mew Doc 2113 Filed 01/10/18 Entered 01/10/18 22:31:57 Main Document Pg 1 of 21

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1 Pg 1 of 21 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK x In re : : Chapter 11 WESTINGHOUSE ELECTRIC : COMPANY LLC, et al., : Case No (MEW) : Debtors. 1 : (Jointly Administered) x DECLARATION OF MARK BUSCHMANN IN SUPPORT OF MOTION OF DEBTORS PURSUANT TO 11 U.S.C. 105(a), 363(b), 503(b), AND 507(a)(2) AND FED. R. BANKR. P AUTHORIZING AND APPROVING CERTAIN PLAN INVESTOR PROTECTIONS I, Mark Buschmann, pursuant to section 1746 of title 28 of the United States Code, hereby declare that the following is true to the best of my knowledge, information, and belief: 1. I am a Partner in the Restructuring and Special Situations Group at PJT Partners LP ( PJT ) and one of the lead restructuring advisors to Westinghouse Electric Company LLC ( WEC ) and certain of its subsidiaries and affiliates. PJT has been retained as the investment banker to the debtors and debtors in possession in the above-captioned cases (collectively, the Debtors ). 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, if any, are: Westinghouse Electric Company LLC (0933), CE Nuclear Power International, Inc. (8833), Fauske and Associates LLC (8538), Field Services, LLC (2550), Nuclear Technology Solutions LLC (1921), PaR Nuclear Holding Co., Inc. (7944), PaR Nuclear, Inc. (6586), PCI Energy Services LLC (9100), Shaw Global Services, LLC (0436), Shaw Nuclear Services, Inc. (6250), Stone & Webster Asia Inc. (1348), Stone & Webster Construction Inc. (1673), Stone & Webster International Inc. (1586), Stone & Webster Services LLC (5448), Toshiba Nuclear Energy Holdings (UK) Limited (N/A), TSB Nuclear Energy Services Inc. (2348), WEC Carolina Energy Solutions, Inc. (8735), WEC Carolina Energy Solutions, LLC (2002), WEC Engineering Services Inc. (6759), WEC Equipment & Machining Solutions, LLC (3135), WEC Specialty LLC (N/A), WEC Welding and Machining, LLC (8771), WECTEC Contractors Inc. (4168), WECTEC Global Project Services Inc. (8572), WECTEC LLC (6222), WECTEC Staffing Services LLC (4135), Westinghouse Energy Systems LLC (0328), Westinghouse Industry Products International Company LLC (3909), Westinghouse International Technology LLC (N/A), and Westinghouse Technology Licensing Company LLC (5961). The Debtors principal offices are located at 1000 Westinghouse Drive, Cranberry Township, Pennsylvania

2 Pg 2 of I submit this declaration (this Declaration ) in support of the Motion of Debtors Pursuant to 11 U.S.C. 105(a), 363(b), 503(b), and 507(a)(2) and Fed. R. Bankr. P Authorizing and Approving Certain Plan Investor Protections (the Motion ) In connection with the marketing and sale process described more fully below, I, along with PJT s engagement team, participated directly in discussions, due diligence, and negotiations with potential bidders primarily alongside the Special Committee of the Board of Directors of WEC, 3 certain independent directors of the boards of each of Toshiba Nuclear Energy Holdings (UK) Limited ( TNEH UK ) and TSB Nuclear Energy Services, Inc., and the Debtors outside counsel and other advisors. Unless otherwise indicated, all facts set forth in this Declaration are based on (i) my personal knowledge, (ii) my discussions with the Debtors and their non-debtor affiliates (together, Westinghouse ) senior management, members of the PJT team, Westinghouse s other advisors, and other interested parties, (iii) my review of relevant documents, or (iv) my opinion based upon my experience, knowledge, and information concerning Westinghouse s operations and financial affairs. 4. If I were called to testify, I would testify competently to the facts set forth below. 5. For information regarding my background and credentials, please see the Declaration of Mark Buschmann in Support of Motion of Debtors for Interim and Final Orders (I) Authorizing the Debtors to Obtain Senior Secured, Superpriority, Postpetition Financing, (II) Granting Liens and Superpriority Claims, and (III) Scheduling a Final Hearing [Docket No. 20] sworn to and filed on the Petition Date. 2 Capitalized terms used but not otherwise defined in this Declaration have the meanings used in the Motion. 3 Any references hereinafter to the Debtors or Westinghouse in connection with the Marketing and Sale Process shall include reference to the Special Committee. 2

3 Pg 3 of 21 I. A Sale At This Time Maximizes Value 6. I believe that moving forward with a sale of Westinghouse s businesses at this time is the most value maximizing option available to the Debtors and the next logical step in these chapter 11 cases. The Debtors have successfully used the tools of chapter 11 to stabilize operations and liquidity, reduce go-forward liabilities, and implement a transformation business plan. As a result, Westinghouse is well positioned to reorganize around its core, profitable businesses. 7. A sale to a third party at this time will provide much needed certainty to the Debtors customers, allow for the sale of both the U.S. and foreign business chains as a single integrated business, and avoid the Debtors incurring unnecessary administrative costs and professional fees associated with a drawn-out emergence process. 8. Westinghouse provides critical services in the nuclear power industry to customers across the globe. Many of these customers depend on Westinghouse to avoid disruptions to their operations, including the ability to sustain the baseload capacity of numerous energy grids. A sale to a reputable third party committed to the future of Westinghouse s business will serve to reassure customers that Westinghouse will continue to service their demands and operate as an industry leader. Brookfield Capital Partners LLC ( Brookfield or the Plan Investor ) is an experienced owner and operator of critical infrastructure and facilities management who can provide the capability to successfully run Westinghouse s complex businesses. I believe that once Brookfield has transitioned into ownership, the Debtors day-today business operations will be further stabilized. 9. A timely sale will also provide an opportunity to remedy the unstable financial situation facing certain foreign non-debtor affiliates and alleviate regulatory pressures on foreign non-debtor affiliates as a result of balance sheet insolvency. These Westinghouse 3

4 Pg 4 of 21 entities hold assets critical to the overall value of the Debtors businesses. Many non-debtor affiliates maintain significant intercompany balances with the Debtors through cash pooling arrangements and are in many ways dependent on the overall Westinghouse enterprise for financial support to remain solvent. If financial or other resources are not maintained, foreign non-debtor entities risk suspension and/or revocation of licenses important to their operations. A sale of Westinghouse at this time will provide an opportunity to adequately capitalize the entire Westinghouse enterprise, including the non-debtor affiliates, thereby reducing risks created by these chapter 11 cases and preserving going concern value. I believe a sale to a third party purchaser is the most efficient means of preserving the value of Westinghouse s entire business given the interconnectedness of its foreign and U.S. operations. In my view, severing the U.S. from the foreign businesses or individual business lines from the larger enterprise could result in a substantial loss of distributable value to creditors. II. Marketing and Sale Process 10. I am familiar with Westinghouse s financial and business operations. Pursuant to the terms and conditions of its engagement letter dated March 8, 2017 (the Engagement Letter ), PJT agreed to provide investment banking services to WEC and any of its affiliates or subsidiaries, including their foreign non-debtor affiliates, in connection with a possible restructuring of certain liabilities and the sale, merger or other disposition of all or a portion of Westinghouse or its assets. PJT also agreed to assist Weil, Gotshal & Manges LLP ( Weil ) in analyzing, structuring, negotiating and effecting a restructuring or sale transaction pursuant to the terms and conditions of the Engagement Letter. By order dated June 1, 2017 [Docket No. 639], the Bankruptcy Court authorized PJT s retention by the Debtors as investment banker in accordance with the terms of the Engagement Letter, subject to certain modifications set forth in the retention order. 4

5 Pg 5 of On or around June 21, 2017, the Debtors decided to explore a broad array of strategic alternatives and options, including a possible sale, recapitalization, reorganization or other monetization transaction for substantially all or a portion of the Debtors businesses (the Marketing and Sale Process ). In support of the Marketing and Sale Process, the Board of Directors of WEC created a special committee comprised of three independent directors (the Special Committee ), who were then delegated authority to, among other things, supervise, monitor and oversee the process, and, to preemptively avoid any potential conflicts that may arise. Subsequently, the Special Committee was empowered by the Board of Directors of WEC to approve or reject any proposal received and negotiate terms on behalf of the company. The Board of TNEH UK also formed a similar independent committee to evaluate the sale process. 12. Under the supervision and direction of the Special Committee, PJT, Weil, AlixPartners, LLP ( Alix ), Togut, Segal & Segal LLP, dedicated counsel to TNEH UK, and Milbank, Tweed, Hadley, & McCloy LLP, dedicated counsel to the Special Committee, assessed and discussed potential transactions, including sale transactions whereby all or substantially all of Westinghouse s assets would be sold to an investor or buyer who would continue to operate Westinghouse s businesses, as well as an alternative whereby multiple transactions could be pursued to try to sell individual business lines to multiple purchasers in piecemeal fashion. At the outset of the marketing process, PJT advised that a single sale transaction for all or substantially all of the business was more likely to be value-maximizing for the Debtors, but the Special Committee decided all alternatives would be considered throughout the Marketing and Sale Process. A. Commencement and Round One of the Marketing and Sale Process 13. By August 2017, the Debtors had made substantial progress towards stabilizing their business through obtaining court approval of an $800 million post-petition 5

6 Pg 6 of 21 financing facility, creating a business plan and presenting it to their post-petition lenders, stemming the losses associated with the construction of nuclear reactors at the Alvin W. Vogtle Electric Generating Plant near Augusta, Georgia by rejecting the Vogtle EPC Contract and entering into a new services arrangement with the owners of the project, and beginning the wind-down of their involvement in the construction of nuclear reactors at the Virgil C. Summer Station near Columbia, South Carolina, among other things. Following this initial phase of these chapter 11 cases, the Debtors and their advisors shifted their focus from business stabilization towards exploring potential exit strategies from chapter After obtaining approval from Westinghouse, and under the supervision of the Special Committee, PJT commenced an expansive two-stage Marketing and Sale Process for Westinghouse to identify a third-party investor or purchaser. The first round of the process was designed to reach as large a number of qualified potential investors and purchasers as possible and provide them with sufficient information regarding Westinghouse s businesses to allow such parties to submit non-binding indications of interest ( Indications of Interest ) and request further diligence. Round two of the process was aimed at providing investors and purchasers that had submitted Indications of Interest with a more thorough understanding of Westinghouse s businesses and an adequate period of time to conduct in-depth diligence so that they could formulate binding offers. 15. In preparation for round one of the Marketing and Sale Process, PJT, after soliciting input from the Creditors Committee and Toshiba, contacted 118 potential investors and purchasers, 54 of which executed non-disclosure agreements allowing them to participate in round 6

7 Pg 7 of 21 one. 4 PJT launched round one on September 11, 2017, and bidders were provided with access to a virtual data room and confidential information memorandum containing certain non-public information regarding Westinghouse s businesses. PJT instructed bidders to submit preliminary Indications of Interest by October 9, 2017, which were to include: (i) the identity and corporate structure of the bidder, (ii) purchase price and forms of consideration, (iii) descriptions of the material assumptions informing the proposed purchase price, (iv) transaction structure, (v) proposed source of funds, (vi) a description of due diligence information required to make a definitive proposal, and (vii) a description of the proposed treatment of Westinghouse s pension and other liabilities, among other things. 16. Of the 51 round one participants, 14 bidders submitted Indications of Interest and one candidate submitted a letter of indication stating that it was interested in partnering with another bidder. Several bids proposed to purchase only a portion of Westinghouse s assets and were not for the entire Westinghouse business. After careful evaluation, Westinghouse and its advisors determined that such proposals could not be combined with other bids to sell Westinghouse as an entire enterprise, and, therefore, would not provide as much value as offers that proposed to purchase the Westinghouse business as a whole. Based on the overall quality of the bid, value, financing sources, and certainty of execution, the Special Committee ultimately selected five bidders that submitted Indications of Interest for the entire Westinghouse business to advance to the second round of the Marketing and Sale process. During round two, one of such bidders withdrew from the process. 4 Three of the 54 potential investors and purchasers that entered into non-disclosure agreements with Westinghouse agreed to participate as a consortium with other bidders, effectively resulting in 51 round one participants. 7

8 Pg 8 of 21 B. Round Two of Marketing and Sale Process 17. Round two of the Marketing and Sale Process commenced on October 24, 2017 and lasted approximately eight weeks. Between October 31, 2017 and December 17, 2017, Westinghouse and its advisors coordinated diligence requests and in-person management presentations led by senior representatives of Westinghouse and arranged site visits to certain major facilities. Candidates received access to a round two virtual data room containing additional information about Westinghouse s businesses, allowing them to conduct more in-depth diligence. During round two, Westinghouse and its advisors held approximately 133 diligence calls with bidders and their advisors, responded to over 2,143 diligence inquiries, facilitated approximately 13 in-person meetings with Westinghouse s senior management, and provided access to over 10 facilities globally. 18. Throughout this process, the Debtors kept key constituencies, such as the Creditors Committee and Toshiba, apprised of the Debtors efforts. During multiple formal meetings and numerous other informal discussions with Creditors Committee and Toshiba professionals, the Debtors outlined their marketing strategy, and shared the identity of potential bidders. Professionals for the Creditors Committee and for Toshiba were provided access to the data room, and reviewed and provided comments on sale documents that were discussed with such professionals and generally incorporated before the sale documents were shared by the Debtors with potential bidders. 19. On November 20, 2017, Westinghouse uploaded a form of purchase agreement to the virtual data room (the Form Purchase Agreement ). Westinghouse subsequently uploaded draft schedules and exhibits to the Form Purchase Agreement. Throughout the process, bidders worked closely with PJT, Weil, Alix and Westinghouse management to coordinate diligence and to ensure they received adequate information to formulate their bids. All 8

9 Pg 9 of 21 in all, potential bidders received access to over 9,000 diligence documents that were uploaded to the data room. 20. Westinghouse requested binding proposals from round two bidders to be submitted by December 18, 2017 (such proposals, Definitive Proposals ). Round two bidders were required to complete due diligence in advance of submitting Definitive Proposals and provided guidance to not include any due diligence, financing, or other type of contingency. Definitive Proposals were required to provide the following information: (i) purchase price and form of consideration, (ii) key financing terms, (iii) a sources and uses table, (iv) a description of key assumptions relied on to determine purchase price, (v) a copy of the Form Purchase Agreement marked to reflect any proposed modifications, (vi) proposed transaction structure, including whether the proposed transaction was to be consummated through a chapter 11 plan or as a standalone sale pursuant to section 363 of the Bankruptcy Code, and (vii) confirmation that diligence had been completed and that all internal requisite approvals to consummate the proposed sale transaction had been obtained, among other things. 21. Bidders were informed that key factors considered in the evaluation of their Definitive Proposals included, among other considerations, the cash purchase price and cash proceeds to Westinghouse, the extent and nature of the changes proposed to the Form Purchase Agreement, the demonstration of firm financial capability to consummate a transaction, certainty of closing (including demonstrated likelihood of obtaining the requisite regulatory approvals in a timely fashion), amount and quality of diligence conducted, and other transaction terms and conditions. 22. At the end of round two, three bidders submitted Definitive Proposals to purchase substantially all of Westinghouse s U.S. and overseas businesses for consideration by 9

10 Pg 10 of 21 Westinghouse. Additionally, one bidder submitted a non-binding letter of intent that did not substantially comply with the requirements to be considered a Definitive Proposal and was subsequently rejected after careful evaluation by Westinghouse and its advisors. III. Selection of Plan Investor and the Binding Letter of Intent A. Selection of Plan Investor 23. Over the course of two and a half weeks, Westinghouse and its advisors engaged in extensive discussions with the bidders that provided Definitive Proposals. These discussions culminated in an additional round of bidding to determine the best and highest offer, conducted through a series of meetings at Weil s offices on January 3, 2018 between the three remaining bidders and Westinghouse and its advisors, the Special Committee and its counsel, and the independent members of the Board of Directors of TNEH UK. Advisors to the Creditors Committee and to Toshiba were also invited to Weil s offices and regularly kept apprised of the negotiations and key developments. After a full day of negotiations, the Special Committee, after consulting with its counsel, the independent directors of TNEH UK, Westinghouse and their respective advisors, selected Brookfield s bid as the best and highest offer after consulting with the Creditors Committee and Toshiba. B. Letter of Intent Westinghouse entered into a binding letter of intent (the LOI ) on January 4, The LOI sets forth the key terms of the Transaction and obligates the parties to negotiate in good faith, the reasonable terms of, and execute, definitive documents, including, without limitation, a plan funding agreement (the Plan Funding Agreement ), by January 12, In the event of any inconsistencies between the provisions of the LOI and the general description of such agreement in this Declaration, the LOI shall control. Capitalized terms used herein but not defined shall have the meanings ascribed to them in the LOI. 10

11 Pg 11 of Pursuant to the LOI, Brookfield will provide $3.802 billion in cash and cash consideration to Westinghouse to fund a chapter 11 plan process in exchange for the acquisition of (i) 100% of TNEH UK s equity interests in Westinghouse Electric Holdings UK Limited and (ii) the equity in reorganized TSB Nuclear Energy Services Inc., in the latter case subject to certain excluded assets and liabilities that will be specified in the Plan Funding Agreement (collectively, the Transaction ). In addition, Brookfield will assume approximately $770 million in certain liabilities for a total consideration of $4.6 billion. 26. I understand that the Debtors intend to consummate the Transaction pursuant to a chapter 11 plan of reorganization. Consummation of the Transaction pursuant to a chapter 11 plan of reorganization would result in a full and complete resolution of many issues that could otherwise be disputed in and prolong these chapter 11 cases. Nevertheless, the Debtors and the Plan Investor recognize that confirmation of a plan of reorganization is not a certain outcome and, therefore, have agreed upon a path forward that will provide Westinghouse the ability to sell its assets pursuant to a standalone section 363 sale on the same timeline if confirmation of a plan is not achievable. As indicated in the LOI, the overall consideration provided by the Plan Investor in a standalone section 363 sale scenario would be reduced by $150 million as a result of the loss of certain economic benefits to the Plan Investor only available in the context of a plan of reorganization. 27. As an inducement for the Plan Investor to enter into the binding commitments, the Debtors have agreed to seek court approval of the Plan Investor Protections, including a reasonable Break-up Fee and Expense Reimbursement and a No-Shop Provision with a Fiduciary Out as the Debtors move toward consummation of the Transaction. I believe the Plan Investor Protections are a critical element for the benefit of the overall agreement with the Plan 11

12 Pg 12 of 21 Investor as they were necessary to induce the Plan Investor to agree to and continue to pursue the Transaction, which I believe represents the best available option for the Debtors to maximize value of the benefit for all stakeholders. 28. Although I understand that the preferred and most value-maximizing approach is the consummation of the Transaction pursuant to a consensual chapter 11 plan of reorganization, I believe the standalone section 363 sale to the Plan Investor would still represent the best and highest offer available and would provide significant benefits to the estates. Among other benefits, the standalone section 363 sale would guarantee that cash will be available for distribution to creditors once a liquidating plan can be confirmed and would significantly reduce the claims pool, as the Plan Investor would assume a substantial amount of liabilities and contracts pursuant to the terms of a purchase agreement. C. Transaction Milestones 29. I understand that the LOI provides the Plan Investor negotiated for termination rights, based upon, among other things, the failure to satisfy certain milestones (the Bankruptcy Milestones ). Specifically, the following Bankruptcy Milestones (subject to waiver by the parties) apply: a. entry of the Plan Investor Protections Order by January 31, 2018, provided, that the Debtors have agreed to use reasonable best efforts to obtain entry of the Plan Investor Protections Order by January 18, 2018; 6 b. the Debtors filing of the Plan, Disclosure Statement, and the Solicitation Motion by no later than January 29, 2018; 6 Subsequent to execution of the LOI, the parties agreed to extend this date from January 16, 2018 to January 18,

13 Pg 13 of 21 c. entry of an order approving the Disclosure Statement and related solicitation procedures (the Disclosure Statement Order ) by no later than February 27, 2018; 7 and d. entry of an order confirming the Plan approving the standalone section 363 sale (the Transaction Approval Order ) by no later than April 16, Notably, to induce the Plan Investor to enter into the binding commitments, the Debtors have agreed to use their reasonable best efforts to obtain a Bankruptcy Court order granting the relief sought in the Motion by January 18, I believe an orderly but expeditious sale is critical to preserving and realizing Westinghouse s going concern value and, in turn, to maximizing recoveries for the Debtors economic stakeholders and preserving jobs. In the event a chapter 11 plan cannot be confirmed, a prompt sale will ensure a substantial amount of cash comes into the estate, which will be available for distribution to creditors at a later point in these chapter 11 cases, and also serve to reduce the claims pool as the Plan Investor is agreeing to assume substantial liabilities and designate contracts for assumption. 32. Furthermore, I believe that interested parties will not be prejudiced by the requested Bankruptcy Milestones and expedited process. Indeed, Toshiba and the Creditors Committee, which all represent stakeholders with a vested interest in ensuring a successful sale process, have been continually updated by Westinghouse s advisors on the development of the sale process, the proposed timeline, and the structure of the Transaction. Such parties have been on actual notice of the relief the Debtors are seeking well in advance of the filing of the Motion. Furthermore, after being made aware of the LOI and the Bankruptcy Milestones, these interested 7 Subsequent to execution of the LOI, the parties agreed to extend this date from February 23, 2018 to February 27, Subsequent to execution of the LOI, the parties agreed to modify the Transaction Approval Order milestone. 13

14 Pg 14 of 21 parties have not expressed to Westinghouse or its advisors any objection to an expedited process, or to the relief requested in the Motion. D. Plan Investor Protections a. Break-Up Fee and Expense Reimbursement 33. Over the past several months, the Plan Investor has spent substantial time and expense to conduct diligence, research, and submit a bid for Westinghouse s businesses. The Plan Investor has also incurred significant expense negotiating and drafting a form of the Plan Funding Agreement and other documentation related to the Transaction and contemplated chapter 11 plan. Prior to the approval of the Plan Funding Agreement (in connection with the Plan confirmation) and the closing of the Transaction, the Plan Investor is exposed to the risk that its efforts could benefit a competing investor or purchaser if the Debtors chose to close on an alternative transaction, resulting in a tremendous opportunity cost to the Plan Investor. 34. To protect the Plan Investor from such a result, it has conditioned its binding commitment on the approval of (i) a break-up fee of $75 million (the Break-Up Fee ), which is less than 2% of the $3.802 billion base purchase price of the Plan Investor s bid, (ii) an expense reimbursement for reasonable documented fees and expenses (including professional fees) incurred by the Plan Investor of up to $25 million (the Expense Reimbursement ), in each case as an administrative expense, and (iii) the No-Shop Provision. Taken together, and assuming the full Expense Reimbursement is claimed, the Break-Up Fee and Expense Reimbursement could equal up to approximately 2.6% of the $3.802 billion base purchase price the Plan Investor is paying for the Westinghouse businesses. 35. The Expense Reimbursement would be earned and payable in cash upon the Plan Investor s termination of the Plan Funding Agreement based on the following conditions: 14

15 Pg 15 of 21 (i) if Companies (as defined in the Plan Funding Agreement) breached any representation or warranty or failed to comply with any covenant or agreement applicable to Companies that would cause any condition to the Plan Investor s closing obligations not to be satisfied, and (x) such breach is not waived by Plan Investor or, (y) if such breach has not been waived by Plan Investor but is curable and is not cured prior to the earlier to occur of (A) thirty (30) days after receipt of Plan Investor s notice of its intent to terminate and (B) by the Outside Date; provided, however, that Plan Investor is not then in breach of the Plan Funding Agreement; (ii) failure to meet any of the Bankruptcy Milestones; (iii) following entry of the Plan Investor Protections Order, the order is (x) amended, modified, or supplemented in a manner not reasonably satisfactory to Plan Investor or (y) voided, reversed, or vacated; (iv) following entry of either the Disclosure Statement Order or the Transaction Approval Order, either order is (x) amended, modified, or supplemented in a manner not reasonably satisfactory to Plan Investor or (y) voided, reversed, or vacated; (v) Companies seek (or do not reasonably oppose) an order dismissing the bankruptcy case or converting to a case under chapter 7 of the Bankruptcy Code, or the Bankruptcy Court enters such an order; or (vi) Companies seek (or do not reasonably oppose) an order appointing a chapter 11 trustee, or an officer or an examiner with enlarged powers relating to the Debtors operations, or such an order is entered. 36. Both the Break-Up Fee and Expense Reimbursement are earned upon termination of the Plan Funding Agreement based on Westinghouse willfully or intentionally breaching the No-Shop Provision or signing a definitive agreement with respect to a Competing Transaction. The Expense Reimbursement will be payable in cash within two business days of such termination, and the Break-Up Fee will be payable in cash upon the earlier of (i) consummation of a Competing Transaction, and (ii) the Outside Date (without any extension). 37. When considering whether to support the Break-Up Fee and Expense Reimbursement, Westinghouse and its advisors considered a number of factors, all of which favored approval of such protections. Westinghouse and its advisors recognized that Definitive 15

16 Pg 16 of 21 Proposals would likely include a demand for certain protections, such as a break-up fee or expense reimbursement. Of the three bidders that submitted Definitive Proposals, two bidders expressly demanded a break-up fee and expense reimbursement and I believe that the third bidder would have requested a break-up fee and/or expense reimbursement had discussion of specific deal terms progressed further. In my view, consideration of a break-up fee and/or expense reimbursement in both Definitive Proposals that included such protections was necessary to sustain the interest of these bidders. 38. I believe the Break-Up Fee and Expense Reimbursement are reasonable given (i) the significant benefit to the estates of having a definitive agreement for a value maximizing transaction that will facilitate a holistic resolution of these chapter 11 cases and allow Westinghouse to continue to profitably provide services to nuclear facilities across the globe, (ii) the significant costs incurred by the Plan Investor over the past several months participating in the Marketing and Sale process and negotiating the terms of the Plan Funding Agreement and other transaction related documents, and (iii) the substantial amount of time that lies ahead before the consummation of the Transaction. Under these circumstances, the Break-Up Fee and Expense Reimbursement are reasonable in amount and necessary to maximize the value of the Debtors estates. 39. I believe the Plan Investor s offer is the best available outcome for the estates and their stakeholders, as it sets forth a viable and timely path for the ultimate resolution of these chapter 11 cases. The Plan Investor has provided the means of implementing a chapter 11 plan through the infusion of $3.802 billion of cash and cash consideration into the estate that will be available (along with the Debtors unrestricted cash) for distribution under a chapter 11 plan and agreeing to assume approximately $770 million in liabilities, which will substantially 16

17 Pg 17 of 21 reduce the claims pool and enhance recoveries to general unsecured creditors. Undoubtedly, the Plan Investor is conferring a material benefit to the estates as it leads the Debtors successfully out of bankruptcy to continue to operate as a healthy and profitable going concern enterprise, saving thousands of jobs and allowing Westinghouse to provide services to nuclear facilities across the globe. 40. Approval of the Break-Up Fee and Expense Reimbursement is appropriate in light of the significant costs the Plan Investor has incurred, and will continue to incur, until the confirmation of a chapter 11 plan. The Plan Investor has expended a substantial amount of time and effort throughout the Marketing and Sale Process, hiring dozens of lawyers, accountants, and other professionals to conduct financial and legal diligence. The Plan Investor s professionals have reviewed over 9,000 documents and spent thousands of hours conducting such review and drafting and negotiating key transactional documents, such as the LOI and Plan Funding Agreement. The Plan Investor s professionals will continue to work around the clock with Westinghouse s advisors to evaluate thousands of executory contracts for assumption or rejection, negotiate and finalize chapter 11 plan documents, and to smoothly transition into new ownership to allow Westinghouse to continue to operate as an industry leader. 41. Finally, approval of the Break-Up Fee and Expense Reimbursement is appropriate given the substantial amount of time needed for the sale to close. While the LOI contemplates the confirmation of a chapter 11 plan will occur by the end of March, it is anticipated to take several months for the Transaction to receive regulatory approval from various governmental agencies. Understandably, the Plan Investor will not agree to wait in limbo for potentially months and months for regulatory approval after already having expended millions of 17

18 Pg 18 of 21 dollars during the Marketing and Sale Process and plan confirmation without being protected, at least in part, against the risk that the Transaction is not consummated. 42. Based on my experience and PJT s analysis of comparable transactions, I believe that the Break-Up Fee and Expense Reimbursement, which together could equal up to approximately 2.6% of the base purchase price (assuming the full amount of the Expense Reimbursement is claimed), are reasonable and commensurate with the size and nature of the Transaction. b. No-Shop Provision and Fiduciary Out 43. The Plan Funding Agreement generally prohibits Westinghouse from soliciting, encouraging the submission of, or negotiating any Competing Transaction proposals (the No-Shop Provision and together with the Break-Up Fee and Expense Reimbursement, the Plan Investor Protections ). Specifically, the No-Shop Provision provides that Westinghouse will not directly or indirectly: i. initiate contact with or solicit or encourage submission of any inquiries, proposals or offers by, any other party with respect to a Competing Transaction; ii. iii. iv. discuss or provide non-public information, data, due diligence information or data-room access to any other party relating to a Competing Transaction; enter or seek to enter into an agreement to make bankruptcy filings in furtherance of a Competing Transaction or negotiation thereof; propose or seek Bankruptcy Court approval of a bidding process with respect to a 363 sale; or See LOI, Exhibit B. v. publicly propose to do any of the prohibited actions in clauses (i) to (iv) above, other than in connection with a transaction with the Plan Investor or its affiliates. 18

19 Pg 19 of The No-Shop Provision also requires Westinghouse and its affiliates to cease and terminate any discussions, solicitations, and negotiations with other parties relating to a Competing Transaction or any inquiries that could reasonably result in any Competing Transaction. 45. Notwithstanding the prohibitions imposed by the No-Shop Provision, the LOI provides, and the Plan Funding Agreement will provide, that Westinghouse is permitted, after considering the advice of counsel, to consider, negotiate or enter into a proposed Competing Transaction if, in the good-faith judgment of the board of a committee thereof, failure to take such action would be inconsistent with their fiduciary duties (the Fiduciary Out ). Westinghouse s ability to exercise the Fiduciary Out and explore a Competing Transaction is subject to certain customary limitations. Specifically, prior to exploring a Competing Transaction, the proposal must: i. not have been received in violation of the restrictions upon Westinghouse s ability to seek a Competing Transaction or provide non-public information regarding a Competing Transaction; ii. iii. iv. be evidenced by complete definitive documentation; provide no less than $200 million of additional distributable value (inclusive of the amount of the Break-Up Fee and Expense Reimbursement); contains no greater conditionality or contingency to consummation of the transaction; and v. not be, as a whole, less favorable than the Transaction. 46. In addition, the Debtors must promptly (and, in any event, within 24 hours) notify and deliver a copy to the Plan Investor if, with respect to all or a material portion of the Westinghouse businesses, any bona fide written proposal or offer with respect to a Competing Transaction is received. The Debtors are also required to provide the Plan Investor with notice of 19

20 Pg 20 of 21 their entry into a binding definitive agreement for a Competing Transaction within two business days after such entry. 47. Similar to the Break-Up Fee and the Expense Reimbursement, the Plan Investor s entry into a binding agreement was conditioned upon the inclusion of the No-Shop Provision and the Plan Investor will have the ability to terminate the Plan Funding Agreement if the No-Shop Provision is not approved. The provision was heavily negotiated at arm s length by the parties. 48. The Debtors and their advisors carefully weighed the effects of the No-Shop Provision against the benefits offered to the Debtors stakeholders by the Plan Investor s binding commitments. The Debtors concluded that that while this provision might theoretically limit further marketing by the Debtors, the likelihood of new parties submitting bids, particularly potential investors or purchasers that have not already been solicited, is low given the expansive marketing effort conducted to date. As a result, any parties seeking to overbid the Plan Investor will most likely have already completed diligence and be aware of Westinghouse s efforts to sell its businesses. Furthermore, given the Debtors ability to exercise the Fiduciary Out, the Debtors still have the flexibility to consider and accept unsolicited proposals that are superior to the Transaction. 49. I believe inclusion of the No-Shop provision is particularly appropriate given the substantial value of the deal provided to the estates through the Plan Funding Agreement, the amount of information and notice provided to the marketplace and other potential bidders during the Debtors Marketing and Sale Process, and the inclusion of the Fiduciary Out. Notably, the Debtors made public statements about the Marketing and Sale Process on the record during hearings held on October 26, 2017 and December 13, 2017, engaged in communications with more 20

21 Pg 21 of 21 than 115 potential bidders and investors, executed more than 50 non-disclosure agreements, and conducted two rounds of competitive bidding. Further, as a condition to obtaining the binding commitments from the Plan Investor, the Plan Investor required the inclusion of the No-Shop Provision. Indeed, in the event that the Debtors do not obtain approval of the No-Shop Provision, the Plan Investor is entitled to terminate the Plan Funding Agreement. Lastly, the Debtors have determined in their business judgment that it was appropriate to include the No-Shop Provision to lock in the Plan Investor s proposal that will ultimately maximize value for all of their stakeholders. 50. As a whole, I believe the Plan Investor Protections were heavily negotiated, at arm s length and in good faith, by the Debtors advisors and the Special Committee, without any undue influence from any parties, including Westinghouse management. The Special Committee, the independent committee of the board of directors of TNEH UK, and the Debtors other advisors do not stand to benefit from this Court s approval of these Plan Investor Protections. After considering the value of the Plan Investor s proposal, and the certainty provided by a committed purchaser with a robust offer for its U.S. and overseas businesses, and the other benefits associated with the Plan Investor s proposal, as described herein, Westinghouse and its advisors concluded that the Plan Investor Protections are reasonable, would not chill bidding, and would provide certainty for the Debtors and their diverse stakeholders. Executed on: January 10, 2018 /s/ Mark Buschmann Mark Buschmann Partner PJT Partners, LP 21