Brad T. Summers, OSB No. 911116 [email protected]
Justin D. Leonard, OSB No. 033736 [email protected]
BALL JANIK LLP
101 SW Main Street, Suite 1100 Portland, OR 97204
Telephone: (503) 228-2525 Facsimile: (503) 295-1058
Of Attorneys for States Industries, Inc.
IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF OREGON
In re
STATES INDUSTRIES, INC., Debtor-in-Possession.
Case No. 10-65148-fra11
DEBTOR’S MOTION TO APPROVE SETTLEMENT
States Industries, Inc. (“States” or the “Debtor”) moves for authority to enter into a settlement agreement between and among States, States’ Official Unsecured Creditors Committee (the “Committee”) and Renwood States Lending LLC (“Renwood”).
Jurisdiction
1. The Court has subject matter jurisdiction to consider this matter pursuant to 28 U.S.C. § 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2) and may be determined by the Court. Venue is proper before this Court pursuant to 28 U.S.C. §§ 1408 and 1409.
2. The statutory bases for the relief requested herein are sections 105(a) and 363 of Title 11 of the United States Code (the “Bankruptcy Code”) and Rule 9019 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”).
Introduction
Chapter 11 of the Bankruptcy Code. The Debtor is operating its business and managing its property as a debtor in possession pursuant to sections 1107 and 1108 of the Bankruptcy Code. No request for appointment of a trustee or examiner has been made.
4. On August 31, 2010, the Debtor filed a Motion for Order Approving (A) Sale of Assets Free and Clear of Liens, Claims and Encumbrances, (B) Assumption and Assignment of Executory Contracts, and (C) Bid Procedures. By this motion, the Debtor sought an order authorizing a sale of substantially all of its assets to Renwood. The proposed consideration for the sale was as follows: (a) $16,920,373 in the form of a credit bid, which was estimated to be the full amount that would be outstanding at closing under the debtor in possession financing provided to the Debtor by Renwood and the prepetition secured debt owing to Renwood; (b) Renwood’s assumption of certain operating liabilities and payment of associated cure costs; (c) Renwood’s agreement to equally split with the Debtor’s estate the net proceeds from the sale of certain real property owned by the Debtor’s wholly-owned subsidiary, known as the Foch Street Property; and (d) $100,000 cash to the estate, which $100,000 amount was subject to reduction to the extent that Renwood incurred attorney fees and costs in excess of $25,000 in any contested matter or adversary proceeding in the Debtor’s case. A notice setting forth the terms of the proposed sale to Renwood, describing the procedures that will be followed in connection with the sale, and notifying creditors of the hearing on the sale (the “Sale Notice”), is being served concurrently herewith.
5. On September 1, 2010, the Office of the United States Trustee appointed the Committee. The Committee has contested whether Renwood should be permitted to credit bid the full amount of its prepetition debt. The Committee has also contested the timing and other aspects of the proposed sale to Renwood.
6. The Debtor, the Committee and Renwood have agreed to settle the issues raised by the Committee concerning the proposed sale to Renwood and Renwood’s claims against the Debtor, subject to Court approval. The settlement, if approved, would alter the terms of the sale
to Renwood from that which is described in the Sale Notice. The Debtor believes that the settlement will improve the sale terms and would be more favorable to the Debtor’s creditors.
The Proposed Settlement
7. Under the proposed settlement1, the Asset Purchase Agreement between the Debtor and Renwood for the sale of substantially all of the Debtor’s assets to Renwood would be amended as follows:
(1) The Debtor’s estate shall receive 100% of the net proceeds of the Foch Street Property;
(2) Renwood shall contribute $100,000 cash to the Debtor’s estate unconditionally; (3) Claims, if any, against the Debtor’s former directors and officers for breach of fiduciary duty and all directors’ and officers’ liability insurance policies shall be excluded from the sale to Renwood and shall remain the property of the Debtor’s estate;
(4) The $378,000 long-term loan from the Debtor to Diane Montoya shall be excluded from the sale to the extent required to offset any claims that may be asserted by Ms. Montoya; and
(5) Renwood and its affiliates shall provide the Debtor’s estate or the Committee reasonable access to books and records necessary to allow them to pursue certain avoidance claims retained by the estate.
8. In addition to the foregoing, Renwood and its affiliates shall not participate in any distributions to unsecured creditors with respect to 50% of the net sale proceeds of the Foch Street Property. In addition, Renwood shall pay to the estate the “Carve-Out” of up to $300,000 for administrative expenses incurred by professionals for the Debtor and the Committee. In addition, Renwood shall make good faith efforts to continue to work with the Debtor’s vendors in approximately the proportions that such vendors did business with the Debtor prior to the
1 This description of the settlement is a summary of its terms and conditions. It is not intended to be comprehensive
and, in the event of a conflict between the description herein and the settlement agreement itself, the terms and conditions of the settlement agreement shall govern.
commencement of the bankruptcy case.
9. Under the debtor in possession financing orders entered in the Debtor’s case, the Debtor has stipulated to the validity, priority, extent, perfection and enforceability of Renwood’s prepetition liens and the Debtor’s prepetition debt to Renwood. Those orders set a deadline of October 1, 2010, for the Committee to raise any challenge to Renwood’s liens or the debt. If the Committee fails to raise such a challenge, the Debtor’s stipulations will also be binding on the Committee. Under the settlement, the Committee agrees not to raise any such challenge to the Renwood liens or the Debtor’s debt to Renwood, and the Committee waives and releases any claims against Renwood with respect to the validity, priority, extent, perfection, or enforceability of Renwood’s prepetition liens or the Debtor’s prepetition debt to Renwood. The settlement further provides that the Committee will support the sale to Renwood.
10. Finally, under the proposed settlement, the Debtor agrees not to pursue any claims to avoid and recover preferences from its trade creditors.
Basis for Relief Requested
11. Bankruptcy Rule 9019(a) provides that “[o]n motion by the trustee and after notice and a hearing, the court may approve a compromise or settlement.”
12. In Protective Committee for Independent Stockholders of TMT Trailer Ferry,
Inc. v. Anderson, 390 U.S. 414, 424, 88 S.Ct. 1157, 1163-64, 20 L.Ed.2d 1 9-10 (1968), the
Supreme Court stated that a Bankruptcy Court, in considering whether to approve a compromise, should “apprise [itself] of all facts necessary for an intelligent and objective opinion of the probabilities of ultimate success should the claim be litigated. Further, the judge should form an educated estimate of the complexity, expense, and likely duration of such litigation, the possible difficulties in collecting on any judgment which might be obtained, and all other factors relevant to a full and fair assessment of the wisdom of the proposed compromise.”
13. Following the Supreme Court’s guidance in TMT, most Circuit Courts have adopted a uniform standard by which the Bankruptcy Court should be governed in a hearing on a
motion to approve a compromise. According to these cases, the Court should consider: (a) The probability of success in the litigation; (b) the difficulties, if any, to be encountered in the matter of collection; (c) the complexity of the litigation involved, and the expense, inconvenience and delay necessarily attending it; and (d) the paramount interests of the creditors and a proper deference to their reasonable views in the premises. SeeIn re A&C Properties, 784 F.2d 1377 (9th Cir.), cert. den., 479 U.S. 854, 107 S.Ct. 189, 93 L.Ed.2d 122 (1986).
14. The proposed settlement substantially increases the return to unsecured creditors from the proposed sale to Renwood. Considering the probability of success in any litigation with Renwood, the complexity of the litigation involved and the paramount interests of creditors, the settlement is highly favorable to the estate and should be approved.
15. The Debtor further seeks a waiver of any stay of the effectiveness of an order approving the proposed settlement. The settlement modifies the terms of the proposed sale of the Debtor’s assets, which is set for closing 12 days after the hearing on this motion. The 14-day stay of Bankruptcy Rule 6004(h) would therefore interfere with the timely closing of the sale.
WHEREFORE the Debtor moves for approval of the settlement by and among the Debtor, the Committee and Renwood on the terms summarized above.
DATED September 24, 2010 BALL JANIK LLP
By: /s/ Brad T. Summers
Brad T. Summers, OSB No. 911116 [email protected]
Justin D. Leonard, OSB No. 033736 [email protected]
101 SW Main Street, Suite 1100 Portland, OR 97204
CERTIFICATE OF SERVICE
I hereby certify that I served copies of the foregoing DEBTOR’S MOTION TO APPROVE SETTLEMENT on the following parties by CM/ECF:
• STEPHEN P ARNOT [email protected], [email protected]
• JENNIFER A BECKER [email protected], [email protected]
• BRADLEY S COPELAND [email protected], [email protected]
• STEVEN M HEDBERG [email protected], [email protected]; [email protected]
• THOMAS K HOOPER [email protected], [email protected]
• MARC KARDELL [email protected], [email protected]; [email protected]
• KEITH D KARNES [email protected], [email protected];
[email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected];
• MATHEW W LAURITSEN [email protected], [email protected]
• JUSTIN D LEONARD [email protected], [email protected]
• DAVID B LEVANT [email protected], [email protected]
• DAVID B MILLS [email protected], [email protected]
• WILSON C MUHLHEIM [email protected]
• BRANDY A SARGENT [email protected], [email protected]; [email protected]
• DOUGLAS R SCHULTZ [email protected], [email protected]
• BRAD T SUMMERS [email protected], [email protected]
• JEANETTE L THOMAS [email protected], [email protected]; [email protected]
• US Trustee, Eugene [email protected]
• Thomas K ^Hooper2 [email protected], [email protected]
and on the following parties by mailing a full, true and correct copy in a sealed first-class postage prepaid envelope, addressed to the parties listed below, and deposited with the United States Postal Service at Portland, Oregon on the date set forth below:
Commonwealth Plywood Co Ltd Attn: Johnny D'Orazio
15 Labelle PO Box 90
St. Therese, Quebec Canada J7E 4H9
MARK E HINDLEY 201 S Main St #1100 Salt Lake City, UT 84111
Coyote Logistics LLC Bruce E. Mitchell, Esq. 3390 Peachtree Rd NE #520 Atlanta, GA 30326
IRS
Attn: S Anderson 300 County Club Rd #260 Eugene, OR 97401 Dietrich Veneer Sales Inc
Attn: Bud Dietrich 9825 SE Lawnfield Rd Clackamas, OR 97015
Manthei Incorporated Attn: Jason Miller 3996 US 31 Petoskey, MI 49770 Gross Veneer Sales Inc
Attn: Robert D. Gross PO Box 5212 High Point, NC 27262
Rosboro LLC
Attn: Richard Babcock POB 20
Springfield, OR 97477 CREDITORS COMMITTEE:
Manthei Incorporated Address Listed Above
Commonwealth Plywood Co Ltd Address Listed Above Coyote Logistics LLC
Address Listed Above
Gross Veneer Sales Inc Address Listed Above Rosboro LLC
Address Listed Above
Dietrich Veneer Sales Inc Address Listed Above RPL International, Inc.
Attn: Curtis V. Lynn 1851 Whitney Mesa Dr Henderson, NV 89014
ATTORNEYS FOR OFFICIAL COMMITTEE OF UNSECURED CREDITORS: BRANDY A SARGENT
Via ECF
DAVID B LEVANT Via ECF
MARK E HINDLEY
Address Listed Above
DATED: September 24, 2010
/s/ Stuart Wylen
