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In re American Family Enterprises

March 15, 2001

IN RE: AMERICAN FAMILY ENTERPRISES, A DELAWARE GENERAL PARTNERSHIP, ET AL., DEBTORS AND DEBTORS-IN-POSSESSION.


Jointly Administered Under Chapter 11 of the United States Bankruptcy Code

Findings of Fact, Conclusions of Law and Order Confirming Debtors' First Modified Joint Plan of Reorganization

INTRODUCTION

The following "Findings of Fact, Conclusions of Law, and Order Confirming Debtor's First Modified Joint Plan of Reorganization," ("Findings of Fact") and "Amended Final Order and Judgment" are the result of complex litigation and bankruptcy proceedings presided over by the Honorable Nicholas H. Politan of the United States District Court for the District of New Jersey. A brief background of this case is necessary in order to fully comprehend the import of the following two documents.

Numerous class actions and individual lawsuits were filed throughout the United States in late 1997 and early 1998 against American Family Publishing (now known as American Family Enterprises, and hereinafter "AFE"). The lawsuits were commenced primarily in response to a massive mailing by AFE. Plaintiffs nationwide claimed to have been deceived by these mailing, many believing they had won a sweepstakes or were otherwise entitled to large cash prizes from AFE. The plaintiffs, however, had not won and at no time did they receive cash prizes from AFE.

The first private lawsuit was filed as a class action in Tampa, Florida by Ms. Anna Brown. As a result of various other similar lawsuits, in March of 1998, Ms. Brown filed a motion in Multi-District Litigation ("MDL") proceedings to consolidate all of the federal lawsuits in one court.

The MDL judicial panel acted on Ms. Brown's motion and other motions in August of 1998, at which time there were 22 federal lawsuits, 17 of which were class actions. The MDL panel transferred all of the pending cases to Judge Politan. Judge Politan designated the class action case of Jackson et al. v. American Family Publishing, et al., which was filed in his Court and was one of the earliest actions instituted, as the lead action. A number of subsequent individual actions were transferred to this Court after the MDL's consolidation and transfer of all related cases to this Court.

Thereafter, AFE filed a petition in the United States Bankruptcy Court for the District of New Jersey for a Chapter 11 Reorganization. The Chapter 11 action in the Bankruptcy Court was removed to the District Court. Joining the bankruptcy action with the consolidated class actions aided the parties and the Court in implementing the settlement agreement.

On August 9, 2000, the Court conducted a Fairness Hearing and a Bankruptcy Plan Confirmation Hearing. At such time, there were 45 separate cases as part of the MDL, 22 class actions, including 13 national class actions, two private Attorney General actions, and 21 individual actions. The appearances at the August 9, 2000 hearing were as follows:

Lisa J. Rodriguez, Esq. of Trujillo, Rodriguez & Richards, L.L.C., Barry R. Himmelstein, Esq. and Elizabeth J. Cabraser, Esq. of Leiff, Cabraser, Heimann & Bernstein, L.L.P., Guy M. Burns, Esq. and Frank Jakes, Esq. of Johnson, Blakely, Pope, Bokor Ruppel & Burns, P.A., and Steven Katz, Esq. of Carr, Korein, Tillery, Kumin & Montroy, Esqs. for the Plaintiff Class;

Gail B. Cooperman of the United States Department of Justice Office of the United States Trustee for the United States Trustee;

Andrew H. Sherman, Esq. of Sills Cummis, Zuckerman, Radin, Tischman, Epstein & Gross, P.A. and Brett H. Miller, Esq. of Otterbourg, Steindler, Houston & Rosen, P.C. for the Official Committee of Unsecured Creditors;

Frederick B. Lacey, Esq. and Randy Fox, Esq. of Le Boeuf, Lamb, Greene & MacRae, L.L.P. for the Defendant Parties;

Frank J. Vecchione, Esq. and Karen A. Giannelli, Esq. of Gibbons, Del Deo, Dolan, Griffinger & Vecchione, P.A. for the Debtors;

Robert E. Hannon, Esq. for Evelyn Sanborn;

Malcolm Barach, Esq. for Signe Sevigny, Arlene Anderson, and James Broccollo;

David Dykhouse, Esq. of Patterson, Belknap, Webb & Tyler, Esqs. for Time, Inc., TAF Holdings, Inc. and Time Customer Service;

Richard Price, Esq. for G.A. Ridpath; and

Ms. Kadja Saldanha and Mr. Willie Salter, representing themselves, and Mr. Bruce Ellis representing his mother Vera Ellis.

At the August 9, 2000 hearing, the settlement terms and features were summarized and a thorough review of the settlement negotiations was conducted by the Court. Means of dissemination of the class notice was also discussed. In addition, reports on the claims processes administration and on AFE's financial condition were given.

Arguments concerning the approval of the proposed settlement and arguments relating to attorney's fees and costs were heard by the Court. The Bankruptcy Plan for Chapter 11 Reorganization of the Debtor was also presented.

The following Findings of Fact and Amended Final Order and Judgment resulted from the August 9, 2000 hearing.

American Family Enterprises ("AFE"), Magazine Associates (formerly known as American Family Publishers and hereinafter referred to as "Magazine"), Mailist Associates ("Mailist") and Merchandise Associates ("Merchandise"), debtors and debtors-in-possession herein (the "Debtors"), having filed with the Court under Chapter 11, Title 11 of the United States Code (the "Bankruptcy Code") a First Modified Joint Plan of Reorganization dated as of March 22, 2000 (the "Plan"), *fn1 and a proposed Disclosure Statement with respect thereto; and the Disclosure Statement having been approved by order of this Court dated March 23, 2000 (the "Disclosure Order"); and August 9, 2000 at 10:00 a.m. having been fixed by the Disclosure Order as the date and time of the hearing under section 1128(a) of the Bankruptcy Code (the "Confirmation Hearing") to consider confirmation of the Plan pursuant to Bankruptcy Code section 1129 and Rule 3017(c) of the Federal Rules of Bankruptcy Procedure ("Bankruptcy Rules"); and due notice of the Confirmation Hearing having been given to all known holders of Claims against the Debtors in accordance with prior Orders of the Court; and the solicitation of acceptances or rejections from holders of Claims against or Interests in the Debtors having been made in the manner required under the Disclosure Order and by applicable law; and upon the filed Declaration of Logan & Company, Inc. ("Balloting Agent") with respect to the tabulation of ballots (the "Ballots") cast in favor of and in opposition to the Plan, pursuant to LBR 3018-2 of the Local Rules of Bankruptcy Procedure for this District; and the Ballots having been filed with the Balloting Agent; and objections to confirmation of the Plan and/or the Settlement Agreement having been filed by certain holders of Individual Consumer Claims; and after reviewing the memoranda of law submitted, after hearing the arguments of counsel and individuals appearing pro se and considering the evidence admitted at the Confirmation Hearing, including those exhibits marked as A-1 through A- 15, B-1 through B-6 and C-1 through C-11 (hereinafter "Exh. ___"); and upon the entire record properly before the Court, including the record made at the Confirmation Hearing, the Court makes the following findings of fact and conclusions of law setting forth the reasons for the Court's issuance of this Order confirming the Plan, approving the Settlement Agreement and issuing the Channeling Injunction, as described in more detail below.

Findings of Fact *fn2

The Court finds and determines that:

Procedural Background

1. On October 29, 1999 (the "Filing Date"), the Debtors filed in the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court") voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. Thereafter, the Debtors continued to operate their respective businesses and manage their properties pursuant to sections 1107(a) and 1108 of the Bankruptcy Code as debtors-in-possession. On November 9, 1999, the United States Trustee for Region 3 appointed a Creditors' Committee. By this Court's Order dated December 6, 1999, the reference of the Chapter 11 Cases to the Bankruptcy Court was withdrawn. Docket No. 109. *fn3

2. AFE is a Delaware general partnership owned equally by two general partners: TAF Holdings Inc., a Delaware corporation ("TAF"), and AFP Associates, L.L.C., a Delaware limited liability company ("AFPA"). AFE and its general partners in turn own each of the other Debtors. Exh. C-8.

3. AFE is a direct marketing holding and management company providing administrative, creative and production services to the other Debtors. It also leases office space to Magazine and Merchandise at its principal place of business in Jersey City, New Jersey. Id.

4. Magazine is a magazine marketing company that contracts with publishers to sell magazine subscriptions. It uses third-party providers, such as Mailist, to market magazine subscriptions. Third- party providers administer the sweepstakes contests, print and mail the promotional mailings, and perform fulfillment functions, including incoming mail processing, customer service and billing. Id.

5. Mailist provides a marketing vehicle for other companies, including Magazine and Merchandise, currently through sweepstakes- oriented direct mailings. Id.

6. Merchandise contracts with manufacturers to sell consumer products, including books, jewelry, music, and videos. Merchandise markets these products through direct mail solicitations using names from Mailist and other list sources. Id.

7. (a) Prior to 1998, the Debtors periodically sent uniform mass mailings to millions of individuals soliciting subscriptions to magazines and/or purchases of merchandise and announcing sweepstakes that the individuals could enter. Id. Copies of these mailings appear in the Court's files as exhibits to complaints, proofs of claim, responses, objections and other pleadings, and the Court takes judicial notice of these materials. All of the Debtors' mailings during the Class Period contained qualifying or conditional language as part of a winner or potential winner statement, such as "If you have and return the winning entry in time ..." or are otherwise inherently conditional statements such as "You could be our next winner." Exh. B-2 at ¶¶1-3. All sweepstakes winners (i.e., those individuals who held and timely returned a winning number) were awarded their prizes. Exh. B-1 at ¶¶2- 4, 7. In fact, since its inception, AFE has awarded over $100,000,000 in cash prizes to more than 305,000 sweepstakes winners. Id. at ¶7.

(b) Notwithstanding the presence of conditional language requiring the timely return of the winning number in order to claim a prize, a number of consumers had sued one or more of the Debtors before 1998 alleging that (i) they had a contractual claim to recover a sweepstakes prize even in the absence of a winning number or (ii) the mailings stated that they actually held the winning number. No adverse judgments were entered against the Debtors in any of those actions. See Transcript of Confirmation Hearing (hereinafter "8/9/00 Tr. at ____") at 59-60.

(c) Beginning in early 1998, an increasing number of complaints were filed against two of the Debtors and certain other parties alleging breach of contracts to pay prize money, violations of the federal Racketeer Influenced and Corrupt Organizations Act and state consumer protection laws, and common law fraud arising from certain of the Debtors' sweepstakes mailings and billing practices (the "Business Practices Litigation"). Exh. C-8. As of the Filing Date, the Business Practices Litigation included more than 60 lawsuits pending in various forums-28 claiming to represent various classes of persons, and seeking class-action certification for more than 30 million individual consumers. The Debtors have consistently stated and reiterated at the Confirmation Hearing that they have meritorious defenses to all of the lawsuits. Id. at 3, ¶9; 8/9/00 Tr. at 58-61.

8. On August 12, 1998, the Judicial Panel on Multi-District Litigation ("MDL") issued an order transferring all federal court actions to the United States District Court, District of New Jersey (the "MDL Court") and, with consent of that court, assigning the actions to this Court. Shortly thereafter, lead counsel for the plaintiffs was appointed by order of the MDL Court ("Lead Counsel").

9. Also in 1998, several Attorneys General initiated and/or continued proceedings against the Debtors based on certain sweepstakes mailings and related practices. As of the Filing Date, the Debtors had reached settlement agreements with 40 Attorneys General and the District of Columbia; proceedings with at least four were still pending, all of which have since been resolved. The Debtors' agreements with the Attorneys General have been incorporated into the Plan. Id.

10. In addition, widespread allegations of wrongful conduct in the sweepstakes industry in general sparked a Senate investigation and hearing that was held in March 1999. The House of Representatives held hearings as well. Shortly thereafter, Congress passed legislation restricting certain practices. Id.

11. The resultant negative publicity and economic pressures had a material adverse effect on the Debtors' businesses. Id. The legal costs associated with defending the Business Practices Litigation alone threatened to shutter the Debtors' operations; moreover, the damages sought in that litigation vastly exceeded the Debtors' collective net worth. See Exh. C-3 at 2-3, ¶¶3-4; Exh. C-5.

12. The Debtors filed their Chapter 11 petitions to preserve their remaining going concern values and to restructure their liabilities as fixed by the Court and to attempt to achieve global resolution of the Business Practices Litigation and the then remaining disputes with Attorneys General. Exh. C-8.

13. After more than a year and one-half of arm's-length negotiations, Lead Counsel and the Defendant Parties, including two of the Debtors, agreed to a nationwide class action settlement of the Business Practices Litigation, which has been incorporated into and made a part of the Plan. Id.; Exh. C-2, Exhibit 1. The settlement and its implementation, which are critical to an effective reorganization, will result in, inter alia, extensive injunctive relief for the benefit of all Class Members and the distribution of $33 million to Subclass Members. Exh. A-2 at 26-28. This $33 million settlement fund will not be diluted by Attorneys' Fees and Costs or by the costs of the Notice Plan, all of which are being borne by the Debtors and the Funding Parties. Id. at 16, 26-32.

14. Pursuant to the Settlement Agreement and the Plan, all Defendants and related parties will be released from any and all claims that are or might have been made by any Class Member or any other party relating in any way to the sweepstakes mailings or other business practices of the Debtors or their predecessors in interest. Also, pursuant to the Settlement Agreement, all Class Members and other Releasing Persons are to be permanently enjoined from ever asserting any of the Released Claims against the Defendants or any of the other Released Persons. Id. at 32-36.

15. The Claims of the Class Representatives and all Class Members have been classified under Plan Class 6 of the Plan, which incorporates the terms of the Settlement Agreement for the satisfaction of those Claims. Pursuant to the Settlement Agreement and the Preliminary Approval Order (defined infra), the Class Representatives have sought and obtained certification of the Class for settlement purposes and have filed the Class Claim. The Settlement Agreement is contingent upon Final Approval, confirmation of the Plan and issuance of the Channeling Injunction. Id. at 36.

16. On December 30, 1999, the Debtors filed a verified complaint for injunctive relief and applied for an order to show cause why the Court should not enjoin the commencement, continuation and/or prosecution of all judicial, administrative and other actions in which claims in the nature of those asserted in the Business Practices Litigation and subject to the settlement thereof are brought against certain non-debtor Defendants, pursuant to sections 105 and 362 of the Bankruptcy Code and Bankruptcy Rule 7065. Adv. Proc. No. 99-4095, Docket No. 1. By Order dated January 10, 2000, the Court granted the requested relief and temporarily enjoined all actions asserting Business Practices Litigation-related claims against the non-debtor Defendants, pending confirmation of the Plan. Adv. Proc. No. 99-4095, Docket No. 21.

The Disclosure Statement and Plan

17. On February 18, 2000, the Debtors filed their Joint Plan of Reorganization and related Disclosure Statement. Docket Nos. 221, 222. By order dated February 24, 2000 (the "Scheduling Order"), the Court, inter alia, fixed March 21, 2000 at 10:00 a.m. as the date and time of the hearing under section 1125(b) of the Bankruptcy Code and Bankruptcy Rule 3017 to determine whether the Disclosure Statement contained adequate information (the "Disclosure Hearing"). Docket No. 232. The Scheduling Order also fixed March 14, 2000 at 4:00 p.m. as the deadline for the filing and service of objections to the Disclosure Statement (the "Disclosure Objection Deadline"). Notice of the Disclosure Hearing and the Disclosure Objection Deadline was served in accordance with the Scheduling Order, including upon counsel for Arlene Andresen, James F. Broccolo and Signe Sevigny. *fn4 Docket No. 265.

18. On March 10, 2000, the Debtor filed a motion to approve procedures regarding the solicitation of acceptances and rejection of the proposed plan (the "Voting Procedures Motion"), which motion was made returnable at the Disclosure Hearing. Docket No. 276.

19. The Court held the Disclosure Hearing on March 21, 2000, and considered all written and oral objections thereto. The Debtors advised the Court and all parties present at the Disclosure Hearing of the need to file a modified plan and disclosure statement the following day as a result of the objections and other circumstances, and detailed the modifications on the record. Transcript of Disclosure Hearing, at 26- 31. As a result, the Plan and Disclosure Statement, as modified, were filed on March 22, 2000, and that Disclosure Statement was approved as containing adequate information by the Disclosure Order, which also granted the Voting Procedures Motion. Docket No. 316.

20. The Disclosure Order, inter alia, fixed May 5, 2000 as the last date for the filing and service of objections to the Plan (the "Plan Objection Deadline") and scheduled the Confirmation Hearing. Notice of the Plan Objection Deadline and the Confirmation Hearing (the "Confirmation Notice") was served in accordance with the Disclosure Order. See Docket Nos. 342-343. The Disclosure Order and the Confirmation Notice provided that, to be considered, objections to confirmation of the Plan must (a) be in writing, (b) comply with the Federal Rules of Bankruptcy Procedure and the District of New Jersey Local Bankruptcy Rules, (c) set forth the name of the objector, and the nature and amount of any claim or interest asserted by the objector against the Debtors, their estates or their property, (d) state with particularity the legal and factual bases for the objection, including reference to specific provisions of the Plan to which objection is made, (e) provide proposed language changes/additions to resolve the objection(s), and (f) be filed and served upon certain named parties so as to be received no later than the Plan Objection Deadline. The Disclosure Order and the Confirmation Notice explicitly provided that objections not timely filed and served as required shall not be considered and shall be deemed overruled.

21. In the Court's Findings and Order Preliminarily Certifying the Class and Subclass for Settlement Purposes, dated December 9, 1999 (the "Preliminary Approval Order"), the Court, among other things, established the applicable deadlines and procedures that Class Members must follow in order to object to the Settlement Agreement and/or Plan. Specifically, Class Members wishing to object to the Settlement Agreement were required to file written statements of their objections with the Court, and serve a copy on the Settlement Administrator, postmarked no later than May 5, 2000, and received no later than May 12, 2000. Class members wishing to object to the Plan were required to file written statements of their objections with the Court, and serve a copy upon the Balloting Agent and the U.S. Trustee, no later than May 5, 2000. Given the size and complexity of these cases and the sheer number of potential objections, the procedural and filing requirements established by the Preliminary Approval Order, the Disclosure Order and the Confirmation Notice were necessary to allow the Court to manage this litigation and were fair and reasonable to all parties. No party objected, either before or after the Disclosure Hearing, to these procedures or to the terms of the Preliminary Approval Order, the Disclosure Order or the Confirmation Notice, and no motion seeking to alter or amend the Disclosure Order was ever filed.

The Confirmation Hearing

22. The Confirmation Hearing was held on August 9, 2000, at which time the Court also considered approval of the Settlement Agreement. Prior to the Confirmation Hearing, the Debtors, the Funding Parties, the Class Representatives, and the Defendants had filed and served proposed evidentiary exhibits and affidavits which this Court reviewed in advance of the Confirmation Hearing.

23. At the Confirmation Hearing, the Debtors, Time Inc., one of the Funding Parties, the Class Representatives (acting on their own behalf and on behalf of all similarly situated parties), the Defendants, the Creditors' Committee, the United States Trustee, and five individual consumers (Arlene Andresen, James F. Broccolo, G.A. Ridpath, Evelyn Sanborn, and Signe Sevigny) were represented by counsel. 8/9/00 Tr. at 2-3. A number of individual consumers attended the hearing, five of whom (Gisele Dumas, Sandra L. Giura, Cecelia R. Maitland, Kadja J.B. Saldanha, and Willie J. Salter) addressed the Court on their own behalf. Id. at 159-169, 176-197. Bruce Ellis was permitted to address the Court on behalf of his mother, Vera Ellis, also an individual consumer creditor. Id. at 169. Also present in the courtroom were fact and expert witnesses, who were affiants, and appeared on behalf of the Debtors and the Class Representatives. Id. at 98.

24. At the Confirmation Hearing, the Court first heard arguments and presentations of counsel for the Class Representatives, for the Defendants, for the Debtors, for the Funding Parties, for the Creditors' Committee and for the United States Trustee, each of whom spoke in support of confirmation of the Plan and/or the Settlement Agreement. Id. at 12-101. The Debtors, the Funding Parties, the Class Representatives, and the Defendants offered into evidence all of their previously filed affidavits and exhibits plus several supplemental affidavits. Id. at 98. No objection was made to the admission of those documents into evidence, and the Court admitted into evidence the Class Representatives' exhibits (A-1 through A-15), the exhibits of the Defendants (B-1 through B-6), and the Debtors' exhibits (C-1 through C- 11). Id. These parties advised the Court that witnesses were available in the Courtroom to testify or to answer questions as to the affidavits. Id. No party (i) objected to the proffered evidence, or (ii) asked to cross-examine or otherwise question any of the witnesses. Accordingly, without objection, this Court accepted the proffers of testimony by the aforementioned parties. Id.

25. Following the presentations described above, the Court heard the presentations of counsel for Ridpath, for Andresen, Broccolo and Sevigny and for Sanborn. *fn5 Their objections to confirmation of the Plan will be discussed in detail hereafter.

26. Following the presentations by counsel, a number of individual Class Members spoke. Although their concerns are specifically discussed hereafter, a common theme is that the injunctive relief in favor of those consumers must be enforced. Some of these Class Members stated that the most important feature of the settlement to them was not the monetary payments to be made, but rather the injunctive provisions that will prospectively bind these Debtors in the event that the Plan is confirmed. Neither the objectors represented by counsel nor those appearing pro se offered any testimony, affidavits, certifications, proffers or other forms of proof in support of their positions at the Confirmation Hearing.

27. After the pro se presentations, the Court took the matters presented at the Confirmation Hearing under advisement. Factual Findings Regarding the Settlement Agreement

28. One of the conditions to Confirmation of the Plan is that the Court enter the Final Order and Judgment. That condition has been satisfied. The Court has entered the Final Order and Judgment, finding, inter alia, that the Settlement Agreement has been entered into in good faith and is fair, adequate and reasonable as to, and in the best interests of, each of the parties, and the Class Members pursuant to Rule 23 of the Federal Rules of Civil Procedure and approved the Settlement Agreement pursuant to Rule 9019 of the Bankruptcy Rules. See In re Penn. Central Transp. Co., 596 F.2d 1102, 1113-14 (3rd Cir. 1979) (the settlement of litigation, especially in the bankruptcy context, is encouraged).

29. All of the Court's findings of fact and conclusions of law with reference to the Settlement Agreement and the Final Order and Judgment are incorporated herein.

Factual Findings Regarding the Funding Agreement

30. The Debtors, TAF and AFPA have insufficient assets to consummate the Plan and the Settlement Agreement. Exh. C-5; Exh. C-6; Exh. C-7; Exh. C-8 at 4, ¶15. If funds were not being made available by the Funding Parties, the Debtors would not have the funds to pay any portion of the Claims of Plan Classes 5, 6 and 7. TAF and AFPA, the non- debtor general partners of the Debtors, although they are liable for all of the debts of the Debtors, are themselves insolvent before the debts of the Debtors are taken into account, as demonstrated by their respective balance sheets as of June 30, 2000, and have little or no net assets that they could provide to the Debtors to make payments on account of the Claims of Plan Classes 5, 6 and 7. Id.

31. On November 30, 1999, AFE, on behalf of itself and the other Defendant Parties, and AFP Partners, LLC and Time Inc., as the Funding Parties, entered into the Funding Agreement, a copy of which is annexed to the Plan. Exh. C-2, Exhibit 2. In so doing, the Funding Parties were expressly acting on behalf of themselves, their Affiliates (as defined in that agreement), the other Indemnified Persons (as such term is used therein), and the other Defendants and Channeling Injunction Beneficiaries, including Ed McMahon and Dick Clark. The Funding Agreement is the essential vehicle by which the Debtors can obtain the funds needed to perform their monetary obligations under the Plan and the Settlement Agreement. Exh. C-8 at 4, ¶16; Exh. C-9 at 2, ¶2. By amendment made as of June 30, 2000, AFE and the Funding Parties amended the Funding Agreement to, among other things, provide the availability of additional funds for implementation of the Plan. Id.

32. The consideration being provided by the Funding Parties pursuant to the Funding Agreement, as amended, is very substantial. They are making available up to $70 million to enable the Debtors to perform their monetary obligations under the Plan and the Settlement Agreement, including establishing the Consumer Fund and paying the costs of notice and claims administration related to the settlement and the Attorneys' Fees and Costs. In addition, in the Funding Agreement, each Funding Party, acting on behalf of itself and all other Indemnified Persons related to it, waives and releases all claims against AFE under the Indemnification Agreements (as defined in that agreement) existing on the Filing Date or arising thereafter as a result of the performance by such Funding Party of its obligations thereunder. Furthermore, the Funding Parties agreed to allow the Debtors to defer payment of their secured loans, currently in excess of $45 million (Plan Class 2 Claims), until a later date.

33. Since the Class Representatives have asserted that AFE made transfers to the Funding Parties or several of their Affiliates that are avoidable under the Bankruptcy Code or state law, the Funding Parties have requested (without admitting liability), and the Funding Agreement provides, general releases by the Debtors to the Released Persons (as defined in that agreement), which include the Funding Parties and their Affiliates. Exh. C-2, Exhibit 2 at §4.2; Exh. C-9 at 2, ¶4.

34. The obligations of the Funding Parties under the Funding Agreement are contingent upon Final Orders of this Court approving the Settlement Agreement and the Funding Agreement, confirming the Plan and issuing the Channeling Injunction barring all Class Members, among others, from ever asserting any of the Released Claims against the Defendants and other Released Persons, including the Funding Parties, and upon the satisfaction or waiver of the conditions set forth in Article X of the Settlement Agreement. Exh. C-2, Exhibit 2 at §5.2. The obligations of the Funding Parties automatically terminate upon termination of the Settlement Agreement and may be terminated by them upon a material breach of the Settlement Agreement by any of the Class Representatives or Lead Counsel. Exh. C-2, Exhibit 2 at §5.3.

35. The releases and injunctions provided in sections 8.7, 9.2, 9.3, 11.3 and 11.5 of the Plan and in Article 4 of the Funding Agreement are integral parts of the interlocking set of compromises and settlements which are embodied in the Settlement Agreement, the Plan and the Funding Agreement. Exh. C-9 at 3, ¶6.

36. The funds, waivers and other value to be provided by the Funding Parties under the Funding Agreement as described above are valuable consideration, provided on behalf of all Entities for which the Funding Parties are acting in the Funding Agreement, for the releases contained in sections 8.7 and 11.3 of the Plan, Article IX of the Settlement Agreement and section 4.2 of the Funding Agreement, the injunctions described in sections 9.3, 11.3 and 11.5 of the Plan, other terms and conditions of the Plan and the other benefits of the Settlement Agreement. Such funds, waivers and other value would not be provided by the Funding Parties in the absence of such releases, injunctions and other terms, conditions and benefits. Id., ¶7.

37. The Plan contains a provision constituting a motion for the entry of appropriate provisions in the Confirmation Order approving the Funding Agreement and all of its terms and provisions, including the releases set forth in Article 4 thereof.

38. The Funding Agreement has been entered into in good faith, provides substantial valuable consideration on behalf of all Released Parties, and is fair and reasonable and in the best interests of the Debtors and each Plan Class of their creditors.

39. The Funding Parties, as well as all other parties, are relying upon approval of the Settlement Agreement and the Funding Agreement, issuance of the Channeling Injunction and confirmation of the Plan, in all of their respective aspects, without change. Exh. C-9 at 3, ¶8. Factual Findings Regarding the Channeling Injunction

40. The claims made on behalf of an exceptionally large number of people in the Business Practices Litigation amount to many millions of dollars. In that regard, these cases are extraordinary, much like those of A.H. Robins Co., Johns-Manville Corp. and Drexel Burnham Lambert Group, Inc., which were precipitated by mass-tort litigation. However, AFE and Magazine, which would bear the principal (or entire) liability thereunder if the charges were proven, have no funds available. Exh. C- 5; Exh. C-6, Exh. C-7.

41. The Funding Parties have agreed to provide the funds required under the Plan and Settlement Agreement on behalf of all Released Parties. Exh. C-2, Exhibit 2. In return, among other things, they have demanded a release and the Channeling Injunction for the Released Parties, which includes the Funding Parties. Exh. C-9 at 3, ¶9.

42. Pursuant to the Indemnification Agreements and the Other Indemnification Agreements, the Debtors have indemnified all non-Debtor Defendants in the Business Practices Litigation, as well as the Funding Parties, their Affiliates, Ed McMahon and Dick Clark. Id., ¶10. Based upon the evidence presented at the hearing, and after having considered the totality of the circumstances in this case, the Court concludes that the indemnity Claims of the non-Debtor Defendants under such agreements, including McMahon and Clark, are meritorious and are real and imminent. Prior to the Filing Date, the Debtors defended those parties and consistently honored their obligations to them under such agreements. Exh. C-3 at 4, ¶6; Exh. C-4 at 2-3, ¶¶2-4. As set forth above, the Funding Parties' willingness to provide the approximately $70 million amount necessary to fund the Plan is contingent upon the entry of the Channeling Injunction as to all of the non-debtor parties, including McMahon and Clark. Much of the benefit that will accrue to the Debtors and the Funding Parties is a complete cessation of litigation so that the Debtors can concentrate their efforts on resurrecting their businesses (which have lost millions of dollars during the ...


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