Copper King Mining Corporation fka CPRKQ

[primarywatcher]

ESHC Objects to Massey proposal: good objection - IMO

FYI: investors should note the ESHC currently objects to assume the current proposal for Massey to mine ore. The objection is WITH GOOD CAUSE.

Here is the link:
http://www.copperkingwesternutahminingrestructure.com/WU%20308.pdf

Here is an excerpt:

OBJECTION
I. The Motion Does Not Provide Sufficient Information
The Motion and supporting documents do not provide sufficient information to allow the Equity Committee to evaluate the relief requested for at least four reasons.

First, WUCC refers to a pre-petition Promissory Note made for the benefit of Massey, a Deed of Trust dated August 26, 2008, and a Forbearance Agreement dated July 24, 2009. Declaration of David McMullin [Docket No. 247] (“McMullin Declaration”) ¶ 3. None of these documents, however, are attached to the McMullin Declaration even though they appear to be relevant to the transaction in question, and are modified under the Modified Agreement. See,e.g., Modified Agreement ¶ 3. Absent review of these documents, the Equity Committee cannot determine the scope of the transaction or how WUCC’s obligations thereunder will be impacted by the relief requested.

Second, and related to the first point, is that the scope of the parties’ pre-petition relationship is unclear. WUCC states that Massey was applying pre-petition revenue paid pursuant to the Pre-Petition Agreement toward WUCC’s obligation under the Promissory Note (although such an offset does not appear to have been required under the terms of the Pre-Petition Agreement), and that WUCC was required to perform services and expend resources to perform under the Pre-Petition Agreement. McMullin Declaration ¶ 4. Yet, WUCC has not disclosed, among other things: (a) the amount of the outstanding pre-petition debt as of the petition date; (b) the income that WUCC was receiving from Massey re-petition; (c) the amount and timing of Massey’s pre-petition offsets; (d) Massey’s alleged basis for claiming that WUCC defaulted under the Pre-Petition Agreement prior to the filing of its Chapter 11 petition and the amount of any cure that Massey claims it is allegedly waiving under ¶¶ 1 & 8 of the Modified Agreement; and (e) the costs of the services and resources that WUCC was expending to comply with the Pre-Petition Agreement. Without this information, the Equity Committee cannot make an informed decision related to the Motion.

Third, the Modified Agreement is ambiguous on several points, including but not limited to the following: (a) the irrevocable license that WUCC grants to Massey under ¶ 2 of the proposed Modified Agreement is broad and appears to lack safeguards to avoid abuse of the resource and/or WUCC’s future operations; (b) the nature of and reason for exclusion of a certain parcel of real estate under ¶ 2 of the Modified Agreement; (c) the application of ¶ 16 of the Pre-Petition Agreement under the Modified Agreement, and its potential for possible postpetition claims against WUCC; (d) WUCC’s potential for liability related to, among other things, environmental claims and insurance claims; (e) the effect of the Modified Agreement on WUCC’s other existing executory contracts, leases, and permits or leases; (f) the free and clear transfer of magnetite to Massey provided for under ¶ 8 of the Modified Agreement; (g) Massey’s obligations in conducting mining operations, including providing necessary bonds, mining plans, safety plans, and regulatory compliance; (h) WUCC’s termination rights under the Modified Agreement (Modified Agreement ¶ 7 gives Massey the unilateral right to terminate the Agreement immediately upon notice and apparently without cause, but provides no basis for WUCC to terminate); (i) the application of certain provisions of the Pre-Petition Agreement under the Modified Agreement that are not expressly addressed in the Modified Agreement; and (j) the term of the Modified Agreement. As a result, the consequences of assuming the Modified
Agreement are too uncertain for the Equity Committee to evaluate at this time.

Fourth, WUCC has indicated that it will hold the proposed $65,000 monthly payment if it is subject to liens, without stating what portion of that revenue will actually be available for its immediate use. See McMullin Declaration ¶ 9. As a result, the Equity Committee cannot determine if the proposed assumption is beneficial.

II. The Section 365 Relief Requested Appears to be Misplaced

The Motion seeks to assume the Pre-Petition Agreement, as amended by the Modified Agreement, pursuant to 11 U.S.C. § 365. Reliance on § 365 is misplaced.

WUCC is not assuming the Pre-Petition Agreement at all because the terms of that Agreement have been materially amended under the Modified Agreement. It is well-established that a debtor in possession must assume or reject a contact in its entirety. 3 COLLIER ON BANKRUPTCY ¶ 365.03[3] (Matthew Bender 15th ed. rev. 2010). It cannot assume terms that it likes, modify terms that it does not, and propose a new contract as WUCC is doing here.

WUCC is actually seeking approval of a new contract for the use of property of the estate outside the ordinary course of its business under 11 U.S.C. § 363(b)(1). WUCC claims § 363(b)(1) does not apply because the proposed use of property under the Modified Agreement is in the ordinary course of its business. Memorandum of Law at 7. Based on what limited information has been provided in the Motion, this does not appear to be accurate inasmuch as the Pre-Petition Agreement was a “Magnetite Supply Agreement” under which WUCC supplied magnetite to Massey. The Modified Agreement, on the other hand, while called a “Supply
Agreement,” in fact allows Massey an irrevocable license to enter WUCC’s property for the purpose of mining the land itself. To the best of the Equity Committee’s knowledge and belief, allowing a third party to mine the land is not in the ordinary course of WUCC’s business. WUCC must request relief and obtain approval of the use of its property under § 363(b)(1), thus requiring it to show that it has solicited other offers for the use of the property, that the Modified Agreement is in the highest and best offer, and that the transaction is in the best interests of the
estate. The Motion does not address these issues.

It is also worth noting that under the proposed Modified Agreement, WUCC’s supply of magnetite to Massey will be “free and clear of any and all encumbrances, liens, charges, or competing claims or interests whatsoever[,]” Modified Agreement ¶ 8, thus implicating a transaction requiring approval under 11 U.S.C. § 363(f). Again, WUCC has not provided sufficient information to determine whether it is seeking relief under § 363(f). If it is, however, WUCC has not shown that such relief is appropriate inasmuch as it has not identified what encumbrances, liens, claims or interests are impacted by the transfer, or the potential
consequences of such relief to the estate. The Equity Committee is concerned that those consequences may be significant.

Finally, while unclear, it appears that WUCC may be seeking a settlement of pre-petition claims that Massey may (or may not) have against it pursuant to Federal Rule of Bankruptcy Procedure 9019. As set forth above, there is not sufficient information to determine whether prepetition claims exist, much less whether treatment of those claims as proposed by WUCC in the Motion is warranted.

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Seriously, IMO - we have the most kick arse lawyer in the entire State of Utah! Understandably this might impact the near future potential for monies coming in, but she is holding accountable shoddy contracts and bad decisions made by management. Not sure how this bodes in management's camp, but as an investor - I LIKE IT.

Seems like she's making sure the leaches don't suck the value outta the ground before we pull our boot straps up to walk it.