Notwithstanding this Court’s $2 million limitation on the payment of
“Critical Vendor” claims [D.I. 128], the Equity Committee has been informed by the
Debtors’ professionals that well over $10 million has been paid postpetition to NXP by
the Debtors and certain non-Debtor affiliates. Further, it is estimated that post-petition
payments to NXP (including cure costs) are expected to exceed $35 million through April
2012, a substantial amount of which, based upon information and belief, is on account of
prepetition debt. The ability to review certain post-petition transactions under section
549 of the Bankruptcy Code is being sold to Entropic – arguably releasing any such
claims the Debtors may have on account of such post-petition transfers.
13. While such claims may belong to the Debtors, and not the Committees, the
Debtors’ cash management order [D.I. 133], entered January 30, 2012, provides that “The
Debtors shall not permit their non-debtor subsidiaries to make any transfers on account of
prepetition obligations owed by the Debtors without notice and consent of the
[Creditors’] Committee, which consent shall not be unreasonably withheld.” At the
hearing on February 24, 2012, the Court ordered that rights applicable to the Creditors’
Committee shall be equally applicable to the Equity Committee. Because such postpetition transfers occurred prior to the formation of the Equity Committee, the Equity
Committee was not consulted regarding any such transfers, and did not have an
opportunity to review such transfers and provide consent.
14. The MSA and TSA were originally negotiated in connection with the NXP
Acquisition. Pursuant to those agreements, NXP provided goods and services to the
Debtors, including order fulfillment and delivery, accounting services and financial
reporting services human resources management (including compensation and benefit 7
plan management, payroll services and training), pensions, office and infrastructure
services (including access to certain facilities for a limited period of time), sales and
marketing support, supply chain management (including logistics and warehousing),
quality control, financial administration, ICT hardware and ICT software and
infrastructure, general IT services, export, customs and licensing services,
telecommunications, and contract manufacturing services for finished goods as well as
certain front end, back end and other related manufacturing services. See, TMI 10-K for
the fiscal year ended December 3, 2010, p. 94.
15. As a condition to closing, the Entropic APA requires that Entropic enter
into an MSA and TSA with NXP. See, Entropic APA, 2.3(l). The Equity Committee
understands and believes that NXP negotiated with Entropic and the Debtors to require
that the MSA and TSA, as revised by NXP, be assumed by the Debtors and assigned to
Entropic pursuant to Bankruptcy Code section 365, thus requiring that all amounts due
and owing to NXP under the MSA and TSA be cured. The process of revising the MSA
and TSA provides NXP with an opportunity to negotiate favorable terms for itself, prior
to assumption, including payment terms, minimum purchase commitments, pricing
(product and services), satisfaction of open purchase orders, lead times, return provisions
and warranty rights. On February 29, 2012, the Equity Committee received from
Debtors’ counsel drafts of the amended MSA and TSA. The Equity Committee has not
seen final versions of the MSA and TSA, and following a request for them, was advised
that the Debtors’ financial advisors do not know when the agreements will be finalized.
Thus, the Equity Committee has not been able to compare the terms of the new MSA and
TSA with the original MSA and TSA. 8
16. On the same day that the Auction concluded, February 24, 2012, counsel
for the Equity Committee informed the Court at an omnibus hearing that the Equity
Committee was continuing its review of the sale, which involves seeking information
from the Debtors concerning avoidance actions that are being sold and contracts and
agreements that are being drafted. Later that day, the Equity Committee served on NXP
Semiconductors a notice of Rule 30(b)(6) deposition for March 2, 2012, and request for
production of documents by February 29, 2012 o (the “NXPS Discovery Request”) and
served on the Debtors a notice of Rule 30(b)(6) deposition for March 1, 2012 and a
request for production of documents for February 28, 2012 (the “Debtors Discovery
Request”). On February 27, 2012, the Equity Committee served on NXP B.V. a notice of
deposition for March 5, 2012 and a request for discovery on March 2, 2012 on NXP B.V.
and on NXP Semiconductors an amended NXPS Discovery Request.
17. In response to the Debtors’ Discovery Request and requests made pursuant
to Bankruptcy Code section 1003, the Debtors have provided the Equity Committee with
documentation and some analysis with respect to the sale of the STB Avoidance Actions,
but the Equity Committee has not received all documentation that it requested from the
Debtors. On February 27, 2012, counsel for NXP Semiconductors and NXP B.V.
advised the Equity Committee that they would produce no documents or witnesses
18. On March 1, 2012, the Equity Committee filed its Emergency Motion of
the Statutory Committee of Equity Security Holders to Compel NXP Semiconductors
Netherlands B.V. and NXP B.V. to Respond to Discovery Requests (the “Motion to
Compel”). In the Motion to Compel, the Equity Committee sought Rule 30(b)(6)
witnesses and production of documents in four areas of inquiry only. In response, NXP 9
filed its Response of NXP Semiconductors Netherlands B.V. and NXP B.V. to Emergency
Motion of the Statutory Committee of Equity Security Holders to Compel NXP
Semiconductors Netherlands B.V. and NXP B.V. to Respond to Discovery Requests and
Cross-Motion for Entry of a Protective Order (the “Protective Order Motion”). At a
hearing conducted on March 2, 2012 (the “Discovery Hearing”), the Court heard
argument on the Motion to Compel and the Protective Order Motion (together the
“Discovery Motions”) and denied both without prejudice.
19. During the Discovery Hearing, counsel represented to the Court that it was
Entropic – not NXP – which demanded the effective release of certain avoidance actions,
including against NXP, and thus was the party that first included the purchase of the STB
Avoidance Actions in any proposed Entropic contract (the “Avoidance Action
Representation”). Also during the Discovery Hearing, the Court noted that the Debtors
were best positioned and therefore the appropriate parties from which to seek additional
information and documents. Consistent with the Court’s observations, on March 3, 2012,
the Equity Committee requested from the Debtors documents related to the Avoidance
Action Representation
20. In particular, by email on March 3, 2012, the Equity Committee requested
the Debtors produce materials to substantiate their representations to the Court at the
Discovery Hearing, including, in particular, the following:
• The initial non-binding term sheet from Entropic (the “Term Sheet”),
discussed by the Board of Directors at their June 3, 2011 board meeting.
• The non-binding “counter proposal” to Entropic as reviewed at the Board
meeting held on October 26, 2011 (the “Counter Proposal”).
• The so-called “new proposal” from Entropic provided to the Board of
Directors at their December 18, 2011 meeting (the “New Proposal”); and 10
• The first draft of the Entropic APA (the “First Draft”), including any
correspondence or cover-email by which the first draft of the Entropic APA
was transmitted from Entropic to Trident.
3
21. The Equity Committee requested that the Debtors produce, at a minimum,
the four non-privileged items listed above by no later than Noon on March 4, 2012 and
any correspondence supporting the assertion that it was Entropic that requested purchase
of the STB Avoidance Actions. Later that night on March 4, 2012, the Equity Committee
received documents responsive to their requests; however, the Debtors did not provide
anything that would support their assertion that Entropic insisted on the sale of the
Avoidance Actions.
22. A hearing to consider the Sale Motion, the Entropic APA and the MSA
Assumption Motion is currently scheduled for March 6, 2012 (the “Sale Hearing”).
LIMITED OBJECTION
23. The Equity Committee has been prevented from forming a more fulsome
position in support of or opposition to the sale of the Debtors’ assets to Entropic by the
limited information available to it with which to evaluate (i) the Debtors’ exercise of their
business judgment and (ii) the benefit to each of the Debtors’ estates of the sale of the
STB Avoidance Actions.
24. The Equity Committee has concluded that examination of all parties’
involvement in the sale process that led to the Auction and the final Entropic APA is
essential to the fulfillment of its fiduciary obligations. A controlling party’s involvement
3
To be clear, the Equity Committee requested the board minutes from the Debtors on February 16, 2012.
The Debtors produced the Board Minutes on Friday, March 2, 2012 at 2:38 PM – 20 minutes before the
Discovery Hearing, and more than 2 weeks after the Equity Committee’s request. Thus, the Equity
Committee only learned of the existence of the Term Sheet, Counter Proposal, and the New Proposal on
Friday, the day before they made the request for the documents from the Debtors. 11
in the discussions and negotiation leading to the initial Entropic APA and the final
Entropic APA mandates review given such party’s status. Here, because NXP is a
majority and controlling shareholder, the largest vendor, and (until recently) held a
number of seats on the Debtors’ board, NXP’s involvement in all aspects of this
transaction must be subject to heightened scrutiny, particularly when it is receiving an
effective release under the terms of the asset sale of certain causes of action the estates
may have against it.
25. In sum, NXP’s involvement with, and likely control over, the Debtors and
with the sale of the STB Business to Entropic was pervasive. Because of NXP’s insider
status, because the Sale Motion is being heard only three weeks after the Equity
Committee was formed, and because the Equity Committee is being asked to consider the
sale based on very limited information, at a minimum, the Equity Committee has
proposed language for the order approving the Sale Motion to preserve any claims related
to the sale process except those expressly assigned (the “Claim Preservation Language”).
26. The Equity Committee’s Claim Preservation Language, which has been
shared with counsel for the Debtors, the Creditors Committee, NXP, and Entropic, is:
The Court's approval of this Sale and assumption or assignment of the
MSA or the TSA (both as may be amended) and entry of this order is and
shall be without prejudice to or effect (including collateral estoppel or res
judicata) on any rights, claims, causes of action, defenses or interests of
the Debtors, creditors or equity holders or any statutory committee
appointed in any of the bankruptcy cases with respect to any person or
entity (whether arising in law or equity), except for those Avoidance
Actions (as defined in the APA) expressly conveyed in the APA (and
listed in the Schedules thereto) (collectively, the “Retained Actions”),
provided, however, that nothing herein shall deprive Buyer of the
protections afforded by 11 U.S.C. §363(m).
Subject to paragraph 13 hereof, nothing in this order or the APA shall be
admissible in, or operate in any way to release, limit, preclude, or hinder 12
the investigation or pursuit of the Retained Actions, and no waiver,
assignment or release of any of the Retained Actions, including but not
limited to any claim for breach of fiduciary duty, aiding and abetting
breach of fiduciary duty, subordination, set off, recoupment or
recharacterization, whether or not arising out of any actions taken in
connection with the sale or the APA, shall be construed or implied on the
part of any person or entity or statutory committee appointed in either of
these cases by entry of this order.
27. Based upon the documents provided to the Equity Committee by the
Debtors as of the time of this filing, the Debtors have left the Equity Committee with no
choice but to object to the sale of the STB Avoidance Actions to Entropic. At a
minimum, however, and in any event, the Claims Preservation Language should be
included in any order approving the sale. The Equity Committee will continue working
with the parties in an effort to resolve its concerns
AI
