Prepared by MERRILL CORPORATION

BRAD R. GODSHALL, ESQ. (SBN 105438)
IAIN A.W. NASATIR, ESQ. (SBN 148977)
PACHULSKI, STANG, ZIEHL, YOUNG & JONES P.C.
10100 Santa Monica Boulevard
Suite 1100
Los Angeles, CA 90067
Telephone: (310) 277-6910
Facsimile: (310) 201-0760

SNTL Corporation ("SNTL"), formerly Superior National Insurance Group, Inc., SNTL Holdings Corporation ("SNTLHC"), formerly Business Insurance Group, Inc., SN Insurance Services, Inc. ("SNIS") and SN Insurance Administrators, Inc. ("SNIA"), are the debtors and debtors in possession (collectively, the "Debtors" or the "Proponents") in the above-captioned Chapter 11 bankruptcy cases. On April 26, 2000, the Debtors commenced bankruptcy cases by filing voluntary petitions under Chapter 11 of the United States Bankruptcy Code ("Code"), 11 U.S.C. § 101 et seq., with the United States Bankruptcy Court for the Central District of California (the "Bankruptcy Court"). Chapter 11 allows the Debtors to propose a plan of reorganization. Such a plan may provide for the Debtors to reorganize by continuing to operate, to liquidate by selling assets of the estate, or a combination of both. The Debtors are the parties proposing the plan of reorganization (the "Plan") sent to you in the same envelope as this document. THE DOCUMENT YOU ARE READING IS THE DISCLOSURE STATEMENT IN RESPECT OF THE ENCLOSED PLAN. TERMS NOT DEFINED IN THIS DISCLOSURE STATEMENT SHALL HAVE THE MEANINGS ASCRIBED TO SUCH TERMS IN THE PLAN.

The Plan provides separate treatment for the Creditors and equity interest Holders of each of the Debtors. Under the Plan, Creditors and Holders of the common stock of SNTL receive Litigation Trust Certificates. The Litigation Trust will be funded by valuable litigation rights. The Litigation Trust also is the payee on an "Earn Out Note" (i.e., the "EON") which the Debtors believe is valuable. You are urged to read the Plan in its entirety.

This Disclosure Statement summarizes what is in the Plan, and tells you certain information relating to the Plan and the process the Bankruptcy Court follows in determining whether or not to confirm the Plan.

This Disclosure Statement cannot tell you everything about your rights. You should consider consulting your own lawyer to obtain more specific advice on how this Plan will affect you and what is the best course of action for you.

You are advised to read the Plan as well as the Disclosure Statement. If there are any inconsistencies between the Plan and the Disclosure Statement, the Plan provisions will govern.

The Code requires a Disclosure Statement to contain "adequate information" concerning the Plan. [The Bankruptcy Court ("Court") has approved this document as an adequate Disclosure Statement, containing enough information to enable parties affected by the Plan to make an informed judgment about the Plan. Any party can now solicit votes for or against the Plan].

THE COURT HAS NOT YET CONFIRMED THE PLAN DESCRIBED IN THIS DISCLOSURE STATEMENT. IN OTHER WORDS, THE TERMS OF THE PLAN ARE NOT YET BINDING ON ANYONE. HOWEVER, IF THE COURT LATER CONFIRMS THE PLAN, THEN THE PLAN WILL BE BINDING ON THE DEBTORS AND ON ALL CREDITORS AND INTEREST HOLDERS IN THIS CASE.

The Ballot enclosed with this Disclosure Statement is for the use of Creditors and Interest Holders in voting on the Plan. YOUR VOTE IS IMPORTANT. NON-ACCEPTANCE OF THE PLAN MAY LEAD TO A CHAPTER 7 LIQUIDATION, DISMISSAL OF THE CHAPTER 11 CASE OR THE CONFIRMATION OF ANOTHER PLAN. THESE ALTERNATIVES WILL NOT PROVIDE FOR DISTRIBUTIONS TO HOLDERS OF ALLOWED UNSECURED CLAIMS OR ALLOWED INTERESTS AT THE SAME LEVEL AS PROVIDED IN THE PLAN. You are urged to review carefully the Plan, this Disclosure Statement, all exhibits and the accompanying Ballot. After doing so, please indicate your vote on the enclosed ballot and return it in the envelope provided to the address set forth below on or before , 2001.

The hearing where the Bankruptcy Court will determine whether or not to confirm the Plan will take place on at {a.m./p.m.}, in Courtroom 303 of the Bankruptcy Court, San Fernando Valley Division, 21041 Burbank Boulevard, Woodland Hills, CA 91367.

If you are entitled to vote, it is in your best interest to timely vote on the enclosed ballot and return the ballot in the enclosed envelope to Brad R. Godshall, Pachulski, Stang, Ziehl, Young & Jones P.C., 10100 Santa Monica Boulevard, Suite 1100, Los Angeles, CA 90067. Your ballot must be received by or it will not be counted.

Objections to the Confirmation of the Plan must be filed with the Court and served upon Brad R. Godshall, Pachulski, Stang, Ziehl, Young & Jones P.C., 10100 Santa Monica Boulevard, Suite 1100, Los Angeles, CA 90067 by .

Any interested party desiring further information about the Plan should contact Iain A.W. Nasatir, Pachulski, Stang, Ziehl, Young & Jones P.C., 10100 Santa Monica Boulevard, Suite 1100, Los Angeles, CA 90067.

The financial data relied upon in formulating the Plan is based on Debtors' financial records. The information contained in this Disclosure Statement is provided by the Debtors. The Debtors represent that everything stated in the Disclosure Statement is true to the Debtors' best knowledge. The Court has not yet determined whether or not the Plan is confirmable and makes no recommendation as to whether or not you should support or oppose the Plan.

Under the Plan, the corporate structure of the various Debtors will be maintained, with a creditor of the Debtors, The Chase Manhattan Bank ("Chase" or the "SNTL Acquiror"), becoming the sole shareholder of the parent company of the Debtors' corporate group—SNTL. The ultimate objective of the Plan is to rehabilitate the Debtors, with the assistance of Chase, to make such entities profitable as going concerns, thereby enabling Creditors to maximize recovery on account of their Claims. Recoveries by Creditors on their Claims is expected to come from several sources, including: SNTL's pending litigation against Foundation Health Corporation ("FHC"), Foundation Health Systems, Inc. ("FHS") and Milliman & Robertson, Inc. ("M&R") (as described infra, (the "FHC Litigation") and payments by J.P. Morgan Chase & Co. ("JPMC") on the EON based upon the tax savings generated by the consolidated group of JPMC, of which Chase is a part, by reason of the utilization of the substantial net operating losses ("NOLs") of SNTL and its subsidiaries (the "SNTL Group").

The Debtors cannot calculate the magnitude of the recoveries from these sources with any particular precision. As set forth below, the Debtors believe that the recovery will be substantial and far in excess of what might be available under any alternative plan of reorganization.

Chapter 11 is the principal reorganization chapter under the Bankruptcy Code. Pursuant to chapter 11, a debtor is authorized to reorganize its financial affairs for its own benefit and that of its Creditors. Unless otherwise ordered by a bankruptcy court, the Bankruptcy Code allows a debtor to remain in operation and to work out its financial difficulties. In a chapter 11 case, the debtor continues to manage its affairs as a debtor in possession and as a fiduciary to the Creditors of the estate. In the instant Chapter 11 Cases, the Debtors have retained possession of their property and continue to manage their financial affairs as debtors in possession.

The commencement of a chapter 11 case creates an estate comprising all of the legal and equitable interests that the debtor has in property as of the date the bankruptcy petition is filed.

The filing of a chapter 11 petition also triggers the "automatic stay" provisions of the Bankruptcy Code. Section 362 of the Bankruptcy Code provides for a stay or an injunction against any attempt to collect a pre-petition debt, claim or obligation from the debtor or otherwise to interfere with its property or financial affairs. Unless the Bankruptcy Court orders otherwise, the automatic stay remains in full force and effect until the plan of reorganization is confirmed.

The Bankruptcy Code authorizes the creation of official creditor and equity committees to protect the interests of Creditors and Interest Holders, respectively. The fees and expenses of counsel and other professionals employed by such official committees are generally borne by the bankruptcy estate. In these Chapter 11 Cases, as more fully set forth below, the Bankruptcy Court has approved the formation of the Creditors' Committee, representing the collective interests of General Unsecured Creditors of the Debtors' Estates.

A chapter 11 debtor emerges from bankruptcy by successfully confirming a plan of reorganization. A plan may either be consensual or non-consensual and provide, among other things, for the treatment of the claims of Creditors and interests of shareholders. The confirmation process and the conditions for confirming either a consensual or non-consensual plan are more fully described below.

The formulation of a plan of reorganization is the primary purpose in each chapter 11 case. The plan of reorganization is the vehicle for setting forth the means by which the debtor will satisfy parties who hold claims against or interests in the debtor. Although it is referred to as a plan of

reorganization, the plan may also provide for the orderly liquidation of a debtor's assets. In these Chapter 11 Cases, the Debtors' Plan calls for the reorganization of the financial affairs of the Debtors and the payment of, among other things, Litigation Trust Certificates to Creditors and Interest Holders holding Allowed Claims or Allowed Equity Interests as more specifically described below in Section IX. In other words, it is the intention of the Debtors that they will continue their existence and operate as reorganized debtors following confirmation of the Plan.

After a plan of reorganization is filed, the Holders of Claims against or interests in a debtor whose claims or interests are proposed to be impaired are permitted to vote to accept or reject the plan. Section 1125 of the Bankruptcy Code requires that, prior to soliciting acceptances of the proposed plan, the debtor must prepare a disclosure statement which contains adequate information about the debtor, its assets and liabilities and the plan of reorganization such as will enable a hypothetical, reasonable investor to make an informed judgment about the plan. This Disclosure Statement is presented to Holders of Claims against and interests in the Debtors to satisfy section 1125 of the Bankruptcy Code.

Chapter 11 does not require that each holder of a claim against the debtor vote in favor of a plan of reorganization in order for a bankruptcy court to confirm the plan. The Bankruptcy Code defines acceptance of a plan by a class of Creditors that hold claims against the debtor as acceptance by at least two-thirds in dollar amount and more than one half of the number of the Holders of allowed claims in that class actually voting. Holders of Claims or Interests who fail to vote will not be counted as having either accepted or rejected the plan.

Classes of Claims that are not "impaired" under a plan of reorganization are presumed to have accepted the plan of reorganization and, therefore, are not entitled to vote. Acceptances of the Plan in these Chapter 11 Cases are being solicited only from those Persons who hold Claims in an Impaired Class. A class is "impaired" if the legal, equitable, or contractual rights attaching to the claims of that class are modified. Modification for the purpose of determining impairment, however, does not include curing defaults, reinstating maturity or compensating for damages.

Even if all of the classes of claims accept a plan of reorganization, a bankruptcy court may determine that the plan should not be confirmed if the plan does not meet the requirements of section 1129 of the Bankruptcy Code. This section requires, among other provisions, that a plan of reorganization be in the "best interests" of Creditors and that the plan of reorganization be "feasible" in order that it may be confirmed. The "best interests" test generally requires that the value of the consideration to be distributed to the Holders of claims under a plan not be less than what they would receive if the assets of the debtor were to be liquidated under a hypothetical liquidation pursuant to chapter 7 of the Bankruptcy Code. The bankruptcy court must also find that there is a reasonable probability that the debtor will be able to perform the obligations set forth in the plan of reorganization and that the debtor will be able to continue operations after confirmation without the need for further financial reorganization in order to fulfill the "feasibility" requirement under section 1129 of the Bankruptcy Code. The Debtors believe that the Plan satisfies these requirements.

Even though a creditor may choose not to vote or may choose to vote against the plan, the creditor will be bound by the terms and treatment set forth in the plan if such plan is accepted by the required majorities in each class of Creditors and Interest Holders entitled to vote thereon or is otherwise confirmed by the bankruptcy court.

The proponent of the plan may seek confirmation of the plan under the "cramdown" provisions of the Bankruptcy Code in the event the requisite approval of impaired classes is not obtained. Pursuant to section 1129(b) of the Bankruptcy Code, a proponent may "cramdown" the plan against a non-accepting class of Creditors or interests if the plan complies with all of the requirements of section 1129(a) (except section 1129(a)(8), which requires acceptance by all impaired classes), and the proponent establishes, among other things, that the plan is accepted by at least one impaired class of Creditors, that the plan is "fair and equitable," and that the plan does not "unfairly discriminate." In

these Chapter 11 Cases, if any Class votes to reject the Plan, the Debtors will seek to satisfy the requirements of Confirmation under the "cramdown" provisions of the Bankruptcy Code. For a more complete description of these requirements, see section X.H.(8) of this Disclosure Statement.

SNTL was originally incorporated in California in 1985 as Superior National Insurance Group, Inc. ("SNIG") and was reincorporated in Delaware in 1997. SNTL is the parent company of a group of insurance companies that until 2001 underwrote Workers Compensation and, to a limited extent, group health insurance. Debtor SNTL owns all of the outstanding and issued stock of Debtor SNTLHC. SNTLHC is a holding company, which owns all of the outstanding stock of Debtors SNIS and SNIA. SNIS and SNIA are a managing general agent and third party claims administrator, respectively, specializing in Workers Compensation risks and services.

SNIS operates as a managing general agency ("MGA"). An MGA is an entity that manages all or part of the insurance business of an insurer, negotiates and binds insurance contracts on behalf of an insurer, and acts as an agent for the insurer. The services provided by MGAs include marketing, underwriting, policy administration, collections, safety management and premium audit. MGAs are not licensed insurance companies and therefore are prohibited from taking any insurance risk. However, in the states in which they do business, MGAs must be licensed insurance agents and are subject to regulation as such by those states' insurance departments. SNIA operates as a third party administrator ("TPA"). A TPA is an entity that provides claims administration services to insurance companies. Like MGAs, TPAs are not licensed insurance companies but nevertheless are subject to regulation by the insurance departments of the states in which they do business.

In the past, SNIS derived a significant amount of business from its establishment of various "fronting" arrangements. In a "fronting" arrangement, an insurance policy is issued by a company (the "Front Company") to a policyholder (the "Insured"). For a fee, the Front Company then reinsures most, if not all, of the risk on the fronted policy to a reinsurer. The entire transaction is arranged by the MGA, which typically has pre-existing relationships and understandings with the Insured, the Front Company and the reinsurer. In this manner, the MGA can maximize the amount and quality of the insurance being issued to the Insured, while minimizing the premiums and other costs associated with that insurance. Prior to the bankruptcy filing, SNIS had entered into fronting arrangements principally with three companies: ZC Insurance Company ("ZCIC"), Centre Insurance Company ("CIC"), and Underwriters Insurance Company ("UIC").

Since 1993 and until the acquisition of SNTLHC (then known as Business Insurance Group, Inc. ("BIG")) in December 1998, SNTL operated as a Workers Compensation insurer with the business focused almost entirely on California and Arizona. In 1998, 75.2% of SNTL's premium was written in California, on a pro forma basis for this acquisition. Additionally, SNTL historically concentrated marketing to group programs and smaller accounts generating less than $50,000 in annual premiums, believing these accounts would provide higher margins. By contrast, SNTL's acquisition of SNTLHC expanded SNTL's business into a new field in that SNTLHC was a multi-state carrier in Workers Compensation insurance, traditionally marketing to larger accounts where pricing has been more competitive. SNTL and its subsidiaries paid no stockholder dividends subsequent to 1998.

SNTLHC's insurance subsidiaries include Superior National Insurance Company ("SNIC"), Superior Pacific Casualty Company ("SPCC"), California Compensation Insurance Company ("CalComp"), Combined Benefits Insurance Company ("CBIC"), and Commercial Compensation Insurance Company ("CCIC"). SNIC's only subsidiary was wholly owned Western Select Service Corp.,

which provided vocational rehabilitation, legal, paralegal, and other services to SNIC and SPCC. No other BIG subsidiary had any active subsidiaries.

On or about March 3, 2000, when the Commissioner of Insurance for the State of California placed SNIC, SPCC, CalComp and CBIC into conservation, SNTL, SNIS and SNIA employed approximately 1200 personnel providing sales, underwriting, and loss control services to its clients, which include insurance companies, other insurance agents, and individual policyholders. SNTL also owns a reinsurance company domiciled in the nation of Bermuda named Superior (Bermuda) Ltd. ("SBL"), and Commercial Compensation Casualty Company ("CCCC"), into which CCIC was merged, on or about June 14, 2000, and conserved by the California Department of Insurance (the "CDI").

SBL is a Bermuda domiciled reinsurance company formed by SNIC in 1995, the sole function of which was to reinsure the run-off property and casualty ("P&C") liabilities associated with the non-Workers Compensation business underwritten by SNIC prior to 1994. Management's objective in forming SBL was to remove from SNIC's statutory annual statement liabilities that did not pertain to SNIC's core Workers Compensation business. Immediately after SBL was formed and capitalized by SNIC, and the P&C liabilities were transferred from SNIC to SBL, SNIC distributed the stock of SBL to its then-parent company, SNTL. The transactions described above were approved by the CDI and the Bermuda Office of the Registrar of Companies.

SBL's reinsurance contract with SNIC was commuted—unwound—during 2000 concurrently with the execution of SNTL's Global Settlement Agreement with the CDI. See Section V.B. below. SBL's assets consist of approximately $2.0 million of cash, and SBL has no liabilities or other obligations whatsoever.

On or about September 26, 2000, an Order of Liquidation was entered as to SNIC, SPCC, CBIC and CalComp. (the "Conserved Companies"), placing them in liquidation (hereinafter "Superior National Insurance Companies In Liquidation" or the "SNICIL Estates".

At present, SNTL, SNIS and SNIA have approximately fifty employees, providing the same services as detailed above. SNTLHC has no employees.

Prior to 1998, the SNTL group of companies concluded that it would be to its advantage to grow its business. This determination led to the ill-fated decision to acquire the stock of SNTLHC (then known as BIG), as discussed below.

SNTL acquired SNTLHC, the holding company of CalComp, CCIC, and CBIC, in December 1998. This acquisition led to SNTL's insolvency. SNTL entered into a Purchase Agreement dated May 5, 1998 with FHC under which SNTL would purchase from FHC all of the shares of BIG (now SNTLHC) (the "SNTLHC Purchase Agreement"). By that acquisition, SNTL became the indirect owner of four additional insurance subsidiaries: Business Insurance Company ("BICO"), CBIC, CCIC and CalComp (the "SNTLHC Acquisition"). The purchase price was approximately $285,000,000 in cash. SNTL borrowed approximately $110 million and sold common stock to raise the funds necessary to consummate the SNTLHC Acquisition. Shortly after completing the acquisition of SNTLHC, SNTL sold BICO (since renamed Centre Insurance Company) to Centre Solutions Holdings (Delaware) Limited.

The purchase of SNTLHC proved to be disastrous. As discussed with more particularity below, SNTL has sued FHC, FHS, and M&R, actuary for FHC's insurance subsidiaries, for defrauding SNTL in conjunction with the 1998 sale of SNTLHC to SNTL. SNTL seeks recovery from FHC, FHS, and M&R of at least $300 million in damages, including indemnification of SNTL by FHC, FHS, and M&R

from any damages suffered by SNTL due to the fraud, the return to SNTL of the $285 million that it paid FHC to acquire SNTLHC, punitive damages, and reimbursement of SNTL's costs associated with the lawsuit.

On March 3, 2000, the CDI used administrative powers relegated to it under the California Insurance Code to seize the assets and operations of four of SNTL's wholly owned insurance subsidiaries domiciled in California, including SNIC, SPCC, CalComp, and CBIC (the "Conserved Companies"). On March 6, 2000, the CDI was granted permission by a California court to "conserve" the Conserved Companies, meaning they were removed from SNTL's control and their management was taken over by the CDI. On September 26, 2000, the CDI was granted permission by the Los Angeles Superior Court to liquidate the assets and operations of the Conserved Companies (see discussion infra at III.E.).

The CDI seized and conserved the Conserved Companies because, after an analysis of the insurance companies' claim and claim adjustment expense reserves, SNTL's management informed the CDI that the Conserved Companies were "statutorily impaired." Under California law any insurance company that does not possess sufficient assets to pay their unpaid claim and claim adjustment expenses, and to maintain in addition a statutorily prescribed minimum level of capital, is considered statutorily impaired. The CDI subsequently completed an examination of the Conserved Companies' financial condition and accepted SNTL's analysis of claim and claim adjustment expenses. The additional unpaid claim and claim adjustment expenses management believed were necessary caused the statutory capital of the insurance companies to fall below zero. The CDI usually exercises its authority to seize the assets and operations of, and then to conserve, or liquidate, statutorily impaired insurance companies. SNTL management cooperated with the CDI throughout the CDI's examination of the Conserved Companies' books and records, and SNTL management was ultimately responsible for making the judgment that the Conserved Companies were statutorily impaired.

SNTL management believed representations made by CDI personnel prior to March 3, 2000, including that the conservation of the Conserved Companies would occur on a "friendly basis," and that SNIS and SNIA would be permitted to carry on their historical managing general agency and third party claims administration businesses. SNTL permitted the CDI to occupy a dozen of its facilities, utilize its furniture and equipment, and expropriate the services of over 1,200 employees, on March 3, 2000, without hindrance or complaint, based on the CDI's representations. Further, SNTL executives informed its employees that SNTL expected its employees to cooperate with the CDI, except when to do so conflicted with the interests of the non-Conserved Companies.

Unfortunately for SNTL, in addition to removing the assets and operations of the Conserved Companies from SNTL's control on March 3, 2000, the CDI also removed, or attempted to remove, from SNTL's control the assets and operations of the Debtors including the seizure of the entirety of SNTL's operations on March 3, 2000, and the ejection of SNTL's senior management from the corporate offices. Subsequent actions taken, or positions adopted, by the CDI to mitigate SNTL's control over its assets and operations made things even more difficult for SNTL management, resulting in a very long period of non-reporting to stockholders and months of litigation between SNTL and the CDI.

The seizure and conservation of the Conserved Companies, and the actual or attempted seizure of SNTL's employees, facilities, records, and bank accounts, by the CDI, made it impossible for SNTL management to conduct SNTL's affairs in an orderly fashion after March 3, 2000. Therefore, on April 26, 2000, the Debtors filed petitions with the Bankruptcy Court, seeking protection under Chapter 11 of the Bankruptcy Code.

SNTL has written off its investment in the Conserved Companies for financial reporting purposes. The Plan contemplates that SNTL will continue to be engaged in the property and liability insurance business through the continuation of the business operations of SNIS and the engagement of other non-risk taking activities. Moreover, although there is no definite plan to conduct business as a risk-taking insurance company, SNTL may decide to engage in such business through SNIA, SBL or otherwise.

CIC, previously identified as one of the Debtors' Front Companies, has certain affiliates which have a common ownership interest in both the Debtors and CIC. Specifically, the Debtors believe Centre Reinsurance, Limited (BDA) is the parent of the parent of CIC, and it has a less than majority ownership interest in each of two partnerships which own SNTL stock.

ZCIC, also a Front Company of the Debtors, is owned, on information and belief, by Zurich Reinsurance Company, which is in turn owned by Zurich Reinsurance Centre Holdings, Inc. Zurich Reinsurance Centre Holdings, Inc. indirectly owns Centre Reinsurance Limited (BDA), which as discussed above, indirectly owns CIC.

The cumulative ownership of all the affiliates of the ultimate owner of the Front Companies was disclosed in the Debtors' 1998 10K, as follows:

The Debtors have the following Claims against them as of the Petition Date which are addressed through the Plan:

The vast majority of priority claims against each Debtor constitute claims by employees which are capped at $4,300.00 per individual pursuant to 11 U.S.C. section 507(a)(3). Because the exact amount of employees entitled to a claim is uncertain, given the reemployment of many SNTL employees by the CDI in its capacity as Liquidator of the SNICIL Estates, the Debtors estimate the range of administrative claims to be paid to individuals to be from a minimum of $120,000 to a maximum of $1,002,000. There are also approximately $460,000 in Priority Tax Claims. The Debtors have sufficient cash to pay each of the Debtors' priority claims.

The acquisition of BIG and its insurance subsidiaries was funded in December 1998 with (a) senior debt financing in the amount of $110.0 million (the "Lender Debt") and (b) equity financing in the amount of $200.1 million. The Lender Debt financing was obtained pursuant to the terms of a Credit Agreement dated as of December 10, 1998 (the "Credit Agreement"), among SNTL, Chase, as administrative agent, and various lending institutions (the "Lender Group"). As described in more detail in Section IV.C, below, the Lender Debt is contractually senior in right to the Trust Preferred Securities (as defined below) issued by the Trust (as defined below) pursuant to the Senior Subordinated Indenture (as defined below). Although the Senior Subordinated Indenture contains a covenant limiting SNTL's ability to incur indebtedness, SNTL obtained, prior to the incurrence of the Lender Debt, the consent of the holders of the outstanding Trust Preferred Securities to incur the Lender Debt as "Senior Indebtedness" (as defined in the Senior Subordinated Indenture). This waiver was effected pursuant to the First Supplemental Indenture, dated as of November 17, 1998, between SNTL and the Wilmington Trust Company, as trustee. As a result of the Chapter 11 filing, all required repayments of principal and interest under the terms of the Credit Agreement for the Lender Group debt have been suspended, except for a $5.4 million distribution of cash, which was paid to the Lender Group on December 4, 2000, pursuant to a November 9, 2000 order of the Bankruptcy Court. The Lender Group had asserted their right to these funds as cash collateral, a conclusion the Creditors' Committee supported.

The Lender Group has filed a Claim in the amount of $113,675,229. SNTL has scheduled this claim as undisputed, net of the distribution referenced above.

On December 3, 1997, SNTL formed Superior National Capital Trust I, a Delaware business trust (the "Trust"), for the sole purpose of issuing preferred securities, having an aggregate liquidation amount of $105 million, in a private placement (the "Trust Preferred Securities") also issued to SNTL, for an aggregate consideration of approximately $3.25 million, all of its common securities. The proceeds from the sale of these securities were used by the Trust to purchase SNTL's 10³/4% Senior Subordinated Notes due December 1, 2017 (the "Senior Subordinated Notes"). On January 16, 1998, SNTL and the Trust completed the registration with the Securities and Exchange Commission of an exchange offer for the outstanding Trust Preferred Securities, Senior Subordinated Notes and related guarantees of SNTL, pursuant to which substantially all of these securities were exchanged for substantially similar securities.

The Trust Preferred Securities represent a General Unsecured Claim in the amount of $108,248,000, which Claim is undisputed but subordinated to the Lender Debt claim. SNTL has scheduled this Claim as undisputed.

There were three Claims filed against the Debtors relating to surety bond guarantees, each Claim constituting a General Unsecured Claim:

The Conserved Companies entered into the above-referenced Workers Compensation Bonds ("Bonds") commencing in September of 1999. The Bonds represented a promise on the party of the surety to pay workers compensation claims on behalf of the Conserved Companies under certain circumstances. The Conserved Companies procured the sureties' promises to pay approximately $108.0 million of workers compensation claims in the states of California and Arizona. The Bonds with respect to California workers compensation claims (the "California Bonds") were procured as follows: CalComp $15.0 million, CBIC approximately $4.2 million, CCCC approximately $3.0 million, SNIC $70.0 million, and SPCC approximately $2.4 million, for a total of approximately $95.0 million of California Bonds. The Bonds with respect to Arizona workers compensation claims (the "Arizona Bonds") were procured as follows: SNIC approximately $8.4 million, and SPCC approximately $4.9 million, for a total of approximately $13.3 million of Arizona Bonds. In the case of each Bond, SNTL, or SNTL and various combinations of its Subsidiaries, agreed to indemnify the sureties against any loss or expense incurred by the sureties.

The Debtors have filed objections to these proofs of claims, and dispute them for a number of reasons, including the basis upon which the Bonds are being called, since the policies are being honored in the state court liquidation proceedings.

The SNTL group of companies has historically entered into "fronting" relationships with related and unrelated party insurance companies. "Fronting" is the common insurance industry term used to describe the agreement by an insurance company to allow policies to be issued in its name by a third party. A fronting arrangement may allow a nonregulated entity, such as an insurance agent, to create a program for the benefit of a number of similar policyholders without the capital expense of forming a new insurance company. Fronting also permits an insurance company with a relatively low rating from the insurance rating agencies to offer its customers higher rated policies. A fronting company is generally paid a percentage of the policy premium as a fee for the use of its name and as compensation for the financial benefit provided by the insurance company to the third party. The fronting company usually cedes most, if not all, of the risk on the fronted policies to a reinsurer. The reinsurance is frequently, but not always, arranged by the third party as well.

At the time of the seizure of the Conserved Companies by the CDI, SNTL's insurance subsidiaries were participating in fronting agreements principally with three companies: ZCIC, CIC and UIC. As a part of those fronting arrangement, SNIS, SNIA, and CalComp had entered into underwriting and claims management agreements (respectively) with the "front companies". At the time of the seizure of the Conserved Companies, these companies were prevented from performing under these agreements, and the front companies sought and accepted performance of those contractual obligations from the CDI in its capacity as conservator of the SNICIL Estates. As a result of those contractual obligations, CIC and ZCIC have filed General Unsecured Claims for damages arising out of the non performance of those contracts and for any and all premiums allegedly held by SNIS. The damages claims for non performance have also been asserted against SNTL as a guarantor and are set forth approximately as follows:

These Front Company Creditors also have Claims for asserted unpaid premiums, including premiums allegedly held by the SNTL companies in separate "trust" accounts as follows: (1) ZCIC, $200,000; (2) CIC, $1.6 million; and (3) UIC, $3.8 million. As a condition of Bankruptcy Court approval of the "global settlement" with the CDI (as discussed below), SNTL holds in two fiduciary accounts the amounts claimed by CIC and UIC ((2) & (3) above). SNTL disputes it owes any such amounts and claims that such funds are commissions due and owing to SNTL from the front companies. SNTL believes that some or all of these Claims, if valid, are indemnified by the CDI through the Global Settlement Agreement (as defined below). See Section V.C., below, for a detailed discussion of the Global Settlement Agreement.

CIC has also filed a contingent General Unsecured Claim for damages in the event that certain transactions are reversed or voided or disallowed as preferences or avoidable transfers. Specifically, effective December 31, 1999, CIC, SNTL, CalComp and SNIC entered into a letter agreement (the "Letter Agreement") referencing a "Partial Commutation and Settlement Agreement" (the "Partial Commutation Agreement") under which CIC released CalComp from the obligation of reinsuring CIC for the first $180 million under a "100% Quota Share Reinsurance Agreement" through December 31, 1999. CIC claims an entitlement to any amounts in excess of the $180 million which CalComp does not pay. CIC also claims that, in the event the foregoing transactions were found to be preferences or voidable transfers, that the $180 million liability CIC would then be responsible for would also be guaranteed by the Debtors.

As part of these same transactions, SNTL and SNTLHC agreed to pursue the FHC Litigation in a commercially reasonable manner and to pay to CIC fifty percent (50%) of any award, judgment or recovery arising directly or indirectly from the FHC Litigation, capped at 50% on any award above $75 million. CIC asserts a General Unsecured Claim in the amount of $40 million, representing its purported interest in the FHC Litigation. CIC also suggests a Claim for attorneys fees incurred and expected to be incurred relating to the foregoing, in the amount of approximately $3 million. The Debtors dispute these Claims.

UIC has filed a General Unsecured Claim for $11.4 million for reinsurance funds allegedly due it from the Conserved Companies and purportedly guaranteed by SNTL. SNTL also disputes this Claim.

Many Claims have been brought against SNTL or the other Debtors seeking to enforce obligations of the insurance subsidiaries of SNTL. Absent any guaranty or other indemnity arrangement, SNTL expects these Claims to be disallowed.

The CDI, on behalf of the Insurance Commissioner in his capacity as Liquidator of the SNICIL Estates, a filed a proof of claim seeking any recovery in the FHC Litigation. SNTL intends to file an objection to this Claim, on a variety of grounds, and believes its objection will be sustained.

Various high level executives have filed claims based upon three year employment contracts, which claims should be capped at one year's compensation, pursuant to 11 U.S.C. section 502(b)(7). The amount of such claims currently total $8,253,960.76, but SNTL anticipates the allowed value of such claims to be approximately $2,750,000.00 before taking into account other defenses and objections SNTL may have.

Insurance Corporation of Hannover, Scandinavian Reinsurance and Odyssey Reinsurance Corporation (collectively the "HSO Reinsurers") have filed a General Unsecured Claim for $37.5 million and received relief from stay to file a lawsuit seeking the same recovery, based upon SNTL and SNTLHC's alleged fraud in inducing the HSO Reinsurers to reinsure the Conserved Companies for 50% of $75 million in excess of losses over $603 million. The Debtors are vigorously defending themselves against these Claims and believe them to be meritless.

SNTLHC's subsidiary, CCIC, which was domiciled in New York, was not seized or conserved on March 6, 2000. CCIC was not seized or conserved by the CDI because the New York Department of Insurance ("NYDI") exercised regulatory authority over CCIC. The NYDI did not seize or conserve CCIC at the request of the CDI, and perhaps also because CCIC was statutorily solvent. On the date of the CDI's seizure and conservation actions, CCIC was about to complete its merger into CCCC, a new California domiciled company, into which SNTL's wholly owned subsidiary SNTLHC, had contributed $5.4 million of capital. SNTL sought to terminate the merger because CCCC was a solvent company, and therefore the CDI could not conserve it. CCCC might then someday be liquidated and its $5.4 million of capital recovered for the benefit of the Debtors.

If the final merger documents had been executed by New York regulators prior to the seizure, or if the CDI could have persuaded the New York regulators to execute them before March 6, 2000, the insurance operations of CCIC when merged into CCCC would have almost certainly resulted in the conservation of CCCC and the loss of its $5.4 million of capital. SNTL moved expeditiously on March 6, 2000, to inform the NYDI, New York Department of Corporations and all the relevant parties at the CDI that the merger of CCIC into CCCC was terminated. The CDI demanded that SNTL complete the merger, which was acceptable to SNTL, but only if it was first allowed to receive upon receipt as a dividend from CCCC the $5.4 million of minimum capital and surplus that had been contributed to CCCC by SNTLHC. The CDI ultimately agreed to allow the $5.4 million distribution, in return for the completion of the merger.

The CCIC/CCCC merger termination also resulted in the payment of $1.9 million from the Conserved Companies to SNTL. The CDI informed SNTL that the return of the $5.4 million was contingent upon, and adjustable by, any amounts owed by SNTL to the Conserved Companies. The CDI performed an audit of SNTL's inter-company accounts, and ultimately determined that the Conserved Companies owed SNTL $1.9 million, which was paid to SNTL in June, 2000.

Notwithstanding management's recommendation that the CCCC funds be retained by SNTL to assure the viability of its future operations and legal activities, the Lender Group claimed the $5.4 million CCCC distribution as cash collateral under the terms of the loan agreement. The $5.4 million distribution, less certain bank expenses charged to SNTL, plus interest, was paid to the Lender Group in November, 2000, pursuant to Bankruptcy Court order, reducing their Claims by a corresponding amount.

During the post-petition period, SNTL has had frequent and significant disputes with the CDI over a variety of important issues and assets, including, but not limited to, access to employees, access to data, access to records, liability resulting from actions taken by the CDI in its capacity in conserving the SNICIL Estates, ownership of leases, ownership of net operating losses, ownership of contractual rights and satisfaction of pre-existing obligations. These conflicts were, for the most part, waged on two fronts: the Bankruptcy Court overseeing SNTL and the state court overseeing the conservation and ultimate liquidation of the SNICIL Estates.

Shortly after filing the Debtors' petitions, the Debtors filed motions to allow use of funds in their possession to pay employees. This motion and other related attempts to use funds were opposed by the CDI, who claimed ownership over these funds, and who maintained that the Bankruptcy Court was not the appropriate forum or jurisdiction in which such issues could be settled. It took over three months and multiple hearings in the Bankruptcy Court to determine that in fact the Bankruptcy Court was the appropriate forum and did have jurisdiction to decide ownership of the funds and of certain real property and personal property leases which were in question. The Bankruptcy Court also determined that the McCarran-Ferguson Act did not divest it of jurisdiction and that the Eleventh Amendment did not shield the CDI from rulings on these issues by the Bankruptcy Court.

The Debtors also litigated issues before the Los Angeles Superior Court judge supervising the conservation efforts of the CDI, including challenging unsuccessfully the bid by Lumbermens Mutual Casualty Company, Kemper Employers Group, Inc., and Kemper Employers Insurance Company (collectively "Kemper") for assets of the conserved insurance companies, and successfully objecting to certain agreements and procedures the CDI sought to implement which would have interfered with the Debtors' reorganization efforts or devalued their assets. Such actions included filing a motion to modify the conservation orders regarding SNTL's set off rights and filing proofs of claims in the CDI's conservations. Many of the issues discussed in this section were resolved by the Global Settlement Agreement (as defined below) reached with the CDI.

Unresolved, however, was the dispute over the ownership of the NOLs of SNTL and its subsidiaries and the validity of the Tax Sharing Agreement (as defined below). After negotiations proved unsuccessful, SNTL and the CDI extensively briefed and argued over several months and hearings, the issues surrounding the ownership of the NOLs. On or about February 17, 2001, the Bankruptcy Court issued a tentative ruling in which it adopted the Debtors' position. At that time, the CDI and SNTL agreed to revisit settlement discussions.

Finally, the global settlement described below contained several obligations on the part of the CDI which went unfulfilled or ignored. These obligations involved a commutation of a reinsurance contract between SNIS and SBL, access to documents and witnesses, documentation of lease assumptions and liens and implementation of data exchange. The Debtors filed a motion to enforce the global

settlement, which the Bankruptcy Court tentatively granted, but sent the Debtors and the CDI to mediation, in which a satisfactory resolution was achieved.

The Debtors entered into the Global Settlement Agreement on September 8, 2000 with the CDI and Kemper (the "Global Settlement Agreement"). The Global Settlement Agreement was approved by the Bankruptcy Court on September 22, 2000, and by the Los Angeles Superior Court on September 26, 2000.

The Debtors agreed to use their best efforts to assign to the CDI and Kemper certain of the Debtors' owned or leased real or personal property located in the State of California, which included furniture, fixtures, equipment, software, hardware and office equipment. The Debtors also agreed to use their best efforts to assign to the CDI and Kemper any of the names, trade names, trademarks, service marks and logos under which the Conserved Companies conducted business. The CDI agreed generally to indemnify the Debtors for legal costs or damages incurred by the Debtors with respect to the assignment of owned or leased property or other assets to the CDI or Kemper. The Debtors were allowed to retain the use of the corporate names "SN Insurance Administrators, Inc." and "SN Insurance Services, Inc.," and title to the domain name superior.com and the computer hardware to which the domain name applies. The Debtors may not use the superior.com domain name, but rather must sell or assign it to a party not engaged in the insurance business.

The Debtors also agreed in general to conduct no business in California, and agreed to other restrictions outside of California, for a period of thirty (30) months commencing on August 31, 2000. The Debtors may apply to the CDI for permission to conduct lines of insurance business other than workers compensation after August 31, 2001. During the thirty (30) months from September 1, 2000 through February 28, 2003, SNIS agreed to compete with Kemper only as an agent, MGA, TPA, underwriter, or risk management services provider, with respect to Workers Compensation insurance, and only in the nineteen (19) states, Illinois, New Jersey, Colorado, Texas, Arizona, Oklahoma, Indiana, Pennsylvania, Kansas, Missouri, New York, Georgia, Florida, Arizona, Oregon, Tennessee, Iowa, Maryland, and Delaware. In addition, the Debtors may compete with Kemper without regard to time and geographic limitations where each agent or other producer with respect to the policy is located in the preceding states, and more than 90% of the total payroll for the policy is located in the preceding states. In addition, the Debtors may write without limitation Workers Compensation insurance for certain of its Creditors. The Debtors are permitted to operate administrative and corporate headquarters in California, although certain functional and size limitations apply during the thirty-months after August 31, 2000.

The CDI agreed to assist the Debtors to continue administration of the business of the Front Companies who issued insurance policies underwritten by SNIG and insured 100% by the Conserved Companies, including the right to control, manage, direct and require performance of the obligations of third party administrators, and the right to access SNTL's computer systems for the purpose of Front Company policy administration. The CDI agreed to indemnify the Debtors with respect to any claims by the Front Companies relating to the actual possession, collection or disposition of Front Company premiums after March 3, 2000, and with respect to any claims by the Front Companies relating to any performance or nonperformance of underwriting or claims administration pursuant to the contracts between the Debtors and the Front Companies. The CDI indemnity is secured by a lien upon the proceeds of the CDI's arbitration proceedings with the United States Life Insurance Company of the State of New York up to an amount of $28.0 million. The proceeds from the liquidation of the lien can be used to satisfy any and all obligations, including indemnity and defense obligations of the Conserved Companies to the Debtors.

On September 8, 2000, SNIS paid to the CDI $24,000,000 in premiums, the ownership of which was disputed and which SNIS had collected on behalf of the Front Companies and the CDI. On September 26, 2000, subsequent to Bankruptcy Court approval of the Global Settlement Agreement, SNIS paid to the CDI an additional $30,595,310.93 of disputed premiums it had collected on behalf of the Front Companies and the CDI. The CDI agreed that $10,500,000 of SNIS' funds were owned by SNIS as further consideration for the Debtors' agreement to enter into the Global Settlement Agreement, including releases, property transfers and assignments, and a full and final release of claims against the Conserved Companies relating to the ownership of the disputed premiums. SNIS agreed to transmit on a weekly basis the full amount of any premiums related to the Conserved Companies' policies that came into its possession after August 22, 2000.

The CDI provided the Debtors' officers, directors, employees, attorneys and certain others with releases from liability, but reserved its right to assert claims against a) Zurich Insurance Group ("Zurich") or any affiliate of Zurich other than the Debtors; b) any individual officer, director or employee of Zurich or any of its affiliates (other than an individual who is an officer, director or employee of one or more of the Debtors, and not of Zurich or any of its other affiliates); c) the Conserved Companies' officers and directors, regardless of whether they also are officers and directors of the Debtors, for errors and omissions in the management of the Conserved Companies; d) actuarial, accounting or other professional firms who provided services to or for the benefit of the Conserved Companies, including M&R and, e) the Debtors for the recoveries sought in the FHC Litigation or any entitlement of the CDI to intervene in the FHC Litigation on behalf of the Conserved Companies. The Debtors reserved all of their rights and defenses and did not acknowledge any alleged claim the CDI may have to intervene in or share in any recovery from the FHC Litigation.

The Debtors released the CDI, and their officers, directors, employees and attorneys, from liability, except for claims: a) from liabilities arising out of the CDI's expropriation of property, or from the CDI's takeover of the Debtors' offices; b) in the estates of the Conserved Companies other than any claim arising out of the Global Settlement Agreement; c) arising from indemnity, contribution, or similar obligations, with respect to any losses suffered by the Debtors as a result of the actions of the CDI in administering Front Company contracts after March 3, 2000.

Though it is not part of the Global Settlement Agreement, the CDI issued a letter dated September 8, 2000 stating that the Debtors have entered into the Global Settlement Agreement, and, subject to the limitations of the Global Settlement Agreement, the CDI has no objection to any third party conducting any lawful business with the Debtors. A second open letter, dated September 8, 2000, confirmed that the agency and third party administrator licenses of SNIS and SNIA issued by the CDI are in full force and effect, that no disciplinary action has been imposed on the licenses, and that no disciplinary proceedings are pending. That letter also states that the SNIS and SNIA licenses entitle them to engage in all lawful activities prescribed by the California Insurance Code and regulations.

In short the Global Settlement Agreement resolved most disputes between the CDI and the Debtors, leaving in place mechanisms for resolution of the remaining outstanding issues. For example, the issue of responsibility for Front Company contractual obligations, including premiums due post conservation, was resolved with an indemnity provided by the CDI. The issue of the ownership of the Net Operating Losses was set for hearing in the Bankruptcy Court, where Judge Mund determined the ownership, but not the allocation, of the NOLs. The Global Settlement Agreement also provided for cooperation between the CDI and the Debtors in their various litigations, including but not limited to the FHC Litigation, but preserved the CDI's alleged claim for proceeds in that litigation (a claim disputed by the Debtors).

Shortly after the consummation of the Global Settlement Agreement in September 2000, the Debtors and an affiliate of Capital Z Financial Services Fund II, L.P. ("Cap Z") (a major shareholder of SNTL) intensified their search for a suitable sponsor for their plan of reorganization, and began serious discussions with Chase and another confidential potential plan sponsor. Various structures for a plan of reorganization were explored with both candidates, without a clear determination of the best structure for a reorganization. The Debtors determined in November 2000 that it would be helpful, if not essential, to have the CDI consent to the structure of the reorganization, and in particular to the NOL ownership issues, in formulating both the structure of the reorganization and the identity of the plan sponsor. Unfortunately, by approximately the beginning of 2001, it became apparent that the CDI did not intend to provide any help with or consent to the restructuring process. As a result, litigation ensued (discussed infra at VI.B.1.).

After the Bankruptcy Court ruled on the ownership of the NOLs, the Debtors and Cap Z reopened their discussions with both the CDI and Chase (the other plan sponsor no longer being an option) in May 2001. During the summer of 2001, the Debtors, Cap Z and Chase negotiated heavily a term sheet, which developed into a restructuring proposal (the "Restructuring Proposal"). The Restructuring Proposal itself developed into the Plan addressed in this Disclosure Statement. The critical elements of the Restructuring Proposal were (1) the acquisition by Chase of SNTL, and through SNTL, all the Debtors' assets except for litigation causes of action; (2) the retention by Chase of the Debtors' businesses and employees; and (3) the payment of claims of creditors (other than Chase) via the realization of, among other things, the tax benefits of the NOLs. These and other aspects of the restructuring proposal are set forth in the Plan and discussed herein.

Although Chase and the Debtors have finalized the Restructuring Proposal, the Restructuring Proposal contains significant conditions precedent which must be satisfied before the deal can be consummated. These conditions include, among others, the presence of approximately $420 million of NOLs, the entry by SNTL into a management agreement with an MGA on terms acceptable to the SNTL Acquiror, the entry by SNTL into a settlement agreement with the CDI, on terms acceptable to the SNTL Acquiror, with respect to the ownership, allocation and use of the NOLs (or the entry of Bankruptcy Court rulings to the same effect), the satisfaction of the SNTL Acquiror regarding the capitalization, budget and business plan of Reorganized SNTL, the receipt of favorable rulings by the Bankruptcy Court regarding various tax issues essential to the successful implementation of the Plan and the payment by the Debtors of the costs and expenses of the SNTL Acquiror up to an agreed upon cap. These and other aspects of the Restructuring Proposal are set forth in the Plan and discussed herein. See Section VI.B.2. below.

Besides seeking enforcement of the Global Settlement Agreement, the Debtors have, with court approval, assumed and assigned leases, rejected leases, changed the names of certain Debtors, hired professionals to assist with the FHC Litigation (see infra at VI.B.1.), hired professionals to assist with certain claims relating to premium funds received by the Debtors and monitored proceedings in the CDI's state court liquidation proceedings.

The principal assets which form the basis of the Debtors' Plan are the continuing business of SNIS, the SNTL Group's NOLs, the FHC Litigation and other possible litigation. With the exception of these assets, the various Debtors have only miscellaneous assets of value only in administering Debtors'

limited business operations. A discussion of the continuing business of SNIS, the FHC Litigation and the NOLs is set forth below.

As discussed previously, SNIS operates as an MGA. An MGA is an entity that manages all or part of the insurance business of an insurer, negotiates and binds insurance contracts on behalf of an insurer, and acts as an agent for the insurer. The services provided by MGAs include marketing, underwriting, policy administration, collections, safety management and premium audit. MGAs are not licensed insurance companies and therefore are prohibited from taking any insurance risk. However, in the states in which they do business, MGAs must be licensed insurance agents and are subject to regulation as such by those states' insurance departments. A TPA is an entity that provides claims administration services to insurance companies. Like MGAs, TPAs are not licensed insurance companies but nevertheless are subject to regulation by the insurance departments of the states in which they do business. Pre-bankruptcy, SNIS derived a significant amount of business from its establishment of various "fronting" arrangements, in which it would arrange the issuance of an insurance policy by a Front Company to the Insured, which the Front Company would then, for a fee, reinsure most, if not all, of the risk on the fronted policy to a reinsurer. In this manner, the MGA can maximize the amount and quality of the insurance being issued to the insured, while minimizing the premiums and other costs associated with that insurance. SNIS had entered into fronting arrangements principally with three companies: ZCIC, CIC and UIC.

Following consummation of the chapter 11 reorganization, SNIS and SNIA intend to provide the same type of services they provided prior to the reorganization. Following consummation of the Plan, the SNTL Acquiror, who will become the sole parent of Reorganized SNTL and, through Reorganized SNTL, its direct and indirect subsidiaries (other than the Conserved Companies), intends to continue the MGA business of SNIS. In particular, SNIS plans to enter into contracts with insurance and reinsurance companies to accept the insurance risk associated with the service arrangements it undertakes on behalf of its clients. Although the SNTL Acquiror at this time has no definite plans to continue the business of either SNIA or SBL, it will be evaluating future business opportunities for both SNIA and SBL and, as such, may determine to continue their business operations.

SNTL elected in 1985 to file a consolidated federal income tax return, which means that SNTL and all of its subsidiaries, including the Conserved Companies, have always combined their tax returns and reported their taxable income or losses to the Internal Revenue Services ("IRS") substantially as if they were a single company. The election to file a consolidated return is only revocable with the express permission of the IRS. In order to be included in a consolidated return at least 80% of the voting power and value of the common stock of each subsidiary must be owned either directly by SNTL or directly by an affiliate of SNTL. Because SNTL owned directly, or indirectly through its affiliates (such as SNTLHC), 100% of the stock of each of its subsidiaries at December 31, 2000, all of SNTL's subsidiaries were included in SNTL's 2000 consolidated return.

SNTL's 2000 and prior consolidated federal income tax returns reflected approximately $1.026 billion of NOLs. The Debtors estimate the NOLs for the first six (6) months of 2001 will be approximately $50 million. Thus, the estimated NOLs as of June 30, 2001 are approximately $1.076 billion. The Internal Revenue Code ("IRC") permits NOLs to be carried back two (2) years and then carried forward twenty (20) years, to offset any consolidated taxable income in those years. Similarly, the approximately $256 million of the $1.076 billion of the NOLs was generated in 2000, and, if not used in future years, will expire at the end of 2020. Approximately $50 million of NOLs

generated in the first six (6) months of 2001 will expire at the end of 2021 if not used prior thereto. The NOLs have value to the extent they can be used in future years to offset taxable income, if any, prior to the NOL's expiration date and, therefore, will aid in the rehabilitation of the Debtors.

NOLs are generally grouped together and considered to be an "attribute" of, or owned by, the group of corporations filing the consolidated return. The consolidated return regulations impart to the controlling parent of the group virtually total control over the group's taxation. In the present case, the controlling parent is SNTL. Some exceptions to this general rule apply, but none of those exceptions are material to the present case. The only way that a consolidated NOL can be apportioned to an individual corporation in a consolidated group is when that corporation leaves the group (for example, by sale) or the group no longer files a consolidated return.

If a member of the group leaves the consolidated return ("deconsolidates"), the group's consolidated NOL are apportioned to the deconsolidated member in the proportion that the deconsolidated company's separate NOL, to the extent unused, bears to the sum of the separate NOLs of all of the group's members with NOLs, if any. Thus, the conservation of the Conserved Companies does not result in their deconsolidation from the SNTL Group from the Debtors' consolidated return. The IRS has ruled that insurance companies conserved or placed in liquidation by a state regulator must continue to be included in their parent company's consolidated return.

As part of the Global Settlement Agreement, the Debtors agreed with the CDI that the use of the NOLs of the SNTL Group and the allocation between SNTL and the Conserved Companies of any value realized on such NOLs, would be subject to further negotiations and to the confirmation of a plan of reorganization by the Bankruptcy Court.

On August 18, 2000, SNTL filed an adversary proceeding against the CDI in its capacity as conservator of the Conserved Companies for declaratory and injunctive relief. Subsequently, SNTL sought an adjudication that it owned the NOLs by virtue of a tax sharing agreement between SNTL and its insurance subsidiaries which stated the NOLs were owned by SNTL (the "Tax Sharing Agreement"). In February, 2001, the Court, after much briefing and many hearings, granted SNTL's motion for a preliminary injunction as well as the subsequently filed motion for summary adjudication on the issue of who owned the NOLs. In granting the preliminary injunction, the Bankruptcy Court rejected several arguments of the CDI, including its claims that the McCarran-Ferguson Act divests the Bankruptcy Court of jurisdiction, by reverse pre-emption, and that the Eleventh Amendment provided the CDI with sovereign immunity.

On or about March 21, 2001, the Bankruptcy Court ruled that the Tax Sharing Agreement was valid, but specifically did not decide the allocation of the NOLs under that agreement.

The CDI has on several occasions informed the Debtors that they may attempt to force the deconsolidation of the Conserved Companies in other ways if SNTL prevailed on its Motion for Summary Adjudication. The CDI believes a forced deconsolidation would result in the apportionment of the NOLs of the SNTL Group to the Conserved Companies. The CDI also believes it may be possible to force deconsolidation by convincing the IRS that the Conserved Companies are tax-exempt organizations, in which case they could not be included in a consolidated return. The CDI has further stated that it may attempt to cause the Conserved Companies to issue new stock to stockholders other than SNTLHC so that they would no longer meet the 80% common stock ownership threshold required for inclusion in SNTL's consolidated return. SNTL sought and received an order enjoining the CDI from taking any of the foregoing actions.

These matters are not, however, completely resolved. The CDI has appealed the Bankruptcy Court rulings regarding the NOLs (which appeals have been dismissed by agreement as premature) and the

Bankruptcy Court still has certain issues to decide, including allocation of the benefits of the NOLs, before a plan of reorganization can be confirmed unless the CDI and SNTL can arrive at a satisfactory resolution. The CDI is currently considering SNTL's proposed settlement of outstanding issues. The proposal before the CDI contemplates (i) indemnification by JMPC for certain tax liabilities incurred by the Conserved Companies while they are part of JPMC's consolidated group; (ii) ownership and use of all NOLs of the SNTL Group, however generated, by JPMC; (iii) cooperation and access to materials in the CDI's possession; (iv) limitation on actions the CDI can take which could or would have adverse tax consequences; and (v) a deemed allowed unsecured claim of $10 million to be paid out of the Litigation Trust Series Class A Certificate, but reduced by any taxes owed by the CDI on account of the SNICIL Estates.

If this proposal is not accepted by the CDI, then the Debtors shall seek rulings from the Bankruptcy Court equivalent to (ii)—(iv) above. It is possible that the CDI may still seek to deconsolidate the Conserved Companies, by application to the IRS or otherwise, notwithstanding the preliminary injunction issued by the Bankruptcy Court. SNTL would resist any deconsolidation, but there are no assurances that SNTL would ultimately prevail.

The Plan is intended to comply with IRC §§ 269 and 382(1)(5). See Section X.G. below. Specifically, the SNTL Acquiror (The Chase Manhattan Bank) is an existing creditor of SNTL that, pursuant to the Plan, will acquire in satisfaction of its Claim against the Debtors all of the Common Stock of Reorganized SNTL (the "New SNTL Common Stock"), as well as a Litigation Trust Certificate. As such, following the Effective Date, the SNTL Group will become a part of JPMC's (the Plan Sponsor's corporate parent) consolidated tax group. The SNTL Acquiror has agreed to share the realized benefits of the incorporation of the NOLs into Chases's consolidated tax return with other Creditors pursuant to the formulas set forth in the Plan and Section IX.D. below. It is impossible to calculate precisely how much the Creditors might recover with respect to their Claims by reason of this Plan structure. The NOLs of the SNTL Group will be reduced by the amount of income deemed realized by the Debtors as a result of the discharge of debt under the Plan (as discussed below in Section X.G. In addition, some of the NOLs will be reserved for utilization against future taxable income of the SNTL Group, including the Conserved Companies. The Debtors believe, however, that on the Confirmation Date, the NOLs held by the Debtors from which payments on the EON will be made will exceed $431 million, and their return reported NOLs in excess of $1 billion. The Debtors reasonably hope and expect that, based on the magnitude of these NOLs, distributions will be made on the EON (as discussed in Section IX.D. below) of a minimum of $120 million, less Chase's Unsecured Claim.

The Plan shall not become effective unless and until the following conditions shall have been satisfied by the Debtors or waived by the Debtors, the Creditors' Committee and the SNTL Acquiror pursuant to Section 10.2 of the Plan:

¹Notwithstanding the foregoing, Debtors reported over $1 billion in NOLs in their 2000 tax return, and intend to proceed in accordance with their tax return.

The Debtors, with the consent of the Creditors' Committee and the SNTL Acquiror, may waive one or more of the conditions precedent set forth in Section 10.1 of this Plan by a writing signed by an authorized representative of the Debtors, approved as to form and substance by counsel to the Creditors' Committee, which is filed with the Bankruptcy Court.

As mentioned, SNTL (as Superior National Insurance Group, Inc., as it was formerly known) commenced the FHC Litigation in Bankruptcy Court on April 28, 2000, alleging that FHC, FHS and M&R defrauded SNTL in connection with FHC's 1998 sale of SNTLHC (then called Business Insurance Group, Inc.) to SNTL. SNTL alleges that M&R conspired with FHC and FHS and assisted in the execution of the fraud. SNTL seeks recovery from FHC, FHS, and M&R in the amount of at least $300.0 million in damages including consequential damages in a variety of areas arising out of the $285 million purchase of BIG and its subsidiaries from FHC (the "SNTLHC Purchase Agreement"), punitive damages, and reimbursement of SNTL's costs associated with the lawsuit. The FHC Litigation is scheduled for trial in August 2002.

The FHC Litigation contains seven causes of action alleging: 1) under the California Uniform Fraudulent Transfer Act, SNTL is entitled to void the SNTLHC acquisition because SNTL did not receive reasonably equivalent value for the purchase price it paid for SNTLHC and became insolvent as a result of the SNTLHC acquisition; 2) FHC, FHS, and M&R conspired and committed fraud to induce SNTL to purchase SNTLHC; 3) SNTL is entitled to rescission of the SNTLHC acquisition based on the fraud committed by FHC, FHS, and M&R; 4) SNTL is entitled to indemnification by FHC due to misrepresentations FHC made to SNTL regarding the adequacy of its reserves, the status of its accounts receivables, the financial health of its captive insurance companies, and the provision of reliable and enforceable reinsurance to guarantee SNTLHC's reserves; 5) FHC breached the SNTLHC purchase agreement when it made the misrepresentations regarding the adequacy of its reserves, the status of its accounts receivables, and the financial health of its captive insurance companies, and the provision of reliable and enforceable reinsurance to guarantee SNTLHC's reserves; 6) FHC, FHS, and M&R committed securities fraud under the California Corporations Code by fraudulently misrepresenting SNTLHC's reserve adequacy, the enforceability of reinsurance acquired by FHC to guarantee SNTLHC's reserves, and the assets and liabilities of SNTLHC as disclosed to SNTL and 7) SNTL is entitled to recovery of the value of the acquisition from FHC.

FHS and FHC responded to the lawsuit on June 30, 2000, alleging fourteen defenses as follows: 1) SNTL failed to state a claim for which relief may be granted, 2) SNTL's fraud and rescission claims are barred because SNTL could not have justifiably relied on any of the alleged fraudulent misrepresentations purportedly supporting SNTL's claims, 3) SNTL's contract and indemnification claims are barred at least in part due to SNTL's failure to commence its action within a binding contractual statute of limitations period, 4) SNTL's contract and indemnification claims are barred because SNTL failed to comply with the contractual duties and prerequisites specified in the Purchase Agreement with FHC necessary to obtain indemnification from FHC, 5) SNTL's complaint and all causes of actions therein are barred by the doctrine of laches, 6) SNTL's rescission claim is barred because SNTL, FHS, and FHC, cannot be restored to the status quo that existed prior to SNTL's purchase of SNTLHC, 7) if FHS and FHC made statements to SNTL, they always acted in good faith, they had reasonable grounds to believe that the statements made were true and did not contain omissions of material fact, they exercised reasonable care, they did not know of any untrue statements of material fact in our allegations, and they did not knowingly or recklessly omit to state any material fact required to be stated in order to not be misleading, 8) FHS and FHC did not cause SNTL's losses, if losses exist, 9) the lawsuit is barred by the doctrine of unclean hands, 10) SNTL engaged in fraudulent conduct in connection with the negotiation and execution of the SNTLHC Purchase

Agreement and is not entitled to relief, 11) SNTL is estopped from asserting any claims, 12) FHC and FHS accepted consideration of the sale of SNTLHC to SNTL in satisfaction of a debt in good faith and without knowledge of the alleged voidability of the transfer, 13) SNTL failed to use reasonable efforts to mitigate any losses suffered and is not entitled to any recovery, and 14) SNTL is barred from seeking any remedy other than the remedies provided and properly sought in the SNTLHC Purchase Agreement.

M&R responded to the FHC Litigation on June 30, 2000, alleging fifteen (15) defenses as follows: 1) SNTL's claims are barred by the SNTLHC Purchase Agreement, 2) SNTL's claims are barred by an indemnification agreement with FHS, 3) SNTL's claims are barred by the doctrine of judicial estoppel, 4) SNTL's claims are barred by the doctrine of waiver, 5) SNTL's claims are barred by the doctrine of estoppel, 6) SNTL's claims are barred by the doctrine of release, 7) SNTL's claims are barred by the doctrine of assumption of risk, 8) SNTL's complaint fails to state a claim on which relief can be granted, 9) SNTL's complaint fails to join a necessary party, 10) M&R believes SNTL's claims are barred by failure to mitigate damages, 11) SNTL's claims are barred because M&R made no false or misleading statements or omissions, 12) SNTL's claims are barred because SNTL did not rely on M&R's alleged statements and omissions, 13) SNTL's claims are barred because SNTL could not reasonably have relied on M&R's alleged statements and omissions, 14) SNTL's claims are barred because M&R never intended to deceive SNTL or intended that SNTL rely on any statements or omissions, and 15) SNTL's claims are barred because M&R never entered in any agreement with, or acted in concert with, FHC or FHS to commit any wrongful act.

SNTL commenced the FHC Litigation by filing the Complaint entitled Superior National Insurance Group v. Foundation Health Corporation, et al., Case No. SA CV-00-0658 GLT (C.D. Cal.) on April 24, 2000. The Complaint seeks damages in excess of $300 million for fraud, breach of contract, securities fraud, and fraudulent conveyance against Defendants FHS, FHC, and M&R, arising from SNIG's payment of $285 million to acquire BIG and its subsidiary insurance companies.

The FHC Litigation was originally filed as an Adversary Proceeding in the Bankruptcy Court, Adversary Proceeding No. 00-01267-GM. On June 30, 2000, all three Defendants answered the Complaint. On August 2, 2000, Defendants' motion to withdraw the reference to the Bankruptcy Court was granted. The Action is now before The Hon. Gary Taylor in the United States District Court for the Central District of California (the "District Court"). On September 8, 2000, Defendant M&R filed a motion for judgment on the pleadings. On October 27, 2000, that motion was denied by the District Court in a five-page order issued without a hearing. On January 5, 2001, SNTL filed a motion to compel document production by FHC. On January 24, 2001, the District Court granted SNTL's motion and required Foundation FHC to produce the documents requested by SNTL.

Discovery is in progress in the FHC Litigation, and the discovery cut-off is April 3, 2002. Substantial written, third-party, and deposition discovery has taken place. The parties, collectively, have produced in excess of 300 boxes of relevant documents, the vast bulk of which have been produced by SNTL. The CDI, liquidator of BIG's insurance subsidiaries, has commenced a voluminous production of documents to the parties, totaling nearly 2,000 boxes of documents, which consist mostly of files maintained by certain of the Debtor's subsidiary companies. The CDI produced these documents only after the District Court ordered production on December 26, 2000 and after the CDI appealed the District Court's Order to the Court of Appeals for the Ninth Circuit. The trial schedule was delayed many months due to the CDI's initial refusal to produce documents and the subsequent appeal to the Ninth Circuit. In addition, over twenty (20) third-parties have been served with subpoenas and have produced documents in the FHC Litigation. The parties have listed in excess of 150 potential witnesses in the FHC Litigation. The depositions of eleven witnesses have commenced, including the deposition of SNTL's former chief actuary (four days) and FHC's general counsel (four days, not yet completed).

It is anticipated that between 20 and 50 additional depositions will be taken before the April 3, 2002 discovery cut-off. The pre-trial conference is scheduled for July 1, 2002. The trial in the FHS Litigation is currently set for August 2002.

SNTL's claims are likely to face motions for summary judgment by some or all of the Defendants. These motions will likely be filed in April 2002 and decided in June 2002. Although SNTL believes it has meritorious claims against each of the Defendants, and that at a minimum there are issues of material fact that relate to its claims, there can be no guarantee that SNTL's claims will survive summary judgment.

To the extent Defendants' summary judgment motions are defeated, SNTL will seek to recover in excess of $300 million at trial. If SNTL prevails only on its contract claims against FHS and FHC, contractual damages will be capped at $50 million under the terms of the SNTLHC Purchase Agreement, even though SNTL believes it will be able to support contract claims in excess of the $50 million contractual threshold. However, if SNTL prevails on its fraud claims against any or all of Defendants, SNTL will be able to seek to recover damages in excess of the $50 million cap, namely the purchase price it paid for BIG and its subsidiaries (in excess of $280 million). Defendants' potential liability, including consequential and punitive damages that will be claimed by SNTL, could far exceed $285 million. SNTL believes it has discovered substantial evidence that supports fraud claims against each of the Defendants. Because discovery in the case is proceeding and because of the uncertainty of litigation, however, there can be no guarantee that SNTL will prevail or recover damages at these or any levels at trial, or that a verdict of any amount will withstand an appeal.

Finally, the CDI has filed a timely proof of claim for any and all amounts recovered by SNTL on account of the litigation. SNTL intends to file an objection to this proof of claim and believes that its objection should be sustained on a variety of grounds.

The Debtors' current directors are Bradley E. Cooper, Roger W. Gilbert, Steven B. Gruber, Gordon E. Noble, Craig F. Schwarberg, J. Chris Seaman, and Robert A. Spass.

The names and current offices held by Debtors' current executive officers are as follows:

The SNTL Acquiror will control the Debtors following the Effective Date. The directors and officers of the Debtors and their compensation will be designated by the SNTL Acquiror.

J. Chris Seaman		Trustee
Robert E. Nagle		General Counsel and Secretary
Alexander Corbett		Chief Financial Officer

Staffing
CEO	Chris Seaman	$252,500
Legal	Bob Nagle	$185,800
CFO	Alex Corbett	$135,800

The Debtors' historical income statements and balance sheets for the last three (3) years are attached hereto as Exhibit "1."

As required by the Bankruptcy Code, the Plan classifies Claims and Interests in various classes according to their right to priority. The Plan states whether each class of Claims or Interests is impaired or unimpaired. The Plan provides the treatment each class of Claims and Interests will receive.

Certain types of Claims are not placed into voting Classes; instead they are unclassified. They are not considered impaired and they do not vote on the Plan because they are automatically entitled to specific treatment provided for them in the Bankruptcy Code. As such, the Debtors have not placed the following Claims in a class.

Administrative Claims are Claims for costs or expenses of administering the Debtors' Chapter 11 cases which are allowed under Code section 507(a)(1). The Code requires that all Administrative Claims be paid on the Effective Date of the Plan, unless a particular Creditor agrees to a different treatment. Seaman has been allowed an administrative claim of $150,000.00.³⁴

Pursuant to the Plan, Cap Z is also to receive a $25 million Administrative Claim pursuant to change by reason of Cap Z's substantial contribution in formulating the Plan. Cap Z has provided critical support and service in arriving at a SNTL Acquiror. Besides finding the appropriate candidate to sponsor the Plan, Cap Z was also instrumental in finding the sponsor the requisite management consultant team to implement SNIS and SNIA's reorganization. In return for this irreplaceable contribution, Cap Z is to receive an Allowed Administrative Claim for $25 million, which will be paid as an Unsecured Claim in the amount of $10 million by holding a Litigation Trust Series A-1 Certificate, and a claim subordinate to Creditors but before equity, of $15 million, to be paid with a

Litigation Trust Series B Certificate. The following chart lists all of each Debtors' anticipated § 507(a)(1) Administrative Claims and their treatment under the Plan³⁵:

Name	Holdback			Treatment
Seaman Defense			$	150,000.00	Paid in full on Effective Date
PSZYJ	$	109,244.07	$	500,000.00	Paid in full on Effective Date
QUEU	$	291,804.50	$	1,000,000.00	Paid in full on Effective Date
Paul Weiss	$	32,512.00	$	100,000.00	Paid in full on Effective Date
Manatt Phelps			$	25,000.00	Paid in full on Effective Date
Riordan & McKinzie	$	62,895.10	$	75,000.00	Paid in full on Effective Date
Latham & Watkins	$	98,885.90	$	200,000.00	Paid in full on Effective Date
KPMG	$	77,745.80	$	50,000.00	Paid in full on Effective Date
Miller, Herbers	$	6,807.50	$	50,000.00	Paid in full on Effective Date
Ed Shoop			$	250,000.00	Paid in full on Effective Date
Christopher M. Maisel, Esq.			$	55,000.00	Paid in full on Effective Date
Darrell Coover			$	15,000.00	Paid in full on Effective Date
Tom MacDonald			$	50,000.00	Paid in full on Effective Date
Steve Eldridge			$	15,000.00	Paid in full on Effective Date
Consultant			$	30,000.00	Paid in full on Effective Date
Chase Professionals			$	200,000.00	Paid in full on Effective Date
Clerk's Office Fees			$	500.00	Paid in full on Effective Date
Office of the U.S. Trustee Fees			$	15,000.00	Paid in full on Effective Date
Cap Z			$	25,000,000	Litigation Trust Series A-1- Certificate for $10 million Litigation Trust Series B Certificate for $15 million
				[Excluded]
TOTAL	$	246,334.30	$	27,780,500.00	$3,051,844.30

For all fees except Clerk's Office fees and U.S. Trustee's fees and the fees of Chase's professionals (subject to the Bankruptcy Court's order), the professional in question must file and serve a properly noticed fee application and the Court must rule on the application. Only the amount of fees allowed by the Court will be owed and required to be paid under this Plan.

As indicated above, the Debtors will need to pay an estimated $2,570,000.00 worth of Administrative Claims on the Effective Date of the Plan unless the claimant has agreed to be paid later or the Court has not yet ruled on the claim. As indicated elsewhere in this Disclosure Statement, the Debtors will have sufficient cash on hand on the Effective Date of the Plan in order to make these payments.

Priority Tax Claims are certain unsecured income, employment and other taxes described by Code Section 507(a)(8). The Code requires that each Holder of such a 507(a)(8) Priority Tax Claim receive the present value of such Claim in deferred cash payments, over a period not exceeding six years from the date of the assessment of such tax. The Plan provides that any priority tax claims will be paid in full on the Effective Date. These Claims are estimated to be $460,000.

Secured claims are claims secured by liens on property of the estate. The following chart lists all classes containing Debtor's secured pre-petition claims and their treatment under this Plan^48a:

CLASS#		DESCRIPTION		INSIDERS (Y/N)		IMPAIRED (Y/N)		TREATMENT
5a		Lender Group against stock of SNTLHC		N		Y		Extinguished—Collateral Worthless
5b		Lender Group against stock of SNTLHC subsidiaries		N		Y		Extinguished—Collateral Worthless

Certain other Priority Claims that are referred to in Code Sections 507(a)(3), (4), (5), (6), and (7) are required to be placed in Classes. These types of Claims are entitled to priority treatment as follows: the Code requires that each Holder of such a Claim receive Cash on the Effective Date equal to the allowed amount of such Claim. However, a Class of Other Priority Claims may vote to accept deferred Cash payments of a value, as of the Effective Date, equal to the allowed amount of such Claims. Classes 1a, 1b, 1c and 1d representing Other Priority Claims against each Debtor, are to receive payment in full of such Claims on the Effective Date under the Plan. These Classes are impaired in that interest following the Petition Date will not be paid on such Claims. The amount of these Claims is estimated to be between $120,000 and $1,002,000.

Claims in the Convenience Classes (Classes 2 a-d) are any Claims in the Allowed Amount of $2,000 or less or that are voluntarily reduced to $2,000 by the election of the Holder thereon on such Holder's ballot. Debtors estimate that the aggregate Allowed amount of such Convenience Claims will not exceed $336,000.00.

General Unsecured Claims under the Plan are Unsecured Claims not entitled to priority under Code Section 507(a) other than Convenience Claims and the Chase Unsecured Claim. Under the Plan, Classes 3a, 3b, 3c and 3d constitute General Unsecured Claims against the various Debtors. The following provisions relate to the treatment of General Unsecured Claims generally:

Creditors in various Classes and Holders of Equity Interests receive Litigation Trust Certificates in satisfaction of their Claims or Equity Interests. There shall be four classes of Litigation Trust Certificates, the highest priority being the "A-1 and A-2" class, the second highest priority being the "B" class, and the third lowest priority being the "C" class.

Any Holder of an Unsecured Claim against multiple Debtors, whether by reason of a guarantee, indemnity agreement, joint and several obligation or otherwise, may vote each Claim against each

Debtor. Nonetheless, given that expected distributions under the Plan are based principally on the enterprise value of the consolidated Debtors, a Creditor holding such a similar Claim against multiple Debtors shall be deemed to have only one Claim against one Debtor for purposes of Distributions under this Plan.

Nothing in the Plan is intended to affect the enforceability of any subordination agreement entered into prior to the Effective Date by any Creditor or group of Creditors in favor of any other Creditors of any Debtor in respect of any obligations owing by any Debtor. Without limiting the generality of the foregoing, pursuant to Bankruptcy Code § 510, the subordination of Trust Preferred Claims to the Claims of the Lender Group pursuant to the terms of the Indenture, is unaffected by this Plan, and, by reason of such subordination, any Distribution in respect of Trust Preferred Claims shall first be payable to the Holders of Lender Claims until the Lender Claims have been satisfied in full, including interest (whether pre-petition, post-petition or post-Confirmation interest); provided, however, that any amounts to be paid on EON in respect of Trust Preferred Claims shall not be distributed to the extent such amounts accrue for the benefit of Chase pursuant to the Senior Subordinated Indenture.

Class:	Amount:	Disallowed to Date:
3a (SNTL)	$228,362,364.75	$115,900,992.00
3b (SNTLHC)	$126,596,186.32	$21,972,161.00
3c (SNIS)	$208,254,705.08	$53,826.00
3d (SNIA)	$40,250,450.67	$0
Total	$1,303,463,706.82	$118,926,979.00

Assuming no further objections are sustained and all remaining claims are allowed, the return to creditors is estimated to be at least 15.9%, assuming the "low" return on the NOLs and without any recovery in the FHC Litigation. As discussed with more particularity above concerning Debtors' objections to a host of these Claims, the Debtors believe that the amount of Filed Claims against them is drastically overstated. Debtors' best case estimate of the amount of the ultimately Allowed General Unsecured Claims against each Debtor is as follows:

Class:		Amount:
3a (SNTL)		$274,221,340
3b (SNTLHC)		$23,584.00
3c (SNIS)		$80,996
3d (SNIA)		$198,921

This potential best case scenario could result in a return to creditors of nearly 50%, with the same assumptions provided above.

Class 4 consists of the Chase Unsecured Claim, representing $2 million of SNTL's obligations owing to Chase as of the Petition Date.

The means of effectuating the Plan are set forth in the cash flow and asset analysis, attached as Exhibit "2."

Following the Effective Date, the Debtors shall be managed by personnel selected by the SNTL Acquiror.

Following the Effective Date, management of the Litigation Trust shall be provided by J. Chris Seaman.

David Gottlieb shall act as the Disbursing Agent for the purpose of making all Distributions provided for under the Plan. Mr. Gottlieb's compensation shall be submitted to the Court for approval prior to confirmation.

No registration statement will be filed under the Securities Act of 1933 as amended (the "Securities Act") or any state securities laws with respect to the offer and distribution under the Plan of the EON and Litigation Trust Certificates. The Debtors believe that the provisions of section 1145(a)(1)of the Bankruptcy Code exempt the offer and distribution of the EON and Litigation Trust Certificates under the Plan from federal and state securities registration requirements.

Section 1145(a)(1) of the Bankruptcy Code exempts the offer and sale of securities under a plan of reorganization from registration under the Securities Act and state laws if: (i) the securities are offered and sold under a plan of reorganization and such securities are of the debtor, of an affiliate participating in a joint plan with the debtor or of a successor to the debtor under the plan; and (ii) the recipients of the securities are issued such securities entirely in exchange for the recipient's claim against or interest in the debtor, or "principally" in such exchange and "partly" for cash or property.

The Debtors believe that the distribution of the EON and the Litigation Trust Certificates under the Plan satisfies the requirements of section 1145(a)(1) of the Bankruptcy Code and are, therefore, exempt from registration under the Securities Act and state securities laws.

No unexpired leases and executory contracts will be assumed as obligations of the Reorganized Debtors under the Plan except as set forth on Exhibit "C" to the Plan.

On the Effective Date, all executory contracts and unexpired leases of the Debtors not previously assumed will be rejected.

Claims arising out of the rejection of an executory contract or unexpired lease must be filed with the Bankruptcy Court and/or served upon the Disbursing Agent and the Trust as otherwise may be provided in the Confirmation Order, by no later than thirty (30) days after the later of (i) notice of entry of an order approving the rejection of such executory contract or unexpired lease, (ii) notice of entry of the Confirmation Order, and (iii) notice of an amendment to Exhibit C to the Plan. Any Claims not filed within such time will be forever barred from assertion against the Debtors, their estates, the Reorganized Debtors, and their respective property. Unless otherwise ordered by the Bankruptcy Court, all Claims arising from the rejection of executory contracts and unexpired leases shall be treated as General Unsecured Claims under the Plan.

The Court will retain jurisdiction to the extent provided by law as set forth in the Plan.

Immediately after the New SNTL Common Stock and EON are issued by SNTL, Chase will cause Reorganized SNTL to adopt a plan to convert into a limited liability company, with Chase as its sole member; pursuant to the Plan, SNTL shall then convert into a limited liability company, and JPMC shall assume SNTL's obligations with respect to the EON pursuant to the JPMC Assumption Agreement.

The Amended Bylaws and Amended Certificate of Incorporation of each of the Debtors shall be amended and restated as of the Effective Date to the extent necessary (a) to prohibit the issuance of nonvoting equity securities as required by section 1123(a)(6) of the Bankruptcy Code, subject to further amendment of such certificates of incorporation and bylaws as permitted by applicable law and (b) to effectuate the provisions of the Plan, in each case without any further action by the stockholders or directors of the each of the Debtors, the Debtors-in-Possession, or the Reorganized Debtors.

The Litigation Trust shall be established on the Effective Date pursuant to the Plan.

Except as otherwise expressly provided in the Plan, the Confirmation Order, or a separate order of the Bankruptcy Court, all entities who have held, hold, or may hold Claims against or Interests in each of the Debtors which arose before or were held as of the Effective Date, are permanently enjoined, on and after the Effective Date, from (a) commencing or continuing in any manner any action or other proceeding of any kind against each of the Debtors with respect to any such Claim or Interest, (b) the enforcement, attachment, collection, or recovery by any manner or means of any judgment, award, decree, or order against the Debtors on account of any such Claim or Interest, (c) creating, perfecting, or enforcing any encumbrance of any kind against the Debtors or against the property or interests in property of the Debtors on account of any such Claim or Interest and (d) asserting any right of setoff, subrogation, or recoupment of any kind against any obligation due from the Debtors or against the property or interests in property of the Debtors on account of any such Claim or Interest. Such injunction shall extend to successors of the Debtors (including, without limitation, Reorganized SNTL) and their respective properties and interests in property.

Confirmation of the Plan shall constitute a finding that: (i) this Plan has been proposed in good faith and in compliance with applicable provisions of the Bankruptcy Code; and (ii) the solicitation of acceptances or rejections of this Plan by all Persons and the offer, issuance, sale, or purchase, of a security offered or sold under the Plan has been in good faith and in compliance with applicable provisions of the Bankruptcy Code. Accordingly, on the Effective Date each of the Debtors and their officers and directors, the SNTL Acquiror and its officers and directors, JPMC and its officers and directors, the members of the Creditors' Committee and each of their respective advisors and attorneys, effective as of the Effective Date, will be deemed exculpated by Holders of Claims and Equity Interests and other parties in interest to these Cases, from any and all claims, causes of action and other

assertions of liability (including, without limitation, breach of fiduciary duty), arising out of or related to the Debtors, these Cases or the exercise by such entities of their functions and duties as members of or advisors to or attorneys for any such individuals, the Debtors, the SNTL Acquiror, JPMC or the Creditors' Committee or otherwise under applicable law, in connection with or related to these Cases and the formulation, negotiation, preparation, dissemination, Confirmation and consummation of this Plan and any agreement, instrument or other document issued hereunder or related hereto. This provision will have no effect on liability for any act or omission of the Debtors and their officers and directors, the SNTL Acquiror and its officers and directors, JPMC and its officers and directors, the members of the Committee, and each of their respective advisors and attorneys to the extent that such act or omission is ultra vires or constitutes gross negligence or willful misconduct.

In General. Subject to Bankruptcy Rule 9010, all Distributions to Creditors under the Plan shall be made by the Disbursing Agent to the Holder of each Allowed Claim of such Debtor at the address of such holder as listed on the Schedules as of the Record Date, unless the Debtors or the Disbursing Agent has been notified in writing of a change of address, including, without limitation, by the filing of a proof of claim by such holder that provides an address for such holder different from the address reflected on the Schedules.

Any payment of Cash made by each individual Debtor or the SNTL Acquiror pursuant to the Plan shall be made by check drawn on a domestic bank.

If the day when any payment or distribution required to be made under the Plan is not a Business Day, such payment or distribution shall be made on the next succeeding Business Day.

No payment of Cash less than one hundred dollars ($100) shall be made by the Disbursing Agent to any Holder of a Claim unless a request therefore is made in writing to such Reorganized Debtor.

Any distributions to Holders of Allowed Unsecured Claims under the Plan that are unclaimed for a period of one year after distribution thereof shall revest in the SNTL Acquiror, any Litigation Trust Certificates shall be deemed canceled, and any entitlement of such holders of Allowed Unsecured Claims to such Distributions shall be extinguished and forever barred.

As at the close of business on the Record Date, the claims register shall be closed, and there shall be no further changes in the record holders of any Claims. The Debtors and Reorganized Debtors shall have no obligation to recognize any transfer of any Claims occurring after the Record Date. The Debtors and Reorganized Debtors shall instead be entitled to recognize and deal for all purposes under the Plan (except as to voting to accept or reject the Plan pursuant to Section 5.1 of the Plan) with only those record holders stated on the claims register as of the close of business on the Record Date.

17. Objections To And Resolution Of Claims Administrative Claims, And Equity Interests

Except as to applications for allowances of compensation and reimbursement of expenses under sections 330 and 503 of the Bankruptcy Code, the Disbursing Agent and the Litigation Trust shall have the exclusive right to make and file objections to Administrative Claims and other Claims, subsequent to the Confirmation Date. All objections shall be litigated to Final Order; provided, however, that each of the Disbursing Agent and the Litigation Trustee shall have the authority to compromise, settle, otherwise resolve or withdraw any objections, without approval of the Bankruptcy Court. Unless otherwise ordered by the Bankruptcy Court, the Disbursing Agent and the Trustee shall file all objections to Claims (including Administrative Claims) that are the subject of proofs of claim or requests for payment filed with the Bankruptcy Court (other than applications for allowances of compensation and reimbursement of expenses) and Claims and serve such objections upon the holder

of the Administrative Claim or Claim, as to which the objection is made as soon as is practicable, but in no event later than sixty (60) days after the Effective Date or such later date as may be approved by the Bankruptcy Court. Reorganized SNTL will establish with the Disbursing Agent a reserve for Disputed Priority Tax Claims, Other Priority Claims and projected or actual Administrative Claims which have not been Allowed by the Bankruptcy Court. The Distributions due in respect of Priority Tax Claims, Other Priority Claims, Administrative Claims and Disputed Claims based on the calculations required by this Plan will be reserved by the Disbursing Agent for the Holders of such Disputed Claims.

On the Effective Date, the promissory notes, share certificates, bonds, and other instruments evidencing any Claim against or Equity Interest in the Debtors shall be deemed canceled without further act or action under any applicable agreement, law, regulation, order, or rule, and the obligations of the Debtors under the agreements, indentures, and certificates of designations governing such Claims and Equity Interests, as the case may be, shall be discharged. Each holder of a promissory note, bond, or other instrument evidencing a Claim shall surrender such promissory note, bond, or instrument to the appropriate Reorganized Debtor, unless this requirement is waived by such Reorganized Debtor. No distribution of property hereunder shall be made to or on behalf of any such holders unless and until such promissory note, bond, or instrument is received by the Reorganized Debtor or the unavailability of such promissory note, bond, or instrument is established to the reasonable satisfaction of Reorganized Debtors or such requirement is waived by Reorganized Debtors. Reorganized Debtors may require any holder which is unable to surrender or cause to be surrendered any such promissory notes, bonds, or instruments to deliver an affidavit of loss and indemnity and/or furnish a bond in form and substance (including, without limitation, with respect to amount) reasonably satisfactory to Reorganized Debtors. Any Holder that fails within the later of one year after the Confirmation Date and the date of Allowance of its Claim (i) if possible, to surrender or cause to be surrendered such promissory note, bond, or instrument, (ii) if requested, to execute and deliver an affidavit of loss and indemnity reasonably satisfactory to Reorganized Debtors, and (iii) if requested, to furnish a bond reasonably satisfactory to Reorganized Debtors, shall be deemed to have forfeited all rights, claims, and causes of action against the Debtors, Reorganized Debtors and the Litigation Trust and shall not participate in any Distribution hereunder.

Debtors reserve the right to seek substantive consolidation of the Debtors if necessary to resolve or address any objections to Confirmation of the Plan. In the event substantive consolidation is approved by the Court, the assets and liabilities of each of the Debtors shall be consolidated and the Holders of Class 3 General Unsecured Claims against multiple Debtors shall hold a single General Unsecured Claim against the substantively consolidated Debtors.

THE DISCUSSION BELOW IS A SUMMARY OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN OF REORGANIZATION PROPOSED BY THE DEBTORS.

THIS SUMMARY OF CERTAIN ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN IS FOR GENERAL INFORMATION ONLY AND IS BASED ON THE IRC, FINAL, TEMPORARY, AND PROPOSED TREASURY REGULATIONS THEREUNDER ("TREASURY REGULATIONS") AND APPLICABLE JUDICIAL AND ADMINISTRATIVE INTERPRETATIONS THEREOF, ALL AS IN EFFECT AS OF THE DATE HEREOF AND ALL OF WHICH ARE SUBJECT TO CHANGE AT ANY TIME, WHICH CHANGES MAY BE RETROACTIVELY APPLIED IN A MANNER THAT COULD ADVERSELY AFFECT THE DEBTORS AND HOLDERS OF CLAIMS AGAINST THE DEBTORS AND OF EQUITY

INTERESTS IN SNTL. MANY OF THE TAX ISSUES INVOLVED RAISE UNSETTLED AND COMPLEX LEGAL ISSUES, AND ALSO INVOLVE VARIOUS FACTUAL DETERMINATIONS, SUCH AS VALUATIONS, THAT RAISE ADDITIONAL UNCERTAINTIES. ALTHOUGH NO RULINGS OR OPINIONS HAVE BEEN OR ARE EXPECTED TO BE REQUESTED FROM THE IRS OR COUNSEL CONCERNING ANY OF THE MATTERS DESCRIBED HEREIN, THE DEBTORS INTEND TO ASK THE BANKRUPTCY COURT TO ENTER CERTAIN FINDINGS WITH RESPECT TO THE EFFECT OF THE CONSUMMATION OF THE PLAN ON THE DEBTORS' NET OPERATING LOSSES. HOWEVER, THERE IS NO ASSURANCE THAT THE BANKRUPTCY COURT WILL ENTER SUCH FINDINGS OR, IF SUCH FINDINGS ARE ENTERED BY THE BANKRUPTCY COURT, THAT THEY WILL BE BINDING ON THE IRS. IN ADDITION, THERE CAN BE NO ASSURANCE THAT THE IRS WILL NOT CHALLENGE THE OTHER POSITIONS EXPRESSED HEREIN OR THAT A COURT WOULD NOT SUSTAIN SUCH A CHALLENGE. MOREOVER, DEVELOPMENTS SUBSEQUENT TO THE DATE HEREOF COULD AFFECT THE TAX CONSEQUENCES OF THE PLAN.

THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER IN LIGHT OF ITS PARTICULAR FACTS AND CIRCUMSTANCES OR TO CERTAIN HOLDERS SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS (FOR EXAMPLE, BROKER- DEALERS, TAX-EXEMPT ENTITIES, FINANCIAL INSTITUTIONS, INSURANCE COMPANIES, AND FOREIGN CORPORATIONS AND INDIVIDUALS WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES) AND DOES NOT DISCUSS ANY ASPECT OF STATE, LOCAL, OR FOREIGN TAXATION. THIS SUMMARY ALSO DOES NOT DISCUSS THE FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN TO HOLDERS OF ADMINISTRATIVE CLAIMS OR PRIORITY TAX CLAIMS OR TO THE HOLDER OF THE CLASS 4 CLAIM AND GENERALLY DOES NOT DISCUSS ANY DIFFERING OR ADDITIONAL FEDERAL INCOME TAX CONSEQUENCES APPLICABLE TO HOLDERS OF DISPUTED CLAIMS.

THE FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN ARE COMPLEX. HOLDERS OF CLAIMS AGAINST THE DEBTORS AND OF EQUITY INTERESTS IN SNTL ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MATTERS DISCUSSED HEREIN, INCLUDING THE APPLICABILITY AND EFFECT OF ANY FEDERAL, STATE, LOCAL, AND FOREIGN TAX LAWS.

A taxpayer generally must include in gross income the amount of any discharged indebtedness realized during the taxable year, except to the extent payment of such indebtedness would have given rise to a deduction. Such amounts, however, are not included in income where the discharge of indebtedness is accomplished pursuant to a plan approved by the court in a case under the Bankruptcy Code. Instead, the amount of discharged indebtedness that would otherwise have been required to be included in income will be applied to reduce certain tax attributes of the taxpayer in the following order: NOLs, general business credit carryovers, the amount of available minimum tax credit, capital loss carryovers, the taxpayer's basis in property, passive activity loss and credit carryovers and foreign tax credit carryovers.

Under the Plan, satisfaction of the Claims would give rise to discharge of indebtedness income to the Debtors in an amount equal to the difference between (i) the sum of the adjusted issue prices (as generally described below under "Federal Income Tax Treatment of Payments on the Litigation Trust Certificates") of those Claims that are subject to the original issue discount rules of the IRC, and, in

general, the outstanding amount of those Claims that are not subject to the original issue discount rules and (ii) the sum of (a) the amount of Cash, if any, paid by the Debtors in partial satisfaction of such Claims and (b) the issue price of any debt instrument and the fair market value of stock and other consideration issued in satisfaction of such Claims, except to the extent that the discharged Claims would have given rise to a deduction had they been paid in full and a deduction for such amount has not already been claimed.

As of the date of this Plan, the Debtors estimate that the aggregate amount of their indebtedness that would be impaired under the Plan is approximately $222 million (excluding amounts, such as guarantee liabilities, which the Debtors believe would have given rise to a future deduction when paid) and that the aggregate amount of consideration to be issued in satisfaction of such indebtedness is between $0 and $58 million, resulting in discharge of indebtedness (or, in the case of the transfer of assets, including the FHC Litigation, to Holders for contribution to the Litigation Trust, gain in respect of such transfer) of between $0 and $58 million. The appropriate valuation of the consideration to be paid is subject to both legal and factual uncertainty (including issues relating to the proper classification of the securities to be issued, whether or not they are publicly traded and other factors).

Because the discharge is being accomplished pursuant to a plan approved by a court in a case under the Bankruptcy Code, the Debtors will not be required to recognize income in respect of such discharge, although the Debtors will be required to recognize gain in respect of the transfer of assets, including the FHC Litigation to Holders for contribution to the Litigation Trust. Instead, the amount of such discharge (less the amount of discharged accruals that have not been previously deducted in computing taxable income) will reduce tax attributes existing after the determination of the Debtors' taxable income for the taxable year in which the discharge occurs.

Based on its tax returns as filed for taxable years through 2000, the Debtors had approximately $1.026 billion of NOLs at December 31, 2000, and estimate that the NOLs are $1.076 billion as of June 30, 2001, in each case prior to taking into account reductions for discharge of indebtedness discussed above (see "Cancellation of Indebtedness Income") and any additional reductions required pursuant to the Title 11 Exception discussed below. After taking into account such reductions, the Debtors expect that the net amount of NOLs will exceed $431 million. As discussed below (see "Section 382-In General"), the utilization of any remaining NOLs that arose in taxable periods prior to the ownership change of the Debtors that occurred in 1998 will be subject to a section 382 limitation. It also should be noted that the Debtors' Federal income tax returns have not been audited by the IRS; thus there can be no assurance that an audit of one or more of those returns (including tax returns to be filed for 2001 and later taxable years) would not result in the reduction in the amount or complete elimination of the remaining NOLs available for future use or further limitations on the ability to utilize the remaining NOLs. In addition, SNTL will recognize gain on the distribution of the Litigation Trust Certificates pursuant to the Plan based upon the estimated value of the FHC Litigation, which will reduce the amount of the NOLs available for future use. Moreover, the IRC and the Treasury Regulations contain several other limitations on the utilization of NOLs in addition to those imposed under section 382, including sections 269 and 384 of the IRC and certain provisions of the consolidated return regulations. In addition, as discussed above under VI.A., Debtors' Assets, Net Operating Loss Carryforwards, if the Conserved Companies were to be deconsolidated most, if not all, of the NOLs of the Debtors would become unavailable for use by the JPMC consolidated group. ACCORDINGLY, THERE ARE SUBSTANTIAL RISKS THAT THE NOLS MAY BE REDUCED OR ELIMINATED, OR THAT JPMC'S ABILITY TO UTILIZE THE NOLS MAY BE LIMITED. HOLDERS RECEIVING A LITIGATION TRUST CERTIFICATE SHOULD BE AWARE THAT ANY SUCH REDUCTION OR ELIMINATION OR LIMITATION ON UTILIZATION OF THE NOLS WILL AFFECT THE AMOUNTS PAID WITH RESPECT TO THE EON. THESE LIMITATIONS ARE DISCUSSED BELOW.

Section 382 of the IRC provides in general that when a corporation with certain tax attributes such as NOLs undergoes an "ownership change" (as defined in section 382(g) of the IRC), the corporation's ability to utilize such NOLs and other tax attributes to offset income earned following such change may be subject to limitations unless the so-called "Title 11 Exception" under section 382(l)(5) of the IRC (discussed below) is available. Generally, an ownership change occurs when the percentage of stock (determined on the basis of value) owned by one or more holders of at least 5% of such stock increases by more than 50 percentage points (in relationship to the corporation's total stock considered to be outstanding for this purpose) from the lowest percentage of stock that was owned by such 5% shareholders at any time during the applicable "testing period." The testing period is ordinarily the shorter of (i) the three-year period preceding the date of testing or (ii) the period of time since the most recent ownership change of the corporation. In general, for purposes of determining stock ownership under section 382, stock owned by an entity is deemed owned proportionately by its owners and, with certain exceptions, all persons holding less than 5% of the value of the corporation's stock are treated as a single 5% shareholder.

Subject to the application of the Title 11 Exception, a corporation that undergoes an "ownership change" may use pre-change NOLs in any taxable year or period following an ownership change only to the extent of its "section 382 limitation" for such taxable year or period. (Similar limitations apply with respect to built-in losses, and, under section 383, tax credits.) The section 382 limitation for a taxable year equals, in general and subject to adjustments, the product of (i) the "long-term tax-exempt rate" (4.94% for the month of October 2001) as determined at the time of the ownership change and (ii) the equity value of the corporation immediately before the ownership change. In general, in the case of a corporation that undergoes an ownership change in a bankruptcy proceeding (to which the Title 11 Exception is not applied), the value of the corporation, for purposes of calculating the section 382 limitation, is increased to reflect the surrender or cancellation of creditors' claims for stock as a result of the ownership change. If the limitation under section 382 of the IRC applies with respect to an ownership change, and the corporation does not continue its historic business (as defined in the IRC) at all times during the two-year period following the date of such ownership change, the NOLs are eliminated in their entirety. NOLs not utilized in a given year because of the section 382 limitation remain available for use in future years until their normal expiration dates, but subject to the section 382 limitation in such later years. To the extent that a corporation's section 382 limitation in a given year exceeds its taxable income for such year, such excess will be carried over to the immediately succeeding taxable year and increase the section 382 limitation in such taxable year.

The Debtors underwent an ownership change in late 1998 as a result of the issuance of stock in connection with the acquisition of SNTLHC. As a result, the NOLs of the Debtors that arose in taxable periods prior to the ownership change of approximately $204 million are subject to a section 382 limitation of approximately $8 million per year. SNTL has taken the position in filing its tax returns to date that the Debtors have not otherwise undergone an ownership change subsequent to the 1998 ownership change and prior to the Effective Date of the Plan. However, there can be no assurance as to this conclusion. If the IRS were successfully to assert that any Debtor had previously undergone another ownership change, the resulting section 382 limitation could severely limit or eliminate the deductibility of all or a substantial portion of the Debtors' existing NOLs.

Pursuant to the Plan, all existing stock of SNTL will be exchanged for the assets to be transferred to the Litigation Trust, and all of the New SNTL Common Stock will be issued to Chase in satisfaction of the Chase Unsecured Claim. As a result of such exchange, an ownership change, within the meaning

of section 382 of the IRC, will occur. Unless the Title 11 Exception applies to the ownership change that results from the Plan, the operation of section 382 will significantly reduce or eliminate the amount of NOLs that may be utilized by the Debtors and JPMC in any taxable period after the Effective Date. The Debtors intend to take the position that the Title 11 Exception applies with respect to the Plan. However, the application of the Title 11 Exception to the Plan is uncertain in several respects, and it is possible that the IRS may disagree with the Debtors' analysis.

Section 382(l)(5) of the Code (the "Title 11 Exception") provides that the section 382 limitation does not apply if (i) a corporation that is otherwise subject to section 382 of the IRC is under the jurisdiction of a court in a case under the Bankruptcy Code and (ii) the shareholders and "qualified creditors" of the corporation (determined immediately before the ownership change) together own, after such ownership change, and as a result of being shareholders or qualified creditors immediately before such change, stock having 50% or more of the value and voting power of the reorganized corporation and (iii) the corporation does not make an election not to have the Title 11 Exception apply. For this purpose "qualified creditors" include (i) persons who held indebtedness for at least 18 months before the date the Chapter 11 petition was filed (the "Commencement Date") and (ii) holders of indebtedness that arose in the ordinary course of business of the corporation and who have at all times held the beneficial interest in such indebtedness.

The Debtors and the Holder of the Class 4 Claim intend to take the position that the Class 4 Claim arose in the ordinary course of business and therefore that the Holder of the Class 4 Claim is and will remain a "qualified creditor." Based on the foregoing, the Debtors and the SNTL Acquiror intend to take the position that the reorganization of the Debtors pursuant to the Plan would qualify for the Title 11 Exception. However, there is no authority addressing the application of the qualified creditor rules in circumstances similar to those of the Debtors and the Plan, and due to this uncertainty and the complex nature of the Plan, the securities being issued thereunder, and the identity of the recipients thereof, there is a substantial risk that the IRS could challenge the Debtors' conclusion that the Plan meets the requirements of the Title 11 Exception.

If the Title 11 Exception applies, the use of the Debtors' post-change NOLs will not be subject to the section 382 limitation, but the NOLs will be reduced by the amount of interest paid or accrued by the Debtors relating to any indebtedness that is converted into stock and for which the Debtors claimed a deduction during the three-year period preceding the taxable year of the ownership change, plus the portion of the year of the ownership change prior to the Effective Date of the Plan. The Debtors estimate the amount of this reduction to be approximately $58 million, assuming that the ownership change occurred on January 1, 2001, although it is possible that the IRS will disagree with the Debtors' calculation. Under the Title 11 Exception, if there were a second ownership change during the two-year period following the ownership change that results from the Plan, the Title 11 Exception would not apply with respect to the first ownership change and the NOLs and other tax attributes of the Debtors would be subject to a section 382 limitation of $0 for all taxable years ending after the date of the second ownership change (thereby, in effect, eliminating entirely the Debtors' ability to utilize such tax attributes).

In addition to section 382, certain other sections of the IRC and Treasury Regulations could apply to limit the Debtors' utilization of their tax attributes, including their NOLs, following their reorganization under the Plan. The Debtors' tax attributes could be further limited under certain sections of the IRC and the Treasury Regulations to the extent that one or more of the Debtors engages in future mergers or acquisition transactions that are found not to have non-tax business purposes or are found to have tax avoidance as their principal purpose. In addition, if a Debtor engages in a merger or restructuring transaction in which it is not the surviving entity for tax purposes and which transaction does not constitute a reorganization or other transaction described in section 381

of the IRC, the NOLs of such Debtor will be eliminated. It is possible that one or more transactions pursuant to the Plan could have this effect.

Section 269 of the IRC provides generally that where (i) a person or persons acquire, directly or indirectly, control of a corporation, or (ii) any corporation acquires, directly or indirectly, property of another corporation not controlled by the acquiring corporation or its shareholders prior to the acquisition, the basis of which property in the hands of the acquiring corporation is determined in whole or in part by reference to the basis of the property in the hands of the transferor corporation, in either case for the principal purpose of the avoidance or evasion of Federal income tax by securing the benefit of a deduction, credit, or other allowance which such person or other corporation would not otherwise enjoy, the IRS may disallow such deduction, credit or other allowance. If the IRS determined that the acquisition by Chase of SNTL under the Plan, or any future acquisition of or by any of the Debtors, had, as its principal purpose, the avoidance or evasion of Federal income tax, the IRS could disallow the utilization of certain tax attributes, including all or a portion of the Debtors' NOLs.

Treasury Regulations under section 269 of the IRC provide that when control of a corporation is acquired in a transaction that qualifies for the Title 11 Exception, the principal purpose of such acquisition will be presumed to be the avoidance or evasion of Federal income tax unless the corporation carries on more than an insignificant amount of an active trade or business during and subsequent to the Title 11 case (the "active business requirement"). The Treasury Regulations provide that when the corporation continues to utilize a significant amount of its business assets or work force, the requirement of carrying on more than an insignificant amount of an active trade or business may be met even though all trade or business activities temporarily cease for a period of time in order to address business exigencies. The Debtors believe that the managing general agency and claims administration businesses of SNIS and SNIA should satisfy the active business requirement of section 1.269-3(d) of the Treasury Regulations even though such businesses substantially reduced their activity, and may have temporarily ceased, in connection with the seizure and conservation of the Conserved Companies. However, due to the absence of interpretive authority with respect to the amount of business activity required to meet the active business requirement of the section 269 regulations, there is no certainty that the IRS will determine that the Debtors meet the active business requirement.

Pursuant to the Plan, the Debtors will become members of the JPMC consolidated group. The Debtors and Chase intend to take the position that the conversion of SNTL into a limited liability company, all of the membership interests in which will be owned by Chase, will be treated for Federal income tax purposes as a liquidation of SNTL under section 332 of the IRC and that, as a result, the JPMC consolidated group will be able to utilize the Debtors' NOLs against certain income of the group under successor rules contained in the separate return limitation year rules of the consolidated return regulations. It is possible that the IRS could dispute this position.

If, subsequent to the reorganization of the Debtors under the Plan, any Debtor acquired control of a corporation that has unrealized built-in-gains, section 384 of the IRC would apply to prevent the use of the Debtors' pre-acquisition NOLs to offset any gains realized within the five years following the acquisition that are attributable to the acquired corporation's built-in-gains.

An alternative minimum tax ("AMT") is imposed on a corporation's alternative minimum taxable income (to the extent income exceeds any applicable exemption amount, which is currently $40,000 subject to complete phase-out if alternative minimum taxable income exceeds $310,000) at a 20% rate to the extent such tax exceeds the corporation's regular Federal income tax for the taxable year. For purposes of computing taxable income for AMT purposes, certain tax deductions and other beneficial allowances are modified or eliminated. In particular, even though a corporation might otherwise be

able to offset all of its taxable income for regular tax purposes by available NOLs, only 90% of a corporation's taxable income for AMT purposes may be offset by available net operating loss carryforwards (as computed for these purposes). A current legislative proposal would permanently repeal the corporate AMT. No prediction can be made as to the likelihood of passage of this proposal or any other proposal affecting the application of the AMT.

On the exchange of its Claim for Cash, each Holder of a Class 1 or Class 2 Claim will recognize gain or loss measured by the difference between the amount of Cash received in the exchange, other than any amount allocable to interest (see "Treatment of Accrued Interest" below), and its tax basis in the Claim. The character and taxation of any recognized gain or loss will depend on the status of the Holder, the nature of the Claim in its hands, and its holding period.

The Federal income tax consequences of the implementation of the Plan to a Holder of a Class 3 Claim receiving Litigation Trust Interests under the Plan will depend on a number of factors, including in part whether the EON is properly classified as debt or equity for Federal income tax purposes, whether the Litigation Trust is properly treated for Federal tax purposes as a "liquidating trust" and whether the EON is properly treated as an asset separate from the other assets of the Litigation Trust, whether, in the case of a Class 3a Claim, the exchanged Class 3a Claim is an obligation that constitutes a "security" for Federal income tax purposes (a "Tax Security"), and, if a Class 3a Claim constitutes a Tax Security, whether the EON constitutes a Tax Security, and whether either the Class 3 Claim or the EON is considered traded on an established securities market ("publicly traded") for purposes of the original issue discount rules, as well as on whether the Class 3 Claim or the EON is a marketable security or the EON is readily tradable, in each case for purposes of the installment sale rules of the IRC.

The term "security" is not defined in the IRC or the Treasury Regulations. Whether a Class 3a Claim constitutes a Tax Security is based on the facts and circumstances surrounding the origin and nature of the Class 3a Claim and its maturity date. Generally, stock, and bonds or debentures with an original term of at least ten years have been considered to be Tax Securities. In contrast, instruments with terms of five years or less rarely qualify as Tax Securities. SNTL intends to take the position that the EON is a debt instrument for Federal income tax purposes. However, because of the unique features of the EON, its characterization as debt or equity is unclear, and, if the EON is properly characterized as debt, it is unclear whether such debt would constitute a Tax Security of SNTL.

The Debtors and the Trustee intend to treat the Litigation Trust as a liquidating trust within the meaning of Section 301.7701-4(d) of the Treasury Regulations. Accordingly, Distributions made by the Reorganized Debtors to the Litigation Trust on the Effective Date will be treated by the Reorganized Debtors for Federal income tax purposes as a deemed transfer of the Transferred Assets to the Holders of Class 3 Claims and Class 6 Equity Interests followed by a deemed transfer of the Transferred Assets by such Holders to the Litigation Trust. Such Holders, as beneficiaries of the Litigation Trust (each, a "Trust Beneficiary") will be treated as the grantors and deemed owners of the Litigation Trust and each Trust Beneficiary shall be treated for federal income tax purposes as the direct owner of that portion of the Transferred Assets attributable to such Trust Beneficiary's Litigation Trust Interest. The Litigation Trust Agreement will provide that the Trustee will determine the fair market value of the Transferred Assets within 90 days after the Effective Date and send such determination to each Trust Beneficiary and to the Reorganized Debtors. Trust Beneficiaries will be required to use such valuation for all federal income tax purposes, including, without limitation, in computing any gain recognized pursuant to the exchange of such Holder's Claim or Equity Interest.

No rulings or opinions have been requested from the IRS or counsel with respect to the Federal tax classification of the EON or the Litigation Trust. In addition, as described below (see "Federal Income Tax Treatment of Payments on The Litigation Trust Certificates—Litigation Trust Certificates"), the treatment of the EON as an asset separate from the other assets of the Litigation Trust also is

subject to uncertainty. Accordingly, the Federal income tax consequences of the implementation of the Plan to a Holder of a Class 3 Claim exchanging its Claim for Litigation Trust Certificates are unclear.

SNTL intends to take the position that the EON issued under the Plan is indebtedness of SNTL and that the Litigation Trust is a liquidating trust of which the Trust Beneficiaries are the grantors and deemed owners. If this position is correct, the exchange of a Class 3b, 3c or 3d Claim (a "Subsidiary Class 3 Claim") for Litigation Trust Certificates will be a taxable event for Holders of Class 3b, 3c and 3d Claims (each, a "Subsidiary Class 3 Creditor"). However, even though a Subsidiary Class 3 Creditor will be required to recognize gain, if any, with respect to the exchange of its Subsidiary Class 3 Claim, due to the contingent nature of payments to be made in future years with respect to the Litigation Trust Certificates, it is not clear whether the transaction would be sufficiently closed such that a Subsidiary Class 3 Creditor would be able to recognize a loss at the time of the exchange.

Because the EON provides for payments in future years, gain recognized by a Holder on the exchange of its Subsidiary Class 3 Claim for Litigation Trust Certificates may, under certain circumstances, qualify for the installment sale rules under section 453 of the IRC (see "Installment Sales," below).

If the EON is readily tradable within the meaning of section 453(f) of the IRC, the exchange will not be treated as an installment sale for Federal income tax purposes. In addition, even if the EON is not readily tradable within the meaning of section 453(f) of the IRC, a Subsidiary Class 3 Creditor may elect under section 453(d) of the IRC not to have the installment sale rules apply to the exchange. If the installment sale rules do not apply to the exchange, a Subsidiary Class 3 Creditor will recognize gain, if any, at the time of the exchange measured by the difference between the Subsidiary Class 3 Creditor's tax basis in its Subsidiary Class 3 Claim and the sum of the fair market value of the portion of the EON (unless the EON is a debt instrument whose fair market value is not reasonably ascertainable) and the amount of cash and fair market value of the other assets of the Litigation Trust deemed received by the Subsidiary Class 3 Creditor, other than any amount allocable to interest (see "Treatment of Accrued Interest" below). The character and taxation of any recognized gain will depend on the status of the Subsidiary Class 3 Creditor, the nature of the Subsidiary Class 3 Claim in its hands and its holding period. A Subsidiary Class 3 Creditor's aggregate tax basis in its portion of the Transferred Assets represented by Litigation Trust Certificates thus received will generally equal the fair market value of such Litigation Trust Certificates at the time gain is recognized, and the holding period for its portion of the Transferred Assets represented by Litigation Trust Certificates will commence on the day following the exchange.

Future payments with respect to the EON will be subject to the original issue discount rules if such security constitutes indebtedness for Federal income tax purposes (see "Federal Income Tax Treatment Of Payments On The Litigation Trust Certificates-The EON-Original Issue Discount," below). If the EON became worthless before the Subsidiary Class 3 Creditor fully recovered its tax basis, a Subsidiary Class 3 Creditor would be entitled to a loss at that time equal to its adjusted basis, if any, in such security.

As stated above, SNTL intends to take the position that the EON issued under the Plan constitutes indebtedness of SNTL and that the Litigation Trust is a liquidating trust of which the Trust Beneficiaries are the grantors and deemed owners. If it were determined that the EON constitutes equity of SNTL or that the Litigation Trust was properly treated as a taxable trust for Federal tax purposes (see "Federal Income Tax Treatment of Payments on The Litigation Trust Certificates-Litigation Trust Certificates," below), the Federal income tax consequences to Holders of the exchange

of a Subsidiary Class 3 Claim for Litigation Trust Certificates generally would be similar to those described above under "EON Is Indebtedness", except that the installment sale rules would not apply to the exchange and, if the EON were equity, future payments with respect to the EON would not be subject to the original discount rules, but instead could be as dividends or payments in redemption of equity under the complex rules of section 302 of the IRC.

The assumption by JPMC of the obligations of SNTL under the EON in connection with the conversion of SNTL into a limited liability company will be a taxable event for holders of the EON through the Litigation Trust. However, whether or not the installment sale rules apply, due to the contingent nature of the payments to be made in future years with respect to the JPMC EON, it is not clear whether the holders of the EON would be able to recognize any loss with respect to the EON upon the assumption by JPMC.

If the installment sale rules do not apply to the assumption because the EON after assumption by JPMC (the "JPMC EON") is readily tradable or constitutes equity of JPMC or because the Subsidiary Class 3 Creditor makes an election not to have the installment rules apply to the assumption, a Subsidiary Class 3 Creditor generally will recognize gain, if any, at the time of the assumption by JPMC measured by the difference between the Holder's tax basis in its portion of the EON immediately after the receipt of such portion in partial exchange for its Subsidiary Class 3 Claim, as described above under "EON Is Indebtedness", and the fair market value of its portion of the JPMC EON (unless the JPMC EON is a debt instrument whose fair market value is not reasonably ascertainable) at the time of the assumption.

The Holder's tax basis in its portion of the JPMC EON will generally equal its fair market value at the time of the assumption and the holding period for the JPMC EON will commence on the day following the assumption.

If the EON is a Tax Security or equity of SNTL and the Class 3a Claim is a Tax Security, the exchange of a Class 3a Claim for Litigation Trust Certificates pursuant to the Plan may constitute a recapitalization under section 368(a)(1)(E) of the IRC, for which the portion of the Transferred Assets (other than the portion of the EON) deemed received by the Class 3a Creditor (the "Other Transferred Assets"), if properly treated as assets separate from the EON, will constitute "boot" to the Class 3a Creditor.

A Class 3a Creditor will not recognize loss if the exchange constitutes a recapitalization, but may recognize gain in an amount equal to the lesser of: (a) the fair market value of the Other Transferred Assets deemed received and (b) the total gain realized in the recapitalization, which amount would be equal to the difference between the Class 3a Creditor's tax basis in its Class 3a Claim and the sum of the fair market value of the portion of the EON (unless the fair market value of the EON is not reasonably ascertainable) and the amount of cash and fair market value of the Other Transferred Assets deemed received in the exchange.

If the exchange constitutes a recapitalization, a Class 3a Creditor's tax basis in the portion of the EON deemed received in the exchange will generally equal its tax basis in the Class 3a Claim, decreased by the fair market value of the Other Transferred Assets deemed received and increased by the amount of any gain recognized on the exchange.

A Class 3a Creditor's basis in its portion of the Other Transferred Assets will generally equal their fair market value, and the holding period for such portion of the Other Transferred Assets will commence on the day following the exchange.

If instead the EON was not treated as a separate asset, the appropriate tax treatment is not clear. Under one theory, a Class 3a Creditor would not recognize any gain or loss on the exchange of the Class 3a Claim for Litigation Trust Certificates. The Class 3a Creditor's tax basis in its portion of the Transferred Assets deemed received would equal its tax basis in its Class 3a Claim and the holding period for its portion of the Other Transferred Assets deemed received in the exchange (other than in respect of interest) would generally include the Class 3a Creditor's holding period for its Class 3a Claim. Alternatively, the exchange might be a fully taxable event for an exchanging Class 3a Creditor, generally with similar Federal income tax consequences to those for Subsidiary Class 3 Creditors except that the original issue discount rules would not apply to future payments with respect to the EON (see "Holders of Class 3b, 3c and 3d Claims—EON Is Characterized As Equity or Litigation Trust is a Taxable Trust", above).

If the EON is characterized as debt not constituting a Tax Security of SNTL or the Class 3a Claim being exchanged is not a Tax Security, the exchange of a Class 3a Claim for Litigation Trust Certificates will be a taxable event for an exchanging Class 3a Creditor, with similar Federal income tax consequences to those for Subsidiary Class 3 Creditors (see "Holders of Class 3b, 3c and 3d Claims" above).

The assumption by JPMC of the obligations of SNTL under the EON in connection with the conversion of SNTL into a limited liability company will be a taxable event for holders of the EON. However, whether or not the installment sale rules apply, due to the contingent nature of the payments to be made in future years with respect to the JPMC EON, it is not clear whether the holders of the EON would be able to recognize any loss with respect to the EON upon the assumption by JPMC.

If the JPMC EON is properly treated as indebtedness, because the JPMC EON provides for payments in future years, gain recognized by a Class 3a Creditor with respect to such assumption may, under certain circumstances, qualify for the installment sale rules under section 453 of the IRC (see "Installment Sales," below). If the JPMC EON is readily tradable within the meaning of section 453(f) of the IRC or constitutes equity of JPMC, the assumption will not be treated as an installment sale for Federal income tax purposes. In addition, even if the JPMC EON is not readily tradable within the meaning of section 453(f) of the IRC and is properly treated as indebtedness of JPMC, a Class 3a Creditor may elect under section 453(d) of the IRC not to have the installment sale rules apply to the assumption. If the installment sale rules do not apply to the assumption, a Class 3a Creditor generally will recognize gain, if any, at the time of the assumption by JPMC measured by the difference between the Holder's tax basis in its portion of the EON immediately after the receipt of such portion in partial exchange for its Class 3a Claim, as described above under "Holders of Class 3a Claims," and the fair market value of its portion of the JPMC EON (unless the JPMC EON is a debt instrument whose fair market value is not reasonably ascertainable) at the time of the assumption.

Future payments with respect to the EON will be subject to the original issue discount rules if such security constitutes indebtedness for Federal income tax purposes (see "Federal Income Tax Treatment Of Payments On The Litigation Trust Certificates—The EON-Original Issue Discount," below). If the EON became worthless before the Class 3a Creditor fully recovered its tax basis, a Class 3a Creditor would be entitled to a loss at that time equal to its adjusted basis, if any, in such security.

A Holder of a Class 5 Claim should recognize a loss upon consummation of the Plan equal to the Holder's tax basis in its Class 5 Claim. Such loss will be a capital loss if the Class 5 Claim was a capital asset in the hands of such holder. A Holder of a Class 5 Claim generally also will recognize a loss to the extent of unpaid interest previously included in the Holder's gross income.

If the EON qualifies as indebtedness, in any situation where the exchange of a Class 3 Claim or Class 6 Equity Interest is a taxable event to the exchanging Holder and upon the assumption by JPMC of the obligations of SNTL under the EON, the installment sale rules will apply to gain realized on the exchange unless either: (i) the EON is "readily tradable" within the meaning of section 453(f) of the IRC; (ii) in the case of an exchange of a Class 3 Claim or Class 6 Equity Interest, the Class 3 Claim or Class 6 Equity Interest, as applicable, constitutes a marketable security or, in the case of the assumption by JPMC of the obligations of SNTL under the EON, the EON constitutes a marketable security; or (iii) the Holder of the Class 3 Claim or Class 6 Equity Interest or portion of the EON, as applicable, elects out of the installment rules pursuant to section 453(d). It is not clear whether the EON will be "readily tradable" under section 453(f) of the IRC, nor is it clear whether the Class 3 Claims are marketable securities or the EON is a marketable security; accordingly, the applicability of the installment sale rules to gain recognition on the exchange of a Class 3 Claim or Class 6 Equity Interest for Litigation Trust Certificates and to the assumption by JPMC of the obligations of SNTL under the EON is uncertain.

If the EON is not "readily tradable" within the meaning of section 453(f), and the Class 3 Claim or Class 6 Equity Interest or EON, as applicable, does not constitute a marketable security, the exchange or assumption will be treated as an installment sale for Federal income tax purposes, and the Holder will be required to report any gain on the transaction using the installment method under section 453 of the IRC (unless the Holder elects out of the installment rules under section 453(d) of the IRC). In such case, the Holder will be required to "spread" its tax basis in the asset that has been exchanged or assumed ratably over a 15-year period and the Holder should recognize gain on a portion of each payment received over the term of the EON equal to the principal portion of such payment, as computed under the original issue discount rules, minus the tax basis allocated to such payment. If the EON qualifies for installment reporting and the treatment of the Litigation Trust as a liquidating trust owned by the Trust Beneficiaries and the EON as a separate asset is respected, the receipt of a portion of the Other Transferred Assets in partial exchange for a Class 3 Claim or Class 6 Equity Interest will be treated as a payment on the installment sale. As a result, unless the Holder elects out of the installment sale rules, because of the requirement to allocate tax basis over a 15-year period, such Holder could be subject to federal income taxation for the taxable year in which the Litigation Trust Certificates are received on all or a significant portion of the fair market value of such Trust Beneficiary's portion of the Other Transferred Assets.

The character of a Holder's gain will depend upon the nature and holding period of the asset exchanged for the Litigation Trust Certificates, except that payments with respect to the EON will be, and payments with respect to the other Transferred Assets may be, subject to the original issue discount rules (see "Federal Income Tax Treatment Of Payments On The Litigation Trust Certificates—EON-Original Issue Discount", below). A Holder of a Class 3 Claim or Class 6 Equity Interest will not be able to claim a loss in a year in which no payment is received, or if the payment received is less than the basis allocated to the year (unless the EON has become worthless). If this situation occurs, the excess basis will be allocated ratably over the balance of the 15-year period. Any basis not recovered at the end of the 15th year will be carried forward to the next succeeding year until all basis has been recovered or the EON is determined to be worthless. If the EON becomes worthless before the holder has fully recovered its tax basis, the holder would be entitled to a loss at that time.

If the Holder of a Class 3 Claim or Class 6 Equity Interest or Litigation Trust Interest, as applicable, elects out of the installment method, or if the EON is readily tradable, or the Class 3 Claim or Class 6 Equity Interest or EON exchanged constitutes a marketable security, the exchange will not constitute an installment sale.

A Holder of a Claim will be treated as receiving interest with respect to its Claim to the extent that the Cash, Litigation Trust Certificates or common stock in Reorganized SNTL received is "attributable to" unpaid interest since the beginning of the Holder's holding period. A Holder will recognize interest income to the extent that the amount received attributable to its unpaid interest exceeds the amount, if any, that such Holder had previously included in income with respect to such interest, and will recognize a loss to the extent that the amount of interest previously included in income exceeds the amount received that is treated as attributable to interest.

Neither the IRC nor the Treasury Regulations specify how a creditor who receives consideration with respect to a Claim that is less than the amount of the Claim should allocate such consideration between principal and interest. The Report of the House Ways and Means Committee on the Bankruptcy Tax Act of 1980 indicates that if an allocation is reflected in the plan of reorganization, both the debtor and creditor must utilize the allocation. The Plan provides that the entire consideration paid to Holders of Claims will be allocated to the principal portion first and then to the interest portion. The IRS could, however, take the view that the consideration must be allocated proportionately between the portion of any Claim representing principal and the portion of the Claim representing interest. Holders of Claims should consult their tax advisors as to the proper allocation.

The Federal income tax consequences of the implementation of the Plan to Holders of Class 6 Equity Interests (each, a "Class 6 Holder") exchanging an Equity Interest in SNTL for Litigation Trust Certificates depends primarily on whether, for Federal income tax purposes, the EON is properly classified as debt or equity and whether the EON is properly treated as an asset separate from the other assets of the Litigation Trust. As noted above (see "Federal Income Tax Consequences to Holders of Claims-Class 3 Claims"), the tax classification of the EON and the Litigation Trust is uncertain. Accordingly, the Federal income tax consequences of the implementation of the Plan to a Class 6 Holder exchanging a Class 6 Equity Interest for Litigation Trust Certificates are unclear.

SNTL intends to take the position that the EON issued under the Plan is indebtedness of SNTL. If this position is correct, the exchange of a Class 6 Equity Interest for Litigation Trust Certificates will be a taxable event for Class 6 Holders. However, even though a Class 6 Holder will be required to recognize gain, if any, with respect to the exchange of its Class 6 Equity Interest, due to the contingent nature of payments to be made in future years with respect to the Litigation Trust Certificates, it is not clear whether the transaction would be sufficiently closed such that a Class 6 Holder would be able to recognize a loss at the time of the exchange.

A Class 6 Holder (other than any such Holder that is treated under section 318 of the IRC as constructively owning stock in Chase or a person or entity related to Chase) should recognize gain, if any, on the exchange of its Class 6 Equity Interest measured by the difference between the Class 6 Holder's tax basis in its Class 6 Equity Interest and the sum of the fair market value of the portion of the EON (unless such fair market value is not reasonably ascertainable) and the amount of cash and fair market value of the other assets of the Litigation Trust deemed received in the exchange. Gain recognized might qualify for treatment under the installment sale rules as described above (see "Federal Income Tax Consequences to Holders of Claims-Installment Sales"). Such gain should be

capital gain if the Class 6 Equity Interest is held as a capital asset. A Class 6 Holder's aggregate tax basis in its portion of the Transferred Assets represented by Litigation Trust Certificates thus received will generally equal their fair market value at the time gain is recognized and the holding period for its portion of the Transferred Assets represented by the Litigation Trust Certificates will commence on the day following the exchange.

As stated above, SNTL intends to take the position that the EON issued under the Plan constitutes indebtedness of SNTL. However, if it were determined that the EON constitutes equity of SNTL, the exchange of a Class 6 Equity Interest for Litigation Trust Certificates may constitute a recapitalization under section 368(a)(1)(E) of the IRC, for which the portion of the Other Transferred Assets deemed received, if properly treated as assets separate from the EON, will constitute "boot" to the Class 6 Holder.

A Class 6 Holder will not recognize loss if the exchange constitutes a recapitalization, but may recognize gain in an amount equal to the lesser of: (a) the fair market value of the Other Transferred Assets deemed received and (b) the total gain realized in the recapitalization, which amount would be equal to the difference between the Class 6 Holder's tax basis in its Class 6 Equity Interest and the sum of the fair market value of the portion of the EON and the amount of cash and fair market value of the Other Transferred Assets deemed received in the exchange.

If the exchange constitutes a recapitalization, a Class 6 Holder's tax basis in its portion of the EON deemed to be received in the exchange will generally equal its tax basis in the Class 6 Equity Interest, decreased by the fair market value of the Other Transferred Assets deemed received and increased by the amount of any gain recognized on the exchange.

A Class 6 Holder's basis in its portion of the Other Transferred Assets will generally equal their fair market value, and the holding period for such portion of the Other Transferred Assets will commence on the day following the exchange.

If instead the EON was not treated as a separate asset, the appropriate tax treatment is not clear. Under one theory, a Class 6 Holder would not recognize any gain or loss on the exchange of the Class 6 Equity Interest for Litigation Trust Certificates. The Class 6 Holder's tax basis in its portion of the Transferred Assets deemed received would equal its tax basis in its Class 6 Equity Interest and the holding period for its portion of the Other Transferred Assets deemed received in the exchange would include the Class 6 Holder's holding period for its Class 6 Equity Interest. Alternatively, the exchange might be a fully taxable event for an exchanging Class 6 Holder, with the same Federal income tax consequences as those described above under "EON Is Indebtedness", except that the installment sale rules would not apply to the exchange.

The assumption by JPMC of the obligations of SNTL under the EON in connection with the conversion of SNTL into a limited liability company will be a taxable event for holders of the EON. However, whether or not the installment sale rules apply, due to the contingent nature of the payments to be made in future years with respect to the JPMC EON, it is not clear whether the holders of the EON would be able to recognize any loss with respect to the EON upon the assumption by JPMC.

If the JPMC EON is properly treated as indebtedness, because the JPMC EON provides for payments in future years, gain recognized by a Class 6 Holder with respect to such assumption may, under certain circumstances, qualify for the installment sale rules under section 453 of the IRC (see "Federal Income Tax Consequences to Holders of Claims-Installment Sales").

If the JPMC EON is readily tradable within the meaning of section 453(f) of the IRC or constitutes equity of JPMC, the assumption will not be treated as an installment sale for Federal income tax purposes. In addition, even if the JPMC EON is not readily tradable within the meaning of section 453(f) of the IRC and is properly treated as indebtedness of JPMC, a Class 6 Holder may elect under section 453(d) of the IRC not to have the installment sale rules apply to the assumption. If the installment sale rules do not apply to the assumption, a Class 6 Holder generally will recognize gain, if any, at the time of the assumption by JPMC measured by the difference between the Holder's tax basis in its portion of the EON immediately after the receipt of such portion in partial exchange for its Class 6 Equity Interest, as described above under "Federal Income Tax Consequences to Holders of Equity Interests in SNTL," and the fair market value of its portion of the JPMC EON (unless the JPMC EON is a debt instrument whose fair market value is not reasonably ascertainable) at the time of the assumption.

The holder's tax basis in its portion of the JPMC EON will generally equal its fair market value at the time of the assumption and the holding period for such portion will commence on the day following the assumption.

Future payments with respect to the EON will be subject to the original issue discount rules if such security constitutes indebtedness for Federal income tax purposes (see "Federal Income Tax Treatment Of Payments On The Litigation Trust Certificates—EONs—Original Issue Discount," below). If the EON became worthless before the Class 6 Holder fully recovered its tax basis, a Class 6 Holder would be entitled to a loss at that time equal to its adjusted basis, if any, in such security.

4. Federal Income Tax Treatment Of Payments On The Litigation Trust Certificates

As discussed above (see "Federal Income Tax Consequences to Holders of Claims—Class 3 Claims"), the Federal income tax treatment of future payments with respect to the Litigation Trust Certificates will depend in part on whether the Litigation Trust is properly treated for federal tax purposes as a liquidating trust and in part on whether the Trust Beneficiaries are properly treated as directly owning the Other Transferred Assets separately from the EON. If, consistent with the position that the Debtors and the Trustee intend to take, the Litigation Trust is properly treated for Federal tax purposes as a liquidating trust within the meaning of Section 301.7701-4(d) of the Treasury Regulations, the rules summarized in the next paragraph will apply. However, no ruling has been requested from the IRS with respect to the Federal tax classification of the Litigation Trust and it is possible that the IRS might successfully assert that the Litigation Trust should be otherwise classified. In addition, because of the interrelationship between payments made on the EON and payments made in respect of the Other Transferred Assets, the distributions made with respect to the Other Transferred Assets might be treated as additional payments made on the EON. In such case, such amounts would be included in income by Holders of Class 3 Claims and Class 6 Equity Interests in accordance with the rules provided below (see "The EON").

Assuming that the Litigation Trust is properly treated for Federal tax purposes as a liquidating trust, the Holders of Class 3 Claims and Class 6 Equity Interests, as Trust Beneficiaries, will be treated as the grantors and deemed owners of the Litigation Trust. Pursuant to the Litigation Trust Agreement, the Trustee will be required to file federal tax returns for the Litigation Trust as a grantor trust pursuant to Treasury Regulation Section 1.671-4(a) or 1.671-4(b), as appropriate. In computing its taxable income, each Trust Beneficiary will be required to include those items of income, deductions and tax credits that are attributable to its Litigation Trust Interest generally to the extent that such items would be taken into account under the IRC in computing the taxable income or credits against the tax of an individual. For this purpose, the Litigation Trust Interest of each Trust Beneficiary will be determined for periods during which there are Disputed Class 3 Claims by assuming that each Holder of a Disputed Class 3 Claim owns a Litigation Trust Interest determined as if the Claim had been Allowed in an amount equal to the Disputed Claim Amount. Although the Litigation Trust Agreement will require distributions of Available Cash as defined therein to be made to the Trust Beneficiaries (or, in the case of the Holders of Disputed Class 3 Claims, to the Disbursing Agent) at least annually, Holders of Class 3 Claims and Class 6 Equity Interests should be aware that their taxable income with respect to the Litigation Trust might not be accompanied by distributions of Cash or other Litigation Trust assets. In addition, Holders of Disputed Class 3 Claims will be required to include in their taxable income amounts that will not be distributed to them until their Claim is resolved and, to the extent that the Claim is Allowed in an amount that is less than the Disputed Claim Amount, such Holders will be required to include in their taxable income amounts that will never be distributed to them.

If it were determined that the Litigation Trust was not properly classified for Federal tax purposes as a liquidating trust, the Litigation Trust might instead be treated as an entity classified as a partnership or as an ordinary trust for Federal tax purposes. If the Litigation Trust were classified as a partnership, the Holders of Class 3 Claims and Class 6 Equity Interests would be treated as owning partnership interests in such partnership rather than as the direct owners of the portion of the assets of the Litigation Trust represented by their Litigation Trust Interest. A partnership is not a taxable entity for federal income tax purposes. Instead, each partner is required to take into account its allocable share of the partnership's income, gains, losses, deductions, and credits for any taxable year of the partnership ending with or within the taxable year of the partner, without regard to whether the partner has received or will receive any distribution from the partnership. Such allocable share would normally be determined in accordance with the Litigation Trust Agreement if such allocations had "substantial economic effect" and otherwise would be determined in accordance with the Trust

Beneficiary's Litigation Trust Certificates. Because of the unique circumstances of the creation of the Litigation Trust and its projected operations, the proper method for allocating the income of the Litigation Trust if it were classified as a partnership for Federal tax purposes would be unclear.

If the Litigation Trust were instead properly classified as an ordinary trust for Federal tax purposes, the Litigation Trust would be treated as a separate taxable entity. Under the general rules applicable to such trusts, required distributions to Trust Beneficiaries should be deductible in computing the taxable income of the Litigation Trust and the Trust Beneficiaries would include such amounts in income whether or not distributed. However, it is possible that the IRS might assert that such distributions with respect to Trust Beneficiaries that previously were Holders of Class 3 Claims would not be deductible in computing the taxable income of the Litigation Trust, in which case it is possible that both the Litigation Trust and the Trust Beneficiaries could be subject to Federal income tax on such amounts. In such event, the funds of the Litigation Trust available to be distributed to the Trust Beneficiaries could be substantially reduced.

As discussed above, potential significant differences exist with respect to amounts includible in income and the timing of such income inclusion by Holders of Litigation Trust Certificates, depending in part upon the proper classification of the Litigation Trust for Federal income tax purposes. Such potential differences are greater with respect to a Holder of a Disputed Class 3 Claim. Given the uncertainty with respect to the treatment of the Litigation Trust Certificates, Holders are urged to consult their tax advisors with respect to such assets.

The Federal income tax treatment of future payments on the EON will depend on whether such security is properly classified as debt or equity and, if the EON is debt, on a variety of other factors discussed below under "Original Issue Discount" and above under "Litigation Trust Certificates". If, consistent with the position that the Debtors currently intend to take, the EON is indebtedness for Federal income tax purposes, the original issue discount ("OID") rules will apply, and holders, as discussed below, could be required to include amounts in taxable income substantially in advance of receiving corresponding amounts of cash.

The amount of OID, if any, on a debt instrument is the excess of its "stated redemption price at maturity" over its "issue price," subject to a statutorily-defined de minimis exception. The "stated redemption price at maturity" of a debt instrument is the sum of its principal amount plus all other payments required thereunder, other than payments of "qualified stated interest" (defined generally as interest that is unconditionally payable in cash or in property (other than debt instruments of the issuer) at least annually at a single fixed rate that appropriately takes into account the length of intervals between payment). The "issue price" of a debt instrument is determined under sections 1273(b) and 1274 of the IRC and, in the case of the EON, depends upon whether the Class 3 Claims or Class 6 Equity Interests, as applicable, or the EON is publicly traded.

In general, the holder of a debt instrument with original issue discount must include in gross income for Federal income tax purposes the sum of the daily portions of original issue discount with respect to such debt instrument for each day during the taxable year or portion of a taxable year on which such holder holds the debt instrument. This could result in a holder recognizing taxable income prior to receiving payment with respect to the debt instrument. The daily portion is determined by allocating to each day of any accrual period a pro rata portion of the amount of original issue discount allocable to such accrual period. The amount of original issue discount that is allocable to an accrual period is generally an amount equal to (x) the product of the "adjusted issue price" of the debt instrument at the beginning of such accrual period times its yield to maturity less (y) any qualified stated interest allocable to such accrual period. The "adjusted issue price" is the issue price of a debt

instrument increased by the accrued original issue discount for all prior accrual periods (other than qualified stated interest payments) and decreased by certain payments made by the issuer to the holder. The "yield to maturity" is the discount rate, which when applied to all payments under the debt instrument results in a present value equal to the issue price. The tax basis of the debt instrument in the hands of the holder will be increased by the amount of original issue discount, if any, on the debt instrument that is included in the holder's gross income and will be decreased by the amount of cash payments (other than qualified stated interest payments) received with respect to the debt instrument, whether such payments are denominated as principal or interest.

Because the EON does not bear any qualified stated interest, payments made with respect to the EON will be subject to the OID rules, and because the amount and timing of the payments to be made with respect to the EON are contingent, the payments will be subject to the contingent payment OID rules of the Treasury Regulations. The effect and manner of application of the contingent payment OID rules depends on whether either the Class 3 Claim or the Class 6 Equity Interest, as applicable, or the EON is "publicly traded" within the meaning of section 1273 of the IRC. The determination of whether a debt instrument is publicly traded for the purposes of section 1273 is factual, based on whether certain types of market activity occur with respect to debt instruments within a certain time frame (30 days before and after the Effective Date), and it is not known whether the EON or the outstanding Class 3 Claims or Class 6 Equity Interests would be considered "publicly traded" for purposes of the OID rules.

If neither a Class 3 Claim or the Class 6 Equity Interests, as applicable, nor the EON, is publicly traded, under the rules set forth in section 1.1275-4(c) of the Treasury Regulations, a portion of each payment made with respect to the EON would be treated as principal, with such amount calculated by discounting the payment at the applicable Federal rate from the payment date to the issue date, and the remainder of the payment would be treated as interest. If the amount and timing of a contingent payment becomes fixed more than six months prior to payment, special rules apply; however, under the terms of the EON, payments are to be made 30 days after being fixed as to amount, and accordingly, it is expected that these special rules would not apply to the EON.

If either a Class 3 Claim or a Class 6 Equity Interest, as applicable, or the EON, is publicly traded within the meaning of section 1273 of the IRC, the EON will be subject to the noncontingent bond method of calculating interest accruals under section 1.1275-4(b) of the Treasury Regulations. Under the noncontingent bond method, interest accruals on the EON would be computed by setting up a payment schedule as of the issue date based on the hypothetical yield of a comparable fixed rate debt instrument of Reorganized SNTL and applying the OID rules according to that payment schedule. The payment schedule generally consists of all fixed payments on the debt and a projected amount for each contingent payment. Because the payments to be made with respect to the EON are wholly contingent, the payment schedule for the EON would consist of a projected amount for each payment. The Debtors will provide such a projected payment schedule in the event that they determine that any Class 3 Claim or the Class 6 Equity Interests, as applicable, or the EON was, in fact, publicly traded during the relevant time frame.

If a holder's initial tax basis in its portion of the EON is in excess of all amounts payable thereon after the acquisition date, the excess might be subject to amortization as "bond premium" under section 171 of the IRC. The application of the bond premium rules in the case of contingent payment debt instruments such as the EON is unclear.

In the event that the EON is treated as equity for Federal income tax purposes, the treatment of payments on such security would be unclear due to the unique nature of the EON and the lack of authority as to the treatment of such security. Holders are urged to consult their tax advisors in this regard.

THE FEDERAL, STATE, AND LOCAL TAX CONSEQUENCES OF THE PLAN ARE COMPLEX AND, IN SOME CASES, UNCERTAIN. IN ADDITION, THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR CREDITOR OR HOLDER OF AN EQUITY INTEREST IN LIGHT OF ITS PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION AND GENERALLY DOES NOT DISCUSS ANY DIFFERING OR ADDITIONAL FEDERAL INCOME TAX CONSIDERATIONS THAT MIGHT APPLY TO HOLDERS OF DISPUTED CLAIMS. ACCORDINGLY, EACH HOLDER OF A CLAIM OR EQUITY INTEREST IS STRONGLY URGED TO CONSULT WITH ITS OWN TAX ADVISOR REGARDING THE FEDERAL, STATE, AND LOCAL TAX CONSEQUENCES OF THE PLAN.

PERSONS OR ENTITIES CONCERNED WITH CONFIRMATION OF THIS PLAN SHOULD CONSULT WITH THEIR OWN ATTORNEYS BECAUSE THE LAW ON CONFIRMING A PLAN OF REORGANIZATION IS VERY COMPLEX. The following discussion is intended solely for the purpose of alerting readers about basic confirmation issues, which they may wish to consider, as well as certain deadlines for filing claims. The Proponent CANNOT and DOES NOT represent that the discussion contained below is a complete summary of the law on this topic.

Many requirements must be met before the Court can confirm a Plan. Some of the requirements include that the Plan must be proposed in good faith, acceptance of the Plan, whether the Plan pays Creditors at least as much as Creditors would receive in a Chapter 7 liquidation, and whether the Plan is feasible. These requirements are not the only requirements for confirmation.

Any party in interest may object to the confirmation of the Plan, but as explained below not everyone is entitled to vote to accept or reject the Plan.

The Holder of a Claim or Interest has a right to vote for or against the Plan if that Holder has a Claim which is both (1) allowed or allowed for voting purposes and (2) classified in an impaired Class.

As noted above, a Creditor or Interest Holder must first have an Allowed Claim or Interest to have the right to vote. Generally, any proof of Claim or Interest will be Allowed, unless a party in interest brings a motion objecting to the claim. When an objection to a Claim or Interest is filed, the Creditor or Interest Holder holding the Claim or Interest cannot vote unless the Court, after notice and hearing, either overrules the objection or allows the Claim or Interest for voting purposes.

THE BAR DATE FOR FILING A PROOF OF CLAIM IN THIS CASE WAS NOVEMBER 13, 2000. A Creditor or Interest Holder may have an Allowed Claim or Interest even if a proof of Claim or Interest was not timely filed. A Claim is deemed allowed if (1) it is scheduled on the Debtor's schedules and such Claim is not scheduled as disputed, contingent, or unliquidated, and (2) no party in interest has objected to the Claim. An Interest is deemed allowed if it is scheduled and no party in interest has objected to the interest.

As noted above, an Allowed Claim or Interest only has the right to vote if it is in a Class that is impaired under the Plan. A Class is impaired if the Plan alters the legal, equitable, or contractual rights of the members of that class. For example, a Class comprised of General Unsecured Claims is impaired if the Plan fails to pay the members of that class 100% of what they are owed.

In this case, the Proponent believes that all Classes of Claims and Interest are impaired, except Classes 7, 8 and 9 Equity Interest in SNTLHC, SNIS and SNIA, respectively, and that Holders of Claims in each Class are therefore entitled to vote to accept or reject the Plan.

The following four types of Claims are not entitled to vote: (1) Claims that have been disallowed; (2) Claims in unimpaired Classes; (3) Claims entitled to priority pursuant to Code sections 507(a)(1), (a)(2), and (a)(8); and (4) Claims in Classes that do not receive or retain any value under the Plan. Claims in unimpaired Classes are not entitled to vote because such classes are deemed to have accepted the Plan. Claims entitled to priority pursuant to Code sections 507(a)(1), (a)(2), and (a)(7) are not entitled to vote because such claims are not placed in classes and they are required to receive certain treatment specified by the Code. Claims in classes that do not receive or retain any value under the Plan do not vote because such classes are deemed to have rejected the Plan. EVEN IF YOUR CLAIM IS OF THE TYPE DESCRIBED ABOVE, YOU MAY STILL HAVE A RIGHT TO OBJECT TO THE CONFIRMATION OF THE PLAN.

A Creditor whose Claim has been allowed in part as a secured claim and in part as an unsecured claim is entitled to accept or reject a Plan in both capacities by casting one ballot for the secured part of the Claim and another ballot for the unsecured Claim. Additionally, a Creditor who has a Claim against more than one Debtor may vote such Claim in respect of each Class in which such Creditor has a Claim. As set forth above, however, pursuant to the Plan, such Creditor shall receive a Distribution as the Holder of only one Claim.

If impaired Classes exist, the Court cannot confirm the Plan unless, in respect of each Debtor, (1) at least one impaired class has accepted the Plan without counting the votes of any insiders within that Class, and (2) all impaired Classes have voted to accept the Plan, unless the Plan is eligible to be confirmed by "cramdown" on non-accepting Classes, as discussed later in Section 7.

A Class of Claims is considered to have accepted the Plan when more than one-half (¹/2) in number and at least two-thirds (²/3) in dollar amount of the Claims which actually voted, voted in favor of the Plan. A Class of Interests is considered to have accepted the Plan when at least two-thirds (²/3) in amount of the Interest-Holders of such Class which actually voted, voted to accept the Plan.

As noted above, even if all impaired Classes do not accept the proposed Plan, the Court may nonetheless confirm the Plan if the nonaccepting classes are treated in the manner required by the Code. The process by which nonaccepting Classes are forced to be bound by the terms of the Plan is commonly referred to as "cramdown." The Code allows the Plan to be "crammed down" on nonaccepting Classes of Claims or Interests if it meets all consensual requirements except the voting requirements of 1129(a)(8) and if the Plan does not "discriminate unfairly" and is "fair and equitable"² toward each impaired Class that has not voted to accept the Plan as referred to in 11 U.S.C. § 1129(b) and applicable case law. The Creditors of each Debtor other than SNTL could object to Confirmation

of the Plan as not being "fair and equitable"² in that Holders of Equity Interest in such Debtors are retaining their Equity Interests although the Claims against these Debtors are not necessarily being satisfied in full. In each such case, of course, the Holder of the Equity Interest in question is another of the Debtors. The Debtors and the SNTL Acquiror believe that the retention of the Equity Interests in the Subsidiaries of SNTL is prudent and beneficial to maintenance of the value of the NOLs. In the event that a Creditor raises such an objection—which objection would accomplish nothing beneficial to any Creditor in economic terms—the Debtors reserve the right to substantively consolidate their Estates, thereby rendering the Plan confirmable through the extinguishment of the Equity Interests in the Debtors other than SNTL by reason of such substantive consolidation.

Debtors ask the Court to confirm this Plan by cramdown on each impaired Class that does not vote to accept the Plan.

Another confirmation requirement is the "Best Interest Test", which requires a liquidation analysis. Under the Best Interest Test, if a claimant or interest holder is in an impaired Class and that claimant or interest holder does not vote to accept the Plan, then that creditor or Interest Holder must receive or retain under the Plan property of a value not less than the amount that such holder would receive or retain if the Debtor were liquidated under Chapter 7 of the Bankruptcy Code.

In a Chapter 7 case, the Debtor's assets are usually sold by a Chapter 7 trustee. Secured Creditors are paid first from the sales proceeds of properties on which the secured creditor has a lien. Administrative claims are paid next. Next, Holders of Unsecured Claims are paid from any remaining sales proceeds, according to their rights to priority. Holders of Unsecured Claims with the same priority share in proportion to the amount of their Allowed Claim in relationship to the amount of total allowed unsecured claims. Finally, Interest Holders receive the balance that remains after all Creditors are paid, if any.

For the Court to be able to confirm this Plan, the Court must find that all Creditors and Interest Holders who do not accept the Plan will receive at least as much under the Plan as such Holders would

receive under a Chapter 7 liquidation of each Debtor. Debtors maintain that this requirement is met here because the EON and Litigation Trust Certificates have a value far in excess of what would be distributed to Creditors at liquidation.

Attached hereto as Exhibit is a demonstration, in balance sheet format, that all Creditors and Interest Holders of each Debtor will receive at least as much under the Plan as such Creditor or Interest Holder would receive under a Chapter 7 liquidation. Exhibit " " is based upon two fundamental assumptions: (a) the value of the NOLs would be lost in the chapter 7 liquidation of any Debtor, and (b) in a liquidation, the chapter 7 trustee would be unable to administer or effectively prosecute the FHC Litigation. As such, the liquidation analysis contemplates a simple distribution of assets on hand to Creditors, and the dismissal of the FHC Litigation.

Debtors believe that each of the foregoing assumptions is wholly justified. The loss of the value of the NOLs is a necessary consequence of any liquidation, as discussed in more detail in the Tax Analysis set forth in Section VIII above. Put simply, under the IRC, Debtors simply cannot liquidate and simultaneously maintain the value of the NOLs. Among other things, the "more than an insignificant amount of business" requirement for preservation of the NOLs could not be satisfied. As such, millions of dollars of value available to Creditors through the Plan would be lost.

Additionally, the Debtors believe that the FHC Litigation is simply too complex to be properly administered by a chapter 7 trustee that would, unavoidably, be a complete stranger to the facts and circumstances which give rise to SNTL's causes of action. Moreover, absent the Plan, it is likely that crucial witnesses necessary to advance SNTL's case would move on to other endeavors, making the advancement of the FHC Litigation even more unwieldy. Again, potentially millions of dollars of value to Creditors would therefore be lost in a liquidation.

Another requirement for Confirmation involves the feasibility of the Plan, which means that Confirmation of the Plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the Debtor or any successor to the Debtor under the Plan, unless such liquidation or reorganization is proposed in the Plan.

There are at least two important aspects of a feasibility analysis. The first aspect considers whether the Debtor will have enough cash on hand on the Effective Date of the Plan to pay all the claims and

expenses which are entitled to be paid on such date. The Plan Proponent maintains that this aspect of feasibility is satisfied as illustrated here:

*Includes Superior Bermuda, Ltd., cash, SNTL's wholly owned subsidiary (which has no liabilities). * (50% retention of Front Company separate accounts is assumed as a conservative estimate, as the Debtors' analysis is that they will retain 100% of the separate accounts).

The second aspect considers whether the Proponent will have enough cash over the life of the Plan to make the required Plan payments. This element is satisfied herein that the Plan does not provide for any guaranteed Cash payments on any Claims. Rather, Distributions will be made in respect of EON and Litigation Trust Certificates if and only when Cash is generated by reason of the transaction set forth in the Plan.

The Plan provides that upon the Effective Date, Debtor shall be discharged of liability for payment of debts incurred before confirmation of the Plan, to the extent specified in 11 U.S.C.§1141. However, the discharge will not discharge any liability imposed by the Plan.

Except as provided in the Plan, the Confirmation of the Plan revests all of the property of the estates in the Debtors.

The Debtors may, with the prior written consent of the SNTL Acquiror, modify the Plan at any time before Confirmation. However, the Court may require a new disclosure statement and/or revoting on the Plan.

The Debtors may also, with the prior written consent of the SNTL Acquiror, seek to modify the Plan at any time after confirmation only if (1) the Plan has not been substantially consummated and (2) the Court authorizes the proposed modifications after notice and a hearing.

Within 120 days of the entry of the order confirming the Plan, the Debtors and/or the Trust shall file a status report with the Court explaining what progress has been made toward consummation of the confirmed Plan. The status report shall be served on the United States Trustee, the twenty largest unsecured Creditors, and those parties who have requested special notice. Further status reports shall be filed every 120 days and served on the same entities.

A Creditor or party in interest may bring a motion to convert or dismiss the case under § 1112(b), after the Plan is confirmed, if there is a default in performing the Plan. If the Court orders the case converted to Chapter 7 after the Plan is confirmed, then all property that had been property of the Chapter 11 estate, and that has not been disbursed pursuant to the Plan, will revest in the Chapter 7 estate. The automatic stay will be reimposed upon the revested property, but only to the extent that relief from stay was not previously authorized by the Court during this case.

The order confirming the Plan may also be revoked under very limited circumstances. The Court may revoke the order if the order of Confirmation was procured by fraud and if a party in interest brings an adversary proceeding to revoke confirmation within 180 days after the entry of the order of confirmation.

Once the estate has been fully administered as referred to in Bankruptcy Rule 3022, the Plan Proponent, or such other party as the Court shall designate in the Plan Confirmation Order, shall file a motion with the Court to obtain a final decree to close the case.

As directed by the Court, the historical financial statements for the three years preceding the petition date and projected financial statements for the life of the Plan are attached.


In re		CASE NO. SV 00-14099 GM

SNTL CORPORATION, SN INSURANCE		(Jointly Administered with)
SERVICES, INC., SNTL HOLDINGS
CORPORATION, SN INSURANCE		SV 00-14100-GM
ADMINISTRATORS, INC.,		SV 00-14101-GM and
		SV 00-14102-GM

Debtors.
		Chapter 11 cases

/X/ Affects all Debtors		ORIGINAL DISCLOSURE STATEMENT
/ / Affects only SNTL		IN RESPECT OF ORIGINAL JOINT
/ / Affects only SNIS		CHAPTER 11 PLAN OF
/ / Affects only SNIA		REORGANIZATION FOR SNTL, SNTLHC,
/ / Affects only SNTLHC		SNIS AND SNIA

		Disclosure Statement Hearing:

		Date: December 11, 2001
		Time:1:30 p.m.
		Place: Courtroom 303
		21041 Burbank Boulevard Woodland Hills, California

I. INTRODUCTION			1
	A. Purpose of This Document		1
	B. Deadlines For Voting And Objecting; Date Of Plan Confirmation Hearing.		2
	C. Disclaimer		2
II. OVERVIEW			3
	A. Brief Overview of Debtors' Joint Plan of Reorganization		3
	B. Brief Overview Of Chapter 11		3
III. BACKGROUND			5
	A. Description And History Of The Debtor's Business		5
	B. The Acquisition Of SNTLHC		6
	C. SNTL's Business Failure		6
	D. CDI's Conservation Of Various Insurance Company Subsidiaries		7
	E. Relation of Certain Parties to SNTL		8
IV. DEBTORS' CREDITORS			8
	A. Priority Claims		8
	B. The Lender Group		9
	C. The Trust Preferred		9
	D. Surety Bond Guarantees		9
	E. Front Company Premium and Damage Claims		10
	F. Other Claims		11
		1. Other CIC Claims	11
		2. Other UIC Claims	11
		3. Claims Against the Insurance Subsidiaries	12
		4. CDI claim against FHS Litigation Proceeds	12
		5. Employee Claims	12
		6. HSO Reinsurers' Claim	12
V. POST-PETITION EVENTS			12
	A. Commercial Compensation Casualty Company Merger and Distribution		12
	B. Litigation with the CDI		13
	C. The Global Settlement Agreement With The CDI		14
	D. Negotiation and Development of Restructuring Proposal		16
	E. Other Post-Petition Events		16
VI. DEBTORS' ASSETS			16
	A. Continuing Operations		17
	B. Tax Net Operating Loss Carryforwards		17
		1. Consolidated Federal Income Tax Return Rules Pertaining to the NOLs	17
	C. Status of Litigation Over NOLs with CDI		18
		1. Possible Benefits of the NOLs to Creditors	19
		2. Bankruptcy Court Rulings and Conditions Precedent	20
	D. Waiver Of Conditions		22
	E. The FHC Litigation		22
		1. Procedural History	23
		2. Potential Outcome	24
VII. MANAGEMENT OF THE DEBTORS BEFORE AND AFTER THE BANKRUPTCY			24
	A. Current Directors		24
	B. Executive Officers		24
	C. Post-Effective Date Directors and Officers		24

	G. Certain Federal Income Tax Consequences of the Plan				37
		1. Federal Income Tax Consequences To The Debtors			38
		2. Federal Income Tax Consequences To Holders of Claims			44
			(1) Holders of Class3b, 3c and 3d Claims		45
				(b) EON Is Characterized As Equity or Litigation Trust Is a Taxable Trust	45
				(c) Assumption of the EON by JPMC	46
			(2) Holders of Class3a Claims		46
				(b) EON Is Neither A Tax Security Nor Equity or the Class 3a Claim is Not a Tax Security	47
				(c) Assumption of the EON by JPMC	47
X. CONFIRMATION REQUIREMENTS AND PROCEDURES					55
	A. Who May Vote or Object				55
		1. Who May Object to Confirmation of the Plan			55
		2. Who May Vote to Accept/Reject the Plan			55
		3. Who is Not Entitled to Vote			56
		4. Who Can Vote in More Than One Class			56
		5. Votes Necessary to Confirm the Plan			56
		6. Votes Necessary for a Class to Accept the Plan			56
		7. Treatment of Nonaccepting Classes			56
		8. Request for Confirmation Despite Nonacceptance by Impaired Class(es)			57
	B. Liquidation Analysis				57
	C. Feasibility				58
XI. EFFECT OF CONFIRMATION OF PLAN					60
	A. Discharge				60
	B. Revesting of Property in the Debtor				60
	C. Modification of Plan				60
	D. Post-Confirmation Status Report				60
	E. Post-Confirmation Conversion/Dismissal				60
	F. Final Decree				61

Name		Position
J. Chris Seaman		President and Chief Executive Officer
Robert E. Nagle		Senior Vice President, General Counsel and Secretary
Alexander Corbett		Senior Vice President and Chief Financial Officer
Douglas Roche		Senior Vice President and Chief Information Officer
Stephen Weiss		Senior Vice President—National Operations

	SN Insurance Services, Inc.			SN Insurance Administrators, Inc.		SNTL Holdings Corporation		SNTL Corporation		SNTL Consolidated
Cash and Cash Equivalents Cash and cash equivalents reduced by estimated 4th quarter 2001 operating expenses	$	10,857,317		$	321,695	$	1,001,722	$	1,274,769	$	13,455,503
Stock and interests in incorporated and unincorporated businesses equivalent to cash		0			0		0		2,694,048		2,694,048
Total Cash and Cash Equivalents Available for Reorganization Plan		10,857,317			321,695		1,001,722		3,968,817		16,149,551
Expenses Associated With Reorganization Plan Less: Cash contribution to managing general agency		5,000,000			0		0		0		5,000,000
Less: Disputed funds held in separate accounts for CIC, ZCIC, and UIC		6,000,000			0		0		0		6,000,000
Less: Payroll withholding and taxes		321,300			0		0		137,700		459,000
Less: Other personnel-related administrative claims		150,000			30,100		81,700		954,600		1,216,400
Less: Professional fees		3,460,395			0		0		0		3,460,395
Total Expenses Necessary to Complete Reorganization Plan		14,931,695			30,100		81,700		1,092,300		16,135,795
Net Cash and Cash Equivalents Available for Litigation Trust		(4,074,378	)		291,595		920,022		2,876,517		13,756
Other Assets Available for Trust, including indemnity from California Department of Insurance	$	3,000,000*			0		0		0		5,000,000
Estimated minimum proceeds from Arthur Andersen litigation net of expenses		0			0		0		2,000,000		2,000,000
Estimated gross value of property, equipment, software		900,000			0		0		200,000		1,100,000
Less: Property, equipment, and software transferred to managing general agency		(60,086	)		0		0		0		(60,086	)
Total Other Assets Available for Litigation Trust		5,839,914			0		0		2,200,000		8,039,914
Net Assets Available for Litigation Trust	$	1,765,537		$	291,595	$	920,022	$	5,076,517	$	8,053,671

VIII. CURRENT AND HISTORICAL FINANCIAL CONDITIONS			25
IX. SUMMARY OF THE PLAN OF REORGANIZATION			25
	A. Classification of Claims		25
	B. Unclassified Claims		25
		1. Administrative Expenses	25
		2. Court Approval of Fees Required	26
		3. Priority Tax Claims	26
	C. Classified Claims and Interests		26
		1. Classes of Secured Claims	26
		2. Classes of Other Priority Claims	27
		3. Convenience Classes—Class 2 a—d	27
		4. Classes of General Unsecured Claims	27
4.1 THE EON			27
4.2 LITIGATION TRUST CERTIFICATES			28
4.3 DUPLICATE CLAIMS AGAINST MULTIPLE DEBTORS—SINGLE DISTRIBUTION			28
4.4 ONGOING EFFECTIVENESS/SUBORDINATION AGREEMENTS			29
4.5 SPECIFIC TREATMENT OF GENERAL UNSECURED CLAIMS AGAINST THE DEBTORS			29
		5. Chase Unsecured Claim—Class 4	30
		6. Lender Group Secured Claims	30
		7. Classes of Interest Holders	30
	D. Means of Effectuating the Plan		31
		1. Funding for the Plan	31
		2. Post-confirmation Management	31
		3. Disbursing Agent	31
	E. Risk Factors		31
		1. Tax risks	31
		2. Litigation risk	31
		3. Securities Law Risk Issues	31
	F. Other Provisions of the Plan		32
		1. Executory Contracts and Unexpired Leases	32
		2. Retention of Jurisdiction	32
		3. Cancellation And Surrender Of Existing Securities And Agreements	32
		4. Conversion of SNTL to Limited Liability Company	33
		5. Amended Bylaws And Amended Certificate Of Incorporation	33
		6. Administration, Termination and Management Duties	33
		7. Distributions to Litigation Trust	34
		8. Injunction	34
		9. Good Faith	34
		10. Provisions Concerning and Method Of Distributions Under The Plan	35
		11. Distributions Of Cash	35
		12. Timing Of Distributions	35
		13. Minimum Distributions	35
		14. Unclaimed Distributions	35
		15. Distributions To Holders As Of The Record Date	35
		16. Distributions Withheld For Disputed General Unsecured Claims	35
		17. Objections To And Resolution Of Claims Administrative Claims, And Equity Interests	36
		18. Cancellation And Surrender Of Existing Securities And Agreements	37
		19. Reservation of Rights Regarding Substantive Consolidation	37

Dated: October 31, 2001	PACHULSKI, STANG, ZIEHL, YOUNG & JONES P.C.
	By	/s/ IAIN NASATIR Iain Nasatir Attorneys for Debtors STNL, Inc.

DEBTORS:
	SNTL CORPORATION
	By:	/s/ J. CHRIS SEAMAN J. Chris Seaman
	SNTL HOLDINGS CORPORATION
	By:	/s/ J. CHRIS SEAMAN J. Chris Seaman
	SN INSURANCE SERVICES, INC.
	By:	/s/ J. CHRIS SEAMAN J. Chris Seaman
	SN INSURANCE ADMINISTRATORS, INC
	By:	/s/ J. CHRIS SEAMAN J. Chris Seaman