BURNS AND ROE ENTERPRISES, INC.
CHAPTER 11 ASBESTOS
FILING STATUS
Burns and Roe Enterprises, Inc. filed for Chapter 11 protection on December 4, 2000 in order to resolve outstanding asbestos claims. During the two years prior to filing the Company received a dramatically increasing number of personal injury lawsuits and the demands from the plaintiffs lawyers have also dramatically risen. There are approximately 13,500 outstanding claims. This situation has arisen in spite of the fact that the Company believes it has little or no liability and many of these suits do not even involve the Company. In fact, historically, 80% of the cases which get to discovery are dismissed. During 2001, Burns and Roe obtained Bankruptcy Court approval and paid all non-asbestos pre-petition debts.
As numerous companies facing asbestos claims have found, the Chapter 11 filing offers the only viable way to resolve the liability issues and insurance coverage issues surrounding these cases. Companies such as Owens-Corning, Armstrong, Babcock & Wilcox, GAF and US Gypsum elected to file for Chapter 11 protection. As of the date of our filing all lawsuits related to asbestos are stayed. Burns and Roe cannot be sued in any new cases and will not have to pay any asbestos settlement or defense costs while in Chapter 11. It is the intent of Burns and Roe to negotiate a plan of reorganization with the plaintiff’s lawyers and the insurance carriers, which will provide for the establishment of a trust to handle current and future claims.
The Company has over $400 million of insurance coverage over the 1950-87 period and believes that this will constitute the vast majority of the assets necessary to fund the trust. Once the reorganization plan is approved by the court all current and future claims will be handled by the trust. Burns and Roe will no longer be subject to asbestos claims. All claims will be channeled into the trust. Burns and Roe’s sole obligation will be the ongoing contributions to the trust as negotiated as part of the reorganization plan.
Discussions are underway with the insurance carriers and the creditors committee (represented by the asbestos plaintiff’s law firms) and the Futures Claims Representative. All of the parties have expressed a desire to reach a negotiated settlement to form the necessary asbestos trust. Our outside insurance counsel, Kirkpatrick & Lockhart Preston Gates Ellis LLP, has also prepared an analysis of insurance coverage issues. These analyses were the basis for the Company’s proposed re-organization plan which was presented to the creditors’ committee, future claims representative and insurance carriers in July of 2002. Significant progress was made during 2003 in our negotiations with the creditors’ committee and future claims representative. We now have agreement in principle regarding the Company’s contribution to the trust, over a 10 to 12 year period, and the assignment to the trust of the Company’s rights under the insurance policies. A draft re-organization plan was filed with the Bankruptcy Court on June 6, 2003. After significant discussions and negotiations with all parties, an amended reorganization plan and disclosure statement was filed on December 17, 2003. A subsequent revised reorganization plan and disclosure statement was filed in May 2004. Early in 2005 a $65 million settlement was reached with The Hartford Insurance Company. This provides significant initial funding of the Asbestos Trust. On October 17, 2005, Burns and Roe Construction Group, Inc. was included in the revised reorganization plan in order to insure protection from future potential asbestos claims. The reorganization plan was issued for a vote by the asbestos plaintiffs in March 2006. The plan was approved by 98% of the asbestos plaintiffs. In March 2006 the Bankruptcy Court granted additional time for discovery by the insurance carriers before a confirmation hearing is held. In May 2006, a settlement agreement was reached with AIG for $80 million. The settlement was approved at a Bankruptcy Court hearing on June 19, 2006. As a result of these developments, emergence from Chapter 11 is now likely in the first half of 2008.
If you have any questions regarding the Chapter 11 situation, please feel free to contact Russell F. Smith, Jr., Senior Vice President and CFO at (201) 986-4636.
June 2007