U.S. Trustee: Delta Petroleum's proposed breakup fee unnecessary

By Jim Witters

Wilmington, Del., June 1 - Delta Petroleum Corp.'s proposed $1.5 million breakup fee for plan sponsor Laramie Energy II, LLC is unnecessary and "appears to be a disguised liquidated damage payment," the U.S. trustee claims in a June 1 filing with the U.S. Bankruptcy Court for the District of Delaware.

Tiiara N. A. Patton, representing Region 3 trustee Roberta A. DeAngelis, states in her objection to the fee that Laramie's participation in the bidding process is evidence that the breakup fee was not needed to induce Laramie to bid.

The trustee also said the payment of a breakup fee to Laramie would be "a disguised liquidated damage payment, which would be paid to Laramie if the sale fails to close because of a myriad of reasons, including, but not limited to, the conversion of these cases to cases under Chapter 7, or if an order granting relief from the automatic stay is entered with respect to the Delta assets."

The approval of a liquidated damage payment is not appropriate unless the party seeking payment of such damages establishes and meets the burden for such relief, which has not occurred in these cases, the trustee argues.

As previously reported, Laramie received court approval as plan sponsor on May 8.

The reorganization plan calls for the formation of a joint venture between Delta and Laramie.

"One of the primary documents to create the joint venture company is a contribution agreement to be entered into among Delta, the plan sponsor and the joint venture company. The debtors and the plan sponsor continue to negotiate the terms of the contribution agreement, which sets forth the terms under which the debtors would be required to pay a breakup fee to the plan sponsor," the Delta wrote in its motion seeking the fee.

Terms of breakup fee

Laramie may receive the breakup fee only if

• Delta terminates the contribution agreement to enter into an alternative transaction (including a plan with a plan sponsor other than the plan sponsor) or indicates in a court filing or any other publicly available or disseminated document that it wishes to pursue, or seek the court's approval of, an alternative transaction;

• Laramie terminates the agreement because Delta has breached a covenant, representation or warranty that is not cured by the earlier of five days after notice of such breach or the closing of the transaction;

• Delta terminates the agreement and agrees that the reason for such termination gives rise to payment of the breakup fee;

• The plan is not confirmed within the timeframe set forth in the agreement;

• The plan is amended in a public filing and such amendment is materially adverse to Laramie;

• Delta fails to deliver executed counterparts of the agreement, any document contemplated by the joint venture company formation summary or any other operative document;

• Delta's bankruptcy case is converted to a case under Chapter 7 of the bankruptcy code prior to the closing of the transaction;

• The transaction fails to close within 20 business days after the plan confirmation order has become final; or

• An order granting relief from the automatic stay is entered with respect to any of the Delta assets prior to the closing of the transaction.

A hearing on the motion is scheduled for 11 a.m. ET on June 4.

Delta Petroleum, a Denver-based oil and gas exploration and development company, filed for bankruptcy on Dec. 15. Its Chapter 11 case number is 11-14006.

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