Attached files
file | filename |
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8-K - U.S. CONCRETE, INC. | v191715_8k.htm |
EX-2.1 - U.S. CONCRETE, INC. | v191715_ex2-1.htm |
EX-99.1 - U.S. CONCRETE, INC. | v191715_ex99-1.htm |
IN
THE UNITED STATES BANKRUPTCY COURT
FOR
THE DISTRICT OF DELAWARE
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In
re:
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)
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Chapter
11
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)
)
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U.S.
CONCRETE, INC., et
al.,1
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)
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Case
No. 10-11407 (PJW)
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)
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Debtors.
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)
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Jointly
Administered
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)
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DISCLOSURE
STATEMENT RELATING TO THE JOINT PLAN OF REORGANIZATION OF U.S.
CONCRETE,
INC., ET AL., PURSUANT TO CHAPTER 11 OF THE BANKRUPTCY CODE
KIRKLAND &
ELLIS LLP
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PACHULSKI,
STANG, ZIEHL & JONES LLP
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300
North LaSalle Street
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919
North Market Street
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Chicago,
Illinois 60611
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17th
Floor
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Telephone:
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(312) 862-2200
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Wilmington,
Delaware 19899
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Facsimile:
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(312) 862-2200
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Telephone:
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(302)
652-4100
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Facsimile:
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(302)
652-4400
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Co-Counsel
for the Debtors
Dated: June 4, 2010
1
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The
Debtors in these Chapter 11 Cases, along with the last four digits of each
debtor’s federal tax identification number, include: U.S.
Concrete, Inc. (6680); Alberta Investments, Inc. (1497); Alliance Haulers,
Inc. (3236); American Concrete Products, Inc. (3187); Atlas Redi-Mix, LLC
(3123); Atlas-Tuck Concrete, Inc. (1542); Beall Concrete Enterprises, LLC
(3536); Beall Industries, Inc. (2872); Beall Investment Corporation, Inc.
(9865); Beall Management, Inc. (9839); Breckenridge Ready Mix, Inc.
(2482); Central Concrete Supply Co., Inc. (1859); Central Precast
Concrete, Inc. (9358); Concrete Acquisition III, LLC (5638); Concrete
Acquisition IV, LLC (5720); Concrete Acquisition V, LLC (5777); Concrete
Acquisition VI, LLC (5840); Concrete XXXIII Acquisition, Inc. (6120);
Concrete XXXIV Acquisition, Inc. (6167); Concrete XXXV Acquisition, Inc.
(6206); Concrete XXXVI Acquisition, Inc. (6240); Eastern Concrete
Materials, Inc. (1165); Hamburg Quarry Limited Liability Company (3592);
Ingram Concrete, LLC (6753); Local Concrete Supply & Equipment, LLC
(6597); Master Mix Concrete, LLC (0135); Master Mix, LLC (8532); MG, LLC
(9279); NYC Concrete Materials, LLC (0666); Pebble Lane Associates, LLC
(6520); Redi-Mix Concrete, L.P. (4765); Redi-Mix GP, LLC (N/A); Redi-Mix,
LLC (6751); Riverside Materials, LLC (3588); San Diego Precast Concrete,
Inc. (6282); Sierra Precast, Inc. (4227); Smith Pre-Cast, Inc. (0673);
Superior Concrete Materials, Inc. (6503); Titan Concrete Industries, Inc.
(6374); U.S. Concrete On-Site, Inc. (0662); USC Atlantic, Inc. (6002); USC
Management Co., LLC (6749); USC Payroll, Inc. (0665); and USC
Technologies, Inc. (6055). The location of the debtors’
corporate headquarters and the debtors’ service address
is: 2925 Briarpark, Suite 1050, Houston, Texas
77042.
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TABLE OF
CONTENTS
Page
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Important
Information About this Disclosure Statement
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1
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Questions
and Answers Regarding this Disclosure Statement and the
Plan
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3
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The
Debtors’ History and the Chapter 11 Cases
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7
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Events
Leading to the Chapter 11 Cases
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11
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Initial
Motions of the Chapter 11 Cases and Certain Related Relief
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14
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Treatment
of Claims and Interests
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15
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Management
of the Debtors
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19
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Composition
of New Board of Directors
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19
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Capital
Structure of the Reorganized Debtors upon Consummation
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20
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Summary
of Legal Proceedings
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21
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Valuation
Analysis
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23
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Liquidation
Analysis
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29
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Projected
Financial Information
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29
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Risk
Factors
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31
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Confirmation
of the Plan
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43
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Effect
of Confirmation of the Plan
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47
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Important
Securities Laws Disclosure
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54
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Nominee
Voting Instructions
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55
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Certain
U.S. Federal Income Tax Consequences of the Plan
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57
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Recommendation
of the Debtors
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63
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i
EXHIBITS
EXHIBIT
A
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Plan
of Reorganization
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EXHIBIT
B
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Liquidation
Analysis
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EXHIBIT
C
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Reorganized
Debtors’ Financial Projections
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EXHIBIT
D
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Debtors’
Prepetition Corporate
Structure
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ii
Important Information About
this Disclosure Statement
This
disclosure statement (the “Disclosure
Statement”) provides information regarding the Joint Plan of Reorganization
of U.S. Concrete, Inc., et
al., Pursuant to Chapter 11 of the Bankruptcy Code (the “Plan”) that U.S.
Concrete, Inc. and the other debtors in the above-captioned Chapter 11 Cases
(collectively, the “Debtors”) are seeking
to have confirmed by the Bankruptcy Court. A copy of the Plan is
attached as Exhibit
A hereto. All capitalized terms used but not otherwise defined
herein shall have the meaning ascribed to them in the Plan. The
Debtors believe that the Plan is in the best interests of all Holders of Claims
and Interests. The Debtors urge all Holders of a Claim or an Interest
entitled to vote on the Plan to vote in favor of the Plan.
Confirmation
and Consummation of the Plan are subject to certain material conditions
precedent described in Article IX of the
Plan. There is no assurance that the Plan will be confirmed or, if
confirmed, that such material conditions precedent will be satisfied or
waived.
You are
encouraged to read this Disclosure Statement in its entirety, including the
Plan, a copy of which is attached as Exhibit A hereto, and
the Section herein entitled “Risk Factors” prior to submitting your ballot to
vote to accept or reject the Plan.
The
Bankruptcy Court’s approval of this Disclosure Statement does not constitute a
guarantee of the accuracy or completeness of the information contained herein or
an endorsement of the merits of the Plan by the Bankruptcy Court.
Summaries
of the Plan and statements made in this Disclosure Statement in connection
therewith are qualified in their entirety by reference to the Plan, the exhibits
and schedules attached to the Plan, and the Plan Supplement. The
statements contained in this Disclosure Statement are made only as of the date
of this Disclosure Statement, and there is no assurance that the statements
contained herein will be correct at any time after such date. Except
as otherwise provided in the Plan or in accordance with applicable law, the
Debtors are under no duty to update or supplement this Disclosure
Statement.
The
information contained in this Disclosure Statement is included for purposes of
soliciting acceptances to the Plan and obtaining Confirmation and may not be
relied upon for any other purpose. The Debtors believe that the
summary of certain provisions of the Plan and certain other documents and
financial information contained or referenced in this Disclosure Statement is
fair and accurate. The summaries of the financial information and the
documents attached to this Disclosure Statement, or otherwise incorporated
herein by reference, are qualified in their entirety by reference to those
documents. In the event of any inconsistency between this Disclosure
Statement and the Plan, the relevant provision of the Plan, as it relates to
such inconsistency, shall govern.
No
representations concerning the Debtors or the value of the Debtors’ property has
been authorized by the Debtors other than as set forth in this Disclosure
Statement. Any information, representations, or inducements made to
obtain acceptance of the Plan, which are other than or inconsistent with the
information contained in this Disclosure Statement and in the Plan, should not
be relied upon by any Holder of a Claim or Interest entitled to vote to accept
or reject the Plan.
Neither
the United States Securities and Exchange Commission (“SEC”) nor any similar
federal, state, local, or foreign regulatory agency, has approved or disapproved
of the offered securities or the Plan or passed upon the accuracy or adequacy of
the statements contained in this Disclosure Statement.
The
Debtors have sought to ensure the accuracy of the financial information provided
in this Disclosure Statement, but the financial information contained in, or
incorporated by reference into, this Disclosure Statement has not been and will
not be audited or reviewed by the Debtors’ independent auditors unless
explicitly provided otherwise.
1
The
shares of the common stock to be issued pursuant to the Plan (the “New Equity”) as
described in this Disclosure Statement will be issued without registration under
the Securities Act of 1933, as amended (the “Securities Act”), or
similar federal, state, local, or foreign laws, in reliance on the exemptions
from the registration requirements of those laws and the exemption set forth in
section 1145 of the Bankruptcy Code and other applicable exemptions in foreign
jurisdictions. Other shares of the New Equity may be issued pursuant
to other applicable exemptions under the federal and foreign securities
laws. To the extent exemptions from registration other than section
1145 apply, such securities may not be offered or sold except pursuant to a
valid exemption or registration under the Securities Act or similar foreign
laws.
The
Debtors make statements in this Disclosure Statement that are considered
forward-looking statements under the federal securities laws. The
Debtors consider all statements regarding anticipated or future matters,
including the following, to be forward-looking statements:
· any
future effects as a result of the pendency of the Chapter 11
Cases;
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· growth
opportunities for existing services;
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· financing
plans;
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· results
of litigation;
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· competitive
position;
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· disruption
of operations;
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· business
strategy;
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· contractual
obligations;
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· budgets;
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· projected
general market conditions;
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· projected
cost reductions;
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· potential
asset sales;
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· plans
and objectives of management for future operations;
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· projected
and estimated liability costs, including tort, and environmental costs and
costs of environmental remediation; and
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· the
Debtors’ expected future financial position, liquidity, results of
operations, profitability, and cash flows.
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Statements
concerning these and other matters are not guarantees of the Debtors’ future
performance. Such statements represent the Debtors’ estimates and
assumptions only as of the date such statements were made. There are
risks, uncertainties, and other important factors that could cause the Debtors’
actual performance or achievements to be materially different from those they
may project, and the Debtors undertake no obligation to update any such
statement. These risks, uncertainties, and factors
include:
· labor
costs;
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· multinational
business risks;
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· limited
access to capital resources;
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· adverse
tax changes;
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· lower
prices for the Debtors’ services or a decline in the Debtors’ market share
due to competition or price pressure by customers;
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· continued
decline in the general economic, business, and market conditions where the
Debtors operate;
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2
· the
Debtors’ ability to confirm and consummate the Plan;
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· price
increases or shortages of raw materials and energy;
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· the
Debtors’ ability to reduce their overall financial
leverage;
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· inability
to have claims discharged or settled during the Chapter 11
Cases;
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· changes
in domestic laws and regulations;
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· interest
rate fluctuations;
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· customer
response to the Chapter 11 Cases;
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· financial
conditions of the Debtors’ customers;
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· seasonality
and weather conditions;
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· commodity
prices;
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· disruptions
in the Debtors’ operations due to natural disasters;
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· levels
of commercial and residential home construction; and
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· the
Debtors’ ability to implement cost reduction initiatives in a timely and
effective manner.
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Questions and Answers
Regarding this Disclosure Statement and the Plan
Why
are the Debtors sending me this Disclosure Statement?
The
Debtors are seeking to obtain Bankruptcy Court approval of the
Plan. Prior to soliciting acceptances of a proposed plan,
section 1125 of the Bankruptcy Code requires a debtor to prepare a
disclosure statement containing adequate information of a kind, and in
sufficient detail, to enable a hypothetical reasonable investor to make an
informed judgment regarding whether to accept or reject the
Plan. This Disclosure Statement is being submitted in respect of the
Plan in accordance with such requirements.
Am
I entitled to vote to accept or reject the Plan? What will I receive
from the Debtors if the Plan is consummated?
Your
ability to vote and your distribution, if any, depend on what kind of Claim or
Interest that you hold. In accordance with section 1123(a)(1) of
the Bankruptcy Code, DIP Facility Claims, Administrative Claims, and Priority
Tax Claims have not been classified. Such Claims must be satisfied in
full in Cash on the Effective Date or, in the case of Priority Tax Claims,
within 5 years of the Effective Date in accordance with
section 1129(a)(9)(C). Administrative Claims, DIP Facility
Claims, and Priority Tax Claims are not entitled to vote to accept or reject the
Plan and are conclusively deemed to have accepted the Plan. The
remainder of Claims and Interests are classified into the following Classes and
their respective voting statuses are as follows:
Class
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Claims and Interests
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Status
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Voting Rights
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Class
1
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Other
Priority Claims
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Unimpaired
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Not
Entitled to Vote (Deemed to Accept)
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Class
2
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Other
Secured Claims
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Unimpaired
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Not
Entitled to Vote (Deemed to Accept)
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Class
3
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General
Unsecured Claims
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Unimpaired
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Not
Entitled to Vote (Deemed to Accept)
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Class
4
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Note
Claims
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Impaired
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Entitled
to Vote
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3
Class
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Claims and Interests
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Status
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Voting Rights
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Class
5
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Intercompany
Claims
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Unimpaired
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Not
Entitled to Vote (Deemed to Accept)
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Class
6
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Intercompany
Interests
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Unimpaired
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Not
Entitled to Vote (Deemed to Accept)
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Class
7
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Interests
in U.S. Concrete, Inc.
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Impaired
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Entitled
to Vote
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Class
8
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Section
510(b) Claims
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Impaired
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Not
Entitled to Vote (Deemed to
Reject)
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For more
information about the treatment of Claims and Interests, see the Section herein
entitled “Treatment of Claims and Interests.”
If
the Plan provides that I get a distribution, when do I get it, and what do you
mean when you refer to “Confirmation,” “Effective Date,” and
“Consummation?”
Confirmation
of the Plan refers to the Bankruptcy Court’s approval of the
Plan. Confirmation of the Plan does not guarantee that you will
receive the distribution indicated under the Plan. After Confirmation
of the Plan, there are conditions (described in Article IX of the Plan) that
need to be satisfied or waived so that the Plan can be consummated and go
effective. References to the Effective Date mean the date that all
conditions to the Plan have been satisfied or waived, at which point the Plan
may be “consummated.” Distributions only will be made after
Consummation of the Plan. See the Section herein entitled
“Confirmation of the Plan,” for a discussion of the conditions to
Consummation.
How
will the Reorganized Debtors fund distributions under the Plan?
The
Reorganized Debtors will fund distributions under the Plan with Cash on hand,
including Cash from operations, as well as proceeds from the Exit
Facility.
How
is the Plan going to be implemented?
The
Restructuring Transactions will be effected in accordance with the Restructuring
Transactions Memorandum. The Reorganized Debtors shall issue the New
Equity and the New Warrants on the Effective Date.
What
are the contents of the solicitation packages to be sent to Holders of Claims
and Interests who are eligible to vote to accept or reject the
Plan?
Holders
of Claims and Interests who are eligible to vote to accept or reject the Plan
will receive appropriate solicitation materials including:
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·
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a
cover letter explaining the solicitation process and urging Holders of
Claims and Interests in the Voting Classes to vote to accept the
Plan;
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·
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this
Disclosure Statement (and exhibits thereto, including the
Plan);
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·
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the
Disclosure Statement Order (excluding the exhibits
thereto);
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·
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the
Confirmation Hearing Notice;
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4
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·
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an
appropriate Beneficial Holder Ballot, and/or Master Ballot, as applicable
(together with detailed voting instructions and a pre-addressed, postage
prepaid return envelope); and
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·
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such
other materials as the Court may
direct.
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The
notices sent to parties in interest will indicate that this Disclosure
Statement, the Plan, and all of the exhibits thereto are (and, in the future,
the Plan Supplement will be) available for viewing by any party by (a)
contacting the U.S. Concrete restructuring hotline at (888) 369-8931 or the
Debtors’ Notice, Claims, and Balloting Agent at (646) 282-1800, or by writing to
U.S. Concrete Balloting, c/o Epiq Bankruptcy Solutions LLC, 757 Third Avenue,
3rd
Floor, New York, NY 10017; (b) downloading such documents (excluding the
Ballots) from the Debtors’ restructuring website at
http://dm.epiq11.com/usconcrete; or by (c) visiting the Bankruptcy Court’s
website (for a fee) at http://www.deb.uscourts.gov.
Will
the Debtors file reports with the SEC?
The
Debtors expect to file reports with the U.S. Securities Exchange Commission
after the filing of the Chapter 11 Cases because they expect to be subject to
the public reporting requirements of the Exchange Act or the regulations
promulgated thereunder, and they also expect to be a reporting issuer
in the United States after the filing of the Chapter 11 Cases.
What
rights will the Debtors’ new stockholders have?
Each
holder of New Equity issued under the Plan will be entitled to one vote per
share of New Equity on all matters subject to a vote of holders of New Equity
under applicable law and will be entitled to a pro rata share of any dividends
that are declared by the board of directors of New U.S. Concrete Holdings to the
extent such dividends are permitted. The New Equity will be the sole
class of voting stock of New U.S. Concrete Holdings.
Where
will New U.S. Concrete Holdings be organized?
New U.S.
Concrete Holdings will be organized in the United States under the Delaware
General Corporation Law.
How
will the New Equity and New Warrants be distributed? Will holders be
entitled to stock certificates?
The New
Equity delivered to Holders of the Note Claims and the Interests in U.S.
Concrete, Inc. is expected to be delivered to Depository Trust Company (“DTC”). DTC
will then distribute the New Equity to accounts at DTC designated by Holders
Claims and Interests entitled to a distribution of New Equity under the
Plan.
It is not
expected that holders of New Equity will be entitled to stock
certificates. DTC or its nominee will initially be considered the
sole owner or holder of the New Equity issued. Holders of Claims and
Interests that receive New Equity will be owners of beneficial interests in such
New Equity and will not receive or be entitled to receive physical delivery of
such securities.
What
is the deadline to vote on the Plan?
5:00
p.m., prevailing Eastern Time, on July 9, 2010 at 5:00 p.m., prevailing Eastern
Time.
5
How
do I vote to accept or reject the Plan?
The
Debtors are distributing this Disclosure Statement, accompanied by a Beneficial
Holder Ballot or Master Ballot, as applicable, to be used for voting to
accept or reject the Plan, to the Holders of Claims and Interests entitled to
vote to accept or reject the Plan (and Nominees, as applicable). If
you are a Holder of a Claim in Class 4 or an Interest in Class 7, you may vote
to accept or reject the Plan by completing the Beneficial Holder Ballot and
returning it in the envelopes provided.
The
Debtors have engaged Epiq Bankruptcy Solutions, LLC to serve as the Notice,
Claims, and Balloting Agent. The Notice, Claims, and Balloting Agent
is available to answer questions, provide additional copies of all materials,
and oversee the voting process. The Notice, Claims, and Balloting
Agent will process and tabulate Beneficial Holder Ballots for each Class
entitled to vote to accept or reject the Plan.
BALLOTS
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Beneficial
Holder Ballots and Master Ballots must be actually received by the Notice,
Claims, and Balloting Agent by the Voting Deadline, which is
5:00 p.m., prevailing Eastern Time, on July 9, 2010 at the following
address:
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U.S.
Concrete Balloting
c/o
Epiq Bankruptcy Solutions, LLC
757
Third Avenue, 3rd Floor
New
York, NY 10017
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If
you received an envelope addressed to your Nominee, please allow enough
time when you return your Beneficial Holder Ballot for your Nominee to
cast your vote on a Master Ballot before the Voting Deadline.
If
you have any questions on the procedure for voting on the Plan, please
call the Notice, Claims, and Balloting Agent at (646) 282-1800, or the
Debtors’ restructuring hotline at (888)
369-8931.
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More
detailed instructions regarding how to vote on the Plan are contained on the
Beneficial Holder Ballots distributed to Holders of Claims and Interests that
are entitled to vote to accept or reject the Plan and the Master Ballots
distributed to Nominees. For your vote to be counted, your Beneficial
Holder Ballot must be completed, signed, and received by the Voting Deadline;
provided, however, that Master Ballots
received by the Notice, Claims, and Balloting Agent after the Voting Deadline
may be counted only in the sole and absolute discretion of the
Debtors.
Any
Beneficial Holder Ballot or Master Ballot that is properly executed by the
Holder of a Claim or an Interest or a Nominee, but which does not clearly
indicate an acceptance or rejection of the Plan, or which indicates both an
acceptance and a rejection of the Plan, will not be counted.
Each
Holder of a Claim or an Interest entitled to vote to accept or reject the Plan
may cast only one Beneficial Holder Ballot for each Claim or Interest held by
such Holder. By signing and returning a Beneficial Holder Ballot,
each Holder of a Claim in Class 7 or an Interest in Class 7 will certify to the
Bankruptcy Court and the Debtors that no other Beneficial Holder Ballots with
respect to such Claim have been cast or, if any other Beneficial Holder Ballots
have been cast with respect to such Class of Claims, such earlier Beneficial
Holder Ballots are superseded and revoked.
6
All
Beneficial Holder Ballots are accompanied by return envelopes. It is
important to follow the specific instructions provided on each Beneficial Holder
Ballot. For information regarding voting by Nominees, see the Section
herein entitled “Nominee Voting Instructions.”
When
is the Confirmation Hearing expected to occur?
The
Bankruptcy Court has scheduled the Confirmation Hearing for July 23, 2010 at
9:30 p.m., prevailing Eastern Time. The Confirmation Hearing may be
adjourned from time to time without further notice except for an announcement of
the adjourned date made at the Confirmation Hearing or by notice of any
adjournment of the Confirmation Hearing filed by the Debtors and posted on their
website at http://dm.epiq11.com/usconcrete.
The Debtors’ History and the
Chapter 11 Cases
Historical
Overview
U.S.
Concrete, Inc. is a Delaware corporation incorporated in 1997. The
Debtors began operations in 1999, the year the Debtors completed their initial
public offering. Since that time, the Debtors quickly have become a
leading provider of concrete and related products in critical construction
markets throughout the United States. The Debtors’ product offerings
and services are designed to provide contractors and developers with
performance-based, high-quality concrete materials, extensive industry
expertise, emerging concrete technologies, and sustainable solutions to
environmental challenges. The Debtor’s principal executive offices
are located in Houston, Texas. The Debtors employ approximately 2,100
people throughout their more than 160 locations in the United
States.
The
Debtors operate principally in Texas, California, New Jersey/New York, and
Michigan, with those operations representing approximately 35%, 30%, 15%, and
9%, respectively, of the Debtors’ consolidated revenues from continuing
operations for 2009. According to publicly available industry
information, those states represented an aggregate of 31.4% of the consumption
of ready-mixed concrete in the U.S. in 2009. The Debtors believe
that, because of the size and geographic scope of their operations, they are
able to achieve cost savings through consolidated purchasing, which reduces
administrative costs on both a national and regional level and aids in
moderating the impact of regional economic cycles and weather
conditions.
The
Debtors’ Business Segments
The
Debtors’ business operations are comprised of two business segments: the
ready-mixed concrete and concrete-related products segment (the “Ready-Mixed
Segment”); and the precast products concrete segment (the “Precast
Segment”). Ready-mixed and precast concrete products are
important building materials used in the vast majority of commercial,
residential, and public works construction projects. The Debtors’
consolidated revenues from continuing operations for 2009 were $534.5 million,
of which the Debtors derived approximately 89.3% from the Ready-Mixed Segment
and 10.7% from the Precast Segment.
7
Ready-Mixed
Concrete. The Debtors’ ready-mixed concrete segment engages principally
in the formulation, preparation, and delivery of ready-mixed concrete to the job
sites of customers. The Debtors’ ready-mixed concrete products
consist of proportioned mixes prepared and delivered in an unhardened plastic
state for placement and shaping into designed forms at the job
site. The Debtors believe they can achieve product differentiation
for the mixes they produce because of the variety of mixes produced, the volume
production capacity, and the scheduling, delivery, and placement
reliability. Additionally, the Debtors’ EF Technology initiative,
which utilizes alternative materials and mix designs that result in lower
CO2
emissions, helps differentiate the Debtors from their competitors. To
a lesser extent, the ready-mixed segment also is engaged in the mining and sale
of aggregates and the resale of building materials, primarily to the ready-mixed
customers. These business are generally complementary and provide the
opportunity to cross-sell various products.
From a contractor’s perspective, the
in-place cost of concrete includes both the amount paid to the ready-mixed
concrete manufacturer and the internal costs associated with the labor and
equipment the contractor provides. By carefully designing proper
mixes and using advances in mixing technology, the Debtors can assist their
customers in reducing the amount of reinforcing steel, time, and labor they will
require in various applications. The Debtors provide a variety of
services in connection with the sale of ready-mixed concrete that can help
reduce customer’s in-place cost of concrete. These services
include:
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·
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production
of formulations and alternative product recommendations that reduce labor
and materials costs;
|
|
·
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quality
control, through automated production and laboratory testing, that ensures
consistent results and minimizes the need to correct complete work;
and
|
|
·
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automated
scheduling and tracking systems that ensure timely delivery and reduce the
downtime incurred by the customer’s placing and finishing
crews.
|
As of March 15, 2010 the Debtors had
125 fixed and 11 portable ready-mixed concrete plants. The Debtors
construct wet batch plants to serve markets that they expect will have
consistently high demand, as opposed to dry batch plants that will serve those
markets that they expect will have a less consistent demand. A wet
batch plant generally has a higher initial cost and daily operating expenses,
but yields greater consistency with less time required for quality control in
the concrete produced and generally has greater daily production capacity than a
dry batch plant. The size and geographic scope of the Debtors’
operations enable them to achieve cost savings through consolidated purchasing,
reduction of administrative costs, and moderating the impact of regional
economic cycles and weather conditions.
After
receiving the specifications for a particular job, the Debtors use computer
modeling, industry information, and information from previous jobs to formulate
a variety of mixtures of cement, aggregates, water, and
admixtures. The Debtors then perform testing to determine which mix
design is most appropriate to meet the required specifications. The
testing center than creates and maintains a project file that details the
mixture and samples of concrete delivered to the job site for quality control
purposes. If the job is large enough, the Debtors obtain quotes from
suppliers as to the cost of raw materials. To fill an
order:
|
·
|
the
customer services office coordinates the timing and delivery of the
concrete to the job site;
|
|
·
|
a
load operator supervises and coordinates the receipt of the necessary raw
materials and operates the hopper that dispenses those materials into the
appropriate storage bins;
|
|
·
|
a
batch operator, using a computerized batch panel, prepares the specified
mixture from the order and oversees the loading of the mixer with either
dry ingredients and water in a dry batch plant or the premixed concrete in
a wet batch plant; and
|
8
|
·
|
the
driver of the mixer truck delivers the load to the job site, discharges
the load and, after washing the truck, departs at the direction of the
dispatch office.
|
Precast Concrete
Products Segment. The Debtors
produce precast concrete products at 7 plants in 3 states, with 5 in California,
one in Arizona, and one in Pennsylvania. The precast concrete
products consist of ready-mixed concrete that the Debtors either produce on-site
or purchases from third parties, which is then poured into reusable molds at the
plants. After the concrete sets, the Debtors strip the molds from the
finished products and either place them in inventory or ship them to
customers. The precast technology produces a wide variety of finished
products, including a variety of architectural applications, such as
free-standing walls used for landscaping, soundproofing and security walls,
signage, utility vaults, manholes, panels to clad a building façade, highway
barriers, pre-stressed bridge girders, concrete piles, catch basins, and curb
inlets.
Because precast concrete products are
not perishable, the Debtors place these products into inventory and stage them
at plants or other distribution sites to serve a larger geographic market
area. The cost of transportation and storage usually limits the
market area for these types of products to within approximately 150 miles of the
Debtors’ plant sites and, therefore, sales are generally driven by the level of
construction activity within the market area served by the plant
sites.
The
Debtors’ Business Operations
The
Debtors seek to grow in existing markets by expanding existing plants and
identifying complementary products or services to provide to customers on a
cost-effective basis. In addition, the Debtors also seek growth by
targeting opportunities to acquire businesses in their existing markets and
entering new geographic markets on a select
basis. Specifically, the growth strategy targets (a) the
vertical integration of existing ready-mixed concrete markets with the
acquisition of aggregate quarries, (b) the acquisition of precast concrete
manufacturing businesses with similar operating strategies and complementary
product mixes, and (c) selectively acquiring ready-mixed concrete
operations.
Of the
Debtors’ 2009 revenues, approximately 55% came from commercial and industrial
construction contractors, 19% from residential construction contractors, and 26%
from street and highway construction contractors and other public works and
infrastructure contractors. In 2009, no single customer represented
more than 5% of the Debtors’ total revenue. The Debtors rely heavily
on repeat customers.
As of
March 15, 2010, the Debtors had approximately 500 salaried employees, including
executive officers and management, sales, technical, administrative and clerical
personnel, and approximately 1,600 hourly personnel. In addition, as
of March 15, 2010, approximately 700 of the Debtors employees were represented
by labor unions having collective bargaining agreements.
Sales
and Marketing
General
contractors typically select their suppliers of ready-mixed concrete and precast
concrete. In large, complex projects, an engineering firm or division
within a state transportation or public works department may influence the
purchasing decisions, particularly if the concrete has complicated design
specifications. In those projects and in government-funded projects
generally, the general contractor or project engineer usually awards supply
orders on the basis of either direct negotiation or competitive
bidding. The Debtors believe the purchasing decisions for many jobs
ultimately are relationship-based. Thus, the Debtors’ marketing
efforts target general contractors, developers, design engineers, architects,
and homebuilders whose focus extends beyond the price of the product to quality,
consistency, and reducing the in-place cost.
9
The
Debtors’ Prepetition Organizational Structure
A chart
depicting the Debtors’ prepetition organizational structure is attached hereto
as Exhibit D.
The
Debtors’ Prepetition Capital Structure
As of the
Petition Date, the Debtors have total consolidated funded debt of approximately
$312 million, including approximately $40 million in prepetition
secured debt and $285 million in principal amount outstanding and accrued
interest of 8.375% unsecured notes. These amounts exclude accrued
interest and fees outstanding through the Petition Date as well as open but
undrawn letters of credit.
Prepetition
Secured Credit Agreement
Debtor
U.S. Concrete, Inc., as borrower, and certain of its Debtor affiliates, as
guarantors, JPMorgan Chase Bank, N.A., as administrative agent (the “Prepetition Secured
Agent”), Bank of America, N.A., as syndication agent, JP Morgan Chase
Bank, as documentation agent, and the lenders party thereto (together with the
Prepetition Secured Agent, the “Prepetition Secured
Lenders”) are parties to that certain Amended and Restated Credit
Agreement, as further amended (the “Prepetition Secured Credit
Agreement”), dated as of June 30, 2006. The Prepetition
Secured Credit Agreement provides for a $60 million revolving credit
facility, of which approximately $40 million remains outstanding, excluding
$17.9 million of unfunded letters of credit obligations (the “Prepetition Secured Credit
Agreement Obligations”). The Prepetition Secured Credit
Agreement matures on March 11, 2012. Apart from Debtor U.S. Concrete,
Inc., which serves as borrower, and Beall Investment Corporation, Inc., each of
the Debtors guarantee the Secured Bank Agreement Claims. In addition,
the following five non-Debtor subsidiaries also guarantee the Prepetition
Secured Credit Agreement: Builders’ Redi-Mix, LLC; BWB, Inc. of
Michigan; Kurtz Gravel Company; Superior Holdings, Inc.; and USC Michigan, Inc.
(collectively, the “Non-Filers”). The
Prepetition Secured Credit Agreement is secured by substantially all of the
assets of the Debtors and Non-Filers, with the exception of Michigan Joint
Venture-related assets.
8.375%
Unsecured Notes Due 2014
Debtor
U.S. Concrete, Inc., as issuer, certain of its Debtor affiliates, as guarantors,
and Wells Fargo Bank, National Association, as trustee (the “Note Indenture
Trustee”), are parties to that certain Indenture, dated as of March 31,
2004, as supplemented by the First Supplemental Indenture, dated as of July 5,
2006 (the “Note
Indenture” and, together with the Prepetition Secured Credit Agreement,
the “Debt Instruments”). Under
the Notes Indenture, U.S. Concrete, Inc. issued a total of $285 million in
8.375% unsecured notes due 2014 (the “Notes”) to holders
(the “Noteholders”). U.S.
Concrete, Inc. issued the Notes to redeem its prior 12% senior subordinated
notes, prepay the outstanding debt under the Prepetition Secured Credit
Agreement, and finance certain acquisitions. As of the Petition Date,
approximately $285 million of Notes, in principal and accrued interest, was
outstanding. Apart from U.S. Concrete, Inc., who serves as issuer,
and Beall Investment Corporation, Inc., each of the Debtors and the Non-Filers
guarantee the Notes.
Equity
Interests in U.S. Concrete, Inc.
As shown
in the corporate organizational chart attached as Exhibit D, U.S.
Concrete, Inc. is the Debtors’ top-level entity.
10
U.S.
Concrete Inc.’s stock is traded on the Nasdaq Global Stock Market under the
symbol “RMIX.” As of March 15, 2010, shares of U.S. Concrete Inc.
common stock were held by approximately 519 stockholders of
record. The closing price for U.S. Concrete’s common stock was $0.46
per share on March 12, 2010. U.S. Concrete, Inc. has not paid or
declared any dividends since its formation and currently intends to retain any
earnings to fund its working capital and growth initiatives. The
Debtors received a letter from the Nasdaq Global Stock Market indicating that
the bid price for their common stock over 30 consecutive business days had
closed below the minimum $1.00 per share required for continued listing under
the Nasdaq Marketplace Rules. The Debtors have been provided an
initial period of 180 calendar days, or until September 7, 2010, to regain
compliance. Compliance can be attained if at any time before
September 7, 2010; the bid price of the Debtors common stock closes at $1.00 per
share or more for a minimum of 10 consecutive business days. In the
event the Debtors cannot demonstrate compliance with the minimum bid price rule
by September 7, 2010, their securities are subject to delisting.
Events Leading to the
Chapter 11 Cases
As
discussed above, the Debtors have approximately $312 million of
indebtedness. Over the course of the last eighteen months, a series
of events has occurred that ultimately led to the Debtors’ filing of these
chapter 11 cases. Those events include (1) the unprecedented downturn
in the United States construction industry, (2) the cost savings
initiatives implemented by the Debtors as a result thereof, (3) the Debtors’
prepetition restructuring negotiations, (4) amendments to the Prepetition
Secured Credit Agreement, (5) defaults under the Debt Instruments, and
(6) the Debtors’ successful negotiations with certain of the Noteholders in
connection with the pre-arranged Plan.
1. The
Downturn in the United States Construction Industry.
Since the
middle of 2006, the United States building materials construction market has
become increasingly challenging. In recent years, the construction
industry, particularly the ready-mixed concrete industry, has been characterized
by significant overcapacity, fierce competition, and rapidly declining
sales. The Debtors’ business has not been immune to these
pressures. The steep decline in new home construction in the United
States residential construction market, stemming from the turmoil in the global
credit markets and, in particular, the United States recession, has severely
affected the Debtors’ financial position
As the
following chart demonstrates, the downturn in the construction industry has had
a dramatic impact on demand for the Debtors’ products in each of the last four
years.
11
The
housing market downturn in the United States intensified during 2007, with
housing starts in 2007 falling almost 25% from the 2006 rate to 1.4 million, and
continued during 2008 and 2009, with housing starts in 2008 falling over 33%
from the 2007 rate to approximately 905,000. Housing starts in 2009
fell over 38% from the 2008 rate to approximately 554,000. Moreover,
while it is unclear whether the housing market will begin to recover in 2010
given the uncertainties in forecasting housing starts, housing starts are
unlikely to reach mid-2000 levels for several years.
The
overall decline in the construction industry coupled with market saturation of
building products suppliers is also causing a drop in the price the Debtors are
able to charge for their products. The Debtors expect ready-mixed
concrete pricing declines in 2010 compared to 2009 in most of their markets,
which will have a negative effect on their revenues and gross
margins.
The
substantial deterioration in the construction industry was followed by the rapid
softening of the economy and tightening of the U.S. financial markets in the
second half of 2008, which resulted in the effective collapse of the U.S. credit
markets.
Notwithstanding
that the U.S. credit market has begun to show some signs of improvement during
the first few months of 2010, commercial construction starts are expected to be
down significantly from prior year levels. The Debtors also faced
significant delays in the delivery of products and services to job sites during
in January and February of this year due to severe inclement weather in their
markets. Because of the time-sensitive nature of wet concrete, the
Debtors generally maintain only a few days’ inventory of raw materials on hand
and coordinate their daily materials purchases with the time-sensitive delivery
requirements of their customers. Even minor weather delays can result
in production delays and lost profits.
2. Cost
Savings Initiatives.
In
response to the protracted, declining sales volumes, the Debtors have
implemented cost reduction programs in an effort to return to
profitability. From 2007 through 2009, the Debtors implemented
workforce reductions, plant idling, rolling stock dispositions, and divestitures
of nonperforming business units to reduce structural costs. In 2010,
the Debtors implemented further cost-cutting measures, including wage freezes,
elimination of their 401(k) company match program, and other reductions in other
employee benefits, and a significant scaling back of capital investment in their
equipment.
Nonetheless,
the continued weakening economic conditions, including ongoing softness in
residential construction, further softening of demand in the commercial sector,
and delays in public works projects in many of the Debtors’ markets, have placed
significant distress on the Debtors’ liquidity position, a trend which is
expected to continue throughout 2010.
3. The
Debtors’ Prepetition Restructuring Negotiations.
Over the
course of the last three months, the Debtors have been engaged in extensive
discussions with legal and financial advisors to the Informal Noteholders
Committee regarding the terms of a consensual out-of-court
restructuring. However, because the Debtors’ parent entity is a
public company with numerous small retail Noteholders, it was not feasible for
the Debtors to complete the proposed debt-for-equity exchange on an out-of-court
basis. As a result, the Debtors shifted their efforts towards
accomplishing a reorganization through a consensual chapter 11
plan.
12
4. Amendments
to the Prepetition Secured Credit Agreement.
As the
Debtors continued to engage in discussions with counsel to the Informal
Noteholder Committee toward a consensual prearranged restructuring, the
depressed state of the concrete industry undermined the Debtors’ ability to
avoid defaults under the Debt Instruments.
In order
to continue their prenegotiated plan discussions, on February 19, 2010, the
Debtors entered into an amendment (the “Fourth Amendment”) to
the Prepetition Secured Credit Agreement. The Fourth Amendment
provided additional liquidity so that the Debtors could meet their financial
obligations by, among other things, waiving the Debtors’ solvency representation
and warranty through April 30, 2010 and increasing short-term liquidity by
providing an additional $2.5 million of available credit through March 10, 2010
and an additional $5 million of available credit through April 30,
2010.
On March
24, 2010, the Debtors further amended the Prepetition Secured Credit Agreement,
again in connection with their continued negotiations of a prearranged plan (the
“Fifth
Amendment”). The Fifth Amendment, among other things,
increased short-term liquidity by providing an additional $18.5 million of
available credit. In return, the Prepetition Secured Lenders were
granted a first priority security interest in certain previously excluded
collateral, including any real estate assets owned by the Debtors. In
addition, as previously stated herein, JPMorgan Chase Bank, N.A. replaced
Citicorp North America, Inc. as Secured Agent.
5. Defaults
under the Debt Instruments.
Recognizing
the need for maximum liquidity while the Debtors continued to negotiate a
prearranged restructuring with the Noteholders, the Debtors elected not to make
an interest payment due under the Note Indenture on April 1, 2010 (the “Interest Payment
Default”).
Although
the Note Indenture provided for a 30-day grace period before the Interest
Payment Default became an actionable event of default, the Interest Payment
Default would have an immediate and actionable event of default under the
Prepetition Secured Credit Agreement; however, in connection with the Fourth
Amendment, the Prepetition Secured Lenders temporarily agreed to waive any
default or event of default arising from the Interest Payment Default through
April 30, 2010.
|
6.
|
The
Debtors Successful Negotiations with the Informal Noteholder Committee in
connection with the Prearranged
Plan.
|
After
good-faith, arm’s-length negotiations, the Debtors reached an agreement with
counsel to the Informal Noteholder Committee with respect to a consensual
restructuring on the terms set forth in the Term Sheet and formalized by the
Restructuring and Lock-Up Agreement, dated April 28, 2010.
The
Debtors received an executed Restructuring and Lock-Up Agreement (the “Restructuring and Lock-Up
Agreement”) from a significant majority of the Noteholders.
7. The
Debtors Commence These Chapter 11 Cases.
The
Debtors filed these chapter 11 cases to effectuate the terms of the
Restructuring and Lock-Up Agreement. Based on the Restructuring and
Lock-Up Agreement, the Debtors are prepared to seek confirmation of the Plan
shortly after the filing of these chapter 11 cases. Indeed, because
the Plan is based on a consensual deal with the Debtors’ key stakeholders and
contemplates a significant de-leveraging of the Debtors’ balance sheet¾including satisfaction in
full of the Prepetition Secured Credit Agreement Obligations through
debtor-in-possession financing proceeds, equitization of the Notes, and a full
recovery to holders of General Unsecured Claims (as defined in the Plan)¾confirmation of the Plan is
expected to occur over a relatively short timeframe. Specifically,
pursuant to the Restructuring and Lock-Up Agreement, the Debtors have agreed
that the Disclosure Statement must be filed within 10 days of the Petition Date,
the Disclosure Statement and accompanying solicitation materials must be
approved and a hearing to confirm the Plan must be scheduled, within 40 days
after the filing of the Plan, the Plan must be confirmed within 60 days of the
date on which the Disclosure Statement is approved (subject to a 15-day
extension under certain circumstances), and the Plan must be effective within 25
days of the confirmation date (subject to a 15-day extension under certain
circumstances)
13
Initial Motions of the
Chapter 11 Cases and Certain Related Relief
In order
to minimize disruption to the Debtors’ operations and effectuate the terms of
the Plan Term Sheet, the Debtors obtained certain relief, including the relief
summarized below.
Motion
for Authority to Enter into a Postpetition Financing Agreement
On April
30, 2010, the Bankruptcy Court entered an order authorizing the Debtors to enter
into the DIP Facility on an interim basis pending the final hearing on the
motion. Pursuant to this order, the Debtors are authorized to use
proceeds of the DIP Facility to (a) pay off the Prepetition Secured Credit
Agreement Obligations, (b) pay vendors in the ordinary course of business,
(c) fund fees and expenses of the Chapter 11 Cases, and (d) fund
operational needs—all of which are necessary to preserve and maintain the
Debtors’ going-concern value and, ultimately, effectuate a successful
reorganization. On May 21, 2010, the Bankruptcy Court entered an
order authorizing the Debtors to enter into the DIP Facility on a final
basis.
Motion
to Pay Employee Wages and Associated Compensation
On April
30, 2010, the Bankruptcy Court entered an order authorizing it (a) to pay
certain prepetition wages, salaries, and other compensation, reimbursable
employee expenses, and employee medical, pension, and similar benefits and
(b) to continue their workers’ compensation program. The order
also authorizes the Debtors to remit any outstanding payroll taxes or deductions
to the appropriate third-party or taxing authority.
Motion
to Pay Prepetition General Unsecured Claims
On April
30, 2010, the Bankruptcy Court entered an order authorizing the Debtors to pay
general unsecured claims on an interim basis (excluding Note Claims) in their
sole discretion and in the ordinary course of business. On May 21,
2010, the Bankruptcy Court entered an order authorizing the Debtors to pay
general unsecured claims in the ordinary course of business on a final
basis.
Motion
to Pay Taxes and Fees
On April
30, 2010, the Debtors obtained approval authorizing, but not directing, the
payment of certain taxes and fees that in the ordinary course of business
accrued or arose before the Petition Date.
Motion
to Prohibit Utilities from Terminating Service
On April
30, 2010, the Bankruptcy Court entered an order (a) setting a final hearing to
approve, among other things, the Debtors’ proposed adequate assurance of payment
for future service to the utility providers and procedures governing any
requests for additional or different adequate assurance and (b) prohibiting
the utility providers from altering, refusing, or discontinuing utility services
on account of any unpaid prepetition charges, or discriminating against the
Debtors, or requiring payment of a deposit or receipt or any other security for
continued service as a result of the Debtors’ bankruptcy filing or any
outstanding prepetition invoices without further Bankruptcy Court
order. On May 21, 2010, the Bankruptcy Court entered an order
approving the Debtors’ utilizes motion, and granting the above relief, on a
final basis.
14
NOL
Motion
On April
30, 2010, the Bankruptcy Court entered an interim order establishing
notification and hearing procedures that must be satisfied before certain
transfers of common stock in U.S. Concrete, Inc., or of any beneficial interest
therein, including options to acquire such stock, are deemed
effective. On May 21, 2010, the Bankruptcy Court entered an order
establishing the notification and hearing procedures on a final
basis.
Customer
Programs Motion
On April
30, 2010, the Bankruptcy Court entered an order authorizing, but not directing,
the Debtors, in their sole discretion, to (a) maintain and administer
customer programs, (b) honor prepetition obligations earned by and owing to
their customers related thereto in the ordinary course of business and in a
manner consistent with past practice, and (c) provide credit adjustments and
discounts to their customers in satisfaction of accrued prepetition obligations
incurred by the Debtors under the customer programs.
Other
Related Relief
In
addition, the Debtors filed the following motions, which were granted after a
hearing in the Bankruptcy Court, obtaining: (a) an order
directing the joint administration of the 44 Chapter 11 Cases under a single
docket, Case Number 10-11407; and (b) orders (i) authorizing the
Debtors to continue to use their centralized cash management system, bank
accounts, and perform intercompany transactions; (ii) establishing
procedures for interim compensation and reimbursement of expenses of retained
professionals in the Chapter 11 Cases; (iii) establishing procedures for
retention and compensation of professionals utilized in the ordinary course of
the Debtors’ business; (iv) authorizing the Debtors to continue prepetition
insurance policies and program and to maintain premium financing agreements for
insurance coverage entered into prepetition; (v) approving this Disclosure
Statement and the solicitation and voting procedures; and (vii) establishing
certain dates and deadlines.
Treatment of Claims and
Interests
Claims
and Interests, except for Administrative Claims, DIP Facility Claims, and
Priority Tax Claims are classified in the Classes set forth in Article III of
the Plan. A Claim or Interest is classified in a particular Class
only to the extent that the Claim or Interest qualifies within the description
of that Class and is classified in other Classes to the extent that any portion
of the Claim or Interest qualifies within the description of such other
Classes. A Claim or Interest also is classified in a particular Class
for the purpose of receiving distributions pursuant to the Plan only to the
extent that such Claim or Interest is an Allowed Claim or and Allowed Interest
in that Class and has not been paid, released, or otherwise satisfied prior to
the Effective Date.
Distributions
under the Plan will be made only to Holders of Allowed Claims or Allowed
Interests. As more fully described in Articles II and III of the
Plan, Holders of Disputed Claims or Disputed Interests will receive no
distributions unless and until their Claims or Interests become
Allowed.
15
Pursuant
to the terms of the Plan, except for Claims or Interests that are (a) expressly
exempted from the discharge provisions of the Bankruptcy Code or (b)
specifically identified as being reinstated, all Claims or Interests that arose
prior to Confirmation will be discharged.
Administrative
Claims
In
accordance with section 1123(a)(1) of the Bankruptcy Code,
Administrative Claims, DIP Facility Claims, and Priority Tax Claims
have not been classified and, thus, are excluded from the Classes of Claims and
Interests set forth in Article III of the Plan.
General
Administrative Claims
Except as
specified in Article II of the Plan, unless otherwise agreed to by the Holder of
a General Administrative Claim and the Debtors or the Reorganized Debtors, as
applicable, each Holder of an Allowed General Administrative Claim will receive,
in full satisfaction of its General Administrative Claim, Cash equal to the
amount of such Allowed General Administrative Claim the ordinary course of the
Debtors’ business, pursuant to the terms and conditions of the particular
transaction giving rise to such Allowed General Administrative Claims, without
any further action by the Holders of such Allowed General Administrative
Claims.
DIP
Facility Claims
Notwithstanding
anything to the contrary in the Plan, and subject to the terms of the DIP
Facility, in full and final satisfaction, settlement, release, and discharge of
and in exchange for release of all DIP Facility Claims, on the Effective Date,
the DIP Facility Claims shall convert into the Exit Facility or be paid off in
full and in Cash.
Professional
Compensation
Final
Fee Applications
All final
requests for payment of Professional Fee Claims, including the Holdback Amount
and Professional Fee Claims incurred during the period from Petition Date
through the Confirmation Date, must be filed with the Bankruptcy Court and
served on the Reorganized Debtors no later than 45 days after the Confirmation
Date, unless the Debtors agree otherwise. After notice and a hearing
in accordance with the procedures established by the Bankruptcy Code and prior
orders of the Bankruptcy Court in the Chapter 11 Cases, the allowed amounts of
such Professional Fee Claims shall be determined by the Bankruptcy
Court.
Post-Confirmation
Date Fees and Expenses
Except as
otherwise specifically provided in the Plan, from and after the Confirmation
Date, the Reorganized Debtors shall, in the ordinary course of business and
without any further notice to or action, order, or approval of the Bankruptcy
Court, pay in Cash the reasonable legal, professional, or other fees and
expenses related to implementation and Consummation of the Plan incurred by the
Reorganized Debtors. Upon the Confirmation Date, any requirement that
Professionals comply with sections 327 through 331 and 1103 of the Bankruptcy
Code in seeking retention or compensation for services rendered after such date
shall terminate, and the Reorganized Debtors may employ and pay any Professional
in the ordinary course of business without any further notice to or action,
order, or approval of the Bankruptcy Court.
16
Priority
Tax Claims
Except to
the extent that a Holder of an Allowed Priority Tax Claim agrees to a less
favorable treatment, in full and final satisfaction, settlement, release, and
discharge of and in exchange for each Allowed Priority Tax Claim, each Holder of
such Allowed Priority Tax Claim shall be treated in accordance with the terms
set forth in section 1129(a)(9)(C) of the Bankruptcy Code.
Classified
Claims and Interests.
Class
1 –Other Priority Claims
Classification: Class
1 consists of all Other Priority Claims.
Treatment: Except
to the extent that a Holder of an Allowed Class 1 Claim agrees to a less
favorable treatment, in full and final satisfaction, settlement, release, and
discharge of and in exchange for each Class 1 Claim, each such Holder shall be
paid in full in Cash by the Debtors or the Reorganized Debtors, as applicable,
in the ordinary course of business.
Voting: Class 1 is
Unimpaired by the Plan. Holders of Claims in Class 1 are conclusively
presumed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy
Code. Therefore, such Holders are not entitled to vote to accept or
reject the Plan.
Class
2 - Other Secured Claims
Classification: Class
2 consists of all Other Secured Claims.
Treatment: Except
to the extent that a Holder of an Allowed Class 2 Claim agrees to a less
favorable treatment, in full and final satisfaction, settlement, release, and
discharge of and in exchange for each Class 2 Claim, each such Claim shall be
Reinstated or otherwise rendered Unimpaired for the benefit of the Holders
thereof.
Voting: Class 2 is
Unimpaired by the Plan. Holders of Claims in Class 2 are conclusively
presumed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy
Code. Therefore, such Holders are not entitled to vote to accept or
reject the Plan.
Class
3 – General Unsecured Claims
Classification: Class
3 consists of all General Unsecured Claims.
Treatment: On the
Effective Date, except to the extent that a Holder of a General Unsecured Claim
agrees to less favorable treatment of its Allowed General Unsecured Claim or has
been paid prior to the Effective Date, each Allowed General Unsecured Claim
shall be paid in full, in Cash, in the ordinary course of business or otherwise
rendered Unimpaired. An Allowed Unsecured Ongoing Operations Claim
that is not due and payable on or before the Effective Date shall be paid
thereafter (i) in the ordinary course of business in accordance with the terms
of any agreement that governs such General Unsecured Claim or (ii) in accordance
with the course of practice between the Debtors and such Holder with respect to
such General Unsecured Claim. Holders of General Unsecured Claims who
received payment(s) from the Debtors during the Chapter 11 Cases pursuant to any
Bankruptcy Court Final Order shall not be excluded from receiving distributions
under the Plan of Reorganization on account of such Claims unless such Claims
were fully satisfied by any prior payments from the Debtors. The
Debtors reserve the right to challenge the legal basis and amount of any General
Unsecured Claim.
17
Voting: Class 3 is
Unimpaired under the Plan. Holders of Claims in Class 3 are
conclusively presumed to have accepted the Plan pursuant to section 1126(f) of
the Bankruptcy Code. Therefore, such Holders are not entitled to vote
to accept or reject the Plan.
Class
4 –Note Claims
Classification: Class 4
Consists of all Note Claims.
Treatment: On the Effective
Date, except to the extent that a Holder of a Note Claim agrees to less
favorable treatment of its Allowed Note Claim, each Holder of an Allowed Note
Claim against the Debtors shall receive its Pro Rata share of 100% of the New
Equity issued on the Effective Date (subject to dilution by amounts reserved
pursuant to the Management Equity Incentive Plan and the New
Warrants).
Voting: Class 4 is Impaired
by the Plan. Each Holder of a Note Claim is entitled to vote to
accept or reject the Plan.
Class
5 - Intercompany Claims
Classification: Class
5 consists of all Intercompany Claims.
Treatment: Intercompany
Claims may be Reinstated as of the Effective Date or, at the Debtors’ or the
Reorganized Debtors’ option, be cancelled, and no distribution shall be made on
account of such Claims.
Voting: Class 5 is
Unimpaired by the Plan. Holders of Claims in Class 5 are conclusively
presumed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy
Code. Therefore, such Holders are not entitled to vote to accept or
reject the Plan.
Class
6- Intercompany Interests
Classification: Class
6 consists of all Intercompany Interests.
Treatment: In full
and final satisfaction, settlement, release, and discharge of and in exchange
for each Class 6 Interest, such Interests shall be Reinstated for the benefit of
the Holders thereof.
Voting: Class 6 is
Unimpaired by the Plan. Holders of Interests in Class 6 are
conclusively presumed to have accepted the Plan pursuant to section 1126(f) of
the Bankruptcy Code. Therefore, such Holders are not entitled to vote
to accept or reject the Plan.
Class
7 – Interests in U.S. Concrete, Inc.
Classification: Class
7 consists of Interests in U.S. Concrete, Inc..
Treatment: On the
Effective Date, except to the extent that a Holder of an Interest in U.S.
Concrete, Inc. agrees to less favorable treatment of its Allowed Interest, each
Holder of an Interest in U.S. Concrete, Inc. shall receive its Pro Rata share of
the New Warrants.
Voting: Class 7 is
Impaired by the Plan. Holders of Interests in Class 7 are entitled to
vote to accept or reject the Plan.
18
Class
8 - Section 510(b) Claims
Classification: Class
8 consists of all Section 510(b) Claims.
Treatment: On the
Effective Date, all Class 8 Claims shall be cancelled without any
distribution.
Voting: Class 8 is
Impaired by the Plan. Holders of Claims in Class 8 are conclusively
presumed to have rejected the Plan pursuant to section 1126(g) of the Bankruptcy
Code. Therefore, such Holders are not entitled to vote to accept or
reject the Plan.
Management of the
Debtors
Biographical
information for Mr. Michael W. Harlan, Mr. Robert D. Hardy, and
Mr. Curt M. Lindeman is set forth below:
Mr. Harlan
has served as U.S. Concrete Inc.’s President and Chief Executive Officers since
2007, and as one of U.S. Concrete Inc.’s directors since
2006. Previously, he served as one of U.S. Concrete Inc.’s directors
from 1999 to 2003. From 2003 through 2007, Mr. Harlan served as
U.S. Concrete’s Executive Vice President and Chief Operating
Officer. Mr. Harlan served as U.S. Concrete Inc.’s Chief
Financial Officer from 1998 to 2004, as Senior Vice President from 1998 to 2003,
and as Corporate Secretary from 1998 to 1999. Prior to founding
U.S. Concrete Inc., Mr. Harlan served as Senior Vice President and Chief
Financial Officer of Apple Orthodontix, Inc., an orthodontic practice management
company, from 1996 to 1998. Mr. Harlan is on the Board of
Directors of Waste Connections, Inc., a publicly-traded solid waste services
firm, where he serves as Chairman of the Audit committee.
Mr. Hardy
served as U.S. Concrete Inc.’s Executive Vice President and Chief Financial
Officers from 2007 through June 4, 2010. From 2004 through 2007, he
served as U.S. Concrete Inc.’s Senior Vice President and Chief Financial
Officer. From January 2004 through November 2004, Mr. Hardy was
self-employed as a business consultant to NL Industries, Inc., an international
chemical company. From 1992 through 2003, Mr. Hardy held various
positions of increasing responsibility in the tax, accounting, and finance
departments of NL Industries. The Debtors currently are in the
process of selecting a new chief financial officer.
Mr. Lindeman
has served as U.S. Concrete Inc.’s Vice President and General Counsel since
2007, and as Corporate Secretary since 2006. From 2006 to 2007,
Mr. Lindeman served as U.S. Concrete Inc.’s Assistant General
Counsel. From 2002 through 2006, Mr. Lindeman was self-employed
as an attorney representing various companies, including U.S. Concrete
Inc. In 1999, Mr. Lindeman served as counsel for Coral Energy,
L.P., a wholesale natural gas and power marketing and trading company affiliated
with Shell Oil Company. From 1997 to 1999, he served as an attorney
with Shook, Hardy & Bacon L.L.P.
Composition of New Board of
Directors
The
Reorganized Debtors and New U.S. Concrete Holdings shall have 5-person board of
directors, which shall consist of Reorganized U.S. Concrete Holdings’ Chief
Executive Officer and 4 directors, that will be selected by the Informal
Noteholders Committee.
Pursuant
to section 1129(a)(5) of the Bankruptcy Code, the Debtors will disclose in
advance of the Plan Confirmation Hearing, to the extent known, the identity and
affiliations of any Person proposed to serve on the initial board of directors
or be an officer of each of the Reorganized Debtors and New U.S. Concrete
Holdings. To the extent any such director or officer of the
Reorganized Debtors or New U.S. Concrete Holdings is an “insider” under the
Bankruptcy Code, the Debtors will also disclose the nature of any compensation
to be paid to such director or officer.
19
Capital Structure of the
Reorganized Debtors upon Consummation
Exit
Facility
On the
Effective Date, the Reorganized Debtors shall enter into the Exit Facility, the
terms of which shall be disclosed in the Plan
Supplement. Confirmation shall be deemed approval of the Exit
Facility (including the transactions contemplated thereby, and all actions to be
taken, undertakings to be made, and obligations to be incurred by the
Reorganized Debtors in connection therewith) and authorization for the
Reorganized Debtors to enter into and execute the Exit Facility documents,
subject to such modifications as the Reorganized Debtors may deem to be
reasonably necessary to consummate such Exit Facility.
Intercompany
Account Settlement
The
Debtors and the Reorganized Debtors, as applicable, will be entitled to transfer
funds between and among themselves as they determine to be necessary or
appropriate to enable the Reorganized Debtors to satisfy their obligations under
the Plan. Except as set forth in the Plan, any changes in
intercompany account balances resulting from such transfers will be accounted
for and settled in accordance with the Debtors’ historical intercompany account
settlement practices and will not violate the terms of the Plan.
Issuance
of New Warrants and New Equity
The
issuance of the New Warrants and New Equity, including options, or other equity
awards, if any, reserved for the Management Equity Incentive Plan, by New U.S.
Concrete Holdings is authorized without the need for any further corporate
action or without any further action by the Holders of Claims or
Interests.
All of
the shares of New Equity issued pursuant to the Plan shall be duly authorized,
validly issued, fully paid, and non-assessable. Each distribution and
issuance referred to in Article VI of the Plan shall be governed by the terms
and conditions set forth in the Plan applicable to such distribution or issuance
and by the terms and conditions of the instruments evidencing or relating to
such distribution or issuance, which terms and conditions shall bind each Entity
receiving such distribution or issuance. For purposes of
distribution, the New Equity shall be deemed to have the value assigned to it
based upon, among other things, the New U.S. Concrete Total Enterprise Value,
regardless of the date of distribution.
Management
Equity Incentive Plan
On the
Effective Date, 9.5% of the New Equity, on a fully-diluted basis, shall be
reserved for issuance as grants of stock, restricted stock, options, or stock
appreciation rights or similar equity awards to management and employees in
connection with the Management Equity Incentive Plan, and 0.5% of the New
Equity, on a fully-diluted basis shall be reserved for Director
Equity. The terms and conditions of the grant of the Director Equity
shall be set forth in the Management Equity Incentive Plan.
20
A minimum
of 3.5% of the fully-diluted New Equity shall be issued to management and
employees within 30 days of the Effective Date pursuant to the terms of the
Management Equity Incentive Plan. The initial allocation of New
Equity to the Debtors’ Chief Executive Officer, Chief Financial Officer, General
Counsel, and Vice President of Human Resources shall be determined prior to
Confirmation. Such initial awards of New Equity shall vest quarterly
33% in the first year after the Effective Date, 33% in the second year after the
Effective Date, and 33% in the third year after the Effective Date, provided
that in the event an employee is terminated without cause, any New Equity
previously awarded and any New Equity awards that would have vested in the six
month period following such employee’s termination shall vest immediately and
shall be exercisable by such employee within the twelve month period following
termination. A material portion of such New Equity shall be comprised
of restricted stock units.
All New
Equity reserved pursuant to the Management Equity Incentive Plan and not issued
shall be granted to managers of the Reorganized Debtor within 5 years of the
Effective Date.
Summary
of Legal Proceedings2
The
Debtors’ Legal Proceedings
Because
of the size and nature of the Debtors’ business, the Debtors’ are party to
numerous legal proceedings. Most of these legal proceedings have
arisen in the ordinary course of the Debtors’ business and involve Claims for
money damages. Whether these Claims are or will be liquidated or
resolved in the Bankruptcy Court or in some other jurisdiction depends upon the
nature of the Claims and the debt arising therefrom. Generally, if
the debt underlying such Claims was incurred by the Debtors prior to the date
the Plan is confirmed, such debt, in accordance with section 1141 of the
Bankruptcy Code, will be discharged through bankruptcy, depending upon the
nature of the relief sought, regardless of whether the Claim is liquidated and
resolved before or after the Effective Date. Claims arising from
conduct occurring after the Effective Date, unless provided for under the Plan,
generally are not dischargeable through bankruptcy, and will be handled by the
Reorganized Debtors in the ordinary course of their business after
emergence.
2
|
This
summary is not intended as an exhaustive description of all pending legal
matters or proceedings in which the Debtors are
involved. Certain legal proceedings may be subject to appeal in
or outside the Bankruptcy Court. Nothing in this discussion is
deemed to be an admission by the Debtors of any liability or wrongdoing or
a waiver of any rights or defenses.
|
21
California
Wage and Hour Class Actions
Debtor
Central Concrete Supply Co., Inc. (“Central Concrete”),
is a defendant in a class action pending in Alameda Superior Court
(California). Four class actions were filed between April 6, 2007 and
September 27, 2007 on behalf of various Central Concrete ready-mixed concrete
and transport drivers, alleging, primarily, that Central Concrete failed to
provide meal and rest breaks as required under California law. The
Debtors have settled with the class consisting of the transport drivers and have
entered into settlements with more than half of the individual ready-mix drivers
for approximately $2.5 million. The remaining three classes have
been consolidated and a single class was certified on July 24,
2009. Prior to the Petition Date, the Debtors reached a preliminary
settlement with counsel to the pending class actions under which the Debtors
will pay $1.5 million (plus administrative costs not to exceed $50,000 plus
Central Concrete’s portion of any withholding taxes on such amount) to the class
members in the aggregate in return for a dismissal with prejudice of the class
action lawsuit (the “Proposed California Wage and
Hour Settlement”).
On May
13, 2010. the Debtors filed the California Wage and Hour Joint Motion, through
which the Debtors are seeking, among other things, that the Bankruptcy Court (i)
certify a class Proof of Claim to be Filed by the class action representatives
and (ii) approve the proposed settlement of the California Wage and Hour
Litigation. The Debtors are continuing to take steps during the
Chapter 11 Cases to finalize and approve the Proposed California Wage and Hour
Settlement.
Teamsters
Local 641 Pension Fund Withdrawal Liability Assessment
The
Debtors were assessed a complete withdrawal liability from the Teamsters Local
641 Pension Fund on January 27, 2010, in the amount of
$1,376,505. The payment schedule calls for 21 quarterly payments of
$76,642 and a final payment of $19,362. The Debtors filed a timely
request for review on February 16, 2010 and have preserved their rights to
contest the assessment and to proceed to arbitration. Despite the
request for review, the Employee Retirement Income Secured Act (“ERISA”) requires that
the Debtors comply with the payment schedule. The Debtors’ first
payment was due on or around March 27, 2010; however, the Debtors did not
make this payment, which resulted in a default. Under ERISA section
4219, in the event of a default, the pension fund may demand immediate payment
of the entire amount and proceed to court to collect the
delinquency. The term “default” is defined as a “failure to cure”
within 60 days of a notice from the Pension Fund. As of the Petition
Date, the Debtors had not received any such notice from the Pension
Fund.
Teamsters
Local 863 Pension Fund Funding Deficiency Litigation
On or
about March 19, 2010, Debtor Eastern Concrete Materials, Inc. was sued by Local
863 Pension Fund seeking payment of the Debtor’s share of funding deficiencies
for plan years ending August 31, 2003 and August 31, 2005 through
August 31, 2008. If at the end of any plan year, the pension fund had
“negative credit balance,” the contributing employers were required by law to
pay their share of the deficiency, defined as a violation of the minimum funding
standards. In addition, an employer is also required to pay an excise
tax to the Internal Revenue Services (“IRS”) in the amount
of 5% of the employer’s liability for each plan year. The amount of
the excise tax can be increased to 100% if the employer does not pay the
assessment within 90 days of notice of the deficiency from the
IRS. The complaint against the Debtors demands payment of $1,802,583
plus attorneys fees and accruing interest. While there may be
substantive defenses available to the Debtors, they are considering a settlement
proposal and payment schedule to ease cash flow burdens.
22
Valuation
Analysis
THE
VALUATION INFORMATION CONTAINED IN THIS SECTION WITH REGARD TO THE REORGANIZED
DEBTORS IS NOT A PREDICTION OR GUARANTEE OF THE ACTUAL MARKET VALUE THAT MAY BE
REALIZED THROUGH THE SALE OF ANY SECURITIES TO BE ISSUED PURSUANT TO THE
PLAN.
1. Overview
The Debtors’ financial advisor, Lazard
Frères & Co. LLC (“Lazard”), has
estimated the value of the Reorganized Debtors as of the date of this Disclosure
Statement. Lazard has undertaken this valuation analysis to determine
the value available for distribution to Holders of Allowed Claims and Allowed
Interests pursuant to the Plan and to analyze the relative recoveries to such
Holders thereunder. The estimated total value available for
distribution to Holders of Allowed Claims and Allowed Interests, as applicable
(the “Total Enterprise
Value”) consists of the estimated value of the Reorganized Debtors’
operations on a going-concern basis, which includes the estimated value of the
Reorganized Debtors’ 60% equity interest in the Michigan Joint Venture on a
going-concern basis. The valuation analysis assumes that the
Effective Date occurs on July 31, 2010 (the “Assumed Effective
Date”) and is based on the Financial Projections, a copy of which is
attached hereto as Exhibit
C.
Based on the Financial Projections and
solely for purposes of the Plan, Lazard estimates that the Total Enterprise
Value of the Reorganized Debtors falls within a range from approximately
$180 million to $208 million, with a mid-point estimate of $194
million. For purposes of this valuation, Lazard assumes that no
material changes that would affect value occur between the date of this
Disclosure Statement and the Assumed Effective Date. Based on an
estimated net debt balance of approximately $51 million projected as of the
Assumed Effective Date, Lazard’s mid-point estimate of Total Enterprise Value
implies a value for the New Equity (the “Equity Value”) of
approximately $143 million. Lazard’s estimate of Total Enterprise
Value does not constitute an opinion as to fairness from a financial point of
view of the consideration to be received under the Plan or of the terms and
provisions of the Plan.
THE
ASSUMED TOTAL ENTERPRISE VALUE RANGE, AS OF THE ASSUMED EFFECTIVE DATE OF JULY
31, 2010, REFLECTS WORK PERFORMED BY LAZARD ON THE BASIS OF INFORMATION
AVAILABLE TO LAZARD AS OF THE DATE OF THIS DISCLOSURE
STATEMENT. ALTHOUGH SUBSEQUENT DEVELOPMENTS MAY AFFECT LAZARD’S
CONCLUSIONS, NEITHER LAZARD, NOR THE DEBTORS HAVE ANY OBLIGATION TO UPDATE,
REVISE, OR REAFFIRM THE VALUATION ANALYSIS.
Lazard assumed that the Financial
Projections were reasonably prepared in good faith and on a basis reflecting the
Debtors’ most accurate currently available estimates and judgments as to the
future operating and financial performance of the Reorganized
Debtors. Lazard’s estimated Total Enterprise Value range assumes the
Reorganized Debtors will achieve the Financial Projections in all material
respects, including revenue and earnings before interest, taxes, depreciation
and amortization (“EBITDA”) growth and
improvements in EBITDA margins, earnings, and cash flow as
projected. If the business performs at levels below those set forth
in the Financial Projections, such performance may have a materially negative
impact on Total Enterprise Value. Conversely, if the business
performs at levels above those set forth in the Financial Projections, such
performance may have materially positive impact on Total Enterprise
Value.
23
In estimating the Total Enterprise
Value and the Equity Value of the Reorganized Debtors, Lazard: (a)
reviewed certain historical financial information of the Debtors for recent
years and interim periods; (b) reviewed certain internal financial and
operating data of the Debtors, which data were prepared and provided to Lazard
by the management of the Debtors and which relate to the Reorganized Debtors’
business and its prospects; (c) met with and discussed the Debtors’ operations
and future prospects with the senior management team; (d) reviewed certain
publicly available financial data for, and considered the market value of,
public companies that Lazard deemed generally comparable to the operating
business of the Reorganized Debtors; (e) considered certain economic and
industry information relevant to the operating business; and (f) conducted such
other studies, analyses, inquiries, and investigations as it deemed
appropriate. Although Lazard conducted a review and analysis of the
Reorganized Debtors’ business, operating assets and liabilities and the
Reorganized Debtors’ business plan, it assumed and relied on the accuracy and
completeness of all financial and other information furnished to it by the
Reorganized Debtors as well as publicly available information.
In addition, Lazard did not
independently verify the Financial Projections in connection with preparing
estimates of Total Enterprise Value, and no independent valuations or appraisals
of the Debtors were sought or obtained in connection herewith. Such
estimates were developed solely for purposes of the formulation and negotiation
of the Plan and the analysis of implied relative recoveries to Holders of
Allowed Claims and Allowed Interests thereunder.
Lazard’s estimated Total Enterprise
Value of the Reorganized Debtors does not constitute a recommendation to any
Holder of Allowed Claims or Allowed Interests as to how such Holder should vote
or otherwise act with respect to the Plan. Lazard has not been asked
to and does not express any view as to what the trading value of the Reorganized
Debtors’ securities would be when issued pursuant to the Plan or the prices at
which they may trade in the future. The estimated Total Enterprise
Value of the Reorganized Debtors set forth herein does not constitute an opinion
as to fairness from a financial point of view to any Holder of the consideration
to be received by such Holder under the Plan or of the terms and provisions of
the Plan.
Lazard’s estimate of Total Enterprise
Value reflects the application of standard valuation techniques and does not
purport to reflect or constitute appraisals, liquidation values, or estimates of
the actual market value that may be realized through the sale of any securities
to be issued pursuant to the Plan, which may be significantly different than the
amounts set forth herein. The value of an operating business is
subject to numerous uncertainties and contingencies which are difficult to
predict and will fluctuate with changes in factors affecting the financial
condition and prospects of such a business. As a result, the
estimated Total Enterprise Value range of the Reorganized Debtors set forth
herein is not necessarily indicative of actual outcomes, which may be
significantly more or less favorable than those set forth
herein. Neither the Reorganized Debtors, Lazard, nor any other person
assumes responsibility for any differences between the Total Enterprise Value
range and such actual outcomes. Actual market prices of such
securities at issuance will depend upon, among other things, the operating
performance of the Reorganized Debtors, prevailing interest rates, conditions in
the financial markets, the anticipated holding period of securities received by
prepetition creditors (some of whom may prefer to liquidate their investment
rather than hold it on a long-term basis), developments in the Reorganized
Debtors’ industry and economic conditions generally, and other factors which
generally influence the prices of securities.
2. Valuation
Methodology
The following is a brief summary of
certain financial analyses performed by Lazard to arrive at its range of
estimated Total Enterprise Values for the Reorganized Debtors. In
performing the financial analyses described below and certain other relevant
procedures, Lazard reviewed all significant assumptions with the management of
the Debtors. Lazard’s valuation analysis relies predominantly on the
discounted cash flow analysis and the comparable company analysis; while a
precedent transaction analysis was performed, Lazard's reliance on such
methodology for purposes of determining the Total Enterprise Value was lower
than the two other methodologies. Lazard’s valuation analysis must be
considered as a whole. Reliance on only one of the methodologies used
or portions of the analysis performed could create a misleading or incomplete
conclusion as to the Total Enterprise Value. For reasons discussed in
detail below, Lazard made judgments as to the relative significance of each
analysis in determining the value of the Reorganized Debtors’ operations on a
going-concern basis and applied 40% weight to the Discounted Cash Flow Analysis,
40% weight to the Comparable Company Analysis, and 20% weight to the Precedent
Transactions Analysis.
24
Discounted
Cash Flow Analysis
The discounted cash flow analysis
(“DCF
Analysis”) is a forward-looking enterprise valuation methodology that
estimates the value of an asset or business by calculating the present value of
expected future cash flows to be generated by that asset or
business. Under this methodology, projected future cash flows are
discounted by the business’ weighted average cost of capital (the “Discount
Rate”). The Discount Rate reflects the estimated blended rate
of return that would be required by debt and equity investors to invest in the
business based on its capital structure. The enterprise value of the
firm is determined by calculating the present value of the Reorganized Debtors’
unlevered after-tax free cash flows based on the Financial Projections plus an
estimate for the value of the firm beyond the period contained within the
Financial Projections known as the terminal value. The terminal value
is derived by evaluating two (2) approaches: 1) applying a multiple
to the Reorganized Debtors’ estimated EBITDA in the year following the period
covered in the Financial Projections, discounted back to the assumed date of
emergence by the Discount Rate; and 2) dividing the estimated unlevered free
cash flow in the year following the period covered by the Financial Projections
by the Discount Rate minus a range of perpetual growth rates, discounted back to
the assumed date of emergence by the Discount Rate.
To estimate the Discount Rate, Lazard
used the cost of equity and the after-tax cost of debt for the Reorganized
Debtors, assuming a targeted long-term debt-to-total capitalization ratio based
on an assumed range of Reorganized Debtors’ pro forma capitalization and the
average leverage ratio of the Peer Group. Lazard calculated the cost
of equity based on the “Capital Asset Pricing Model,” which assumes that the
required equity return is a function of the risk-free cost of capital and the
correlation of a publicly traded stock’s performance to the return on the
broader market. To estimate the cost of debt, Lazard estimated what
would be the Reorganized Debtors’ blended cost of debt based on current capital
markets conditions and the financing costs for comparable companies with
leverage similar to the Reorganized Debtors’ target capital
structure. In determining the terminal multiple, Lazard used a
historical one year forward EBITDA multiple based on the Reorganized Debtors’
multiple range over the last five years.
Although formulaic methods are used to
derive the key estimates for the DCF Analysis methodology, their application and
interpretation still involve complex considerations and judgments concerning
potential variances in the projected financial and operating characteristics of
the Reorganized Debtors, which in turn affect its cost of capital and terminal
multiples. Lazard calculated its DCF valuation on a range of Discount
Rates, terminal value EBITDA multiples and perpetuity growth rates as indicated
below:
25
Discounted
Cash Flow Analysis Assumptions
|
||||
Discount
Rate
|
Terminal
Multiple
|
Perpetuity Growth Rate
|
||
14.5%
- 15.5%
|
6.5x
– 7.5x
|
2.0%
–
4.0%
|
In applying the above methodology,
Lazard utilized management’s detailed Financial Projections for the period
beginning July 31, 2010, and ending December 31, 2014, to derive unlevered
after-tax free cash flows. Free cash flow includes sources and uses
of cash not reflected in the income statement, such as changes in working
capital and capital expenditures. For purposes of the DCF Analysis,
the Reorganized Debtors are assumed to be full taxpayers at the applicable
regional corporate income tax rates (the effective tax rate is assumed to be
40%). Lazard assumes that the Debtors’ existing NOL carryforwards are
fully utilized to offset some of the income resulting from the cancellation of
debt upon the Effective Date. Any cancellation of debt on the
Effective Date in excess of the NOL carryforward is then utilized to reduce the
tax basis in assets. Further tax diligence will be required to
confirm the underlying tax assumptions used in the valuation.
Comparable
Company Analysis
The comparable company valuation
analysis estimates the value of a company based on a relative comparison with
other publicly traded companies with similar operating and financial
characteristics. Under this methodology, the enterprise value for
each selected public company was determined by examining the trading prices for
the equity securities of such company in the public markets and adding the
aggregate amount of outstanding net debt for such company (at book value) and
minority interest less the market value of unconsolidated
investments. Those enterprise values are commonly expressed as
multiples of various measures of operating statistics, most commonly sales,
EBITDA and EBIT. In addition, each of the selected public company’s
operational performance, operating margins, profitability, leverage, and
business trends were examined. Based on these analyses, financial
multiples and ratios are calculated to apply to the Reorganized Debtors’ actual
and projected operational performance. Lazard focused primarily on
EBITDA multiples of the selected comparable companies.
A key factor to this approach is the
selection of companies with relatively similar business and operational
characteristics to the Reorganized Debtors. Common criteria for
selecting comparable companies for the analysis include, among other relevant
characteristics, similar lines of businesses, level of integration through the
value chain, business risks, growth prospects, maturity of businesses, location,
market presence, and size and scale of operations. The selection of
appropriate comparable companies is often difficult, a matter of judgment, and
subject to limitations due to sample size and the availability of meaningful
market-based information.
Lazard selected the following publicly
traded companies (the “Peer Group”) on the
basis of general comparability to the Reorganized Debtors in one or more of the
factors described above: CEMEX, S.A.B. de C.V., Eagle Materials Inc., Texas
Industries Inc., and Martin Marietta Materials Inc. It should be
noted that there is no pure-play, publicly traded North American ready mix
concrete business.
26
Lazard calculated market multiples for
the Peer Group based on 2010 and 2011 estimated EBITDA by dividing the
enterprise value of each comparable companies as of April 27, 2010, by the
projected 2010 and 2011 EBITDA as estimated by equity research
analysts. In determining the applicable EBITDA multiple ranges,
Lazard considered a variety of factors, including both qualitative attributes
and quantitative measures such as historical and projected revenue and EBITDA
results, historical enterprise value/EBITDA trading multiples, EBITDA margins,
financial distress impacting trading values, size, growth, positioning within
the heavy building materials value chain, and similarity in business lines.
Accordingly, a trading discount was applied to the Peer Group’s 2010 and 2011
EBITDA multiples based on the Reorganized Debtors’ historical trading multiples
relative the selected Peer Group’s. Based on this analysis, Lazard’s
selected EBITDA multiple ranges for 2010 and 2011 EBITDA are set forth in the
table below.
Enterprise Value/EBITDA Multiple
|
||||||
Low
|
High
|
Peer Median
|
||||
2010E
|
12.6x
|
13.6x
|
14.6x
|
|||
2011E
|
10.5x
|
11.5x
|
12.5x
|
Lazard then applied the range of
multiples described above to the Reorganized Debtors’ 2010E and 2011E income
from operations before depreciation and amortization, impairment charges, stock
compensation expense, and other operating expenses, such as special charges and
loss on sale or retirement of assets (“Adjusted EBITDA”) to
determine a range of Total Enterprise Value.
Precedent
Transactions Analysis
The precedent transactions valuation
analysis is based on the enterprise values of companies involved in public
merger and acquisition transactions that have operating and financial
characteristics similar to the Reorganized Debtors. Under this
methodology, the enterprise value of such companies is determined by an analysis
of the consideration paid and the debt assumed in the merger or acquisition
transaction. As in a comparable company valuation analysis, those
enterprise values are commonly expressed as multiples of various measures of
operating statistics, such as sales, EBITDA, and EBIT. Lazard
reviewed industry-wide valuation multiples for companies in similar lines of
business to the Reorganized Debtors. The derived multiples are then
applied to the Reorganized Debtors’ operating statistics to determine the Total
Enterprise Value or value to a potential strategic buyer. Similar to
the comparable company analysis, Lazard focused mainly on EBITDA multiples in
comparing the valuations of the Reorganized Debtors and the selected companies
involved in relevant precedent transactions.
In addition, other factors not directly
related to a company’s business operations can affect a valuation based
on precedent transactions, including: (a) circumstances
surrounding a merger transaction may introduce “diffusive quantitative results”
into the analysis (e.g., a buyer may pay an
additional premium for reasons that are not solely related to competitive
bidding); (b) the market environment is not identical for transactions occurring
at different periods of time; (c) the limited universe of public transaction
information involving companies with similar product concentration; and (d)
circumstances pertaining to the financial position of the company may have an
impact on the resulting purchase price (e.g., a company in financial
distress may receive a lower price due to perceived weakness in its bargaining
leverage).
27
As with the comparable company
analysis, because no precedent merger or acquisition used in any analysis will
be identical to the target transaction, valuation conclusions cannot be based
solely on quantitative results. The reasons for and circumstances
surrounding each acquisition transaction are specific to such transaction, and
there are inherent differences between the businesses, operations, and prospects
of each target. Many of the transactions also occurred under
drastically different fundamental, credit, and other market conditions from
those prevailing in the current marketplace. Therefore, qualitative
judgments must be made concerning the differences between the characteristics of
these transactions and other factors and issues that could affect the price an
acquirer is willing to pay in an acquisition. The number of completed
transactions for which public data is available also limits this
analysis. Furthermore, the data available for all the precedent
transactions may have discrepancies due to varying sources of
information. As described above, the precedent transactions analysis
explains other aspects of value besides the inherent value of a
company. As a result of these significant limitations as to the
usefulness of this methodology, Lazard's reliance on the precedent transactions
analysis in determining the Total Enterprise Value was less than other
methodologies.
In deriving a range of Total Enterprise
Values for the Reorganized Debtors under this methodology, Lazard calculated
multiples of total transaction value (“Transaction Value”)
to the last twelve months (“LTM”) EBITDA of the
acquired companies and applied these multiples to the 2009 Adjusted EBITDA for
the Reorganized Debtors.
Lazard evaluated various merger and
acquisition transactions that have occurred in the heavy building materials over
the last twelve years. Lazard calculated multiples of the target companies by
dividing the disclosed purchase price of the target’s equity, plus any debt
assumed as part of the transaction less any cash on the target’s balance sheet,
by estimated LTM EBITDA. Based on this calculation and the
qualitative factors described above, Lazard selected the EBITDA multiple ranges
set forth in the table below:
Enterprise Value/
EBITDA Multiple
|
||||||
Low
|
High
|
Precedent Median
|
||||
LTM
EBITDA
|
7.0x
|
8.0x
|
8.0x
|
Other
Assets/ Liabilities Valuation
Other restructuring costs and
professional fees were taken into account when estimating beginning cash balance
of the Reorganized Debtors upon emergence.
Lazard estimated the enterprise value
of the Michigan Joint Venture utilizing the same methodologies and assumptions
described above. All value to the Reorganized Debtors from its 60%
equity interest in the Michigan Joint Venture is after distributions to
creditors of the non-debtor entity.
THE SUMMARY SET FORTH ABOVE DOES NOT
PURPORT TO BE A COMPLETE DESCRIPTION OF THE ANALYSES PERFORMED BY
LAZARD. THE PREPARATION OF A VALUATION 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 SUITABLE TO SUMMARY
DESCRIPTION. IN PERFORMING THESE 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.
28
Liquidation
Analysis
Under the
“best interests” of creditors test set forth in 1129(a)(7) of the Bankruptcy
Code, the Bankruptcy Court may not confirm a plan of reorganization unless the
plan provides each Holder of a Clam or an Interest who does not otherwise vote
in favor of the plan with property of a value that is not less than the amount
that such holder would receive or retain if the debtor was liquidated under
chapter 7 of the Bankruptcy Code. The Debtors, together with their
Professionals, have prepared a liquidating analysis (the “Liquidation
Analysis”), a copy of which is attached as Exhibit B, to assist
Holders of Claims and Interests, as applicable, in determining whether to vote
to accept or reject the Plan.
The
Liquidation Analysis is based upon the value of the Debtors’ assets and
liabilities as of a certain date and incorporates various estimates and
assumptions. Further, the Liquidation Analysis is subject to the possibility of
material change, including changes with respect to economic and business
conditions and legal rulings. Therefore, the actual liquidation value
of the Debtors could vary materially from the estimates provided in the
Liquidation Analysis. The Liquidation Analysis is based on data and
information as of February 28, 2010. The Debtors make no
representations as to changes to such data that may have occurred, or any
information that may have become available, since that date.
The
Debtors believe that the Plan satisfies the “best interests”
test. Specifically, Administrative Claims, Other Secured Claims,
Priority Tax Claims, Other Priority Claims, and General Unsecured Claims are
Unimpaired under the Plan and therefore do not receive less than the amount such
Claims would receive in a chapter 7 liquidation. In addition, the
Debtors have a commitment from certain Holders of Note Claims, sufficient in
both amount and number pursuant to section 1126(c) of the Bankruptcy Code, to
ensure that the Class 4 Note Claims is an accepting Class, and Holders of
Interests in U.S. Concrete, Inc., who would receive no recovery in a chapter 7
liquidation, will receive the New Warrants under the Plan. Finally,
Section 510(b) Claims also would receive no recovery in a chapter 7 liquidation
and, therefore, are not receiving less recovery under the Plan.
Projected Financial
Information
Attached
as Exhibit C is
projected financial statement information, including balance sheets, income
statements, and statements of cash flows (collectively, the “Financial
Projections”) for the Reorganized Debtors from January 1, 2010 through
December 31, 2014 (the “Projection Period”).
The Financial Projections assume an Effective Date of July 31,
2010.
The Financial Projections have been
prepared by the Debtors’ management. Such Financial Projections were
not prepared to comply with the guidelines for prospective financial statements
published by the American Institute of Certified Public Accountants and the
rules and regulations of the United States Securities and Exchange
Commission. The Debtors relied upon the accuracy and completeness of
publicly available information and portions of the information herein may be
based upon certain statements, estimates, and forecasts provided by third
parties with respect to the anticipated future performance of the Reorganized
Debtors. The Debtors did not attempt independently to audit or verify
such information. Further, the Debtors’ independent accountants have neither
examined nor compiled the accompanying actual results and projections and,
accordingly, do not express an opinion or any other form of assurance with
respect to the Financial Projections, assume no responsibility for the Financial
Projections and disclaim any association with the Financial
Projections. Except for purposes of this disclosure statement, the
Debtors do not publish projections of their anticipated financial position or
results of operations.
29
The Financial Projections contain
certain statements that are “forward-looking statements” within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements are
subject to a number of assumptions, risks, and uncertainties, many of which are
and will be beyond the control of the Reorganized Debtors, including the
implementation of the Plan, the continuing availability of sufficient borrowing
capacity or other financing to fund future principal payments of debt, existing
and future governmental regulations and actions of government bodies, natural
disasters and unusual weather conditions, and other market and competitive
conditions. Holders of Claims and Interests are cautioned that the
forward-looking statements speak as of the date made and are not guarantees of
future performance. Actual results or developments may differ materially from
the expectations expressed or implied in the forward-looking statements, and the
Debtors and the Reorganized Debtors undertake no obligation to update any such
statements.
The
Financial Projections, while presented with numerical specificity, are
necessarily based on a variety of estimates and assumptions which, though
considered reasonable by the Debtors, may not be realized and are inherently
subject to significant business, economic, competitive, industry, regulatory,
market, and financial uncertainties and contingencies, many of which are and
will be beyond the Reorganized Debtors’ control. The Debtors caution that no
representations can be made or are made as to the accuracy of the historical
financial information or the Financial Projections or to the Reorganized
Debtors’ ability to achieve the projected results. Some assumptions may prove to
be inaccurate. Moreover, events and circumstances occurring subsequent to the
date on which the Financial Projections were prepared may be different from
those assumed, or, alternatively, may have been unanticipated, and thus the
occurrence of these events may affect financial results in a materially adverse
or materially beneficial manner. The Debtors and the Reorganized Debtors do not
intend and undertake no obligation to update or otherwise revise the Projections
to reflect events or circumstances existing or arising after the date this
Disclosure Statement is initially filed or to reflect the occurrence of
unanticipated events. The Financial Projections, therefore, may not be relied
upon as a guaranty or other assurance of the actual results that will occur. In
deciding whether to vote to accept or reject the Plan, Holders of Claims or
Interests must make their own determinations as to the reasonableness of such
assumptions and the reliability of the Financial Projections.
Creditors and other interested parties
should see the section entitled “Risk Factors” of this Disclosure Statement for
a discussion of certain factors that may affect the future financial performance
of the Reorganized Debtors.
The Financial Projections make certain
assumptions regarding, among other things, the improved health of the U.S.
economy, the growth in the construction sector, concrete demand for residential,
commercial, and public works markets, level of competition in regional markets,
the cost of raw materials, fleet efficiency, and the ability to ramp up
operations. Moreover, the Financial Projections have been prepared based on
assumption that the Effective Date will occur on July 31, 2010, and the
Financial Projections assume the successful implementation of the Reorganized
Debtors’ business plan. Although the Debtors presently intend to cause the
Effective Date to occur as soon as practicable following Confirmation, there can
be no assurance as to when the Effective Date actually will occur.
The
Financial Projections are based on, among other things: (a) current and
projected market conditions in each of the Reorganized Debtors’ respective
markets; (b) the ability to maintain sufficient working capital to fund
operations; and (c) Confirmation.
30
Risk
Factors
Holders
of Claims and Interests entitled to vote should read and consider carefully the
risk factors set forth below, as well as the other information set forth in this
Disclosure Statement and the documents delivered together herewith, referred to
or incorporated by reference herein, prior to voting to accept or reject the
Plan. These factors should not be regarded as constituting the only
risks present in connection with the Debtors’ business or the Plan and its
implementation.
The
conditions precedent to the Confirmation and Consummation of the Plan may not
occur.
As more
fully set forth in Article IX of the Plan, the occurrence of Confirmation of the
Plan and the Effective Date are each subject to a number of conditions
precedent.
· Parties in Interest May Object to
the Plan’s Classification of Claims and Interests. Section
1122 of the Bankruptcy Code provides that a plan may place a Claim or an
Interest in a particular Class only if such Claim or Interest is substantially
similar to the other Claims or Interests in such Class. The Debtors
believe that the classification of Claims and Interests under the Plan complies
with the requirements set forth in the Bankruptcy Code because the Debtors
created Classes of Claims and Interests, each encompassing Claims or Interests,
as applicable, that are substantially similar to the other Claims or Interests,
as applicable, in each such Class. Nevertheless, there can be no
assurance that the Bankruptcy Court will reach the same conclusion.
· The Debtors May Not Be Able to
Satisfy Vote Requirements. Pursuant to section 1126(c) of the
Bankruptcy Code, section 1129(a)(7)(A)(i) of the Bankruptcy Code will be
satisfied with respect to Class 4 if at least two-thirds in
amount and more than one-half in number of the Allowed Claims that vote in each
such Class, vote to accept the Plan, and pursuant to section 1126(d) of the
Bankruptcy Code, section 1129(a)(7)(A)(i) of the Bankruptcy Code will be
satisfied with respect to Class 7 if at least two-thirds in amount of
Allowed Interests that vote in such Class 7, vote to accept the
Plan. There is no guarantee that the Debtors will receive the
necessary acceptances from Holders of Claims in Class 4. If Class 4
votes to reject the Plan, the Debtors may elect to amend the Plan with the
reasonable consent of counsel to the Informal Noteholders Committee, seek
Confirmation regardless of the rejection, or proceed with
liquidation.
· The Debtors May Not Be Able to
Secure Confirmation of the Plan. Section 1129 of the
Bankruptcy Code sets forth the requirements for confirmation of a chapter 11
plan, and requires, among other things, a finding by the bankruptcy court
that: (a) such plan “does not unfairly discriminate” and is “fair and
equitable” with respect to any non-accepting classes; (b) confirmation of such
plan is not likely to be followed by a liquidation or a need for further
financial reorganization unless such liquidation or reorganization is
contemplated by the plan; and (c) the value of distributions to non-accepting
holders of claims and interests within a particular class under such plan will
not be less than the value of distributions such holders would receive if the
debtor was liquidated under chapter 7 of the Bankruptcy Code.
There can
be no assurance that the requisite acceptances to confirm the Plan will be
received. Even if the requisite acceptances are received, there can
be no assurance that the Bankruptcy Court will confirm the Plan. A
dissenting Holder of an Allowed Claim or Allowed Interest might challenge either
the adequacy of this Disclosure Statement or whether the balloting procedures
and voting results satisfy the requirements of the Bankruptcy Code or Bankruptcy
Rules. Even if the Bankruptcy Court determines that this Disclosure Statement,
the balloting procedures, and the voting results are appropriate, the Bankruptcy
Court still can decline to confirm the Plan if it finds that any of the
statutory requirements for Confirmation have not been met, including the
requirement that the terms of the Plan do not “unfairly discriminate” and are
“fair and equitable” to non-accepting Classes.
31
Confirmation
of the Plan is also subject to certain conditions as described in
Article IX of the Plan. If the Plan is not confirmed, it is
unclear what distributions, if any, Holders of Allowed Claims and Allowed
Interests will receive with respect to their Allowed Claims and Allowed
Interests.
The
Debtors, subject to the terms and conditions of the Plan, reserve the right to
modify the terms and conditions of the Plan as necessary for
Confirmation. Any such modifications could result in a less favorable
treatment of any non-accepting Class, as well as of any Classes junior to such
non-accepting Class, than the treatment currently provided in the
Plan. Such a less favorable treatment could include a distribution of
property to the Class affected by the modification of a lesser value than
currently provided in the Plan or no distribution of property whatsoever under
the Plan.
· The Debtors May Pursue Nonconsensual
Confirmation. In the event that any impaired class of claims
or Interests does not accept a chapter 11 plan, a bankruptcy court may
nevertheless confirm such a plan at the proponents’ request if at least one
impaired class has accepted the plan (with such acceptance being determined
without including the vote of any “insider” in such class), and, as to each
impaired class that has not accepted the plan, the bankruptcy court determines
that the plan “does not discriminate unfairly” and is “fair and equitable” with
respect to the dissenting impaired classes. The Debtors believe that
the Plan satisfies these requirements and the Debtors may request such
nonconsensual Confirmation in accordance with subsection 1129(b) of the
Bankruptcy Code. Nevertheless, there can be no assurance that the
Bankruptcy Court will reach this conclusion. In addition, the pursuit
of nonconsensual Confirmation or Consummation may result in, among other things,
increased expenses relating to Professional Fee Claims.
· The Debtors May Object to the Amount
or Classification of a Claim or Interest. Except as otherwise
provided in the Plan, the Debtors and the Reorganized Debtors reserve the right
to object to the amount or classification of any Claim or Interest under the
Plan. The estimates set forth in this Disclosure Statement cannot be
relied upon by any Holder of a Claim or Interest where such Claim or Interest is
subject to an objection. Any Holder of a Claim or Interest that is
subject to an objection thus may not receive its expected share of the estimated
distributions described in this Disclosure Statement.
· The Debtor May Not Secure Adequate
Financing to Consummate the Plan. Consummation of the Plan is
predicated upon the execution of the Exit Facility. The Debtors have
not yet received a commitment in connection with the contemplated Exit Facility,
and, though material terms of the Exit Facility have been negotiated, there can
be no assurance that the Debtors will be able to secure such financing upon the
Effective Date.
· The Effective Date May Not
Occur. Although the Debtors believe that the Effective Date
may occur quickly after the Confirmation Date, there can be no assurance as to
such timing or as to whether the Effective Date will, in fact,
occur.
· Contingencies Could Affect Votes of
Impaired Classes to Accept or Reject the Plan. The
distributions available to Holders of Allowed Claims and Allowed Interests under
the Plan can be affected by a variety of contingencies, including whether or not
the Debtors are consolidated and whether the Bankruptcy Court orders certain
Allowed Claims to be subordinated to other Allowed Claims. The occurrence of any
and all such contingencies, which could affect distributions available to
Holders of Allowed Claims and Allowed Interests under the Plan, will not affect
the validity of the vote taken by the impaired Classes entitled to vote to
accept or reject the Plan or require any sort of revote by such impaired
Classes.
32
If the
conditions precedent to Confirmation are not met or waived, the Plan will not be
confirmed; and if the conditions precedent to Consummation are not met or
waived, the Effective Date will not take place. In the event that the
Plan is not confirmed or is not consummated, the Debtors may seek Confirmation
of a new plan. However, if the Debtors do not secure sufficient
working capital to continue their operations or if the new plan is not
confirmed, the Debtors may be forced to liquidate their assets. While
the Liquidation Analysis indicates that some Holders of Claims in Classes 1
and 2 would likely receive a full recovery, it also demonstrates that Holders of
Claims in Classes 3 and 4 would likely receive only a partial recovery on
account of their Claims, and that Holders of Interests in Class 7 would receive
no recovery in a hypothetical chapter 7 liquidation. For a more
detailed description of the consequences of a liquidation scenario, see the
Sections herein entitled “Best Interests Test” and “Findings of Liquidation
Analysis,” respectively.
The Debtors cannot state with any
degree of certainty what recovery will be available to Holders of Allowed Claims
and Allowed Interests in voting Classes.
No less
than three unknown factors make certainty of creditor recoveries under the Plan
impossible. First, the Debtors cannot know with any certainty, at
this time, (a) how much money will remain after paying all Allowed Claims
that are senior to the voting Classes or (b) the value of the Reorganized
Debtors. Second, the Debtors cannot know with any certainty, at this
time, the number or amount of Claims that ultimately will be
Allowed. Third, the Debtors cannot know with any certainty, at this
time, the number or size of Claims senior to the voting Classes or unclassified
Claims that ultimately will be Allowed.
The
Debtors may not be able to achieve their projected financial results or meet
post-reorganization debt obligations.
The
Financial Projections set forth on Exhibit C to this
Disclosure Statement represent management’s best estimate of the Debtors’ future
financial performance based on currently known facts and assumptions about the
Debtors’ future operations, as well as the U.S. economy in general and the
industry segments in which the Debtors operate in particular, and there is no
guarantee that the Financial Projections will be realized. The
Debtors’ actual financial results may differ significantly from the Financial
Projections. To the extent the Reorganized Debtors do not meet their
projected financial results or achieve projected revenues and cash flows, the
Reorganized Debtors may lack sufficient liquidity to continue operating as
planned after the Effective Date, may be unable to service their debt
obligations as they come due, may be unable to meet their operational needs, and
the value of the New Equity may thereby be negatively
affected. Further, a failure of the Reorganized Debtors to meet their
projected financial results or achieve projected revenues and cash flows could
lead to cash flow and working capital constraints, which constraints may require
the Reorganized Debtors to seek additional working capital. The
Reorganized Debtors may not be able to obtain such working capital when it is
required. Moreover, even if the Reorganized Debtors were able to
obtain additional working capital, it may only be available on unreasonable or
cost prohibitive terms. For example, the Reorganized Debtors may be
required to take on additional debt, the interest costs of which could adversely
affect the results of the operations and financial condition of the Reorganized
Debtors. If any such required capital is obtained in the form of
equity, the Interests of the holders of the then-existing New Equity could be
diluted.
33
A
liquid trading market for the New Equity is unlikely to develop.
A liquid
trading market for the New Equity may not develop. As of the Effective Date, the
parties intend to list the New Equity for trade on an over-the-counter
market. Consequently, the trading liquidity of the New Equity may be
limited. The future liquidity of the trading market for the New Equity will
depend upon, among other things, the number of holders of the New Equity and
whether the stock is listed for trading on an exchange or over-the-counter
market.
Estimated
Valuation of the Reorganized Debtors, the New Equity, and the estimated
recoveries to Holders of Allowed Claims and Allowed Interests are not intended
to represent the potential market values (if any) of the New
Equity.
The
Debtors’ estimated recoveries to Holders of Allowed Claims and Allowed Interests
are not intended to represent the market value of the Reorganized Debtors’
securities, if any. The estimated recoveries are based on numerous
assumptions (the realization of many of which will be beyond the control of
the Reorganized Debtors), including: (a) the successful
reorganization of the Debtors; (b) an assumed date for the occurrence of
the Effective Date; (c) the Reorganized Debtors’ ability to achieve the
operating and financial results included in the Financial Projections;
(d) the Reorganized Debtors’ ability to maintain adequate liquidity to fund
operations; and (e) the assumption that capital and equity markets remain
consistent with current conditions.
Upon
Consummation of the Plan Certain Holders of Claims may be able to exert
substantial influence over the Reorganized Debtors.
Upon
Consummation of the Plan, certain Holders of Claims will receive distributions
of outstanding shares of the New Equity, as contemplated by the
Plan. Certain Holders of Note Claims may be in a position to exercise
substantial influence over the outcome of actions requiring stockholder
approval, including, among other things, election of directors. This
concentration of ownership could also facilitate or hinder a negotiated change
of control of the Debtors and, consequently, affect the value of the New
Equity.
Certain
tax implications of the Debtors’ bankruptcy and reorganization may increase the
tax liability of the Reorganized Debtors.
Holders
of Allowed Claims and Allowed Interests should carefully review the Section
herein entitled, “Certain U.S. Federal Income Tax Consequences of the Plan,” to
determine how the tax implications of the Plan and the Chapter 11 Cases may
adversely affect the Reorganized Debtors.
If
the Debtors are unable to compete successfully, they could lose customers and
their sales could decline.
The
building materials industry is competitive and fragmented and includes both
numerous small companies capable of competing in the Debtors’ markets on a local
basis as well as several large companies that possess substantially greater
financial and other resources than the Debtors, which local acumen or resources
could allow them to compete more effectively. Barriers to entry in
many of the Debtors’ areas of operation are minimal and their competitors may
offer products and services at a relatively low cost. The Debtors
believe that the principal competitive factors in the market areas that they
serve are quality of product and service, price, availability, and technical
proficiency. The Debtors’ operations may be adversely affected if
their current competitors or new market entrants introduce new products or
services with better features, performance, prices, or other characteristics, or
that better address environmental concerns, than the Debtors’ products and
services. Competitive pressures, excess capacity in the Debtors’
industry, or other factors also may result in significant price competition that
could have a material adverse effect on their results of operations and
financial condition. Finally, competition among building materials
providers is also affected by each provider’s reputation for safety and
quality.
34
The
turmoil presently existing in the financial markets and general economic
conditions could negatively affect the Debtors’ financial
performance.
The
current crisis in the global credit and financial markets, and the inability of
corporate borrowers to access the debt markets, may materially and adversely
affect the Debtors’ ability to obtain sufficient financing to operate their
business on a going-forward basis. Further, the Debtors’ business may
be adversely affected by the major recession currently being experienced in the
United States. The continuation or worsening of current economic
conditions could cause customers to scale back on new or existing construction,
which could adversely affect the Debtors’ revenues.
The
Debtors’ operating results may vary significantly from one reporting period to
another and may be adversely affected by the seasonal and cyclical nature of the
markets the Debtors serve.
The ready-mixed concrete and precast
concrete businesses are seasonal. In particular, demand for the
Debtors’ products and services during the winter months is typically lower than
in other months because of inclement winter weather. In addition,
sustained periods of inclement weather could postpone or delay construction
projects over geographic regions of the United States, and, consequently, could
adversely affect the Debtors’ business, financial condition, results of
operations, and cash flows. The relative demand for the Debtors’
products is a function of the highly cyclical construction
industry. As a result, the Debtors’ revenues may be adversely
affected by declines in the construction industry generally and in the Debtors’
local markets. The Debtors’ results also may be materially affected
by:
|
·
|
the
level of residential and commercial construction in regional markets,
including reductions in the demand for new residential housing
construction below current or historical
levels;
|
|
·
|
the
availability of funds for public or infrastructure construction from
local, state, and federal sources;
|
|
·
|
unexpected
events that delay or adversely affect the Debtors’ ability to deliver
concrete according to customers’
requirements;
|
|
·
|
changes
in interest rates and lending
standards;
|
|
·
|
changes
in the mix of the Debtors’ customers and business, which result in
periodic variations in the margins of jobs performed during any particular
quarter;
|
|
·
|
the
timing and cost of acquisitions and difficulties or costs encountered when
integrating acquisitions;
|
|
·
|
the
budgetary spending patterns of
customers;
|
|
·
|
increases
in construction and design costs;
|
|
·
|
power
outages and other unexpected
delays;
|
|
·
|
the
Debtors’ ability to control costs and maintain
quality;
|
|
·
|
employment
levels; and
|
|
·
|
regional
or general economic conditions.
|
As a
result, the Debtors’ operating results in any particular quarter may not be
indicative of the results for any other quarter or for the entire
year. Furthermore, negative trends in the ready-mixed concrete
industry or in the Debtors’ geographic markets could have material adverse
effects on the Debtors’ business, financial condition, results of operations,
and cash flows.
35
A
disruption in the Debtors’ operations could materially affect their operating
results.
Many of
the Debtors’ facilities are located in areas that are vulnerable to natural
disasters. Hurricanes and the threat of hurricanes, especially during
the second and third calendar quarters of the year, could impair the Debtors’
ability to operate in the southern United States coastal regions and land
operations within the hurricane paths.
In
addition, some of the Debtors’ plants are susceptible to damage from
earthquakes. The Debtors maintain only a limited amount of earthquake
insurance, and, therefore, they are not fully insured against earthquake
risk. Any significant earthquake damage to the Debtors’ plants could
materially adversely affect their business, financial condition results of
operations, and cash flows.
The
Debtors are subject to litigation which, if adversely determined, could result
in substantial losses.
As
described in the section herein entitled “Summary of Legal Proceedings,” the
Debtors are, from time to time, during the ordinary course of operating their
business, subject to various litigation claims and legal disputes, including
contract, lease, employment, and regulatory claims.
Certain
litigation claims may not be covered entirely or at all by the Debtors’
insurance policies, or their insurance carriers may seek to deny
coverage. In addition, litigation claims can be expensive to defend
and may divert the Debtors’ attention from the operation of their
business. Further, litigation, even if without merit, can attract
adverse media attention. As a result, litigation can have a material
adverse effect on the Debtors’ business and, because the Debtors cannot predict
the outcome of any action, it is possible that adverse judgments or settlements
could significantly reduce the Debtors’ earnings or result in
losses.
Finally,
the Proposed California Wage and Hour Settlement may not be approved, which
could attract adverse media attention and significantly reduce the Debtors’
earnings or result in losses.
The
Debtors depend on third parties for concrete equipment and supplies essential to
operate their business.
The
Debtors rely on third parties to sell or lease property, plant, and equipment to
them and to provide supplies, including cement and other raw materials,
necessary for their operations. The Debtors cannot assure favorable
working relationships with their suppliers in the future. Also, there
have historically been periods of supply shortages in the concrete industry,
particularly in a strong economy.
If the
Debtors are unable to purchase or lease necessary properties or equipment, their
operations could be severely impacted. If the Debtors lose their
supply contracts and receive insufficient supplies from other third parties to
meet their customers’ needs, or if their suppliers experience price increases or
disruptions to their business, such as labor disputes, supply shortages, or
distribution problems, the Debtors’ business, financial condition, results of
operations, and cash flows could be materially adversely affected.
In 2006,
cement prices rose at rates similar to those experienced in 2005 and 2004, as a
result of strong domestic consumption driven largely by historic levels of
residential construction that did not abate until the second half of
2006. During 2007, 2008, and 2009, residential construction slowed
significantly, which resulted in a decline in the demand for ready-mixed
concrete. Should demand increase substantially beyond the Debtors’
current expectations, the market could experience shortages of t cement in
future periods, which could adversely affect the Debtors’ operating results,
through the higher cost of raw materials.
36
Increased
prices for raw materials or finished goods used in the Debtors’ products and/or
interruptions in deliveries of raw materials or finished goods could adversely
affect the Debtors’ profitability, margins, and revenues.
Raw
aggregate materials essential to the Debtors’ business normally are readily
available, though market conditions can trigger constraints in the supply chain
of certain raw materials, such as sand, cement, and cementitious materials, the
price of which directly affects the Debtors’ profitability. The
commodities the Debtors use may undergo major price fluctuations and there is no
certainty that the Debtors will be able to pass these costs through to their
customers. The Debtors also may purchase raw materials and
manufactured items from suppliers located in non-U.S. dollar-based
economies. Therefore, the Debtors may also be affected by
fluctuations in currency exchange rates. In certain instances, the
Debtors depend upon single or limited source suppliers for the supply of raw
materials. This dependency upon regular deliveries from particular
suppliers means that interruptions or stoppages in such deliveries could
adversely affect the Debtors’ operations until arrangements with alternate
suppliers could be made.
The
Debtors’ net revenue attributable to infrastructure projects could be negatively
impacted by a decrease or delay in governmental spending.
The Debtors business depends in part on
the level of governmental spending on infrastructure projects in their
markets. Reduced levels of governmental funding for public works
projects or delays in that funding could adversely affect the Debtors’ business,
financial condition, results of operations, and cash flows.
Increases
in labor costs, collective bargaining agreements, potential labor disputes, and
work stoppages at the Debtors’ facilities or the facilities of their suppliers
could materially adversely affect the Debtors’ financial
performance.
The
Debtors’ financial performance is affected by the availability of qualified
personnel and the cost of labor.As of March 15, 2010, approximately 36%, of the
Debtors’ Employees were covered by collective bargaining agreements, which
expire between 2010 and 2013. The Debtors’ inability to negotiate
acceptable new contracts or extensions of existing contracts with these unions
could cause work stoppages by the affected employees. In addition,
any new contracts or extensions could result in increased operating costs
attributable to both union and nonunion employees. If any such work
stoppages were to occur, or if other of the Debtors’ Employees were to become
represented by a union, the Debtors could experience a significant disruption of
their operations and higher ongoing labor costs, which could materially
adversely affect the Debtors’ business, financial condition, results of
operations, and cash flows. In addition, the coexistence of union and
nonunion employees may impede the Debtors’ ability to integrate their operations
efficiently. Also, labor relations matters affecting the Debtors’
suppliers of cement and aggregates could adversely impact their business from
time to time.
In
addition, strikes, work stoppages, or slowdowns experienced by the Debtors’
suppliers and customers could result in slowdowns or closures of facilities
where components of the Debtors’ products are manufactured or
delivered. Any interruption in the production or delivery of these
components could reduce sales, increase costs, and have a material adverse
affect on the Debtors’ business.
37
The
Debtors contribute to 18 multiemployer pension plans on behalf of their
Employees. During 2006, the “Pension Protection Act of 2006” (the
“PPA”) was
signed into law. For multiemployer defined benefit plans, the PPA
establishes new funding requirements or rehabilitation requirements, creates
additional funding rules for plans that are in endangered or critical status,
and introduces enhanced disclosure requirements to participants regarding a
plan’s funding status. The Worker, Retiree and Employer Recovery Act
of 2008 (the “WRERA”) was enacted
in late 2008 and provided some funding relief to defined benefit plan sponsors
affected by recent market conditions. The WRERA allowed multiemployer
plan sponsors to elect to retain their funding status from the preceding plan
year (for example, a calendar year plan that was not in critical or endangered
status for 2008 was able to elect to retain that status for 2009), and sponsors
of multiemployer plans in endangered or critical status in plan years beginning
in 2008 or 2009 were allowed a three-year extension of funding improvement or
rehabilitation plans (extended the timeline for these plans to accomplish their
goals from 10 years to 13 years, or from 15 years to 18 years for seriously
endangered plans). Additionally, if the Debtors were to withdraw
partially or completely from any plan that is underfunded, they would be liable
for a proportionate share of that plan’s unfunded vested
benefits. Based on the information available from plan
administrators, the Debtors believe that their portion of the contingent
liability in the case of a full or partial withdrawal from or termination of
several of these plans or the inability of plan sponsors to meet the funding or
rehabilitation requirements could be material to the Debtors’ business financial
condition, results of operations, and cash flows.
As
previously discussed, the Debtors were assessed a complete withdrawal liability
from the Teamsters Local 641 Pension, in the amount of
$1,376,505. The Debtors are currently contesting this liability
assessment. In addition, on or about March 19, 2010, Local 863
Pension Fund filed suit against Debtor Eastern Concrete Materials, Inc., seeking
damages amount to $1,802,583 plus attorneys fees and accruing interest for
alleged missed minimum funding contributions to this multiemployer pension
plan. More information on the pension litigation can be found in the
summary of legal proceedings section herein.
Further,
many of the services that the Debtors provide and the products that they rent
are complex, highly engineered, and often must perform or be performed in harsh
conditions. The Debtors’ success depends upon their ability to employ
and retain technical personnel with the ability to design, utilize, and enhance
these services and products. In addition, the Debtors’ ability to
expand their operations depends in part on their ability to increase their
skilled labor force. A significant increase in the wages paid by
competing employers could result in a reduction of the Debtors’ skilled labor
force, increases in the wage rates that they must pay, or both. If
either of these events were to occur, the Debtors’ cost structure could
increase, their margins could decrease, and any growth potential could be
impaired.
The
Debtors’ business will suffer if certain of their key officers or employees
discontinue their employment.
The
success of the Debtors’ business is materially dependent upon the skills,
experience, and efforts of certain of their key officers and
employees. The loss of key personnel could have a material adverse
effect on the Debtors’ business, operating results, or financial
condition. The Debtors may not succeed in attracting and retaining
the personnel they need to generate sales and to expand their operations
successfully, and, in such event, the Debtors’ business could be materially and
adversely affected. The loss of the services of any key personnel, or
the Debtors’ inability to hire new personnel with the requisite skills, could
impair the Debtors’ ability to develop new products or enhance existing
products, sell products to their customers, or manage their business
effectively.
There
are risks related to the Debtors’ internal growth and operating
strategy.
The
Debtors’ ability to generate internal growth will be affected by, among other
factors, the Debtors’ ability to:
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attract
new customers;
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differentiate
themselves in a competitive market by emphasizing new product development
and value added sales and
marketing;
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hire
and retain employees; and
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reduce
operating and overhead expenses.
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One key
component of the Debtors’ operating strategy is to operate the businesses on a
decentralized basis, with local or regional management retaining responsibility
for day-to-day operations, profitability, and the internal growth of the
individual business. If the Debtors do not implement and maintain
proper overall business controls, this decentralized operating strategy could
result in inconsistent operating and financial practices and the Debtors’
overall profitability could be adversely affected.
The
Debtors’ resources, including management resources, are limited and may be
strained if they engage in a significant number of
acquisitions. Also, acquisitions may divert the management’s
attention from initiating or carrying out programs to save costs or enhance
revenues.
The
Debtors’ inability to achieve internal growth could materially and adversely
affect their business, financial condition, results of operations, and cash
flows.
The
Debtors’ may be unsuccessful in continuing to carry out their strategy of growth
through acquisitions.
One of the Debtors’ principal growth
strategies has been to increase revenues and the number of markets served and to
continue selectively entering new geographic markets through the acquisition of
additional businesses that produce and distribute ready-mixed concrete, precast
concrete products, aggregates products, and related businesses. The
Debtors may not be able to acquire suitable acquisition candidates at reasonable
prices and on other reasonable terms for a number of reasons, including the
following:
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the
acquisition candidates identified may be unwilling to
sell;
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the
Debtors may not have sufficient capital to pay for acquisitions;
and
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competitors
in the Debtors’ industry may outbid
them.
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In
addition, there are risks associated with any acquisitions the Debtors
complete. The Debtors may face difficulties integrating the newly
acquired businesses into their operations efficiently and on a timely
basis. They also may experience unforeseen difficulties managing the
increased scope, geographic diversity, and complexity of the Debtors’ operations
or mitigating contingent or assumed liabilities, potentially including
liabilities the Debtors do not anticipate.
The
Debtors results of operations could be adversely affected as a result of
goodwill impairments.
Goodwill
represents the amount by which the total purchase price the Debtors have paid
for acquisitions exceeds the estimated fair value of the net tangible assets
acquired. The Debtors generally test for goodwill impairment in
the fourth quarter of each year, because this period gives the best visibility
of the reporting units’ operating performances for the current year (seasonally,
April through October are the Debtors’ highest revenue and production months)
and outlook for the upcoming year, since much of the customer base is finalizing
operating and capital budgets.
39
During
the third quarter of 2009, the Debtors performed an impairment test of their
goodwill in conjunction with the sale of plants in Sacramento, California and
due to depressed economic conditions. This resulted in an impairment of
$45.8 million. During the fourth quarters of 2008 and 2007, the Debtors
performed the annual test of goodwill, which resulted in impairments of
$135.3 million and $81.9 million, respectively. In 2009,
the Debtors’ goodwill impairment included a $42.2 million write-down in the
Debtors’ northern California reporting unit and the remainder in the Debtors’
Atlantic Region reporting unit. The U.S. recession and downturn in the U.S.
construction markets has continued to impact the Debtors’ revenue and expected
future growth. The cost of capital has increased while the availability of funds
from capital markets has not improved significantly. Lack of available capital
impacts the Debtors’ end-use projections. The downturn in residential
construction has not improved and the Debtors are now seeing the recession
affect the commercial sector of their revenue base. In addition, the
California budget crisis has affected public works spending in this
market.
As of
December 31, 2009, goodwill represented approximately 3.6% of the
Debtors’ total assets. The Debtors can provide no assurance that
future goodwill impairments will not occur. If the Debtors determine
that any of their remaining balance of goodwill is impaired, they will be
required to take an immediate noncash charge to earnings.
Governmental
regulations, including environmental regulations, may result in increases in the
Debtors’ operating costs and capital expenditures and decreases in the Debtors’
earnings.
A wide range of federal, state, and
local laws, ordinances and regulations apply to the Debtors’ operations,
including the following matters:
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land
usage;
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street
and highway usage;
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noise
levels; and
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health,
safety, and environmental matters.
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In many
instances, the Debtors must have various certificates, permits, or licenses in
order to conduct their business. The Debtors’ failure to maintain
required certificates, permits, or licenses or to comply with applicable
governmental requirements could result in substantial fines or possible
revocation of the Debtors’ authority to conduct some of their
operations. Delays in obtaining approvals for the transfer or grant
of certificates, permits, or licenses, or failure to obtain new certificates,
permits, or licenses, could impede the implementation of the Debtors’
acquisition program.
The Debtors’ operations involve
providing products that must meet building code or other regulatory requirements
and contractual specifications for durability, stress-level capacity,
weight-bearing capacity and other characteristics. If the Debtors
fail or are unable to provide products meeting these requirements and
specifications, material claims may arise against the Debtors’ and their
reputation could be damaged. In the past, the Debtors have had
significant claims of this kind asserted against them that they have
resolved. There currently are claims, and the Debtors expect that in
the future there will be additional claims, of this kind asserted against
them. If a significant product-related claim or claims are resolved
against the Debtors in the future, that resolution may have a material adverse
effect on the Debtors’ business, financial condition, results of operations, and
cash flows.
40
Laws
protecting the environment generally have become more stringent over time and
are expected to continue to do so, which could lead to material increases in
costs for future environmental compliance and remediation. Some
environmental laws and regulations may impose strict liability, which means that
in some situations the Debtors could be exposed to liability as a result of
conduct of, or conditions caused by, prior operators or third
parties, though the Debtors’ conduct was lawful at the time it
occurred. Clean-up costs and other damages arising as a result of
environmental laws, and costs associated with changes in environmental laws and
regulations could be substantial and could have a material adverse effect on the
Debtors’ financial condition, results of operations, and cash
flows. The Debtors’ compliance with amended, new or more stringent
requirements, stricter interpretations of existing requirements, or the future
discovery of environmental conditions may require the Debtors to make
unanticipated material expenditures. The Debtors generally do not
maintain insurance to cover environmental liabilities.
The
Debtors operations are subject to various hazards that may cause personal injury
or property damage and increase the Debtors operating costs.
Operating mixer trucks, particularly
when loaded, expose the Debtors’ drivers and others to traffic
hazards. The Debtors’ drivers are subject to the usual hazards
associated with providing services on construction sites, while their plant
personnel are subject to the hazards associated with moving and storing large
quantities of heavy raw materials. Operating hazards can cause
personal injury and loss of life, damage to or destruction of property, plants
and equipment, and environmental damage. Although the Debtors conduct
training programs designed to reduce these risks, they cannot eliminate these
risks.
Increasing
insurance claims and expenses could lower the Debtors’ profitability and
increase their business risk.
The nature of the Debtors’ business
subjects them to product liability, property damage, and personal injury
claims. The Debtors evaluate certain of their risks and insurance coverage
annually. While the Debtors believe that they have obtained
sufficient insurance coverage with respect to the occurrences of casualty damage
to cover losses that could result from the acts or events described above for
the next year, the Debtors may not be able to obtain sufficient or similar
insurance for later periods and cannot predict whether they will encounter
difficulty in collecting on any insurance claims it may submit, including claims
for business interruption.
The Debtors maintain insurance coverage
in amounts they believe are in accord with industry practice for personal injury
claims; however, this insurance may not be adequate to cover all losses or
liabilities the Debtors may incur in their operations, and the Debtors may not
be able to maintain insurance of the types or at levels the Debtors deem
necessary or adequate or at rates they consider reasonable. A
partially or completely uninsured claim, if successful and of sufficient
magnitude, could have a material adverse effect on the Debtors financial
condition, results of operations, and cash flows.
In addition, over the last several
years, insurance carriers have raised premiums for many companies operating in
the Debtors’ industry. Increased premiums may further increase the
Debtors’ insurance expense as coverage expires. If the number or
severity of claims within the Debtors’ self-insured retention increases, they
could suffer losses in excess of their reserves. An unusually large
liability claim or a string of claims based on a failure repeated throughout the
Debtors’ mass production process may exceed the Debtors’ insurance coverage or
result in direct damages if the Debtors were unable or elected not to insure
against certain hazards because of high premiums or other reasons. In
addition, the availability of, and the Debtors’ ability to collect on, insurance
coverage is often subject to factors beyond the Debtors’ control.
The
insurance policies the Debtors maintain are subject to varying levels of
deductibles. Losses up to the deductible amounts are accrued based on
the Debtors’ estimates of the ultimate liability for claims incurred and an
estimate of claims incurred but not reported. If the Debtors were to
experience insurance claims or costs above their estimates, the Debtors’
business, financial condition, results of operations, and cash flows might be
materially and adversely affected.
41
The
Debtors’ overall profitability is sensitive to price changes and minor
variations in sales volumes.
Generally, the Debtors’ products are
price-sensitive. Prices for the Debtors’ products are subject to
changes in response to relatively minor fluctuations in supply and demand,
general economic conditions, and market conditions, all of which are beyond the
Debtors’ control. Because of the fixed-cost nature of the Debtors’
business, their overall profitability is sensitive to price changes and minor
variations in sales volumes.
The
Debtors’ historical financial information may not be comparable to the financial
information of the Reorganized Debtors.
As a
result of the Consummation of the Plan and the transactions contemplated
thereby, the financial condition and results of operations of the Reorganized
Debtors from and after the Effective Date may not be comparable to the financial
condition or results of operations reflected in the Debtors’ historical
financial statements.
The
financial information is based on the Debtors’ books and records and, unless
otherwise stated, no audit was performed.
The
financial information contained in this Disclosure Statement has not been
audited. In preparing this Disclosure Statement, the Debtors relied
on financial data derived from their books and records that was available at the
time of such preparation. Although the Debtors have used their
reasonable business judgment to assure the accuracy of the financial information
provided in this Disclosure Statement, and while the Debtors believe that such
financial information fairly reflects their financial condition, the Debtors are
unable to warrant or represent that the financial information contained herein
and attached hereto is without inaccuracies.
No
legal or tax advice is provided by this Disclosure Statement.
This
Disclosure Statement is not legal advice to any Entity. The contents
of this Disclosure Statement should not be construed as legal, business, or tax
advice. Each Holder of a Claim or Interest should consult its own
legal counsel and accountant with regard to any legal, tax, and other matters
concerning its Claim or Interest. This Disclosure Statement may not
be relied upon for any purpose other than to determine how to vote to accept or
reject the Plan or whether to object to Confirmation of the Plan.
No
admissions made.
The
information and statements contained in this Disclosure Statement will neither
(a) constitute an admission of any fact or liability by any entity
(including the Debtors) nor (b) be deemed evidence of the tax or other
legal effects of the Plan on the Debtors, the Reorganized Debtors, Holders of
Allowed Claims and Allowed Interests, or any other parties in
interest.
42
Failure
to identify litigation claims or projected objections.
No
reliance should be placed on the fact that a particular litigation claim or
projected objection to a particular Claim is, or is not, identified in this
Disclosure Statement. The Debtors or the Reorganized Debtors may seek
to investigate, file, and prosecute Claims and may object to Claims after
Confirmation and Consummation of the Plan, irrespective of whether this
Disclosure Statement identifies such Claims or objections to
Claims.
Information
was provided by the Debtors and was relied upon by the Debtors’
advisors.
Counsel
to and other advisors retained by the Debtors have relied upon information
provided by the Debtors in connection with the preparation of this Disclosure
Statement. Although counsel to and other advisors retained by the
Debtors have performed certain limited due diligence in connection with the
preparation of this Disclosure Statement, they have not verified independently
the information contained herein.
No
representations outside this Disclosure Statement are authorized.
No
representations concerning or relating to the Debtors, the Chapter 11 Cases, or
the Plan are authorized by the Bankruptcy Court or the Bankruptcy Code, other
than as set forth in this Disclosure Statement. Any representations
or inducements made to secure your acceptance or rejection of the Plan that are
other than as contained in, or included with, this Disclosure Statement, should
not be relied upon by you in arriving at your decision. You should
promptly report unauthorized representations or inducements to counsel to the
Debtors, counsel to the Notes Committee, and the Office of the United States
Trustee for the District of Delaware.
Confirmation of the
Plan
The
Confirmation Hearing
The
Bankruptcy Court has scheduled the Confirmation Hearing for July 23, 2010 at
9:30 a.m., prevailing Eastern Time, before the Honorable Peter J. Walsh, United
States Bankruptcy Judge, in the United States Bankruptcy Court for the District
of Delaware, located at 824 North Market Street, 6th Floor, Courtroom 1,
Wilmington, Delaware 19801. The Confirmation Hearing may be adjourned
from time to time without further notice except for an announcement of the
adjourned date made at the Confirmation Hearing or by any notice of adjournment
of the Confirmation Hearing filed by the Debtors and posted on their website at
http://dm.epiq11.com/usconcrete.
Requirements
For Confirmation of the Plan
Among the
requirements for the Confirmation of the Plan are that the Plan (a) is accepted
by all Impaired Classes of Claims and Interests, or if rejected by an Impaired
Class, that the Plan “does not discriminate unfairly” and is “fair and
equitable” as to such Class, (b) is feasible, and (c) is in the “best interests”
of Holders of Claims and Interests that are Impaired under the
Plan.
Requirements
of Section 1129(a) of the Bankruptcy Code
The
following requirements must be satisfied pursuant to section 1129(a) of the
Bankruptcy Code before a bankruptcy court may confirm a plan of
reorganization:
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The
plan complies with the applicable provisions of the Bankruptcy
Code.
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The
proponents of the plan comply with the applicable provisions of the
Bankruptcy Code.
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The
plan has been proposed in good faith and not by any means forbidden by
law.
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Any
payment made or to be made by the proponent, by the debtor, or by a person
issuing securities or acquiring property under a plan, for services or for
costs and expenses in or in connection with the case, in connection with
the plan and incident to the case, has been approved by, or is subject to
the approval of, a bankruptcy court as
reasonable.
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The
proponent of the plan has disclosed the identity and affiliations of any
individual proposed to serve, after confirmation of the plan, as a
director, officer, or voting trustee of the debtor, an affiliate of the
debtor participating in a joint plan with the debtor or a successor to the
debtor under the plan, and the appointment to, or continuance in, such
office of such individual is consistent with the interests of creditors
and equity security holders and with public
policies.
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The
proponent of the plan has disclosed the identity of any “insider” (as
defined in section 101 of the Bankruptcy Code) that will be employed
or retained by the reorganized debtors and the nature of any compensation
for such insider.
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With
respect to each holder within an impaired class of claims or interests
—
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each
such holder (a) has accepted the plan, or (b) will receive or retain under
the plan on account of such claim or interest property of a value, as of
the effective date of the plan, that is not less than the amount that such
holder would so receive or retain if the debtor were liquidated under
chapter 7 of the Bankruptcy Code on such date;
or
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if
section 1111(b)(2) of the Bankruptcy Code applies to the claims of such
class due to its election to retain a lien, each holder of a claim of such
class will receive or retain under the plan on account of such claim
property of a value, as of the effective date of the plan, that is not
less than the value of such holder’s interest in the estate’s interest in
the property that secures such
claims.
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With
respect to each class of claims or interests, such class (a) has
accepted the plan, or (b) is not impaired under the plan (subject to
the “cramdown” provisions discussed
below).
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Except
to the extent that the holder of a particular claim has agreed to a
different treatment of such claim, the plan provides
that:
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with
respect to a claim of a kind specified in sections 507(a)(2) or 507(a)(3)
of the Bankruptcy Code, on the effective date of the plan, the holder of
the claim will receive on account of such claim cash equal to the allowed
amount of such claim, unless otherwise
agreed;
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with
respect to a class of claim of the kind specified in sections 507(a)(1),
507(a)(4), 507(a)(5), 507(a)(6), or 507(a)(7) of the Bankruptcy Code, each
holder of a claim of such class will receive (a) if such class has
accepted the plan, deferred cash payments of a value, on the effective
date of the plan, equal to the allowed amount of such claim; or
(b) if such class has not accepted the plan, cash on the effective
date of the plan equal to the allowed amount of such claim;
and
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with
respect to a priority tax claim of a kind specified in section 507(a)(8)
of the Bankruptcy Code, the holder of such claim will receive on account
of such claim deferred cash payments, over a period not exceeding six
years after the date of assessment of such claim, of a value, as of the
effective date of the plan, equal to the allowed amount of such
claim.
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If
a class of claims is impaired under the plan, at least one class of claims
that is impaired under the plan has accepted the plan, determined without
including any acceptance of the plan by any “insider,” as defined in
section 101 of the Bankruptcy Code.
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Confirmation
of the plan is not likely to be followed by the liquidation, or the need
for further financial reorganization, of the debtor or any successor to
the debtor under the plan, unless such liquidation or reorganization is
proposed in the plan.
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All
fees payable under 28 U.S.C. § 1930, as determined by the Bankruptcy
Court at the hearing on confirmation of the plan, have been paid or the
plan provides for the payment of all such fees on the effective date of
the plan.
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The
plan provides for the continuation after its effective date of payment of
all retiree benefits, as that term is defined in section 1114 of the
Bankruptcy Code, at the level established pursuant to subsection (e)(i)(B)
or (g) of section 1114 of the Bankruptcy Code, at any time prior to
confirmation of the plan, for the duration of the period the debtor has
obligated itself to provide such
benefits.
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Best
Interests of Creditors
Notwithstanding
acceptance of a plan by each impaired class, to confirm a plan, a bankruptcy
court must determine that it is in the best interests of each holder of a claim
or interest in any such impaired class that has not voted to accept the
plan. Accordingly, if an impaired class does not unanimously accept a
plan, the “best interests” test requires that a bankruptcy court find that the
plan provides to each member of such impaired class a recovery on account of the
member’s claim or Interest that has a value, as of the effective date of the
plan, at least equal to the value of the distribution that each such member
would receive if the debtor was liquidated under chapter 7 of the
Bankruptcy Code on such date. For additional information, as well as
the Debtors’ “best interests” analysis, please see the Section entitled
“Liquidation Analysis.”
Acceptance
Section
1126(c) of the Bankruptcy Code provides that a class of claims has accepted a
plan of reorganization if such plan has been accepted by creditors that hold at
least two-thirds in amount and more than one-half in number of the allowed
claims of such class.
Section
1126(d) of the Bankruptcy Code provides that a class of interests has accepted a
plan of reorganization if such plan has been accepted by holders of such
interests that hold at least two-thirds in amount of the allowed interests of
such class.
Feasibility
Section 1129(a)(11)
of the Bankruptcy Code requires that confirmation of a plan of reorganization 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 (unless such
liquidation or reorganization is proposed in the plan of
reorganization).
45
To
determine whether the Plan meets this feasibility requirement, the Debtors have
analyzed their ability to meet their respective obligations under the
Plan. As part of this analysis, the Debtors have prepared the
Financial Projections. Based upon the Financial Projections, the
Debtors believe that they will be a viable operation following the Chapter 11
Cases, and that the Plan will meet the feasibility requirements of the
Bankruptcy Code.
Requirements
of Section 1129(b) of the Bankruptcy Code
The
Bankruptcy Code permits confirmation of a plan of reorganization notwithstanding
rejection of the plan by an impaired class so long as (a) the plan of
reorganization otherwise satisfies the requirements for confirmation, (b) at
least one impaired class of claims has accepted the plan of reorganization
without taking into consideration the votes of any insiders in such class, and
(c) the plan of reorganization is “fair and equitable” and does not
“discriminate unfairly” as to any impaired class that has not accepted such
plan. These so-called “cramdown” provisions are set forth in section
1129(b) of the Bankruptcy Code.
“Fair
and Equitable”
The
Bankruptcy Code establishes different “cramdown” tests for determining whether a
plan is “fair and equitable” to dissenting impaired classes of secured
creditors, unsecured creditors, and Interest holders as follows:
Secured
Creditors
A plan of
reorganization is fair and equitable as to an impaired class of secured claims
that rejects the plan if the plan provides: (a) that each of the
holders of the secured claims included in the rejecting class (i) retains the
liens securing its claim to the extent of the allowed amount of such claim, to
the extent of the allowed amount of such claims, whether the property subject to
those liens is retained by the debtor or transferred to another entity, and (ii)
receives on account of its secured claim deferred cash payments having a present
value, as of the effective date of the plan of reorganization, at least equal to
the value of such Holder’s interest in the Estate’s interest in such property;
(b) that each of the holders of the secured claims included in the rejecting
class realizes the “indubitable equivalent” of its allowed secured claim; or
(c) for the sale, subject to section 363(k) of the Bankruptcy Code, of any
property that is subject to the liens securing the claims included in the
rejecting class, free and clear of such liens, with such liens to attach to the
proceeds of the sale and the treatment of such liens on proceeds in accordance
with clause (a) or (b) of this paragraph.
Unsecured
Creditors
A plan of
reorganization is fair and equitable as to an impaired class of unsecured claims
that rejects the plan if the plan provides that: (a) each Holder of a
claim included in the rejecting class receives or retains under the plan
property of a value, as of the effective date of the plan of reorganization,
equal to the amount of its allowed claim; or (b) the holders of claims and
Interests that are junior to the claims of the rejecting class will not receive
or retain any property under the plan of reorganization on account of such
junior claims or interests.
46
Holders
of Interests
A plan of
reorganization is fair and equitable as to an impaired class of Interests that
rejects the plan if the plan provides that: (a) each holder of an
Interest included in the rejecting class receives or retains under the plan
property of a value, as of the effective date of the plan of reorganization,
equal to the greatest of the allowed amount of (i) any fixed liquidation
preference to which such holder is entitled, (ii) the fixed redemption price to
which such holder is entitled, or (iii) the value of the interest; or
(b) the holder of any interest that is junior to the interests of the
rejecting class will not receive or retain any property under the plan of
reorganization on account of such junior interest.
The Plan
is fair and equitable as to Holders of Claims in Class 4 because, pursuant to
the Plan Support Agreement, the Debtors have sufficient support from such
Holders so that such Classes vote to accept the Plan. The Plan is
fair and equitable as to Holders of Claims in Classes 1, 2, 3, 5, and 6
because the Plan provides that their Allowed Claims and Allowed Interests are
Unimpaired. The Plan is fair and equitable as to Holders of Interests
in Class 7 because such Holders stand to recover more under the Plan than
in a hypothetical chapter 7 liquidation (where such Holders would receive no
recovery). The Debtors believe the Plan is fair and equitable as to
Holders of Claims in Class 8, who are conclusively deemed to have rejected the
Plan, because there are no Claims or Interests junior to Class 8 Claims and, as
such, the Plan does not provide any distribution to such Claims or
Interests.
“Unfair
Discrimination”
A plan of
reorganization does not “discriminate unfairly” if a dissenting class is treated
substantially equally to other classes similarly situated and no such class
receives more than it is legally entitled to receive for its claims or
interests.
The
Debtors do not believe that the Plan discriminates unfairly against any impaired
Class of Claims or Interests. The Debtors believe that the Plan and
the treatment of all Classes of Claims and Interests under the Plan satisfy the
foregoing requirements for nonconsensual Confirmation of the Plan.
Valuation
of the Debtors
In
conjunction with formulating the Plan, the Debtors determined that it was
necessary to estimate the post-Confirmation going concern value of the
Debtors. Accordingly, such valuation is set forth in the Section
herein entitled “Valuation Analysis.”
Effect of Confirmation of
the Plan
Retention
of Jurisdiction by the Bankruptcy Court
Notwithstanding
the entry of the Confirmation Order and the occurrence of the Effective Date, on
and after the Effective Date, the Bankruptcy Court shall retain exclusive
jurisdiction over all matters arising out of, or related to, the Chapter 11
Cases and the Plan pursuant to sections 105(a) and 1142 of the Bankruptcy Code,
including jurisdiction to:
1. allow,
disallow, determine, liquidate, classify, estimate, or establish the priority,
Secured or unsecured status, or amount of any Claim or Interest, including (i)
the resolution of any request for payment of any Administrative Claim, and (ii)
the resolution of any and all objections to the Secured or unsecured status,
priority, amount, or allowance of Claims or Interests;
47
2. decide
and resolve all matters related to the granting and denying, in whole or in
part, any applications for allowance of compensation or reimbursement of
expenses to Professionals authorized pursuant to the Bankruptcy Code or the
Plan;
3. resolve
any matters related to: (a) the assumption or assumption and
assignment of any Executory Contract or Unexpired Lease to which a Debtor is
party or with respect to which a Debtor may be liable and to hear, determine,
and, if necessary, liquidate, any Claims arising therefrom, including Cure
Claims pursuant to section 365 of the Bankruptcy Code; (b) any potential
contractual obligation under any Executory Contract or Unexpired Lease that
is assumed; and (c) any dispute regarding whether a contract or lease is or
was executory or expired;
4. ensure
that distributions to Holders of Allowed Claims and Allowed Interests are
accomplished pursuant to the provisions of the Plan;
5. adjudicate,
decide, or resolve any motions, adversary proceedings, contested or litigated
matters, and any other matters, and grant or deny any applications involving a
Debtor that may be pending on the Effective Date;
6. adjudicate,
decide, or resolve any and all matters related to section 1141 of the Bankruptcy
Code;
7. enter
and implement such orders as may be necessary or appropriate to execute,
implement, or consummate the provisions of the Plan and all contracts,
instruments, releases, indentures, and other agreements or documents created in
connection with the Plan or the Disclosure Statement;
8. enter
and enforce any order for the sale of property pursuant to sections 363, 1123,
or 1146(a) of the Bankruptcy Code;
9. resolve
any cases, controversies, suits, disputes, or Causes of Action that may arise in
connection with the Consummation, interpretation, or enforcement of the Plan or
any Entity’s obligations incurred in connection with the Plan;
10. issue
injunctions, enter and implement other orders, or take such other actions as may
be necessary or appropriate to restrain interference by any Entity with
Consummation or enforcement of the Plan;
11. resolve
any cases, controversies, suits, disputes, or Causes of Action with respect to
the releases, injunctions, and other provisions contained in Article VIII of the
Plan and enter such orders as may be necessary or appropriate to implement such
releases, injunctions, and other provisions;
12. resolve
any cases, controversies, suits, disputes, or Causes of Action with respect to
the repayment or return of distributions and the recovery of additional amounts
owed by the Holder of a Claim or Interest for amounts not timely repaid pursuant
to Article VI.K.1 of the Plan;
13. enter
and implement such orders as are necessary or appropriate if the Confirmation
Order is for any reason modified, stayed, reversed, revoked, or
vacated;
14. determine
any other matters that may arise in connection with or relate to the Plan, the
Disclosure Statement, the Confirmation Order, or any contract, instrument,
release, indenture, or other agreement or document created in connection with
the Plan or the Disclosure Statement;
48
15. enter
an order or Final Decree concluding or closing the Chapter 11
Cases;
16. adjudicate
any and all disputes arising from or relating to distributions under the
Plan;
17. consider
any modifications of the Plan, to cure any defect or omission, or to reconcile
any inconsistency in any Bankruptcy Court order, including the Confirmation
Order;
18. determine
requests for the payment of Claims and Interests entitled to priority pursuant
to section 507 of the Bankruptcy Code;
19. hear
and determine disputes arising in connection with the interpretation,
implementation, or enforcement of the Plan or the Confirmation Order, including
disputes arising under agreements, documents, or instruments executed in
connection with the Plan;
20. hear
and determine matters concerning state, local, and federal taxes in accordance
with sections 346, 505, and 1146 of the Bankruptcy Code;
21. hear
and determine all disputes involving the existence, nature, scope, or
enforcement of any exculpations, discharges, injunctions and releases granted in
the Plan, including under Article VIII of the Plan, regardless of whether
such termination occurred prior to or after the Effective Date;
22. enforce
all orders previously entered by the Bankruptcy Court; and
23. hear
any other matter not inconsistent with the Bankruptcy Code.
Settlement,
Release, Injunction, and Related Provisions
Compromise
and Settlement
NOTWITHSTANDING
ANYTHING CONTAINED HEREIN TO THE CONTRARY, THE ALLOWANCE, CLASSIFICATION, AND
TREATMENT OF ALL ALLOWED CLAIMS AND THEIR RESPECTIVE DISTRIBUTIONS AND
TREATMENTS HEREUNDER TAKES INTO ACCOUNT AND CONFORMS TO THE RELATIVE PRIORITY
AND RIGHTS OF THE CLAIMS AND THE INTERESTS IN EACH CLASS IN CONNECTION WITH ANY
CONTRACTUAL, LEGAL, AND EQUITABLE SUBORDINATION RIGHTS RELATING THERETO WHETHER
ARISING UNDER GENERAL PRINCIPLES OF EQUITABLE SUBORDINATION, SECTION 510 OF THE
BANKRUPTCY CODE, OR OTHERWISE. AS OF THE EFFECTIVE DATE, ANY AND ALL
SUCH RIGHTS DESCRIBED IN THE PRECEDING SENTENCE ARE SETTLED, COMPROMISED, AND
RELEASED PURSUANT HERETO. THE CONFIRMATION ORDER WILL CONSTITUTE THE
BANKRUPTCY COURT’S FINDING AND DETERMINATION THAT THE SETTLEMENTS REFLECTED IN
THE PLAN ARE (1) IN THE BEST INTERESTS OF THE DEBTORS, THEIR ESTATES, AND ALL
HOLDERS OF CLAIMS, (2) FAIR, EQUITABLE, AND REASONABLE, (3) MADE IN GOOD
FAITH, AND (4) APPROVED BY THE BANKRUPTCY COURT PURSUANT TO SECTION 363 OF THE
BANKRUPTCY CODE AND BANKRUPTCY RULE 9019. IN ADDITION, THE ALLOWANCE,
CLASSIFICATION, AND TREATMENT OF ALLOWED CLAIMS TAKE INTO ACCOUNT ANY CAUSES OF
ACTION, WHETHER UNDER THE BANKRUPTCY CODE OR OTHERWISE UNDER APPLICABLE
NON-BANKRUPTCY LAW, THAT MAY EXIST BETWEEN THE DEBTORS AND ANY RELEASED PARTY;
AS OF THE EFFECTIVE DATE, ANY AND ALL SUCH CAUSES OF ACTION ARE SETTLED,
COMPROMISED, AND RELEASED PURSUANT HERETO. THE CONFIRMATION ORDER
SHALL APPROVE THE RELEASES BY ALL ENTITIES OF ALL SUCH CONTRACTUAL, LEGAL, AND
EQUITABLE SUBORDINATION RIGHTS OR CAUSES OF ACTION THAT ARE SATISFIED,
COMPROMISED, AND SETTLED PURSUANT HERETO. NOTHING IN ARTICLE VIII.A
OF THE PLAN SHALL COMPROMISE OR SETTLE IN ANY WAY WHATSOEVER, ANY CAUSES OF
ACTION THAT THE DEBTORS OR THE REORGANIZED DEBTORS, AS APPLICABLE, MAY HAVE
AGAINST A NON-RELEASED PARTY OR PROVIDE FOR THE INDEMNITY OF ANY NON-RELEASED
PARTY.
49
IN
ACCORDANCE WITH THE PROVISIONS OF THIS PLAN, AND PURSUANT TO SECTION 363 OF THE
BANKRUPTCY CODE AND BANKRUPTCY RULE 9019, WITHOUT ANY FURTHER NOTICE TO OR
ACTION, ORDER OR APPROVAL OF THE BANKRUPTCY COURT, AFTER THE EFFECTIVE DATE (1)
THE REORGANIZED DEBTORS MAY, IN THEIR SOLE AND ABSOLUTE DISCRETION, COMPROMISE
AND SETTLE CLAIMS AGAINST THE DEBTORS AND (2) THE REORGANIZED DEBTORS MAY, IN
THEIR SOLE AND ABSOLUTE DISCRETION, COMPROMISE AND SETTLE CAUSES OF ACTION
AGAINST OTHER ENTITIES.
Discharge
of Claims and Termination of Interests
PURSUANT TO SECTION 1141(D) OF THE
BANKRUPTCY CODE, AND EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN THE PLAN OR IN
ANY CONTRACT, INSTRUMENT, OR OTHER AGREEMENT OR DOCUMENT CREATED PURSUANT TO THE
PLAN, THE DISTRIBUTIONS, RIGHTS, AND TREATMENT THAT ARE PROVIDED IN THE PLAN
SHALL BE IN COMPLETE SATISFACTION, DISCHARGE, AND RELEASE, EFFECTIVE AS OF THE
EFFECTIVE DATE, OF CLAIMS (INCLUDING ANY INTERCOMPANY CLAIMS RESOLVED OR
COMPROMISED AFTER THE EFFECTIVE DATE BY THE REORGANIZED DEBTORS), INTERESTS, AND
CAUSES OF ACTION OF ANY NATURE WHATSOEVER, INCLUDING ANY INTEREST ACCRUED ON
CLAIMS OR INTERESTS FROM AND AFTER THE PETITION DATE, WHETHER KNOWN OR UNKNOWN,
AGAINST, LIABILITIES OF, LIENS ON, OBLIGATIONS OF, RIGHTS AGAINST, AND INTERESTS
IN, THE DEBTORS OR ANY OF THEIR ASSETS OR PROPERTIES, REGARDLESS OF WHETHER ANY
PROPERTY SHALL HAVE BEEN DISTRIBUTED OR RETAINED PURSUANT TO THE PLAN ON ACCOUNT
OF SUCH CLAIMS AND INTERESTS, INCLUDING DEMANDS, LIABILITIES, AND CAUSES OF
ACTION THAT AROSE BEFORE THE EFFECTIVE DATE, ANY LIABILITY (INCLUDING WITHDRAWAL
LIABILITY) TO THE EXTENT SUCH CLAIMS OR INTERESTS RELATE TO SERVICES PERFORMED
BY EMPLOYEES OF THE DEBTORS PRIOR TO THE EFFECTIVE DATE AND THAT ARISE FROM A
TERMINATION OF EMPLOYMENT, ANY CONTINGENT OR NON-CONTINGENT LIABILITY ON ACCOUNT
OF REPRESENTATIONS OR WARRANTIES ISSUED ON OR BEFORE THE EFFECTIVE DATE, AND ALL
DEBTS OF THE KIND SPECIFIED IN SECTIONS 502(G), 502(H), OR 502(I) OF THE
BANKRUPTCY CODE; PROVIDED, HOWEVER, THAT, UPON THE EFFECTIVE DATE, ALL ALLOWED
GENERAL UNSECURED CLAIMS SHALL BE REINSTATED AND SHALL NOT BE SUBJECT TO THE
DISCHARGE PROVISIONS OF ARTICLE VIII.B OF THE PLAN. ANY DEFAULT BY
THE DEBTORS OR AFFILIATES WITH RESPECT TO ANY CLAIM OR INTEREST THAT EXISTED
IMMEDIATELY PRIOR TO OR ON ACCOUNT OF THE FILING OF THE CHAPTER 11 CASES SHALL
BE DEEMED CURED ON THE EFFECTIVE DATE. THE CONFIRMATION ORDER SHALL
BE A JUDICIAL DETERMINATION OF THE DISCHARGE OF ALL CLAIMS AND INTERESTS SUBJECT
TO THE EFFECTIVE DATE OCCURRING. ARTICLE VIII.B OF THE PLAN
ALSO SHALL APPLY TO ANY AND ALL
CLAIMS AGAINST THE NON-FILERS ON ACCOUNT OF OR RELATING TO THE
NOTES.
50
Releases
Release
of Liens
EXCEPT
AS OTHERWISE PROVIDED IN THE PLAN, OR IN ANY CONTRACT, INSTRUMENT, RELEASE, OR
OTHER AGREEMENT OR DOCUMENT CREATED PURSUANT TO THE PLAN, ON THE EFFECTIVE DATE
AND CONCURRENTLY WITH THE APPLICABLE DISTRIBUTIONS MADE PURSUANT TO THE PLAN
AND, IN THE CASE OF A SECURED CLAIM, SATISFACTION IN FULL OF THE PORTION OF THE
SECURED CLAIM THAT IS ALLOWED AS OF THE EFFECTIVE DATE, ALL MORTGAGES,
DEEDS OF TRUST, LIENS, PLEDGES, OR OTHER SECURITY INTERESTS AGAINST ANY PROPERTY
OF THE ESTATES SHALL BE FULLY RELEASED AND DISCHARGED, AND ALL OF THE RIGHTS,
TITLE, AND INTERESTS OF ANY HOLDER OF SUCH MORTGAGES, DEEDS OF TRUST, LIENS,
PLEDGES, OR OTHER SECURITY INTERESTS SHALL REVERT TO THE REORGANIZED
DEBTORS AND THEIR SUCCESSORS AND ASSIGNS.
Releases
by the Debtors
PURSUANT TO SECTION 1123(B) OF THE
BANKRUPTCY CODE, AND EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN THE PLAN, FOR
GOOD AND VALUABLE CONSIDERATION, ON AND AFTER THE EFFECTIVE DATE, THE RELEASED
PARTIES ARE DEEMED RELEASED AND DISCHARGED BY THE DEBTORS, THE REORGANIZED
DEBTORS, AND THE ESTATES FROM ANY AND ALL CLAIMS, OBLIGATIONS, RIGHTS, SUITS,
DAMAGES, CAUSES OF ACTION, REMEDIES, AND LIABILITIES WHATSOEVER, WHETHER FOR
TORT, FRAUD, CONTRACT, VIOLATIONS OF FEDERAL OR STATE SECURITIES LAWS, OR
OTHERWISE, INCLUDING ANY DERIVATIVE CLAIMS ASSERTED OR THAT COULD POSSIBLY HAVE
BEEN ASSERTED ON BEHALF OF THE DEBTORS, WHETHER KNOWN OR UNKNOWN, FORESEEN OR
UNFORESEEN, EXISTING OR HEREINAFTER ARISING, IN LAW, EQUITY, OR OTHERWISE, THAT
THE DEBTORS, THE REORGANIZED DEBTORS, THE ESTATES, OR THEIR AFFILIATES WOULD
HAVE BEEN LEGALLY ENTITLED TO ASSERT IN THEIR OWN RIGHT (WHETHER INDIVIDUALLY OR
COLLECTIVELY) OR ON BEHALF OF THE HOLDER OF ANY CLAIM OR INTEREST OR OTHER
ENTITY, BASED ON OR RELATING TO, OR IN ANY MANNER ARISING FROM, IN WHOLE OR IN
PART, THE DEBTORS OR THEIR AFFILIATES, THE CHAPTER 11 CASES, THE PURCHASE, SALE,
OR RESCISSION OF THE PURCHASE OR SALE OF ANY SECURITY OF THE DEBTORS OR THE
REORGANIZED DEBTORS, THE SUBJECT MATTER OF, OR THE TRANSACTIONS OR EVENTS GIVING
RISE TO, ANY CLAIM OR INTEREST THAT IS TREATED IN THE PLAN, THE BUSINESS OR
CONTRACTUAL ARRANGEMENTS BETWEEN ANY DEBTOR AND ANY RELEASED PARTY, THE
RESTRUCTURING OF CLAIMS AND INTERESTS PRIOR TO OR IN THE CHAPTER 11 CASES, THE
NEGOTIATION, FORMULATION, OR PREPARATION OF THE PLAN AND RELATED DISCLOSURE
STATEMENT, OR RELATED AGREEMENTS, INSTRUMENTS, OR OTHER DOCUMENTS, UPON ANY
OTHER ACT OR OMISSION, TRANSACTION, AGREEMENT, EVENT, OR OTHER OCCURRENCE TAKING
PLACE ON OR BEFORE THE CONFIRMATION DATE OF THE PLAN, OTHER THAN CLAIMS OR
LIABILITIES ARISING OUT OF OR RELATED TO ANY CONTRACTUAL OR FIXED MONETARY
OBLIGATION OWED TO THE DEBTORS OR THE REORGANIZED DEBTORS. NOTWITHSTANDING ANY OTHER PROVISION
OF THE PLAN TO THE CONTRARY, THE DEBTORS AND THE NON-FILERS DO NOT RELEASE AND
SHALL NOT BE DEEMED TO HAVE RELEASED ANY CLAIMS, RIGHTS, OR CAUSES OF ACTION
RELATED TO THE OPERATION OF THE MICHIGAN JOINT VENTURE, INCLUDING, BUT NOT
LIMITED TO, ANY CLAIMS, RIGHTS, OR CAUSES OF ACTION AGAINST THE MICHIGAN JOINT
VENTURE ENTITIES OR THE MICHIGAN JOINT VENTURE PARTNER OR ANY RIGHTS UNDER ANY
AGREEMENTS RELATED TO THE MICHIGAN JOINT VENTURE.
51
ENTRY
OF THE CONFIRMATION ORDER SHALL CONSTITUTE THE BANKRUPTCY COURT’S APPROVAL,
PURSUANT TO BANKRUPTCY RULE 9019, OF THE DEBTOR RELEASE, WHICH INCLUDES BY
REFERENCE EACH OF THE RELATED PROVISIONS AND DEFINITIONS CONTAINED HEREIN, AND
FURTHER, SHALL CONSTITUTE THE BANKRUPTCY COURT’S FINDING THAT THE DEBTOR RELEASE
IS: (1) IN EXCHANGE FOR THE GOOD AND VALUABLE CONSIDERATION PROVIDED
BY THE RELEASED PARTIES; (2) A GOOD FAITH SETTLEMENT AND COMPROMISE OF THE
CLAIMS RELEASED BY THIS ARTICLE VIII.D; (3) IN THE BEST INTERESTS OF THE DEBTORS
AND ALL HOLDERS OF CLAIMS AND INTERESTS; (4) FAIR, EQUITABLE, AND REASONABLE;
(5) GIVEN AND MADE AFTER DUE NOTICE AND OPPORTUNITY FOR HEARING; AND (6) A BAR
TO ANY OF THE DEBTORS ASSERTING ANY CLAIM OR CAUSE OF ACTION RELEASED PURSUANT
TO THE DEBTOR RELEASE.
Releases
by Holders of Claims and Interests
EXCEPT
AS PROVIDED IN THE LAST SENTENCE OF ARTICLE VIII.E OF THE PLAN, AS OF THE
EFFECTIVE DATE, EACH HOLDER OF A CLAIM OR AN INTEREST IN THE DEBTORS, EXCEPT TO
THE EXTENT THAT SUCH HOLDER EITHER VOTED TO REJECT THE PLAN OR IS CLASSIFIED IN
A CLASS THAT IS DEEMED TO REJECT THE PLAN, SHALL BE DEEMED TO HAVE CONCLUSIVELY,
ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY, AND FOREVER, RELEASED AND DISCHARGED
THE THIRD PARTY RELEASEES FROM ANY AND ALL CLAIMS, INTERESTS, OBLIGATIONS,
RIGHTS, SUITS, DAMAGES, CAUSES OF ACTION, REMEDIES, AND LIABILITIES WHATSOEVER,
WHETHER FOR TORT, FRAUD, CONTRACT, VIOLATIONS OF FEDERAL OR STATE SECURITIES
LAWS, OR OTHERWISE, INCLUDING ANY DERIVATIVE CLAIMS, ASSERTED ON BEHALF OF A
DEBTOR, WHETHER KNOWN OR UNKNOWN, FORESEEN OR UNFORESEEN, EXISTING OR HEREAFTER
ARISING, IN LAW, EQUITY, OR OTHERWISE, THAT SUCH ENTITY WOULD HAVE BEEN LEGALLY
ENTITLED TO ASSERT (WHETHER INDIVIDUALLY OR COLLECTIVELY), BASED ON OR IN ANY
WAY RELATING TO, OR IN ANY MANNER ARISING FROM, IN WHOLE OR IN PART, THE
DEBTORS, THE NON-FILERS, THE DEBTORS’ RESTRUCTURING, THE CHAPTER 11 CASES, THE
PURCHASE, SALE, OR RESCISSION OF THE PURCHASE OR SALE OF ANY SECURITY OF THE
DEBTORS OR THE REORGANIZED DEBTORS, THE SUBJECT MATTER OF, OR THE TRANSACTIONS
OR EVENTS GIVING RISE TO, ANY CLAIM OR INTEREST THAT IS TREATED IN THE PLAN, THE
BUSINESS OR CONTRACTUAL ARRANGEMENTS BETWEEN ANY DEBTOR AND ANY RELEASED PARTY,
THE RESTRUCTURING OF CLAIMS AND INTERESTS PRIOR TO OR IN THE CHAPTER 11 CASES,
THE NEGOTIATION, FORMULATION, OR PREPARATION OF THE PLAN, THE RELATED DISCLOSURE
STATEMENT, THE RELATED PLAN SUPPLEMENT, OR RELATED AGREEMENTS, INSTRUMENTS, OR
OTHER DOCUMENTS, UPON ANY OTHER ACT OR OMISSION, TRANSACTION, AGREEMENT, EVENT,
OR OTHER OCCURRENCE TAKING PLACE ON OR BEFORE THE EFFECTIVE DATE OF THE
PLAN. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THE FOREGOING, THE
RELEASE SET FORTH ABOVE DOES NOT RELEASE ANY POST-EFFECTIVE DATE OBLIGATIONS OF
ANY PARTY UNDER THE PLAN OR ANY DOCUMENT, INSTRUMENT, OR AGREEMENT (INCLUDING
THOSE SET FORTH IN THE PLAN SUPPLEMENT) EXECUTED TO IMPLEMENT THE
PLAN.
52
ENTRY
OF THE CONFIRMATION ORDER SHALL CONSTITUTE THE BANKRUPTCY COURT’S APPROVAL,
PURSUANT TO BANKRUPTCY RULE 9019, OF THE THIRD PARTY RELEASE, WHICH INCLUDES BY
REFERENCE EACH OF THE RELATED PROVISIONS AND DEFINITIONS CONTAINED HEREIN, AND
FURTHER, SHALL CONSTITUTE THE BANKRUPTCY COURT’S FINDING THAT THE THIRD PARTY
RELEASE IS: (1) IN EXCHANGE FOR THE GOOD AND VALUABLE CONSIDERATION
PROVIDED BY THE THIRD PARTY RELEASEES; (2) A GOOD FAITH SETTLEMENT AND
COMPROMISE OF THE CLAIMS RELEASED BY THIS ARTICLE VIII.E; (3) IN THE BEST
INTERESTS OF THE DEBTORS AND ALL HOLDERS OF CLAIMS AND INTERESTS; (4) FAIR,
EQUITABLE, AND REASONABLE; (5) GIVEN AND MADE AFTER DUE NOTICE AND
OPPORTUNITY FOR HEARING; AND (6) A BAR TO ANY ENTITY GRANTING A THIRD PARTY
RELEASE FROM ASSERTING ANY CLAIM OR CAUSE OF ACTION RELEASED PURSUANT TO THE
THIRD PARTY RELEASE.
NOTHING
IN THIS THIRD PARTY RELEASE SHALL BE DEEMED TO RELEASE OR IMPAIR ANY ALLOWED
GENERAL UNSECURED CLAIM AGAINST THE DEBTORS, AND ALL ALLOWED GENERAL UNSECURED
CLAIMS AGAINST THE DEBTORS SHALL BE REINSTATED UNDER THE PLAN.
Exculpation
NO
EXCULPATED PARTY SHALL HAVE OR INCUR, AND EACH EXCULPATED PARTY IS HEREBY
RELEASED AND EXCULPATED FROM ANY EXCULPATED CLAIM OR ANY OBLIGATION, CAUSE OF
ACTION, OR LIABILITY FOR ANY EXCULPATED CLAIM; PROVIDED, HOWEVER, THAT THE FOREGOING
“EXCULPATION” SHALL HAVE NO EFFECT ON THE LIABILITY OF ANY ENTITY THAT RESULTS
FROM ANY SUCH ACT OR OMISSION THAT IS DETERMINED BY A FINAL ORDER TO HAVE
CONSTITUTED GROSS NEGLIGENCE OR WILLFUL MISCONDUCT; PROVIDED FURTHER THAT IN ALL RESPECTS
SUCH ENTITIES SHALL BE ENTITLED TO REASONABLY RELY UPON THE ADVICE OF COUNSEL
WITH RESPECT TO THEIR DUTIES AND RESPONSIBILITIES PURSUANT TO, OR IN CONNECTION
WITH, THE PLAN. THE DEBTORS AND THE REORGANIZED DEBTORS (AND EACH OF
THEIR RESPECTIVE AFFILIATES, AGENTS, DIRECTORS, OFFICERS, EMPLOYEES, ADVISORS,
AND ATTORNEYS) HAVE PARTICIPATED IN COMPLIANCE WITH THE APPLICABLE PROVISIONS OF
THE BANKRUPTCY CODE WITH REGARD TO THE SOLICITATION AND DISTRIBUTION OF THE
SECURITIES PURSUANT TO THE PLAN, AND, THEREFORE, ARE NOT, AND ON ACCOUNT OF SUCH
DISTRIBUTIONS SHALL NOT BE, LIABLE AT ANY TIME FOR THE VIOLATION OF ANY
APPLICABLE LAW, RULE, OR REGULATION GOVERNING THE SOLICITATION OF ACCEPTANCES OR
REJECTIONS OF THE PLAN OR SUCH DISTRIBUTIONS MADE PURSUANT TO THE
PLAN.
53
Injunction
EXCEPT
AS OTHERWISE EXPRESSLY PROVIDED IN THE PLAN OR FOR OBLIGATIONS ISSUED PURSUANT
TO THE PLAN, ALL ENTITIES WHO HAVE HELD, HOLD, OR MAY HOLD CLAIMS OR INTERESTS
THAT HAVE BEEN RELEASED PURSUANT TO ARTICLE VIII.D OR ARTICLE VIII.E HEREOF,
DISCHARGED PURSUANT TO ARTICLE VIII.A HEREOF, OR ARE SUBJECT TO EXCULPATION
PURSUANT TO ARTICLE VIII.F HEREOF ARE PERMANENTLY ENJOINED, FROM AND AFTER THE
EFFECTIVE DATE, FROM TAKING ANY OF THE FOLLOWING ACTIONS AGAINST, AS APPLICABLE,
THE DEBTORS, THE NON-FILERS, THE REORGANIZED DEBTORS, THE RELEASED PARTIES, OR
THE EXCULPATED PARTIES: (1) COMMENCING OR CONTINUING IN ANY
MANNER ANY ACTION OR OTHER PROCEEDING OF ANY KIND ON ACCOUNT OF OR IN CONNECTION
WITH OR WITH RESPECT TO ANY SUCH CLAIMS OR INTERESTS; (2) ENFORCING,
ATTACHING, COLLECTING, OR RECOVERING BY ANY MANNER OR MEANS ANY JUDGMENT, AWARD,
DECREE, OR ORDER AGAINST SUCH ENTITIES ON ACCOUNT OF OR IN CONNECTION WITH OR
WITH RESPECT TO ANY SUCH CLAIMS OR INTERESTS; (3) CREATING, PERFECTING, OR
ENFORCING ANY ENCUMBRANCE OF ANY KIND AGAINST SUCH ENTITIES OR THE PROPERTY OR
ESTATES OF SUCH ENTITIES ON ACCOUNT OF OR IN CONNECTION WITH OR WITH RESPECT TO
ANY SUCH CLAIMS OR INTERESTS; (4) ASSERTING ANY RIGHT OF SETOFF,
SUBROGATION, OR RECOUPMENT OF ANY KIND AGAINST ANY OBLIGATION DUE FROM SUCH
ENTITIES OR AGAINST THE PROPERTY OR ESTATES OF SUCH ENTITIES ON ACCOUNT OF OR IN
CONNECTION WITH OR WITH RESPECT TO ANY SUCH CLAIMS OR INTERESTS UNLESS SUCH
HOLDER HAS FILED A MOTION REQUESTING THE RIGHT TO PERFORM SUCH SETOFF ON OR
BEFORE THE CONFIRMATION DATE; AND (5) COMMENCING OR CONTINUING IN ANY
MANNER ANY ACTION OR OTHER PROCEEDING OF ANY KIND ON ACCOUNT OF OR IN CONNECTION
WITH OR WITH RESPECT TO ANY SUCH CLAIMS OR INTERESTS RELEASED OR SETTLED
PURSUANT TO THE PLAN. SUBJECT ONLY TO ENTRY OF A FINAL ORDER
APPROVING THE CALIFORNIA WAGE AND HOUR 9019 MOTION, THE CALIFORNIA WAGE AND HOUR
LITIGATION IS PERMANENTLY ENJOINED BY THIS ARTICLE VIII.G AND EACH AND EVERY
PLAINTIFF, CLASS MEMBER, OR PARTY TO THE CALIFORNIA WAGE AND HOUR LITIGATION IS
PERMANENTLY BOUND BY THIS INJUNCTION.
Important Securities Laws
Disclosure
Under the
Plan, shares of New Equity will be distributed to Holders of Claims in Class 4
and New Warrants will be issued to Holders of Interests in
Class 7.
New U.S.
Concrete Holdings and the Reorganized Debtors will rely on section 1145 of the
Bankruptcy Code to exempt from the registration requirements of the Securities
Act the offer and distribution of the New Equity. Section 1145(a)(1)
of the Bankruptcy Code exempts the offer and sale of securities under a plan of
reorganization from registration under Section 5 of the Securities Act and state
laws when such securities are to be exchanged for claims or principally in
exchange for claims and partly for cash. In general, securities
issued under section 1145 may be resold without registration unless the
recipient is an “underwriter” with respect to those
securities. Section 1145(b)(1) of the Bankruptcy Code defines an
“underwriter” as any person who:
1. purchases
a claim against, an interest in, or a claim for an administrative expense
against the debtor, if that purchase is with a view to distributing any security
received in exchange for such a claim or interest;
2. offers
to sell securities offered under a plan of reorganization for the holders of
those securities;
3. offers
to buy those securities from the holders of the securities, if the offer to buy
is (a) with a view to distributing those securities, and (b) under an
agreement made in connection with the plan of reorganization, the completion of
the plan of reorganization, or with the offer or sale of securities under the
plan of reorganization; or
54
4. is
an issuer with respect to the securities, as the term “issuer” is defined in
Section 2(a)(11) of the Securities Act.
To the
extent that Entities who receive the New Equity are deemed to be “underwriters,”
resales by those Entities would not be exempted from registration under the
Securities Act or other applicable law by section 1145 of the Bankruptcy
Code. Those Entities would, however, be permitted to sell New Equity
or other securities without registration if they are able to comply with the
provisions of Rule 144 under the Securities Act, as described further
below.
You
should confer with your own legal advisors to help determine whether or not you
are an “underwriter.”
Under
certain circumstances, Holders of New Equity deemed to be “underwriters” may be
entitled to resell their securities pursuant to the limited safe harbor resale
provisions of Rule 144 of the Securities Act, to the extent available, and in
compliance with applicable state securities laws. Generally, Rule 144
of the Securities Act provides that persons who are affiliates of an issuer who
resell securities will not be deemed to be underwriters if certain conditions
are met. These conditions include the requirement that current public
information with respect to the issuer be available, a limitation as to the
amount of securities that may be sold, the requirement that the securities be
sold in a “brokers transaction” or in a transaction directly with a “market
maker,” and that notice of the resale be filed with the SEC.
Nominee Voting
Instructions
Only the
Holders of Claims in Class 4 and Holders of Interests in Class 7 are entitled to
vote to accept or reject the Plan, and such Holders may do so by completing the
appropriate Ballots and returning them in the envelope provided. The
failure of a Holder to deliver a duly executed Ballot will be deemed to
constitute an abstention by such Holder with respect to voting to accept or
reject the Plan, and such abstentions will not be counted as votes to accept or
reject the Plan. Voting instructions are attached to each Beneficial
Holder Ballot.
With
respect to Holders of the Claims in Class 4 and Interests in Class 7, a broker,
dealer, commercial bank, trust company, or other agent or nominee of beneficial
holders (each, a “Nominee”) should
deliver the Beneficial Holder Ballot and other documents relating to the Plan,
including this Disclosure Statement, to each beneficial holder (“Beneficial Holder”)
of the eligible Note Claims or Interests in U.S. Concrete, Inc., as applicable,
for which they serve as Nominee.
A Nominee
has two options with respect to voting. Under the first option, the
Nominee will forward the solicitation package, including the Beneficial Holder
Ballot and related subscription forms, to each Beneficial Holder for voting and
include a return envelope provided by and addressed to the Nominee so that the
Beneficial Holder may return the completed Beneficial Holder Ballot to the
nominee. Upon receipt of the Beneficial Holder Ballots, the Nominee
will summarize the individual votes of its respective Beneficial Holders on the
appropriate Master Ballot and then return the master ballot to the voting agent
before the Voting Deadline.
55
Under the
second option, if the Nominee elects to “pre-validate” Beneficial Holder
Ballots:
The
Nominee shall forward the solicitation package or copies thereof (including
(a) this Disclosure Statement (together with the Plan attached thereto as
Exhibit A,
and all other exhibits), (b) an individual Beneficial Holder Ballot that
has been pre-validated, as indicated in the paragraph immediately below, and (c)
a return envelope provided by and addressed to the Notice, Claims, and Balloting
Agent) to the Beneficial Holder within five business days of the receipt by such
nominee of the solicitation package in a manner customary in the securities
industry;
To
“pre-validate” a Beneficial Holder Ballot, the Nominee shall complete and
execute the Beneficial Holder Ballot and indicate on the Beneficial Holder
Ballot the name of the registered Holder, the amount of securities held by the
Nominee for the Beneficial Holder, and the account number(s) for the account(s)
in which such securities are held by the Nominee; and
The
Beneficial Holder shall return the pre-validated Beneficial Holder Ballot to the
Notice, Claims, and Balloting Agent by the Voting Deadline.
If a
Master Ballot is received after the Voting Deadline, the votes and elections on
such Master Ballot may be counted only in the sole and absolute discretion of
the Debtors. The method of delivery of a Master Ballot to be sent to
the Notice, Claims, and Balloting Agent is at the election and risk of each
Nominee. Except as otherwise provided in this Disclosure Statement,
such delivery will be deemed made only when the executed Master Ballot is
actually received by the Notice, Claims, and Balloting Agent. Instead
of effecting delivery by mail, it is recommended, though not required, that such
entities use an overnight or hand delivery service. In all cases,
sufficient time should be allowed to assure timely delivery. No
Beneficial Holder Ballot should be sent to the Debtors, or the Debtors’
financial or legal advisors, but only to the Notice, Claims, and Balloting Agent
as set forth under “How do I vote for or against the Plan?” in the Section
herein entitled “Questions and Answers Regarding this Disclosure Statement and
the Plan.”
Nominees
must provide appropriate information for each of the items on the Master Ballot,
including identifying the votes to accept or reject the Plan.
By
returning a Master Ballot, each Nominee will be certifying to the Debtors and
the Bankruptcy Court, among other things, that:
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·
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it
has received a copy of the Disclosure Statement, the Beneficial Holder
Ballots, and the Solicitation Package and has delivered the same to the
Beneficial Holders listed on the Beneficial Holder Ballots or to any
intermediary Nominee, as
applicable.
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·
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it
has received a completed and signed Beneficial Holder Ballot from each
Beneficial Holder for which it is a Nominee or from an intermediary
Nominee, as applicable;
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·
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it
is the registered Holder of the Note Claims being
voted;
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·
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it
has authorized by each such Beneficial Holder or intermediary Nominee, as
applicable, to vote on the Plan and to make applicable
elections;
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·
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it
has properly disclosure: (i) the number of Beneficial Holders who
contemplated Beneficial Holder Ballots; (ii) the respective amounts of the
Note Claims owned, as may be, by each Beneficial Holder who completed a
Beneficial Holder Ballot; (iii) each such Beneficial Holder’s respective
vote concerning the Plan; (iv) each such Beneficial Holder’s certification
as to the other Note Claims voted; and (v) the customer account or other
identification number for each such Beneficial
Holder;
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56
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·
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each
such Beneficial Holder has certified to the undersigned or to an
intermediary Nominee, as applicable, that it is eligible to vote on the
Plan;
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·
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each
such Beneficial Holder has certified to the Nominee that such Beneficial
Holder has not submitted any other ballot for such Claims held in other
accounts or other names, or, if it has submitted another ballot held in
other accounts or names, that the Beneficial Holders has certified to the
Nominee that such Beneficial Holder has cast the same vote for such
Claims, and the undersigned has identified such other accounts or owner
and such other ballots; and
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·
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It
will maintain Beneficial Holder Ballots and evidence of separate
transactions returned by Beneficial Holders or by intermediary Nominees
(whether properly completed or defective) for at least one year after the
Voting Deadline and disclose all such information to the Bankruptcy Court
or the Debtors, as the case may be, if so
ordered.
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Except as
otherwise provided herein, each Master Ballot must be returned in sufficient
time to allow it to be RECEIVED by the Notice, Claims, and Balloting Agent by no
later than the Voting Deadline.
Certain U.S. Federal Income
Tax Consequences of the Plan
The
following discussion summarizes certain federal income tax consequences of the
Plan to the Debtors, New U.S. Concrete Holdings, the Holders of Claims, and the
Holders of Interests in U.S. Concrete, Inc. based upon the Internal Revenue Code
of 1986, as amended (the “IRC”), Treasury
regulations promulgated thereunder, judicial authorities, and current
administrative rulings and practices now in effect, all of which are subject to
change at any time by legislative, judicial, or administrative
action. Any such change could be retroactively applied in a manner
that could adversely affect the Debtors, New U.S. Concrete Holdings, Holders of
Claims, or Holders of Interests. In particular, some of the
consequences discussed herein are based on Treasury regulations or IRS Notices
that have been proposed but not finalized, which regulations are particularly
susceptible to change at any time.
The tax
consequences of certain aspects of the Plan are uncertain due to the lack of
applicable legal authority and may be subject to administrative or judicial
interpretations that differ from the discussion below. The Debtors
have not requested, nor do they intend to request, a tax ruling from the
Internal Revenue Service (the “IRS”). Consequently,
there can be no assurance that the treatment set forth in the following
discussion will be accepted by the IRS. Further, the federal income
tax consequences to the Debtors, New U.S. Concrete Holdings, Holders of Claims,
and Holders of Interests may be affected by matters not discussed
below. For example, the following discussion does not address state,
local, or foreign tax considerations that may be applicable and the discussion
does not address the tax consequences of the Plan to certain types of Holders of
Claims and Holders of Interests, creditors and stockholders (including foreign
persons, financial institutions, life insurance companies, tax-exempt
organizations, and taxpayers who may be subject to the alternative minimum tax)
who may be subject to special rules not addressed herein. The
following discussion assumes that Holders of Claims and Holders of Interests
hold such Claims and Interests as “capital assets” within the meaning of Section
1221 of the IRC.
57
THE
DISCUSSION SET FORTH BELOW IS INCLUDED FOR GENERAL INFORMATION
ONLY. THE PLAN PROPONENTS AND THEIR COUNSEL AND FINANCIAL ADVISORS
ARE NOT MAKING ANY REPRESENTATIONS REGARDING THE PARTICULAR TAX CONSEQUENCES OF
CONFIRMATION AND CONSUMMATION OF THE PLAN, NOR ARE THEY RENDERING ANY FORM OF
LEGAL OPINION OR TAX ADVICE ON SUCH TAX CONSEQUENCES. THE TAX LAWS
APPLICABLE TO CORPORATIONS IN BANKRUPTCY ARE EXTREMELY COMPLEX, AND THE
FOLLOWING SUMMARY IS NOT EXHAUSTIVE. HOLDERS OF CLAIMS AND HOLDERS OF
INTERESTS ARE STRONGLY URGED TO CONSULT THEIR TAX ADVISORS REGARDING TAX
CONSEQUENCES OF THE PLAN, INCLUDING U.S. FEDERAL, STATE AND LOCAL AND FOREIGN
TAX CONSEQUENCES.
IRS
CIRCULAR 230 DISCLOSURE: TO ENSURE COMPLIANCE WITH REQUIREMENTS IMPOSED BY THE
IRS, ANY TAX ADVICE CONTAINED IN THIS DISCLOSURE STATEMENT (INCLUDING ANY
ATTACHMENTS) IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY ANY
TAXPAYER FOR THE PURPOSE OF AVOIDING TAX-RELATED PENALTIES UNDER THE
IRC. TAX ADVICE CONTAINED IN THIS DISCLOSURE STATEMENT (INCLUDING ANY
ATTACHMENTS) IS WRITTEN IN CONNECTION WITH THE PROMOTION OR MARKETING OF THE
TRANSACTIONS OR MATTERS ADDRESSED BY THE DISCLOSURE STATEMENT. EACH
TAXPAYER SHOULD SEEK ADVICE BASED ON THE TAXPAYER’S PARTICULAR CIRCUMSTANCES
FROM AN INDEPENDENT TAX ADVISOR.
A.
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Certain
U.S. Federal Income Tax Consequences to the
Debtors
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In
general, the Debtors do not expect to incur any substantial tax liability as a
result of implementation of the Plan. However, the Debtors do expect
to realize a significant amount of cancellation of indebtedness income upon
implementation of the Plan, which income is likely to result in the elimination
of a substantial portion of the Debtors’ tax attributes, including some or all
of their net operating losses (“NOLs”) and the tax
basis in their assets.
Cancellation
of Debt Income
Under the
IRC, a taxpayer generally recognizes gross income to the extent that
indebtedness of the taxpayer is cancelled for less than the amount owed by the
taxpayer, subject to certain judicial or statutory exceptions. The
most significant of these exceptions with respect to the Debtors is that
taxpayers who are operating under the jurisdiction of a federal bankruptcy court
are not required to recognize such income. In that case, however, the
taxpayer must reduce its tax attributes, such as its NOLs, general business
credits, capital loss carryforwards, and tax basis in assets, by the amount of
the cancellation of indebtedness income (“CODI”)
avoided.
Limitation
on NOLs and Built-in Losses
Under
Section 382 of the IRC, any corporation that undergoes an “ownership change”
within the meaning of Section 382 becomes subject to an annual limitation on its
ability to utilize its NOLs and “built-in losses” in its assets. A
corporation has a built-in loss in its assets to the extent that the
Corporation’s tax basis in its assets is greater than the value of such
assets. The Debtors may have NOLs remaining after implementation of
the Plan, and it is possible that the Debtors will also have a built-in loss in
their assets.
58
The
restructuring should constitute an ownership change for purposes of Section
382. If and to the extent that the Debtors have NOLs remaining after
implementation of the Plan, then the Debtors’ ability to use those NOLs would be
subject to an annual limitation. Similarly, if and to the extent that
the Debtors have a built-in loss in their assets, then the Debtors’ ability to
claim a deduction for those built-in losses, including as depreciation or
amortization deductions for its assets, could be subject to an annual limitation
during the first five years after the restructuring is
completed. Outside of bankruptcy, the amount of such annual
limitation would be approximately equal to the amount determined by multiplying
the long-term tax exempt bond rate (currently approximately 4%) by the Debtors’
equity value immediately before the ownership change; however, because the
Debtors’ ownership change will occur pursuant to a Chapter 11 Plan, certain
beneficial exceptions are available.
An
exception to the foregoing annual limitation rules generally applies when
so-called “qualified creditors” and continuing shareholders of a debtor company
in chapter 11 receive, in respect of their claims, at least 50% of the vote and
value of the stock of the reorganized debtor (or a controlling corporation if
also in chapter 11) pursuant to a confirmed chapter 11 plan (the “382(l)(5)
Exception”). Under the 382(l)(5) Exception, a debtor’s NOLs and built-in
losses (“Pre-Change
Losses”) are not limited on an annual basis but, instead, are required to
be reduced by the amount of any interest deductions claimed during the three
taxable years preceding the effective date of the plan of reorganization, and
during the part of the taxable year prior to and including the effective date of
the plan of reorganization, in respect of all debt converted into stock in the
reorganization. If the 382(l)(5) Exception applies and a debtor undergoes
another ownership change within two years, the debtor’s Pre-Change Losses
effectively would be eliminated in their entirety.
Where the
382(l)(5) Exception is not applicable (either because the debtor does not
qualify for it or the debtor elects not to utilize the 382(l)(5) Exception), a
second special rule will generally apply (the “382(l)(6)
Exception”). When the 382(l)(6) Exception applies, a debtor corporation
that undergoes an “ownership change” generally is permitted to determine the
fair market value of its stock, for purposes of calculating the annual
limitation, after taking into account the increase in value resulting from any
surrender or cancellation of creditors’ claims in the bankruptcy. This differs
from the ordinary rule that requires the fair market value of a debtor
corporation that undergoes an “ownership change” to be determined before the
events giving rise to the change. The 382(l)(6) Exception also differs from the
382(l)(5) Exception in that (i) the debtor corporation is not required to reduce
its NOLs by the amount of interest deductions claimed within the prior
three-year period and (ii) the debtor may undergo another ownership change
within two years without triggering the elimination of its NOLs. Whether a
debtor takes advantage of the 382(l)(5) Exception or the 382(l)(6) Exception,
the debtor’s use of the Pre-Change Losses may be adversely affected if the
debtor were to undergo another ownership change.
While it
is not certain, it is doubtful at this point that the Debtors will elect to
utilize the 382(l)(5) Exception. In the event that the Debtors do not
use the 382(l)(5) Exception, the Debtors expect that their use of any remaining
Pre-Change Losses after the Effective Date will be subject to limitation based
on the rules discussed above, but taking into account the 382(l)(6)
Exception.
B. Certain
U.S. Federal Income Tax Consequences to Holders of Claims and
Interests
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(i)
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Consequences
to Holders of Priority Claims
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Pursuant
to the Plan, each Holder of a Priority Claim will receive payment in full in
Cash on the Effective Date. A Holder that receives Cash in exchange
for its Claim pursuant to the Plan generally will recognize gain or loss for
U.S. federal income tax purposes in an amount equal to the difference between
(i) the amount of Cash received in exchange for its Claim and (ii) the Holder’s
adjusted tax basis in its Claim. Such gain or loss should be capital
in nature (subject to the “accrued interest” and “market discount” rules
described below) and should be long term capital gain or loss if the Claim was
held for more than one year by the Holder.
59
(ii) Consequences
to Holders of Other Secured Claims
Pursuant
to the Plan, each Other Secured Claim will be Reinstated or otherwise rendered
Unimpaired for the benefit of the Holder thereof. If an Other Secured
Claim is Reinstated, then a Holder thereof should not recognize gain or loss
except to the extent that collateral securing such Claim is changed, and the
change in collateral constitutes a “significant modification” of the Other
Secured Claim within the meaning of the Treasury Regulations promulgated under
Section 1001 of the IRC.
(iii) Consequences
to Holders of General Unsecured Claims
Pursuant
to the Plan, each Holder of an General Unsecured Claim will either receive
payment in full in Cash on the Effective Date or in the ordinary course of
business according to the terms of the General Unsecured Claim. A
Holder that receives Cash in exchange for its Claim pursuant to the Plan
generally will recognize gain or loss for U.S. federal income tax purposes in an
amount equal to the difference between (i) the amount of Cash received in
exchange for its Claim and (ii) the Holder’s adjusted tax basis in its
Claim. Such gain or loss should be capital in nature, subject to the
“market discount” rules described below.
(iv) Consequences
to Holders of Note Claims
Pursuant
to the Plan, each Holder of a Note Claim will receive its pro rata share of the
New Equity in partial satisfaction of its Claim. The U.S. federal
income tax consequences of the Plan to a Holder of a Note Claim depend, in part,
on whether or to what extent such Claim constitutes “securities” for tax
purposes.
Whether
an instrument constitutes a “security” is determined based on all the facts and
circumstances, but most authorities have held that the length of the term of a
debt instrument is an important factor in determining whether such instrument is
a security for federal income tax purposes. These authorities have indicated
that a term of less than five years is evidence that the instrument is not a
security, whereas a term of ten years or more is evidence that it is a security.
There are numerous other factors that could be taken into account in determining
whether a debt instrument is a security, including the security for payment, the
creditworthiness of the obligor, the subordination or lack thereof to other
creditors, the right to vote or otherwise participate in the management of the
obligor, convertibility of the instrument into an equity interest of the
obligor, whether payments of interest are fixed, variable or contingent, and
whether such payments are made on a current basis or accrued.
In
general, the Debtors believe that the Note Claims do qualify as “securities” for
federal income tax purposes.
If the
Note Claims do
qualify as “securities” for federal income tax purposes, a Holder of such a
Claim who receives New Equity in satisfaction of such Holder’s Claim should
recognize no gain or loss (or bad debt deduction) on the receipt of New
Equity. A Holder’s aggregate tax basis in the New Equity received
under the Plan in respect of a Note Claim that qualifies as a security, apart
from amounts allocable to interest, generally should equal the Holder’s basis in
the Claim. The holding period for any New Equity received under the
Plan in respect of a Claim constituting a security, apart from amounts allocable
to interest, generally should include the holding period of the Claim
surrendered.
60
On the
other hand, if a debt instrument constituting a surrendered Claim is not treated as a
security, a Holder of such a Claim should be treated as exchanging its Claim for
New Equity in a fully taxable exchange. A Holder of a Note Claim who
is subject to fully taxable exchange treatment should recognize gain or loss
equal to the difference between (i) the fair market value of the New Equity as
of the Effective Date, and (ii) the Holder’s basis in the debt instrument
constituting the surrendered Note Claim. Such gain or loss should be
capital in nature (subject to the “market discount” rules described below) and
should be long-term capital gain or loss if the debts constituting the
surrendered Note Claim were held for more than one year. A Holder’s
tax basis in the New Equity received should equal the fair market value of the
New Equity as of the Effective Date. A Holder’s holding period for
the New Equity should begin on the day following the Effective
Date.
HOLDERS
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE RECOGNITION OF GAIN OR
LOSS, FOR FEDERAL INCOME TAX PURPOSES, ON THE SATISFACTION OF THEIR NOTE
CLAIMS.
(a) Accrued
Interest
To the
extent that any amount received by a Holder of a surrendered Claim under the
Plan is attributable to accrued interest, such amount should be taxable to the
Holder as interest income. Conversely, a Holder of a surrendered Claim may be
able to recognize a deductible loss (or, possibly, a write-off against a reserve
for worthless debts) to the extent that any accrued interest on the debt
instruments constituting such Claim was previously included in the Holder’s
gross income but was not paid in full by the Debtors. Such loss may
be ordinary, but the tax law is unclear on this point.
The
extent to which the consideration received by a Holder of a surrendered Claim
will be attributable to accrued interest on the debts constituting the
surrendered Claim is unclear. Treasury regulations generally treat a
payment under a debt instrument first as a payment of accrued and untaxed
interest and then as a payment of principal. Pursuant to the Plan,
all distributions in respect of any Claim will be allocated first to the
principal amount of such Claim, to the extent otherwise permitted and as
determined for federal income tax purposes, and thereafter to the remaining
portion of such Claim, if any.
HOLDERS
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE ALLOCATION OF CONSIDERATION
RECEIVED IN SATISFACTION OF THEIR CLAIMS AND THE FEDERAL INCOME TAX TREATMENT OF
ACCRUED BUT UNPAID INTEREST.
(b) Market
Discount
Under the
“market discount” provisions of sections 1276 through 1278 of the IRC, some or
all of the gain realized by a Holder of a Claim who exchanges the debt
instrument for other property on the Effective Date may be treated as ordinary
income (instead of capital gain), to the extent of the amount of “market
discount” on the debt instruments constituting the surrendered
Claim.
In
general, a debt instrument is considered to have been acquired with “market
discount” if its Holder’s adjusted tax basis in the debt instrument is less than
(i) the sum of all remaining payments to be made on the debt instrument,
excluding “qualified stated interest” or, (ii) in the case of a debt instrument
issued with OID, its adjusted issue price, by at least a de minimis amount (equal to
0.25 percent of the sum of all remaining payments to be made on the debt
instrument, excluding qualified stated interest, multiplied by the number of
remaining whole years to maturity).
Any gain
recognized by a Holder on the taxable disposition of surrendered debts
(determined as described above) that had been acquired with market discount
should be treated as ordinary income to the extent of the market discount that
accrued thereon while such debts were considered to be held by the Holder
(unless the Holder elected to include market discount in income as it
accrued).
61
(v) Consequences
to Holders of Interests in U.S. Concrete, Inc.
Pursuant
to the Plan, each Holder of an Interest in U.S. Concrete, Inc. will receive its
Pro Rata share of the New Warrants. A Holder of an Interest in U.S.
Concrete, Inc. that receives New Warrants pursuant to the Plan will not
recognize income, gain, deduction, or loss on the receipt of New
Warrants. A Holder’s aggregate tax basis in the New Warrants received
generally should equal the Holder’s basis in the Interest. The
holding period for the New Warrants will include the Holder’s holding period for
the Existing Common Stock.
(a) Dividends
on New Equity
For U.S.
federal income tax purposes, the gross amount of any distribution (other than
certain distributions, if any, of shares distributed to all shareholders of New
U.S. Concrete Holdings) made to a Holder with respect to New Equity will
constitute dividends to the extent of New U.S. Concrete Holdings’ current and
accumulated earnings and profits (as determined under U.S. federal income tax
principles). Non-corporate Holders generally will be taxed on such
distributions at the lower rates applicable to long-term capital gains (i.e., gains from the sale of
capital assets held for more than one year) with respect to taxable years
beginning on or before December 31, 2010. If distributions with
respect to New Equity exceed New U.S. Concrete Holdings’ current and accumulated
earnings and profits as determined under U.S. federal income tax principles, the
excess would be treated first as a tax-free return of capital to the extent of
the Holder’s adjusted tax basis in the New Equity. Any amount in
excess of the amounts treated as (i) a dividend and (ii) a return of capital
would be treated as capital gain.
(vi) Consequences
to Holders of Section 510(b) Claims
Pursuant
to the Plan, each Section 510(b) Claim will be cancelled without any
distribution. A Holder may be entitled in the year of cancellation
(or in an earlier year) to a bad debt deduction in some amount under section
166(a) of the Tax Code to the extent of such Holder’s tax basis in the
Section 510(b) Claim. The rules governing the timing and amount
of bad debt deductions place considerable emphasis on the facts and
circumstances of the Holder, the obligor and the instrument with respect to
which a deduction is claimed. Holders of Section 510(b) Claims
therefore are urged to consult their own tax advisors with respect to their
ability to take such a deduction.
C. Backup
Withholding
In general, information reporting
requirements may apply to distributions or payments under the
Plan. Additionally, under the backup withholding rules, a Holder of a
Claim may be subject to backup withholding (currently at a rate of 28%) with
respect to distributions or payments made pursuant to the Plan unless that
Holder: (a) comes within certain exempt categories (which
generally include corporations) and, when required, demonstrates that fact; or
(b) timely provides a correct taxpayer identification number and certifies
under penalty of perjury that the taxpayer identification number is correct and
that the Holder is not subject to backup withholding because of a failure to
report all dividend and interest income. Backup withholding is not an
additional tax but is, instead, an advance payment that may be refunded to the
extent it results in an overpayment of tax; provided, however, that the required
information is timely provided to the IRS.
The
Debtors will, through the Disbursing Agent, withhold all amounts required by law
to be withheld from payments of interest. The Debtors will comply
with all applicable reporting requirements of the IRS.
62
Recommendation of the
Debtors
In the
opinion of the Debtors, the Plan is preferable to the alternatives described in
this Disclosure Statement because it provides for a larger distribution to the
Debtors’ stakeholder than would otherwise result in a liquidation under chapter
7 of the Bankruptcy Code. In addition, any alternative other than
Confirmation of the Plan could result in extensive delays and increased
administrative expenses resulting in smaller distributions to Holders of Allowed
Claims and Allowed Interests than proposed under the
Plan. Accordingly, the Debtors recommend that Holders of Claims and
Interests entitled to vote to accept or reject the Plan support Confirmation of
the Plan and vote to accept the Plan.
Dated:
June 4, 2010
Respectfully
submitted,
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U.S.
CONCRETE, INC.
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(for
itself and on behalf of each of its affiliated debtors)
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By:
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/s/
Michael W. Harlan
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Name:
Michael W. Harlan
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|
Title:
President and Chief Executive
Officer
|
Prepared
by:
KIRKLAND &
ELLIS LLP
|
|
James
H.M. Sprayregen (admitted pro hac
vice)
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|
Patrick
Nash (admitted pro hac
vice)
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|
Ross
Kwastenient (admitted pro hac
vice)
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300
North LaSalle Street
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Chicago,
Illinois 60654
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|
Telephone:
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(312)
862-2000
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Facsimile:
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(312)
862-2200
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-
and -
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PACHULSKI,
STANG, ZIEHL & JONES LLP
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919
North Market Street
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17th
Floor
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Wilmington,
Delaware 19899
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Telephone:
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(302)
652-4100
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Facsimile:
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(302)
652-4400
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CO-COUNSEL
FOR THE DEBTORS
EXHIBIT
A
PLAN
OF REORGANIZATION
EXHIBIT
B
LIQUIDATION
ANALYSIS
EXHIBIT
C
REORGANIZED
DEBTORS’ FINANCIAL PROJECTIONS
EXHIBIT
D
DEBTORS’
PREPETITION CORPORATE STRUCTURE