the Debtors believe that any reduction in Tax Attributes will generally occur on a separate company basis even though the Debtors file a consolidated federal income tax return. The IRS has recently taken the position, however, that consolidated NOLs must be reduced irrespective of the source of those losses. The current IRS position as to the impact of the attribute reduction rules on other tax attributes of consolidated group members is unclear. 2. NET OPERATING LOSSES AND OTHER ATTRIBUTES The Debtors have NOL carryforwards. Current year NOLs, use of general business, alternative minimum tax, and foreign tax credit carryforwards and NOL carryforwards may be reduced or eliminated by COD to be realized on implementation of the Plan. If the current year NOLs and existing NOL carryforwards are not so eliminated, however, Section 382 of the Code ("Section 382") may substantially limit the Debtors' ability to use such loss carryforward in future years. 62
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When a corporation undergoes an "ownership change," which WGI will undergo pursuant to implementation of the Plan, Section 382 generally limits the ability of the corporation to utilize historic NOLs and subsequently recognized "built-in" losses, i.e., losses economically accrued but unrecognized as of the date of the ownership change ("Annual Section 382 Limitation"). An "ownership change" is generally defined as a more than 50 percentage point change in ownership during a three year period ending on the date on which such change in ownership is tested. As a general rule, the Annual Section 382 Limitation equals the product of the value of the stock of the corporation (with certain adjustments) immediately before the ownership change and the applicable "long-term tax-exempt rate" (currently 5.01%). Any unused portion of the Annual Section 382 Limitation is generally available in subsequent years. A corporation must meet certain continuity of business enterprise requirements for at least two years following an ownership change in order to preserve the Annual Section 382 Limitation. Section 382 provides an exception to the application of the Annual Section 382 Limitation for corporations under the jurisdiction of a court in a title 11 case (the "Bankruptcy Exception"). The Bankruptcy Exception could apply to the Debtors if the Debtors' historic shareholders and creditors that held certain "qualified indebtedness" (as defined by regulation) prior to implementation of the Plan were to own more than 50% of the total voting power and total value of the stock of the Debtors after such implementation. The continuity of business enterprise requirement described above would not apply to the Debtors under the Bankruptcy Exception. The Bankruptcy Exception could reduce the Debtors' pre-change losses and excess credits that may be carried over to a post-change year for any interest paid or accrued on any Allowed Class 6 Claims exchanged for New Common Shares. The Bankruptcy Exception also provides that a second ownership change occurring during the two-year period immediately following the first ownership change would eliminate any NOL carryforwards that arose before the first ownership change. Section 382 provides that a corporation under the jurisdiction of a court in a title 11 case may elect out of the Bankruptcy Exception even if the corporation meets all of the requirements thereof. The Debtors do not know whether they will qualify for the Bankruptcy Exception or, if they do so qualify, whether it would be advantageous to elect out. If the Bankruptcy Exception provides a specific benefit to the Debtors with respect to their existing NOL carryforward and current year NOLs, they may choose not to elect out. The Debtors are studying this issue and will make a timely decision on the best course of action. Assuming that the Debtors do not qualify for the Bankruptcy Exception or elect out as discussed above, a special rule under Section 382 applicable to corporations under the jurisdiction of a court in a title 11 case that are not subject to the Bankruptcy Exception will apply in calculating the Debtors' Annual Section 382 Limitation. Under this special rule, the limitation will be calculated by reference to the lesser of the value of the Debtor's stock (with certain adjustments) immediately after the ownership change (as opposed to immediately before the ownership change, as discussed above) or the value of the Debtor's assets (determined without regard to liabilities) immediately before the ownership change. Although such calculation may substantially increase the Annual Section 382 Limitation, the Debtors' use of any NOL carryforward still may be substantially limited after the ownership change. If there is a second ownership change within two years of implementation of the Plan, the Annual Section 382 Limitation would not be affected. 3. FEDERAL ALTERNATIVE MINIMUM TAX A corporation may incur alternative minimum tax liability even where NOL carryovers and other tax attributes are sufficient to eliminate its taxable income as computed under the regular corporate income tax. It is possible that the Debtors will be liable for the alternative minimum tax. B. FEDERAL INCOME TAX CONSEQUENCES TO CLAIM HOLDERS The income tax consequences of the transactions contemplated by the Plan to a Claim holder will depend upon a number of factors under United States federal income tax law. For purposes of the following discussion, a "United States Person" is any person or entity (1) who is a citizen or resident of the United States, (2) that is a corporation or partnership created or organized in or under the law of the United States or any state thereof, (3) that is an estate, the income of which is subject to United States federal income taxation regardless of its source or (4) that is a trust whose administration is subject to the primary supervision of a United States court and with respect to which one or more United States persons have the authority to control all substantial decisions. A "Non-United States Person" is any person or entity that is not a United States Person. Income tax consequences to Claim holders that are Non-United States Persons are generally discussed below under SECTION X.B.2. The tax treatment of holders of Claims and the character and amount of income, gain or loss recognized as a consequence of the Plan and the distributions provided for by the Plan will depend upon, among other things, (1) the manner in which a holder acquired 63
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a Claim; (2) the length of time the Claim has been held; (3) whether the Claim was acquired at a discount; (4) whether the holder has taken a bad debt deduction with respect to the Claim (or any portion thereof) in the current or prior years; (5) whether the holder has previously included accrued but unpaid interest with respect to the Claim; (6) the method of tax accounting of the holder; (7) whether the Claim is an installment obligation for United States federal income tax purposes; and (8) whether the Claim constitutes a "security" for federal income tax purposes. Therefore, holders of Claims should consult their tax advisors for information that may be relevant to their particular situation and circumstances and the particular tax consequences to them of the transactions contemplated by the Plan. 1. UNITED STATES FEDERAL INCOME TAX CONSEQUENCES a. GENERAL A holder of a Claim against the Debtors that is a United States Person and whose Claim is paid in full or otherwise discharged on the Effective Date will recognize gain or loss for United States federal income tax purposes in an amount equal to the difference between (A) the fair market value on the Effective Date of such holder's Pro Rata share of any property received in respect of its Claim and (B) the holder's adjusted tax basis in the Claim. A holder's tax basis in property received in exchange for its Claim will generally be equal to the fair market value of such property on the Effective Date. The holding period for any such property will begin on the day after the Effective Date. b. MARKET DISCOUNT The market discount provisions of the IRC may apply to holders of certain Claims. In general, a debt obligation other than a debt obligation with a fixed maturity of one year or less that is acquired by a holder in the secondary market (or, in certain circumstances, upon original issuance) is a "market discount bond" as to that holder if its stated redemption price at maturity (or, in the case of a debt obligation having original issue discount, its revised issue price) exceeds the tax basis of the debt obligation in the holder's hands immediately after its acquisition. However, a debt obligation will not be a "market discount bond" if such excess is less than a statutory DE MINIMIS amount. Gain recognized by a Claim holder with respect to a "market discount bond" will generally be treated as ordinary interest income to the extent of the market discount accrued on such bond during the Claim holder's period of ownership, unless the Claim holder elected to include accrued market discount in taxable income currently. A holder of a market discount bond that is required under the market discount rules of the IRC to defer deduction of all or a portion of the interest on indebtedness incurred or maintained to acquire or carry the bond may be allowed to deduct such interest, in whole or in part, on disposition of such bond. c. REORGANIZATION TREATMENT The transactions contemplated by the Plan with respect to WGI and Reorganized WGI, pursuant to which holders of Allowed Class 6 Claims will each receive a Pro Rata share of 100% of the New Common Shares to be issued by Reorganized WGI may be treated as a "reorganization" for United States federal income tax purposes. If reorganization treatment is applicable, then the United States federal income tax consequences arising from the Plan to holders of Allowed Class 6 Claims may vary from those described above under SECTION X.B.1, depending upon, among other things, whether such Claims constitute "securities" for United States federal income tax purposes. The determination of whether a debt instrument constitutes a "security" depends upon an evaluation of the term and nature of the debt instrument. Generally, corporate debt instruments with maturities when issued of less than five years are not considered securities, and corporate debt instruments with maturities when issued of ten years or more are considered securities. The Debtors believe and intend to take the position that the Class 6 Claims should not be treated as securities for United States federal income tax purposes. If, as the Debtors believe to be the case, the Class 6 Claims do not constitute securities for United States federal income tax purposes, then a holder of a such a Claim would be subject to the tax treatment described above under SECTION X.B.1. It is possible that certain claims arising under the Prepetition Senior Secured Credit Facility may constitute securities for United States federal income tax purposes and that the exchange such Claims for New Common Shares may constitute a reorganization for United States federal income tax purposes. In that case, a holder of a Claim with respect to the Prepetition Senior Secured Credit Facility should recognize gain, but not loss, with respect to each Claim surrendered in an amount equal to the lesser of (x) the amount of gain realized (I.E., the excess of the fair market value of any property received by such holder in respect of its Claim over the adjusted tax basis of such Claim) and (y) the "boot" (as described below) received by such holder, if any, in respect of its Claim. A holder will be treated as receiving "boot" to the extent of the fair market value of property other than the New Common Shares received by the holder. Any such gain recognized will be treated as capital gain unless the boot received has the effect of the distribution of a dividend, in which case the gain will be treated as a dividend to the extent of the holder's ratable share of WGI's undistributed earnings and profits. In addition, a holder's aggregate tax basis in the New Common Shares should be equal to the aggregate tax basis in the Claims exchanged therefor, decreased by the amount of boot received and increased by any gain recognized, and such holder's holding period for such property will include the holding period of the Claims exchanged therefor. A holder's tax basis in any boot received will equal the fair market value of 64
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such property on the Effective Date, and the holder's holding period in such property will begin on the day after the Effective Date. 2. NON-UNITED STATES PERSONS A holder of a Claim against a Debtor that is a Non-United States Person generally will not be subject to United States federal income tax with respect to property received in exchange for such Claim pursuant to the Plan, unless (a) such Claim holder is engaged in a trade or business in the United States to which income, gain or loss from the exchange is "effectively connected" for United States federal income tax purposes, or (b) if such Claim holder is an individual, such Claim holder is present in the United States for 183 days or more during the taxable year of the exchange, and certain other requirements are met. 3. INFORMATION REPORTING AND BACKUP WITHHOLDING Certain payments, including the payments with respect to Claims pursuant to the Plan, are generally subject to information reporting by the payor (the relevant Debtor) to the IRS. Moreover, such reportable payments are subject to backup withholding under certain circumstances. Under the IRC's backup withholding rules, a holder of a Claim may be subject to backup withholding with respect to distributions or payments made pursuant to the Plan, unless the holder: (a) comes within certain exempt categories (which generally include corporations) and, when required, demonstrates this fact or (b) provides a correct United States taxpayer identification number and certifies under penalty of perjury that the taxpayer identification number is correct and that the taxpayer is not subject to backup withholding because of a failure to report all dividend and interest income. Holders of Claims that are Non-United States Persons and that receive payments or distributions under the Plan through a United States office of the relevant Debtor will not be subject to backup withholding, provided that the holders furnish certification of their status as Non-United States Persons (and furnish any other required certifications), or are otherwise exempt from backup withholding. Generally, such certification is provided on IRS Form W-8BEN. Holders who receive payments or distributions under the Plan through a foreign office of the relevant Debtor may, if the Debtor has certain types of relationships to the United States, be subject to information reporting to the IRS regarding the exchange (but not backup withholding) unless the Debtor possesses in its files documentary evidence that the holder is a Non-United States Person and certain other conditions are met, or the holder otherwise establishes an exemption. Backup withholding is not an additional tax. Amounts withheld under the backup withholding rules may be credited against a holder's United States federal income tax liability, and a holder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing an appropriate claim for refund with the IRS (generally, a United States federal income tax return). C. UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE WGI CREDITOR TRUST Under the IRC, amounts earned by an escrow account, settlement fund or similar fund must be subject to current tax. Although certain Treasury regulations have been issued, no Treasury regulations have been promulgated to address the tax treatment of such funds in a bankruptcy context. Accordingly, the proper tax treatment of such funds is uncertain. Depending on the facts and the relevant law, such funds possibly could be treated as grantor trusts, separately taxable trusts, or otherwise. For federal income tax purposes, it is intended that the WGI Creditor Trust be classified as a liquidating trust under section 301.7701-4 of the Procedure and Administration Regulations and that such trust is owned by its beneficiaries. Accordingly, for federal income tax purposes, it is intended that the beneficiaries be treated as if they had received a distribution of an undivided interest in the Trust Assets and then contributed such interests to the WGI Creditor Trust. There can be no assurance that the IRS will respect the foregoing treatment. For example, the IRS may characterize the WGI Creditor Trust as a grantor trust for the benefit of the Debtors, or as otherwise owned by and taxable to the Debtors. Alternatively, the IRS could characterize the WGI Creditor Trust as a so-called "complex trust" subject to a separate entity level tax on its earnings, except to the extent that such earnings are distributed during the taxable year. Moreover, due to the possibility that the amounts of the consideration received by a holder of an Allowed Class 7 Claim against WGI may increase or decrease, depending on whether the WGI Creditor Trust is treated as a grantor trust, the holder could be prevented from recognizing a loss until the time at which there are no assets at all remaining in the WGI Creditor Trust. Holders of Allowed Class 7 Claims against WGI are urged to consult their tax advisors regarding the potential United States federal income tax treatment of the WGI Creditor Trust and the consequences to them of such treatment (including the effect on the computation of a holder's gain or loss in respect of its Claim, the subsequent taxation of any distributions from the WGI Creditor Trust, and the possibility of taxable income without a corresponding receipt of cash or property with which to satisfy the tax liability). 65
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D. IMPORTANCE OF OBTAINING PROFESSIONAL TAX ASSISTANCE THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN INCOME TAX CONSEQUENCES OF THE PLAN AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING WITH A TAX PROFESSIONAL. THE ABOVE DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TAX ADVICE. THE TAX CONSEQUENCES ARE IN MANY CASES UNCERTAIN AND MAY VARY DEPENDING ON A CLAIM HOLDER'S PARTICULAR CIRCUMSTANCES. ACCORDINGLY, CLAIM HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS ABOUT THE UNITED STATES FEDERAL, STATE, AND LOCAL, AND APPLICABLE FOREIGN INCOME AND OTHER TAX CONSEQUENCES OF THE PLAN. XI. FEASIBILITY OF THE PLAN AND BEST INTERESTS OF CREDITORS A. FEASIBILITY OF THE PLAN In connection with confirmation of the Plan, the Bankruptcy Court will have to determine that the Plan is feasible pursuant to section 1129(a)(11) of the Bankruptcy Code, which means that the confirmation of the Plan is not likely to be followed by the liquidation or the need for further financial reorganization of the Debtors. To support their belief in the feasibility of the Plan, the Debtors have relied upon Pro Forma Financial Projections, which are annexed to this Disclosure Statement as Appendix C. The Projections indicate that the Reorganized Debtors should have sufficient cash flow to pay and service their debt obligations, including the Exit Facility, and to fund their operations as contemplated by the Business Plan. Accordingly, the Debtors believe that the Plan complies with the financial feasibility standard of section 1129(a)(11) of the Bankruptcy Code. The Projections were not prepared with a view toward compliance with the published guidelines of the American Institute of Certified Public Accountants or any other regulatory or professional agency or body or generally accepted accounting principles. Furthermore, the Debtors' independent certified public accountants have not compiled or examined the Projections and accordingly do not express any opinion or any other form of assurance with respect thereto and assume no responsibility for the Projections. The Projections assume that (i) the Plan will be confirmed and consummated in accordance with its terms, (ii) there will be no material change in legislation or regulations, or the administration thereof, including environmental legislation or regulations, that will have an unexpected effect on the operations of the Reorganized Debtors, (iii) there will be no change in United States generally accepted accounting principles that will have a material effect on the reported financial results of the Reorganized Debtors, and (iv) there will be no material contingent or unliquidated litigation or indemnity claims applicable to the Reorganized Debtors. To the extent that the assumptions inherent in the Projections are based upon future business decisions and objectives, they are subject to change. In addition, although they are presented with numerical specificity and considered reasonable by the Debtors when taken as a whole, the assumptions and estimates underlying the Projections are subject to significant business, economic and competitive uncertainties and contingencies, many of which will be beyond the control of the Reorganized Debtors. Accordingly, the Projections are only an estimate that are necessarily speculative in nature. It can be expected that some or all of the assumptions in the Projections will not be realized and that actual results will vary from the Projections, which variations may be material and are likely to increase over time. The Projections should therefore not be regarded as a representation by the Debtors or any other person that the results set forth in the Projections will be achieved. In light of the foregoing, readers are cautioned not to place undue reliance on the Projections. The Projections should be read together with the information in SECTION V.L of the Disclosure Statement , which summarizes the Business Plan and certain assumptions underlying the Projections, as well as SECTION VIII of the Disclosure Statement entitled "Certain Factors to be Considered," which sets forth important factors that could cause actual results to differ from those in the Projections. WGI is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith files periodic reports and other information with the SEC relating to its business, financial statements and other matters. Such filings will not include projected financial information. The Debtors do not intend to update or otherwise revise the Projections, including any revisions to reflect events or circumstances existing or arising after the date of this Disclosure Statement or to reflect the occurrence of unanticipated events, even if any or all of the underlying assumptions do not come to fruition. Furthermore, the Debtors do not intend to update or revise the Projections to reflect changes in general economic or industry conditions. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: The Projections contain statements which constitute "forward-looking statements" within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995. "Forward-looking statements" in the Projections include the intent, belief or current expectations of the Debtors and members of their management team with respect to the 66
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timing of, completion of and scope of the current restructuring, reorganization plan, Business Plan, bank financing, and debt and equity market conditions and the Debtors' future liquidity, as well as the assumptions upon which such statements are based. While the Debtors believe that the expectations are based on reasonable assumptions within the bounds of their knowledge of their business and operations, parties in interest are cautioned that any such forward-looking statements are not guarantees of future performance, and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Important factors currently known to management that could cause actual results to differ materially from those contemplated by the forward-looking statements in the Projections include, but are not limited to, further adverse developments with respect to the Debtors' liquidity position or operations of the Debtors' various businesses, adverse developments in the Debtors' efforts to renegotiate their funding and adverse developments in the bank financing or public or private markets for debt or equity securities, or adverse developments in the timing or results of the Debtors' Business Plan (including the time line to emerge from Chapter 11), the difficulty in controlling industry costs and integrating new operations, the ability of the Debtors to realize the anticipated general and administrative expense savings and overhead reductions presently contemplated, the ability of the Debtors to return the Debtors' operations to profitability, the level and nature of any restructuring and other one-time charges, the difficulty in estimating costs relating to exiting certain markets and consolidating and closing certain operations, and the possible negative effects of a change in applicable legislation. B. ACCEPTANCE OF THE PLAN As a condition to confirmation, the Bankruptcy Code requires that each Class of Impaired Claims vote to accept the Plan, except under certain circumstances. Section 1126(c) of the Bankruptcy Code defines acceptance of a plan by a class of impaired claims as acceptance by holders of at least two-thirds (2/3) in dollar amount and more than one-half (1/2) in number of claims in that class, but for that purpose counts only those who actually vote to accept or to reject the Plan. Thus, Class 6 and 7 will have voted to accept the Plan only if two-thirds (2/3) in amount and a majority in number actually voting in each Class cast their Ballots in favor of acceptance. Holders of Claims who fail to vote are not counted as either accepting or rejecting a plan. C. BEST INTERESTS TEST As noted above, even if a plan is accepted by the holders of each class of claims and interests, the Bankruptcy Code requires a bankruptcy court to determine that the plan is in the best interests of all holders of claims or interests that are impaired by the plan and that have not accepted the plan. The "best interests" test, as set forth in section 1129(a)(7) of the Bankruptcy Code, requires a bankruptcy court to find either that all members of an impaired class of claims or interests have accepted the plan or that the plan will provide a member who has not accepted the plan with a recovery of property of a value, as of the effective date of the plan, that is not less than the amount that such holder would recover if the debtor were liquidated under Chapter 7 of the Bankruptcy Code. To calculate the probable distribution to holders of each impaired class of claims and interests if the Debtors were liquidated under Chapter 7, a bankruptcy court must first determine the aggregate dollar amount that would be generated from a debtor's assets if its Chapter 11 cases were converted to Chapter 7 cases under the Bankruptcy Code. This "liquidation value" would consist primarily of the proceeds from a forced sale of the debtor's assets by a Chapter 7 trustee. The Creditors' Committee has asserted that under the circumstances a Chapter 7 trustee could sell the Debtors' business units as going concerns and that the Liquidation Analysis understates the value of the Debtors. The Debtors dispute the assertion that a sale of the Debtors' business units as going concerns in Chapter 7 would be possible. The amount of liquidation value available to unsecured creditors would be reduced by, first, the claims of secured creditors to the extent of the value of their collateral, and, second, by the costs and expenses of liquidation, as well as by other administrative expenses and costs of both the Chapter 7 cases and the Chapter 11 cases. Costs of liquidation under Chapter 7 of the Bankruptcy Code would include the compensation of a trustee, as well as of counsel and other professionals retained by the trustee, asset disposition expenses, all unpaid expenses incurred by the debtor in its Chapter 11 cases (such as compensation of attorneys, financial advisors and accountants) that are allowed in the Chapter 7 cases, litigation costs, and claims arising from the operations of the debtor during the pendency of the Chapter 11 cases. The liquidation itself would trigger certain priority payments that otherwise would be due in the ordinary course of business. Those priority claims would be paid in full from the liquidation proceeds before the balance would be made available to pay general claims or to make any distribution in respect of equity interests. The liquidation would also prompt the rejection of a large number of executory contracts and unexpired leases and thereby significantly enlarge the total pool of unsecured claims by reason of resulting rejection claims. Once the court ascertains the recoveries in liquidation of secured creditors and priority claimants, it must determine the 67
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probable distribution to general unsecured creditors and equity security holders from the remaining available proceeds in liquidation. If such probable distribution has a value greater than the distributions to be received by such creditors and equity security holders under the plan, then the plan is not in the best interests of creditors and equity security holders. D. LIQUIDATION ANALYSIS In order to determine the amount of liquidation value available to creditors, the Debtors, with the assistance of their financial advisor, Zolfo Cooper, prepared a liquidation analysis, annexed hereto as APPENDIX B (the "Liquidation Analysis"), which concludes that in a Chapter 7 liquidation, holders of prepetition Claims would not receive any recovery. This conclusion is premised upon the assumptions set forth in APPENDIX B, which the Debtors and Zolfo Cooper believe are reasonable. Notwithstanding the foregoing, the Debtors believe that any liquidation analysis with respect to the Debtors is inherently speculative. The liquidation analysis for the Debtors necessarily contains estimates of the net proceeds that would be received from a forced sale of assets and\or business units, as well as the amount of Claims that will ultimately become Allowed Claims. Claims estimates are based solely upon the Debtors' incomplete review of any Claims filed and the Debtors' books and records. No Order or finding has been entered by the Bankruptcy Court estimating or otherwise fixing the amount of Claims at the projected amounts of Allowed Claims set forth in the liquidation analysis. In preparing the liquidation analysis, the Debtors have projected an amount of Allowed Claims that is at the lowest end of a range of reasonableness such that, for purposes of the liquidation analysis, the largest possible Chapter 7 liquidation dividend to holders of Allowed Claims can be assessed. The estimate of the amount of Allowed Claims set forth in the liquidation analysis should not be relied on for any other purpose, including, without limitation, any determination of the value of any distribution to be made on account of Allowed Claims under the Plan. E. VALUATION OF THE REORGANIZED DEBTORS In conjunction with the Plan, the Debtors determined that it was necessary to estimate post-confirmation values for the enterprise of Reorganized WGI and its subsidiaries (the "Reorganized Company") and the New Common Shares. Accordingly, the Debtors directed their investment banker, Lazard, to prepare a valuation analysis the Reorganized Company and the New Common Shares for purposes of this Disclosure Statement. Based in part on information provided by the Company, Lazard has concluded that the value of the Company (exclusive of the Raytheon Claims) is between $470 and $640 million, with a midpoint of $555 million. This midpoint amount is less than the amount of funded debt owed to the Prepetition Secured Lenders. In preparing its analyses, Lazard (1) reviewed certain recent publicly available financial statements of the Debtors; (2) reviewed certain financial projections prepared by the Debtors for the operations of the Reorganized Company, including the Projections set forth in APPENDIX C annexed to this Disclosure Statement; (3) reviewed the Debtors' assumptions underlying such projections; (4) considered the market values of publicly traded companies that Lazard and the Debtors believe are in businesses reasonably comparable to the operating business of the Reorganized Company; (5) considered certain economic and industry information relevant to the operating business of the Debtors; (6) discussed the current operations and prospects of the operating business with the Debtors; and (7) made such other examinations and performed such other analyses as Lazard deemed necessary or appropriate for the purpose of its valuation. In preparing its analyses, Lazard has relied upon the accuracy and completeness of all of the financial and other information that was available to it from public sources and that was provided to Lazard by the Debtors or their representatives, and has not assumed any responsibility for independent verification of any such information. With respect to the financial projections that have been supplied to Lazard, Lazard has assumed the accuracy thereof and that such projections have been prepared reasonably in good faith and on a basis reflecting the best currently available estimates and judgments of the Debtors as to the future operating and financial performance of the Debtors. Such projections assume the Debtors will operate their businesses as reflected in their Business Plan and that such businesses perform as expected in the Business Plan. To the extent that the Debtors operate more or fewer businesses during the projection period and to the extent that all or a portion of the businesses perform at levels inconsistent with those expected in the Business Plan, such adjustments may have a material impact on the operating projections and valuations as presented herein. Lazard has not made or obtained any independent evaluation of the Reorganized Debtors' assets, nor did Lazard verify any of the information it reviewed. The Creditors' Committee has engaged financial advisors, Chanin Capital Partners ("CCP") and has requested that CCP prepare an independent evaluation of the estimated enterprise value of the Debtors, using multiples, discounted cash flow, and similar transaction analyses. CCP has not completed its analysis, but has determined on a preliminary basis that the enterprise valuation of the Company on both a break-up valuation and a standalone valuation is substantially in excess of the amount necessary to retire the DIP Loan and to fully compensate the classes of claims senior to the Allowed Class 7 Claims. Other parties in interest, including Mitsubishi, have similarly asserted that the enterprise value of the Company is higher than that asserted by the Debtors in the Plan. The Debtors and their 68
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advisors dispute that CCP's analysis and conclusion is correct. If CCP's determination of enterprise value is determined to be correct, the Creditors' Committee has asserted that the Plan cannot be confirmed in the event it is rejected by the holders of Allowed Class 7 Claims because it will over-compensate the holders of Allowed Class 6 Claims and, accordingly, will not be fair and equitable as required by section 1129(b) of the Bankruptcy Code. 1. REORGANIZED COMPANY With respect to the valuation of the Reorganized Company, in addition to the foregoing, Lazard has relied upon the following assumptions: o the Reorganized Company's enterprise valuation consists of the aggregate enterprise value of Reorganized WGI and its direct and indirect subsidiaries, including the Non-Debtor Subsidiaries. o The enterprise valuation range indicated represents the enterprise value of the Reorganized Company, and assumes the pro forma debt levels (as set forth in the Projections annexed hereto as APPENDIX C) adjusted for ownership percentages to calculate a range of equity value. o WGI and the other Debtors will emerge from Chapter 11 on or about September 30, 2001. o The projections for the Reorganized Company are predicated upon the assumption that WGI will be able to obtain all necessary financing, as described herein, and that no asset sales other than those contemplated to be consummated by the Company prior to the Effective Date, or assumed in the Projections, will be required to meet the Reorganized Company's ongoing financial requirements. Lazard makes no representations as to whether the Company will obtain financing or consummate such asset sales or as to the terms upon which such financing may be obtained or such asset sales may be consummated. o The present senior management of WGI will continue following consummation of the Plan, and general financial and market conditions as of the assumed Effective Date of the Plan will not differ materially from those conditions prevailing as of the date of this Disclosure Statement. Lazard's valuation represents a hypothetical value that reflects the estimated intrinsic value of the Company derived through the application of various valuation techniques. Such analysis does not purport to represent valuation levels which would be achieved in, or assigned by, the public markets for debt and equity securities or private markets for corporations. Estimates of enterprise value do not purport to be appraisals or necessarily reflect the values which may be realized if assets are sold as a going concern, in liquidation, or otherwise. Lazard's estimate necessarily is based on economic, market, financial and other conditions as they exist on, and on the information made available to it as of, the date of this Disclosure Statement. It should be understood that, although subsequent developments may affect Lazard's conclusions, Lazard does not have any obligation and does not intend to update, revise or reaffirm its estimate. 2. SUMMARY OF FINANCIAL ANALYSIS The following is a brief summary of certain financial analyses performed by Lazard to arrive at its estimation of the enterprise value of the Reorganized Company. Lazard performed certain procedures, including each of the financial analyses described below, and reviewed with the management of WGI the assumptions on which such analyses were based and other factors, including the projected financial results of the Reorganized Company. Lazard's estimate of enterprise valuation must be considered as a whole and selecting just one methodology or portions of the analysis, without considering the analysis as a whole, could create a misleading or incomplete conclusion as to enterprise value. ANALYSIS OF CERTAIN PUBLICLY TRADED COMPANIES. To provide contextual data and comparative market information, Lazard compared selected projected operating and financial ratios for the Reorganized Company to the corresponding data and ratios of a number of comparable public companies ("Selected Companies") whose securities are publicly traded and which Lazard believes have operating, market and trading characteristics similar to what might be expected of the Reorganized Company. Such data and ratios include the enterprise value of such Selected Companies as multiples of revenues, EBITDA and EBIT for historical and, where available, the projected periods. Although the Selected Companies were used for comparison purposes, none of such companies is directly comparable to the Reorganized Company. Accordingly, an analysis of the results of such a comparison is not purely mathematical, but instead involves 69
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complex considerations and judgments concerning differences in historical and projected financial and operating characteristics of the Selected Companies and other factors that could affect the value of the Selected Companies or the Reorganized Company to which they are being compared. DISCOUNTED CASH FLOW ANALYSIS. The discounted cash flow ("DCF") valuation methodology relates the value of an asset or business to the present value of expected future cash flows to be generated by that asset or business. The DCF methodology is a "forward looking" approach that discounts the expected future cash flows by a theoretical or observed discount rate determined by calculating the average cost of debt and equity for publicly traded companies that are similar to the Debtors. This approach has two components: the present value of the projected un-levered free cash flows for a determined period; and the present value of the terminal value of cash flows for a determined period (representing firm value beyond the time horizon of the projections). As the estimated cash flows, estimated discount rate and expected capital structure of the Reorganized Company are used to derive a potential value, an analysis of the results of such an estimate is not purely mathematical, but instead involves complex considerations and judgments concerning potential variance in the projected financial and operating characteristics of the Reorganized Company and other factors that could affect the future prospects and cost of capital considerations for the Reorganized Company. PRECEDENT TRANSACTIONS ANALYSIS. Precedent transaction analysis estimates value by examining public merger and acquisition transactions. An analysis of the disclosed purchase price as a multiple of various operating statistics reveals industry sales multiples for companies in similar lines of businesses to the Debtors. These transaction multiples are calculated based on the purchase price (including debt assumed) paid to acquire companies that are comparable to the Debtors. These multiples are then applied to the Debtors' key operating statistics to determine the total enterprise value or value to a potential strategic buyer. The summary set forth above does not purport to be a complete description of the analyses performed by Lazard. The preparation of an estimate involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods in the particular circumstances and, therefore, such an estimate is not readily susceptible to summary description. In performing its analyses, Lazard and the Debtors made numerous assumptions with respect to industry performance, business and economic conditions and other matters. The analyses performed by Lazard are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by such analyses. Lazard relied on the accuracy and reasonableness of the projections and the underlying assumptions as prepared by the Debtors. Lazard's valuation assumes that operating results projected by the Debtors will be achieved in all material respects, including new work booked revenue growth, improvements in operating margins, earnings and cash flow, improvement in techniques for managing working capital, expenses and other elements. To the extent that the valuation is dependent upon the Debtors' achievement of the projections, the valuation must be considered speculative. F. APPLICATION OF THE "BEST INTERESTS" OF CREDITORS TEST TO THE LIQUIDATION ANALYSIS AND THE VALUATION It is impossible to determine with any specificity the value each creditor will receive as a percentage of its Allowed Claim. This difficulty in estimating the value of recoveries is due to, among other things, the inherent uncertainty with respect to the Trust Recoveries and the lack of any public market for the New Common Shares. Notwithstanding the difficulty in quantifying recoveries to holders of Allowed Claims with precision, the Debtors believe that the financial disclosures and projections contained herein imply a greater or equal recovery to holders of Claims in Impaired Classes than the recovery available in a Chapter 7 liquidation. As set forth in the Liquidation Analysis, holders of Allowed Claims in Class 6 and Class 7 are estimated not to receive any recovery in a Chapter 7 liquidation, except potentially from recovery on the Raytheon Claims, if any. Conversely, under the Plan, holders of Allowed Claims in Class 6 will receive a recovery of New Common Shares and holders of Allowed Claims in Class 7 will receive the net proceeds of the Raytheon Claims, the litigation of which will be funded with $20 million. Accordingly, the Debtors believe that the "best interests" test of section 1129 of the Bankruptcy Code is satisfied. The Committee has asserted that it believes the proper measure of liquidation value under the circumstances would be a sale of the business units of the Debtors as going concerns. The Debtors do not believe that a sale of business units as going concerns in Chapter 7 would be possible. 70
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G. CONFIRMATION WITHOUT ACCEPTANCE OF ALL IMPAIRED CLASSES: THE "CRAMDOWN" ALTERNATIVE In view of the deemed rejection by holders of Class 8 WGI Interests and Subordinated Claims, the Debtors will seek confirmation of the Plan pursuant to the "cramdown" provisions of the Bankruptcy Code. The Debtors further reserve the right to seek confirmation of the Plan with respect to the holders of Class 7 Claims in the event such holders vote to reject the Plan. Specifically, section 1129(b) of the Bankruptcy Code provides that a plan can be confirmed even if the plan is not accepted by all impaired classes, as long as at least one impaired class of claims has accepted it. The Bankruptcy Court may confirm a plan at the request of the debtors if the plan "does not discriminate unfairly" and is "fair and equitable" as to each impaired class that has not accepted the plan. A plan does not discriminate unfairly within the meaning of the Bankruptcy Code if a dissenting class is treated equally with respect to other classes of equal rank. The Debtors believe the Plan does not discriminate unfairly with respect to holders of Class 7 Claims and Class 8 WGI Interests and Subordinated Claims. Class 8 includes all holders of equity interests and subordinated claims under section 510(b) or (c) of the Bankruptcy Code, holders of which are not entitled to payment under the absolute priority rule until all creditors have been paid in full. Thus, because all interestholders and subordinated claimholders are similarly treated, there is no unfair discrimination with respect to holders of Class 8 WGI Interests and Subordinated Claims. As discussed in more detail in SECTION VI.C.2.(a), under the Plan, Unimpaired Unsecured Claims in Class 3 consist only of Employee Claims and provides full payment on account of such Claims. The Plan further classifies holders of General Unsecured Claims (which include Lender Deficiency Claims, Old Note Claims, and Raytheon Asserted Claims) in Class 7 and provides less than full recovery on such Claims. Although the Plan thus treats Claims of unsecured creditors differently in Class 3 than in Class 7, the Debtors believe that different treatment is fair and appropriate. The Debtors believe that there is ample basis for Employee Claims to be paid in full and, therefore, classified as Unimpaired based upon the substantial benefits to the Company's operations of maintaining high employee morale and minimizing employee turnover, particularly in a construction company whose primary assets are its employees. A plan is fair and equitable as to a class of unsecured claims which rejects a plan if 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. A plan is fair and equitable as to a class of equity interests that rejects a plan if the plan provides (a) that each holder of an interest included in the rejecting class receive or retain on account of that interest property that has a value, as of the effective date of the plan, equal to the greatest of the allowed amount of any fixed liquidation preference to which such holder is entitled, any fixed redemption price to which such holder is entitled, or the value of such interest; or (b) that the holder of any interest that is junior to the interests of such class will not receive or retain under the plan on account of such junior interest any property at all. The Debtors believe that they will meet the "fair and equitable" requirements of section 1129(b) with respect to holders of Class 7 Claims and Class 8 WGI Interests and Subordinated Claims. The Creditors' Committee and certain other parties in interest have asserted that the Plan violates the absolute priority rule of section 1129(b)(2)(B)(ii) of the Bankruptcy Code because, under the Washington Agreement, Mr. Washington will receive a distribution of options. The Debtors and the Prepetition Secured Lenders dispute this assertion and assert that because the consideration to be provided to Mr. Washington is being provided solely in connection for future services to be rendered, he is not receiving or retaining any property under the Plan on account of his Old Common Stock. The Creditors' Committee also asserts that the Plan is not fair and equitable in that it overcompensates Class 6 and that it discriminates unfairly against Class 7. XII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN The Debtors believe that the Plan affords holders of Class 6 and 7 Claims the potential for the greatest realization on the Debtors' assets and, therefore, is in the best interests of such holders. The Plan as presented is the result of considerable negotiations between WGI and the steering committee of Prepetition Secured Lenders. If, however, the requisite acceptances are not received, or the Plan is not confirmed and consummated, the theoretical alternatives include: (a) formulation of an alternative plan or plans of reorganization, or (b) liquidation of the Debtors under Chapter 7 or 11 of the Bankruptcy Code. 71
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A. ALTERNATIVE PLAN(S) OF REORGANIZATION If the requisite acceptances are not received or if the Plan is not confirmed, the Debtors (or, if the Debtors' exclusive periods in which to file and solicit acceptances of a plan of reorganization have expired, any other party in interest) could attempt to formulate and propose a different plan or plans of reorganization. Such a plan or plan(s) might involve either a reorganization and continuation of the Debtors' businesses or an orderly liquidation of assets. Additionally, it is not clear whether the Debtors could survive as going concerns in a protracted process to confirm an alternative plan of reorganization. SEE SECTION IV.C. With respect to an alternative plan, the Debtors have explored various other alternatives in connection with the extensive negotiation process involved in the formulation and development of the Plan. The Debtors believe that the Plan enables creditors to realize the greatest possible value under the circumstances, and, that as compared to any alternative plan of reorganization, has the greatest chance to be confirmed and consummated. B. LIQUIDATION UNDER CHAPTER 7 OR CHAPTER 11 If no plan is confirmed, the Chapter 11 Cases may be converted to cases under Chapter 7 of the Bankruptcy Code, pursuant to which a trustee would be elected or appointed to liquidate the Debtors' assets for distribution to Creditors in accordance with the priorities established by the Bankruptcy Code. It is impossible to predict precisely how the proceeds of the liquidation would be distributed to the respective holders of Claims against or Interests in the Debtors. The Debtors believe that in a liquidation under Chapter 7, additional administrative expenses involved in the appointment of a trustee or trustees and attorneys, accountants and other professionals to assist such trustees would cause a substantial diminution in the value of the Debtors' Estates. The assets available for distribution to creditors would be reduced by such additional expenses and by Claims, some of which would be entitled to priority, which would arise by reason of the liquidation and from the rejection of leases and other executory contracts in connection with the cessation of operations and the failure to realize the greater going concern value of the Debtors' assets. More importantly, as set forth in APPENDIX B, consequences of conversion to a Chapter 7 liquidation would likely result in the immediate cessation of the Debtors' businesses, leaving no value for prepetition creditors. The Debtors could also be liquidated pursuant to the provisions of a Chapter 11 plan of reorganization. In a liquidation under Chapter 11, the Debtors' assets could theoretically be sold in an orderly fashion over a more extended period of time than in a liquidation under Chapter 7. Because there will be no need to appoint a Chapter 7 trustee and hire new professionals, a Chapter 11 liquidation might be less costly than a Chapter 7 liquidation and thus provide larger net distributions to creditors than in a Chapter 7 liquidation. Any recovery in a Chapter 11 liquidation, while potentially greater than in a Chapter 7 liquidation, would also be highly uncertain. Although preferable to a Chapter 7 liquidation, the Debtors believe that any alternative liquidation under Chapter 11 would be a much less attractive alternative to creditors than the Plan. As discussed elsewhere in the Disclosure Statement, the Debtors actively solicited interest from third parties for potential transactions involving some or all business units, and remained open to expressions of interest during the Chapter 11 Cases. No bids were received that the Debtors believe would have provided greater recoveries that under the Plan. Certain parties in interest have asserted that they believe there is a possibility of liquidating certain of the Debtors' businesses in chapter 11 and providing a greater recovery to creditors than under the Plan. The Creditors' Committee and certain other parties also dispute the adequacy of the Debtors' prepetition efforts to sell all or part of their businesses. The Debtors contest each of these assertions. XIII. THE SOLICITATION; VOTING PROCEDURE A. PARTIES IN INTEREST ENTITLED TO VOTE Under section 1124 of the Bankruptcy Code, a class of claims or interests is deemed to be "impaired" under a plan unless (i) the plan leaves unaltered the legal, equitable, and contractual rights to which such claim or interest entitles the holder thereof or (ii) notwithstanding any legal right to an accelerated payment of such claim or interest, the plan cures all existing defaults (other than defaults resulting from the occurrence of events of bankruptcy) and reinstates the maturity of such claim or interest as it existed before the default. In general, a holder of a claim or interest may vote to accept or to reject a plan if (i) the claim or interest is "allowed," which means generally that no party in interest has objected to such claim or interest, and (ii) the claim or interest is impaired by the plan. If, however, the holder of an impaired claim or interest will not receive or retain any distribution under the plan on account of such claim or interest, the Bankruptcy Code deems such holder to have rejected the plan, and, accordingly, holders of such claims and interests do not 72
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actually vote on the plan. If a claim or interest is not impaired by the plan, the Bankruptcy Code deems the holder of such claim or interest to have accepted the plan and, accordingly, holders of such claims and interests are not entitled to vote on the plan. B. CLASSES IMPAIRED UNDER THE PLAN Classes 6 and 7 are entitled to vote to accept or reject the Plan. By operation of law, each Unimpaired Class of Claims is deemed to have accepted the Plan and, therefore, is not entitled to vote to accept or reject the Plan. By operation of law, Class 8 is deemed to have rejected the Plan and therefore is not entitled to vote to accept or reject the Plan. C. WAIVERS OF DEFECTS, IRREGULARITIES, ETC. Unless otherwise directed by the Bankruptcy Court, all questions as to the validity, form, eligibility (including time of receipt), acceptance, and revocation or withdrawal of Ballots will be determined by the Voting Agent and the Debtors in their sole discretion, which determination will be final and binding. As indicated below under "Withdrawal of Ballots; Revocation," effective withdrawals of Ballots must be delivered to the Voting Agent prior to the Voting Deadline. The Debtors reserve the absolute right to contest the validity of any such withdrawal. The Debtors also reserve the right to reject any and all Ballots not in proper form, the acceptance of which would, in the opinion of the Debtors or their counsel, be unlawful. The Debtors further reserve the right to waive any defects or irregularities or conditions of delivery as to any particular Ballot. The interpretation (including the Ballot and the respective instructions thereto) by the Debtors, unless otherwise directed by the Bankruptcy Court, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with deliveries of Ballots must be cured within such time as the Debtors (or the Bankruptcy Court) determine. Neither the Debtors nor any other person will be under any duty to provide notification of defects or irregularities with respect to deliveries of Ballots nor will any of them incur any liabilities for failure to provide such notification. Unless otherwise directed by the Bankruptcy Court, delivery of such Ballots will not be deemed to have been made until such irregularities have been cured or waived. Ballots previously furnished (and as to which any irregularities have not theretofore been cured or waived) will be invalidated. D. WITHDRAWAL OF BALLOTS; REVOCATION Any party who has delivered a valid Ballot for the acceptance or rejection of the Plan may withdraw such acceptance or rejection by delivering a written notice of withdrawal to the Voting Agent at any time prior to the Voting Deadline. A notice of withdrawal, to be valid, must (i) contain the description of the Claim(s) to which it relates and the aggregate principal amount represented by such Claim(s), (ii) be signed by the withdrawing party in the same manner as the Ballot being withdrawn, (iii) contain a certification that the withdrawing party owns the Claim(s) and possesses the right to withdraw the vote sought to be withdrawn and (iv) be received by the Voting Agent in a timely manner at the address set forth below. The Debtors intend to consult with the Voting Agent to determine whether any withdrawals of Ballots were received and whether the Requisite Acceptances of the Plan have been received. As stated above, the Debtors expressly reserve the absolute right to contest the validity of any such withdrawals of Ballots. Unless otherwise directed by the Bankruptcy Court, a purported notice of withdrawal of Ballots which is not received in a timely manner by the Voting Agent will not be effective to withdraw a previously cast Ballot. Any party who has previously submitted to the Voting Agent prior to the Voting Deadline a properly completed Ballot may revoke such Ballot and change his or its vote by submitting to the Voting Agent prior to the Voting Deadline a subsequent properly completed Ballot for acceptance or rejection of the Plan. In the case where more than one timely, properly completed Ballot is received, only the Ballot which bears the latest date will be counted for purposes of determining whether the Requisite Acceptances have been received. E. FURTHER INFORMATION; ADDITIONAL COPIES If you have any questions or require further information about the voting procedure for voting your Claim or about the packet of material you received, or if you wish to obtain an additional copy of the Plan, the Disclosure Statement, or any exhibits or appendices to such documents (at your own expense, unless otherwise specifically required by Bankruptcy Rule 3017(d)), please contact the Voting Agent: 73
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Washington Group International, Inc. c/o Robert L. Berger & Associates, LLC PMB 1007 10351 Santa Monica Boulevard, Suite 101A Los Angeles, CA 90025 Phone: (818) 771-7469 Fax: (818) 905-6542 F. INTERNET ACCESS TO BANKRUPTCY COURT DOCUMENTS Bankruptcy Court documents filed in these Chapter 11 Cases as well as the Bankruptcy Court's calendar and other administrative matters may be found, downloaded and printed from the Bankruptcy Court's website found at http//www.nvb.uscourts.gov. 74
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XIV. RECOMMENDATION AND CONCLUSION For all of the reasons set forth in this Disclosure Statement, the Debtors believe that confirmation and consummation of the Plan is preferable to all other alternatives. Consequently, the Debtors urge all holders of Class 6 and 7 Claims to vote to ACCEPT the Plan, and to complete and return their ballots so that they will be RECEIVED by the Voting Agent on or before 4:00 p.m. prevailing Pacific Time on the Voting Deadline. Dated: July 24, 2001 Boise, Idaho WASHINGTON GROUP INTERNATIONAL, INC. (for itself and on behalf of the Debtors) By: /s/ Stephen G. Hanks --------------------------------------- Name: Stephen G. Hanks --------------------------------------- Title: Chief Executive Officer and President --------------------------------------- Skadden, Arps, Slate, Meagher & Flom (ILLINOIS) David S. Kurtz Timothy R. Pohl 333 W. Wacker Drive Chicago, Illinois 60606-1285 (312) 407-0700 -and- SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP Gregg M. Galardi One Rodney Square P.O. Box 636 Wilmington, Delaware 19899-0636 (302) 651-3000 -and- LIONEL, SAWYER & COLLINS /s/ Jennifer Smith ------------------------------------ Jennifer Smith (State Bar No. 610) Etta L. Walker (State Bar No. 5537) 1100 Bank of America Plaza 50 W. Liberty Street Reno, Nevada 89501 (775) 788-8666 Attorneys for Debtors and Debtors-in-Possession
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APPENDIX A SECOND AMENDED JOINT PLAN OF REORGANIZATION OF WASHINGTON GROUP INTERNATIONAL, INC., ET AL. [SEE EXHIBIT 99.1 TO THIS FORM 8-K]
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APPENDIX B LIQUIDATION ANALYSIS
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APPENDIX B CONSOLIDATED WASHINGTON GROUP INTERNATIONAL, INC. HYPOTHETICAL CHAPTER 7 LIQUIDATION ANALYSIS (IN MILLIONS OF U.S. DOLLARS) ESTIMATED AS OF AUGUST 3, 2001 [Enlarge/Download Table] Projected Net Book Value Estimated Recovery Per as of Estimated Non-Foreign centage on Non- Estimated August 3, 2001 Foreign & JV Foreign & JV Liquidation Notes (Unaudited) & JV % Remainder Remainder Proceeds ---------- ------------------ -------------- ---------------- ----------------- -------------- Cash 1 75.2 81.8% 13.7 100.0% 13.7 Billed and unbilled 2 874.2 25.4% 652.4 20.0% 130.5 receivables Inventories 3 40.5 79.6% 8.3 0.0% 0.0 Other current assets 4 227.5 11.3% 201.7 0.0% 0.0 Investment in joint 5 118.1 0.0% 118.1 0.0% 0.0 ventures Property and equipment, net 6 230.5 16.7% 192.0 15.0% 28.8 Other assets 7 1,527.7 16.5% 1,275.7 0.0% 0.0 Total 3,093.7 2,416.9 173.0 Less: Estimated costs of 8 (76.3) liquidation Estimated DIP 9 (101.1) Facility claim Amount available for (4.4) distribution Secured lender claims 10 573.0 Secured letters of credit 11 130.0 Shortfall to secured (703.0) lender claims Available to chapter 11 administrative, priority $ 0.0 and unsecured claims THIS ANALYSIS SHOULD BE READ ONLY IN CONJUNCTION WITH THE ASSUMPTIONS, QUALIFICATIONS AND EXPLANATIONS AS SET OUT IN THE ATTACHED ASSUMPTIONS AND THE DISCUSSION UNDER SECTION XI.C "FEASIBILITY OF THE PLAN AND BEST INTERESTS OF CREDITORS - BEST INTEREST TEST" AND SECTION XII "ALTERNATIVES TO AND CONSUMMATION OF THE PLAN". This Liquidation Analysis reflects an estimate by Management of Washington Group International, Inc. (the "Management and "WGI," respectively) and Zolfo Cooper, LLC of the proceeds that would be realized if the Debtors were to Appendix B-1
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be liquidated in accordance with chapter 7 of the United States Bankruptcy Code ("Chapter 7"). This analysis assumes that if the Debtors' cases were converted to Chapter 7, the Non-Debtor Subsidiaries would also have to be liquidated. This Liquidation Analysis assumes that the Chapter 11 Cases are converted to liquidations under Chapter 7 as of July 31, 2001. The Liquidation Analysis is premised upon a number of estimates and assumptions that, although developed and considered reasonable by Management, are inherently subject to significant business, economic and competitive uncertainties and contingencies beyond the control of WGI and Management, and upon assumptions with respect to a liquidation, decisions which could be subject to change. Accordingly, there can be no assurance that the values reflected in the Liquidation Analysis would be realized if consolidated WGI were, in fact, to undergo such a liquidation, nor can there be any assurance that the Bankruptcy Court will accept such analysis or concur with such assumptions in making its determinations under section 1129(a) of the Bankruptcy Code. In addition, any liquidation ultimately undertaken would take place under future circumstances that cannot presently be predicted with certainty. Accordingly, although the analysis that follows is necessarily presented with numerical specificity, if consolidated WGI's estates were in fact liquidated, the actual liquidation proceeds could vary from the amounts set forth above. Such actual liquidation proceeds could be materially higher or lower than the amounts set forth above , and no representation or warranty can be or is being made with respect to the actual proceeds that would be generated in liquidations of consolidated WGI under Chapter 7 of the United States Bankruptcy Code. The liquidation valuations have prepared solely for purposes of estimating the proceeds available in a Chapter 7 and do not represent values that may be appropriate for any other purpose, including the values applicable in the context of the Plan. Nothing contained in these valuations is intended as or constitutes a concession or admission for any purpose other than the presentation of a hypothetical liquidation analysis. GENERAL ASSUMPTIONS In Chapter 7, a trustee (the "Chapter 7 Trustee") is appointed to manage the debtors' affairs and conduct a liquidation. This Liquidation Analysis assumes that no third-party lender would be willing to advance new funds to a Chapter 7 Trustee to continue to fund operations of the Company, and accordingly, the liquidity available to a Chapter 7 Trustee to administer a liquidation would be extremely limited. As a result, in a Chapter 7 liquidation, the Debtors would be forced to cease substantially all operations almost immediately (except for joint ventures that are self-sustaining or funded by non-WGI affiliated partners). The likely consequences of the conversion to Chapter 7 include the following: o The Company's workforce consists of highly trained, specialized employees, who are highly coveted by competitors. With the Company facing certain liquidation, those employees would quickly leave the Company and find employment elsewhere, rendering any possibility of continuing operations in an effort to complete a going concern sale of business units of the Company highly remote if not impossible. The inability to retain employees for a transitional period would be exacerbated by concerns over the Com pany's ability to fund ongoing payroll (which averages approximately $120 million per month). o Assets in foreign entities and joint ventures would be unrecoverable. Foreign laws and local foreign creditor rights, among other things, would make obtaining recoveries on assets in foreign locations practically impossible. Joint ventures have third party partners with contractual rights that would severely restrict access by the Company to assets in joint ventures in a liquidation of the Company. Accordingly, it is assumed that the only potential recovery on assets would be from assets located in domestic, non-joint venture entities. o Many of the Company's contracts are with governmental entities that have the right under applicable law to rebid those contracts to other parties. It is highly unlikely that any material government contracts could be maintained by a Chapter 7 Trustee for any period of time. o Outstanding receivables for uncompleted projects would be uncollectible. Defaults on bonded projects would result in project owners calling on surety bonds issued for their benefit, which in turn would trigger equitable subrogation rights of bonding companies to receive any project receivables. Unpaid vendors and subcontractors would assert mechanics and materialman's liens on project owners' property, further reducing any possibility of the Company collecting outstanding receivables from project owners. o Customers for completed projects with warranties from WGI would assert warranty claims, and offset Appendix B-2
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payables to the Company against those claims, rendering collection of these receivables extremely difficult. o The bulk of fixed assets are located on job sites. These job sites are located all around the world, often in remote locations, and retrieving such fixed assets in many cases would be extremely difficult. In addition, fixed assets on job sites are essential to completion of the projects, and accordingly customers would likely seize the assets remaining on the site and seek to prohibit the Company from retrieving such assets until project completion, which in many cases would take months or years. o It is highly unlikely that any of the Debtors' joint venture partners would agree to continue their partnership with, or cooperate with, a Chapter 7 Trustee. Joint venture partners would likely assert that the partner ships dissolve as a matter of law as well as contract, upon the bankruptcy of another partner, and the Chapter 7 Trustee would have to commence litigation to contest that assertion. In addition, many joint venture and limited liability company agreements require ongoing capital to be contributed by the Company to fund the subject projects, and contain restrictions on dividends to partners, particularly when the partner is unable to meet ongoing funding requirements. Moreover, the joint venture agreements (and the Westinghouse Group constituent agreements) prohibit the sale by a partner of its interest without the other partner's consent, which provisions are likely enforceable under applicable law. As a result of these and other factors, in Chapter 7, the ability of the Company to continue to participate in managing the joint ventures or to successfully sell its partnership interests for value would be negligible. o The Raytheon Claims could be pursued by a Chapter 7 Trustee. However, in a Chapter 7 liquidation, there may not be any significant funding to pursue those claims. Moreover, proceeds of such claims are pledged to secure the DIP Facility, which would result in fewer proceeds of the Raytheon Claims being available to prepetition creditors in Chapter 7 than under the Plan. SPECIFIC ASSUMPTIONS NOTE 1 Virtually all of consolidated cash is in foreign subsidiaries and joint ventures. Joint venture agreements contain many restrictions on payments or distributions to partners. This analysis assumes that a Chapter 7 trustee would only be able to obtain access to cash in domestic, non-joint venture entities, because of restrictions contained in joint venture agreements and the rights of foreign creditors under local foreign law. NOTE 2 As noted above, the vast majority of receivables would be uncollectible in Chapter 7. This analysis optimistically assumes that 20% of receivables of non-foreign, non-joint venture entities would be able to be collected by the Trustee. NOTE 3 The bulk of the inventories are owned by EMD, which is part of the Westinghouse Group. The Westinghouse Group is not wholly-owned by the Company. A Chapter 7 Trustee would have no ability to force the sale of inventory owned by the Westinghouse Group. Any value that could conceivably be realized by the Debtors from these inventories is solely through the equity interest in the Westinghouse Group, which, for the reasons stated above would be unlikely to be realizable in a Chapter 7 liquidation. NOTE 4 Other current assets, consisting primarily of prepaid expenses and current tax benefits will provide no benefit in a Chapter 7 liquidation. NOTE 5 For the reasons set forth above, it is estimated that a Chapter 7 Trustee would be unable to realize any value from the Debtors' historical investment in joint ventures or the Westinghouse Group. NOTE 6 For the reasons set forth above, a Chapter 7 Trustee would have extreme difficulty exercising and control over, and thus being able to sell for value, physical assets located at project locations. In addition, even assuming some of such assets Appendix B-3
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could be physically recovered, fair market value in a forced sale would be significantly less than book value. NOTE 7 Other assets consist primarily of goodwill, which would have no value in a liquidation. NOTE 8 Consists of estimated trustee fees at 2.5% of the net proceeds from sale of assets/business units, professional fees estimated for 6 months at $2 million per month, and other wind down costs. It is also assumed that payroll accrued but unpaid in the in the amount of $40 million (approximately 10 days of payroll) would have to be paid. NOTE 9 The estimated funded balance on the DIP loan at August 3, 2001 would be approximately $23.1 million. It is also anticipated that approximately $78 million in letters of credit will be outstanding under the DIP facility. The total obligations under the DIP loan are projected to be 101.1 as of August 3, 2001. NOTE 10 Secured lender claims reflects the amount outstanding as of June 1, 2001 under the pre-petition credit agreement. Interest has not been accrued on secured lender claims since the Petition Date. It is assumed that the secured lender claims are properly secured by valid and enforceable substantially all liens on assets from which value would be derived on a Chapter 7 liquidation. NOTE 11 Secured and outstanding letters of credit under the pre-petition credit agreement are estimated to be approximately $130.0 million and are assumed to called upon the conversion of the Chapter 11 Cases to Chapter 7. Appendix B-4
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APPENDIX C PRO FORMA FINANCIAL PROJECTIONS
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WASHINGTON GROUP INTERNATIONAL, INC. PROJECTED FINANCIAL STATEMENTS INDEX [Download Table] PAGE DESCRIPTION ----------- ---------------------------------------------------------------- 2 Consolidated Statements of Operations 3 Consolidated Statements of Operations with Detail by Group 4 Consolidated Balance Sheets 5 Fiscal 2001 Balance Sheets by Group 6 Fiscal 2002 Balance Sheets by Group 7 Fiscal 2003 Balance Sheets by Group 8 Fiscal 2004 Balance Sheets by Group 9 Power Group Comparative Balance Sheets 10 Infrastructure & Mining Group Comparative Balance Sheets 11 Industrial Process Group Comparative Balance Sheets 12 Government Group Comparative Balance Sheets 13 Corporate Comparative Balance Sheets 14 Consolidated Statements of Cash Flow 15 Fiscal 2001 Combining Statement of Cash Flows 16 Fiscal 2002 Combining Statement of Cash Flows 17 Fiscal 2003 Combining Statement of Cash Flows Appendix C-1
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WASHINGTON GROUP INTERNATIONAL, INC. 2002 - 2004 FINANCIAL PLAN CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS) [Enlarge/Download Table] ------------------- ----------------- ----------------- ----------------- ----------------- 1997 1998 1999 2000 2001 ACTUAL ACTUAL ACTUAL ACTUAL FCST TOTAL TOTAL TOTAL TOTAL TOTAL ------------------- ----------------- ----------------- ----------------- ----------------- 1,687,044 1,907,941 2,304,402 3,213,437 3,645,849 (1,590,565) (1,806,981) (2,180,314) (3,130,600) (3,585,486) - - - 56,000 73,000 ------------------- ----------------- ----------------- ----------------- ----------------- 96,479 100,960 124,088 138,837 133,362 - - - - - (22,910) (24,202) (25,999) (37,859) (48,201) (3,578) (3,597) (12,576) (42,005) (77,610) - - - (14,359) (48,293) ------------------- ----------------- ----------------- ----------------- ----------------- 69,991 73,162 85,512 44,613 (40,742) 9,075 5,774 3,429 10,567 12,846 (891) (869) (7,642) (38,795) (64,328) - - - - 226,620 (1,118) 3,757 9,681 1,269 (11,066) ------------------- ----------------- ----------------- ----------------- ----------------- 77,057 81,823 90,981 17,654 123,331 (34,540) (35,460) (33,911) (8,012) (3,621) (10,485) (8,810) (8,785) (9,152) (15,508) ------------------- ----------------- ----------------- ----------------- ----------------- 32,031 37,553 48,285 490 104,201 =================== ================= ================= ================= ================= [Enlarge/Download Table] ------------------ ----------------- ------------------ 2002 2003 2004 PLAN PLAN PLAN TOTAL TOTAL TOTAL ------------------ ----------------- ------------------ Revenue 3,146,639 3,211,399 3,575,391 Cost of revenue (3,006,199) (3,042,957) (3,371,730) Normalized Profit 35,647 842 800 ------------------ ----------------- ------------------ Gross Profit 176,087 169,284 204,461 Management Adjustment (25,000) - - General and administrative expenses (45,000) (40,000) (40,000) Goodwill - - - Merger and reorganization costs - - - ------------------ ----------------- ------------------ Operating Income 106,087 129,284 164,461 Investment income 3,812 3,796 3,795 Interest Expense (19,953) (14,871) (12,583) Net gain on bankruptcy - - - Other income (expense), net - - - ------------------ ----------------- ------------------ Income before income taxes and minority interests 89,946 118,209 155,673 Income tax expense (35,978) (47,284) (62,269) Minority interests in income of consolidated subsidiaries (9,929) (9,976) (10,567) ------------------ ----------------- ------------------ Net income 44,039 60,949 82,837 ================== ================= ================== EBITDA: ------------------ ----------------- ------------------ Net income 44,039 60,949 82,837 Interest expense 19,953 14,871 12,583 Taxes 35,978 47,284 62,269 Depreciation & Amortization 63,500 43,100 33,400 Normal profit (35,647) (842) (800) ------------------ ----------------- ------------------ EBITDA 127,823 165,362 190,289 ================== ================= ================== Appendix C-2
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WASHINGTON GROUP INTERNATIONAL, INC. 2002 - 2004 FINANCIAL PLAN CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS) [Enlarge/Download Table] ------------------ ---------------- ------------- -------------- -------------- 2000 2001 2002 2003 2004 ACTUAL FCST PLAN PLAN PLAN TOTAL TOTAL TOTAL TOTAL TOTAL ------------------ ---------------- ------------- -------------- -------------- NEW WORK 229,874 379,102 Power 654,162 856,025 1,007,803 1,678,269 726,682 Infrastructure & Mining 1,176,415 1,129,435 1,263,419 665,001 721,228 Industrial/Process (Incl PetroChem) 862,400 1,016,100 1,189,600 273,945 788,639 Government 496,234 671,062 691,389 (2,948) (6,522) Corporate - - - ------------------ ---------------- ------------- -------------- -------------- 2,844,141 2,609,128 Total 3,189,211 3,672,622 4,152,211 ENDING BACKLOG 1,506,805 377,000 Power 542,338 795,984 1,003,291 - (909,000) Power De-Bookings - - - 1,862,779 1,504,316 Infrastructure & Mining 1,606,298 1,744,987 1,913,755 905,950 561,509 Industrial/Process (Incl PetroChem) 553,709 631,309 806,709 - (100,000) P/C De-Bookings (Sale & Reorg) - - - 1,362,860 903,934 Government 686,987 678,275 703,620 - (247,000) Government De-Bookings (EMD) - - - - - Corporate - - - ------------------ ---------------- ------------- -------------- -------------- 5,638,394 3,346,759 Total 3,389,332 3,850,555 4,427,375 REVENUE 515,740 600,867 Power 488,825 602,379 800,496 827,495 1,085,102 Infrastructure & Mining 1,074,433 990,746 1,094,651 874,648 965,799 Industrial/Process (Incl PetroChem) 870,200 938,500 1,014,200 998,502 1,000,346 Government 713,181 679,774 666,044 (2,948) (6,265) Corporate - - - ------------------ ---------------- ------------- -------------- -------------- 3,213,437 3,645,849 Total 3,146,639 3,211,399 3,575,391 GROSS PROFIT 16,715 (6,040) Power 10,162 20,291 36,929 52,298 75,350 Infrastructure & Mining 84,706 67,591 77,260 24,450 4,757 Industrial/Process (Incl PetroChem) 32,300 37,400 43,600 33,287 63,324 Government 52,295 47,816 50,672 12,087 (4,028) Corporate (3,376) (3,814) (4,000) - - Management Adjustment (25,000) - - ------------------ ---------------- ------------- -------------- -------------- 138,837 133,362 Total 151,087 169,284 204,461 OTHER INCOME/(EXPENSE) (37,859) (48,201) General and administrative expenses (45,000) (40,000) (40,000) (42,005) (77,610) Goodwill amortization - - - (14,359) (48,293) Merger and reorganization costs - - - 10,567 12,846 Investment income 3,812 3,796 3,795 (38,795) (64,328) Interest expense (19,953) (14,871) (12,583) - 226,620 Net gain in bankruptcy - - - 1,269 (11,066) Other income (expense), net - - - ------------------ ---------------- ------------- -------------- -------------- Income before income taxes and minority interests 17,654 123,331 in income of consolidated subsidiaries 89,946 118,209 155,673 (8,012) (3,621) Income tax expense (35,978) (47,284) (62,269) Minority interests in income of consolidated (9,152) (15,508) subsidiaries (9,929) (9,976) (10,567) ------------------ ---------------- ------------- -------------- -------------- 490 104,201 Net income 44,039 60,949 82,837 ================== ================ ============= ============== ============== Appendix C-3
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WASHINGTON GROUP INTERNATIONAL, INC. 2002 - 2004 FINANCIAL PLAN CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) [Enlarge/Download Table] --------------------- -------------- ---------- ----------- 2001 2002 2003 2004 --------------------- -------------- ---------- ----------- FORECAST PLAN PLAN PLAN TOTAL ASSETS TOTAL TOTAL TOTAL ----- ----- ----- ----- CURRENT ASSETS 78,683 Cash and cash equivalents 75,426 112,304 141,110 404,856 Accounts receivable including retentions 360,873 413,561 492,174 313,489 Unbilled receivables 298,037 291,310 341,519 2,996 Inventories 3,146 3,046 2,996 3,722 Refundable income taxes 3,722 3,722 3,722 46,795 Investments in joint ventures 36,873 23,146 27,246 - Deferred income taxes - - - 81,283 Other current assets 27,004 28,271 28,855 --------------------- -------------- ---------- ----------- 931,824 TOTAL CURRENT ASSETS 805,081 875,360 1,037,622 --------------------- -------------- ---------- ----------- INVESTMENTS AND OTHER ASSETS - Marketable securities - - - Equity in subs & affiliates / investments 76,974 in mining ventures 83,809 78,909 67,509 523,484 Goodwill 523,484 523,484 523,484 - Deferred non-current income taxes - - - 18,067 Other non-current assets 30,114 24,281 18,447 --------------------- -------------- ---------- ----------- 618,525 TOTAL INVESTMENTS AND OTHER ASSETS 637,407 626,674 609,440 --------------------- -------------- ---------- ----------- --------------------- -------------- ---------- ----------- 198,358 PROPERTY AND EQUIPMENT, NET 137,698 127,699 130,767 --------------------- -------------- ---------- ----------- 1,748,707 TOTAL ASSETS 1,580,186 1,629,733 1,777,829 ===================== ============== ========== =========== LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES - Current portion of long-term debt - - - 261,466 Accounts and subcontracts payable 262,186 278,745 312,575 361,532 Billings in excess of cost 157,332 155,083 163,262 56,606 Estimated costs to complete 51,364 46,490 49,065 99,122 Accrued salaries, wages and benefits 102,417 101,624 104,649 429 Income taxes payable 1,595 1,600 1,624 113,674 Accrued liabilities 99,003 96,539 85,622 --------------------- -------------- ---------- ----------- 892,829 TOTAL CURRENT LIABILITIES 673,897 680,081 716,797 --------------------- -------------- ---------- ----------- NON-CURRENT LIABILITIES - Long-term debt - - - 50,000 Revolving working capital facility 45,000 - - 55,792 Accrued workers' compensation 55,787 55,789 55,790 114,102 Pension, def. comp. & post-ret. benefit obligations 111,952 111,102 111,102 4,300 Environmental liabilities 4,307 4,307 4,307 35,000 Deferred income taxes 59,955 84,336 111,948 17,679 Other non-current liabilities 16,369 16,230 16,230 --------------------- -------------- ---------- ----------- 276,873 TOTAL LIABILITIES 293,370 271,764 299,377 --------------------- -------------- ---------- ----------- 79,005 MINORITY INTEREST 68,881 72,901 73,831 --------------------- -------------- ---------- ----------- 500,000 TOTAL STOCKHOLDER'S EQUITY 544,038 604,987 687,824 --------------------- -------------- ---------- ----------- 1,748,707 TOTAL LIABILITIES & EQUITY 1,580,186 1,629,733 1,777,829 ===================== ============== ========== =========== Appendix C-4
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WASHINGTON GROUP INTERNATIONAL, INC. 2001 FORECAST COMBINING BALANCE SHEETS (IN THOUSANDS) [Enlarge/Download Table] ---------- ---------- --------- ----------- ---------- ---------- 2001 2001 2001 2001 2001 2001 ---------- ---------- --------- ----------- ---------- ---------- Power Infra I/P(+P/C) Gov Serv Corporate ASSETS Total Total Total Total Total Total ----- ----- ----- ----- ----- ----- CURRENT ASSETS Cash and cash equivalents 2,623 11,707 8,307 11,291 44,755 78,683 Accounts receivable including retentions 45,189 127,539 144,318 86,394 1,416 404,856 Unbilled receivables 20,929 82,391 155,700 54,469 - 313,489 Inventories - - - 2,650 346 2,996 Refundable income taxes - - - - 3,722 3,722 Investments in joint ventures - 44,327 - 1,022 1,446 46,795 Deferred income taxes - - - - - - Other current assets - 16,151 22,208 2,828 40,096 81,283 ---------- ---------- --------- ----------- ---------- ---------- TOTAL CURRENT ASSETS 68,741 282,115 330,533 158,654 91,781 931,824 ---------- ---------- --------- ----------- ---------- ---------- INVESTMENTS AND OTHER ASSETS Marketable Securities - - - - - - Equity in subs & affiliates / investments in mining ventures - 76,974 - - - 76,974 Goodwill - 746 - 235,671 287,067 523,484 Deferred non-current income taxes - - - - - - Other non-current assets - 381 - 12,437 5,249 18,067 ---------- ---------- --------- ----------- ---------- ---------- TOTAL INVESTMENTS AND OTHER ASSETS - 78,101 - 248,108 292,316 618,525 ---------- ---------- --------- ----------- ---------- ---------- PROPERTY AND EQUIPMENT, NET 7,389 158,399 14,012 7,248 11,310 198,358 ---------- ---------- --------- ----------- ---------- ---------- TOTAL ASSETS 76,130 518,615 344,545 414,010 395,407 1,748,707 ========== ========== ========= =========== ========== ========== LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt - - - - - - Accounts and subcontracts payable 30,244 59,229 111,752 32,930 27,311 261,466 Billings in excess of cost 7,000 170,952 145,134 20,659 17,787 361,532 Estimated costs to complete 11,000 4,485 16,300 24,821 - 56,607 Accrued salaries, wages and benefits 11,000 12,083 12,725 9,124 54,191 99,122 Income taxes payable - 429 - - - 429 Accrued liabilities 6,900 (2,920) - 8,061 101,633 113,674 ---------- ---------- --------- ----------- ---------- ---------- TOTAL CURRENT LIABILITIES 66,144 244,258 285,911 95,595 200,922 892,830 ---------- ---------- --------- ----------- ---------- ---------- NON-CURRENT LIABILITIES Revolving working capital facility - - - - 50,000 50,000 Accrued workers' compensation - - - 3,667 52,125 55,792 Pension, def. comp. & post-ret. benefit obligations - - - 89,350 24,752 114,102 Environmental liabilities - - - 325 3,975 4,300 Deferred income taxes - - - - 35,000 35,000 Other non-current liabilities - 1,129 - 7,908 8,641 17,678 ---------- ---------- --------- ----------- ---------- ---------- TOTAL NON-CURRENT LIABILITIES - 1,129 - 101,250 174,493 276,872 ---------- ---------- --------- ----------- ---------- ---------- MINORITY INTEREST - 14,457 - 64,548 - 79,005 ---------- ---------- --------- ----------- ---------- ---------- TOTAL STOCKHOLDER'S EQUITY 9,986 258,771 58,634 152,617 19,992 500,000 ---------- ---------- --------- ----------- ---------- ---------- TOTAL LIABILITIES & EQUITY 76,130 518,615 344,545 414,010 395,407 1,748,707 ========== ========== ========= =========== ========== ========== Appendix C-5
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WASHINGTON GROUP INTERNATIONAL, INC. 2002 PLAN COMBINING BALANCE SHEETS (IN THOUSANDS) [Enlarge/Download Table] ---------- ---------- --------- ----------- ---------- ---------- 2002 2002 2002 2002 2002 2002 ---------- ---------- --------- ----------- ---------- ---------- Power Infra I/P(+P/C) Gov Serv Corporate ASSETS Total Total Total Total Total Total ----- ----- ----- ----- ----- ----- CURRENT ASSETS Cash and cash equivalents 2,623 5,803 (2,400) 8,230 61,170 75,426 Accounts receivable including retentions 56,947 89,808 147,200 65,502 1,416 360,873 Unbilled receivables 28,821 53,204 161,700 54,312 - 298,037 Inventories - - - 2,800 346 3,146 Refundable income taxes - - - - 3,722 3,722 Investments in joint ventures - 34,277 - 1,150 1,446 36,873 Deferred income taxes - - - - - - Other current assets - 10,349 10,100 2,411 4,144 27,004 ---------- ---------- --------- ----------- ---------- ---------- TOTAL CURRENT ASSETS 88,391 193,441 316,600 134,405 72,244 805,081 ---------- ---------- --------- ----------- ---------- ---------- INVESTMENTS AND OTHER ASSETS Marketable Securities - - - - - - Equity in subs & affiliates / investments in mining ventures - 83,809 - - - 83,809 Goodwill - 476 - 222,003 301,005 523,484 Deferred non-current income taxes - - - - - - Other non-current assets - 381 - 12,817 16,916 30,114 ---------- ---------- --------- ----------- ---------- ---------- TOTAL INVESTMENTS AND OTHER ASSETS - 84,666 - 234,820 317,921 637,407 ---------- ---------- --------- ----------- ---------- ---------- PROPERTY AND EQUIPMENT, NET 6,279 97,761 15,400 6,324 11,934 137,698 ---------- ---------- --------- ----------- ---------- ---------- TOTAL ASSETS 94,670 375,868 332,000 375,549 402,099 1,580,186 ========== ========== ========= =========== ========== ========== LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt - - - - - - Accounts and subcontracts payable 47,082 54,907 104,500 28,386 27,311 262,186 Billings in excess of cost 8,500 26,881 93,300 10,864 17,787 157,332 Estimated costs to complete 10,000 1,933 16,300 23,131 - 51,364 Accrued salaries, wages and benefits 12,500 11,843 12,700 11,183 54,191 102,417 Income taxes payable - 1,595 - - - 1,595 Accrued liabilities 5,400 (3,518) - 4,655 92,466 99,003 ---------- ---------- --------- ----------- ---------- ---------- TOTAL CURRENT LIABILITIES 83,482 93,641 226,800 78,219 191,755 673,897 ---------- ---------- --------- ----------- ---------- ---------- NON-CURRENT LIABILITIES Revolving working capital facility - - - - 45,000 45,000 Accrued workers' compensation - - - 2,222 53,565 55,787 Pension, def. comp. & post-ret. benefit obligations - - - 87,200 24,752 111,952 Environmental liabilities - - - 332 3,975 4,307 Deferred income taxes - - - - 59,955 59,955 Other non-current liabilities - 163 - 7,565 8,641 16,369 ---------- ---------- --------- ----------- ---------- ---------- TOTAL NON-CURRENT LIABILITIES - 163 - 97,319 195,888 293,370 ---------- ---------- --------- ----------- ---------- ---------- MINORITY INTEREST - 11,171 - 57,710 - 68,881 ---------- ---------- --------- ----------- ---------- ---------- TOTAL STOCKHOLDER'S EQUITY 11,188 270,893 105,200 142,301 14,456 544,038 ---------- ---------- --------- ----------- ---------- ---------- TOTAL LIABILITIES & EQUITY 94,670 375,868 332,000 375,549 402,099 1,580,186 ========== ========== ========= =========== ========== ========== Appendix C-6
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WASHINGTON GROUP INTERNATIONAL, INC. 2003 PLAN COMBINING BALANCE SHEETS (IN THOUSANDS) [Enlarge/Download Table] ---------- ---------- --------- ----------- ---------- ---------- 2003 2003 2003 2003 2003 2003 ---------- ---------- --------- ----------- ---------- ---------- Power Infra I/P(+P/C) Gov Serv Corporate ASSETS Total Total Total Total Total Total ----- ----- ----- ----- ----- ----- CURRENT ASSETS Cash and cash equivalents 2,623 (1,609) 36,200 8,378 66,712 112,304 Accounts receivable including retentions 66,322 88,385 153,800 63,638 41,416 413,561 Unbilled receivables 35,481 51,415 167,800 36,614 - 291,310 Inventories - - - 2,700 346 3,046 Refundable income taxes - - - - 3,722 3,722 Investments in joint ventures - 19,200 - 2,500 1,446 23,146 Deferred income taxes - - - - - - Other current assets - 11,282 10,100 2,745 4,144 28,271 ---------- ---------- --------- ----------- ---------- ---------- TOTAL CURRENT ASSETS 104,426 168,673 367,900 116,575 117,786 875,360 ---------- ---------- --------- ----------- ---------- ---------- INVESTMENTS AND OTHER ASSETS Marketable Securities - - - - - - Equity in subs & affiliates / investments in mining ventures - 78,909 - - - 78,909 Goodwill - 207 - 208,335 314,942 523,484 Deferred non-current income taxes - - - - - - Other non-current assets - 381 - 12,817 11,083 24,281 ---------- ---------- --------- ----------- ---------- ---------- TOTAL INVESTMENTS AND OTHER ASSETS - 79,497 - 221,152 326,025 626,674 ---------- ---------- --------- ----------- ---------- ---------- PROPERTY AND EQUIPMENT, NET 5,278 89,002 15,400 5,899 12,120 127,699 ---------- ---------- --------- ----------- ---------- ---------- TOTAL ASSETS 109,704 337,172 383,300 343,626 455,931 1,629,733 ========== ========== ========= =========== ========== ========== LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt - - - - - - Accounts and subcontracts payable 57,578 50,204 114,300 29,352 27,311 278,745 Billings in excess of cost 9,000 22,473 97,300 8,523 17,787 155,083 Estimated costs to complete 10,000 1,948 16,300 18,242 - 46,490 Accrued salaries, wages and benefits 13,500 8,916 12,700 12,317 54,191 101,624 Income taxes payable - 1,600 - - - 1,600 Accrued liabilities 4,400 3,397 - 6,276 82,466 96,539 ---------- ---------- --------- ----------- ---------- ---------- TOTAL CURRENT LIABILITIES 94,478 88,538 240,600 74,710 181,755 680,081 ---------- ---------- --------- ----------- ---------- ---------- NON-CURRENT LIABILITIES Revolving working capital facility - - - - - - Accrued workers' compensation - - - 784 55,005 55,789 Pension, def. comp. & post-ret. benefit obligations - - - 86,350 24,752 111,102 Environmental liabilities - - - 332 3,975 4,307 Deferred income taxes - - - - 84,336 84,336 Other non-current liabilities - 113 - 7,476 8,641 16,230 ---------- ---------- --------- ----------- ---------- ---------- TOTAL NON-CURRENT LIABILITIES - 113 - 94,942 176,709 271,764 ---------- ---------- --------- ----------- ---------- ---------- MINORITY INTEREST - 16,831 - 56,070 - 72,901 ---------- ---------- --------- ----------- ---------- ---------- TOTAL STOCKHOLDER'S EQUITY 15,226 231,690 142,700 117,904 97,467 604,987 ---------- ---------- --------- ----------- ---------- ---------- TOTAL LIABILITIES & EQUITY 109,704 337,172 383,300 343,626 455,931 1,629,733 ========== ========== ========= =========== ========== ========== Appendix C-7
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WASHINGTON GROUP INTERNATIONAL, INC. 2004 PLAN COMBINING BALANCE SHEETS (IN THOUSANDS) [Enlarge/Download Table] ---------- ---------- --------- ----------- ---------- ---------- 2004 2004 2004 2004 2004 2004 ---------- ---------- --------- ----------- ---------- ---------- Power Infra I/P(+P/C) Gov Serv Corporate ASSETS Total Total Total Total Total Total ----- ----- ----- ----- ----- ----- CURRENT ASSETS Cash and cash equivalents 2,623 (1,569) 81,100 8,433 50,523 141,110 Accounts receivable including retentions 83,527 97,282 159,600 70,349 81,416 492,174 Unbilled receivables 47,150 73,937 174,000 46,432 - 341,519 Inventories - - - 2,650 346 2,996 Refundable income taxes - - - - 3,722 3,722 Investments in joint ventures - 21,800 - 4,000 1,446 27,246 Deferred income taxes - - - - - - Other current assets - 11,842 10,100 2,769 4,144 28,855 ---------- ---------- --------- ----------- ---------- ---------- TOTAL CURRENT ASSETS 133,300 203,292 424,800 134,633 141,597 1,037,622 ---------- ---------- --------- ----------- ---------- ---------- INVESTMENTS AND OTHER ASSETS Marketable Securities - - - - - - Equity in subs & affiliates / investments in mining ventures - 67,509 - - - 67,509 Goodwill - - - 194,667 328,817 523,484 Deferred non-current income taxes - - - - - - Other non-current assets - 381 - 12,817 5,249 18,447 ---------- ---------- --------- ----------- ---------- ---------- TOTAL INVESTMENTS AND OTHER ASSETS - 67,890 - 207,484 334,066 609,440 ---------- ---------- --------- ----------- ---------- ---------- PROPERTY AND EQUIPMENT, NET 4,278 93,317 15,400 5,652 12,120 130,767 ---------- ---------- --------- ----------- ---------- ---------- TOTAL ASSETS 137,578 364,499 440,200 347,769 487,783 1,777,829 ========== ========== ========= =========== ========== ========== LIABILITIES & STOCKHOLDERS' EQUITY Current portion of long-term debt - - - - - - Accounts and subcontracts payable 76,344 55,845 121,300 31,775 27,311 312,575 Billings in excess of cost 9,500 21,498 103,600 10,877 17,787 163,262 Estimated costs to complete 10,000 1,957 16,300 20,808 - 49,065 Accrued salaries, wages and benefits 14,500 10,125 12,700 13,133 54,191 104,649 Income taxes payable - 1,624 - - - 1,624 Accrued liabilities 3,400 3,727 - 6,029 72,466 85,622 ---------- ---------- --------- ----------- ---------- ---------- TOTAL CURRENT LIABILITIES 113,744 94,776 253,900 82,622 171,755 716,797 ---------- ---------- --------- ----------- ---------- ---------- NON-CURRENT LIABILITIES Revolving working capital facility - - - - - - Accrued workers' compensation - - - 13 55,777 55,790 Pension, def. comp. & post-ret. benefit obligations - - - 86,350 24,752 111,102 Environmental liabilities - - - 332 3,975 4,307 Deferred income taxes - - - - 111,948 111,948 Other non-current liabilities - 113 - 7,476 8,641 16,230 ---------- ---------- --------- ----------- ---------- ---------- TOTAL NON-CURRENT LIABILITIES - 113 - 94,171 205,093 299,377 ---------- ---------- --------- ----------- ---------- ---------- MINORITY INTEREST - 22,893 - 50,938 - 73,831 ---------- ---------- --------- ----------- ---------- ---------- TOTAL STOCKHOLDER'S EQUITY 23,834 246,717 186,300 120,038 110,935 687,824 ---------- ---------- --------- ----------- ---------- ---------- TOTAL LIABILITIES & EQUITY 137,578 364,499 440,200 347,769 487,783 1,777,829 ========== ========== ========= =========== ========== ========== Appendix C-8
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WASHINGTON GROUP INTERNATIONAL, INC. BUSINESS PLAN POWER BALANCE SHEETS (IN THOUSANDS) [Enlarge/Download Table] --------- --------- --------- --------- 2001 2002 2003 2004 --------- --------- --------- --------- ASSETS Total Total Total Total ----- ----- ----- ----- CURRENT ASSETS Cash and cash equivalents 2,623 2,623 2,623 2,623 Accounts receivable including retentions 45,189 56,947 66,322 83,527 Unbilled receivables 20,929 28,821 35,481 47,150 Inventories - - - - Refundable income taxes - - - - Investments in joint ventures - - - - Deferred income taxes - - - - Other current assets - - - - --------- --------- --------- --------- TOTAL CURRENT ASSETS 68,741 88,391 104,426 133,300 --------- --------- --------- --------- INVESTMENTS AND OTHER ASSETS Marketable Securities - - - - Equity in subs & affiliates / investments in mining ventures - - - - Goodwill - - - - Deferred non-current income taxes - - - - Other non-current assets - - - - --------- --------- --------- --------- TOTAL INVESTMENTS AND OTHER ASSETS - - - - --------- --------- --------- --------- PROPERTY AND EQUIPMENT, NET 7,389 6,279 5,278 4,278 --------- --------- --------- --------- TOTAL ASSETS 76,130 94,670 109,704 137,578 ========= ========= ========= ========= LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt - - - - Accounts and subcontracts payable 30,244 47,082 57,578 76,344 Billings in excess of cost 7,000 8,500 9,000 9,500 Estimated costs to complete 11,000 10,000 10,000 10,000 Accrued salaries, wages and benefits 11,000 12,500 13,500 14,500 Income taxes payable - - - - Accrued liabilities 6,900 5,400 4,400 3,400 --------- --------- --------- --------- TOTAL CURRENT LIABILITIES 66,144 83,482 94,478 113,744 --------- --------- --------- --------- NON-CURRENT LIABILITIES Revolving working capital facility - - - - Accrued workers' compensation - - - - Pension, def. comp. & post-ret. benefit obligations - - - - Environmental liabilities - - - - Deferred income taxes - - - - Other non-current liabilities - - - - --------- --------- --------- --------- TOTAL NON-CURRENT LIABILITIES - - - - MINORITY INTEREST - - - - TOTAL STOCKHOLDER'S EQUITY 9,986 11,188 15,226 23,834 --------- --------- --------- --------- TOTAL LIABILITIES & EQUITY 76,130 94,670 109,704 137,578 ========= ========= ========= ========= Appendix C-9
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WASHINGTON GROUP INTERNATIONAL, INC. BUSINESS PLAN INFRASTRUCTURE & MINING BALANCE SHEETS (IN THOUSANDS) [Enlarge/Download Table] --------- --------- --------- --------- 2001 2002 2003 2004 --------- --------- --------- --------- ASSETS Total Total Total Total ----- ----- ----- ----- CURRENT ASSETS Cash and cash equivalents 11,707 5,803 (1,609) (1,569) Accounts receivable including retentions 127,539 89,808 88,385 97,282 Unbilled receivables 82,391 53,204 51,415 73,937 Inventories - - - - Refundable income taxes - - - - Investments in joint ventures 44,327 34,277 19,200 21,800 Deferred income taxes - - - - Other current assets 16,151 10,349 11,282 11,842 --------- --------- --------- --------- TOTAL CURRENT ASSETS 282,115 193,441 168,673 203,292 --------- --------- --------- --------- INVESTMENTS AND OTHER ASSETS Marketable Securities - - - - Equity in subs & affiliates / investments in mining ventures 76,974 83,809 78,909 67,509 Goodwill 746 476 207 - Deferred non-current income taxes - - - - Other non-current assets 381 381 381 381 --------- --------- --------- --------- TOTAL INVESTMENTS AND OTHER ASSETS 78,101 84,666 79,497 67,890 --------- --------- --------- --------- PROPERTY AND EQUIPMENT, NET 158,399 97,761 89,002 93,317 --------- --------- --------- --------- TOTAL ASSETS 518,615 375,868 337,172 364,499 ========= ========= ========= ========= LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt - - - - Accounts and subcontracts payable 59,229 54,907 50,204 55,845 Billings in excess of cost 170,952 26,881 22,473 21,498 Estimated costs to complete 4,485 1,933 1,948 1,957 Accrued salaries, wages and benefits 12,083 11,843 8,916 10,125 Income taxes payable 429 1,595 1,600 1,624 Accrued liabilities (2,920) (3,518) 3,397 3,727 --------- --------- --------- --------- TOTAL CURRENT LIABILITIES 244,258 93,641 88,538 94,776 --------- --------- --------- --------- NON-CURRENT LIABILITIES Revolving working capital facility - - - - Accrued workers' compensation - - - - Pension, def. comp. & post-ret. benefit obligations - - - - Environmental liabilities - - - - Deferred income taxes - - - - Other non-current liabilities 1,129 163 113 113 --------- --------- --------- --------- TOTAL NON-CURRENT LIABILITIES 1,129 163 113 113 MINORITY INTEREST 14,457 11,171 16,831 22,893 TOTAL STOCKHOLDER'S EQUITY 258,771 270,893 231,690 246,717 --------- --------- --------- --------- TOTAL LIABILITIES & EQUITY 518,615 375,868 337,172 364,499 ========= ========= ========= ========= Appendix C-10
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WASHINGTON GROUP INTERNATIONAL, INC. BUSINESS PLAN INDUSTRIAL PROCESS BALANCE SHEETS (IN THOUSANDS) [Enlarge/Download Table] --------- --------- --------- --------- 2001 2002 2003 2004 --------- --------- --------- --------- ASSETS Total Total Total Total ----- ----- ----- ----- CURRENT ASSETS Cash and cash equivalents 8,307 (2,400) 36,200 81,100 Accounts receivable including retentions 144,318 147,200 153,800 159,600 Unbilled receivables 155,700 161,700 167,800 174,000 Inventories - - - - Refundable income taxes - - - - Investments in joint ventures - - - - Deferred income taxes - - - - Other current assets 22,208 10,100 10,100 10,100 --------- --------- --------- --------- TOTAL CURRENT ASSETS 330,533 316,600 367,900 424,800 --------- --------- --------- --------- INVESTMENTS AND OTHER ASSETS Marketable Securities - - - - Equity in subs & affiliates / investments in mining ventures - - - - Goodwill - - - - Deferred non-current income taxes - - - - Other non-current assets - - - - --------- --------- --------- --------- TOTAL INVESTMENTS AND OTHER ASSETS - - - - --------- --------- --------- --------- PROPERTY AND EQUIPMENT, NET 14,012 15,400 15,400 15,400 --------- --------- --------- --------- TOTAL ASSETS 344,545 332,000 383,300 440,200 ========= ========= ========= ========= LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt - - - - Accounts and subcontracts payable 111,752 104,500 114,300 121,300 Billings in excess of cost 145,134 93,300 97,300 103,600 Estimated costs to complete 16,300 16,300 16,300 16,300 Accrued salaries, wages and benefits 12,725 12,700 12,700 12,700 Income taxes payable - - - - Accrued liabilities - - - - --------- --------- --------- --------- TOTAL CURRENT LIABILITIES 285,911 226,800 240,600 253,900 --------- --------- --------- --------- NON-CURRENT LIABILITIES Revolving working capital facility - - - - Accrued workers' compensation - - - - Pension, def. comp. & post-ret. benefit obligations - - - - Environmental liabilities - - - - Deferred income taxes - - - - Other non-current liabilities - - - - --------- --------- --------- --------- TOTAL NON-CURRENT LIABILITIES - - - - MINORITY INTEREST - - - - TOTAL STOCKHOLDER'S EQUITY 58,634 105,200 142,700 186,300 --------- --------- --------- --------- TOTAL LIABILITIES & EQUITY 344,545 332,000 383,300 440,200 ========= ========= ========= ========= Appendix C-11
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WASHINGTON GROUP INTERNATIONAL, INC. BUSINESS PLAN GOVERNMENT BALANCE SHEETS (IN THOUSANDS) [Enlarge/Download Table] --------- --------- --------- --------- 2001 2002 2003 2004 --------- --------- --------- --------- ASSETS Total Total Total Total ----- ----- ----- ----- CURRENT ASSETS Cash and cash equivalents 11,291 8,230 8,378 8,433 Accounts receivable including retentions 86,394 65,502 63,638 70,349 Unbilled receivables 54,469 54,312 36,614 46,432 Inventories 2,650 2,800 2,700 2,650 Refundable income taxes - - - - Investments in joint ventures 1,022 1,150 2,500 4,000 Deferred income taxes - - - - Other current assets 2,828 2,411 2,745 2,769 --------- --------- --------- --------- TOTAL CURRENT ASSETS 158,654 134,405 116,575 134,633 --------- --------- --------- --------- INVESTMENTS AND OTHER ASSETS Marketable Securities - - - - Equity in subs & affiliates / investments in mining ventures - - - - Goodwill 235,671 222,003 208,335 194,667 Deferred non-current income taxes - - - - Other non-current assets 12,437 12,817 12,817 12,817 --------- --------- --------- --------- TOTAL INVESTMENTS AND OTHER ASSETS 248,108 234,820 221,152 207,484 --------- --------- --------- --------- PROPERTY AND EQUIPMENT, NET 7,248 6,324 5,899 5,652 --------- --------- --------- --------- TOTAL ASSETS 414,010 375,549 343,626 347,769 ========= ========= ========= ========= LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt - - - - Accounts and subcontracts payable 32,930 28,386 29,352 31,775 Billings in excess of cost 20,659 10,864 8,523 10,877 Estimated costs to complete 24,821 23,131 18,242 20,808 Accrued salaries, wages and benefits 9,124 11,183 12,317 13,133 Income taxes payable - - - - Accrued liabilities 8,061 4,655 6,276 6,029 --------- --------- --------- --------- TOTAL CURRENT LIABILITIES 95,595 78,219 74,710 82,622 --------- --------- --------- --------- NON-CURRENT LIABILITIES Revolving working capital facility - - - - Accrued workers' compensation 3,667 2,222 784 13 Pension, def. comp. & post-ret. benefit obligations 89,350 87,200 86,350 86,350 Environmental liabilities 325 332 332 332 Deferred income taxes - - - - Other non-current liabilities 7,908 7,565 7,476 7,476 --------- --------- --------- --------- TOTAL NON-CURRENT LIABILITIES 101,250 97,319 94,942 94,171 MINORITY INTEREST 64,548 57,710 56,070 50,938 TOTAL STOCKHOLDER'S EQUITY 152,617 142,301 117,904 120,038 --------- --------- --------- --------- TOTAL LIABILITIES & EQUITY 414,010 375,549 343,626 347,769 ========= ========= ========= ========= Appendix C-12
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WASHINGTON GROUP INTERNATIONAL, INC. BUSINESS PLAN CORPORATE BALANCE SHEETS (IN THOUSANDS) [Enlarge/Download Table] --------- --------- --------- --------- 2001 2002 2003 2004 --------- --------- --------- --------- ASSETS Total Total Total Total ----- ----- ----- ----- CURRENT ASSETS Cash and cash equivalents 44,755 61,170 66,712 50,523 Accounts receivable including retentions 1,416 1,416 41,416 81,416 Unbilled receivables - - - - Inventories 346 346 346 346 Refundable income taxes 3,722 3,722 3,722 3,722 Investments in joint ventures 1,446 1,446 1,446 1,446 Deferred income taxes - - - - Other current assets 40,096 4,144 4,144 4,144 --------- --------- --------- --------- 91,781 72,244 117,786 141,597 --------- --------- --------- --------- INVESTMENTS AND OTHER ASSETS Marketable Securities - - - - Equity in subs & affiliates / investments in mining ventures - - - - Goodwill 287,067 301,005 314,942 328,817 Deferred non-current income taxes - - - - Other non-current assets 5,249 16,916 11,083 5,249 --------- --------- --------- --------- TOTAL INVESTMENTS AND OTHER ASSETS 292,316 317,921 326,025 334,066 --------- --------- --------- --------- PROPERTY AND EQUIPMENT, NET 11,310 11,934 12,120 12,120 --------- --------- --------- --------- TOTAL ASSETS 395,407 402,099 455,931 487,783 ========= ========= ========= ========= LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt - - - - Accounts and subcontracts payable 27,311 27,311 27,311 27,311 Billings in excess of cost 17,787 17,787 17,787 17,787 Estimated costs to complete - - - - Accrued salaries, wages and benefits 54,191 54,191 54,191 54,191 Income taxes payable - - - - Accrued liabilities 101,633 92,466 82,466 72,466 --------- --------- --------- --------- TOTAL CURRENT LIABILITIES 200,922 191,755 181,755 171,755 --------- --------- --------- --------- NON-CURRENT LIABILITIES Revolving working capital facility 50,000 45,000 - - Accrued workers' compensation 52,125 53,565 55,005 55,777 Pension, def. comp. & post-ret. benefit obligations 24,752 24,752 24,752 24,752 Environmental liabilities 3,975 3,975 3,975 3,975 Deferred income taxes 35,000 59,955 84,336 111,948 Other non-current liabilities 8,641 8,641 8,641 8,641 --------- --------- --------- --------- TOTAL NON-CURRENT LIABILITIES 174,493 195,888 176,709 205,093 MINORITY INTEREST - - - - TOTAL STOCKHOLDER'S EQUITY 19,992 14,456 97,467 110,935 --------- --------- --------- --------- TOTAL LIABILITIES & EQUITY 395,407 402,099 455,931 487,783 ========= ========= ========= ========= Appendix C-13
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WASHINGTON GROUP INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOW (IN MILLIONS OF DOLLARS) [Enlarge/Download Table] ------------ ------------ ------------ 2002 2003 2004 ------------ ------------ ------------ Operating activities Net Income 44.0 60.9 82.8 Depreciation 63.5 43.1 33.4 Goodwill amortization - - - Change in working capital components (95.4) (27.2) (96.7) Other (7.5) 38.2 45.7 ------------ ------------ ------------ Cash provided by operations 4.6 115.1 65.2 ------------ ------------ ------------ Investing activities Property and equipment additions (43.2) (38.2) (36.4) Property and equipment disposals 40.3 5.1 - ------------ ------------ ------------ Cash provided by investing activities (2.9) (33.1) (36.4) ------------ ------------ ------------ Financing activities Net borrowing/(repayment) on credit facility (5.0) (45.0) - ------------ ------------ ------------ Cash provided by financing activities (5.0) (45.0) - ------------ ------------ ------------ Increase (decrease) in cash (3.3) 37.0 28.8 Beginning cash balance 78.7 75.4 112.3 ------------ ------------ ------------ Ending cash balance 75.4 112.3 141.1 ============ ============ ============ Note: Net income of Groups includes the effect of cash transfers to and from Corporate Appendix C-14
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WASHINGTON GROUP INTERNATIONAL, INC. 2002 PLAN COMBINING STATEMENTS OF CASH FLOW (IN MILLIONS OF DOLLARS) [Enlarge/Download Table] ---------- ---------- --------- ----------- ---------- ---------- 2002 2002 2002 2002 2002 2002 ---------- ---------- --------- ----------- ---------- ---------- Power Infra I/P(+P/C) Gov Serv Corporate Total Total Total Total Total Total ----- ----- ----- ----- ----- ----- Operating activities Net Income 10.1 84.7 32.3 52.3 (135.4) 44.0 Depreciation 1.1 53.1 4.5 1.8 3.0 63.5 Goodwill amortization - 0.3 - 13.7 (13.9) - Recognition of normalized profit - (29.2) (3.0) (3.5) (35.7) Change in working capital components (2.3) (38.6) (52.9) 7.3 26.8 (59.7) Other - (11.0) - (11.2) 14.7 (7.5) ---------- ---------- --------- ----------- ---------- ---------- Cash provided by operations 8.9 59.2 (19.1) 60.4 (104.8) 4.6 ---------- ---------- --------- ----------- ---------- ---------- Investing activities Property and equipment additions - (32.8) (5.9) (0.9) (3.6) (43.2) Property and equipment disposals - 40.3 - - - 40.3 ---------- ---------- --------- ----------- ---------- ---------- Cash provided by investing activities - 7.5 (5.9) (0.9) (3.6) (2.9) ---------- ---------- --------- ----------- ---------- ---------- Financing activities Net borrowing/(repayment) on credit facility - - - - (5.0) (5.0) Net inter Group/Corporate cash transfers (8.9) (72.6) 14.3 (62.6) 129.8 - ---------- ---------- --------- ----------- ---------- ---------- Cash provided by financing activities (8.9) (72.6) 14.3 (62.6) 124.8 (5.0) ---------- ---------- --------- ----------- ---------- ---------- Increase (decrease) in cash (0.0) (5.9) (10.7) (3.1) 16.4 (3.3) Beginning cash balance 2.6 11.7 8.3 11.3 44.8 78.7 ---------- ---------- --------- ----------- ---------- ---------- Ending cash balance 2.6 5.8 (2.4) 8.2 61.1 75.4 ========== ========== ========= =========== ========== ========== (1) Group "net income" is gross profit as presented in the statements of operations. (2) Corporate net income includes all components of net income other than Group gross profit (ie: Corporate G&A, other income and expense, interest expense, income taxes and minority interest). (3) "Net inter group/corporate cash transfers" are reflected as "financing activities." Appendix C-15
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WASHINGTON GROUP INTERNATIONAL, INC. 2003 PLAN COMBINING STATEMENTS OF CASH FLOW (IN MILLIONS OF DOLLARS) [Enlarge/Download Table] ---------- ---------- --------- ----------- ---------- ---------- 2003 2003 2003 2003 2003 2003 ---------- ---------- --------- ----------- ---------- ---------- Power Infra I/P(+P/C) Gov Serv Corporate Total Total Total Total Total Total ----- ----- ----- ----- ----- ----- Operating activities Net Income 20.3 67.6 37.4 47.8 (112.2) 60.9 Depreciation 1.0 33.6 4.0 1.5 3.0 43.1 Goodwill amortization - 0.3 - 13.7 (13.9) - Recognition of normalized profit - 0.8 - - - 0.8 Change in working capital components (5.0) 11.5 1.1 14.5 (50.0) (28.0) Other - 10.5 (4.0) 31.7 38.2 ---------- ---------- --------- ----------- ---------- ---------- Cash provided by operations 16.3 124.2 42.5 73.5 (141.4) 115.1 ---------- ---------- --------- ----------- ---------- ---------- Investing activities Property and equipment additions - (29.9) (4.0) (1.1) (3.2) (38.2) Property and equipment disposals - 5.1 - - - 5.1 ---------- ---------- --------- ----------- ---------- ---------- Cash provided by investing activities - (24.8) (4.0) (1.1) (3.2) (33.1) ---------- ---------- --------- ----------- ---------- ---------- Financing activities Net borrowing/(repayment) on credit facility - - - - (45.0) (45.0) Net inter Group/Corporate cash transfers (16.3) (106.9) 0.1 (72.1) 195.2 - ---------- ---------- --------- ----------- ---------- ---------- Cash provided by financing activities (16.3) (106.9) 0.1 (72.1) 150.2 (45.0) ---------- ---------- --------- ----------- ---------- ---------- Increase (decrease) in cash (0.0) (7.5) 38.6 0.3 5.6 37.0 Beginning cash balance 2.6 5.8 (2.4) 8.2 61.1 75.4 ---------- ---------- --------- ----------- ---------- ---------- Ending cash balance 2.6 (1.6) 36.2 8.4 66.7 112.3 ========== ========== ========= =========== ========== ========== (1) Group "net income" is gross profit as presented in the statements of operations. (2) Corporate net income includes all components of net income other than Group gross profit (ie: Corporate G&A, other income and expense, interest expense, income taxes and minority interest). (3) "Net inter group/corporate cash transfers" are reflected as "financing activities." Appendix C-16
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WASHINGTON GROUP INTERNATIONAL, INC. 2004 PLAN COMBINING STATEMENTS OF CASH FLOW (IN MILLIONS OF DOLLARS) [Enlarge/Download Table] ---------- ---------- --------- ----------- ---------- ---------- 2004 2004 2004 2004 2004 2004 ---------- ---------- --------- ----------- ---------- ---------- Power Infra I/P(+P/C) Gov Serv Corporate Total Total Total Total Total Total ----- ----- ----- ----- ----- ----- Operating activities Net Income 36.9 77.3 43.6 50.7 (125.7) 82.8 Depreciation 1.0 24.1 4.0 1.3 3.0 33.4 Goodwill amortization - 0.2 - 13.6 (13.8) - Recognition of normalized profit - - - - - - Change in working capital components (9.6) (28.3) 1.3 (10.1) (50.0) (96.7) Other - 17.4 - (5.9) 34.2 45.7 ---------- ---------- --------- ----------- ---------- ---------- Cash provided by operations 28.3 90.7 48.9 49.6 (152.3) 65.2 ---------- ---------- --------- ----------- ---------- ---------- Investing activities Property and equipment additions - (28.4) (4.0) (1.0) (3.0) (36.4) Property and equipment disposals - - - - - - ---------- ---------- --------- ----------- ---------- ---------- Cash provided by investing activities - (28.4) (4.0) (1.0) (3.0) (36.4) ---------- ---------- --------- ----------- ---------- ---------- Financing activities Net borrowing/(repayment) on credit facility - - - - - - Net inter Group/Corporate cash transfers (28.3) (62.3) - (48.6) 139.2 - ---------- ---------- --------- ----------- ---------- ---------- Cash provided by financing activities (28.3) (62.3) - (48.6) 139.2 - ---------- ---------- --------- ----------- ---------- ---------- Increase (decrease) in cash (0.0) - 44.9 (0.0) (16.1) 28.8 Beginning cash balance 2.6 (1.6) 36.2 8.4 66.7 112.3 ---------- ---------- --------- ----------- ---------- ---------- Ending cash balance 2.6 (1.6) 81.1 8.4 50.7 141.2 ========== ========== ========= =========== ========== ========== (1) Group "net income" is gross profit as presented in the statements of operations. (2) Corporate net income includes all components of net income other than Group gross profit (ie: Corporate G&A, other income and expense, interest expense, income taxes and minority interest). (3) "Net inter group/corporate cash transfers" are reflected as "financing activities." Appendix C-17
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APPENDIX D RAYTHEON'S STATEMENT CONCERNING ITS DISPUTES WITH THE DEBTORS
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===================================================================== The Following Statement was DRAFTED by RAYTHEON COMPANY. The Debtors dispute virtually all factual and legal assertions made by Raytheon. Nothing herein is, or shall be, construed, as an admission, waiver or consent of any kind by the Debtors ===================================================================== RAYTHEON"S BRIEF SUMMARY OF THE DISPUTES BETWEEN IT AND THE DEBTORS ABSENCE OF "FRAUD" The Debtors, in their Disclosure Statement and other documents and public statements, have described the various claims that they have asserted against Raytheon, including allegations based on "fraud." Raytheon vigorously disputes the Debtors" claims. There was no "fraud" in the sale of Raytheon"s E&C business to WGI. This transaction was consummated after months of detailed due diligence and intense negotiations by the Debtors and a sophisticated team of advisors, including Credit Suisse First Boston, David Batchelder, Jones Day and Arthur Anderson. Coming on the heels of years of publicly-disclosed deterioration in the RE&C business which continued into the sale period, the RE&C sale was an arms-length, fully-disclosed, commercial transaction initiated by the Debtors. Their extensive due diligence included: - Sending teams to a comprehensive data room for extended periods of time during the period from October 1999 to April 2000; - All hands meetings in October 1999 and March 2000 with product line managers, members of senior corporate staff and project managers; - Detailed financial review in March 2000 with senior management of the RE&C Businesses, including a detailed project review of every major project and a review of the first quarter outlook; - Site visits; - Interviews with product line managers and the project managers for certain major projects; and - Detailed project reviews with senior management of the RE&C Businesses (including management that would become WGI employees within a week), immediately before the closing of the sale to WGI. WGI used information obtained by it during the due diligence period to negotiate more favorable terms under the SPA - which went through more than 20 iterations - including a reduction in the total compensation to be paid Raytheon of at least $338 million and the granting of other significant value to WGI. RAYTHEON CLAIMS AGAINST WGI. Under the terms of the SPA and related agreements, Raytheon and RECI have significant outstanding claims against WGI which render them, collectively, the estate"s largest unsecured creditor. These include: GUARANTEED PROJECT CLAIMS. Under the terms of the SPA, Raytheon and RECI left in place certain guarantees, letters of credit and surety bonds relating to uncompleted projects (referred to in the SPA as "SUPPORT AGREEMENTS"), and WGI is required to make full cash reimbursement to Raytheon for any amounts required to be paid by either Raytheon Seller under the Support Agreements. THIS REIMBURSEMENT OBLIGATION BY ITS TERMS IS NOT SUBJECT TO ANY RIGHT OF SET-OFF OR DEFENSE TO PAYMENT. In addition, Raytheon and RECI have common law and equitable rights as a performing surety to seek reimbursement from the applicable WGI subsidiary as the defaulting contractor for any payments made under the Support Agreements. Appendix D-1
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Raytheon estimates that its cash costs required to complete certain projects abandoned by the Debtors will aggregate between $450 million to $700 million and that its estimated cash exposure for the remaining projects subject to the Support Agreements could be as high as $125 million. These numbers are subject to adjustment. Claims arising from draws on certain Raytheon letters of credit currently are estimated to represent in excess of $25.6 million in the aggregate. The actual exposure of Raytheon and RECI will also be impacted by performance on the Ilijan and Red Oak projects. RETAINED CLAIMS. Raytheon expects to make a claim of approximately $143 million in connection with certain "Retained Claims," as defined in the SPA. In the event that WGI does not fulfill its obligations with respect to the Retained Claims, Raytheon will have claims against WGI for breach of the SPA. INDEMNITY RIGHTS. Raytheon has additional indemnity claims against WGI arising from provisions of the SPA. While it is too early to ascertain the extent of these claims, Raytheon is aware of several pre-petition and post-petition breaches by WGI that could result in significant claims against the Debtors by Raytheon. PURCHASE PRICE ADJUSTMENT PROCESS. TERMS OF SPA. Section 3.3 of the SPA provides for a purchase price adjustment process based on the "Adjusted Non-Current Net Assets" and "Adjusted Net Working Capital" of the RE&C Businesses as of April 30, 2000. These adjustments to the purchase price are required to be made based on specific non-GAAP adjustments and methodologies outlined in Section 3.3 and SCHEDULE 3.3(a) of the SPA. These specific non-GAAP adjustments and methodologies were implemented and agreed to by the parties in order to implement the parties' agreement that this was a deal with (i) extensive due diligence, (ii) limited representations, (iii) otherwise on an "as is" basis, and (iv) with WGI in general accepting the risk of changes in the RE&C Businesses after April 30, 2000. The purchase price adjustment process was not intended to circumvent this basic deal structure. CURRENT STATUS. Raytheon has submitted its proposed purchase price adjustments as required under Section 3.3 of the SPA, which shows that Raytheon is entitled to a purchase price adjustment in its favor of approximately $13 million. WGI has submitted its proposed adjustments to the purchase price, and in this submission, WGI claims that it is entitled to a purchase price adjustment of approximately $469 million. Raytheon believes that, in preparing WGI's objections, WGI ignored most of the key ground rules set forth in Section 3.3 and SCHEDULE 3.3(a) of the SPA, including the ground rules intended to limit the effect of changes in the RE&C Businesses after April 30, 2000. The purchase price adjustment process is still pending, and Raytheon believes that this purchase price adjustment process could be lengthy, including any related appeals. ADDITIONAL CONTRACTUAL PROVISIONS Raytheon believes that the parties" disputes must be evaluated in light of the complete SPA, including provisions limiting the liability of Raytheon and the remedies of WGI. In particular, Raytheon directs interested parties to Sections 13.8 and 16.3 of that agreement. To obtain a complete copy of the SPA, exclusive of schedules and exhibits, from Raytheon please contact: Andrew J. Gallo, Esq. Bingham Dana LLP 150 Federal Street Boston, MA 02110 (617) 951-8000 BASED ON ALL OF THE FOREGOING, THE RAYTHEON PARTIES WILL BE A MAJOR NET CREDITOR OF WGI IN THE BANKRUPTCY REORGANIZATION, AND, THEREFORE, THERE WILL BE NO RECOVERY FOR CLASS 7 CREDITORS UNDER WGI'S CURRENT PLAN OF REORGANIZATION. Appendix D-2
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Appendix D-3
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APPENDIX E CURRENT SCHEDULE OF CRITICAL VENDOR CLAIMS PAID OR TO BE PAID DURING THE CHAPTER 11 CASES
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[Enlarge/Download Table] WASHINGTON GROUP INTERNATIONAL, INC. / PRE-PETITION PAYMENTS AUTHORIZED BY COURT ORDER ---------------------------------------------------------------------------------------------------------------------------------- DISBURSEMENT DATE GROUP LOCATION CONTROL NUMBER VENDOR ---------------------------------------------------------------------------------------------------------------------------------- 25-Jul-01 I&M San Roque 10000168 Ishikawajima-Harima Heavy Industries 24-Jul-01 I&M BHO 47060778 Rivera Masonry 23-Jul-01 I&M BHO 1163891 Williams Communications 23-Jul-01 I&M BHO 10012010 Sandex Inc. 23-Jul-01 I&M BHO 47060779 Rebar International Inc. 23-Jul-01 I&M BHO 47060784 Nossman Gunther 23-Jul-01 I&M BHO 48008959 Moderne Cabinets 23-Jul-01 I&M BHO 47060775 McStrut Seismic Systems 23-Jul-01 I&M BHO 48008958 Liberty Electric 23-Jul-01 I&M BHO 10012012 Las Vegas Toilet Rental 23-Jul-01 I&M BHO 48008957 Kendall Painting 23-Jul-01 I&M BHO 48008956 Kalispell Overhead Door 23-Jul-01 I/P BHO 1163890 Idaho Sand & Gravel 23-Jul-01 I&M BHO 10012011 Hansen Aggregates 23-Jul-01 GOVT BHO 1164316 Hamp's Construction LLC 23-Jul-01 I&M BHO 10012009 Great West Surveying 23-Jul-01 I&M BHO 48008960 GMT Consultants 23-Jul-01 I&M BHO 47060777 Diversified Concrete 23-Jul-01 I&M BHO 48008955 Della Silva Concrete 23-Jul-01 I&M BHO 48008954 Creative Fuller Painting 23-Jul-01 I&M BHO 48008953 Chuck Jenne Masonry 23-Jul-01 I&M BHO 47060776 Blindheim Co. 23-Jul-01 I&M BHO 48008952 Big Sky Plumbing 23-Jul-01 I&M BHO 47060774 Applied Professional Services 23-Jul-01 I&M BHO 48008951 American General Contracting 20-Jul-01 I&M Infra Svcs 12134 WILLIAMS COMMUNICATIONS 20-Jul-01 P&C TRAC 1511172 Western Int'l 20-Jul-01 I/P 3397 53101 Western Exterminator 20-Jul-01 I/P 7278 53101 Western Exterminator 20-Jul-01 GOVT Cape-TRAC 5703 USA HOIST 20-Jul-01 P&C TRAC 1511171 Transo 20-Jul-01 I/P 4837 - Monsanto 670032, 646776 Siemens Building Technologies 20-Jul-01 I/P 3397 37413, 37412 Sabah International 20-Jul-01 I/P 7278 37413, 37412 Sabah International 20-Jul-01 I/P 4837 - Monsanto 4812 Rice Equipment Co. 20-Jul-01 I/P 4837 - Monsanto 464586 Reis Environmental 20-Jul-01 GOVT Cape-TRAC 5698 QUALICO STEEL 20-Jul-01 I/P 7278 3994, 4474 Postal Supply Warehouse 20-Jul-01 I/P 7278 18023 Plant Escape, Inc. 20-Jul-01 GOVT Cape-TRAC 5696 PENINSULAR ENGINEERING 20-Jul-01 I/P 4837 - Monsanto 122200 Orkin Pest Control 20-Jul-01 I/P 4837 - Monsanto 72767, 78768 Orkin Exterminating ----------------------------------------------------------------------------------------------------------------------------- SALES, USE AND OTHER CRITICAL TRUST FUND MECHANICS FOREIGN TRADE TAXES UTILITIES LIENS VENDOR SHIPPING VENDOR TOTAL* ----------------------------------------------------------------------------------------------------------------------------- 227,943 227,943 8,437 8,437 32 32 29,944 29,944 22,840 22,840 27,606 27,606 135 135 1,853 1,853 20,857 20,857 1,255 1,255 1,646 1,646 317 317 25,379 25,379 328 328 87,710 87,710 5,852 5,852 760 760 27,381 27,381 296 296 1,900 1,900 4,150 4,150 111,344 111,344 124,203 124,203 2,772 2,772 3,685 3,685 734 734 2,312 2,312 1,420 1,420 (1,420) (1,420) 32,930 32,930 3,321 3,321 3,230 3,230 526 526 (526) (526) 2,172 2,172 50 50 95,526 95,526 267 267 565 565 174,873 174,873 1,212 1,212 1,095 1,095 *Negative Entries Indicate Subsequent Reversal of Authorization Page 1 of 362
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[Enlarge/Download Table] WASHINGTON GROUP INTERNATIONAL, INC. / PRE-PETITION PAYMENTS AUTHORIZED BY COURT ORDER ---------------------------------------------------------------------------------------------------------------------------------- DISBURSEMENT DATE GROUP LOCATION CONTROL NUMBER VENDOR ---------------------------------------------------------------------------------------------------------------------------------- 20-Jul-01 I/P 7278 36067 MRC Management LLC 20-Jul-01 P&C TRAC 1511170 Mitsubishi 20-Jul-01 I/P 7278 9701475-60 Mergenthaler 20-Jul-01 I/P 7278 414860501 Mechanical Service & Systems Inc. 20-Jul-01 POWER BHO 9990007784 LOVELLS 20-Jul-01 I/P BHO 1149958 LANDMARK PROMOTIONS 20-Jul-01 P&C TRAC 1511169 Incat 20-Jul-01 I/P 4837 - Monsanto MO2547T&M#66, MO254T&M#60 HTH Companies 20-Jul-01 I/P 3397 102095 Hoffman Media Systems 20-Jul-01 I/P 7278 102095 Hoffman Media Systems 20-Jul-01 I/P 4837 - Monsanto 15830a Hartman Walsh Painting Co. 20-Jul-01 P&C TRAC 1511168 Gordon 20-Jul-01 P&C TRAC 1511167 Geseaco 20-Jul-01 GOVT Oak Ridge-JTE C4848-4357 Edwards Supply Company, Inc 20-Jul-01 I/P 4837 - Monsanto 851295, 1200437 Crystal Clean 20-Jul-01 I/P 7278 458-189857, 458-019952 Aramark Uniform Services 20-Jul-01 I/P 4837 - Monsanto M011145 Aperture Technologies Inc. 20-Jul-01 P&C TRAC 1511166 Amosco 20-Jul-01 GOVT TRAC 21852-1613 AMERISTEEL 20-Jul-01 I/P 4837 - Monsanto 782032 Alltype Fire Protection Services 20-Jul-01 I/P 4837 - Monsanto 289 A&G Horticulture Services 19-Jul-01 I/P 7279 Timberline 53101 Western Exterminator 19-Jul-01 POWER Trac 07-182 Wahlco 19-Jul-01 I/P TRAC 24056 JOB 24056 VZ ENGINEERING CSP 19-Jul-01 I/P TRAC 22573 JOB 22573 TURABO TESTING INC 19-Jul-01 I/P TRAC 22573 JOB 22573 TRANSOCEANIC SHIPPING 19-Jul-01 I/P TRAC 23314 JOB 23314 TOMAS CUERDA INC 19-Jul-01 POWER Trac 07-180 Toltest 19-Jul-01 I/P TRAC 24052 JOB 24052 THE OFFICE SHOP 19-Jul-01 I/P TRAC 03481 JOB 03481 THE OFFICE SHOP 19-Jul-01 GOVT WS-Timberline 3589-047607 Sybron Chemicals 19-Jul-01 POWER Timberline 470904456 Stewarts 19-Jul-01 I/P TRAC 22573 JOB 22573 STERIS CORP 19-Jul-01 CORP BHO 1163434 STATE OF VIRGINIA 19-Jul-01 CORP BHO 1163436 STATE OF TEXAS 19-Jul-01 CORP BHO 1163435 STATE OF ARKANSAS 19-Jul-01 I/P TRAC 03474 JOB 03474 SIR SPEEDY 19-Jul-01 I/P TRAC 21862 JOB 21862 SAFECO 19-Jul-01 I/P 7280 Timberline 37413, 37412 Sabah International 19-Jul-01 I/P TRAC 22573 JOB 22573 RUSH INDUSTRIAL HARDWARE 19-Jul-01 I/P TRAC 22573 JOB 22573 ROGER ELECTRIC 19-Jul-01 GOVT WS-Timberline 3589-047585 REIS Environmental ----------------------------------------------------------------------------------------------------------------------------- SALES, USE AND OTHER CRITICAL TRUST FUND MECHANICS FOREIGN TRADE TAXES UTILITIES LIENS VENDOR SHIPPING VENDOR TOTAL* ----------------------------------------------------------------------------------------------------------------------------- 1,808 1,808 166,080 166,080 38,853 38,853 419 419 12,706 12,706 (528) (528) 706 706 8,676 8,676 295 295 (295) (295) 4,595 4,595 14,440 14,440 1,449 1,449 580 580 446 446 23 23 1,567 1,567 1,526 1,526 482 482 51 51 600 600 1,420 1,420 23,662 23,662 22,976 22,976 406 406 27,006 27,006 325 325 3,924 3,924 739 739 (4,065) (4,065) 208 208 40 40 45,000 45,000 16 16 423 423 2,070 2,070 420 420 35 35 526 526 30 30 98 98 439 439 *Negative Entries Indicate Subsequent Reversal of Authorization Page 2 of 362
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[Enlarge/Download Table] WASHINGTON GROUP INTERNATIONAL, INC. / PRE-PETITION PAYMENTS AUTHORIZED BY COURT ORDER ---------------------------------------------------------------------------------------------------------------------------------- DISBURSEMENT DATE GROUP LOCATION CONTROL NUMBER VENDOR ---------------------------------------------------------------------------------------------------------------------------------- 19-Jul-01 POWER Trac 07-178 RAM Industrial 19-Jul-01 GOVT WS-Timberline 3589-047604 PWSD #2, St Charles 19-Jul-01 I/P TRAC 24056 JOB 24056 POPULAR LEASING & RENTAL INC 19-Jul-01 I/P TRAC 22573 JOB 22573 PACKAGING CONTROLS INSPECTION 19-Jul-01 I/P RUST CONSTRUCTORS 10129203 NORTH CAROLINA 19-Jul-01 I/P TRAC 22573 JOB 22573 NEMAR TECHNOLOGY GROUP 19-Jul-01 POWER Trac 07-172 MI Mech. Insul. 19-Jul-01 I/P TRAC 21862 JOB 21862 Mc JUNKIN 19-Jul-01 I/P TRAC 24052 JOB 24052 MAR-LAND INDUSTRIAL CONTRACTORS 19-Jul-01 I/P TRAC 21860 JOB 21860 LABCORP 19-Jul-01 I/P TRAC 22573 JOB 22573 KINETICS SYSTEMS CARIBE INC 19-Jul-01 I/P BHO 1163279 INTERNATIONAL INDUSTRIAL CONTRACTING 19-Jul-01 I/P TRAC 24052 JOB 24052 INSTANT PRINT SHOP 19-Jul-01 POWER Trac 07-166 Inland Waters 19-Jul-01 I/P TRAC 22573 JOB 22573 INDUSTRIAL FITTINGS & VALVES 19-Jul-01 I/P TRAC 22573 JOB 22573 IMA NORTH AMERICA INC 19-Jul-01 I/P 7282 Timberline 102095 Hoffman Media Systems 19-Jul-01 POWER Trac 07-163 Hilti Inc 19-Jul-01 I/P TRAC 22566 JOB 22566 GOODS SERVICES REALTY 19-Jul-01 I/P TRAC 22573 JOB 22573 GIRTON MFG. CO INC 19-Jul-01 I/P TRAC 22573 JOB 22573 GIRTON MFG. CO INC 19-Jul-01 I/P TRAC 22573 JOB 22573 GIRTON MFG. CO INC 19-Jul-01 I/P TRAC 22573 JOB 22573 GIRARD MFG. CO INC 19-Jul-01 I/P 7281 Timberline 0138100-IN Future Packaging 19-Jul-01 I/P TRAC 22569 JOB 22569 FERRETERIA M. OTERO CLA, INC. 19-Jul-01 I/P TRAC 22573 JOB 22573 EXIDE 19-Jul-01 I/P TRAC 22573 JOB 22573 ENVIRO CONSULT INC 19-Jul-01 I/P TRAC 22573 JOB 22573 EMERY WORLDWIDE 19-Jul-01 I/P TRAC 22573 JOB 22573 EMERY WORLDWIDE 19-Jul-01 I/P TRAC 22573 JOB 22573 EMERY WORLDWIDE 19-Jul-01 I/P TRAC 22573 JOB 22573 EMERY WORLDWIDE 19-Jul-01 I/P TRAC 22573 JOB 22573 EMERY WORLDWIDE 19-Jul-01 I/P TRAC 22573 JOB 22573 EMERY WORLDWIDE 19-Jul-01 I/P TRAC 22573 JOB 22573 EMERY WORLDWIDE 19-Jul-01 I/P TRAC 22573 JOB 22573 EMERY WORLDWIDE 19-Jul-01 I/P TRAC 22573 JOB 22573 EMERY WORLDWIDE 19-Jul-01 GOVT WS-Timberline 3589-047614 Dynamic Computer 19-Jul-01 I/P TRAC 22566 JOB 22566 DOCUMENT COMPANY 19-Jul-01 POWER Timberline 470904478 Cutting Edge Services, Inc. 19-Jul-01 GOVT WS-Timberline 3589-047583 Construction Data Srv 19-Jul-01 I/P 7278 Timberline 5343, 5379 CIWA 19-Jul-01 I/P TRAC 24272 JOB 24272 BLUE PRINTS PLUS ----------------------------------------------------------------------------------------------------------------------------- SALES, USE AND OTHER CRITICAL TRUST FUND MECHANICS FOREIGN TRADE TAXES UTILITIES LIENS VENDOR SHIPPING VENDOR TOTAL* ----------------------------------------------------------------------------------------------------------------------------- 10,786 10,786 987 987 1,148 1,148 1,900 1,900 875 875 1,906 1,906 40,500 40,500 33 33 1,538 1,538 76 76 10,570 10,570 100,000 100,000 114 114 1,716 1,716 1,085 1,085 62,800 62,800 295 295 66 66 102 102 6,420 6,420 5,988 5,988 (3,327) (3,327) 25,447 25,447 1,064 1,064 30 30 809 809 605 605 21,731 21,731 9,598 9,598 7,572 7,572 2,927 2,927 1,797 1,797 1,580 1,580 633 633 377 377 350 350 254 254 34 34 37,949 37,949 1,083 1,083 2,449 2,449 77 77 *Negative Entries Indicate Subsequent Reversal of Authorization Page 3 of 362
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[Enlarge/Download Table] WASHINGTON GROUP INTERNATIONAL, INC. / PRE-PETITION PAYMENTS AUTHORIZED BY COURT ORDER ---------------------------------------------------------------------------------------------------------------------------------- DISBURSEMENT DATE GROUP LOCATION CONTROL NUMBER VENDOR ---------------------------------------------------------------------------------------------------------------------------------- 19-Jul-01 I/P RUST CONSTRUCTORS 10129201 BELL SOUTH 19-Jul-01 I/P TRAC 22566 JOB 22566 ART-DRAFT AUTHORITY 19-Jul-01 I/P TRAC 24056 JOB 24056 AIRBORNE EXPRESS 19-Jul-01 I/P TRAC 22573 JOB 22573 AEROTECH FILTRATION 18-Jul-01 I/P BHO 1163278 YELLOW CAB 18-Jul-01 CORP BHO 1163277 XEROX CORPORATION 18-Jul-01 GOVT BHO 1163275 WORLDCOM 18-Jul-01 I/P BHO 9990007744 WONG AND PARTNERS 18-Jul-01 GOVT Buckley-TRAC 5141123 Wolfpack 18-Jul-01 GOVT TRAC 21852-1602 WISE EL SANTO 18-Jul-01 I&M BHO 49017708 Western States 18-Jul-01 GOVT BHO 1163274 WESTERN CULTURAL RESOURCE MANAGEMENT 18-Jul-01 POWER TRAC 1921115 WEIR PUMPS LIMITED 18-Jul-01 I/P BHO 1163272 W E BOWERS INC 18-Jul-01 I/P BHO 1163271 VISA ADVISORS INC 18-Jul-01 CORP BHO 1163270 VERTEX INC 18-Jul-01 I&M BHO 49017707 Vallen Safety Corp 18-Jul-01 CORP BHO 1163266 UNTIED MESSAGING 18-Jul-01 I/P BHO 1163268 UNITED RENTALS INC 18-Jul-01 CORP BHO 1163267 UNITED MICRO DATA INC 18-Jul-01 POWER TRAC 1921114 TURTLE & HUGUES 18-Jul-01 GOVT TRAC 22556-0531 T-THERMAL COMPANY 18-Jul-01 GOVT TRAC 22556-0532 T-THERMAL COMPANY 18-Jul-01 I&M BHO 47060549 Triple R Heavy Haul 18-Jul-01 I&M BHO 10011974 Tranch Safety Equip 18-Jul-01 GOVT BHO 1163265 TOOL AND ANCHOR SUPPLY 18-Jul-01 I&M InfraSvcs 10724 TERRACON CONSULT. INC. 18-Jul-01 CORP BHO 1163263 TED DUMONT HVAC INC 18-Jul-01 I/P BHO 1163262 SUBURBAN IRRIGATION 18-Jul-01 I/P BHO 1163261 STRUCTURAL INTEGRITY ASSOCIATES 18-Jul-01 I&M BHO 10011965 Stewart and Sundell 18-Jul-01 I&M BHO 10011964 Steel Engineers 18-Jul-01 CORP BHO 1162725 STATE OF TENNESSEE (DEPT. OF REVENUE) 18-Jul-01 CORP BHO 1163041 STATE OF NEW JERSEY (DIVISION OF REVENUE) 18-Jul-01 CORP BHO 1162724 STATE OF DELAWARE (DIVISION OF REVENUE) 18-Jul-01 CORP BHO 600045 STATE OF DELAWARE (DIVISION OF REVENUE) 18-Jul-01 CORP BHO 1163259 SPRINT 18-Jul-01 I/P BHO 1163258 SOUTHWEST ENGINEERS 18-Jul-01 I&M InfraSvcs 10480 SOUTHERN CONNECTICUT GAS 18-Jul-01 I&M Makati 1360 Social Security System 18-Jul-01 I&M Makati 1360 Social Security System 18-Jul-01 I&M Makati 1345 Social Security System ----------------------------------------------------------------------------------------------------------------------------- SALES, USE AND OTHER CRITICAL TRUST FUND MECHANICS FOREIGN TRADE TAXES UTILITIES LIENS VENDOR SHIPPING VENDOR TOTAL* ----------------------------------------------------------------------------------------------------------------------------- 336 336 242 242 41 41 44,000 44,000 30 30 433 433 19 19 20,371 20,371 16,575 16,575 5,882 5,882 3,495 3,495 1,250 1,250 19,112 19,112 7,974 7,974 103 103 127 127 70 70 14,137 14,137 315 315 1,696 1,696 58,838 58,838 152 152 96 96 4,500 4,500 1,970 1,970 1,297 1,297 26,071 26,071 200 200 1,031 1,031 1,000 1,000 41,304 41,304 62,866 62,866 47 47 23,045 23,045 14,421 14,421 6 6 63 63 216 216 4 4 (28) (28) (36) (36) (38) (38) *Negative Entries Indicate Subsequent Reversal of Authorization Page 4 of 362
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[Enlarge/Download Table] WASHINGTON GROUP INTERNATIONAL, INC. / PRE-PETITION PAYMENTS AUTHORIZED BY COURT ORDER ---------------------------------------------------------------------------------------------------------------------------------- DISBURSEMENT DATE GROUP LOCATION CONTROL NUMBER VENDOR ---------------------------------------------------------------------------------------------------------------------------------- 18-Jul-01 I&M Makati 1348 Social Security System 18-Jul-01 I/P BHO 1163257 SMI 18-Jul-01 POWER BHO 1163256 SINCLAIR MOVING AND STORAGE 18-Jul-01 I/P BHO 1163255 SHIRLEY PAINTING 18-Jul-01 GOVT TRAC 22561-0623 SCOTT SPECIALTY GASES 18-Jul-01 I/P BHO 1163254 SCHARDEIN AND ASSOCIATES 18-Jul-01 I&M BHO 10011973 Sandvick Equipment 18-Jul-01 I&M BHO 3000539 Rosemount 18-Jul-01 I&M InfraSvcs 1584 ROSEMARY BRENNAN CURTIN, 18-Jul-01 GOVT BHO 1163253 ROCKY MOUNTAIN MAIL DELIVERY 18-Jul-01 GOVT TRAC 21852-1601 ROBERTS BROTHERS 18-Jul-01 P&C BHO 1163252 RIDGWAYS 18-Jul-01 I&M BHO 10011972 Republic Silver State Disposal 18-Jul-01 I&M InfraSvcs 9641 REPRO IMAGE 18-Jul-01 GOVT TRAC 22561-0625 RELIZON COMPANY 18-Jul-01 GOVT BHO 1163250 REIS ENVIRONMENTAL INC 18-Jul-01 GOVT TRAC 22556-0521 RE POWELL DISTRIBUTING CO. 18-Jul-01 GOVT BHO 1163249 QWEST 18-Jul-01 I/P BHO 1163248 QUALITY METAL IMAGES INC 18-Jul-01 I/P BHO 1163247 PSI 18-Jul-01 I/P BHO 1163246 PRFC INC 18-Jul-01 CORP BHO 1163245 POTTING SHED INC 18-Jul-01 GOVT TRAC 22556-0529 PHYSIO CONTROLS 18-Jul-01 I&M Makati 1346 Philhealth 18-Jul-01 GOVT TRAC 22556-0525 PETERSON ELECTRIC 18-Jul-01 GOVT TRAC 22556-0530 PARAMOUNT SUPPLY COMPANY 18-Jul-01 I&M InfraSvcs 8484 OVE ARUP & PARTNERS 18-Jul-01 GOVT TRAC 22556-0535 OREGON STATE POLICE 18-Jul-01 I&M InfraSvcs 8284 ONE HOUR MOTOPHOTO 18-Jul-01 I&M InfraSvcs 7802 NINYO & MOORE 18-Jul-01 I/P BHO 1163242 NEXTEL PARTNERS 18-Jul-01 I/P BHO 1163240 NEXTEL COMMUNICATIONS 18-Jul-01 GOVT BHO 1163241 NEXTEL COMMUNICATIONS 18-Jul-01 I&M BHO 47060548 Nevada Power Co 18-Jul-01 I&M BHO 10011971 Nevada Power 18-Jul-01 GOVT TRAC 21852-1608 MORRISON CONSTRUCTION 18-Jul-01 POWER BHO 1163239 MORGAN LEWIS AND BOCKIUS 18-Jul-01 I&M San Roque 10000165 Monark Equipment Corporation 18-Jul-01 GOVT BHO 1162719 MILLER DRILLING CO 18-Jul-01 I/P BHO 1163238 MICHIGAN COFFEE AND VENDING 18-Jul-01 I&M San Roque 2400 MHE Dematic Phils Inc 18-Jul-01 I/P BHO 1163237 MERCANTILE CAPITAL LLC ----------------------------------------------------------------------------------------------------------------------------- SALES, USE AND OTHER CRITICAL TRUST FUND MECHANICS FOREIGN TRADE TAXES UTILITIES LIENS VENDOR SHIPPING VENDOR TOTAL* ----------------------------------------------------------------------------------------------------------------------------- (388) (388) 98 98 2,490 2,490 1,575 1,575 47 47 4,226 4,226 441 441 3,539 3,539 2,190 2,190 347 347 64 64 302 302 194 194 555 555 207 207 236 236 800 800 15 15 305 305 4,581 4,581 31,111 31,111 659 659 162 162 (7) (7) 4,270 4,270 20 20 64,746 64,746 1,688 1,688 17 17 55,912 55,912 842 842 2,310 2,310 455 455 118 118 337 337 141,153 141,153 35 35 3,380 3,380 20,528 20,528 21 21 2,316 2,316 351 351 *Negative Entries Indicate Subsequent Reversal of Authorization Page 5 of 362
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[Enlarge/Download Table] WASHINGTON GROUP INTERNATIONAL, INC. / PRE-PETITION PAYMENTS AUTHORIZED BY COURT ORDER ---------------------------------------------------------------------------------------------------------------------------------- DISBURSEMENT DATE GROUP LOCATION CONTROL NUMBER VENDOR ---------------------------------------------------------------------------------------------------------------------------------- 18-Jul-01 GOVT TRAC 21852-1611 MCMASTER CARR 18-Jul-01 I&M InfraSvcs 7482 MCE GROUP 18-Jul-01 I&M InfraSvcs 7294 MCCREEDY CONSULTING 18-Jul-01 I&M InfraSvcs 6385 MBI MEDIA 18-Jul-01 GOVT BHO 1163236 MATERIALS MANAGEMENT GROUP 18-Jul-01 I&M InfraSvcs 5651 LONG ISLAND RAILROAD 18-Jul-01 I/P BHO 1162718 LOBAR 18-Jul-01 I&M InfraSvcs 5489 LDO LIMITED 18-Jul-01 I&M BHO 10011969 Las Vegas Valley Water 18-Jul-01 I&M BHO 10011970 Las Vegas Valley Water 18-Jul-01 I&M BHO 10011967 Las Vegas Valley Water 18-Jul-01 I&M BHO 10011968 Las Vegas Valley Water 18-Jul-01 I/P BHO 1163234 LANDAUER INC 18-Jul-01 GOVT TRAC 22556-0537 LAB SAFETY SUPPLY 18-Jul-01 GOVT TRAC 22556-0536 LAB SAFETY SUPPLY 18-Jul-01 I&M San Roque 2399 JT Oil Phils Inc 18-Jul-01 I&M InfraSvcs 1777 JOHN CHANCE LAND SURVEYS, INC. 18-Jul-01 I/P BHO 1163233 JAY CHEVROLET 18-Jul-01 I/P BHO 1163232 JACOB BARON 18-Jul-01 I&M InfraSvcs 4465 IRON MOUNTAIN 18-Jul-01 I/P BHO 1163231 INTERTEK TESTING SERVICES 18-Jul-01 POWER BHO 1163230 INTERSTATE LOCKSMITH INC 18-Jul-01 I/P BHO 1163229 INTERNATIONAL SOS 18-Jul-01 I/P BHO 1163226 INTERGRAPH CORP 18-Jul-01 I/P BHO 1163227 INTERGRAPH CORP 18-Jul-01 I/P BHO 1163227 INTERGRAPH CORP 18-Jul-01 P&C BHO 1163228 INTERGRAPH CORP 18-Jul-01 I/P BHO 1163226 INTERGRAPH CORP 18-Jul-01 I&M InfraSvcs 4089 IKON OFFICE SOLUTIONS 18-Jul-01 I&M InfraSvcs 4005 IBI GROUP 18-Jul-01 I&M InfraSvcs 3928 HUMBOLDT ENGINEERING & 18-Jul-01 POWER TRAC 1921106 HITACHI 18-Jul-01 GOVT TRAC 22556-0524 HELLER & SONS 18-Jul-01 I&M Makati 1349 HDMF 18-Jul-01 CORP BHO 1163225 HAYSTACK SYSTEMS 18-Jul-01 I&M InfraSvcs 3532 HARDING ESE, INC 18-Jul-01 I&M InfraSvcs 3399 HANKARD ENGINEERING 18-Jul-01 GOVT BHO 1163223 GUARANTEE ELECTRICAL 18-Jul-01 GOVT BHO 1163224 GUARANTEE ELECTRICAL 18-Jul-01 I&M InfraSvcs 3377 GROUND ENGINEERING 18-Jul-01 I&M InfraSvcs 3352 GREENMAN-PEDERSEN, INC. 18-Jul-01 GOVT BHO 1163222 GRAYBAR ELECTRIC CO ----------------------------------------------------------------------------------------------------------------------------- SALES, USE AND OTHER CRITICAL TRUST FUND MECHANICS FOREIGN TRADE TAXES UTILITIES LIENS VENDOR SHIPPING VENDOR TOTAL* ----------------------------------------------------------------------------------------------------------------------------- 540 540 19,213 19,213 1,108 1,108 64 64 21,880 21,880 13,688 13,688 55,879 55,879 (14) (14) 1,052 1,052 242 242 16 16 6 6 1,060 1,060 90 90 (120) (120) 5,168 5,168 57,000 57,000 1,114 1,114 1,174 1,174 100 100 1,100 1,100 460 460 1,200 1,200 35,454 35,454 25,087 25,087 2,948 2,948 1,751 1,751 1,081 1,081 17 17 14,130 14,130 5,505 5,505 563,320 563,320 379 379 (8) (8) 3,050 3,050 47,577 47,577 1,074 1,074 1,630 1,630 937 937 50,156 50,156 8,470 8,470 3,068 3,068 *Negative Entries Indicate Subsequent Reversal of Authorization Page 6 of 362
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[Enlarge/Download Table] WASHINGTON GROUP INTERNATIONAL, INC. / PRE-PETITION PAYMENTS AUTHORIZED BY COURT ORDER ---------------------------------------------------------------------------------------------------------------------------------- DISBURSEMENT DATE GROUP LOCATION CONTROL NUMBER VENDOR ---------------------------------------------------------------------------------------------------------------------------------- 18-Jul-01 GOVT TRAC 21852-1612 GRAYBAR 18-Jul-01 GOVT TRAC 21852-1610 GRAYBAR 18-Jul-01 GOVT BHO 1163221 GLOBAL ENGINEERING DOCUMENTS 18-Jul-01 POWER TRAC 1161398 GEA 18-Jul-01 GOVT TRAC 21852-1603 GE SUPPLY 18-Jul-01 GOVT BHO 1163220 GE CAPITAL 18-Jul-01 I/P BHO 1163219 GCM CONSULTING SERVICES 18-Jul-01 GOVT BHO 1162720 FORTE SECURITY 18-Jul-01 POWER BHO 1163218 FEDERAL EXPRESS CORP 18-Jul-01 I/P BHO 1163218 FEDERAL EXPRESS CORP 18-Jul-01 GOVT BHO 1163217 FABICK TRACTOR CO 18-Jul-01 GOVT TRAC 22561-0624 EXCHANGE SUPPLY 18-Jul-01 I/P BHO 1163216 ENTIRE REPRODUCTIONS 18-Jul-01 I/P BHO 1163215 ENTERPRISE RENT-A-CAR 18-Jul-01 I&M InfraSvcs 2307 ENTERPRISE LEASING CO. 18-Jul-01 I&M InfraSvcs 2123 ECOLOGICAL DESIGN, INC 18-Jul-01 I&M InfraSvcs 2127 ECCO CONSULTING 18-Jul-01 GOVT TRAC 22556-0526 EAST OREGONIAN 18-Jul-01 GOVT TRAC 22556-0527 EAST OREGONIAN 18-Jul-01 GOVT TRAC 22556-0528 EAST OREGONIAN 18-Jul-01 I/P BHO 1146225 DUPONT FLOORING SYSTEMS 18-Jul-01 GOVT TRAC 21852-1604 DRAGO 18-Jul-01 I/P BHO 1146224 DOGGRELL PAINTING 18-Jul-01 I/P BHO 1163213 DAYTON BLUE PRINT CO 18-Jul-01 I&M BHO 49017706 CTC Analytical 18-Jul-01 POWER BHO 1163211 CORT FURNITURE RENTAL 18-Jul-01 I/P BHO 1163210 CONSUMERS ENERGY 18-Jul-01 I/P BHO 1163209 CONSORTIUM 18-Jul-01 GOVT TRAC 21852-1600 CONSOLIDATED PIPE 18-Jul-01 GOVT BHO 1163208 CONSOLIDATED ELECTRICAL 18-Jul-01 CORP BHO 1163207 COMPUTER TECHNOLOGY GROUP 18-Jul-01 CORP BHO 1163206 CISCO SYSTEMS 18-Jul-01 CORP BHO 1163205 CINGULAR WIRELESS 18-Jul-01 CORP BHO 1163204 CINGULAR WIRELESS 18-Jul-01 I&M InfraSvcs 1204 CHAUDHARY & ASSOC. INC. 18-Jul-01 I&M InfraSvcs 934 CH2M HILL 18-Jul-01 GOVT TRAC 22556-0523 CASCADE NUT AND BOLT 18-Jul-01 GOVT TRAC 21852-1609 CANNON CONTRACTING 18-Jul-01 I&M BHO 10011966 Boulder Auto 18-Jul-01 I/P BHO 1163202 BOCK AND CLARK LTD 18-Jul-01 GOVT TRAC 22556-0522 BLISS PRINTING AND COPY CENTER 18-Jul-01 GOVT TRAC 22556-0534 BLISS PRINTING AND COPY CENTER ----------------------------------------------------------------------------------------------------------------------------- SALES, USE AND OTHER CRITICAL TRUST FUND MECHANICS FOREIGN TRADE TAXES UTILITIES LIENS VENDOR SHIPPING VENDOR TOTAL* ----------------------------------------------------------------------------------------------------------------------------- 1,181 1,181 137 137 61 61 1,214,000 1,214,000 19,392 19,392 659 659 2,500 2,500 126 126 422 422 22 22 3,092 3,092 116 116 143 143 78 78 4,117 4,117 94 94 5,600 5,600 553 553 423 423 401 401 2,142 2,142 12 12 3,640 3,640 184 184 49 49 1,429 1,429 3 3 912 912 127 127 177 177 100 100 4,129 4,129 4,517 4,517 184 184 1,311 1,311 7,911 7,911 386 386 3,067 3,067 788 788 1,200 1,200 104 104 39 39 *Negative Entries Indicate Subsequent Reversal of Authorization Page 7 of 362
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[Enlarge/Download Table] WASHINGTON GROUP INTERNATIONAL, INC. / PRE-PETITION PAYMENTS AUTHORIZED BY COURT ORDER ----------------------------------------------------------------------------------------------------------------------------------- DISBURSEMENT DATE GROUP LOCATION CONTROL NUMBER VENDOR ----------------------------------------------------------------------------------------------------------------------------------- 18-Jul-01 GOVT TRAC 22556-0533 BLISS PRINTING AND COPY CENTER 18-Jul-01 I&M InfraSvcs 690 BIRD'S MOVING & STORAGE 18-Jul-01 I/P BHO 1163201 BIOMERIEUX COMMUNICATIONS 18-Jul-01 I/P BHO 1163198 BELLSOUTH 18-Jul-01 CORP BHO 1163199 BELLSOUTH 18-Jul-01 I/P BHO 1163200 BELLSOUTH 18-Jul-01 I&M InfraSvcs 565 BECK & BAIRD 18-Jul-01 POWER TRAC 1921110 BDT ENGINEERING 18-Jul-01 P&C BHO 1161814 BDP INTERNATIONAL INC 18-Jul-01 I/P BHO 9990007745 B AND M BUSINESS 7 CONSULTANCY 18-Jul-01 I&M InfraSvcs 2549 AT&T WIRELESS SERVICES 18-Jul-01 CORP BHO 1163185 AT AND T 18-Jul-01 CORP BHO 1163192 AT AND T 18-Jul-01 I/P BHO 1163194 AT AND T 18-Jul-01 POWER BHO 1163190 AT AND T 18-Jul-01 GOVT BHO 1163189 AT AND T 18-Jul-01 I/P BHO 1163193 AT AND T 18-Jul-01 I/P BHO 1163192 AT AND T 18-Jul-01 I/P BHO 1163193 AT AND T 18-Jul-01 CORP BHO 1163193 AT AND T 18-Jul-01 GOVT BHO 1163190 AT AND T 18-Jul-01 CORP BHO 1163197 AT AND T 18-Jul-01 CORP BHO 1163195 AT AND T 18-Jul-01 CORP BHO 1163187 AT AND T 18-Jul-01 I/P BHO 1163196 AT AND T 18-Jul-01 I/P BHO 1163186 AT AND T 18-Jul-01 I/P BHO 1163188 AT AND T 18-Jul-01 CORP BHO 1163191 AT AND T 18-Jul-01 I&M InfraSvcs 309 ASSOCIATED ENGINEERS,INC 18-Jul-01 GOVT BHO 1163184 ARVADA RENT ALLS INC 18-Jul-01 I&M InfraSvcs 413 ARU ENGINEERING 18-Jul-01 GOVT BHO 1163183 ARCUS DATA SECURITY INCORP 18-Jul-01 I/P BHO 1163182 ARCOM 18-Jul-01 I/P BHO 1163181 AMERITECH 18-Jul-01 I/P BHO 1163181 AMERITECH 18-Jul-01 GOVT TRAC 21852-1605 AMERISTEEL 18-Jul-01 GOVT TRAC 21852-1606 AMERISTEEL 18-Jul-01 GOVT TRAC 21852-1607 AMERISTEEL 18-Jul-01 GOVT TRAC 21852-1599 AMERICAN FIRE TECH 18-Jul-01 GOVT TRAC 21852-1598 AMERICAN FIRE TECH 18-Jul-01 I/P BHO 1163180 AMERICAN BLDG MAINTENANCE 18-Jul-01 POWER BHO 1161492 AMENITY RENTALS INC ----------------------------------------------------------------------------------------------------------------------------- SALES, USE AND OTHER CRITICAL TRUST FUND MECHANICS FOREIGN TRADE TAXES UTILITIES LIENS VENDOR SHIPPING VENDOR TOTAL* ----------------------------------------------------------------------------------------------------------------------------- 20 20 204 204 59 59 91,555 91,555 2,698 2,698 444 444 661 661 17,475 17,475 465 465 740 740 59 0 59 12,748 12,748 648 648 536 536 274 274 272 272 263 263 80 80 74 74 65 65 49 49 34 34 23 23 20 20 10 10 5 5 4 4 3 3 12,935 12,935 130 130 5,460 5,460 789 789 2,547 2,547 158 158 6 6 8,916 8,916 1,512 1,512 51 51 50,353 50,353 19,620 19,620 1,238 1,238 7,512 7,512 *Negative Entries Indicate Subsequent Reversal of Authorization Page 8 of 362
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[Enlarge/Download Table] WASHINGTON GROUP INTERNATIONAL, INC. / PRE-PETITION PAYMENTS AUTHORIZED BY COURT ORDER ----------------------------------------------------------------------------------------------------------------------------------- DISBURSEMENT DATE GROUP LOCATION CONTROL NUMBER VENDOR ----------------------------------------------------------------------------------------------------------------------------------- 18-Jul-01 I/P BHO 1163179 AIRGAS EAST 18-Jul-01 I/P BHO 1163177 AEA TECHNOLOGY 18-Jul-01 I/P BHO 1163176 AEA TECHNOLOGY 17-Jul-01 GOVT TRAC 22553-0488 WW GRAINGER 17-Jul-01 GOVT TRAC 22553-0486 WELSCO 17-Jul-01 I/P BHO 1157102 UNTIED PARCEL SERVICE 17-Jul-01 I&M BHO 3000536 Toshiba Intl 17-Jul-01 P&C BHO 1148200 TIMBERLINE PLASTICS 17-Jul-01 I&M Pomeroy 28012376 Sumitomo 17-Jul-01 I&M BHO 47060540 Stevedoring Services 17-Jul-01 I/P BHO 1146251 SHAMROCK GLASS CO 17-Jul-01 POWER TRAC 07-147 Sav's Ironworkers 17-Jul-01 I&M BHO 47017702 R and L Communications 17-Jul-01 I/P BHO 1162222 PROFESSIONAL RECORDS MANAGEMENT 17-Jul-01 POWER BHO 319402 PETER GRATRIX 17-Jul-01 GOVT TRAC 22553-0495 PERDUE COMPANY 17-Jul-01 GOVT TRAC 22553-0494 PERDUE COMPANY 17-Jul-01 GOVT TRAC 22553-0493 PERDUE COMPANY 17-Jul-01 GOVT TRAC 22553-0485 PERDUE COMPANY 17-Jul-01 I&M BHO 10011962 Nevada Ready Mix 17-Jul-01 I&M BHO 47060539 Justice and Assoc 17-Jul-01 GOVT TRAC 22553-0491 IBM PROJECT SUPPORT SERVICES 17-Jul-01 GOVT TRAC 22553-0490 HUGG & HALL EQUIP. RENT 17-Jul-01 POWER TRAC 07-145 Gem Industrial 17-Jul-01 POWER TRAC 07-148 Gem Industrial 17-Jul-01 I/P BHO 1162305 ECS ENGINEERING 17-Jul-01 I/P TRAC 5026592 Columbia Pipe 17-Jul-01 I&M BHO 10011961 Cobre Tire 17-Jul-01 GOVT TRAC 22553-0489 CENTURYTEL 17-Jul-01 I&M BHO 3000538 Carrasquillo Assoc 17-Jul-01 I&M BHO 47060538 BNSF Railroad 17-Jul-01 GOVT TRAC 22553-0487 BACKGROUNDS INTERNATIONAL 17-Jul-01 CORP BHO 1159263 AT AND T 17-Jul-01 CORP BHO 1159263 AT AND T 17-Jul-01 I&M BHO 49017701 Arnold Machinery 17-Jul-01 I&M BHO 47060537 All City Tri City Sweeping 16-Jul-01 I/P BHO 1162258 YORK INTERNATIONAL CORP 16-Jul-01 GOVT BHO 1162257 XEROX CORP 16-Jul-01 I/P BHO 1162257 XEROX CORP 16-Jul-01 I/P BHO 1162255 WORLDWIDE SECURITY SERVICES LTD 16-Jul-01 I/P BHO 1162254 WORK CARE 16-Jul-01 P&C BHO 1162253 WORDS MAIL SERVICE ----------------------------------------------------------------------------------------------------------------------------- SALES, USE AND OTHER CRITICAL TRUST FUND MECHANICS FOREIGN TRADE TAXES UTILITIES LIENS VENDOR SHIPPING VENDOR TOTAL* ----------------------------------------------------------------------------------------------------------------------------- 100 100 3,838 3,838 2,890 2,890 198 198 1,381 1,381 359 359 173,880 173,880 880 880 186,702 186,702 662 662 421 421 17,102 17,102 529 529 53,814 53,814 680 680 1,175 1,175 357 357 33 33 3 3 5,108 5,108 1,194 1,194 54 54 1,577 1,577 131,314 131,314 2,375 2,375 1,690 1,690 44 44 4,191 4,191 1,603 1,603 100 100 4,793 4,793 3,704 3,704 186 186 18 18 735 735 9,188 9,188 2,195 2,195 2,057 2,057 176 176 37,220 37,220 370 370 396 396 *Negative Entries Indicate Subsequent Reversal of Authorization Page 9 of 362
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[Enlarge/Download Table] WASHINGTON GROUP INTERNATIONAL, INC. / PRE-PETITION PAYMENTS AUTHORIZED BY COURT ORDER ----------------------------------------------------------------------------------------------------------------------------------- DISBURSEMENT DATE GROUP LOCATION CONTROL NUMBER VENDOR ----------------------------------------------------------------------------------------------------------------------------------- 16-Jul-01 GOVT TRAC 21852-1597 WISE EL SANTO 16-Jul-01 GOVT TRAC 21852-1596 WILLIAMS SCOTSMAN 16-Jul-01 I&M BHO 20004175 William Scotsman 16-Jul-01 I&M BHO 49017645 Western States 16-Jul-01 I&M BHO 47060441 Western Fastners 16-Jul-01 GOVT TRAC 21852-1595 WESCO 16-Jul-01 GOVT TRAC 21852-1592 WESCO 16-Jul-01 GOVT TRAC 21852-1587 WESCO 16-Jul-01 GOVT TRAC 21852-1586 WESCO 16-Jul-01 GOVT TRAC 21852-1591 WESCO 16-Jul-01 GOVT TRAC 21852-1590 WESCO 16-Jul-01 GOVT TRAC 21852-1589 WESCO 16-Jul-01 GOVT TRAC 21852-1594 WESCO 16-Jul-01 GOVT TRAC 21852-1588 WESCO 16-Jul-01 GOVT TRAC 21852-1585 WESCO 16-Jul-01 GOVT TRAC 21852-1593 WESCO 16-Jul-01 I/P BHO 1162252 WASTE MANAGEMENT 16-Jul-01 I/P BHO 1162251 WALSH BROTHERS OFFICE ENVIRONMENTS 16-Jul-01 I/P BHO 1162250 VISA ADVISORS INC 16-Jul-01 CORP BHO 1162249 VERIZON 16-Jul-01 I/P Timberline - 4837 786746 US Filter Corp. 16-Jul-01 I/P BHO 1162248 UNISOURCE SOLUTIONS 16-Jul-01 CORP BHO 1162247 TRANSCO 16-Jul-01 I&M BHO 49017690 Tractor and Equipment 16-Jul-01 GOVT TRAC 21852-1563 THE PERDUE COMPANY 16-Jul-01 GOVT TRAC 21852-1562 THE PERDUE COMPANY 16-Jul-01 I/P BHO 1162246 TELEGROUP INC 16-Jul-01 GOVT TRAC 21852-1584 TECHNI-TOOL 16-Jul-01 I/P BHO 1162245 TECHNIQUEX HYDRO SYSTEMS 16-Jul-01 I/P Timberline - 4837 1043, 1042 Tarlton Corp. 16-Jul-01 I/P BHO 1162244 TANSEY AND ASSOCIATES INC 16-Jul-01 I/P BHO 9990007743 TAKAHASHI PEREZ LOPEZ 16-Jul-01 I&M BHO 47060446 Stevedoring Services 16-Jul-01 I/P BHO 1162242 STAVELEY NDT TECHNOLOGIES INC 16-Jul-01 I/P BHO 1162241 STAR ELECTRICAL CONTRACTORS INC 16-Jul-01 POWER BHO 1162311 SOIL AND MATERIALS ENGINEERS INC 16-Jul-01 I&M BHO 49017691 SodaSprings Auto Parts 16-Jul-01 I/P BHO 1162239 SKYTEL 16-Jul-01 I/P BHO 1162238 SIGMA ALDRICH INC 16-Jul-01 I/P BHO 1162237 SHRED IT 16-Jul-01 GOVT TRAC 21852-1582 SHERWIN WILLIAMS 16-Jul-01 GOVT TRAC 21852-1583 SHERWIN WILLIAMS ----------------------------------------------------------------------------------------------------------------------------- SALES, USE AND OTHER CRITICAL TRUST FUND MECHANICS FOREIGN TRADE TAXES UTILITIES LIENS VENDOR SHIPPING VENDOR TOTAL* ----------------------------------------------------------------------------------------------------------------------------- 8,075 8,075 1,018 1,018 399 399 18,569 18,569 12,335 12,335 3,149 3,149 1,808 1,808 953 953 826 826 335 335 314 314 286 286 281 281 174 174 82 82 39 39 2,273 2,273 98 98 201 201 695 695 518 518 88 88 361 361 91 91 1,486 1,486 43 43 283 283 53 53 4,772 4,772 31,071 31,071 8,250 8,250 18,208 18,208 1,583 1,583 1,078 1,078 2,222 2,222 44,750 44,750 68 68 194 194 2,173 2,173 75 75 3,537 3,537 1,019 1,019 *Negative Entries Indicate Subsequent Reversal of Authorization Page 10 of 362
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[Enlarge/Download Table] WASHINGTON GROUP INTERNATIONAL, INC. / PRE-PETITION PAYMENTS AUTHORIZED BY COURT ORDER ----------------------------------------------------------------------------------------------------------------------------------- DISBURSEMENT DATE GROUP LOCATION CONTROL NUMBER VENDOR ----------------------------------------------------------------------------------------------------------------------------------- 16-Jul-01 GOVT TRAC 21852-1581 SHERWIN WILLIAMS 16-Jul-01 I/P BHO 1162310 SHARRON JACKSON 16-Jul-01 GOVT TRAC 21852-1580 SCOTT CONSTRUCTION 16-Jul-01 I/P BHO 1162235 SCIENTIFIC EQUIPMENT CO 16-Jul-01 GOVT TRAC 21852-1575 RYERSON-TULL 16-Jul-01 GOVT TRAC 21852-1578 RYERSON-TULL 16-Jul-01 GOVT TRAC 21852-1574 RYERSON-TULL 16-Jul-01 GOVT TRAC 21852-1573 RYERSON-TULL 16-Jul-01 GOVT TRAC 21852-1577 RYERSON-TULL 16-Jul-01 GOVT TRAC 21852-1572 RYERSON-TULL 16-Jul-01 GOVT TRAC 21852-1579 RYERSON-TULL 16-Jul-01 GOVT TRAC 21852-1576 RYERSON-TULL 16-Jul-01 GOVT TRAC 21852-1558 RELIZON 16-Jul-01 GOVT TRAC 21852-1570 RELIZON 16-Jul-01 GOVT TRAC 21852-1571 RELIZON 16-Jul-01 GOVT TRAC 21852-1559 RELIZON 16-Jul-01 I&M BHO 47060440 Reliable Fire Protection 16-Jul-01 GOVT BHO 1162228 QWEST 16-Jul-01 CORP BHO 1162228 QWEST 16-Jul-01 CORP BHO 1162232 QWEST 16-Jul-01 POWER BHO 1162228 QWEST 16-Jul-01 GOVT BHO 1162230 QWEST 16-Jul-01 CORP BHO 1162231 QWEST 16-Jul-01 I/P BHO 1162229 QWEST 16-Jul-01 I/P BHO 1162227 QUAD CITY TESTING LABORATORY 16-Jul-01 CORP BHO 1162226 PSINET CONSULTING SOLUTIONS 16-Jul-01 I/P BHO 1162225 PSI 16-Jul-01 I/P BHO 1162223 PROFESSIONAL WELDING 16-Jul-01 GOVT TRAC 21852-1567 PLASITE 16-Jul-01 GOVT TRAC 21852-1564 PINE BLUFF SAND & GRAVEL 16-Jul-01 GOVT TRAC 21852-1566 PINE BLUFF SAND & GRAVEL 16-Jul-01 GOVT TRAC 21852-1565 PINE BLUFF SAND & GRAVEL 16-Jul-01 I/P BHO 1162221 PHILIP ANALYTICAL SERVICES 16-Jul-01 I&M San Roque 2364 Phil Long Distance Telegraphic Co 16-Jul-01 GOVT TRAC 21852-1561 PERDUE 16-Jul-01 GOVT BHO 1162220 PENN RECORDS MANAGEMENT 16-Jul-01 GOVT BHO 1162219 PC WORKS 16-Jul-01 I/P BHO 1162218 PARADISE DRINKING WATER 16-Jul-01 I&M BHO 10011936 Pan Western 16-Jul-01 GOVT BHO 1162217 PACIFIC BELL 16-Jul-01 I/P Timberline - 4837 SVC-51582, SVC-51771, SVC-51577 Overhead Door Company 16-Jul-01 POWER BHO 1162215 OCKMAN AND BORDEN ASSOCIATES ----------------------------------------------------------------------------------------------------------------------------- SALES, USE AND OTHER CRITICAL TRUST FUND MECHANICS FOREIGN TRADE TAXES UTILITIES LIENS VENDOR SHIPPING VENDOR TOTAL* ----------------------------------------------------------------------------------------------------------------------------- 90 90 47 47 657 657 1,299 1,299 2,086 2,086 1,597 1,597 756 756 339 339 313 313 148 148 126 126 (139) (139) 314 314 250 250 22 22 (225) (225) 423 423 1,027 1,027 833 833 407 407 62 62 59 59 24 24 15 15 855 855 4,552 4,552 7,400 7,400 81 81 547 547 22,002 22,002 14,713 14,713 272 272 64 64 5,535 5,535 46 46 137 137 628 628 18 18 3,900 3,900 426 426 825 825 11,874 11,874 *Negative Entries Indicate Subsequent Reversal of Authorization Page 11 of 362
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[Enlarge/Download Table] WASHINGTON GROUP INTERNATIONAL, INC. / PRE-PETITION PAYMENTS AUTHORIZED BY COURT ORDER ----------------------------------------------------------------------------------------------------------------------------------- DISBURSEMENT DATE GROUP LOCATION CONTROL NUMBER VENDOR ----------------------------------------------------------------------------------------------------------------------------------- 16-Jul-01 I&M BHO 47060445 NC Machinery Co 16-Jul-01 I/P BHO 1162214 NATIONAL TRAILER STORAGE 16-Jul-01 I/P Timberline - 4837 2452 Murphy 16-Jul-01 GOVT BHO 1162213 MSE TECHNOLOGY APPLICATIONS 16-Jul-01 GOVT TRAC 21852-1560 MORGAN BUILDINGS & SPAS, INC. 16-Jul-01 I&M San Roque 10000162 Monark Equipment Corporation 16-Jul-01 I&M BHO 47060504 Mladen bunch 16-Jul-01 P&C TRAC 1511118 Mitsubishi 16-Jul-01 I/P Timberline - 4837 2517 Missouri Safety Council 16-Jul-01 I&M San Roque 2362 Mespar Gen Merchandising 16-Jul-01 GOVT TRAC 21852-1559 MCMASTER-CARR 16-Jul-01 GOVT TRAC 21852-1558 MCMASTER-CARR 16-Jul-01 I/P BHO 1162212 MCMASTER CARR SUPPLY CO 16-Jul-01 GOVT TRAC 21852-1557 MCJUNKIN 16-Jul-01 I&M San Roque 2363 MBT Philippines Inc 16-Jul-01 I&M BHO 47060444 Masons Supply Co 16-Jul-01 GOVT TRAC 21848-0372 MARK STEEL CORP. 16-Jul-01 I/P BHO 1162211 MAJOR PARTITIONS 16-Jul-01 I/P Timberline - 4837 27731-IN M&M Golf Cars, LLC 16-Jul-01 GOVT TRAC 21852-1556 LIBERTY SUPPLY 16-Jul-01 I/P BHO 1162209 LABTECH 16-Jul-01 I/P Timberline - 17478 2853-7/18/01 Kramer Gehlen Associates 16-Jul-01 I/P BHO 1162208 KNOWLEDGEWIRE 16-Jul-01 I/P BHO 1162207 KEEN COMPRESSED GAS 16-Jul-01 I/P BHO 1162206 KANSAS STATE UNIVERSITY 16-Jul-01 I&M BHO 47060443 JLA Enterprises 16-Jul-01 POWER BHO 1162205 IRON MOUNTAIN 16-Jul-01 POWER BHO 1162204 INTERGRAPH CORP 16-Jul-01 I/P BHO 1162204 INTERGRAPH CORP 16-Jul-01 POWER BHO 1162203 INTERGRAPH CORP 16-Jul-01 I/P BHO 1162308 INTERGRAPH CORP 16-Jul-01 P&C BHO 1162309 INTERGRAPH CORP 16-Jul-01 P&C BHO 1162308 INTERGRAPH CORP 16-Jul-01 I&M San Roque 2361 Integrated Waste Management 16-Jul-01 I&M BHO 47060439 Ingersoll Rand 16-Jul-01 I/P BHO 1162202 HUNT CORP 16-Jul-01 I/P BHO 1162201 HOME PARAMOUNT 16-Jul-01 I&M BHO 47060438 HCPI 16-Jul-01 I&M BHO 47060442 HCPI 16-Jul-01 I/P Timberline - 4837 15830 Hartman-Walsh Painting Co. 16-Jul-01 I/P Timberline - 4505 01-0424, 01-0856 Harder Mechanical Contractors, IN 16-Jul-01 I/P BHO 1162200 H A C S C INC ----------------------------------------------------------------------------------------------------------------------------- SALES, USE AND OTHER CRITICAL TRUST FUND MECHANICS FOREIGN TRADE TAXES UTILITIES LIENS VENDOR SHIPPING VENDOR TOTAL* ----------------------------------------------------------------------------------------------------------------------------- 251 251 101 101 6,521 6,521 73 73 666 666 24,964 24,964 32,555 32,555 605,027 605,027 245 245 646 646 857 857 808 808 256 256 197 197 439 439 155 155 193,940 193,940 57,735 57,735 211 211 519 519 1,500 1,500 420 420 7,500 7,500 375 375 628 628 6,820 6,820 11,583 11,583 7,352 7,352 7,031 7,031 4,800 4,800 2,578 2,578 896 896 857 857 116 116 298 298 202 202 170 170 3,621 3,621 3,309 3,309 552 552 15,001 15,001 240 240 *Negative Entries Indicate Subsequent Reversal of Authorization Page 12 of 362
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[Enlarge/Download Table] WASHINGTON GROUP INTERNATIONAL, INC. / PRE-PETITION PAYMENTS AUTHORIZED BY COURT ORDER ----------------------------------------------------------------------------------------------------------------------------------- DISBURSEMENT DATE GROUP LOCATION CONTROL NUMBER VENDOR ----------------------------------------------------------------------------------------------------------------------------------- 16-Jul-01 I/P Timberline - 4837 5488, 5489, 5490, 5491, 5492, 5493, 5494, Grossmann Contracting 5495,5551 16-Jul-01 GOVT TRAC 21852-1555 GRAYBAR ELECTRIC 16-Jul-01 GOVT BHO 1162199 FABICK TRACTOR CO 16-Jul-01 GOVT TRAC 21852-1554 F&M MAFCO 16-Jul-01 I/P BHO 1162307 ENTERPRISE RENT-A-CAR 16-Jul-01 I/P Timberline - 14330 1363-7/16/01 Electro-test, Inc. 16-Jul-01 I/P BHO 1162306 ELECTRONIC COMMUNICATION 16-Jul-01 I/P BHO 1162198 ECS ENGINEERING 16-Jul-01 I/P BHO 1162197 DURATEK 16-Jul-01 GOVT TRAC 21852-1553 DRAGO 16-Jul-01 GOVT TRAC 21852-1552 DOUTHIT'S RADIO SERVICE INC. 16-Jul-01 GOVT TRAC 21852-1551 DOUTHIT'S RADIO SERVICE INC. 16-Jul-01 I/P BHO 1162196 D GEORGE CHADWICK JR 16-Jul-01 I/P BHO 1162195 CONTRACTORS SAFETY COUNCIL OF TEXAS 16-Jul-01 GOVT TRAC 21852-1548 CONSOLIDATED ELECTRICAL DIST. 16-Jul-01 I/P BHO 1162194 CONCENTRA MEDICAL CENTERS 16-Jul-01 I/P BHO 1162193 COMPCO ANALYTICAL INC 16-Jul-01 I/P BHO 1162192 CLOHESSY HARRIS AND KAISER LLC 16-Jul-01 I/P BHO 1162191 CLEMSON UNIVERSITY 16-Jul-01 I&M San Roque 2360 Civic Merchandising Inc 16-Jul-01 I/P Timberline - 4837 452423969 Cintas Corp. - 731 16-Jul-01 I/P BHO 1162189 CINGULAR WIRELESS 16-Jul-01 CORP BHO 1162190 CINGULAR WIRELESS 16-Jul-01 GOVT TRAC 21852-1547 CARBOLINE 16-Jul-01 GOVT TRAC 21852-1546 CARBOLINE 16-Jul-01 I/P BHO 1162188 CANON 16-Jul-01 GOVT TRAC 21852-1550 C&W TOOL 16-Jul-01 GOVT TRAC 21852-1549 C&W TOOL 16-Jul-01 VARIOUS BHO 1162304 BOISE CASCADE OFFICE PRODUCTS 16-Jul-01 I/P BHO 1162303 BLASLAND BOUCK AND LEE INC 16-Jul-01 CORP BHO 1162302 BGE 16-Jul-01 POWER BHO 1162187 BERNARD HODES ADVERTISING 16-Jul-01 CORP BHO 1162552 BELLSOUTH COMMUNICATIONS SYSTEMS 16-Jul-01 GOVT BHO 1162186 BAILEYS MOVING AND STORAGE 16-Jul-01 POWER BHO 1162301 AUTOMATED ENGINEERING SERVICES CORP 16-Jul-01 I/P BHO 1162185 AUTO RENTAL CORP 16-Jul-01 GOVT BHO 1162300 AUGUST BUILDING MAINTENANCE 16-Jul-01 I/P BHO 1162182 AT AND T 16-Jul-01 I/P BHO 1162184 AT AND T 16-Jul-01 CORP BHO 1162299 AT AND T 16-Jul-01 CORP BHO 1162183 AT AND T 16-Jul-01 I&M BHO 47060503 AT & T ----------------------------------------------------------------------------------------------------------------------------- SALES, USE AND OTHER CRITICAL TRUST FUND MECHANICS FOREIGN TRADE TAXES UTILITIES LIENS VENDOR SHIPPING VENDOR TOTAL* ----------------------------------------------------------------------------------------------------------------------------- 15,066 15,066 1,804 1,804 13,738 13,738 1,657 1,657 167 167 2,103 2,103 200 200 520 520 840 840 267 267 2,626 2,626 464 464 1,268 1,268 85 85 1,749 1,749 30 30 2,544 2,544 3,324 3,324 120,917 120,917 46 46 186 186 206 206 44 44 7,155 7,155 5,368 5,368 535 535 91 91 48 48 505 505 11,760 11,760 5 5 275 275 2,329 2,329 335 335 14,967 14,967 19 19 314 314 330 330 99 99 69 69 17 17 77 77 *Negative Entries Indicate Subsequent Reversal of Authorization Page 13 of 362
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[Enlarge/Download Table] WASHINGTON GROUP INTERNATIONAL, INC. / PRE-PETITION PAYMENTS AUTHORIZED BY COURT ORDER ----------------------------------------------------------------------------------------------------------------------------------- DISBURSEMENT DATE GROUP LOCATION CONTROL NUMBER VENDOR ----------------------------------------------------------------------------------------------------------------------------------- 16-Jul-01 GOVT BHO 1162181 ASSOCIATES 16-Jul-01 I/P BHO 1162180 ARLINGTON BLUELINE 16-Jul-01 I/P BHO 1162298 ANRO INC 16-Jul-01 P&C BHO 9990007737 AMOSCO 16-Jul-01 I/P BHO 1162179 AMERITECH 16-Jul-01 I/P BHO 1162178 AMERICAN PEST CONTROL 16-Jul-01 P&C TRAC 1511117 Alpha Process 16-Jul-01 I/P Timberline - 4837 783108, 785899, 783393, C9783108 Alltype Fire Protection Co. 16-Jul-01 P&C TRAC 1511116 Aitken 16-Jul-01 I/P BHO 1162176 AGILENT TECHNOLOGIES 16-Jul-01 I/P Timberline - 4837 11685601 Aggreko, Inc. 13-Jul-01 GOVT TRAC 21848-0371 XEROX CORPORATION 13-Jul-01 GOVT Oak Ridge-JDE C4848-4352 Xerox Corporation 13-Jul-01 CORP BHO 1161845 XEROX CORP 13-Jul-01 I/P RUST CONSTRUCTORS 10129006 WULFF-RODGERS CONSTRUCTION CO 13-Jul-01 GOVT Cape-TRAC 5665 Woodson & Assoc. 13-Jul-01 I&M BHO 20004160 WMK and CO 13-Jul-01 I&M BHO 47060379 Williams, Kastner, and Gibbs 13-Jul-01 GOVT TRAC 21848-0370 WILLIAMS SCOTSMAN 13-Jul-01 I&M Infra Svcs 12113 WILLIAMS EARTH SCIENCES, 13-Jul-01 I&M Infra Svcs 11319 WILLIAMS EARTH SCIENCES 13