walterenergysettlement






              November 5, 2019      VIA FEDERAL EXPRESS     AND E-MAIL                          VIA E-MAIL          Lynne M. Murphy      William F. Barry   Trial Attorney, Tax Division        Senior Trial Attorney   U.S. Department of Justice          Internal Revenue Service   555 Fourth Street, N.W.             Office of Division Counsel (LB&I)   Room 6219       400 W. Bay Street   Washington, D.C.  20001             Suite 240         Jacksonville, Florida 32202                  Re:  In re New WEI, Inc., et al.                     Case No. 15-02741-TOM-7                                             Hillsborough Holdings Corp. v. United States                     Adv. Proc. No. 15-00127-TOM     (Bankr. N.D. Ala.)      Dear Ms. Murphy and Mr. Barry:         I, as the Trustee for the Chapter 7 Debtor, New WEI, Inc. (“Chapter 7 Trustee”), submit   this offer on behalf of the Debtor, New WEI, Inc. (“New WEI”), as common parent and agent for   its consolidated group and subsidiaries (together, the “New WEI Group” (formerly, the Walter   Energy, Inc., Walter Industries, Inc., Hillsborough Holdings Corp., and Jim Walter Corporation   consolidated group)), to settle and compromise the unpaid consolidated income tax liabilities of   the  New  WEI  Group  for  the  tax  years  ended  August  31,  1983,  through  1987;  May  31,  1988,   through 2000; and December 31, 2000, through 2017, plus interest thereon (collectively, the “New   WEI Group Tax Liabilities”), based on the following terms:            (1)   The  Chapter  7  Trustee  of  New  WEI,  as  common  parent  and  agent  for  its               consolidated group and subsidiaries, and the United States (collectively, referred to               herein as the “parties”) agree to settle the New WEI Group Tax Liabilities for the               sum of $39,015,404.60 as of October 31, 2019, plus interest thereon until paid (the               “New WEI Settled Tax Liabilities”), subject to and conditioned upon approval of a               full and controlling written settlement agreement by the United States Bankruptcy               Court for the Northern District of Alabama (“Alabama Bankruptcy Court”) in In re              New WEI, Inc., et al., Case  No.  15-02741-TOM-7  and Hillsborough Holdings              Corp. v. United States,  Adv.  Proc.  No.  15-00127-TOM  (the  “New  WEI              Settlement”).                                                     DOCSBHM\2298454\2    Case 15-02741-TOM7    Doc 3554    Filed 11/05/19    Entered 11/05/19 16:17:25    Desc                          Main Document      Page 19 of 46





 






           (2)   Within five calendar days of entry of an order by the Alabama Bankruptcy Court               approving the New WEI Settlement, Ditech Holding Corporation (“Ditech”) and               Mueller Water Products, Inc. (“MWP”) shall pay in full the New WEI Settled Tax               Liabilities in the following manner and in accordance with the terms of the Order               Confirming Third Amended Joint Chapter 11 Plan of Ditech Holding Corporation               and its Affiliated Debtors entered in In re Ditech Holding Corporation, et al., Case               No.  19-10412  (JLG)  (Bankr.  S.D.N.Y.)  on  September  26,  2019  (“Ditech               Confirmation Order”), at paragraphs 42 through 48:                                (a)   Ditech shall cause the sum of $2,735,000.00 to be disbursed from the                       escrow  account  that  Ditech  established  for  the  benefit  of  the  Internal                       Revenue Service (“IRS”) pursuant to the Ditech Confirmation Order, to                       the United States.                                (b)   The IRS shall set off the overpayments of consolidated income taxes of                       Ditech Holding Corporation and its subsidiaries (together, the “Ditech                       Group”)  for  the  tax  years  2013  and  2014,  net  of  the  agreed  tax                       deficiencies of the Ditech Group for the tax years 2015 and 2016 in the                       approximate amounts of $280,000 and $204,000, respectively (subject                       to interest netting, if applicable, pursuant to 26 U.S.C. § 6621(d)) (the                       “Ditech  Group  Overpayments”),  an  amount  estimated  to  be                       $14,215,709.32,  including  interest  thereon  as  of  October  31,  2019,                       against the New WEI Settled Tax Liabilities.                                (c)   MWP shall pay the balance of the New WEI Settled Tax Liabilities after                       taking  into  account  the  payments  made  by  Ditech  pursuant  to                       subparagraphs  (2)(a)  and  (b),  above,  an  amount  estimated  to  be                       approximately  $22,064,695.28  as  of  October  31,  2019,  to  the  United                       States in accordance with the instructions set forth in paragraph (10),                       below.                  (3)   The Chapter 7 Trustee, on behalf of New WEI, as common parent and agent for its               consolidated group and subsidiaries, including but not limited to Ditech and MWP,               waives any and all rights to file an administrative refund claim, seeking to recover               a refund of any or all payments or setoffs made in satisfaction of the New WEI               Settled Tax Liabilities pursuant to subparagraphs (2)(a), (b) and (c), above.  Further,               Ditech, on its behalf and as common parent and agent for its consolidated group               and  subsidiaries,  known  as  the  Ditech  Group,  has  fully,  finally and forever               surrendered,  relinquished  and  released  any  right,  title  or  interest  in  the  Ditech               Group  Overpayments.   See  ¶  2(b), supra;  Ditech  Confirmation  Order,  at  ¶  44.                Ditech also has waived any and all rights to challenge the IRS’s ability to collect               from the escrow account once the Alabama Bankruptcy Court approves the New               WEI Settlement.  See ¶ 2(a), supra; Ditech Confirmation Order, at ¶ 44.                                                   2      DOCSBHM\2298454\2    Case 15-02741-TOM7    Doc 3554    Filed 11/05/19    Entered 11/05/19 16:17:25    Desc                          Main Document      Page 20 of 46





 






           (4)   Within five calendar days of entry of an order by the Alabama Bankruptcy Court               approving the New WEI Settlement, the Chapter 7 Trustee, on behalf of New WEI,               as  common  parent  and  agent  for  its  consolidated  group  and  subsidiaries,  shall               execute and return to the United States, by and through Lynne M. Murphy, the trial               attorney assigned to handle this case:                                (a)   a Form 870, “Waiver of Restrictions on Assessment and Collection of                       Deficiency  in  Tax  and  Acceptance  of  Overassessment,”  for  the  New                       WEI  Group  Tax  Liabilities  for  the  tax  years  ended  May  31,  2000;                       December  31,  2000,  through  2002;  and  December  31,  2004,  through                       2006;                                (b)   a Joint Stipulation of Dismissal, dismissing the adversary proceeding,                       Hillsborough Holdings, Adv. Proc. No. 15-00127-TOM, with prejudice;                       and                                (c)   a Joint Stipulation of the Withdrawal of the United States’ Motion To                       Enforce Settlement, Enter Judgment and Lift Stay (Doc. 3166) filed in                       In re New WEI, Case No. 15-02741-TOM-7, with prejudice.                  (5)   Upon the United States’ receipt of all payments identified in paragraph (2), above,               New WEI and the New WEI Group, including but not limited to Ditech and MWP,               shall be deemed fully and forever released and discharged from any and all civil               liabilities or obligations arising out of or in connection with the New WEI Group               Tax Liabilities.                  (6)   Within ten calendar days of the United States’ receipt of all payments identified in               paragraph (2), above, the United States, by and through the IRS, shall:                                (a)   withdraw its Proofs of Claim filed in In re New WEI, Case No. 15-02741-                      TOM-7, with prejudice;                                (b)   withdraw its Proof of Claim filed in In re Ditech, Case No. 19-10412                       (JLG), with prejudice; and                                (c)   issue  Form  866,  “Agreement  As  to  Final  Determination  of  Tax                       Liability,”  for  the  New  WEI  Group Tax  Liabilities  for  the  tax  years                       ended May 31, 1996, through 2000; and December 31, 2000, through                       2017  (“Closing  Agreement”),  to  the  Chapter  7  Trustee  for  him  to                       execute, on behalf of  New  WEI, as common parent and agent for its                       consolidated group and subsidiaries, in triplicate, and return to the IRS,                       by and through Lynne M. Murphy, via overnight mail.  Within ten (10)                       calendar  days  of  the  IRS  receiving  the  properly  executed  Closing                       Agreements, the Commissioner of Internal Revenue or his delegate will                                          3      DOCSBHM\2298454\2    Case 15-02741-TOM7    Doc 3554    Filed 11/05/19    Entered 11/05/19 16:17:25    Desc                          Main Document      Page 21 of 46





 






                         execute  the  agreements,  and  the IRS  will  send  signed  Closing                       Agreements to counsel for the Chapter 7 Trustee, Ditech and MWP.                  (7)   Within ten calendar days of the United States’ receipt of all payments identified in               paragraph (2), above, the United States shall file:                                (a)   the Joint Stipulation of Dismissal, dismissing the adversary proceeding,                       Hillsborough Holdings, Adv. Proc. No. 15-00127-TOM, with prejudice;                       and                                (b)   the Joint Stipulation of the Withdrawal of the United States’ Motion To                       Enforce Settlement, Enter Judgment and Lift Stay (Doc. 3166) filed in                       In re New WEI, Case No. 15-02741-TOM-7, with prejudice.                  (8)   Within fifteen calendar days of entry of an order by the Alabama Bankruptcy Court               approving  the  New  WEI  Settlement,  MWP  shall  pay  to  the  Chapter 7  Trustee               $53,168.38 on account of certain tax credits included in the computation of the New               WEI  Settled  Tax  Liabilities  identified  in  paragraph  (1),  above.   This  payment               represents the amount of certain tax credits owed to the Debtors’ estates on account               of the 2015 tax year – an amount consisting of $48,720 as of March 2016, plus               accrued interest through November 15, 2019.                  (9)   The  parties  acknowledge  and  agree  that  the  IRS  has  not  examined,  verified  or               determined:  (a) the amount of New WEI Group’s consolidated net operating losses               (“NOLs”) available from the tax years ended December 31, 2013, through 2017;               (b)  the  amount  of  the  NOLs  available  for  carryforward  to  tax  periods  after               December 31, 2017; and (c) how and whether 26 U.S.C. §§ 108, 381, 382, the               SRLY rules, or any other provisions may prevent or limit the use of any of such               NOLs by any other entity for any year.  Specifically, the IRS has not determined               whether Warrior Met Coal LLC (f/k/a Coal Acquisition, LLC) (“Warrior Met”)               and/or  Seminole  Coal  Resources, LLC,  ERP  Compliant  Coke,  LLC  and  ERP               Environmental (collectively, “Seminole”) in connection with the asset sales that               closed on March 31, 2016, are entitled to deduct or use any NOLs, credits or other               tax attributes that may or may not be available.  Accordingly, this settlement shall               not prevent or otherwise bar the IRS from challenging any use or deduction of the               NOLs or any other tax attributes that Warrior Met, Seminole or any other entity               may claim on their returns.                  (10)  The payment identified in subparagraph (2)(c), above, shall be made, via Fedwire               Electronic Funds Transfer (“FEFT”).  Upon approval of the New WEI Settlement               by  the  Alabama  Bankruptcy  Court,  William  E.  Thompson  of  the  Financial               Litigation Unit for the U.S. Department of Justice, Tax Division, will forward a               FEFT form, including instructions, to counsel for MWP for transmission to MWP.                MWP, in turn, shall give the FEFT form to its bank from which the funds are being                                          4      DOCSBHM\2298454\2    Case 15-02741-TOM7    Doc 3554    Filed 11/05/19    Entered 11/05/19 16:17:25    Desc                          Main Document      Page 22 of 46





 






                 electronically transferred so that the bank may ensure that the funds are properly               credited to the U.S. Department of Justice, Tax Division, in accordance with the               terms of this global settlement.                  (11)  This  agreement  constitutes  the entire  and  complete  settlement  agreement  of  the               parties.  The parties acknowledge and agree that there are no communications or               oral understandings contrary, different, or that in any way restrict this settlement               agreement, and that all prior agreements or understandings within the scope of the               subject matters of this settlement agreement are, upon execution of this agreement,               superseded, null and void.                  (12)  No waiver, modification or amendment of the terms of the New WEI Settlement               shall be valid or binding unless made in writing, signed by all parties, and then only               to the extent as set forth in such written waiver, modification or amendment.                  (13)  The parties may execute this settlement agreement in whole or in counterparts, and               execution of the counterparts shall have the same force and effect as if the parties               have  signed  the  same  instrument.   Signatures  transmitted  electronically  or  by               facsimile shall have the same effect as original signatures.                  (14)  In the event that there is any dispute over the interpretation of any terms of this               settlement agreement, all parties, collectively, shall be considered the drafting party               and any rule of construction to the effect that ambiguities are to be resolved against               the drafting party shall be inapplicable.                  (15)  Each party shall bear its own costs, including any attorneys’ fees.                  (16)  Notwithstanding  any  other  provisions  to  the  contrary  herein,  the  New  WEI               Settlement is conditioned upon acceptance of this offer by the United States, by and               through  the  Attorney  General  of  the  United  States  or  his  delegate,  and  the               Commissioner of Internal Revenue or his delegate.                  (17)  Notwithstanding the possible application of Bankruptcy Rule 8007, the terms and               conditions of the New WEI Settlement shall become immediately effective and               enforceable upon entry of an order by the Alabama Bankruptcy Court approving               the settlement pursuant to Bankruptcy Rule 9019(a).  In the event, however, that               the  Alabama  Bankruptcy  Court  does  not  approve  the  settlement,  the New WEI               Settlement shall be deemed null and void, and the parties shall be returned to the               status quo prior to entry of this agreement.                  (18)  The Chapter 7 Trustee and his counsel shall be responsible for preparing and filing               all documents, including notices, that are necessary to secure court approval of the               New WEI Settlement in form and substance reasonably satisfactory to all parties.                                                   5      DOCSBHM\2298454\2    Case 15-02741-TOM7    Doc 3554    Filed 11/05/19    Entered 11/05/19 16:17:25    Desc                          Main Document      Page 23 of 46





 






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