By Jonathan Stempel
NEW YORK, April 2 (Reuters) - A federal bankruptcy judge has refused to confirm Spansion Inc's reorganization plan, after creditors complained that incentives that the flash memory maker proposed to award employees were too generous.
U.S. Bankruptcy Judge Kevin Carey in Wilmington, Delaware, said the company failed to show its intention to set aside 13.2 percent of its stock for executives and others was 'usual or reasonable for this market at this time.'
Carey also said the Chapter 11 plan was defective because Spansion did not reserve $4.23 million to cover a possible claim by chip technology provider Tessera Technologies Inc in a patent infringement lawsuit.
The plan 'cannot be confirmed in its present form,' the judge concluded in his 59-page opinion dated Thursday.
He overruled some other objections to the plan, and scheduled a status hearing for the afternoon of April 6.
In a statement, Chief Executive John Kispert said Spansion looked forward to addressing the court's concerns. The Sunnyvale, California-based company said it will try to emerge from Chapter 11 as quickly as possible.
Spansion was the world's third-largest maker of flash memory chips when it filed for bankruptcy protection in March 2009, after sales fell and credit tightened.
Flash memory is used in such products as digital cameras and DVD players, and lets devices retain data even when power is turned off. Samsung Electronics and Toshiba Corp are among Spansion's rivals.
Creditors objecting to Spansion's reorganization plan had contended that the company had not proposed the incentive payouts in good faith.
According to Carey, the creditors believed the company 'purposefully lowered enterprise valuation to receive a windfall' from the program, in a belief the reorganized shares would trade higher than the company wanted them to believe.
'The debtor must devise an incentive scheme that garners uniform support from its constituencies or is demonstrably reasonable and within the market,' the judge wrote.
Spansion had previously hoped to emerge from bankruptcy as soon as the fourth quarter of 2009.
Shares of Spansion closed Thursday at about 7.3 cents on the Pink Sheets. The U.S. stock market was closed on Good Friday.
The case is In re: Spansion Inc, U.S. Bankruptcy Court, District of Delaware, No. 09-10690.
(Reporting by Jonathan Stempel; Editing by Jan Paschal) Keywords: SPANSION/BANKRUPTCY (jon.stempel@thomsonreuters.com +1 646 223 6317; Reuters Messaging: jon.stempel.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
NEW YORK, April 2 (Reuters) - A federal bankruptcy judge has refused to confirm Spansion Inc's reorganization plan, after creditors complained that incentives that the flash memory maker proposed to award employees were too generous.
U.S. Bankruptcy Judge Kevin Carey in Wilmington, Delaware, said the company failed to show its intention to set aside 13.2 percent of its stock for executives and others was 'usual or reasonable for this market at this time.'
Carey also said the Chapter 11 plan was defective because Spansion did not reserve $4.23 million to cover a possible claim by chip technology provider Tessera Technologies Inc in a patent infringement lawsuit.
The plan 'cannot be confirmed in its present form,' the judge concluded in his 59-page opinion dated Thursday.
He overruled some other objections to the plan, and scheduled a status hearing for the afternoon of April 6.
In a statement, Chief Executive John Kispert said Spansion looked forward to addressing the court's concerns. The Sunnyvale, California-based company said it will try to emerge from Chapter 11 as quickly as possible.
Spansion was the world's third-largest maker of flash memory chips when it filed for bankruptcy protection in March 2009, after sales fell and credit tightened.
Flash memory is used in such products as digital cameras and DVD players, and lets devices retain data even when power is turned off. Samsung Electronics and Toshiba Corp are among Spansion's rivals.
Creditors objecting to Spansion's reorganization plan had contended that the company had not proposed the incentive payouts in good faith.
According to Carey, the creditors believed the company 'purposefully lowered enterprise valuation to receive a windfall' from the program, in a belief the reorganized shares would trade higher than the company wanted them to believe.
'The debtor must devise an incentive scheme that garners uniform support from its constituencies or is demonstrably reasonable and within the market,' the judge wrote.
Spansion had previously hoped to emerge from bankruptcy as soon as the fourth quarter of 2009.
Shares of Spansion closed Thursday at about 7.3 cents on the Pink Sheets. The U.S. stock market was closed on Good Friday.
The case is In re: Spansion Inc, U.S. Bankruptcy Court, District of Delaware, No. 09-10690.
(Reporting by Jonathan Stempel; Editing by Jan Paschal) Keywords: SPANSION/BANKRUPTCY (jon.stempel@thomsonreuters.com +1 646 223 6317; Reuters Messaging: jon.stempel.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
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