Fri 08/06/2021 15:37 PM
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Relevant Documents:
Voluntary Petition
First Day Declaration
DIP Financing Motion
Bid Procedures Motion/Sale Motion
Noteholders Rule 2019 Statement
First Day Hearing Agenda

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Summary
SVXR develops and manufactures high-resolution, automated x-ray inspection and metrology equipment for the semiconductor and advanced-electronics markets
Seeks to continue prepetition sale process with Bruker Nano, Inc. as stalking horse for $11.9 million
Requests $2 million in DIP financing from Legalist DIP GP, LLC

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SVXR, a San Jose, Calif.-based developer and manufacturer of high-resolution, automated x-ray inspection and metrology equipment for the semiconductor and advanced-electronics markets, filed for chapter 11 protection on Wednesday, Aug. 4, in the Bankruptcy Court for the Northern District of California.

“Like many early-stage, hyper-specialized, and research-intensive companies,” SVXR acting CEO Daniel Trepanier says in the first day declaration, “the Debtor has never been a positive cash-flow enterprise.” As a result of operating losses, a lack of liquidity and defaults under its secured note obligations, the debtor has been “steadfastly” in pursuit of a sale of substantially all of its assets. After three separate marketing rounds that began in September 2020, SVXR entered into a substantially-all-asset purchase agreement with Bruker Nano, Inc. as stalking horse on Aug. 4, conditional upon the debtor’s bankruptcy filing, with a purchase price of approximately $11.9 million.

The case would be funded with $2 million in DIP financing from Legalist DIP GP, LLP that would prime the prepetition liens of the SBA and subordinated secured noteholders. The debtor says it has yet to make contact with the SBA regarding consent to the proposed DIP priming lien. However, the debtor says that the “Noteholders are generally amenable to the Debtor’s use of Cash Collateral consistent with the Budget, and the Debtor and Noteholders are engaged in discussions regarding the Noteholders’ consent to the Debtor’s use of Cash Collateral.” The debtor adds, though, that the noteholders do not consent to the DIP financing.

The first day hearing has been scheduled for Tuesday, Aug. 10, at 2 p.m. ET.

The company reports $1 million to $10 million in assets and $10 million to $50 million in liabilities, and its prepetition capital structure includes:

The secured noteholders include: (a) The Levy Family Trust dated February 18, 1983; (b) Grand Process Technology Corporation; (c) ASE Test Limited; (d) David Adler; (e) Michael Wu; (f) Scott Jewler; (g) Maureen Lamb; (h) The McWhirter Living Trust; (i) The Franklin/Malnekoff Trust, Gregg E. Franklin, and Mara B. Malnekoff, and their successors, as Trustee, under Trust Agreement dated January 12, 2016; (j) Remon Kaldani; (k) Sunil Kaul; and (l) Robert Maire.

A group of the noteholders filed a Rule 2019 statement, disclosing the following holdings:

























































































Noteholders Group



08/05/2021

($ in millions, Common Stock in mm's of shares)

Second Lien Notes

Total

Grand Process Technology Corporation

$1.0

$1.0
0

ASE Test Limited

1.0

1.0
1

David Adler

0.5

0.5
2

Michael Wu

0.3

0.3
3

Scott Jewler

0.3

0.3
4

The McWhirter Living Trust

0.2

0.2
5

The Franklin/Malnekoff Trust

0.3

0.3
6

Remon Kaldani

0.1

0.1
7

Sunil Kaul

0.1

0.1
8

Robert Maire

0.1

0.1
9

The Levy Family Trust dated Feb. 18, 1983

2.0

2.0
10

Total

$5.8

$5.8


The debtor also has $1.8 million in unsecured debt.

The debtor is represented by Paul Hastings in Palo Alto, Calif. Omni Agent Solutions is the claims agent. The case has been assigned to Judge Stephen L. Johnson (case number 21-51050).

Events Leading to the Bankruptcy/Prepetition Restructuring Efforts

In the years following its founding in 2013, the debtor invested heavily in developing its patented technology and bringing the X200 to market. The debtor generated its first fiscal year gross profit in 2019 in the amount of $1.9 million; however, negative net income for the year was $8.3 million. The debtor has never been a positive cash-flow business and has been pursuing a strategic transaction, equity recapitalization or a debt refinancing for nearly a year.

In August 2020, the debtor’s board appointed a strategic transactions committee to pursue either (i) a financing transaction (whether debt, equity or convertible securities) or (ii) a sale transaction. The debtor retained Greenhill to market the debtor’s business and assets for sale or identify a strategic financing. The appointment of the strategic transactions committee coincided with the resignation of David Adler as SVXR’s president and CEO, effective Aug. 7, 2020. The committee proposed an internal secured debt financing of up to $6 million, which would eventually be consummated by execution of the prepetition notes agreements in November 2020. On Oct. 22, 2020, and in response to the committee’s recommended financing proposal, the board also appointed a special committee with respect to the notes financing, consisting solely of disinterested directors.

The debtor’s transaction efforts became stymied by officer and employee turnover, with former CEO Scott Jewler resigning from the company in January 2021, “disturbing the Debtor’s marketing efforts and chilling interest from prospective acquirers of SVXR,” and additional officers and employees leaving the company in spring of 2021.

In May, with liquidity “already severely limited,” the secured notes became due, triggering notice by the noteholders that the entire amount owed under the notes agreements was due immediately. At this point, the debtor had been unable to identify a viable transaction. In early June, while negotiating a forbearance agreement with the noteholders, the debtor and Greenhill again undertook a robust and competitive marketing process, culminating in the submission of a term sheet by Bruker Nano.

Background

SVXR develops, manufactures, and sells its proprietary high-resolution, automated x-ray inspection, or HR-AXI, and metrology equipment, software and related services. The X200™ is the primary hardware that the debtor sells to its customers and is a patented high-speed inspection device that allows customers to monitor and detect defects or abnormalities in their products during the semiconductor fabrication process. The X200 provides high-speed, sensitivity and safety capabilities, improving customers’ production processes and the consistency of their end products.

The debtor’s Hawk-I Data Analytics software, an integral component of the X200, provides advanced computational X-ray image processing and data analysis in real time. Using machine learning, Hawk-I provides customers the ability to improve and automate the data-analytics functions in the X200 over time. Hawk-I’s optimized imaging and machine-learning software allows the X200 to provide customers with an industry-leading product to identify critical defects in their semiconductor products before the products reach the end of the customer’s assembly line or an end user.

The debtor partners with vendors across the world to obtain inputs, tools and parts, with significant suppliers based in the U.S., France and Taiwan. SVXR has a physical presence in the United States and Asia, allowing the debtor to provide its products and services efficiently and effectively to important customers of the debtor in both markets.

The debtor's largest unsecured creditors are listed below:


 










































































10 Largest Unsecured Creditors
Creditor Location Claim Type Amount
Baker Botts LLP Houston Vendor $    292,767
Applied Engineering Inc. San Jose, Calif. Vendor 134,530
Navitar - Special Optics Rochester, N.Y. Vendor 98,291
Winston & Strawn, LLP Chicago Vendor 51,779
Sam Chao Zhubei City, Taiwan Vendor 42,431
COMET Shelton, Conn. Vendor 32,755
Individual Employee N/A Employee 32,577
Individual Employee N/A Employee 29,455
Challentech International
Corporation
Zhubei City, Taiwan Vendor 26,851
MAI ONE LLC San Jose, Calif. Vendor 26,168

The case representatives are as follows:



 



















































































Representatives
Role Name Firm Location
Debtor's Counsel Todd M. Schwartz Paul
Hastings
Palo Alto, Calif.
Will Clark Farmer
Nathan S. Gimpel Chicago
Matthew Smart
Debtor's Investment
Banker
Christopher Grubb Greenhill
& Co.
San Francisco
Maxwell McPherson
Counsel to Bruker
Nano, as Stalking
Horse
Richard M. Stein Nixon
Peabody
Boston
Jack H. Fainberg
Louis J. Cisz, III San Francisco
Penney P. Azizi
Christopher Desiderio New York
Counsel to
Noteholders Group
Stephen D. Finestone Finestone Hayes San Francisco
Jennifer C. Hayes
United States
Trustee
Jorge A. Gaitan Office of the
U.S. Trustee
San Francisco
Jason Blumberg
Debtor's Claims
Agent
Paul H. Deutch Omni Agent
Solutions
New York



Bid Procedures Motion/Sale Motion

The debtor seeks approval of bid procedures for the sale of its assets, with Bruker Nano, Inc. as stalking horse for a bid of $11.858 million.

The debtor proposes a breakup fee of $100,000 and expense reimbursement up to $250,000. Initial overbids must exceed the stalking horse bid by $600,000 (inclusive of “an additional amount sufficient to protect the estate from the Break-Up Fee of the Stalking Horse Bidder and costs associated with the transaction”) and subsequent overbids would be $100,000. The stalking horse APA may be terminated by either party if the closing does not occur by Sept. 10.

The proposed sale timeline follows:

DIP Financing Motion

The debtor seeks approval of $2 million in DIP financing term loan from Legalist DIP GP, LLC ($1 million on an interim basis). The DIP financing bears interest (PIK) at the U.S. prime rate (subject to a 4% floor) plus 11%. For the default rate, an additional 4.75% would be added. The DIP financing matures four months after the effective date or other customary events.

The DIP financing would be secured by a priming lien in favor of the DIP lender on substantially all of the debtor’s assets. The DIP collateral includes avoidance actions and their proceeds.

The facility includes various fees, including a 3% undrawn line fee, a 2% commitment fee, 1.5% underwriting fee, a 1.5% monitoring fee and a 3.75% makewhole fee. According to the declaration of Christopher T. Grubb, managing director and head of the Western Region at Greenhill, filed in support of the DIP financing, the aggregate fees are approximately $80,000, representing approximately 4% of the $2 million in DIP loans.

The debtor does not propose any adequate protection, asserting a “substantial equity cushion in the Debtor’s Collateral based on the proposed Stalking Horse Bid of Bruker Nano, Inc.” The debtor shows the following with respect to the equity cushion of the various secured parties:

The debtor proposes a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c).

The carveout for professional fees is $200,000.

The proposed budget for the use of the DIP facility is HERE. The debtor “projects negative operating cash-flow during the majority of the Chapter 11 Case.”

Other Motions

The debtor also filed various standard first day motions, including the following:


 



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