Pg 1 of 7 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ---------------------------------------------------------- x -- In re : Chapter 11 : WESTINGHOUSE ELECTRIC COMPANY : Case No. 17-10751 (MEW) LLC, et al., : : Debtors. 1 : (Jointly Administered) ---------------------------------------------------------- -- DECLARATION OF DANIEL SUMNER IN SUPPORT OF AP SERVICES, LLC S APPLICATION FOR APPROVAL OF THE CONTINGENT SUCCESS FEE : x I, Daniel Sumner, 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 the Chief Financial Officer of Westinghouse Electric Company, LLC ( WEC ), which has its principal office at 1000 Westinghouse Drive, Cranberry Township, Pennsylvania 16066. I have served as WEC s Chief Financial Officer since October 2017 and was WEC s Acting Chief Financial Officer prior to that, since May 2017. I reported in financerelated roles and served as Chief Compliance Officer prior to that after joining WEC in 2010. I 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), Stone & Webster, Inc. d/b/a 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 16066.
Pg 2 of 7 am familiar with the businesses and bankruptcy proceedings of Westinghouse Electric Company LLC and its affiliates, as debtors and debtors in possession, in the above-captioned chapter 11 cases (collectively, the Debtors ). 2. I submit this declaration (this Declaration ) in support of the AP Services, LLC s Application for Approval of the Contingent Success Fee [ECF No. 3226] (the Application ). 2 3. Except as otherwise indicated, all statements in this Declaration are based on my personal experience and knowledge, my opinions, my discussions with other members of the Debtors management, and my review of the relevant documents. If called to testify, I could and would testify to each of the facts and opinions set forth herein. 4. WEC signed an engagement letter with AP Services, LLC ( APS ) on March 8, 2017 (the Engagement Letter ). The Engagement Letter provided that APS would be compensated with a success fee of up to $7.5 million (the Success Fee ), subject to certain milestones to be determined by the parties in the month to six weeks following the date of the Engagement Letter. WEC acknowledged the success fee was an integral part of APS s compensation for the engagement. 5. Less than a month after signing the Engagement Letter, though, WEC and certain of its affiliates (the Debtors ) commenced these chapter 11 cases. 6. Shortly thereafter, WEC management and APS engaged in discussions to define the milestones for the Success Fee. But WEC s primary focus during this initial post-filing period was to stabilize the Debtor s businesses, to obtain critical relief from the Court, and to 2 Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Application. 2
Pg 3 of 7 begin to build a business plan for the Debtors that included significant cost savings. APS recognized and supported the Debtors through each of these priorities. 7. WEC disclosed the terms of the Engagement Letter and the Success Fee concept on April 4, 2017, with the Debtors application to retain APS [ECF No. 107] (the Retention Application ). 8. By the end of May 2017, within the timeframe contemplated by the Engagement Letter, WEC management and APS had defined parameters for the Success Fee (discussed in the paragraphs below); however, it was important to WEC to delay finalization of the parameters to ensure that the incentives of the Debtors management and APS were aligned for the benefit of the Debtors estates. The terms therefore remained subject to, among other things, finalization of the Debtors business plan and the associated financial and operational metrics by which the Debtors and employees performance would be measured during the chapter 11 cases. 9. By the end of May 2017, WEC and APS had agreed that the Success Fee would be based on both (i) transformation savings and (ii) key deliverables to sustain the transformation. As agreed, APS would have been entitled to up to $6 million of the Success Fee based on transformation savings (measured in fiscal year 2017). The amount of the Success Fee for this component would have varied based on the level of savings achieved, but APS would have been entitled to a Success Fee if less than $90 million in transformation savings was achieved. APS also would have been entitled to up to $1.5 million of the Success Fee based on improvements focusing on a new corrective action program and key workstreams, and various management reporting and dashboard systems. The milestones and measurements of success would be aligned and agreed upon through each of the workstream s respective project plans. 3
Pg 4 of 7 10. Based on the foregoing, APS worked to achieve transformation savings and to deliver key deliverables to sustain the transformation for the benefit of the Debtors. At the same time, the Debtors management team and APS worked to finalize the Debtors business plan. 11. The Court granted the Retention Application on June 6, 2017, after hearings (on a number of matters) were adjourned from April 26, 2017, to May 10, 2017, and to May 23, 2017. 12. As has been previously disclosed, with APS s assistance, the Debtors business plan was first finalized and approved by the Debtors board of directors in late July 2017. The subsequent shutdown by the owners of one of the Debtors U.S. AP1000 construction projects and the renegotiation of the terms for the continued development of the other of the Debtors U.S. AP1000 construction projects required the business plan to be revised significantly. With APS s support, the revised plan was finalized in late August 2017 and delivered to the Debtors postpetition lenders in September 2017. 13. APS subsequently moved quickly to work with the Debtors management and board of directors to design an employee incentive plan and to communicate with the Debtors creditor constituents. With APS s support, the Debtors sought and obtained approval of the incentive plan in early and late October 2017, respectively. 14. Promptly thereafter, in November 2017, WEC management renewed discussions with APS regarding the Success Fee and exchanged draft language in December and January. At the same time, the Debtors and APS were coordinating and initiating the process for the potential sale of the Debtors global businesses, negotiating the Plan Funding Agreement with Brookfield WEC Holdings LLC, and developing the Plan and related disclosure statement. The 4
Pg 5 of 7 Debtors and APS also developed procedures for the settlement and payment of reclamation and administrative claims, reviewed thousands of executory contracts and unexpired leases for assumption or rejection, and prepared and filed multiple objections to claims. 15. The final terms of the Success Fee were agreed to by WEC management and APS in January 2018 and memorialized in an addendum to the Engagement Letter (the Addendum ) signed by APS on January 25, 2018. As was contemplated in May 2017, there were two components to the Success Fee. 16. Now, though, WEC would only pay a Success Fee for transformation savings if the Debtors achieved at least $90 million in savings in fiscal year 2017 (and not a portion of the Success Fee for savings below that threshold amount). In addition, WEC would only pay APS if the Debtors achieved $414 million of EBITDA (defined by the business plan) in fiscal year 2017. The milestones for the Success Fee now would be more closely aligned with the milestones just approved for management s incentive plan. Importantly, during the negotiations and when the agreement was reached, there was no assurance that the Debtors would be able to achieve the level of transformation savings or EBITDA that would entitle APS to a Success Fee. 17. The Addendum memorializes the four tasks deemed critical by the Debtors management team: (i) development of a standardized management reporting package; (ii) development of a global operating dashboard; (iii) development of a workforce management dashboard; and (iv) the redesign of the corrective action program and learning process. Again, there was no assurance that APS would be able to achieve or earn this portion of the Success Fee at the time these terms were negotiated or agreed upon. 5
Pg 6 of 7 18. Further, the Debtors requested, and APS agreed to, a shift in the allocation of the Success Fee from fiscal year 2017 savings to sustainability of savings. The Addendum provides that now only $5 million could be earned for the former and up to $2.5 million for the later. The focus on sustainable savings was designed to inure to the long-term benefit of the Debtors businesses and enhance the realizable value of businesses in the then-ongoing sales and marketing process. 19. Before WEC could countersign the Addendum, it required, sought and obtained approval from the special committee of its board of directors and then the full boards of directors of each of WEC and Westinghouse Electric UK Holdings Limited. Given the many events simultaneously unfolding in the chapter 11 cases, including several major litigations, a fast-moving sales process, and negotiation and prosecution of the chapter 11 plan and related disclosure statement and settlement and support agreements, the approvals were not obtained until March 2018. Notably, though, the Addendum was approved by all of the boards unanimously and without any modification. 20. The Addendum was countersigned by WEC on March 21, 2018, and filed with the Court on March 22, 2018 [ECF No. 2927]. APS acted diligently and persistently to memorialize the terms of its Success Fee. The Debtors requested and benefitted from any delay. 21. APS s services in these cases were both necessary and beneficial to the Debtors estates at the time the services were rendered and reasonable in amount in the context of these cases and the results achieved. The Debtors could not have satisfied its business plan objectives, and the sales and chapter 11 plan process could not have been achieved, without the work of APS. 6
Pg 7 of 7 I, the undersigned, declare under penalty of perjury that the foregoing is true and correct. Dated: July 10, 2018 New York, New York /s/ Daniel Sumner By: Daniel Sumner Title: Chief Financial Officer Westinghouse Electric Company, LLC 7