SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (date of earliest event reported)
DECEMBER 18, 2002
Halliburton Company
(Exact name of registrant as specified in its charter)
State or other Commission IRS Employer
jurisdiction File Number Identification
of incorporation Number
Delaware 1-3492 No. 75-2677995
4100 Clinton Drive
Houston, Texas 77020-6299
(Address of principal executive offices)
Registrant's telephone number,
including area code - 713-676-3011
INFORMATION TO BE INCLUDED IN REPORT
Item 9. Regulation FD Disclosure
On December 18, 2002 registrant issued a press release entitled
"Halliburton Reaches Agreement in Principle to Achieve Global Settlement of
Asbestos Claims."
The text of the press release is as follows:
Halliburton Reaches Agreement in Principle
To Achieve Global Settlement of Asbestos Claims
- Plan covers all present and future asbestos claims, fully and
permanently resolving all personal injury asbestos liability.
- Plan provides that Halliburton will retain 100% ownership of DII,
KBR and all other subsidiaries.
- Plan preserves rights of customers, employees, vendors and financial
creditors -existing contracts and obligations will be honored and
creditors will be paid in full under terms of their agreements.
- Up to $2.775 billion in cash, 59.5 million Halliburton shares and
notes with a net present value expected to be less than $100
million will be paid for the benefit of present and future
asbestos and certain other personal injury claimants only upon
receiving final and non-appealable court confirmation of the plan.
- DII and KBR will retain rights to the first $2.3 billion of any
insurance proceeds.
- Agreement to be implemented through pre-packaged Chapter 11 filing
for DII and KBR, and certain of their subsidiaries.
- Halliburton Company, Halliburton Energy Services, Inc., Landmark
Graphics Corporation, KBR's U.S. government operations business and
most other Halliburton subsidiaries will not be included in the
filing.
- Filing will not occur until Halliburton obtains financing
commitments; company is working with leading Wall Street banks and
advisors in this regard.
- Leverage ratios expected to compare favorably to peers and in line
with investment grade companies.
- Final agreement and completion are subject to resolution of
numerous issues, including financing, Halliburton board approval
and final court approval.
Houston, Texas - December 18, 2002 - Halliburton (NYSE: HAL) announced today
that it has reached an agreement in principle that, when consummated, will
result in a global settlement of all personal injury asbestos and certain other
personal injury claims against the company. The settlement was reached with
attorneys representing substantially more than the required 75% percent of the
known present asbestos claimants needed to achieve resolution on all of the
cases. The agreement covers all pending and future personal injury asbestos
claims against Halliburton Company and its subsidiaries.
Under the proposed agreement, the settlement will be implemented
through a pre-packaged Chapter 11 filing (the "plan") of DII Industries, LLC
(DII), (formerly Dresser Industries, Inc.), and Kellogg Brown & Root, Inc.
(KBR), (both are subsidiaries of Halliburton Company), as well as certain other
DII and KBR subsidiaries with U.S. operations. KBR's U.S. government operations
business and KBR's entities with no U.S. operations will be excluded from the
plan. Halliburton Company, Halliburton Energy Services, Inc., Landmark Graphics
Corporation and most other Halliburton subsidiaries will also be excluded from
the plan.
"This agreement in principle represents good news for our shareholders,
customers, vendors, employees, and everyone else with whom we do business," said
Dave Lesar, chairman, president and chief executive officer of Halliburton. "If
this transaction is completed, it will resolve a major issue that has been
clouding our future. Not only have we taken care to responsibly provide for
those affected by asbestos, this settlement will allow us to concentrate all our
efforts on increasing shareholder value, and our total focus can return to
Halliburton's core businesses. While I am pleased with the progress on the
settlement we have made, I must caution that there is much work to be done."
The agreement in principle with asbestos claimants is subject to, among
other things, a definitive agreement covering additional details, acceptances of
holders of asbestos claims to a plan of reorganization, financing the settlement
on terms acceptable to Halliburton, board approval, and court approval.
The company is working with leading Wall Street banks and advisors to
obtain financing commitments. When completed, it is expected that the company's
leverage ratios will compare favorably to peers and in line with investment
grade companies. The company will also be communicating with holders of DII and
Baroid Corporation bonds with the expectation that the bonds will not be in
default as a result of the plan.
"The agreement will allow Halliburton and KBR to remain financially
strong and maintain their competitive position," Mr. Lesar said. "The plan
provides for resolution of all asbestos and certain other personal injury
claims. Other creditors will be paid in full under terms of their agreements.
There will be no employee layoffs resulting from the plan and all salaries and
benefits, including retirement benefits, will remain unchanged. Finally, the
plan should have no effect on any of KBR's present or future projects. In other
words, outside of the global asbestos settlement, it will be business as usual
while the plan is implemented."
Mr. Lesar said that the court-supervised reorganization process is the
only means of fully and permanently resolving all asbestos liability by
establishing a 524(g) trust to address potential future claims. The company
expects that the plan filing will take place late in the first quarter of 2003
and should be concluded 90 days following the filing.
After final and non-appealable court approval, up to $2.775 billion in
cash, 59.5 million shares of Halliburton stock and notes in amounts to be
determined, but with a net present value expected to be less than $100 million,
will be paid to a trust for the benefit of the present and future asbestos and
certain other personal injury claimants. Of the $2.775 billion, $450 million
will be due in four years on a subordinated basis if not paid sooner pursuant to
a final and non-appealable court approved plan. DII and KBR will retain the
rights to the first $2.3 billion of any insurance proceeds and the trust will
have the rights to proceeds in excess of $2.3 billion, but not exceeding a total
of $700 million. If successfully implemented, the settlement will resolve all
asbestos liabilities of Halliburton and its subsidiaries for all present claims,
and all future claims will be channeled to the settlement trust.
Halliburton Company has 82,000 employees at more than 400 locations
worldwide and $13 billion in revenue in 2001. Founded in 1919, Halliburton is
one of the world's largest providers of products and services to the petroleum
and energy industries. The company serves its customers with a broad range of
products and services through its Energy Services Group and Engineering and
Construction Group business segments. The company's World Wide Web site can be
accessed at www.halliburton.com.
Item 9. Additional Exhibits
Exhibits. The following exhibits are furnished as part of Item 9.
Exhibit 99.1 - Agreement Summary
Exhibit 99.2 - Frequently Asked Questions
Exhibit 99.3 - Supplier/Subcontractor Letter
Exhibit 99.4 - Customer Letter
Exhibit 99.5 - Asbestos Primer
Exhibit 99.6 - Chapter 11 Primer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HALLIBURTON COMPANY
Date: December 19, 2002 By: /s/ Margaret E. Carriere
-----------------------------------
Margaret E. Carriere
Vice President and Secretary
INDEX TO EXHIBITS
Exhibit No. Description
99.1 Agreement Summary
99.2 Frequently Asked Questions
99.3 Supplier/Subcontractor Letter
99.4 Customer Letter
99.5 Asbestos Primer
99.6 Chapter 11 Primer
Exhibit 99.1
Agreement Summary
- - Agreement in principle on global settlement of all outstanding personal
injury asbestos claims with attorneys representing substantially more than
the required 75 percent of known present asbestos claimants.
- - If successfully implemented, the settlement would resolve all liability of
Halliburton and its subsidiaries for all present and future personal injury
asbestos claims, which claims would be channeled to a settlement trust.
- - Settlement would be implemented through a pre-packaged Chapter 11 filing by
DII Industries, LLC (DII) and Kellogg Brown & Root, Inc. (KBR), as well as
certain of their other subsidiaries with U.S. operations. The filing should
take place late in the first quarter of 2003.
- - KBR Services, Inc., which includes the U.S. government operations business,
and KBR's entities with no U.S. operations, will be excluded from the
Chapter 11 filing. Halliburton Company, Halliburton Energy Services,
Landmark Graphics and most other Halliburton subsidiaries will also be
excluded from the filing.
- - The agreement is subject to (among other things) entering into a definitive
agreement covering additional details, acceptances of holders of asbestos
claims to a plan of reorganization, financing the cost of the settlement on
terms acceptable to Halliburton, final approval by Halliburton, DII, and
KBR, and court approval.
- - Under the plan of reorganization, the ownership of DII, KBR and the other
filing subsidiaries will not change - they will continue to be wholly-owned
direct or indirect subsidiaries of Halliburton.
- - After final and non-appealable court approval, up to $2.775 billion in
cash, 59.5 million shares of Halliburton stock and notes with a net present
value expected to be less than $100 million will be paid to a trust for the
benefit of present and future asbestos claimants and certain other personal
injury claimants. Of the $2.775 billion, $450 million will be due in 4
years on a subordinated basis if not paid sooner pursuant to a final and
non-appealable court approved plan. DII and KBR will retain the rights to
the first $2.3 billion of any insurance proceeds and the trust will have
the rights to proceeds in excess of $2.3 billion, but not exceeding a total
of $700 million. DII and KBR will retain the rights to any insurance
proceeds in excess of $3 billion.
Exhibit 99.2
FREQUENTLY ASKED QUESTIONS
General
1. You say that this is "good news" for all Halliburton constituents--why is
that?
If this settlement is implemented, it will provide a permanent resolution
to a difficult and complicated problem. It removes significant
uncertainty regarding the company's future, and it also allows us to
concentrate our resources on serving our customers and further growing
the business. It is an agreement that addresses both current and future
personal injury asbestos claims against the company. Halliburton and all
of its subsidiaries, including KBR and DII, will remain strong and
healthy, with good growth prospects. And, implementation of the plan
should mean that there would be NO negative effects on our customers,
suppliers, subcontractors, lenders, bondholders, or employees. It's a
definite win for the people who care about Halliburton.
2. Is it true that you plan to implement the asbestos settlement through a
Chapter 11 bankruptcy filing for certain Halliburton companies?
Yes. We expect to use a pre-packaged Chapter 11 filing for DII and KBR to
implement the asbestos settlement. A pre-packaged filing means that we
are bringing to the court a settlement that has pre-agreement with the
asbestos claimants. This should expedite the plan's approval and remove
many uncertainties.
3. Why did the Company choose the Chapter 11 process?
The Chapter 11 process and the oversight of a bankruptcy court is the
only means available today to fully and permanently resolve all personal
injury asbestos liability, including potential future claims.
4. In Europe and many other countries when a company is "bankrupt," it means
that it is going out of business. What is different here?
This is a U.S. operations issue only. We will not be commencing any
proceedings under local law in Europe or any country other than the U.S.
The European bankruptcy laws, as in many countries, are very different
from the laws in the U.S. Chapter 11 has been created so that a filing
company can restructure its debt (or in our case resolve its asbestos
liability) and remain in business. It is not a liquidation; it is a
reorganization. Neither Halliburton, KBR nor any business unit of
Halliburton is going out of business.
5. Which subsidiaries are included in the filing?
DII Industries, LLC (DII) and Kellogg Brown & Root, Inc. (KBR), as well
as certain other subsidiaries of those entities with U.S. operations.
KBR Services, Inc., which includes the U.S. government operations
business, and KBR's entities with no U.S. operations, will be excluded
from the Chapter 11 filing. Halliburton, Halliburton Energy Services,
Landmark Graphics and most other Halliburton subsidiaries will also be
excluded from the filing.
6. What is DII Industries and how is it related to KBR?
DII Industries, LLC is the former Dresser Industries, Inc. This is the
company that Halliburton acquired in 1998. In the current corporate
structure, Halliburton Company owns 100% of DII Industries. DII
Industries, in turn, owns 100% of Kellogg Brown & Root, Inc., the
principal U.S. operating entity of KBR.
7. Why won't any other Halliburton Company subsidiaries file for Chapter 11?
Only those entities that have asbestos liabilities will file for the
pre-packaged Chapter 11. Under the proposed agreement with attorneys for
the asbestos plaintiffs, the settlement would be implemented through a
pre-packaged Chapter 11 filing of DII Industries, LLC, KBR and certain
other subsidiaries of DII and KBR with U.S. operations.
8. Why is KBR's government operations business not part of the filing?
The government work, although historically part of Brown & Root, was
never associated with any of the activities surrounding the asbestos
claims.
9. Will Halliburton have to give up equity or lose control of any of the filing
subsidiaries?
Up to 59.5 million shares, or approximately 12%, of Halliburton stock
will be used for the settlement. However, under the plan, Halliburton
would retain 100 percent ownership of KBR and all other filing
subsidiaries (subject to pledges of certain Halliburton debtor
subsidiaries as collateral of loans as required by the U.S. bankruptcy
code).
10.Does the Chapter 11 filing mean that Halliburton and/or any of its
subsidiaries are going out of business?
No. Halliburton and all of its subsidiaries, including DII and KBR, are
expected to remain financially strong and continue to have significant
competitive advantages. The Chapter 11 petitions are being filed for the
sole purpose of facilitating a global settlement of Halliburton's
personal injury asbestos litigation claims. In other words, outside of
the global asbestos settlement, it will be business as usual.
11.When will the Pre-packaged Chapter 11 be filed?
We anticipate that the pre-packaged Chapter 11 filing for DII and KBR
will take place late in the first quarter of 2003.
12.How long will DII and KBR remain in Chapter 11?
It is impossible to predict exactly how long the reorganization will
take. Our goal is to have DII and KBR emerge from Chapter 11 as quickly
as possible, with a comprehensive and final resolution to our asbestos
liability. One of the key advantages of a pre-packaged Chapter 11 filing
is that it typically is a much quicker process. It is possible that the
process could be completed this summer.
13.In the past Halliburton chose to litigate claims that it thought were weak
or spurious. Why isn't the Company litigating the asbestos claims?
The legal environment has totally changed, and therefore the company had
to address this issue in a new way. In addition, until now, the global
settlement was not an option for us. Now that it is, we believe we should
do this because the price of the transaction is less than the discount in
our stock price. We changed our approach because we believe it is the
right thing to do and in the best interest of our shareholders.
14.Since the Republicans have now taken over the Congress, shouldn't you wait
to see if you get some legislation that is helpful to companies with
asbestos issues?
It's impossible to predict what Congress may or may not do. All we can do
is make the best decisions for the company based on what we know now.
Bottom line, this settlement for us is a "bird in the hand". It is the
right decision at the right time because it removes the uncertainty about
our future.
15.Doesn't this settlement encourage more lawsuits against Halliburton Company
and its subsidiaries?
No. All future claims will be channeled to the trust.
16.Will the settlement resolve all of Halliburton's personal injury asbestos
claims?
If the plan is implemented, YES. There are a number of hurdles yet to
clear, including entering into a definitive agreement covering additional
details, acceptances of holders of asbestos claims to a plan of
reorganization, financing the cost of the settlement on terms acceptable
to Halliburton, final approval by Halliburton, DII, and KBR, and court
approval. We are optimistic.
17.What is required for the deal to go through?
There are a number of key issues that must be resolved even before we
file the case with the bankruptcy court, including:
- Acceptance by at least 75% of the holders of asbestos claims to a plan
of reorganization
- Financing the cost of the settlement on terms acceptable to
Halliburton
- Final approval by the boards of Halliburton Company, DII and KBR
- Court approval and final confirmation.
18.How do you reach agreement to settle future claims?
First, the court, the present claimants and the debtor must agree on
selecting an independent expert who represents future claimants. The
futures representative must then propose a solution to meet the needs of
the future claimants. The debtor, the present claimants and the court
must approve this solution. The plaintiffs' attorneys and we have jointly
agreed to select Professor Eric D. Green as the future claims
representative. This selection is subject to court approval. Professor
Green is a professor of law at Boston University and an expert in this
field. He received his J.D. degree magna cum laude from Harvard Law
School, and is a recognized international leader in alternative dispute
resolution. He served as the futures representative in the Fuller Austin
Chapter 11 proceeding and currently is the futures representative in the
Babcock & Wilcox Chapter 11 proceeding. Further, Professor Green, the
present claimants and the debtor have agreed on the terms necessary to
meet the needs of future claimants, as defined in our 12/18/02 press
release. This too will be subject to court approval.
19.What are the chances the deal will succeed?
We've worked hard on this. We've reached agreement with attorneys for
substantially more than the required 75% of known present claimants and
with the proposed representative of future claims. If we implement this
agreement, creditors would be paid in full on normal terms, customers
will continue to be served, and employees wouldn't see any change. So we
believe it ought to succeed, on its merits. However, until a number of
issues are resolved and we obtain final court approval, nothing is
certain.
20.What will happen if the deal doesn't happen?
We won't speculate about what happens if the deal doesn't go through,
because we are focused on trying to make it happen. We expect that this
deal will work. So do the current claimants and the future claimants'
representative as we've said. This agreement is fair for everyone
involved, and our collective energies are focused on making it happen.
21.Would Halliburton Company itself file for Chapter 11?
No. Neither Halliburton Company nor its Halliburton Energy Services (HES)
business unit will be involved in the Chapter 11 filing. It will involve
KBR and DII - the parts of our business with substantially all the
asbestos liabilities.
However, even in those business units that do file, it will be "business
as usual" for all our customers, employees, and vendors. In fact,
business should be more normal than it has been in a long time. As we
said, this is a unique Chapter 11 filing - it makes things better for
every constituency, rather than worse.
23.What will happen to equity investors?
We believe this Chapter 11 is very good news for our investors, if we
succeed in implementing it. Uncertainty over the asbestos issue has
weighed heavily on Halliburton's share price for some time. This
restructuring would resolve that uncertainty and at a price that we
believe is less than the discount in our stock price. Therefore, this is
good news for our shareholders.
23.How does this settlement benefit your shareholders?
If it is implemented, it would permanently resolve the personal injury
asbestos liability for the company. This is the only way to fully cleanse
the company under current U.S. law. There has been a significant discount
in our stock price because of our asbestos liability. We believe the
proposed global settlement is on terms significantly below the discount
in our stock price. We owe it to our shareholders to remove that weight
from our share price, which we are attempting to do with this agreement
in principle.
24.Who is running the Company? Will management remain in place?
There is no change to Halliburton or KBR's management team contemplated
now or in the pre-pack plan. Dave Lesar continues as Chairman, President
and Chief Executive Officer of Halliburton and his management team will
remain in place.
25.What impact will today's announcement have on employees?
There should be no impact on employees. There will be no employee layoffs
resulting from the filing and all salaries and benefits, including
retirement benefits, will remain untouched and unchanged. Halliburton,
DII and KBR are expected to remain financially strong and continue to
have significant competitive advantages. The Chapter 11 petition is being
filed for the sole purpose of facilitating a global settlement of
Halliburton's asbestos litigation claims. In other words, outside of the
global asbestos settlement, it will be business as usual.
26.Will there be any employee layoffs as a result of the filing?
There will be no employee layoffs as a result of the filing. Employment
levels will continue to be a function of business conditions, as they
have in the past.
27.Are you closing any operations?
No. Halliburton and its subsidiaries intend to continue to grow their
businesses.
28.How will the filing affect day-to-day operations?
The only people affected on a day-to-day basis are the attorneys and our
other employees who are solely dedicated to resolving this matter. All of
our operations will continue in the normal course of business, without
interruption. It's business-as-usual: daily operations will continue,
plants and facilities will remain open and transactions which occur in
the normal course of business will go on as before.
29.Will you continue to pursue new business?
Absolutely. We have excellent employees, a strong asset base, a premiere
position in the industry and a long track record of success.
Consequently, we intend to pursue business that meets our Company's
strategic criteria.
30.Why are you reorganizing the company at the same time you plan to file for
Chapter 11?
These are really two separate and important events for the company. The
restructuring was begun months before the global asbestos settlement was
contemplated. We undertook it to save costs and to run our businesses
more efficiently. In fact, we are reducing costs by an estimated $200
million annually through the new business organization. Of course, once
we started down the road toward a global settlement, we were careful to
take that into account in all the steps we undertook in our
restructuring.
Supplier/Subcontractor-specific
31.What impact will today's announcement have on KBR's suppliers or
subcontractors?
It's business as usual. The filing will have no effect on KBR's suppliers
or these subcontractors. The plan calls for us to honor in full all pre-
and post-petition obligations, purchase orders, agreements and
subcontracts in accordance with the terms of those agreements. Outside of
the global asbestos settlement, it will be normal day to day operations.
32.What impact will today's announcement have on ESG, HES and Landmark
suppliers or subcontractors?
None. They are not part of this filing so it will be business as usual
for them as well.
33.Would payments to suppliers and subcontractors be impacted in any way?
Our suppliers and subcontractors will be paid in the normal course of
business within the terms of their agreements with the company. It will
be business as usual.
34.Will you attempt to negotiate new terms with suppliers when you have
petitioned for reorganization under Chapter 11?
No. KBR as well as all Halliburton entities will continue to provide
goods and services just as before the filing, on the same terms and
conditions.
35.Will suppliers and subcontractors have a new contact?
No. Our suppliers and subcontractors will continue to communicate with
their current representative.
36.What can suppliers and subcontractors expect in the future? Will you
maintain the same level of quality as you have in the past?
Absolutely. In fact, our global settlement of the asbestos claims and
reorganization will allow us to improve and enhance customer service and
serve our constituents better than before.
37.Will your suppliers and subcontractors continue to supply you with the goods
and services necessary to run the business?
Of course. This is good news for everyone: vendors, suppliers, employees,
etc. All of these companies are in very strong financial condition and
have a strong future.
Customer-specific
38.What impact will today's announcement have on customers?
The filing should have no effect on our customers. Outside of the global
asbestos settlement, it will be business as usual.
The plan calls for us to honor all pre- and post-petition obligations,
commitments and contracts. The Chapter 11 filing should have no effect on
any of our present or future projects.
It is important to realize that Halliburton and all of its subsidiaries,
including the filing subsidiaries, remain financially strong and continue
to have significant competitive advantages. The settlement of our
asbestos claims will not only remove a significant financial cloud from
over the company's head, but also allow management to concentrate all of
its resources on further growing the business. Therefore, we expect that
all the Halliburton companies will emerge stronger and better positioned
to serve and add value to our customers.
39.Will customers have a new contact?
No. Our customers will continue their working relationship with their
current representative.
40.Will you continue to pursue new business?
Yes. We have excellent employees, a strong asset base, a premier position
in the industry and a long track record of success. Consequently, we
intend to pursue business that meets our Company's strategic criteria.
Exhibit 99.3
Supplier/Subcontractor Letter
December 18, 2002
Dear Valued Supplier / Subcontractor,
Because of your valued relationship with Halliburton, through [insert BU name],
I want you to hear from me personally about an important and positive action our
Company is taking to resolve its asbestos claims.
Today, Halliburton announced that it has reached an agreement in principle with
attorneys representing substantially more than the 75% of current known asbestos
claimants required in order to reach a global settlement of all current and
future asbestos claims against the Company. This agreement hopefully will result
in a global settlement of all outstanding asbestos claims. If this transaction
is ultimately completed, it will resolve all of our current and future personal
injury asbestos-related claims.
This is good news for Halliburton as well as our suppliers and subcontractors.
The agreement in principle, if implemented, provides a permanent and final
resolution of this issue, and it will allow us to concentrate on providing
services to our customers as well as further growing our core businesses.
Under the proposed agreement, the settlement would be implemented through a
pre-packaged Chapter 11 filing of our U.S. entity, Kellogg Brown & Root, Inc.,
and certain other subsidiaries with U.S. operations. A pre-packaged filing means
that we are bringing to the court a settlement that has been pre-agreed with the
asbestos claimants and the potential futures representative. That should
expedite the plan's approval because it removes many of the uncertainties that
have hampered other bankruptcies. We expect the filing to take place late in the
first quarter of 2003.
KBR Services, Inc., which comprises the U.S. government operations business, and
KBR's entities with no U.S. operations, will be excluded from the Chapter 11
filing. Halliburton, Halliburton Energy Services, Landmark Graphics and most
other Halliburton subsidiaries will also be excluded from the filing.
It is important that you understand that none of KBR and the Halliburton
companies are going out of business, and this filing will have no effect on any
of our present or future projects. Our Company remains financially strong and
the plan provides that all our purchase orders, agreements and subcontracts will
be honored in full. In other words, outside of the global asbestos settlement,
it will be business as usual.
Enclosed is a copy of today's announcement for your information. If at any time
you have any questions, please contact your local Halliburton office or call
713-753-7004. You may also visit our website at www.halliburton.com which has a
number of explanatory documents related to the subject.
Sincerely,
[BU Rep Name]
[Insert Title]
Exhibit 99.4
Customer Letter
December 18, 2002
Dear Valued Customer,
Because of your valued relationship with Halliburton, through [BU Name], I want
you to hear from me personally about an important and positive action our
Company is taking to resolve its asbestos claims.
Today, Halliburton announced that it has reached an agreement in principle with
attorneys representing substantially more than the 75% of current known asbestos
plaintiffs claimants in order to reach a global settlement of all current and
future asbestos claims against the Company. This agreement hopefully will result
in a global settlement of all outstanding asbestos claims. If this transaction
is ultimately completed, it will resolve all of our current and future personal
injury asbestos-related claims.
This is good news for Halliburton as well as our customers. The agreement in
principle, if implemented, provides a permanent and final resolution of this
issue, and it will allow us to concentrate on providing services to our
customers as well as further growing our core businesses.
Under the proposed agreement, the settlement would be implemented through a
pre-packaged Chapter 11 filing of our U.S. entity, Kellogg Brown & Root, Inc.,
and certain other subsidiaries with U.S. operations. A pre-packaged filing means
that we are bringing to the court a settlement that has been pre-agreed with the
asbestos claimants and the potential futures representative. That should
expedite the plan's approval because it removes many of the uncertainties that
have hampered other bankruptcies. We expect the filing to take place late in the
first quarter of 2003.
KBR Services, Inc., which comprises the U.S. government operations business, and
KBR's entities with no U.S. operations, will be excluded from the Chapter 11
filing. Halliburton, Halliburton Energy Services, Landmark Graphics and most
other Halliburton subsidiaries will also be excluded from the filing.
I want to emphasize that the plan provides that all our obligations, commitments
and contracts will be honored in full, and the filing will have no effect on any
of our present or future contracts. KBR and all of the Halliburton companies
remain financially strong, and we look forward to continuing to deliver the
cost-effective results you have always counted on in the past.
Drawing on our worldwide team of 82,000 employees, our global resources in
energy services, engineering, construction, operations and maintenance, and our
project execution strength, we look forward to putting this asbestos matter
behind us and focusing on our mission -- bringing together the best people and
technology and delivering the right solutions for our customers.
Enclosed is a copy of today's announcement for your information. If at any time
you have any questions, please feel free to contact your local Halliburton
representative or contact me directly or you may visit our website at
www.halliburton.com which has a number of explanatory documents related to the
subject.
Sincerely,
[BU Rep Name]
[Insert title]
Exhibit 99.5
Asbestos Primer
Asbestos-related litigation has been a fact of life in American courts for three
decades. Asbestos mining concerns and companies that made products out of
asbestos fibers were the first defendants, and the plaintiffs were those who had
worked at those companies.
But a series of court rulings over the years created a legal framework that
permitted the expansion of the defendant list to hundreds of companies whose
products contained asbestos and allowed the number of plaintiffs to climb to
more than 500,000.
Asbestos is a fibrous mineral once widely used as insulation and a fire
retardant. Few people today need worry about exposure to asbestos fibers, but it
has been estimated that as many as 25 million workers were exposed to
asbestos-containing products on the job until asbestos was phased out in the
1970s.
Prolonged exposure to high levels of asbestos dust can cause asbestosis (a
fibrous scarring of the lung), which can be life-threatening, and mesothelioma,
a usually fatal cancer of the lining of the chest wall.
Most of those exposed will not get sick. But since these diseases don't show up
for 20 to 40 years after exposure, there is no way to know whether someone
exposed years ago will get sick years from now. Scientists estimate that
mesothelioma, the most serious illness caused by asbestos, will continue through
2050.
Today, by some estimates more than 6,000 American corporations have been named
as asbestos defendants and the courts, overwhelmed with asbestos cases, have
attempted to stem the tide by aggregating hundreds and even thousands of claims
into a single case.
It has been estimated that the ultimate number of plaintiffs will reach 2.5
million or more and that asbestos litigation will continue for another 50 years.
The litigation has had a profound impact on virtually every manufacturing sector
of the economy, prompting many in Congress to call for a legislative remedy. But
past attempts at asbestos-related tort reform have failed.
Many legal experts say the U.S. is in the midst of an asbestos litigation crisis
as a result of certain key court rulings. Courts have ruled that:
- - claimants who allege a significant injury need not prove direct exposure to
a specific product as long as they can show an asbestos-containing product
was used at a past work site.
- - workers who are not sick can sue if they can show they were heavily exposed
to asbestos. About half of heavily exposed workers develop scarring of the
lung tissue, although they are not physically impaired, not sick, and may
never get sick. In fact, those with no scarring are as likely to get sick.
- - if a worker was exposed to a number of asbestos-containing products made by
various companies at various work sites, all the companies can be sued. Any
one company that has the ability to pay can be held liable for 100 percent
of the damages.
- - companies that never made asbestos-containing products can be held liable
if they bought other companies that made asbestos-containing products in
the past. Under this "successor liability" the parent company is liable not
only to extent of the assets of the company acquired, but to the extent of
the assets of the parent as well.
"Thus," wrote Lester Brickman, professor at the Benjamin N. Cardozo School of
Law, in a recent essay, "the successor companies were held liable, not only for
the acts they did not commit, but also for the consequences of the acts of their
acquired companies that they were not aware of at the time of the acquisitions,
and indeed, of which they could not have been aware."
Over the last 25 years, over 300,000 asbestos cases against numerous companies
have been tried or settled, and $20 billion has been paid to asbestos claimants.
Nevertheless, asbestos filings have skyrocketed in the last 5 years. About
90,000 new asbestos cases were filed in 2001.
Most suits are filed by plaintiffs who said they once worked where products
containing asbestos had been present. As many as 90 percent of new asbestos
claims involve non-malignant conditions. In most cases, these conditions do not
cause breathing impairment.
Today, asbestos defendants are a cross section of American industry, including
automobile manufacturers, dealers, and repair shops; oil and chemical companies;
railroads; ship operators; construction and maintenance contractors;
manufacturers of industrial boilers and refractory products; gasket and packing
manufacturers; and installers and distributors.
Given the current legal framework supporting asbestos cases, many large
companies are finding that the most efficient and equitable approach to their
asbestos-related litigation is to negotiate a global settlement with the
plaintiffs' attorneys that ends their exposure to asbestos litigation now and in
the future.
Several such settlements have been accomplished under the supervision of a
federal bankruptcy court.
Exhibit 99.6
Chapter 11 Primer
Chapter 11 is the portion of the United States Bankruptcy Code (or bankruptcy
law) that contains the provisions for court-supervised reorganization of debtor
companies. Under the asbestos settlement plan negotiated with plaintiffs, DII
Industries (formerly Dresser Industries Inc) and Kellogg Brown & Root would
become "debtor companies" in a Chapter 11 filing, along with certain of their
other subsidiaries with U.S. operations.
Chapter 11 is an effective tool for a company with asbestos-related liabilities
to cleanse itself of those liabilities. By implementing a company's agreement
with asbestos plaintiffs (through their attorneys) through a court-supervised
process, a company can make the agreement effective not only for all existing
asbestos claims but also for any future claims that might be brought against it.
Under U.S. law, Chapter 11 is the only means to deal effectively with "future"
claims.
In a successful implementation of an asbestos settlement under Chapter 11, most
aspects of the company's business do not have to change:
- The company and its subsidiaries do not go out of business.
- Nothing necessarily changes at any business units, whether they are in
Chapter 11 proceedings or not, from an operational standpoint.
- No facilities need to close and no jobs need to be eliminated as a result
of a Chapter 11 filing.
- No pension or benefits programs will be reduced or eliminated.
- No employees have their salaries cut, or promotion opportunities
restricted.
- No vendors are delayed in payment from normal terms.
- No creditors are delayed in payment from normal schedule.
- No business units outside the U.S. are affected in any way.
- The company does not have to renegotiate contracts as a result of the
Chapter 11 filing.
Under U.S. law, there is no way to deal with "future" asbestos claims (those
that might be filed in the future) other than going through a Chapter 11 process
and having a U.S. Court oversee the process.
A "Prepackaged" Chapter 11 Filing
A "pre-packaged Chapter 11" filing differs from a typical Chapter 11 case. In a
"normal" Chapter 11 filing, a company works together with its creditors, after
the filing, to develop a Plan of Reorganization that would be presented to the
Court sometime following the filing. In a "prepackaged" filing, the company
("debtor") has already obtained agreement from all the affected creditor groups
on the Plan. The Plan of Reorganization is then filed along with other petitions
given to the court when the case is first filed.
Pre-packaged filings differ significantly from other Chapter 11 filings. The
outcome is much more certain, because all affected parties have agreed in
advance to the Plan of Reorganization. Also, pre-packaged Chapter 11 filings
typically move through the court system in a matter of a few months, rather than
a year or two - or even more - with a normal Chapter 11 filing.
Features of the 524(g) Trust
The settlement of all asbestos claims including "future claims" is done through
a special mechanism known as a 524(g) trust. A 524 (g) trust is designed
specifically for resolving asbestos liabilities. In a 524 (g) proceeding, the
bankruptcy court appoints a representative for future claimants, which assists
in effectuating a settlement that resolves and discharges future claims. Present
claims also addressed. Upon completion of the bankruptcy proceeding, a permanent
injunction is issued by a U.S. federal district court in favor of the debtors
and parties affiliated with the debtors. The injunction, when final and
non-appealable, cannot be revoked.
International Business Aspects
The Chapter 11 process in the U.S. is unlike anything in the bankruptcy laws in
most countries. In most parts of the world, bankruptcy (also sometimes known as
"Administration") means that the business is failing, and that it almost
certainly will be liquidated. That is not the case with Chapter 11 proceedings
in the U.S. Chapter 11 is a tool to enable a financial restructuring of a
company. If a company's business is generally sound, it normally emerges
successfully from Chapter 11. In the U.S., because there has never been any
comprehensive legislation passed that addresses the nation-wide asbestos issue,
Chapter 11 has become the only means for companies to deal with asbestos
liability.