IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF ALABAMA SOUTHERN DIVISION

Transcription

1 Main Document Page 1 of 20 QUINN, CONNOR, WEAVER, DAVIES & ROUCO LLP Glen M. Connor, ASB-0562-R64G George N. Davies, ASB-3923-A63G Two North Twentieth Building 2 20 th Street North, Suite 930 Birmingham, Alabama Telephone: (205) Facsimile: (205) MOONEY, GREEN, SAINDON, MURPHY & WELCH, P.C. Paul A. Green (admitted pro hac vice) John R. Mooney (admitted pro hac vice) 1920 L Street, N.W., Suite 400 Washington, D.C Telephone: (202) Facsimile: (202) MORGAN, LEWIS & BOCKIUS LLP John C. Goodchild, III (admitted pro hac vice) Rachel Jaffe Mauceri (admitted pro hac vice) 1701 Market St. Philadelphia, PA Telephone: (215) Facsimile: (215) and - Julia Frost-Davies (admitted pro hac vice) Amelia C. Joiner (admitted pro hac vice) One Federal St. Boston, MA Telephone: (617) Facsimile: (617) Attorneys for the UMWA Health and Retirement Funds IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF ALABAMA SOUTHERN DIVISION In Re: Chapter 11 WALTER ENERGY, INC., et al. Case No Debtors. OBJECTION OF THE UMWA HEALTH AND RETIREMENT FUNDS TO THE DEBTORS MOTION FOR AN ORDER (A) APPROVING THE DEBTORS KEY EMPLOYEE RETENTION PLAN AND (B) GRANTING RELATED RELIEF The United Mine Workers of America 1974 Pension Plan and Trust (the 1974 Pension Plan ), the United Mine Workers of America 1993 Benefit Plan and Trust (the 1993 Benefit Plan ), the United Mine Workers of America 2012 Retiree Bonus Account Plan (the Account Plan ), the United Mine Workers of America Cash Deferred Savings Plan of 1988 (the 1

2 Main Document Page 2 of 20 CDSP ), the United Mine Workers of America Combined Benefit Fund (the Combined Benefit Fund ), and the United Mine Workers of America 1992 Benefit Plan (the 1992 Plan and, together with the Combined Benefit Fund, 1974 Pension Plan, the 1993 Benefit Plan, the CDSP, and the Account Plan, the UMWA Funds ), hereby submit this objection to the Debtors Motion for an Order (A) Approving the Debtors Key Employee Retention Plan and (B) Granting Related Relief [Dkt Ent. 1032] (the KERP Motion ). In support of this Objection, the UMWA Funds respectfully state as follows: PRELIMINARY STATEMENT The Debtors proposed KERP is inappropriate and should not be approved. The Debtors pleadings and representations to this Court are rife with warnings regarding the continually deteriorating coal market, and the Debtors precarious liquidity position. Nevertheless, the Debtors believe it is appropriate to pay out approximately $2 million in retention bonuses, as they simultaneously seek approval to sell substantially all of their assets free and clear of both their statutory and collectively-bargained obligations to provide pension and retiree health benefits to former, current and future employees, and to reject their collectively-bargained obligations. The Debtors should not be permitted to earmark their dwindling available cash for retention bonuses while reneging on promises and both statutory and contractual obligations to support their retirees many of whom have spent decades working in coal mines owned and operated by the Debtors. 1 The Debtors efforts, among other things, could jeopardize the ability of the UMWA Funds to continue providing benefits at current levels to thousands of elderly retirees and their dependents. The KERP unfairly discriminates against other employees 1 On November 23, 2015, the Debtors filed their Motion Pursuant to 11 U.S.C. 105(a), 1113(c) and 1114(g) for an order (I) Authorizing the Debtors to (A) Reject Collective Bargaining Agreements, (B) Implement Final Labor Proposals, and (C) Terminate Retiree Benefits; and (II) Granting Related Relief [Dkt. Ent. 1094] (the 1113/1114 Motion ). 2

3 Main Document Page 3 of 20 particularly to the extent the KERP contemplates payments to individuals following their transfer to a new employer and is inconsistent with the Bankruptcy Code s policy of shared sacrifice. Accordingly, and as further described herein, the UMWA Funds object to the KERP Motion and request that this Court deny the Motion in its entirety. BACKGROUND A. The Debtors Obligations to the UMWA Funds (i) The Coal Act Funds 1. Since 1950, signatory coal operators have been required under the terms of collectively bargained National Bituminous Coal Wage Agreements (each, an NBCWA ) between the United Mine Workers of America ( UMWA ) and the Bituminous Coal Operators Association ( BCOA ), a multiemployer bargaining association, to contribute to multiemployer trust funds that provide health benefits for retired coal miners and their eligible dependents. See, e.g., LTV Steel Co., Inc. v. Shalala (In re Chateaugay Corp.), 53 F.3d 478, 481 (2d Cir. 1995), cert. denied 516 U.S. 913 (1995) (discussing history). In 1974, the UMWA and the BCOA negotiated a new collective bargaining agreement that, for the first time, promised lifetime health benefits to retirees and their eligible surviving spouses. Id. at 482. To implement the retiree medical provisions in the 1974 NBCWA, two trusts were created: the UMWA 1950 Benefit Plan and Trust (the 1950 Benefit Plan ) and the UMWA 1974 Benefit Plan and Trust (the 1974 Benefit Plan ). Id. Pursuant to the 1974 NBCWA, coal producers committed to fund the 1950 Benefit Plan and the 1974 Benefit Plan through premiums based on the numbers of hours worked by miners and tons of coal produced. Id. at 482. In 1978, the UMWA and the BCOA entered into a new NBCWA which obligated signatory coal operators to provide benefits for their active employees and retirees retiring after January 1, 1976 through individual employer plans. Id. As 3

4 Main Document Page 4 of 20 a result, beneficiaries of the 1950 Benefit Plan and the 1974 Benefit Plan were limited to orphaned retirees whose employers had withdrawn from the NBCWAs or had left the coal mining industry and gone out of business. Id. at During the 1980s, a number of coal operators went out of business or left the industry. Id. at 484. The 1950 Benefit Plan and the 1974 Benefit Plan were forced to cover a growing number of retirees who had been abandoned by signatory operators seeking to shed their health benefit obligations. Id. at By the late 1980s, both the 1950 Benefit Plan and the 1974 Benefit Plan were in deep financial crisis, and each faced insolvency. Id. 3. The Coal Industry Retiree Health Benefit Act of 1992, Pub. L. No , 106 Stat. 2776, , codified at 26 U.S.C (the Coal Act ), was enacted to ensure that certain retired coal miners and their eligible dependents would receive the retiree health benefits promised them in NBCWAs. Chateaugay Corp. 53 F.3d at 485. As part of the Coal Act, Congress created the Coal Act Funds for the provision of health care benefits to retired miners and their survivors and dependents. The Coal Act is unique and its statutory obligations to provide retiree health benefits to eligible beneficiaries and to make premium payments to the Coal Act Funds cannot be altered through negotiation and cannot be modified under section 1114 of the Bankruptcy Code, which applies to negotiable and contractual retiree benefits. Among other things, the Coal Act requires the Debtors to pay certain premiums to the Coal Act Funds and to establish and maintain an individual employer plan ( IEP ) to provide health benefits to eligible retirees and their dependents. Coal Act premiums are statutory, are non-negotiable, and are in the nature of taxes. See, e.g., United Mine Workers of Am Benefit Plan v. Rushton (In re Sunnyside Coal Co.), 146 F.3d 1273, 1280 (10th Cir. 1998); Adventure Res. v. Holland, 137 F.3d 786, 795 (4th Cir. 1998); In re Chateaugay Corp., 53 F.3d at

5 Main Document Page 5 of In the Coal Act, Congress required employers that were, as of February 1, 1993, maintaining IEPs covering their eligible retirees, survivors and dependents, to continue to provide health benefits coverage to those beneficiaries so long as the employer remains in business. 26 U.S.C Section 9711 of the Coal Act provides, in pertinent part: The last signatory operator of any individual who, as of February 1, 1993, is receiving retiree health benefits from an individual employer plan maintained pursuant to a 1978 or subsequent coal wage agreement shall continue to provide health benefits coverage to such individual and the individual s eligible beneficiaries which is substantially the same as (and subject to all the limitations of) the coverage provided by such plan as of January 1, Such coverage shall continue to be provided for as long as the last signatory operator (and any related person) remains in business. 26 U.S.C. 9711(a). Thus, IEPs, funded directly by coal operators, are a primary source of retiree health care for retirees covered by the Coal Act. Under section 9711(c) of the Coal Act, each related person to a last signatory operator is jointly and severally obligated to provide the health care coverage to eligible beneficiaries. 5. The Combined Benefit Fund. The Combined Benefit Fund was created by the statutory merger of the 1950 Benefit Plan and the 1974 Benefit Plan, see 26 U.S.C. 9702(a)(2), and provides health and death benefits to coal industry retirees who, as of July 20, 1992, were eligible to receive, and were receiving, benefits from the 1950 Benefit Trust or the 1974 Benefit Trust. See 26 U.S.C. 9703(a), (b), (e), (f). The Combined Benefit Fund is financed in part by an annual premium, assessed each October against assigned operators. 26 U.S.C This premium is calculated based on the number of eligible beneficiaries assigned to a specific operator by the Commissioner of Social Security. 26 U.S.C. 9704, The assigned operator and any related person are jointly and severally liable for the annual premium. 26 U.S.C Presently, the Debtors are obligated to the Combined Benefit Fund with respect to approximately 33 eligible beneficiaries, with an annual premium of approximately $172,000. The 5

6 Main Document Page 6 of 20 Debtors premium obligations to the Combined Fund accrue in October of each year and are payable on a monthly basis. 6. The 1992 Plan. The Coal Act also created the 1992 Plan, which provides benefits to two separate categories of beneficiaries. First, under section 9712(b)(2)(A), benefits are provided to beneficiaries who, based on their age and service earned as of February 1, 1993, could have retired and received benefits from the 1950 Benefit Trust or the 1974 Benefit Trust had those trusts remained in existence, and who actually retired between July 20, 1992 and October 1, U.S.C. 9712(b)(2)(A). Second, the 1992 Plan also provides benefits to coal miners who should be covered by IEPs under the Coal Act, see 26 U.S.C. 9711(b), but whose employers and their related persons have failed to provide such coverage. 26 U.S.C. 9712(b)(2)(B). Pursuant to the Coal Act, the Debtors administer a Coal Act IEP that provides retiree health benefits to approximately 572 Coal Act-eligible retirees and their dependents. 26 U.S.C. 9711(a). 2 The Debtors currently have a statutory obligation to provide security (in the form of a bond, letter of credit, or cash escrow) to the 1992 Plan to cover a portion of the projected future cost to the 1992 Plan of providing health benefits for eligible and potentially eligible beneficiaries attributable to Debtors. 26 U.S.C. 9712(d)(1)(B). In addition, if the Debtors cease providing health benefits to these retirees and they become eligible for benefits from the 1992 Plan, the Debtors then would be obligated to pay a monthly per beneficiary premium to the 1992 Plan for each eligible beneficiary of the Debtors. 26 U.S.C. 9712(d)(1)(A). 2 The Debtors do not currently have premium obligations to the 1992 Plan. If the Debtors and their related persons cease providing the statutorily mandated benefits through their IEP, however, then those Coal Act-eligible miners and their dependents would be eligible to receive benefits from the 1992 Plan, which will be obligated to provide and pay for these benefits. In this way, the 1992 Plan acts as a backstop plan if an employer fails to provide an individual employer plan pursuant to section 9711 of the Coal Act, the retired coal miners will receive benefits through the 1992 Plan. 6

7 Main Document Page 7 of 20 (ii) The 1974 Pension Plan 7. The 1974 Pension Plan is an irrevocable trust established in accordance with section 302(c)(5) of the Labor Management Relations Act, 29 U.S.C. 186(c)(5). The 1974 Pension Plan is also a multiemployer, defined benefit pension plan under the Employee Retirement Income Security Act of 1974, 29 U.S.C et seq. (as amended, ERISA ). See Section 3(37)(A) of ERISA, 29 U.S.C. 1002(37)(A). The 1974 Pension Plan provides pension and death benefits to approximately 90,000 eligible beneficiaries who are retired or disabled miners and their eligible surviving spouses. 3 The contribution obligations of contributing employers to the 1974 Pension Plan, benefit levels provided to the 1974 Pension Plan s beneficiaries and participants, and other substantive terms of the 1974 Pension Plan are established from time to time in NBCWAs. On September 28, 2015, the 1974 Pension Plan was certified by its actuary as being in critical and declining financial status as of July 1, 2015 under the Pension Protection Act. 8. One of the Debtors, Jim Walter Resources, Inc. ( JWR ) is a participating employer in the 1974 Pension Plan pursuant to its collective bargaining arrangements and is obligated with respect to: (a) monthly pension contributions that must be made for as long as it has operations covered by the 1974 Pension Plan and (b) withdrawal liability accruing upon its partial or complete withdrawal from participation in the 1974 Pension Plan. JWR contributed approximately $18.9 million to the 1974 Pension Plan in fiscal year Withdrawal liability is imposed by federal statute and is based upon the portion of the 1974 Pension Plan s unfunded vested benefits attributable to the employer. See Section 4211 of ERISA, 29 U.S.C Under section 4201 of ERISA, 29 U.S.C. 1381, upon its 3 These participants and beneficiaries include individuals eligible under the 1974 Pension Plan and the UMWA 1950 Pension Plan, which merged into the 1974 Pension Plan effective June 30,

8 Main Document Page 8 of 20 withdrawal from a multiemployer pension plan, a previously contributing employer is immediately liable for its proportionate share of the 1974 Pension Plan s unfunded vested pension liabilities. 10. In addition, each of the remaining Debtors is an employer within the meaning of section 3(5) of ERISA, 29 U.S.C. 1002(5). Under section 4001(b)(1) of ERISA, 29 U.S.C. 1301(b)(1), the participating Debtors, and all trades or businesses under common control with them, constitute a single employer participating in the 1974 Pension Plan. Each Debtor, therefore, is jointly and severally liable for any withdrawal liability incurred by any employer in its controlled group. If JWR were to completely withdraw from the 1974 Pension Plan during the plan year beginning July 1, 2015 and ending June 30, 2016, the potential withdrawal liability for which each of the Debtors would be jointly and severally liable is estimated to be $904,367,132. (iii) The Account Plan 11. The Account Plan is a benefit plan established by the NBCWA of 2011 to make annual one-time single sum payments to eligible beneficiaries on November 1, 2014, November 1, 2015, and November 1, Similar payments were previously made from the 1974 Pension Plan to eligible beneficiaries, until, in connection with the 2011 NBCWA negotiations, the UMWA and the BCOA determined that the financial condition of the 1974 Pension Plan required elimination of the annual single sum payments from the 1974 Pension Plan, and the establishment of the Account Plan, which signatory employers fund separately. Under the terms of the Account Plan, single sum payments to eligible beneficiaries are projected to be $455 or $580, depending upon the type of pension the individual receives under the 1974 Pension Plan. JWR is obligated to contribute to the Account Plan $1.56 per hour for each hour worked by its active UMWA-represented employees. In calendar year 2014, JWR contributed $5,134,575 to 8

9 Main Document Page 9 of 20 the Account Plan. Under the current NBCWA to which JWR is signatory, it is obligated to continue contributing to the Account Plan until December 31, (iv) The CDSP 12. The CDSP is a multiemployer savings plan that was established in 1988 in collective bargaining between the UMWA and the BCOA for the benefit of active employees of participating companies. The CDSP is funded by voluntary employee wage deferrals and by enhanced premium contributions, supplemental pension contributions, and administrative costs paid by participating employers. JWR currently participates in and contributes to the CDSP. In calendar year 2014, JWR contributed $93,430 to the CDSP. (v) The 1993 Benefit Plan 13. The 1993 Benefit Plan is a multiemployer employee benefits plan that was established in 1993 in collective bargaining between the UMWA and BCOA. The 1993 Benefit Plan provides retiree health benefits to approximately 10,837 retired coal miners and their dependents. Virtually all of the beneficiaries of the 1993 Plan are orphan retirees and their dependents whose last signatory employer is no longer in business and no longer contributing to the Plan. Approximately 3,491 of the beneficiaries of the 1993 Benefit Plan were enrolled in the Plan on or after January 1, 2007 and are financed solely by hourly-based contributions from contributing employers. The current employer contribution rate to the 1993 Benefit Plan is $1.10 per hour for each hour worked by active UMWA-represented employees of contributing employers. JWR currently participates in and contributes to the 1993 Benefit Plan. During calendar year 2014, JWR contributed $3,620,629 to the 1993 Benefit Plan. 14. JWR s contributions to the 1993 Benefit Plan are pooled with contributions from other participating employers and used to provide retiree health care benefits to approximately 3,491 beneficiaries who enrolled in the 1993 Benefit Plan after December 31, 2006, for the term 9

10 Main Document Page 10 of 20 of the 2011 NBCWA. In addition to this contribution obligation to the 1993 Benefit Plan, JWR is also obligated under the 2011 NBCWA to provide retiree health benefits to its own retirees for life through an IEP. If the Debtors discontinue providing benefits to their own eligible retirees through their IEP during the term of the 2011 NBCWA, and if such retirees satisfy the collectively-bargained eligibility requirements of the 1993 Benefit Plan, it is estimated that approximately 1,429 of the Debtors retirees (and approximately 2,629 individuals, including both retirees and potential dependents) could become eligible for benefits from the 1993 Benefit Plan. This infusion would require a substantial reduction in benefits for all of the 1993 Benefit Plan s beneficiaries who enrolled in the 1993 Benefit Plan after December 31, It is estimated that the enrollment of approximately 2,629 new beneficiaries, together with the loss of JWR s contributions to the 1993 Benefit Plan would necessitate no less than a 43% reduction in benefits for the existing 1993 Benefit Plan beneficiaries in order to prevent a complete termination of benefits during the term of the 2011 NBCWA. B. The KERP 15. If approved, the proposed KERP, as described in KERP Motion, will be available to 26 non-union employees, most of whom will be eligible to receive a bonus of up to 50% of their annual salary, and the remainder of whom will be eligible to receive a 100% bonus. KERP Motion, 24. Of these 26 employees, a portion ( Group A Key Employees ) will receive a Retention Award 4 for remaining with the business either with his or her current employer or with the purchaser through May 2016, and the remainder, the Group B Key Employees, who are eligible to collect the same award as Group A Key Employees, plus an additional award for staying with the business, again, either with one of the Debtors or a purchaser, through 4 Defined terms used in this Objection without definition have the meanings assigned to them in the KERP Motion. 10

11 Main Document Page 11 of 20 November 1, Id., To the extent a purchaser extends an offer of employment to the Key Employee, such purchaser will assume the obligation to pay any unpaid portion of the Retention Award. Id., 25. If the KERP Motion is approved, the Debtors propose to pre-fund a trust with the Retention Awards, however, to ensure that Key Employees are paid if they (i) are terminated without Cause (including if not offered comparable employment by a purchaser), (ii) leave for Good Reason (i.e. a reduction in salary or a workplace relocation more than 75 miles from the current place of employment) or (iii) die or become Disabled. Id., Exhibits A and B. Key Employees will forfeit their Retention Awards if (i) fired for Cause or (ii) they quit without Good Reason (including refusal to accept an offer of comparable employment with a purchaser). Id. OBJECTION I. The Debtors Have Not Shown that the Proposed Compensation Plans Satisfy the Statutory Thresholds Set Forth in the Bankruptcy Code A. The KERP is Unreasonable and Discriminates Unfairly. 17. Congress enacted Section 503(c) of the Bankruptcy Code in connection with the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, to curtail overly broad pay to stay programs directed at retaining company executives and other insiders during bankruptcy proceedings. Judge Glenn of the Bankruptcy Court for the Southern District of New York has described the purpose of Section 503(c) as follows: Congress enacted section 503(c)... to eradicate the notion that executives were entitled to bonuses simply for staying with the Company through the bankruptcy process... and to limit the scope of key employee retention plans and other programs providing incentives to management of the debtor as a means of inducing management to remain employed by the debtor. In re Residential Capital, LLC, 478 B.R. 154, 169 (Bankr. S.D.N.Y. 2012) (internal citations omitted). 11

12 Main Document Page 12 of Here, the Debtors assert that the proposed KERP would benefit only noninsiders. 5 Employee bonus plans benefiting non-insiders may be reviewed under Section 503(c)(3) of the Bankruptcy Code, which allows those payments to the extent they are justified by the facts and circumstances of the case. In re Borders Group, Inc., 453 B.R. 459, 471 (Bankr. S.D.N.Y. 2011). Bankruptcy Code Section 503(c)(3) proscribes other transfers or obligations that are outside the ordinary course of business and not justified by the facts and circumstances of the case, including transfers made to, or obligations incurred for the benefit of, officers, managers, or consultants hired after the date of the filing of the petition (emphasis added). 19. Courts often review proposed retention or incentive plans under Bankruptcy Code Section 503(c)(3) by applying the business judgment test associated with other transactions outside the ordinary course under Section 363(b) of the Bankruptcy Code. See, e.g., In re Dana Corp., 358 B.R. 567, 576 (Bankr. S.D.N.Y. 2006) ( Dana II ); In re Borders Group, Inc., 453 B.R. at 473; In re Allied Holdings, Inc., 337 B.R. 716, 721 (Bankr. N.D. Ga. 2005) (applying pre-bapcpa law); but see In re Pilgrim s Pride Corp., 401 B.R. 229, 237 (Bankr. N.D. Tex. 2009) ( Pilgrim s Pride ) (holding that, rather than merely deferring to the debtor s business judgment, the court must make its own determination that the transaction will serve the interests of the creditors and the debtor s estate ). 20. As noted in the KERP Motion, bankruptcy courts often consider the following six factors in evaluating proposed plans: 5 The UMWA Funds object to the extent the KERP contemplates the payment of retention bonuses to any insider. As the KERP is by its terms retentive, any insiders are barred from participating in the KERP pursuant to Section 503(c)(1) of the Bankruptcy Code, which the Debtors have not attempted to satisfy. See, e.g., In re Dana Corp., 351 B.R. 96, 101 (Bankr. S.D.N.Y. 2006) ( [T]o the extent a proposed transfer falls within section[] 503(c)(1)... then the business judgment rule does not apply, irrespective of whether a sound business purpose may actually exist. ). The statutory definition of insiders is merely illustrative and the term insider should be flexibly applied on a case by case basis. In re Global Aviation Holdings, Inc., 478 B.R. 142, 148 (Bankr. E.D.N.Y. 2012) (internal citations omitted). 12

13 Main Document Page 13 of 20 (1) whether the plan has a reasonable relationship to the results to be obtained, including, whether the key employee will stay for as long as it takes for the debtor to market its assets; (2) whether the cost is reasonable in light of the debtor's assets, liabilities, and earnings potential; (3) whether the scope of the plan is fair and reasonable, whether it applies to all employees, or whether it discriminates unfairly; (4) whether the plan or proposal is consistent with industry standards; (5) the due diligence efforts of the debtor in investigating the need for a plan, analyzing the employees that should be incentivized, what is available and the general applicability in the particular industry; and (6) whether the debtor received independent counsel in performing due diligence and in creating and authorizing the incentive compensation. See Dana II, 358 B.R. at (citing pre-bapcpa cases); In re GT Advanced Techs, Inc., 2015 Bankr. LEXIS 3328, *30-37 (Bankr. D. N.H. Sept. 30, 2015) (considering Dana II factors but applying the higher standard of scrutiny articulated in Pilgrim s Pride). 21. The proposed KERP cannot be approved under either standard of scrutiny. The cost of the KERP is unreasonable in light of the Debtors significant liquidity challenges. The Debtors and the First Lien Lenders have repeatedly highlighted for this Court their deteriorating cash position, a result of a soft and ever-worsening market. See, e.g., KERP Motion, 9 (noting that unexpected operational difficulties have exacerbated the Debtors financial condition). Nevertheless, the Debtors propose to set aside $2 million to pre-fund awards that may never be earned (although, if unearned, will go into the pockets of the Lenders), and which may only be fully earned after the Key Employee begins working for a new owner. Incurring these additional costs, when the Debtors available cash is so limited, is not a reasonable application of the Debtors business judgment. 22. Further, in light of the Debtors intention to reject their collective bargaining obligations and to sell their assets free and clear of their obligations to their unionized workforce 13

14 Main Document Page 14 of 20 and retirees, the proposed KERP discriminates unfairly. Payments under the KERP will be either 50% or, in certain cases, 100% of the Key Employee s salary (for an average of approximately $77,000 per employee), which would be paid in addition to each Key Employee s current salary. As further highlighted below, the proposed KERP thus represents an inequitable windfall to an exclusive group of employees. B. Section 105 is Not an Available Alternative for Relief. 23. The Debtors cite Section 105 of the Bankruptcy Code as a separate statutory basis for the relief sought in the KERP Motion. KERP Motion Pursuant to section 105(a), a bankruptcy court has authority to issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of the Bankruptcy Code. 11 U.S.C. 105(a). A court may not, however, contravene specific statutory authority in doing so: It is hornbook law that [section] 105(a), does not allow the bankruptcy court to override explicit mandates of other sections of the Bankruptcy Code... We have long held that whatever equitable powers remain in the bankruptcy courts must and can only be exercised within the confines of the Bankruptcy Code. Law v. Siegel, 134 S. Ct. 1188, 1194 (2014) (internal citations omitted). 24. As the proposed KERP is prohibited under Sections 363 and 503(c) of the Bankruptcy Code, the Debtors cannot look to Section 105(a) as an alternative. See Landsing Diversified Properties-II v. The First Nat l Bank and Trust Co. of Tulsa (In re W. Real Estate Fund, Inc.), 922 F.2d 592, 601 (10th Cir. 1990) ( [A] bankruptcy court's supplementary equitable powers... under [section 105(a)] may not be exercised in a manner that is inconsistent with the other, more specific provisions of the Code. ). II. The KERP Motion Fails to Consider the Bankruptcy Code s Policy of Shared Sacrifice. 25. Even if the Debtors could satisfy their statutory burden, a look at the broader 14

15 Main Document Page 15 of 20 picture militates against a granting of the KERP Motion. The Debtors have just filed their 1113/1114 Motion in an attempt to reject their collective bargaining obligations and, in connection with their proposed sale of substantially all assets, to terminate their retiree benefit obligations, including their obligations to the UMWA Funds, which could have a devastating effect on the Funds ability to maintain benefits at current levels. Against that background, the Debtors seek approval of the KERP Motion. 26. The Company s unionized workforce, and its retirees, are all too aware of the deep potential benefit cuts before them. The awarding of bonuses in the face of the 1113/1114 Motion smacks of the very enrichment that Section 503(c) of the Bankruptcy Code was intended to prevent, and can only have a negative impact on ongoing negotiations. See, e.g., In re US Airways, Inc., 329 B.R. 793, 799 (Bankr. E.D. Va. 2005) (approving pre-bapcpa retention plan, but acknowledging that its approval was a betrayal of the principle of shared sacrifice that was championed by the company in the litigation and negotiations that resulted in... wage and other concessions by its unionized workforce. ); see also In re Century Brass Prods., Inc., 795 F.2d 265, 273 (2d Cir. 1986) (In the context of a motion for relief under Section 1113 of the Bankruptcy Code, [t]he court must also assure itself that all creditors, the debtor and all affected parties are treated fairly and equitably. The purpose is to spread the burdens of saving the company to every constituency while ensuring that all sacrifice to a similar degree. ) (citing legislative history). 27. In short, Debtors proposal to set aside $2 million in retention bonuses for 26 management employees is grossly inequitable and a betrayal of the principle of shared sacrifice in light of the fact that the Debtors at the same time are proposing to cease all contributions to thousands of eligible beneficiaries in the 1974 Pension Plan, the 1993 Benefit Plan, the Account 15

16 Main Document Page 16 of 20 Plan, and the CDSP, and that such actions, among other things, could cause a drastic evisceration of the retiree health benefits payable to over 3,400 elderly beneficiaries by the 1993 Benefit Plan. RESERVATION OF RIGHTS 28. The UMWA Funds reserve all rights (i) to amend, modify or supplement this Objection based upon (a) any facts or arguments that come to light prior to the hearing on the KERP Motion; (b) ongoing discussions with the Debtors; or (c) further developments in these chapter 11 cases; (ii) to join any objection of the United Mine Workers of America or any other party with respect to any issue relating to the KERP Motion; and (iii) to be heard before the Court with respect to the subject matter of this Objection or such joinder. WHEREFORE, for the foregoing reasons, the UMWA Funds respectfully request that the Court (i) deny the KERP Motion in all respects, and (ii) provide such other and further relief as the Court deems just and appropriate. Dated: December 1, 2015 Respectfully submitted, /s/ George N. Davies Glen M. Connor, Alabama Bar No. ASB-0562-R64G George N. Davies, Alabama Bar No. ASB-3923-A63G QUINN, CONNOR, WEAVER, DAVIES & ROUCO LLP Two North Twentieth Building 2 20th Street North, Suite 930 Birmingham, Alabama Telephone: Facsimile: gconnor@qcwdr.com gdavies@qcwdr.com and MOONEY, GREEN, SAINDON, MURPHY & WELCH, P.C. Paul A. Green John R. Mooney 1920 L Street, N.W., Suite 400 Washington, D.C Telephone: (202) Facsimile: (202)

17 Main Document Page 17 of 20 and MORGAN, LEWIS & BOCKIUS LLP John C. Goodchild, III (pro hac vice) Rachel Jaffe Mauceri (pro hac vice) 1701 Market Street Philadelphia, PA Telephone: (215) Facsimile: (215) Julia Frost-Davies (pro hac vice) Amelia C. Joiner (pro hac vice) One Federal Street Boston, MA Telephone: (617) Facsimile: (617) Attorneys for the UMWA Health and Retirement Funds 17

18 Main Document Page 18 of 20 CERTIFICATE OF SERVICE I hereby certify that on December 1, 2015, a true and correct copy of the foregoing was filed using the Court s CM/ECF system, which will notify and serve all persons and entities that have formally appeared and requested service in this case. Additionally, I hereby certify that a true and correct copy of the foregoing was served on the Standard Parties via electronic mail as follows: Counsel for the Debtors: Kelley Cornish kcornish@paulweiss.com Claudia R. Tobler ctobler@paulweiss.com PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP 1285 Avenue of the Americas New York, New York (212) Patrick Darby pdarby@babc.com Jay Bender jbender@babc.com BRADLEY ARANT BOULT CUMMINGS LLP 1819 Fifth Avenue North Birmingham, Alabama (205) The Bankruptcy Administrator: J. Thomas Corbett Thomas_Corbett@alnba.uscourts.gov Jon Dudeck jon_dudeck@alnba.uscourts.gov Bankruptcy Administrator Northern District of Alabama th Avenue North Birmingham, Alabama

19 Main Document Page 19 of 20 Counsel to Administrative Agent for the Debtors Prepetition Secured Credit Facility: Scott Greissman WHITE & CASE LLP 1155 Avenue of the Americas New York, New York Counsel for the Indenture Trustee for Each of the Debtors Outstanding Bond Issuances: Mark R. Somerstein ROPES & GRAY LLP 1211 Avenue of the Americas New York, New York Patricia Chen ROPES & GRAY LLP Prudential Tower 800 Boylston Street Boston, Massachusetts Counsel to the Steering Committee of First Lien Creditors: Ira Dizengoff Kristine Manoukian AKIN GUMP STRAUSS HAUR & FELD LLP One Bryant Park New York, New York (212) James Savin AKIN GUMP STRAUSS HAUR & FELD LLP 1333 New Hampshire Avenue, N.W. Washington, D.C (202)

20 Main Document Page 20 of 20 Michael L. Hall D. Christopher Carson BURR FORMAN 420 North 20 th Street, Suite 3400 Birmingham, Alabama (205) /s/ George N. Davies George N. Davies 20