In Re Texaco Inc.

DECISION ON CONFIRMATION OF SECOND AMENDED PLAN

After less than one year from the filing of their administratively consolidated Chapter 11 cases in this court on April 12, 1987, the debtor, Texaco Inc. and its two wholly owned financial subsidiaries, Texaco Capi *894 tal Inc. and Texaco Capital, N.V., scheduled hearings commencing March 22, 1988 for the confirmation of their Second Amended Joint Plan of Reorganization (the “Plan”). The Plan was proposed by the debtors and Pennzoil Company (“Pennzoil”). Pennzoil is the largest unsecured creditor of Texaco Inc. as a result of a jury verdict entered in its favor against Texaco in the state court in Harris County, Texas, on November 19, 1985 in the amount of $7.53 billion in compensatory damages and $3 billion in punitive damages. On December 10, 1985, the trial court entered a judgment against Texaco Inc. in the amount of $11.12 billion. On February 12, 1987, the Court of Appeals for the First Supreme Judicial District of Texas affirmed the judgment of the trial court, except for the $3 billion punitive damage award, which it deemed excessive by $2 billion. Pennzoil subsequently filed a remittitur in respect of $2 billion of the punitive damages awarded. On November 2, 1987, the Texas Supreme Court refused Texaco’s application for a writ of error without a hearing, no reversible error having been found. Texaco does not have an absolute right of review by the United States Supreme Court, because the only remaining avenue of direct review is by way of a petition for a writ of certiorari to the Supreme Court, which is discretionary. The Pennzoil judgment against Texaco Inc. is the largest civil judgment in history. Similarly, these Chapter 11 cases are the largest bankruptcy cases ever filed in this country.

In accordance with a Stipulation and Agreement dated December 19,1987, Texaco Inc. and Pennzoil agreed to propose a Joint Plan of Reorganization pursuant to which Pennzoil would agree to accept from Texaco Inc. the sum of $3 billion in settlement of its state court judgment, which currently exceeds $11.259 billion in principal and interest. This settlement followed on the heels of this court’s rulings on December 2 and 8, 1987 that Texaco’s plan exclusivity under 11 U.S.C. § 1121 could be modified on motion with 48 hours notice if the General Committee of Unsecured Creditors, the Equity Committee and Pennzoil could agree upon a plan, with input from Texaco.

On December 21,1987, Texaco and Pennzoil filed with this court their Joint Plan of Reorganization. In addition to a $3 billion payment by Texaco to Pennzoil, the Plan in general provides for the payment in full of all allowed claims of creditors against the debtors, together with interest to the date of payment or, in the case of certain debt obligations, the reinstatement of such debt obligations by curing all arrears in payment of principal and interest (including interest on any past due interest payments) and by the continued payment of all such obligations in accordance with their original terms and maturities. Under the Plan, Texaco shareholders will retain their equity interests. For purposes of the Plan, the proponents agree that the shareholders are deemed impaired and, therefore, they may vote to accept or reject the plan.

The Plan designates seven Classes of Claims and one Class of equity interests. These Classes take into account the differing nature and priority under the Bankruptcy Code of the various claims and equity interests. The provisions of the Plan are, in general, as follows:

1. Administrative Claims. The Plan provides that the holders of administrative expense claims against the Debtors will be paid in full, in cash, on the Effective Date or on such other terms as may have been or may be agreed to between the holder of such Claim and the respective Debtor.

2. The “Effective Date” is the first business day that is at least fifteen (15) days after entry of the order confirming the Plan, provided that no stay of the Confirmation Order is in effect and that all conditions to the Effective Date provided in the Plan have occurred or been waived. Payments to be made on the Effective Date will be made on the Effective Date or as soon as practicable thereafter, but in no event more than ten days after the Effective Date. Payments to be made in cash under the Plan will be made by check or wire transfer or as otherwise required or provided in applicable agreements.

*895 3. Tax Claims. The Plan does not impair holders of Tax Claims. All Claims for taxes not paid will not be discharged and will survive the Reorganization Cases as if they had not been commenced. All Allowed Claims for taxes under the Bankruptcy Code will be paid in full, in cash, on the Effective Date, together with post-petition interest at the rate and for the period provided by applicable law. Any Tax Claims which are not Allowed Claims will be resolved by the administrative and/or judicial tribunals in which they would have been resolved had the Reorganization Cases not been commenced.

4. The Debtors do not believe that there exist any Allowed Claims entitled to priority under the Bankruptcy Code other than Tax Claims. To the extent any such Allowed Claims exist, however, they will be paid in full, in cash, on the Effective Date together with post-petition interest from April 12, 1987 (the “Filing Date”) to the date of payment at the rate specified in any applicable agreement or applicable law, or, if no such rate is provided, at the rate of nine percent (9%) per annum.

5. General Unsecured Claims. Except for Allowed Claims relating to debt for borrowed money or similar claims, all Allowed Claims of general unsecured creditors will be paid in full, in cash, on the Effective Date, together with post-petition interest at the rate provided under any applicable agreement or applicable law, or, if no such rate is provided, at the rate of nine percent (9%) per annum. Such Allowed Claims will bear post-petition interest from the date of the Filing Date or the date on which the underlying claim would have been paid under any applicable agreement or applicable law, through and including the date of payment.

6. Unmatured Debt Claims. Claims in respect of the Debtors’ debt obligations which have not matured by their terms prior to the Effective Date (without regard to the occurrence of any defaults or any right of acceleration) will be reinstated as of the Effective Date by the curing of all monetary defaults and the continued payment of all such obligations in accordance with their original terms and maturity. Otherwise, the legal, equitable and contractual rights of the holders of such Claims will remain unaltered. Cure payments will include payment of all pre-petition and post-petition interest arrears and interest on unpaid interest at the non-default or non-penalty rates specified in the relevant agreements governing such obligations.

7. Matured Debt Claims. With respect to the debt obligations of the Debtors that matured by their terms after the Filing Date but prior to the Effective Date, the Plan provides for the payment in cash of the full amount of principal and unpaid interest accrued before or after the Filing Date together with post-petition interest on all such principal and accrued, unpaid interest at the non-default or non-penalty rate(s) specified in the relevant agreements governing such obligations.

8. DOE and Environmental Claims. The Plan does not impair the Claims of the United States Department of Energy (the “DOE”) and the claims of any governmental unit arising under any environmental legislation (the “Environmental Claims”). All Claims of the DOE and Environmental Claims not paid will not be discharged and will survive the Reorganization Cases as if they had not been commenced. The Allowed Claims of the DOE against Texaco and allowed Environmental Claims will be paid in full, in cash, on the Effective Date together with post-petition interest at the rate and for the period provided by applicable law, or, alternatively, on such other terms as may have been or may be agreed to between the holders of such claims and Texaco. Any Claims of the DOE and any Environmental Claims that are not Allowed Claims will be resolved by the administrative and/or judicial tribunals in which they would have been resolved had the Reorganization Cases not been commenced.

9. Guarantee Claims. Claims against Texaco arising out of Texaco’s guarantee of obligations of Texaco Capital, Texaco N.V. or any other person or entity will be reinstated as of the Effective Date. No holder of such a claim will be entitled to assert or enforce any claim against Texaco *896 in respect of Texaco’s guarantee based upon any default which may have occurred prior to the Effective Date. The legal, equitable and contractual rights of holders of claims against Texaco based upon Texaco’s guarantee of obligations of any person or entity other than Texaco Capital and Texaco N.V. will be reinstated and will not be altered or affected by the Plan. The Plan also provides that no holder of such a guarantee will be entitled to assert or enforce any Claim against Texaco or against the person or entity which is the primary obligor based upon any default resulting from the commencement of the Reorganization Cases.

10.Pennzoil Judgment Claim. The Plan provides for a settlement of the disputed Pennzoil Judgment Claim. Pursuant to the settlement, Texaco will pay Pennzoil $3 billion in cash, in full settlement and satisfaction of Pennzoil's claims against Texaco arising out of the Pennzoil Judgment. The settlement also resolves all controversies and disputes between Texaco and Pennzoil relating to any and all proceedings, acts or omissions, whenever occurring, in connection with, arising from, involving or relating to the acquisition or attempted acquisition of the shares of the capital stock of Getty Oil Company (“Getty Oil”) by Texaco or Pennzoil including, without limitation, the following: (a) the tender offer and merger by which Texaco acquired such Getty Oil shares pursuant to the Merger Agreement dated January 6, 1984, between Texaco and Getty Oil; (b) the sale of such Getty Oil shares by the J. Paul Getty Trust pursuant to the Stock Purchase Agreement dated as of January 6, 1984, between Texaco and the J. Paul Getty Trust; (c) the sale of such Getty Oil shares by Gordon P. Getty, as Trustee of The Sarah C. Getty Trust, pursuant to the Stock Exchange Agreement dated as of January 8,1984, and the Letter Agreement dated January 23, 1984, among Texaco, Gordon P. Getty, individually and as sole trustee and as a beneficiary of The Sarah C. Getty Trust, and the other beneficiaries thereof; (d) any breach or alleged breach of any agreement referred to in (a) through (c) above; (e) any efforts of Pennzoil to acquire any of such shares of Getty Oil; (f) any disclosures, representations or failures to disclose or represent facts and materials relating to (a) through (e) above; and (g) any suit, action, claim or proceeding relating to (a) through (f) above (collectively, the “Getty Oil Transaction”).

11. Releases, Indemnifications and Discontinuances of Derivative Actions. Pursuant to the settlement and the Plan, Texaco and Pennzoil will release each other, and the other’s predecessors, successors, assigns, present and former officers, directors, employees, agents, attorneys, accountants, investment bankers, receivers, parents, trustees, subsidiaries and affiliates, from all Claims arising out of, relating to or in connection with the Getty Oil Transaction, the Pennzoil Judgment, the Delaware Actions, the Texas Action and the Stockholder Actions. In addition, Texaco and Pennzoil will release each of the other parties involved in the Getty Oil Transaction and each such party’s present and former officers, employees, directors, agents, attorneys, accountants, investment bankers, trustees and beneficiaries, from similar Claims, upon receipt of a reciprocal release from such entities. Additionally, the debtor will discontinue and dismiss 16 Shareholder Derivative actions brought by certain Texaco shareholders on behalf of Texaco arising out of the Pennzoil judgment against Texaco.

12. Interests of Texaco Stockholders. Under the Plan, Texaco Stockholders will retain their equity interests in Texaco. Nevertheless, Texaco Stockholders are deemed impaired for purposes of the Plan and, therefore, may vote to accept or reject the Plan.

On January 29, 1988, this court found that the debtors’ Second Amended Disclosure Statement satisfied the requirements of 11 U.S.C. § 1125 in that it contained adequate information in order to enable a hypothetical reasonable investor typical of the holders of claims or interests of the relevant classes to make an informed judgment about the class. Certain shareholders who are plaintiffs in derivative actions against Texaco’s officers, directors and *897 third parties, objected to the adequacy of the information contained in the disclosure statement and this court’s finding that it satisfied 11 U.S.C. § 1125. In a “So ordered” opinion dated February 9, 1988, Chief Judge Charles L. Brieant of the United States District Court for the Southern District of New York affirmed this court’s ruling and held that the “[appellants’ objections to both the form and the substance of the Second Amended Disclosure Statement are held to be without merit.” C.J. Kirk et al. v. Texaco Inc. et al., 82 B.R. 678 (S.D.N.Y.1988).

On February 8, 1988, thirteen shareholders of Texaco Inc., identified as the Delaware Group, C.J. Kirk, Dorothy Kirk, Carbide Tool Grinding Service, Inc., Profit Sharing Plan, Leslie Maurer, Thomas Hughes, Etta Steiner, Sarah Steiner, Elizabeth Steiner and Ellen Leslie, all of whom are the plaintiffs (the “derivative plaintiffs”) in sixteen shareholder derivative actions brought in the right of and for the benefit of Texaco Inc. which are pending in Delaware, Texas and New York, had interposed objections to the confirmation of the Plan.

The derivative plaintiffs did not object to the monetary terms of the settlement with Pennzoil. They support the $3 billion settlement because they believe it is in the best interests of all Texaco shareholders. However, they objected to the provisions of the Plan calling for the abandonment and dismissal of the plaintiffs’ derivative actions and the grant of releases and indemnifications to the defendants in such actions, including officers, directors and other representatives of Texaco, as well as the Getty Oil Company (“Getty”), the Sarah C. Getty Trust, the Getty Museum, First Boston Corporation and Goldman Sachs & Co., investment bankers for Texaco and Getty, respectively. The derivative plaintiffs maintained that the derivative actions constitute an asset of the debtors worth at least as much as Texaco must pay to Pennzoil if the settlement is approved. Accordingly, the derivative plaintiffs contended that the abandonment and dismissal of the derivative actions and the granting of releases and indemnifications to the defendants in such actions and to third parties renders the Plan unconfirmable in that the Plan does not satisfy the requirements imposed under 11 U.S.C. §§ 1129(a)(1), (2) and (3).

The objectants pointed to 11 U.S.C. § 1129(a)(1) and argued that the Plan is not confirmable in that it allegedly violates 11 U.S.C. § 554 because it contemplates the abandonment of the derivative actions which are of value and not burdensome to the estate.

The objectants contended that 11 U.S.C. § 1129(a)(2) is not satisfied because applicable provisions of the Bankruptcy Code were not complied with because the Plan is the product of alleged gross breaches of fiduciary duty by Texaco’s self-interested officers and directors who are among the parties directly benefitted by the grant of releases and that such action is incompatible with their duties under 11 U.S.C. § 1107 in the administration of the Chapter 11 cases.

Section 1129(a)(3), which requires that a plan shall be proposed in good faith and not by any means forbidden by law, was also cited by the objectants. As to good faith, the objectants alleged that the Plan was not proposed in good faith because it allegedly stripped the shareholders and Texaco of the value of significant causes of action in order to protect insider management and third party entities who are neither insiders nor debtors, namely the Getty Oil Company, the various Getty trusts and the Getty Museum as well as the First Boston Corporation and Goldman Sachs & Co. The ob-jectants also contended that the Plan failed to comply with applicable state law because independent investigation and evaluation by a special committee or other similar independent person or entity and judicial approval are alleged as necessary if the dismissal of derivative actions and the granting of releases and indemnifications under the Plan are to be allowed under applicable federal and state law.

Additionally, an objection was filed by Trans World Airline, Inc., ACF Industries, Inc., Swan Management Corp., and Unicorn *898 Associates Corp. (collectively “The Icahn Group”). The Icahn Group purchased approximately 14.8% of Texaco’s common stock after the commencement of the chapter 11 cases and represents the largest single ownership of Texaco’s equity interest. The Icahn Group joined the derivative plaintiffs in objecting that the indemnifications, releases and discontinuances of derivative actions should not be approved because the derivative actions are intended to retrieve for Texaco valuable causes of action which should not be dismissed or confirmed. The Icahn Group suggests that the provisions in the plan dealing with indemnifications, releases and discontinuances of derivative actions should be severed from the balance of the Plan, which should be confirmed including the $3 billion settlement with Pennzoil.

The debtors state that the granting of releases and indemnifications to the debtors’ officers and directors and to third parties, were matters that were initiated by Pennzoil and the General Committee of Unsecured Creditors and were originally included in the plan of reorganization that was unsuccessfully proposed by the General Committee of Unsecured creditors, dated November 27, 1987. As a co-proponent of the Plan, Pennzoil states that it does not want to become involved in any further litigation arising from the Getty Oil transaction and for that reason it seeks an overall resolution of all claims and litigation. Pennzoil maintains that the total acquisition cost to Texaco of the Getty Oil transactions, including the cost of Pennzoil settlement, represents a substantial long-term value and benefit to Texaco and its shareholders. Both Pennzoil and Texaco reason that it is in the best interests of all parties that the Getty Oil controversy, inclusive of all ancillary matters, be ended so that Pennzoil and Texaco may direct their efforts to their respective businesses without continuing costly and time-consuming litigation.

Texaco states that the Pennzoil complaint was without merit and should not have been sustained. However, Texaco believes that the catastrophic results for Texaco’s shareholders that will result if the case is not settled and if the Supreme Court does not grant certiorari fully justify the settlement. Nonetheless, in order for Texaco or any of the derivative plaintiffs which sued on its behalf, to recover against any defendant on the claims asserted by the derivative plaintiffs, they would probably have had to assert and prove some or all of the elements of Pennzoil’s case against Texaco. In such case, Texaco, or anyone suing on its behalf, might be confronted with Texaco’s own repeated assertions that, as a matter of law, there was no binding contract among Pennzoil and the Getty Oil entities. Texaco believes there is little merit to any derivative action because the Getty Oil defendants and others covered by the releases and indemnifications might succeed in establishing as Texaco has consistently asserted, that there was no binding contract with Pennzoil. Thus, Texaco asserts that it has been advised by outside counsel that there would be substantial difficulties in achieving any recovery on Texaco’s potential claims against the Board of Directors and other third parties. Texaco, therefore, reasons that the releases and indemnifications, with respect to actions of questionable value, should be given and the derivative actions discontinued in order to achieve a settlement of the Pennzoil litigation.

The General Committee of Unsecured Creditors and the Equity Committee of Texaco shareholders fully support the Plan, which includes the Pennzoil settlement and the granting of releases and indemnifications in addition to the discontinuance of all the derivative actions.

On March 22, 1988, in the morning just before the confirmation hearing was about to commence, the derivative plaintiffs entered into a settlement with Texaco whereby they withdrew their objections to the issuance of releases, indemnifications and discontinuances of the derivative actions.

The derivative plaintiffs withdrew their objections to the Plan with the understanding that their attorneys would be permitted to file applications for prepetition and post-petition legal services not to exceed a total of $10 million for all of the *899 twenty-one law firms representing the derivative plaintiffs. Half of the legal fees would be paid by Texaco’s liability carriers and the other half would be paid by other third party defendants. Thus, Texaco would not be required to bear the direct cost of the derivative plaintiffs’ legal fees.

The Icahn Group continues to object to the inclusion in the Plan of releases and indemnifications in favor of Texaco’s own officers and directors as well as the is-suances of releases and indemnifications to the Getty interests, lawyers, accountants and investment bankers.

Baine Kerr, Chairman of Pennzoil's Executive Committee, testified that the concept of releases and indemnifications was first introduced by Pennzoil without any consultation with Texaco. He said that Pennzoil would not agree to sever or modify the provisions in the Plan for releases and indemnifications because Pennzoil agreed to reduce its claim for $11.259 billion to $3 billion in order to obtain a complete and swift resolution of its claim. Mr. Kerr testified that Pennzoil would not go through with the Plan if the releases and indemnifications were eliminated. Similarly, J. Hugh Liedtke, the Chairman of the Board and Chief Executive Officer of Pennzoil, testified that the major reason for the releases and indemnifications in Pennzoil’s view is the termination of all litigation, which should be financed by Texaco. He said that the releases and indemnifications were needed in order to get the creditors and equity committees to endorse the Plan.

Texaco’s Chairman of the Board, Alfred C. DeCrane, testified that in 1986, after the Pennzoil judgment was obtained, Texaco retained two law firms, Gable & Gotwals of Oklahoma and Morris, Nichols, Arsht & Tunnell of Delaware, to investigate the handling of the Getty Transaction by officers and management of Texaco. These investigations revealed that there was no self-dealing or improper conduct by Texaco’s management and no misstatement by the Getty interests as to any impediments to Texaco’s acquisition of the Getty stock.

James Sturdivant, a partner in the law firm of Gable & Gotwals, and Richard Sutton, a partner in the law firm of Morris, Nichols, Arsht & Tunnell, each testified to the effect that Texaco’s management did not do anything wrong in connection with the Getty Transaction and they concluded that Texaco’s officers and directors could not be held responsible for any claims asserted in the derivative actions that were brought by the various Texaco shareholders on behalf of Texaco. Hence, this court finds that the releases and indemnifications to be issued by Texaco under the Plan are in the best interests of Texaco in obtaining an integrated settlement of the Pennzoil judgment and do not amount to the relinquishment or abandonment by Texaco of valuable causes of action.

DISCUSSION

The largest bankruptcy case in the history of this country must meet the same standards for confirmation of its plan of reorganization as any other Chapter 11 case. The plan must comply with the applicable provisions of title 11 as expressed in 11 U.S.C. § 1129(a)(1) and it must have been proposed in good faith and not by any means forbidden by law, as mandated under 11 U.S.C. § 1129(a)(3). The objections filed by certain shareholders of the debtor, Texaco Inc., who are plaintiffs in derivative actions brought on behalf of Texaco against some of its officers, directors and third parties, bring into focus the requirement that the Second Amended Joint Plan of Reorganization (the “Plan”) must satisfy the requirements of Chapter 11 and applicable provisions of federal and state law. This is so even if Texaco’s shareholders, who are deemed under the Plan as the only impaired class for purposes of voting, have overwhelmingly voted to accept the plan, which they have done by a majority vote of approximately 96 percent. In this connection, it should be noted, however, that the basic feature of the Plan is the settlement of the Pennzoil judgment in excess of $11.259 billion for a payment of $3 billion dollars. Additionally, the officers, directors and representatives of Pennzoil are to be released and indemnified by Texaco for any and all claims arising out of this *900 settlement, and they in turn, will issue reciprocal releases to Texaco’s officers, directors and representatives. The objec-tants agree with this settlement, but argued that in order to achieve this end, the Texaco shareholders were compelled to vote for an entire package, which also includes releases and indemnities which Texaco will issue to its own officers and directors and to third parties including attorneys, accountants, investment bankers, and entities who sold the Getty Oil stock to Texaco which precipitated the Pennzoil suit and judgment against Texaco.

Before the derivative plaintiffs withdrew their objections they contended that the issuance of releases and indemnities to non-Pennzoil representatives, such as Texaco’s own officers and directors and the attorneys, accountants, investment bankers of Texaco and the Getty interests, as well as the Getty shareholders who sold the disputed Getty stock to Texaco, together with the discontinuance of the objectants’ derivative lawsuits with prejudice, violates the provisions of title 11 and applicable federal and state law. Moreover, the objecting Icahn Group contends that the overwhelming vote of the shareholders in accepting the plan merely reflects that the Texaco shareholders could not afford to risk being wiped out by rejecting the Plan and, therefore, were coerced into acceptance because they could not vote separately for the Pennzoil settlement without also being compelled to vote for the issuance of releases and indemnities to non-Pennzoil representatives and the discontinuance of the derivative suits on Texaco’s behalf. The objecting Icahn Group contends that Pennzoil and the creditors of Texaco have no legitimate interest in discouraging the derivative shareholder plaintiffs from attempting to recover against the Texaco officers, directors, third parties, and their insurance carriers, so long as Pennzoil is paid $3 billion and is given indemnities and releases under the Plan. The Icahn Group reasons that the derivative suits seek to recover assets for Texaco to compensate for what Texaco has to pay to Pennzoil under the Plan and that the recovery of any such assets for Texaco will not affect Pennzoil after it collects the $3 billion settlement because the Pennzoil representatives will be indemnified and released by Texaco under the Plan with regard to any possible subrogation claims. Moreover, the Icahn Group concludes that Texaco’s creditors will not be affected because assets may be retrieved for Texaco’s benefit, whereas the creditors will be fully paid under the Plan, together with interest, or they will be reinstated as if no default had occurred.

The net effect of the indemnities and releases of non-Pennzoil interests and the discontinuances of the objectants’ derivative actions is to erase the potential liabilities of these third parties to Texaco. If these non-parties were possibly liable to creditors other than Texaco, such releases, indemnities and discontinuances of derivative actions would not be effective against the other creditors because such a result would be contrary to the principle expressed in 11 U.S.C. § 524(e), which is made applicable to Chapter 11 cases by 11 U.S.C. § 103(a). Section 524(e) states in relevant part that a

... discharge of a debt of the debtor does not affect the liability of any other entity on, or the property of any other entity for, such debt.

Thus, payment to a creditor under a confirmed plan of reorganization “is not consideration for any promise by creditors, much less for one to release non-party obligations.” Union Carbide Corporation v. Newboles, 686 F.2d 593, 595 (7th Cir.1982). The confirmation of a Chapter 11 plan of reorganization should not release the obligations of non-party entities to creditors of a debtor. Republic Supply Co. v. Shoaf, 815 F.2d 1046, 1050 (5th Cir.1987); United States v. Stribling Flying Service, Inc., 734 F.2d 221, 223 (5th Cir.1984).

However, 11 U.S.C. § 524(e) does not apply to the Texaco Joint Plan because the proposed releases, indemnities and discontinuances of derivative actions relate to claims belonging to the debtor only, and do not affect the claims of any creditors. The Plan proposes to release any claims that the debtors may have against Texaco’s offi *901 cers and directors and against the non-Pennzoil third parties arising out of Texaco’s acquisition of the Getty Oil stock. Accordingly, what is involved is the debtors’ abandonment or relinquishment of questionable causes of action in the face of objections originally filed and now withdrawn, by specific shareholders who are the plaintiffs in the derivative actions which are sought to be discontinued. The limited objection filed by the Icahn Group was not withdrawn, and must therefore be resolved.

THE PENNZOIL JUDGMENT

This is not a simple plan of reorganization. This plan was consummated by Texaco and Pennzoil after intense negotiations which led to a compromise and settlement between the above parties and the statutory committees, wherein Texaco agreed to terminate the Texas litigation and Pennzoil agreed to accept $3 billion in satisfaction of the Texas judgment. This compromise and settlement has been incorporated into the Plan and the parties are claiming the terms or the consideration of the settlement include the releases by the derivative plaintiffs and indemnifications of all the parties stated above thereby requiring the retention of such provisions in the Plan.

The judgment claim asserted by Pennzoil amounts to approximately $11.259 billion, inclusive of interest. Texaco and Pennzoil have arrived at a $3 billion figure which will be paid by Texaco to Pennzoil upon confirmation of the reorganization Plan. By jointly proposing the Plan with Texaco, Pennzoil has indicated its willingness to reduce its claim to $3 billion and its acceptance of the Plan as proposed, within the meaning of 11 U.S.C. § 1129(a)(8)(A). Texaco states that 11 U.S.C. § 1123(b)(3) empowers it to compromise and settle Pennzoil’s claim. This is not so because 11 U.S.C. § 1123(b)(3) permits a plan to provide for “the settlement or adjustment of any claim or interest belonging to the debt- or or to the estate ” (Emphasis added). The Pennzoil claim does not belong to the debtor or to the estate. However, a compromise between parties in the context of a bankruptcy reorganization may be accomplished in a bankruptcy case with the court’s approval. Protective Committee for Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 88 S.Ct. 1157, 20 L.Ed.2d 1 (1968) (1968); Matter of AWECO, Inc., 725 F.2d 293, 297 (5th Cir.1984) cert. denied, 469 U.S. 880, 105 S.Ct. 244, 83 L.Ed.2d 182 (1984); In re Heissinger Resources Ltd., 67 B.R. 378 (C.D.Ill.1986). Compromises may be effected separately during reorganization proceedings or in the body of the reorganization plan itself. The decision of whether to approve a particular compromise lies within the discretion of the Bankruptcy judge and pursuant to Bankruptcy Rule 9019(a). Matter of AWECO, 725 F.2d at 297.

With regard to approval of compromises that form part of a plan of reorganization, a definite rule limits the exercise of discretion. This rule provides a court may approve such a compromise only when it is “fair and equitable.” Protective Committee for Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 424, 88 S.Ct. 1157, 1163, 20 L.Ed.2d 1 (1968); Matter of AWECO, Inc., 725 F.2d at 298; Matter of Investors Funding Corp. of New York, 8 B.R. 739, 743 (S.D.N.Y.1980). The important determinations in reorganization proceedings must receive the “informed, independent judgment of the Bankruptcy court”. Protective Committee v. Anderson, 390 U.S. at 424, 88 S.Ct. at 1163. The duty of a bankruptcy judge to reach an “intelligent, objective and educated evaluation” of settlements cannot be carried out absent factual background. Matter of Jackson Brewing Co., 624 F.2d 599, 602 (5th Cir.1980). In approving compromises the court must act independently and for the benefit of all parties in interest. This obligation prevails even where parties in interest are silent and even where a party in interest has engaged in conduct that might amount to a waiver of objections in another context. See Matter of AWECO, 725 F.2d at 299; Matter of Boston & Providence R. Corp., 673 F.2d 11 (1st Cir.1982); Ashbach v. Kirtly, 289 F.2d 159, 166 (8th Cir.1961). The test to be *902 applied where there is judicial review of a consensual plan of reorganization is

whether or not the terms of the proposed compromise ‘fall within the reasonable range of litigation possibilities’ [citations omitted]. The reviewing court must determine that the value of the proposed compromise distribution is reasonably equivalent to the value of the potential claim which has been surrendered or modified by the settlement which has been achieved.

Barry v. Smith (In re New York, New Haven and Hartford Railroad Co.), 632 F.2d 955, 960 (2d Cir.1980) cert. denied, 449 U.S. 1062, 101 S.Ct. 786, 66 L.Ed.2d 605 (1980); Matter of Investors Funding Corp. of New York, 8 B.R. at 743.

The terms “equity” and “fairness” are not only terms of art in bankruptcy; they are catch words of bankruptcy law in general. Equitable considerations should be preeminent in the exercise of bankruptcy jurisdiction. Bank of Marin v. England, 385 U.S. 99, 87 S.Ct. 274, 17 L.Ed.2d 197 (1966). Decisions as central to bankruptcy proceedings as approval of settlements cannot be visceral. They must issue from reason and rest upon factual under-girdings. Matter of AWECO, 725 F.2d at 300.

A court should consider the following factors in reaching its ultimate decision to approve a compromise and settlement:

(1) The balance between the likelihood of plaintiffs or defendants’ success should the case go to trial vis a vis the concrete present and future benefits held forth by the settlement without the expense and delay of a trial and subsequent appellate procedures.

(2) The prospect of complex and protracted litigation if the settlement is not approved.

(3) The proportion of the class members who do not object or who affirmatively support the proposed settlement.

(4) The competency and experience of counsel who support the settlement.

(5) The relative benefits to be received by individuals or groups within the class.

(6) The nature and breadth of releases to be obtained by the directors and officers as a result of the settlement.

(7) The extent to which the settlement is truly the product of “arms-length” bargaining, and not of fraud or collusion.

See Protective Committee for Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414 (1968); In re W.T. Grant Co., 699 F.2d 599 (2d Cir.1983), ce rt. denied, sub nom; Casoff v. Rodman, 464 U.S. 822, 104 S.Ct. 89, 78 L.Ed.2d 97 (1983).

In the instant case, the highest court of the state of Texas has refused to grant Texaco’s writ of error with respect to the Pennzoil judgment. Texaco’s only available avenue for direct review is by a petition for a writ of certiorari to the United States Supreme Court. This possibility for review is discretionary and limited to federal statutory and constitutional issues. The odds against Texaco's obtaining a writ of certiorari are enormous. Even if granted, it does not follow that Texaco’s appeal would succeed. Moreover, if the Supreme Court were to remand the case for a new trial, there is no assurance that Pennzoil would not again prevail on the merits of its claim.

In the Second Amended Disclosure Statement, Texaco states that it “believes that the catastrophic results for Texaco’s Stockholders that will result if the case is not settled and if the Supreme Court does not grant certiorari ... fully justify the Pennzoil Settlement.” A settlement will avoid the risk of having to satisfy the full amount of Pennzoil’s judgment, which now exceeds $11,259 billion, inclusive of interest. If Texaco were required to satisfy this judgment in full, its shareholders will likely have their interests completely eliminated. Unless Texaco were able to convince the Supreme Court that significant federal issues were involved, apart from state law issues, a Supreme Court review of the judgment would be unlikely, thereby jeopardizing the shareholders’ interests.

The settlement of the Pennzoil judgment reduces Texaco’s maximum exposure to Pennzoil to $3 billion and reduces Penn *903 zoil’s judgment claim by more than $8 billion. The settlement benefits Pennzoil to the extent that Pennzoil need not wait indefinitely for a contested payment, because it will receive $3 billion in cash no later than April 14,1988. Texaco’s creditors are benefitted because they will be paid in full. Significantly, the settlement is in the best interests of Texaco’s shareholders because they will retain their interests despite the fact that Pennzoil, a member of the senior class of unsecured creditors, will receive less than the full amount of its claim. In sum, the settlement of the Pennzoil judgment for the reduced sum of $3 billion is fair and equitable in that it respects the policy of reorganization and is consistent with the principle regarding the priority of payments mandated under the Bankruptcy Code. Indeed, there are no objections addressed to the amount of the payment to Pennzoil; the statutory committees of creditors and shareholders fully support the settlement as do approximately 96 percent of the voting shareholders who have agreed to accept the Plan.

INDEMNIFICATIONS, RELEASES AND DISCONTINUANCES OF DERIVATIVE ACTIONS

The provisions in the Plan which propose to dismiss with prejudice the derivative actions commenced by certain shareholders on behalf of Texaco with respect to the Getty Oil Transaction and to grant releases and indemnifications to the defendants in such actions was viewed by the objectants as the relinquishment of valuable property rights. This position is tenable only if Texaco has a meritorious claim against the defendants in the derivative actions. However, the derivative claims are premised on the Pennzoil judgment, which reflects the Texas jury’s conclusion that Texaco had knowledge of the contract existing between Getty Oil Company and Pennzoil and that Texaco nevertheless willfully induced a breach of that contract. Hence, Texaco was found liable to Pennzoil for compensatory and punitive damages. Accord