Case 16-11501-CSS Doc 300-3 Filed 08/29/16 Page 1 of 11 EXHIBIT B Supplemental Dietz Declaration ny-1244724
Case 16-11501-CSS Doc 300-3 Filed 08/29/16 Page 2 of 11 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE ) In re: ) ) Chapter 11 MAXUS ENERGY CORPORATION, et al., 1 ) ) Case No. 16-11501 (CSS) Debtors. ) ) Jointly Administered DECLARATION OF BRADLEY I. DIETZ IN SUPPORT OF DEBTORS MOTION FOR ENTRY OF AN ORDER (A) APPROVING THE SETTLEMENT AGREEMENT BY AND AMONG THE DEBTORS, YPF S.A., YPF INTERNATIONAL S.A., YPF HOLDINGS, INC., CLH HOLDINGS, INC., AND YPF SERVICES USA CORPORATION, AND (B) GRANTING RELATED RELIEF I, Bradley I. Dietz, hereby declare under penalty of perjury, pursuant to section 1746 of title 28 of the United States Code, as follows: 1. I am an independent member of the Board of Directors of Maxus Energy Corporation ( Maxus ) and each of the other above-captioned debtors (collectively, the Debtors ). Each of the Debtors is a corporation organized under the laws of the State of Delaware. 2. I was first appointed to the Board of Directors of Maxus (the Maxus Board ) on July 13, 2015 as one of two independent directors, and was appointed to the Boards of Directors of Tierra Solutions, Inc. ( Tierra ), Maxus International Energy Company ( Maxus International ), Maxus (U.S.) Exploration Company, and Gateway Coal Company on June 17, 2016. While serving as a member of these boards, my annual compensation was paid by the Debtors. 1 The Debtors in the above-captioned chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, are: Maxus Energy Corporation (1531), Tierra Solutions, Inc. (0498), Maxus International Energy Company (7260), Maxus (U.S.) Exploration Company (2439), and Gateway Coal Company (7425). The address of each of the Debtors is 10333 Richmond Avenue, Suite 1050, Houston, Texas 77042. 1
Case 16-11501-CSS Doc 300-3 Filed 08/29/16 Page 3 of 11 3. I have held various positions in banking and finance over the last thirty years. From 1984 to 1987, I served as Vice President of Bankers Trust Company. From 1987 to 1990, I was a Vice President of the Mergers and Acquisitions Group of Citibank, N.A. ( Citibank ). From 1991 to 2001, I was a Vice President and then a Managing Director of Citibank's Institutional Recovery Management Group. In 2001, I became a Managing Director and Partner of Peter J. Solomon Company, Ltd. ( PJS ) through 2010. At PJS, I served as head or co-head of the firm's Restructuring Group. Since 2010, I have served on corporate boards and as a trustee and chief restructuring officer at a number of companies, including ACA Financial Guaranty, Associated Wholesalers, Inc., Cinram International Income Fund, Contec Holdings, Limited, Pioneer Marine, Inc., Powerwave, Inc., Orchard Brands, Inc., and Stratus Technologies Bermuda Ltd., among others. I have a B.A. (1976) and M.B.A. (1980) from the University of California, Los Angeles. 4. On June 17, 2016 (the Petition Date ), the Debtors filed voluntary petitions commencing cases in this Court under chapter 11 of title 11 of the United States Code (the Bankruptcy Code ) to preserve and maximize the value of their chapter 11 estates. The Debtors continue to operate their business and manage their properties as debtors-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. 5. I submit this declaration (this Declaration ) in support of the Debtors pre-fixed motion (the Motion ) to approve the settlement agreement by and among the Debtors, YPF S.A. ( YPF ), YPF International S.A., YPF Holdings, Inc., CLH Holdings, Inc., and YPF Services USA Corporation (collectively, the YPF Entities ). Except as otherwise indicated, all statements in this Declaration are based upon: my personal knowledge; information supplied or verified by former employees or current consultants familiar with the business operations of the 2
Case 16-11501-CSS Doc 300-3 Filed 08/29/16 Page 4 of 11 Debtors; my review of the Debtors books and records as well as other relevant documents; information prepared or supplied by the Debtors management team, consultants and professional advisors; or my opinion based upon my experience and my familiarity with, expertise with, and knowledge of, the Debtors operations, financial condition, and history. I have relied upon these persons accurately recording, preparing, collecting, or verifying any such documentation and other information. I. CREATION OF THE SPECIAL INDEPENDENT COMMITTEE 6. Over the past eleven years, certain of the Debtors have been parties to litigation in the New Jersey state courts, in which the State of New Jersey sought to recover for environmental contamination of the Passaic River that dates back for over a century (the Passaic River Litigation ). Among other issues, the Passaic River Litigation involves claims by Occidental Chemical Corporation ( OCC ) that Maxus is an alter ego of YPF, Maxus s ultimate parent company, on account of YPF s historical dealings with Maxus. Through these claims, OCC seeks to extend to YPF a contractual indemnity obligation that Maxus owes to OCC. 7. In 2014, Theodore P. Nikolis and I were approached by Chadbourne & Parke LLP ( Chadbourne ), YPF s counsel, to serve as independent board members of Maxus. Prior to being approached about this role, I did not have any interactions with YPF. During my time working in the restructuring group at PJS, I had limited professional interactions with Chadbourne. 8. In 2014, I participated in introductory meetings with Chadbourne and representatives of YPF about serving on the Special Independent Committee (the Special Independent Committee ) of the Maxus Board. 9. On or about July 13, 2015, the Special Independent Committee was formed, consisting of me and Mr. Nikolis. In our capacity as members of the Special Independent 3
Case 16-11501-CSS Doc 300-3 Filed 08/29/16 Page 5 of 11 Committee, we were given the power and authority to design and implement a process and procedure for the review and assessment of (a) all material transactions entered into between Maxus and any affiliate involving aggregate consideration of $10 million or more in any instance that occurred after April 8, 1995 and before July 12, 2015, (b) the historical course of dealing and interrelationships between Maxus and its affiliates over the same time period, and (c) potential claims and defenses arising in relation to these transactions and interrelationships (collectively, the Special Independent Committee Investigative Responsibilities ). 10. The Special Independent Committee had the authority to negotiate and recommend a settlement, release, discharge or any other agreement relating to any potential claims and defenses identified in connection with the execution of the Special Independent Committee Investigative Responsibilities. 11. The Maxus Board permitted the Special Independent Committee to engage, at Maxus expense, financial and other experts and consultants, including legal counsel, in connection with the Special Independent Committee Investigative Responsibilities in order to properly assess any of the relevant transactions and interrelationships. 12. On November 23, 2015, after an extensive search for experienced and capable counsel, the Special Independent Committee engaged Morrison & Foerster LLP ( Morrison & Foerster ) to represent and assist the Special Independent Committee in the performance of the Special Independent Committee Investigative Responsibilities. 13. On or about April 5, 2016, after a further search for financial advisors, in which Mr. Nikolis and I participated, seeking a firm with experience regarding the issues in the Investigation (defined below), Morrison & Foerster engaged Zolfo Cooper, LLC ( Zolfo Cooper, together with Morrison & Foerster, the Firms ) to assist Morrison & Foerster and the 4
Case 16-11501-CSS Doc 300-3 Filed 08/29/16 Page 6 of 11 Special Independent Committee. The Firms reported only to members of the Special Independent Committee and took direction only from the Special Independent Committee in connection with the performance of the Special Independent Committee Investigative Responsibilities. 14. During the course of its work, the Special Independent Committee had regular communications with the Firms regarding the progress of their work and developments in the Passaic River Litigation. II. THE SPECIAL INDEPENDENT COMMITTEE S INVESTIGATION 15. Consistent with its mandate, the Special Independent Committee examined, among other things, whether Maxus could recover damages against YPF and against Repsol, S.A., YPF s controlling shareholder from 1999-2012 ( Repsol ), under an alter ego theory of liability on account of asset transfers and intercompany transactions and other corporate activity that occurred in connection with and during the period following YPF s 1995 leveraged buyout of Maxus (the Investigation ). 16. The Investigation was based primarily on an extensive review and assessment of the contentions raised, documents produced, and opinions issued in the Passaic River Litigation between OCC, Maxus, Tierra, Maxus International, certain of the YPF Entities, and Repsol. In particular, the Special Independent Committee looked at each of the claims asserted by OCC as part of the litigation, including the alter ego issues and other claims against YPF. All of these issues were heavily litigated by the parties to the Passaic River Litigation, who were represented by experienced counsel. OCC was represented principally by Munger, Tolles & Olson LLP; YPF was represented principally by Chadbourne; Repsol was represented principally by Weil, Gotshal & Manges LLP; and Maxus, Tierra, and Maxus International were represented principally by Drinker Biddle & Reath LLP. The evidentiary record regarding the alter ego 5
Case 16-11501-CSS Doc 300-3 Filed 08/29/16 Page 7 of 11 claims was exceptionally well developed by the parties to the Passaic River Litigation at the time of the Investigation. 17. The Firms examined and assessed the facts presented and the respective contentions of these parties concerning OCC s alter ego damages theories, and the extent of potential damages related to those theories, and provided a written analysis of the issues to the Special Independent Committee. The Investigation involved the review of over a quarter of a million pages of materials from the Passaic River Litigation, including pleadings, motions and exhibits thereto, orders, interrogatory responses, deposition transcripts and exhibits thereto, expert reports and referenced documents, board minutes, and other documents produced by the parties to the Passaic River Litigation during the course of discovery regarding the alter ego and other issues. I understand that all of the non-privileged documents from the Passaic River Litigation that were reviewed in connection with the Investigation have been produced by the Debtors in these chapter 11 cases. See MAXBK000024673 through MAXBK000264271 (produced on August 1, 2016). 18. As part of examining the transactions placed at issue in the Passaic River Litigation, and to assess the competing contentions concerning the existence and extent of any monetary injury to Maxus that could form the basis of alter ego or other liability (including the dismissed fraudulent conveyance claims), Morrison & Foerster worked with Zolfo Cooper, who analyzed Maxus s financial and other records made available to it in order to validate the parties stated asset values for Maxus s foreign oil and gas assets and evaluate the degree to which YPF s inter-company transactions, including loan forgiveness and capital contributions, harmed or benefited Maxus. 6
Case 16-11501-CSS Doc 300-3 Filed 08/29/16 Page 8 of 11 III. THE SPECIAL INDEPENDENT COMMITTEE S NEGOTATION WITH YPF 19. Following the conclusion of the Investigation, the Special Independent Committee and representatives of YPF engaged in negotiations to resolve all claims Maxus and the other Debtors may have against YPF arising from the material transactions between the parties after April 1995. The negotiations started on May 18, 2016 and continued through June 15, 2016. 20. On June 15, 2016, the parties succeeded in reaching an agreement in principle (the Settlement ) and executed that certain Settlement and Release dated June 17, 2016 (the Settlement Agreement ) pursuant to which (a) YPF Holdings, Inc., a subsidiary of YPF and the parent of Maxus, agreed to provide debtor-in-possession financing in the amount of $63.1 million to the Debtors, of which $34.35 million is subordinate to all general unsecured claims and will most likely never be repaid, and (b) YPF agreed to pay $130 million to the Debtors and their estates for distribution to the Debtors creditors upon the satisfaction of certain conditions on the earlier of (i) the date on which an order approving the Settlement Agreement becomes a Final Order (as defined in the Settlement Agreement), or (ii) the date on which an order confirming a chapter 11 plan for the Debtors, which includes the terms of the Settlement Agreement, becomes a Final Order. A true and correct copy of the Settlement Agreement is attached as Exhibit 1 to the proposed order attached to the Motion. 21. I was actively and personally engaged in the negotiations that produced the Settlement, as was Mr. Nikolis. The negotiations with representatives (both counsel and businesspeople) of YPF were arm s-length and vigorous. Mr. Nikolis and I sought, and we believe obtained, a fair resolution of the alter ego claims against YPF for the benefit of Maxus and its creditors. 22. In making my decision to vote in favor of settling these claims, I relied on my independent business judgment and balanced the benefits and risks associated with the 7
Case 16-11501-CSS Doc 300-3 Filed 08/29/16 Page 9 of 11 Settlement. I believe that the benefits to be received through the Settlement outweigh the attendant risks. Therefore, I believe that the Settlement is in the best interests of the Debtors creditors and estates. 23. Furthermore, in my view, settling before the commencement of the trial in the Passaic River Litigation was in the best interests of the Debtors and their creditors. A ruling in YPF s favor on the alter ego claims in the Passaic River Litigation would have foreclosed in all likelihood any opportunity for the Debtors to realize any recovery on these claims against YPF. IV. EXPANSION OF THE SPECIAL INDEPENDENT COMMITTEE S AUTHORITY 24. On June 17, 2016, Mr. Nikolis and I also became independent directors of Tierra, Maxus International, Maxus (U.S.) Exploration Company, and Gateway Coal Company. 25. On that date, Mr. Nikolis and I were delegated the authority by the boards of directors of Maxus and each of the other aforementioned entities to handle three matters on behalf of each of the five potential chapter 11 debtors: (a) filing a voluntary chapter 11 petition; (b) approving a debtor-in-possession credit agreement providing for post-petition financing; and (c) agreeing to the terms of the Settlement Agreement resolving certain claims held against YPF. 26. As described in more detail in the Declaration of Javier J. González in Support of Chapter 11 Petitions and Requests for First Day Relief (Dkt. No. 2), Maxus International, Maxus (U.S.) Exploration Company, and Gateway Coal Company are each wholly-owned subsidiaries of Maxus. Tierra shares a common indirect parent with Maxus, has historically been funded almost entirely by Maxus, and serves as the entity that manages environmental remediation obligations owed by Maxus, either as principal or when acting on behalf of third parties, principally OCC. 8
Case 16-11501-CSS Doc 300-3 Filed 08/29/16 Page 10 of 11 27. While the Investigation was conducted on behalf of Maxus, all material intercompany transactions involving each of the Debtors as included in the evidentiary record of the Passaic River Litigation were considered as part of the Investigation and settlement recommendation. In our recommendation, Mr. Nikolis and I did not assign specific claims or any portion of the settlement payment to each of the Debtors separately. Moreover, I was aware before the Petition Date that the settlement and any bankruptcy filing would involve each of the Debtors. 9
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