Case 16-10284-KJC        Doc 182        Filed 06/17/16        Page 1 of 61

Exhibit 10.4

THIS IS NOT A SOLICITATION OF VOTES ON THE PLAN. VOTES MAY NOT BE SOLICITED
UNTIL THE BANKRUPTCY COURT HAS APPROVED A DISCLOSURE STATEMENT. THIS DISCLOSURE
STATEMENT IS BEING SUBMITTED FOR APPROVAL BUT HAS NOT YET BEEN APPROVED BY THE
BANKRUPTCY COURT. THE INFORMATION IN THIS DISCLOSURE STATEMENT IS SUBJECT TO
CHANGE. THIS DISCLOSURE STATEMENT IS NOT AN OFFER TO SELL ANY SECURITIES AND IS
NOT SOLICITING AN OFFER TO BUY ANY SECURITIES.

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

 

In re:        Chapter 11   WAVE SYSTEMS CORP.,        Case No. 16-10284 (KJC)  

Debtor.

 

             

 

DISCLOSURE STATEMENT FOR THE

PLAN OF REORGANIZATION OF WAVE SYSTEMS CORP.

 

 

 

Alan M. Root (No. 5427)    Charles A. Beckham, Jr. (TX Bar No. 02016600) ARCHER
& GREINER, P.C.    HAYNES AND BOONE, LLP 300 Delaware Avenue, Suite 1100    1221
McKinney Street, Suite 2100 Wilmington, DE 19801    Houston, Texas 77010
Telephone (302) 777-4350    Telephone: (713) 547-2000 Email aroot@archerlaw.com
   Email: charles.beckham@haynesboone.com - and -    - and -    Trevor R.
Hoffmann (NY Bar No. 24048806) Stephen M. Packman    HAYNES AND BOONE, LLP
ARCHER & GREINER, P.C    30 Rockefeller Plaza, 26th Floor 1650 Market Street ,
32nd Floor    New York, NY 10112 Philadelphia, PA 19103-7393    Telephone: (212)
659-7300 Telephone: (215) 963-3300    Email: trevor.hoffmann@haynesboone.com
E-mail: spackman@archerlaw.com    Counsel to the Chapter 11 Trustee    Counsel
to Plan Sponsor

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Case 16-10284-KJC         Doc 182         Filed 06/17/16         Page 2 of 61

 

DISCLAIMERS

THIS DISCLOSURE STATEMENT PROVIDES INFORMATION REGARDING THE PLAN OF
REORGANIZATION OF WAVE SYSTEMS CORP. THAT THE PROPONENTS ARE SEEKING TO HAVE
CONFIRMED BY THE BANKRUPTCY COURT. THE INFORMATION CONTAINED IN THIS DISCLOSURE
STATEMENT IS INCLUDED FOR PURPOSES OF SOLICITING ACCEPTANCES TO, AND
CONFIRMATION OF, THE PLAN AND MAY NOT BE RELIED ON FOR ANY OTHER PURPOSE.
APPROVAL OF THIS DISCLOSURE STATEMENT DOES NOT CONSTITUTE A DETERMINATION OR
RECOMMENDATION BY THE BANKRUPTCY COURT AS TO THE FAIRNESS OR THE MERITS OF THE
PLAN.

THIS DISCLOSURE STATEMENT CONTAINS SUMMARIES OF CERTAIN PROVISIONS OF THE PLAN,
CERTAIN STATUTORY PROVISIONS, CERTAIN DOCUMENTS RELATING TO THE PLAN, AND
CERTAIN FINANCIAL INFORMATION. ALTHOUGH THE CHAPTER 11 TRUSTEE BELIEVES THAT
THESE SUMMARIES ARE FAIR AND ACCURATE AND PROVIDE ADEQUATE INFORMATION WITH
RESPECT TO THE DOCUMENTS SUMMARIZED, SUCH SUMMARIES ARE QUALIFIED TO THE EXTENT
THAT THEY DO NOT SET FORTH THE ENTIRE TEXT OF, OR ARE INCONSISTENT WITH, SUCH
DOCUMENTS.

ALTHOUGH THE CHAPTER 11 TRUSTEE HAS MADE EVERY EFFORT TO BE ACCURATE, THE
FINANCIAL INFORMATION CONTAINED HEREIN HAS NOT BEEN THE SUBJECT OF AN AUDIT OR
OTHER REVIEW BY AN ACCOUNTING FIRM. IN THE EVENT OF ANY CONFLICT, INCONSISTENCY,
OR DISCREPANCY BETWEEN THE TERMS AND PROVISIONS IN THE PLAN, THIS DISCLOSURE
STATEMENT, THE EXHIBITS ANNEXED TO THIS DISCLOSURE STATEMENT, OR THE FINANCIAL
INFORMATION INCORPORATED HEREIN OR THEREIN BY REFERENCE, THE PLAN SHALL GOVERN
FOR ALL PURPOSES. ALL HOLDERS OF CLAIMS SHOULD READ THIS DISCLOSURE STATEMENT
AND THE PLAN IN THEIR ENTIRETY BEFORE VOTING ON THE PLAN.

THE STATEMENTS AND FINANCIAL INFORMATION CONTAINED HEREIN HAVE BEEN MADE AS OF
THE DATE HEREOF UNLESS OTHERWISE SPECIFIED. HOLDERS OF CLAIMS AND EQUITY
INTERESTS REVIEWING THIS DISCLOSURE STATEMENT SHOULD NOT INFER AT THE TIME OF
SUCH REVIEW THAT THERE HAVE BEEN NO CHANGES IN THE FACTS SET FORTH HEREIN.
ALTHOUGH THE CHAPTER 11 TRUSTEE HAS MADE AN EFFORT TO DISCLOSE WHERE CHANGES IN
PRESENT CIRCUMSTANCES COULD REASONABLY BE EXPECTED TO AFFECT MATERIALLY THE
RECOVERY UNDER THE PLAN, THIS DISCLOSURE STATEMENT IS QUALIFIED TO THE EXTENT
CERTAIN EVENTS DO OCCUR.

IRS CIRCULAR 230 NOTICE: TO ENSURE COMPLIANCE WITH IRS CIRCULAR 230, HOLDERS OF
CLAIMS AND EQUITY INTERESTS ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF U.S.
FEDERAL TAX ISSUES CONTAINED OR

 

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Case 16-10284-KJC         Doc 182         Filed 06/17/16         Page 3 of 61

 

REFERRED TO IN THIS DISCLOSURE STATEMENT IS NOT INTENDED OR WRITTEN TO BE USED,
AND CANNOT BE USED, BY HOLDERS OF CLAIMS OR EQUITY INTERESTS FOR THE PURPOSE OF
AVOIDING PENALTIES THAT MAY BE IMPOSED ON THEM UNDER THE INTERNAL REVENUE CODE;
(B) SUCH DISCUSSION IS WRITTEN IN CONNECTION WITH THE PROMOTION OR MARKETING BY
THE PLAN PROPONENTS OF THE TRANSACTIONS OR MATTERS ADDRESSED HEREIN; AND
(C) HOLDERS OF CLAIMS AND EQUITY INTERESTS SHOULD SEEK ADVICE BASED ON THEIR
PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.

THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH SECTION 1125 OF
THE BANKRUPTCY CODE AND NOT NECESSARILY IN ACCORDANCE WITH FEDERAL OR STATE
SECURITIES LAWS OR OTHER NON-BANKRUPTCY LAW. THIS DISCLOSURE STATEMENT HAS NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE
“SEC”) OR ANY FEDERAL, STATE, LOCAL OR FOREIGN REGULATORY AGENCY, NOR HAS THE
SEC OR ANY OTHER SUCH AGENCY PASSED UPON THE ACCURACY OR ADEQUACY OF THE
STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT. PERSONS OR ENTITIES HOLDING
OR TRADING IN, OR OTHERWISE PURCHASING, SELLING, OR TRANSFERRING, SECURITIES OF
OR CLAIMS AGAINST THE DEBTOR SHOULD EVALUATE THIS DISCLOSURE STATEMENT AND THE
PLAN IN LIGHT OF THE PURPOSE FOR WHICH THEY WERE PREPARED.

THE CHAPTER 11 TRUSTEE MAKES STATEMENTS IN THIS DISCLOSURE STATEMENT THAT ARE
CONSIDERED FORWARD-LOOKING STATEMENTS UNDER THE FEDERAL SECURITIES LAWS.
STATEMENTS CONCERNING THESE AND OTHER MATTERS ARE NOT GUARANTEES OF THE DEBTOR’S
FUTURE PERFORMANCE. SUCH FORWARD-LOOKING STATEMENTS REPRESENT THE CHAPTER 11
TRUSTEE’S ESTIMATES AND ASSUMPTIONS ONLY AS OF THE DATE SUCH STATEMENTS WERE
MADE AND INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES, AND OTHER UNKNOWN
FACTORS THAT COULD IMPACT THE CHAPTER 11 TRUSTEE’S RESTRUCTURING PLANS OR CAUSE
THE ACTUAL RESULTS OF THE DEBTOR’S BUSINESS TO BE MATERIALLY DIFFERENT FROM THE
HISTORICAL RESULTS OR FROM ANY FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. IN ADDITION TO STATEMENTS THAT EXPLICITLY DESCRIBE
SUCH RISKS AND UNCERTAINTIES, READERS ARE URGED TO CONSIDER STATEMENTS LABELED
WITH THE TERMS “BELIEVES,” “BELIEF,” “EXPECTS,” “INTENDS,” “ANTICIPATES,”
“PLANS,” OR SIMILAR TERMS TO BE UNCERTAIN AND FORWARD-LOOKING. THERE CAN BE NO
ASSURANCE THAT THE RESTRUCTURING TRANSACTION DESCRIBED HEREIN WILL BE
CONSUMMATED. CREDITORS AND OTHER INTERESTED PARTIES SHOULD SEE THE SECTION OF
THIS DISCLOSURE STATEMENT ENTITLED “RISK FACTORS” FOR A DISCUSSION OF CERTAIN
FACTORS THAT MAY AFFECT THE FUTURE FINANCIAL PERFORMANCE OF THE REORGANIZED
DEBTOR.

 

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Case 16-10284-KJC         Doc 182         Filed 06/17/16         Page 4 of 61

 

TABLE OF CONTENTS

 

                  Page(s)  

I.

 

INTRODUCTION

     1     

A.

 

Overview of the Plan

     1       

1.

  

General Structure of the Plan

     1       

2.

  

Material Terms of the Plan

     2       

3.

  

Summary of Treatment of Claims and Equity Interests Under the Plan

     4     

B.

 

Plan Voting Instructions and Procedures

     5       

1.

  

Voting Rights

     5       

2.

  

Solicitation Materials

     6       

3.

  

Voting Instructions

     7       

4.

  

Confirmation Hearing and Deadline for Objections to Confirmation

     9   

II.

 

GENERAL INFORMATION ABOUT THE DEBTOR

     10     

A.

 

Background

     10     

B.

 

Prepetition Capital Structure

     10       

1.

  

Secured Debt

     10       

2.

  

Unsecured Debt

     11       

3.

  

Equity Interests

     11     

C.

 

SEC Filings

     11   

III.

 

THE DEBTOR’S BANKRUPTCY CASE

     11     

A.

 

Commencement of a Chapter 7 Case

     11     

B.

 

Bid Procedures and Auction Process

     12     

C.

 

Conversion to Chapter 11 and Appointment of Chapter 11 Trustee

     13     

D.

 

The ESW Post-Petition Financing

     13     

E.

 

Schedules, Statements of Financial Affairs and Claims Bar Dates

     14     

F.

 

Additional Orders

     14     

G.

 

United States Trustee

     15   

IV.

 

SUMMARY OF THE CHAPTER 11 PLAN

     15     

A.

 

Treatment of Unclassified Claims

     15       

1.

  

Administrative Claims

     15       

2.

  

Bar Date For Administrative Claims

     17       

3.

  

Allowed Priority Tax Claims

     19   

 

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B.

 

Classification and Treatment of Claims and Equity Interests

     19       

1.

  

Class 1: Secured Claims

     19       

2.

  

Class 2: Priority Unsecured Non-Tax Claims

     20       

3.

  

Class 3: General Unsecured Claims

     20       

4.

  

Class 4: Intercompany Claims

     20       

5.

  

Class 5: Equity Interests

     21     

C.

 

Acceptance or Rejection of the Plan

     21       

1.

  

Impaired Classes Entitled to Vote

     21       

2.

  

Acceptance by Class 3 and Class 4

     21       

3.

  

Presumed Acceptances by Unimpaired Classes

     22       

4.

  

Impaired Class deemed to Reject

     22     

D.

 

Means for Implementation of the Plan

     22       

1.

  

Continued Corporate Existence

     22       

2.

  

Management and Board of Directors

     22       

3.

  

Arrangements with the Distribution Trustee

     22       

4.

  

The Closing

     23       

5.

  

Tax Treatment of the Distribution Trust

     26       

6.

  

Right to Enforce, Compromise, or Adjust Distribution Trust Assets

     26       

7.

  

Preservation of Rights of Action

     26       

8.

  

Vesting of Property in Reorganized Debtor

     27       

9.

  

Tax Exemption

     27     

E.

 

Treatment of Executory Contracts and Unexpired Leases

     27       

1.

  

Assumption of Executory Contracts

     27       

2.

  

Rejection of Executory Contracts

     28       

3.

  

Procedures Related to Assumption of Executory Contracts

     28       

4.

  

Rejection Claim Bar Date

     30       

5.

  

Indemnification Obligations

     30       

6.

  

Federal Government Rights

     30     

F.

 

Provisions Governing Distributions of Property

     31       

1.

  

Distributions Procedures Regarding Allowed Claims

     31       

2.

  

Procedures Regarding Distributions from the Distribution Trust

     33   

 

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G.

 

Procedures for Resolution of Disputed Claims

     33       

1.

  

Right to Object to Claims

     33       

2.

  

Deadline for Objecting to Claims

     33       

3.

  

Deadline for Responding to Claim Objections

     34       

4.

  

Right to Request Estimation of Claims

     34     

H.

 

Injunctions, Releases, and Discharge

     34       

1.

  

Discharge and Release

     34       

2.

  

Discharge Injunction

     34       

3.

  

Exculpation and Limitation of Liability

     35       

4.

  

Releases by the Debtor

     35       

5.

  

Releases by Third Party

     36     

I.

 

Conditions to Confirmation and Effectiveness

     37       

1.

  

Conditions to Confirmation

     37       

2.

  

Conditions to Effectiveness

     38     

J.

 

Modification, Revocation or Withdrawal of the Plan

     38       

1.

  

Defects, Omissions, and Amendments of the Plan

     38       

2.

  

Withdrawal of the Plan

     38     

K.

 

Retention of Jurisdiction

     39       

1.

  

Exclusive Bankruptcy Court Jurisdiction

     39       

2.

  

Limitations on Jurisdiction

     40   

V.

 

POST-EFFECTIVE DATE OPERATIONAL/FINANCIAL INFORMATION

     40   

VI.

 

RISK FACTORS

     41     

A.

 

Risks Related to Bankruptcy

     41       

1.

  

Parties May Object to the Plan’s Classification of Claims and Equity Interests

     41       

2.

  

The Proponents May Not Be Able to Obtain Confirmation of the Plan

     41       

3.

  

The Conditions Precedent to the Effective Date of the Plan May Not Occur

     42       

4.

  

Risks Associated with Proving and Collecting Claims Asserted in Litigation

     42       

5.

  

Allowed Claims May Substantially Exceed Estimates

     42     

B.

 

Risks Related to Financial Information

     42   

 

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VII.

 

CONFIRMATION OF THE PLAN

     42     

A.

 

The Confirmation Hearing

     42     

B.

 

Requirements for Confirmation of the Plan

     43     

C.

 

Best Interests of Creditors / Liquidation Analysis

     44     

D.

 

Feasibility

     45     

E.

 

Acceptance by Impaired Classes

     45     

F.

 

Confirmation Without Acceptance by All Impaired Classes

     45       

1.

  

No Unfair Discrimination

     46       

2.

  

Fair and Equitable Test

     46   

VIII.

 

TAX CONSEQUENCES OF THE PLAN

     47   

IX.

 

CERTAIN SECURITIES LAW MATTERS

     47     

A.

 

In General

     47     

B.

 

Distribution Trust Related Matters

     47       

1.

  

Initial Issuance of Beneficial Interests

     47       

2.

  

Resales

     48       

3.

  

Exchange Act Compliance

     48       

4.

  

Compliance if Required

     49   

X.

 

RECOMMENDATION

     50   

 

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Case 16-10284-KJC         Doc 182         Filed 06/17/16         Page 8 of 61

 

EXHIBITS

 

EXHIBIT A

  

Plan of Reorganization

EXHIBIT B

  

Liquidation Analysis

 

THE CHAPTER 11 TRUSTEE AND PLAN SPONSOR HEREBY ADOPT AND

INCORPORATE EACH EXHIBIT ATTACHED TO THIS DISCLOSURE STATEMENT

BY REFERENCE AS THOUGH FULLY SET FORTH HEREIN

 

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Case 16-10284-KJC         Doc 182         Filed 06/17/16         Page 9 of 61

 

I. INTRODUCTION

David W. Carickhoff, the chapter 11 trustee (in such capacity, the “Chapter 11
Trustee”) of the estate (the “Estate”) of Wave Systems Corp. (the “Debtor”) and
ESW Capital, LLC (“ESW” or the “Plan Sponsor”) hereby submit this disclosure
statement (the “Disclosure Statement”) pursuant to sections 1125 and 1126(b) of
Title 11 of the United States Code (the “Bankruptcy Code”), in connection with
the solicitation of votes on the Plan of Reorganization of Wave Systems Corp.,
dated June 17, 2016 (as amended, supplemented or otherwise modified from time to
time pursuant to its terms, the “Plan”). A copy of the Plan is attached hereto
as Exhibit A.1

The purpose of this Disclosure Statement is to enable Creditors whose Claims are
Impaired under the Plan and who are entitled to vote to make an informed
decision in exercising their right to accept or reject the Plan. This Disclosure
Statement sets forth certain information regarding the Debtor’s prepetition
operating and financial history, its reasons for seeking protection under the
Bankruptcy Code and the anticipated organization, operations, and financing of
the Debtor upon its successful emergence from bankruptcy protection. This
Disclosure Statement also describes certain terms and provisions of the Plan,
certain effects of confirmation of the Plan, certain risk factors associated
with the Plan, the business of the Debtor or Reorganized Debtor, and the
securities that may be issued under the Plan, including the issuance of New
Equity to the Plan Sponsor, and the manner in which Distributions will be made
under the Plan. In addition, this Disclosure Statement discusses the
confirmation process and the voting procedures that holders of Claims entitled
to vote under the Plan must follow for their votes to be counted.

 

  A. Overview of the Plan

 

  1. General Structure of the Plan

Generally, the Plan provides for the reorganization of the Debtor by retiring,
cancelling, extinguishing and/or discharging the Debtor’s existing Equity
Interests and issuing New Equity in the Reorganized Debtor to the Plan Sponsor
and to the Post-Petition Lender, to the extent that it exercises the
Subscription Option. In exchange, the Plan Sponsor has agreed to provide Cash
Consideration in the amount of $6.875 million which, along with certain
litigation recoveries (if any) will be distributed to a Distribution Trust and,
ultimately, to holders of Allowed Claims and Equity Interests in accordance with
the priority scheme established by the Bankruptcy Code.

The Post-Petition Lender Financing Claim in favor of the Post-Petition Lender on
account of amounts loaned to the Estate on a post-petition basis will not be
satisfied from the Cash Consideration, but rather from the Financial
Consideration. In addition, the Plan provides that certain Administrative Claims
which constitute Ordinary Course Liabilities will be satisfied from sources
other than the Cash Consideration, to the extent provided for under the Approved
Budget.

 

 

1  Capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Plan. The summary of the Plan provided herein is
qualified in its entirety by reference to the Plan. In the case of any
inconsistency between the summary herein and the Plan, the Plan shall govern.

 

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The Cash Consideration will be used to satisfy in full all Allowed
Administrative Claims (other than Ordinary Course Liabilities, to the extent
payable through the Approved Budget, and the Post-Petition Lender Financing
Claim, to be satisfied by the Financial Consideration), Allowed Secured Claims,
Allowed Priority Tax Claims and Allowed Priority Unsecured Non-Tax Claims,
consistent with section 1129 of the Bankruptcy Code.

The Plan also provides that holders of Allowed General Unsecured Claims and
Allowed Intercompany Claims will receive their pro rata share of (i) the
remaining Cash Consideration after payment of Allowed Administrative Claims,
Allowed Priority Tax Claims, Allowed Secured Claims, and Allowed Priority
Unsecured Non-Tax Claims, and (ii) the Beneficial Interest in the Distribution
Trust in accordance with the Distribution Trust Agreement. As set forth more
fully below, it is currently estimated that Holders of Allowed General Unsecured
Claims and Allowed Intercompany Claims may receive payment in full, provided
however, that no payment will be made on account of any post-petition interest
with respect to any Allowed General Unsecured Claims or Allowed Intercompany
Claims.

Finally, the Plan provides that Interest Holders will receive their pro rata
share of (i) the remaining Cash Consideration after payment of Allowed
Administrative Claims, Allowed Priority Tax Claims, Allowed Secured Claims,
Allowed Priority Unsecured Non-Tax Claims, Allowed General Unsecured Claims, and
Allowed Intercompany Claims and (ii) the Beneficial Interest in the Distribution
Trust in accordance with the Distribution Trust Agreement. As set forth more
fully below, it is estimated that holders of Equity Interests as of the Voting
Record Date may receive a distribution on account of such Equity Interests.

THE CHAPTER 11 TRUSTEE AND PLAN SPONSOR BELIEVE THAT THE PLAN IS FAIR AND
EQUITABLE, WILL MAXIMIZE THE VALUE TO THE ESTATE, IS IN THE BEST INTERESTS OF
THE ESTATE AND ITS STAKEHOLDERS, AND WILL ENABLE THE DEBTOR TO SUCCESSFULLY
REORGANIZE AND ACCOMPLISH THE OBJECTIVES OF CHAPTER 11.

FOR THESE REASONS, THE CHAPTER 11 TRUSTEE URGES HOLDERS OF CLAIMS WHO ARE
ENTITLED TO VOTE TO TIMELY RETURN THEIR BALLOTS AND TO VOTE TO ACCEPT THE PLAN.

 

  2. Material Terms of the Plan

The following is an overview of certain material terms of the Plan:

 

  •   The Debtor will be reorganized pursuant to the Plan and continue in
operation following the Effective Date.

 

  •  

Except with regards to the Ordinary Course Liabilities and the Allowed
Post-Petition Lender Financing Claim which will be satisfied as described below,
all Allowed Administrative Claims, Allowed Secured Claims, Allowed Priority Tax
Claims, Allowed Priority Unsecured Non-Tax Claims, will be paid in full from the
Cash Consideration or otherwise satisfied in full as required by the Bankruptcy
Code, unless otherwise agreed to by the Chapter 11 Trustee and the holders of
such Claims. For the avoidance of doubt, it is contemplated that

 

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Professional Fee Claims which are provided for under the Budget shall be paid
from Post-Petition Financing, not from the Cash Consideration. Non-Budgeted
Professional Fee Claims include any Chapter 7 or 11 Trustee Fee requests for
compensation and any request for compensation filed by GrowthPoint Technology
Partners, LLC in connection with the transactions contemplated hereunder, which
claims, if and when Allowed, shall be paid in full from the Cash Consideration.

 

  •   On the Effective Date, the Post-Petition Lender Financing Claim will be
Allowed in full. The Allowed Post-Petition Lender Financing Claim shall be
satisfied solely as follows: (i) pursuant to the Subscription Option, the
Post-Petition Lender, as a Qualified Ordinary Course Creditor, shall have the
option, on account of being the holder of the Allowed Post-Petition Lender
Financing Claim, to exchange a total of up to $1,800,000 in satisfaction of such
amount of its Allowed Claim for up to a total of 600 shares, equal to 60
percent, of the issued New Equity, at a rate of $3,000 of its Allowed
Post-Petition Lender Financing Claim for one (1) share of New Equity, and
(ii) the Post-Petition Lender, on account of being the holder of the Allowed
Post-Petition Lender Financing Claim, shall receive, from the Financing
Consideration, payment in Cash of the remaining amount of the Allowed
Post-Petition Lender Financing Claim after the Post-Petition Lender has
exercised the Subscription Option to receive its share of the New Equity.2 For
the avoidance of doubt, no portion of the Allowed Post-Petition Lender Financing
Claim shall be paid from the Cash Consideration. On the Effective Date, all
liens and interests granted in exchange for or in connection with the
Post-Petition Note and/or under the Post-Petition Financing Order shall be
deemed discharged, cancelled, and released and shall be of no further force and
effect and neither the Estate nor the Distribution Trust (as applicable) shall
have any obligation to repay the Allowed Post-Petition Lender Financing Claim
from the Cash Consideration. The Financing Consideration payable by the Plan
Sponsor under the Plan shall be increased to account for any Cash payment to the
Post-Petition Lender on account of the Allowed Post-Petition Lender Financing
Claim, such that the Plan Consideration provided to the Estate net of all Cash
payments to the Post-Petition Lender on account of its Allowed Post-Petition
Lender Financing Claim shall be $6,875,000.

 

  •   The Chapter 11 Trustee shall continue to pay each Ordinary Course
Liability, accrued prior to the Effective Date, pursuant to the payment terms
and conditions of the particular transaction giving rise to the Ordinary Course
Liability, and the Approved Budget. The Reorganized Debtor shall continue to pay
each Ordinary Course Liability accrued after the Effective Date, pursuant to the
payment terms and conditions of the particular transaction giving rise to the
Ordinary Course Liability.

 

 

2  The Plan Sponsor reserves the right to modify the Subscription Option,
provided that (i) no such modification shall adversely the Plan treatment of
other creditors and (ii) such modification is approved by the Post-Petition
Lender.

 

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Case 16-10284-KJC         Doc 182         Filed 06/17/16         Page 12 of 61

 

  •   Each holder of an Allowed General Unsecured Claim and an Allowed
Intercompany Claim shall receive, on account of and in full and complete
settlement, release and discharge of, and in exchange for its Allowed General
Unsecured Claim or Allowed Intercompany Claim, as applicable, its Pro Rata Share
of (i) the remaining Cash Consideration after payment of Allowed Administrative
Claims, Allowed Priority Tax Claims, Allowed Secured Claims, and Allowed
Priority Unsecured Non-Tax Claims, and (ii) the Beneficial Interest in the
Distribution Trust in accordance with the Distribution Trust Agreement. In no
event shall any holder of an Allowed General Unsecured Claim or Allowed
Intercompany Claim receive a distribution in an amount in excess of the
principal amount of the respective holder’s Allowed General Unsecured Claim or
Allowed Intercompany Claim, as applicable. Holders of Allowed General Unsecured
Claims and Allowed Intercompany Claims shall not receive any Distribution on
account of any postpetition interest.

 

  •   Each holder of an Allowed Equity Interest shall receive, on account of and
in full and complete release and discharge of, and in exchange for its Allowed
Equity Interests, its Pro Rata Share of (i) remaining Cash Consideration after
payment of Allowed Administrative Claims, Allowed Priority Tax Claims, Allowed
Secured Claims, Allowed Priority Unsecured Non-Tax Claims, Allowed General
Unsecured Claims, and Allowed Intercompany Claims and (ii) the Beneficial
Interest in the Distribution Trust in accordance with the Distribution Trust
Agreement. Only those holders of Equity Interests as of the Voting Record Date
shall be entitled to a distribution

 

  •   All existing Equity Interests shall be deemed automatically cancelled,
released, and extinguished without further action by the Chapter 11 Trustee or
the Reorganized Debtor.

 

  3. Summary of Treatment of Claims and Equity Interests Under the Plan

The table below summarizes the classification and treatment of the Claims and
Equity Interests under the Plan.

THE PROJECTED RECOVERIES SET FORTH IN THE TABLE BELOW ARE ESTIMATES ONLY AND
THEREFORE ARE SUBJECT TO CHANGE. FOR A COMPLETE DESCRIPTION OF THE
CLASSIFICATION AND TREATMENT OF CLAIMS AND EQUITY INTERESTS, REFERENCE SHOULD BE
MADE TO THE ENTIRE PLAN.

 

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Case 16-10284-KJC         Doc 182         Filed 06/17/16         Page 13 of 61

 

Class

  

Claim or Equity

Interest

  

Summary of Treatment

  

Projected Recovery

Under Plan

1

   Secured Claims    Unimpaired; Deemed to Accept Plan    100%

2

   Priority Unsecured Non-Tax Claims    Unimpaired; Deemed to Accept Plan   
100%

3

   General Unsecured Claims    Impaired; Entitled to Vote on Plan    66%-100%
(but in all events exclusive of any post-petition interest)*

4

   Intercompany Claims    Impaired; Entitled to Vote on Plan    66%-100% (but in
all events exclusive of any post-petition interest)*

4

   Equity Interests    Impaired; Deemed to Reject    TBD**

 

* Estimated recoveries are based on scheduled and filed claims to date.
Recoveries could vary significantly based upon the final reconciled claims pool.

** While it is estimated that holders of Equity Interests as of the Voting
Record Date may receive a distribution, it is not possible to estimate the
projected recovery at this time as the claims bar date has not passed and the
pool of Allowed Claims has not been finally reconciled.

THE CHAPTER 11 TRUSTEE BELIEVES THAT THE PLAN PROVIDES THE BEST RECOVERIES
POSSIBLE FOR HOLDERS OF CLAIMS AND EQUITY INTERESTS IN THE DEBTOR AND THUS
STRONGLY RECOMMENDS THAT YOU VOTE TO ACCEPT THE PLAN.

 

  B. Plan Voting Instructions and Procedures

 

  1. Voting Rights

Under the Bankruptcy Code, only Classes of Claims or Equity Interests that are
“Impaired” and that are not deemed as a matter of law to have rejected a plan of
reorganization under section 1126 of the Bankruptcy Code are entitled to vote to
accept or reject the Plan. Any Class that is “Unimpaired” is not entitled to
vote to accept or reject a plan of reorganization and is conclusively presumed
to have accepted the Plan. As set forth in section 1124 of the Bankruptcy Code,
a Class is “Impaired” if the legal, equitable, or contractual rights attaching
to the claims or equity interests of that Class are modified or altered.

Pursuant to the Plan, Claims in Class 3 (General Unsecured Claims) and Class 4
(Intercompany Claims) are Impaired by, and entitled to receive a Distribution
under the Plan, and only the holders of Claims in this Class are entitled to
vote to accept or reject the Plan. Whether a holder of a Claim in Class 3 or
Class 4 may vote to accept or reject the Plan will also depend on whether the
holder held such Claim as of [DATE], 2016 (the “Voting Record Date”).

Pursuant to the Plan, Claims in Classes 1 and 2 are Unimpaired by the Plan, and
such holders are deemed to have accepted the Plan and are therefore not entitled
to vote on the Plan.

 

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Pursuant to the Plan, Holders of Equity Interests in Class 5 are Impaired by the
Plan but are deemed to have rejected the Plan and are therefore not entitled to
vote on the Plan.

 

  2. Solicitation Materials

The Chapter 11 Trustee, with the approval of the Bankruptcy Court, has engaged
UpShot Services LLC (the “Voting Agent”) to serve as the voting agent to process
and tabulate Ballots for each Class entitled to vote on the Plan and to
generally oversee the voting process. The following materials shall constitute
the solicitation package (the “Solicitation Package”):

 

  •   This Disclosure Statement, including the Plan and all other Exhibits
annexed thereto;

 

  •   The Bankruptcy Court order approving this Disclosure Statement (the
“Disclosure Statement Order”);

 

  •   The notice of, among other things, (i) the date, time, and place of the
hearing to consider Confirmation of the Plan and related matters and (ii) the
deadline for filing objections to Confirmation of the Plan and the Disclosure
Statement (the “Confirmation Hearing Notice”);

 

  •   One or more Ballots, as applicable, to be used in voting to accept or to
reject the Plan and applicable instructions with respect thereto (the “Voting
Instructions”);

 

  •   A pre-addressed return envelope; and

 

  •   Such other materials as the Bankruptcy Court may direct or approve.

The Chapter 11 Trustee, through the Voting Agent, will distribute the
Solicitation Package in accordance with the Disclosure Statement Order. The
Solicitation Package is also available at the Voting Agent’s website at
http://www.upshotservices.com/wavesystems.

Prior to the Confirmation Hearing, the Chapter 11 Trustee intends to file a Plan
Supplement which includes, among other things, (a) the identity of the
Distribution Trustee, and (b) the Distribution Trust Agreement. As the Plan
Supplement is updated or otherwise modified, such modified or updated documents
will be made available on the Voting Agent’s website at
http://www.upshotservices.com/wavesystems.

If you are the holder of a Claim and believe that you are entitled to vote on
the Plan, but you did not receive a Ballot or your Ballot is damaged or
illegible, or if you have any questions concerning voting procedures, you should
contact the Voting Agent by writing to Wave Systems Corp, Ballot Processing, c/o
UpShot Services LLC, 8269 E. 23rd Avenue, Suite 275, Denver, CO 80238, or by
telephone at (855) 812-6112 or via email at WaveSystemsInfo@upshotservices.com.
If the reason that you did not receive a Ballot is because your Claim is subject
to a pending claim objection and you wish to vote on the Plan, you must file a
motion pursuant to Bankruptcy Rule 3018 with the Bankruptcy Court for the
temporary allowance of your Claim for voting purposes by [DATE], 2016, or you
will not be entitled to vote to accept or reject the Plan.

 

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Case 16-10284-KJC         Doc 182         Filed 06/17/16         Page 15 of 61

 

THE CHAPTER 11 TRUSTEE, REORGANIZED DEBTOR AND DISTRIBUTION TRUST, AS
APPLICABLE, RESERVE THE RIGHT THROUGH THE CLAIM OBJECTION PROCESS TO OBJECT TO
OR SEEK TO DISALLOW ANY CLAIM OR EQUITY INTEREST FOR DISTRIBUTION PURPOSES.

 

  3. Voting Instructions

All votes to accept or reject the Plan must be cast by using the Ballots
enclosed with the Solicitation Packages. No votes other than ones using such
Ballots will be counted, except to the extent the Bankruptcy Court orders
otherwise. The Bankruptcy Court has fixed the Voting Record Date for the
determination of the holders of Claims who are entitled to (a) receive a copy of
this Disclosure Statement and all of the related materials and (b) vote to
accept or reject the Plan. The Voting Record Date and all of the Debtor’s
solicitation and voting procedures shall apply to all of the Debtor’s Creditors
and other parties in interest.

After carefully reviewing the Plan, this Disclosure Statement, and the detailed
instructions accompanying your Ballot, you are asked to indicate your acceptance
or rejection of the Plan by voting in favor of or against the Plan on the
accompanying Ballot.

The deadline to vote on the Plan is [DATE], 2016 at 7:00 p.m. (Eastern Time)
(the “Voting Deadline”). In order for your vote to be counted, your Ballot must
be properly completed in accordance with the Voting Instructions on the Ballot,
and received no later than the Voting Deadline at the address set forth below:

WAVE SYSTEMS CORP.

Ballot Processing

c/o UpShot Services LLC

8269 E. 23rd Avenue, Suite 275

Denver, CO 80238

You may also vote electronically via the Voting Agent’s website:
http://www.upshotservices.com/wavesystems. All electronic votes must be
submitted by the Voting deadline.

Only the Holders of Claims in Class 3 and Class 4 as of the Voting Record Date
are entitled to vote to accept or reject the Plan, and they may do so by
completing the appropriate Ballots and returning them in the envelope provided
by the Voting Agent so as to be actually received by the Voting Agent by the
Voting Deadline or by voting on the Voting Agent’s website by the Voting
Deadline. Each holder of a Claim must vote its entire Claim within a particular
Class either to accept or reject the Plan and may not split such votes. If
multiple Ballots are received from the same holder with respect to the same
Claim prior to the Voting Deadline, the last timely received, properly executed
Ballot will be deemed to reflect that voter’s intent and will supersede and
revoke any prior Ballot. The Ballots will clearly indicate the appropriate
return address. It is important to follow the specific instructions provided on
each Ballot and/or on the Voting Agent’s website.

 

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Unless otherwise provided in the Voting Instructions accompanying the Ballots
and/or on the Voting Agent’s website or otherwise ordered by the Bankruptcy
Court, the following Ballots will not be counted in determining whether the Plan
has been accepted or rejected:

 

  •   Any Ballot that fails to clearly indicate an acceptance or rejection, or
that indicates both an acceptance and a rejection, of the Plan;

 

  •   Any Ballot received after the Voting Deadline, except if the Chapter 11
Trustee has granted an extension of the Voting Deadline with respect to such
Ballot, or by order of the Bankruptcy Court;

 

  •   Any Ballot containing a vote that the Bankruptcy Court determines was not
solicited or procured in good faith or in accordance with the applicable
provisions of the Bankruptcy Code;

 

  •   Any Ballot that is illegible or contains insufficient information to
permit the identification of the Claim;

 

  •   Any Ballot cast by a Person or Entity that does not hold an Allowed Claim
in a voting Class; and

 

  •   Any unsigned Ballot or Ballot without an original signature (or in the
case of electronic balloting, a proper and verified electronic signature).

Any party who has previously submitted to the Voting Agent prior to the Voting
Deadline a properly completed Ballot may revoke such Ballot and change its vote
by submitting to the Voting Agent prior to the Voting Deadline a subsequent
properly completed Ballot for acceptance or rejection of the Plan. In the case
where more than one timely, properly completed Ballot is received, only the
Ballot that bears the latest date will be counted for purposes of determining
whether the requisite acceptances have been received. Any party who has
delivered a properly completed Ballot for the acceptance or rejection of the
Plan that wishes to withdraw such acceptance or rejection rather than changing
its vote may withdraw such acceptance or rejection by delivering a written
notice of withdrawal to the Voting Agent at any time prior to the Voting
Deadline. To be valid, a notice of withdrawal must (i) contain the description
of the Claims to which it relates and, in the case of Claims, the aggregate
principal amount represented by such Claims, (ii) be signed by the withdrawing
party in the same manner as the Ballot being withdrawn, (iii) contain a
certification that the withdrawing party owns the Claims and possesses the right
to withdraw the vote sought to be withdrawn, and (iv) be actually received by
the Voting Agent prior to the Voting Deadline.

The Chapter 11 Trustee, in his sole discretion, subject to contrary order of the
Court, may waive any defect in any Ballot at any time, either before or after
the close of voting, and without notice. Except as otherwise provided herein,
the Chapter 11 Trustee may, in his sole discretion, reject such defective Ballot
as invalid and, therefore, not count it in connection with confirmation of the
Plan.

 

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ALL BALLOTS ARE ACCOMPANIED BY VOTING INSTRUCTIONS. IT IS IMPORTANT THAT THE
HOLDER OF A CLAIM IN THE CLASSES ENTITLED TO VOTE FOLLOW THE SPECIFIC
INSTRUCTIONS PROVIDED WITH EACH BALLOT.

If you have any questions about (a) the procedure for voting your Claim, (b) the
Solicitation Package that you have received, or (c) the amount of your Claim, or
if you wish to obtain, at your own expense (unless otherwise specifically
required by Bankruptcy Rule 3017(d)), an additional copy of the Plan, this
Disclosure Statement, or any appendices or Exhibits to such documents, please
contact the Voting Agent at the address specified above. Copies of the Plan,
Disclosure Statement, and other documents filed in this Chapter 11 Case may be
obtained free of charge on the Voting Agent’s website at
http://www.upshotservices.com/wavesystems. Documents filed in this case may also
be examined between the hours of 8:00 a.m. and 4:00 p.m., prevailing Eastern
Time, Monday through Friday, at the Office of the Clerk of the Bankruptcy Court,
824 North Market Street, 3rd Floor, Wilmington, Delaware 19801.

The Voting Agent will process and tabulate Ballots for the Classes entitled to
vote to accept or reject the Plan and will file a voting report (the “Voting
Report”) as soon as reasonably practicable following the Voting Deadline. The
Voting Report will, among other things, describe every Ballot that does not
conform to the Voting Instructions or that contains any form of irregularity,
including, but not limited to, those Ballots that are late, illegible (in whole
or in material part), unidentifiable, lacking signatures, lacking necessary
information, or damaged.

THE CHAPTER 11 TRUSTEE AND PLAN SPONSOR URGE HOLDERS OF CLAIMS WHO ARE ENTITLED
TO VOTE TO TIMELY RETURN THEIR BALLOTS AND TO VOTE TO ACCEPT THE PLAN BY THE
VOTING DEADLINE.

 

  4. Confirmation Hearing and Deadline for Objections to Confirmation

Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court, after
notice, to hold a hearing on Confirmation of the Plan. Section 1128(b) of the
Bankruptcy Code provides that any party in interest may object to Confirmation
of the Plan.

The Bankruptcy Court has scheduled the Confirmation Hearing to commence on
[DATE], 2016 at [TIME] (Eastern Time), before the Honorable Kevin J. Carey,
United States Bankruptcy Judge, in the United States Bankruptcy Court for the
District of Delaware, 824 North Market Street, 5th Floor, Wilmington, Delaware
19801. The Confirmation Hearing Notice, which sets forth the time and date of
the Confirmation Hearing, has been included along with this Disclosure
Statement. The Confirmation Hearing may be adjourned from time to time by the
Bankruptcy Court without further notice, except for an announcement of the
adjourned date made at the Confirmation Hearing or any adjournment thereof.

Objections to Confirmation of the Plan must be filed and served on the Chapter
11 Trustee, the Plan Sponsor, and certain other entities, all in accordance with
the Confirmation Hearing Notice by no later than [DATE], 2016 at [TIME] (Eastern
Time). Unless objections to Confirmation of the Plan are timely served and filed
in compliance with the Disclosure Statement Order, which is attached to this
Disclosure Statement, they may not be considered by the Bankruptcy Court.

 

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II. GENERAL INFORMATION ABOUT THE DEBTOR

 

  A. Background

The Debtor was incorporated in Delaware under the name Indata Corp. on
August 12, 1988. It changed its name to Cryptologics International, Inc. on
December 4, 1989. The Debtor changed its name again to Wave Systems Corp. on
January 22, 1993. Prior to the Petition Date, the Debtor’s principal executive
offices were located at 480 Pleasant Street, Lee, Massachusetts 01238.

The Debtor provides data and information security to its customers by protecting
the customers’ computer hardware. Specifically, the Debtor engages in the
design, development, licensing and sale of certain software solutions for the
Trusted Platform Module (TPM) worldwide market.

The Debtor receives revenue from licensing its software to end users, OEM
partners. Typically, the Debtor enters into perpetual software license
agreements through direct sales to customers and indirect sales through its OEM
partners, distributors and resellers. These license agreements generally include
a maintenance component. The Debtor has defined two classes of end user
customers: large customers, whose orders are in excess of 5,000 licenses and
small customers, whose orders are less than 5,000 licenses.

The Debtor has also been instrumental in the development of purpose-built
hardware to enable secure cryptographic operations. This approach is commonly
referred to as “Trusted Computing.” The Debtor’s products can be combined to
form a hardened cybersecurity solution covering access management, encryption,
and data protection. The Debtor’s products provide a complementary set of
solutions that focus on authentication, encryption and data-loss protection. The
Debtor provides centralized remote management of its products in both on-premise
and cloud platforms.

The Debtor markets and sells its data security solutions worldwide primarily
through the Debtor’s direct sales force and through indirect distribution
channel partners and strategic partners. The direct sales force is responsible
for providing highly responsive, quality service and ensuring client
satisfaction. Strategic partnerships and alliances provide the Debtor with
additional access to potential clients. The Debtor also market solutions to
original equipment manufacturers in an effort to get the solutions in personal
computers that are ultimately purchased by enterprise customers.

 

  B. Prepetition Capital Structure

 

  1. Secured Debt

As of the Petition Date, the Debtor and Marble Bridge Funding Group, Inc.
(“Marble Bridge”) were parties to: (i) that certain Receivables Purchase
Agreement among the Debtor and the Marble Bridge dated as of December 7, 2015;
(ii) that certain Addendum thereto of even date

 

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therewith; (iii) that certain Assignment of Accounts Receivable of even date
therewith; (iv) that certain Intellectual Property Security Agreement of even
date therewith; and (v) certain other documents related thereto (collectively,
the “Marble Bridge Loan Documents”). Marble Bridge alleged that, as of the
Petition Date, the Debtor owed liabilities of at least $100,000.00 (the “Marble
Bridge Obligations”). Marble Bridge further alleged that, pursuant to the Marble
Bridge Loan Documents, the Marble Bridge Obligations were secured by a first
priority continuing security interest (the “Pre-Petition Liens”) granted by the
Debtor in and to all of its right, title and interest in and substantially all
of its property and interests in property, all whether then owned or existing or
thereafter owned, arising or acquired, and wherever located. Since the Petition
Date, the Marble Bridge Obligations have been satisfied in full.

 

  2. Unsecured Debt

As of the Petition Date, in addition to the foregoing secured indebtedness, the
Debtor owed material amounts with respect to various unsecured obligations. In
the Debtor’s filed Schedules of Liabilities (Schedule E/F), the Debtor scheduled
$3,019,895.15 in priority and non-priority unsecured claims. As set forth more
fully below, the Chapter 11 Trustee has filed a motion to establish a claims bar
date, which will assist the Chapter 11 Trustee in determining the final
unsecured claims pool.

 

  3. Equity Interests

The Debtor is publicly-owned and has two classes of common stock (collectively,
the “Common Stock”) with equal liquidation preference. The number of shares
issued and outstanding of Common Stock, par value $0.01 per share, as of
December 31, 2015, was 6,082,114. The Debtor’s common stock is currently traded
on the “pink sheets.” [NTD: Stuttgart?]

 

  C. SEC Filings

As a public company, the Debtor was required to file appropriate reports with
the SEC, including quarterly statements of its operational and financial status
and reports of significant events. All of the Debtor’s public securities filings
prior to the Petition Date are available at www.sec.gov/edgar.shtml. The Chapter
11 Trustee directs parties to the Debtor’s public securities filings for
additional historical information regarding the Debtor.

 

III. THE DEBTOR’S BANKRUPTCY CASE

 

  A. Commencement of a Chapter 7 Case

On February 1, 2016 (the “Petition Date”), the Debtor commenced a voluntary case
under chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for
the District of Delaware. David W. Carickhoff was appointed as chapter 7 trustee
(in such capacity, the “Chapter 7 Trustee”). The section 341(a) meeting of
creditors in the Chapter 7 Case was held and concluded on February 26, 2016.

During the Chapter 7 Case, pursuant to Court order, the Chapter 7 Trustee
retained certain independent contractors to assist in the maintenance of the
Debtor’s assets. In addition, the Chapter 7 Trustee and Marble Bridge entered
into a consensual cash collateral order which allowed the Chapter 7 Trustee to
use cash collateral while the Marble Bridge Obligations were being satisfied.

 

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An immediate effect of commencement of the Chapter 7 Case was the imposition of
the automatic stay under the Bankruptcy Code which, with limited exceptions,
enjoins the commencement or continuation of all collection efforts by Creditors,
the enforcement of liens against property of the Debtor, and the continuation of
litigation against the Debtor during the pendency of the Debtor’s bankruptcy
case. The automatic stay will remain in effect, unless modified by the
Bankruptcy Court, until the Effective Date.

The Court additionally has entered an Order establishing notification and
hearing procedures for trading in the Debtor’s equity securities in order to
protect certain of the Debtor’s tax attributes [Dkt. No. 127] (the “Equity
Trading Order”). Pursuant to the Equity Trading Order, Substantial Shareholders
of the Debtor’s stock (i.e. a holder of at least 4.5% of the Debtor’s stock), or
any person who wishes to become a Substantial Shareholder, must follow certain
procedures prior to buying or selling the Debtor’s stock. Any sale by a
Substantial Shareholder in violation of the Equity Trading Order is void ab
initio and considered a violation of the automatic stay.

 

  B. Bid Procedures and Auction Process

On February 26, 2016, the Chapter 7 Trustee filed the Motion for Orders
(I) (A) Establishing Bid Procedures Relating to the Sale of the Debtors Assets;
(B) Scheduling a Hearing to Consider the Proposed Sale and Approving the Form
and Manner of Notice Thereof; (C) Establishing Procedures Relating to the
Assumption and Assignment of Certain Executory Contracts and Unexpired Leases;
(D) Extending the Time to Assume or Reject Executory Contracts and (E) Granting
Related Relief And (II) (A) Approving the Proposed Sale; (B) Approving the
Assumption and Assignment of Executory Contracts and/or Unexpired Leases; and
(C) Granting Related Relief [Dkt. No. 29] (the “Sale Motion”).

On April 7, 2016, the Court held a preliminary hearing on the Sale Motion.
Thereafter, on April 11, 2016, the Chapter 7 Trustee conducted a live auction
(the “Auction”) for the sale of the Debtor’s assets.

Chime Inc. was the successful bidder for the Debtor’s wave.com domain name. On
April 14, 2016, the Court entered an Order approving the sale of the Debtor’s
domain name to Chime Inc. free and clear of all liens, claims and encumbrances
for a purchase price of $420,000. The sale to Chime closed on April 29, 2016.

At the conclusion of the Auction, the Chapter 7 Trustee determined that the
offer ESW submitted for 100% of the equity of the Reorganized Debtor, including
substantially all assets of the Debtor except for certain excluded assets, as
further described in the ESW bid (as amended, supplemented or otherwise
modified, the “ESW Bid”) was the highest and best offer. Through the ESW Bid,
ESW has agreed to provide capital for the restructuring of the Debtor (the
“Restructuring”). The Restructuring will be effectuated in the form of the Plan
with ESW acting as Plan Sponsor and a co-proponent of the Plan. The Plan
provides, consistent with the ESW

 

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Bid, that ESW will make available for distribution: (i) $3,800,000 (which amount
the Chapter 11 Trustee currently has on deposit); and (ii) an additional
$3,075,000 payable on the Effective Date. Alternatively, as further described in
the ESW Bid, upon the occurrence of certain Termination Events (i.e., if the
Plan process fails), ESW will purchase the assets of the Debtor in an asset sale
for the sum of $3,800,000, which amount has been fully funded and is currently
on deposit in a Chapter 11 Trustee bank account (the “ESW Asset Sale”).

The ESW Bid also contemplated funding up to $3,000,000 of postpetition financing
by ESW, as a postpetition lender to cover the operating and administrative
expenses associated with preserving the Debtor’s operations and running a
chapter 11 process through a plan effective date.

The highest offer that contemplated a purchase of the Debtor’s assets in chapter
7 was for $3,500,000, with no opportunity for additional upside.

On April 29, 2016, the Court entered an Order approving the ESW Bid as the
highest and best offer for the Debtor [Dkt. No. 110] (the “Bid Approval Order”).
The final terms of the ESW Bid are attached to the Bid Approval Order.

 

  C. Conversion to Chapter 11 and Appointment of Chapter 11 Trustee

Consistent with the terms of the ESW Bid, on April 25, 2016, the Chapter 7
Trustee and ESW filed the Joint Motion of David W. Carickhoff, Chapter 7 Trustee
and ESW Capital, LLC, for Entry of Order (I) Converting Chapter 7 Case to
Chapter 11 and (II) Appointing a Chapter 11 Trustee [Dkt. No. 103] (the
“Conversion Motion”). On May 16, 2016 (the “Conversion Date”), the Court entered
an Order granting the Conversion Motion, thereby converting this Case from
Chapter 7 to Chapter 11. Shortly thereafter, on May 20, 2016, the Office of the
United States Trustee appointed David W. Carickhoff as the Chapter 11 Trustee.
On March 23, 2016, Mr. Carickhoff filed a notice accepting his appointment as
Chapter 11 Trustee.

The section 341(a) meeting of creditors in the Chapter 11 Case was held and
concluded on June 16, 2016.

 

  D. The ESW Post-Petition Financing

Pursuant to the ESW Bid, the Chapter 11 Trustee and ESW negotiated a
postpetition financing facility, providing up to $3.0 million (principal amount)
in financing (the “ESW Post-Petition Facility”). The ESW Post-Petition Facility
provides sufficient financing to fund ordinary course working capital needs and
chapter 11 administrative expenses, and effectuate the Restructuring of the
Debtor via the Plan.

On May 20, 2016, the Chapter 11 Trustee filed the Motion of Chapter 11 Trustee
for Entry of Interim and Final Orders Pursuant to Sections 105, 361, 362,
363(c), 364(c)(1), 364(c)(2), 364(d)(1), 364(e) and 507 of the Bankruptcy Code
(I) Authorizing Chapter 11 Trustee to (A) Obtain Post-Petition Secured Financing
from ESW Capital, LLC; (B) Utilize Cash Collateral; and (C) Pay Certain Related
Fees and Charges; and (II) Scheduling a Final Hearing [Dkt. No. 130] (the
“Financing Motion”).

 

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On May 25, 2016, the Court entered the Interim Order Pursuant to Sections 105,
361, 362, 363(c), 364(c)(1), 364(c)(2), 364(d)(1), 364(e) and 507 of the
Bankruptcy Code (I) Authorizing Chapter 11 Trustee to (A) Obtain Post-Petition
Secured Financing from ESW Capital, LLC; (B) Utilize Cash Collateral; and
(C) Pay Certain Related Fees and Charges; and (II) Scheduling a Final Hearing
[Dkt No. 150] (the “Interim Financing Order”). Pursuant to the Interim Financing
Order, among other provisions, the Chapter 11 Trustee was authorized to borrow,
on an interim basis, up to $1 million.

On June 13, 2016, the Court approved the ESW Post-Petition Facility on a final
basis pursuant to a final order [Dkt. No. 173] (the “Final Financing Order”).
Pursuant to the Final Financing Order, the Chapter 11 Trustee was authorized to
enter into and draw upon the ESW Post-Petition Facility on a final basis.

Pursuant to the terms of the ESW Bid and the Final Financing Order, the Debtor’s
Estate has no obligation to satisfy or repay the ESW Post-Petition Facility
unless one of three specific events of default occur: (1) the Chapter 11 Trustee
files a plan of reorganization which is inconsistent with the ESW Bid, (2) the
Chapter 11 Trustee files a motion to obtain financing from someone other than
ESW, or (3) The Court confirms a competing plan to that of ESW’s or approves a
transaction for the sale or disposition of the Debtor’s assets other than to
ESW. If the Plan is confirmed by the Court, the Debtor’s Estate will have no
obligation to satisfy or repay the ESW Post-Petition Facility.

 

  E. Schedules, Statements of Financial Affairs and Claims Bar Dates

The Debtor filed its Schedules of Assets and Liabilities and Statement of
Financial Affairs on February 16, 2016 [Dkt. Nos. 17 and 18]. A Creditor whose
Claim is set forth in the Schedules of Assets and Liabilities and not identified
as contingent, unliquidated, or disputed may, but need not, file a proof of
claim against that Debtor to be entitled to participate in the Chapter 11 Case
or to receive a distribution under the Plan.

Pursuant to an order entered on July [6], 2016 [Dkt. No.                     ]
(the “Bar Date Order”), the deadline established by the Bankruptcy Court for
Creditors to file proofs of claim against the Debtor and/or its Estate is August
[1], 2016. Further, the Bar Date Order established certain additional procedures
for filing motions for payment of administrative expenses: (i) for the Chapter 7
period (i.e. February 1, 2016 through May 16, 2016) and (ii) under section
503(b)(9) of the Bankruptcy Code.

Parties are urged to review the terms of the Bar Date Order in order to obtain
specifics and further information regarding the requirements for filing proofs
of claims and the consequences of failing to do so.

 

  F. Additional Orders

After the Conversion Date, the Chapter 11 Trustee filed a number of motions and
applications to retain professionals, to streamline the administration of the
Chapter 11 Case, and to obtain other relief in the best interest of the Debtor
and the Estate. The Bankruptcy Court entered the following orders granting the
foregoing motions and applications:

 

  •   [fill in orders]

 

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  G. United States Trustee

The U.S. Trustee has appointed Juliet Sarkessian as the attorney for the U.S.
Trustee in connection with this Chapter 11 Case. The Chapter 11 Trustee has
worked cooperatively to address the concerns and comments from the U.S.
Trustee’s office during this Chapter 11 Case.

 

IV. SUMMARY OF THE CHAPTER 11 PLAN

This section provides a summary of the structure and means for implementation of
the Plan and the classification and treatment of Claims and Equity Interests
under the Plan and is qualified in its entirety by reference to the Plan (as
well as the Exhibits thereto and definitions therein).

The statements contained in this Disclosure Statement do not purport to be
precise or complete statements of all the terms and provisions of the Plan or
documents referred to therein, and reference is made to the Plan and to such
documents for the full and complete statement of such terms and provisions.

The Plan itself and the documents referred to therein control the actual
treatment of Claims against and Equity Interests in the Debtor under the Plan
and will, upon the occurrence of the Effective Date, be binding upon all holders
of Claims against and Equity Interests in the Debtor, the Debtor’s Estate, the
Reorganized Debtor, all parties receiving property under the Plan, and other
parties in interest. In the event of any conflict, inconsistency, or discrepancy
between this Disclosure Statement and the Plan, the Plan Supplement, and/or any
other operative document, the terms of the Plan, Plan Supplement, and/or such
other operative document, as applicable, shall govern and control; provided
that, in any event, the terms of the Plan shall govern and control over all
other related documents.

 

  A. Treatment of Unclassified Claims

In accordance with section 1123(a)(1) of the Bankruptcy Code, Administrative
Claims (including Professional Compensation Claims and Ordinary Course
Liabilities) and Priority Tax Claims have not been classified and the respective
treatment of such unclassified Claims is set forth in Article IV of the Plan.

 

  1. Administrative Claims

 

  a. General. Except with regards to the Ordinary Course Liabilities, including
Allowed Post-Petition Lender Financing Claims (the treatment of which is
described in Section 4.3 (below)), subject to the bar date provisions herein,
unless otherwise agreed to by the parties, each holder of an Allowed
Administrative Claim shall receive, from the Cash Consideration, Cash equal to
the unpaid portion of such Allowed Administrative Claim within ten (10) days
after the later of (a) the Effective Date, (b) the Allowance Date, or (c) such
date as is mutually agreed upon by the Proponents and the holder of such Claim.

 

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  For the avoidance of doubt, it is contemplated that Professional Fee Claims
which are provided for under the Budget shall be paid from Post-Petition
Financing, not from the Cash Consideration. Non-Budgeted Professional Fee Claims
include any Chapter 7 or 11 Trustee Fee requests for compensation and any
request for compensation filed by GrowthPoint Technology Partners, LLC in
connection with the transactions contemplated hereunder, which claims, if and
when Allowed, shall be paid in full from the Cash Consideration.

 

  b. Ordinary Course Liabilities All Ordinary Course Liabilities are deemed to
be Allowed Claims to the extent set forth in the Approved Budget. Except as set
forth in Section 4.3(b) of the Plan, holders of Administrative Claims on account
of Ordinary Course Liabilities are not required to file or serve any request for
payment of the Ordinary Course Liability. As provided in the Post-Petition
Financing Order, under the Post-Petition Facility, the Final Borrowing Notice
shall identify the Estimated Liabilities Amount under the Approved Budget to be
held in the Segregated Account pending payment. The Segregated Account shall be
held by Chapter 11 Trustee prior to the Effective Date, and the Distribution
Trustee, after the Effective Date. Any amounts remaining in the Segregated
Account one-hundred twenty (120) days after the Effective Date shall be returned
to the Post-Petition Lender. To the extent any Ordinary Course Liability is in
excess of the Estimated Liabilities Amount provided for in the Final Borrowing
Notice, such amounts will be paid from the Cash Consideration. The Chapter 11
Trustee shall continue to pay each Ordinary Course Liability accrued prior to
the Effective Date, pursuant to the payment terms and conditions of the
particular transaction giving rise to the Ordinary Course Liability, and the
Approved Budget. The Reorganized Debtor shall continue to pay each Ordinary
Course Liability accrued after the Effective Date, pursuant to the payment terms
and conditions of the particular transaction giving rise to the Ordinary Course
Liability.

 

  c. Allowed Post-Petition Lender Financing Claim. The Post-Petition Lender
Financing Claim is Allowed in full. Pursuant to the Subscription Option, the
Post-Petition Lender, as a Qualified Ordinary Course Creditor, shall have the
option, on account of being the holder of the Allowed Post-Petition Lender
Financing Claim, to exchange a total of up to $1,800,000 in satisfaction of such
amount of its Allowed Claim for up to a total of 600 shares, equal to 60
percent, of the issued New Equity, at a rate of $3,000 of its Allowed
Post-Petition Lender Financing Claim for one (1) share of New Equity. Further,
the Post-Petition Lender, on account of being the holder of the Allowed
Post-Petition Lender Financing Claim, shall receive, from the Financing
Consideration, payment in Cash of the remaining amount of the Allowed
Post-Petition Lender Financing Claim after the Post-Petition

 

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  Lender has exercised the Subscription Option to receive its share of the New
Equity.3 For the avoidance of doubt, no portion of the Allowed Post-Petition
Lender Financing Claim shall be paid from the Cash Consideration. On the
Effective Date, all liens and interests granted in exchange for or in connection
with the Post-Petition Note and/or under the Post-Petition Financing Order shall
be deemed discharged, cancelled, and released and shall be of no further force
and effect and neither the Estate nor the Distribution Trust (as applicable)
shall have any obligation to repay the Allowed Post-Petition Lender Financing
Claim from the Cash Consideration. The Financing Consideration payable by the
Plan Sponsor under the Plan shall be increased to account for any Cash payment
to the Post-Petition Lender on account of the Allowed Post-Petition Lender
Financing Claim, such that the Plan Consideration provided to the Estate net of
all Cash payments to the Post-Petition Lender on account of its Allowed
Post-Petition Lender Financing Claim shall be $6,875,000.

 

  d. Payment of Statutory Fees All fees payable pursuant to 28 U.S.C. § 1930
shall be paid in Cash (subject to the Approved Budget, or otherwise with the
Cash Consideration) equal to the amount of such Administrative Claim when due or
no later than the Effective Date. Postpetition U.S. Trustee fees and
post-confirmation reports shall be paid and filed as required by 28 U.S.C. §
1930 until the Bankruptcy Case is closed, converted or dismissed, and failure to
do either timely is a material default pursuant to section 1112 of the
Bankruptcy Code. After confirmation, the Distribution Trustee will file with the
court and serve on the U.S. Trustee quarterly financial reports in a format
prescribed by the U.S. Trustee, and the Distribution Trustee will pay
post-confirmation quarterly fees to the U.S. Trustee until a final decree is
entered or the case is converted or dismissed as provided in 28 U.S.C. §
1930(a)(6). In no event will the Reorganized Debtor be responsible for any U.S.
Trustee fees.

 

  2. Bar Date For Administrative Claims

 

  a. General Provisions. Except as otherwise provided in Article IV of the Plan,
requests for payment of Administrative Claims must be included within an
application (setting forth the amount of, and basis for, such Administrative
Claims, together with documentary evidence) and Filed and served on respective
counsel for the Chapter 11 Trustee and Plan Sponsor no later than ten (10) days
after the Confirmation Hearing or by such earlier deadline governing a
particular Administrative Claim

 

3  The Plan Sponsor reserves the right to modify the Subscription Option,
provided that (i) no such modification shall adversely the Plan treatment of
other creditors and (ii) such modification is approved by the Post-Petition
Lender.

 

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  contained in an order of the Bankruptcy Court entered before the Effective
Date. Holders of Administrative Claims (including, without limitation,
professionals requesting compensation or reimbursement of expenses and the
holders of any Claims for federal, state or local taxes) that are required to
File a request for payment of such Claims and that do not File such requests by
the applicable bar date specified in either section 4.1(d)(i),(ii) or
(iii) shall be forever barred from asserting such Claims against the Debtor or
any of its property. Requests for payments of Administrative Claims included
within a proof of claim are of no force and effect, and are disallowed in their
entirety as of the Confirmation Date unless such Administrative Claim is
subsequently Filed in a timely fashion as provided herein. .

 

  b. Professionals. All professionals or other entities requesting compensation
or reimbursement of expenses pursuant to sections 327, 328, 330, 331, 503(b) and
1103 of the Bankruptcy Code for services rendered before the Effective Date
(including, without limitation, any compensation or commission requested by any
professional or any other entity in connection with the Chapter 7 Case or for
making a substantial contribution in the Bankruptcy Case) shall File and serve
on the Reorganized Debtor, the Distribution Trust, the U.S. Trustee and the
Post-Confirmation Service List an application for final allowance of
compensation and reimbursement of expenses no later than forty-five (45) days
after the Effective Date. Objections to applications of professionals for
compensation or reimbursement of expenses must be filed and served on the
Reorganized Debtor, the Distribution Trust, the U.S. Trustee and the
Post-Confirmation Service List and the professionals to whose application the
objections are addressed no later than twenty-one (21) days after the date the
application is filed, or the Bankruptcy Court may enter an order authorizing the
fees without a hearing. For the avoidance of doubt, the Chapter 7 Trustee and
the Chapter 11 Trustee shall not be required to file a request for compensation
within 45 days of the Effective Date. The Chapter 7 Trustee and the Chapter 11
Trustee shall have 4 months after the Effective Date to file a request for
compensation. The Chapter 7 Trustee’s compensation and the Chapter 11 Trustee’s
compensation shall be paid from the Cash Consideration, and the Distribution
Trustee shall make appropriate reserves for such compensation.

 

  c. Tax Claims. All requests for payment of Administrative Claims and other
Claims by a Governmental Unit for taxes (and for interest and/or penalties
related to such taxes) for any tax year or period, which accrued or was assessed
within the period from and including the Petition Date through and including the
Effective Date (“Post-Petition Tax Claims”) and for which no bar date has
otherwise been previously established, must be Filed on or before the later of
(i) forty-five (45) days following the Effective Date; and (ii) ninety (90) days
following

 

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  the filing with the applicable Governmental Unit of the tax return for such
taxes for such tax year or period. Any holder of any Post-Petition Tax Claim
that is required to File a request for payment of such taxes and does not File
such a Claim by the applicable bar date shall be forever barred from asserting
any such Post-Petition Tax Claim against the Debtor or its property, whether any
such Post-Petition Tax Claim is deemed to arise prior to, on, or subsequent to
the Effective Date. To the extent that the holder of a Post-Petition Tax Claim
holds a lien to secure its Claim under applicable state law, the holder of such
Claim shall retain its lien until its Allowed Post-Petition Tax Claim has been
paid in full.

 

  3. Allowed Priority Tax Claims

Each Holder of an Allowed Priority Tax Claim against Debtor shall receive, from
the Cash Consideration, in full satisfaction, settlement, release and discharge
of, and in exchange for, such Allowed Priority Tax Claim (i) Cash equal to the
amount of such Allowed Priority Tax Claim, (ii) payment in full through the
fifth anniversary of the Petition Date, plus interest, or (iii) such other less
favorable treatment to the Holders of an Allowed Priority Tax Claim as to which
the Debtor, or the Proponents and the Holder of such Allowed Priority Tax Claims
shall have agreed upon in writing.

 

  B. Classification and Treatment of Claims and Equity Interests

Pursuant to section 1122 of the Bankruptcy Code, set forth below is a
designation of Classes or Claims and Equity Interests. A Claim or Equity
Interest is placed in a particular Class only to the extent that the Claim or
Equity Interest falls within the description of that Class, and is classified in
other Classes to the extent that any portion of the Claim or Equity Interest
falls within the description of such other Classes. A Claim is also placed in a
particular Class for the purpose of receiving Distributions pursuant to the Plan
only to the extent that such Claim is an Allowed Claim in that Class and such
Claim has not been paid, released, or otherwise settled prior to the Effective
Date.

 

  1. Class 1: Secured Claims

Each holder of an Allowed Secured Claim shall receive, at the election of the
Plan Sponsor, on account of and in full and complete settlement, release and
discharge of, and in exchange for, its Allowed Secured Claims, (i) its Pro Rata
Share of the Cash Consideration (ii) reinstatement pursuant to section 1124 of
the Bankruptcy Code, (iii) receipt of the collateral securing such claim and any
interest required to be paid pursuant to section 506(b) of the Bankruptcy Code,
(iv) such other treatment as the Plan Sponsor and the applicable holder of the
Allowed Secured Claim may agree, and/or (v) such other recovery necessary to
satisfy section 1129 of the Bankruptcy Code.

Class 1 is Unimpaired and therefore holders of Secured Claims are conclusively
presumed to have accepted the Plan.

 

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  2. Class 2: Priority Unsecured Non-Tax Claims

Each holder of an Allowed Priority Unsecured Non-Tax Claim against the Debtor
shall receive, from the Cash Consideration, on the Effective Date, on account of
and in full and complete settlement, release and discharge of, and in exchange
for, such Allowed Priority Unsecured Non-Tax Claim, either cash equal to the
full unpaid amount of such Allowed Priority Unsecured Non-Tax Claim, or such
other treatment as the Proponent and the holder of such Allowed Priority
Unsecured Non-Tax Claim shall have agreed.

Class 2 is Unimpaired and therefore holders of Priority Unsecured Non-Tax Claims
are conclusively presumed to have accepted the Plan.

 

  3. Class 3: General Unsecured Claims

As soon as practicable after the Effective Date, each holder of an Allowed
General Unsecured Claim shall receive, on account of and in full and complete
settlement, release and discharge of, and in exchange for its Allowed General
Unsecured Claim, its Pro Rata Share of (i) remaining Cash Consideration after
payment of Allowed Administrative Claims, Allowed Priority Tax Claims, Allowed
Secured Claims, and Allowed Priority Unsecured Non-Tax Claims, and (ii) the
Beneficial Interest in the Distribution Trust in accordance with the
Distribution Trust Agreement. In no event shall any holder of an Allowed General
Unsecured Claim receive a distribution in an amount in excess of the principal
amount of the respective holder’s Allowed General Unsecured Claim. Holders of
Allowed General Unsecured Claims shall not receive any Distribution on account
of any postpetition interest.

Allowed General Unsecured Claims shall share pro rata with Allowed Intercompany
Claims in the remaining Cash Consideration and the Beneficial Interest in the
Distribution Trust.

Class 3 is Impaired and therefore Holders of General Unsecured Claims are
entitled to vote on the Plan.

 

  4. Class 4: Intercompany Claims

As soon as practicable after the Effective Date, each holder of an Allowed
Intercompany Claim shall receive, on account of and in full and complete
settlement, release and discharge of, and in exchange for its Allowed
Intercompany, its Pro Rata Share of (i) remaining Cash Consideration after
payment of Allowed Administrative Claims, Allowed Priority Tax Claims, Allowed
Secured Claims, and Allowed Priority Unsecured Non-Tax Claims, and (ii) the
Beneficial Interest in the Distribution Trust in accordance with the
Distribution Trust Agreement. In no event shall any holder of an Allowed
Intercompany Claim receive a distribution in an amount in excess of the
principal amount of the respective holder’s Allowed Intercompany Claim. Holders
of Allowed Intercompany Claims shall not receive any Distribution on account of
any postpetition interest.

 

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Allowed Intercompany Claims shall share pro rata with Allowed General Unsecured
Claims in the remaining Cash Consideration and the Beneficial Interest in the
Distribution Trust.

Class 4 is Impaired and therefore Holders of Intercompany Claims are entitled to
vote on the Plan.

 

  5. Class 5: Equity Interests

As soon as practicable after the Effective Date, each holder of an Allowed
Equity Interest shall receive, on account of and in full and complete release
and discharge of, and in exchange for its Allowed Equity Interests, its Pro Rata
Share of (i) remaining Cash Consideration after payment of Allowed
Administrative Claims, Allowed Priority Tax Claims, Allowed Secured Claims,
Allowed Priority Unsecured Non-Tax Claims, Allowed General Unsecured Claims and
Allowed Intercompany Claims, and (ii) the Beneficial Interest in the
Distribution Trust in accordance with the Distribution Trust Agreement,
following payment in full of all Allowed General Unsecured Claims and Allowed
Intercompany Claims. Holders of Equity Interests as of the Voting Record Date
shall be entitled to a distribution as a member of Class 5.

No Distributions shall be made to holders of Allowed Equity Interests unless and
until holders of Allowed Claims have been paid in full and any Disputed Claims
have been disallowed pursuant to an Order of the Bankruptcy Court

On the Effective Date, all existing Equity Interests of Debtor shall be retired,
cancelled, extinguished and/or discharged in accordance with the terms of the
Plan.

Class 5 is Impaired and is deemed to reject the Plan.

 

  C. Acceptance or Rejection of the Plan

 

  1. Impaired Classes Entitled to Vote

Holders of Claims in Class 3 and Class 4 are Impaired and each Class are
entitled to vote as a Class to accept or reject the Plan. Accordingly, only the
Holders of Claims in Class 3 and Class 4 shall be solicited with respect to the
Plan.

 

  2. Acceptance by Class 3 and Class 4

In accordance with section 1126(c) of the Bankruptcy Code, and except as
provided in section 1126(e) of the Bankruptcy Code, an Impaired Class of Claims
shall have accepted the Plan if the Plan is accepted by the holders of at least
two-thirds ( 2⁄3) in dollar amount and more than one-half ( 1⁄2) in number of
the Allowed Claims in such Class that have timely and properly voted to accept
or reject the Plan.

 

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  3. Presumed Acceptances by Unimpaired Classes

Class 1 and Class 2 are Unimpaired under the Plan. Under section 1126(f) of the
Bankruptcy Code, holders of such Unimpaired Claims are conclusively presumed to
have accepted the Plan, and the votes of such Unimpaired Claim Holders shall not
be solicited.

 

  4. Impaired Class deemed to Reject

Class 5 is impaired under the Plan but is deemed to reject the Plan. Therefore,
Interest Holders in Class 5 are not entitled to vote to accept or reject the
Plan.

 

  D. Means for Implementation of the Plan

 

  1. Continued Corporate Existence

Except as otherwise provided in the Plan, the Reorganized Debtor will continue
to exist after the Effective Date as a corporate entity, with all of the powers
of a corporation under applicable law in the jurisdiction in which the Debtor is
incorporated and pursuant to its Charter Documents in effect before the
Effective Date, as such documents are amended by or pursuant to the Plan.

Upon the Effective Date, and without any further action by the shareholders,
directors, or officers of the Reorganized Debtor, the Reorganized Debtor’s
Charter Documents shall be deemed amended (a) to the extent necessary, to
incorporate the provisions of the Plan, and (b) to prohibit the issuance by the
Reorganized Debtor of nonvoting securities to the extent required under section
1123(a)(6) of the Bankruptcy Code, subject to further amendment of such Charter
Documents as permitted by applicable law, and to the extent such documents are
amended, such documents are deemed to be amended pursuant to the Plan and
require no further action or approval other than any requisite filings required
under applicable state, provincial or federal law. The Charter Documents shall
be filed with the Plan Supplement.

 

  2. Management and Board of Directors

The Plan Sponsor may nominate and elect new members for the board of directors
of the Reorganized Debtor in accordance with the Reorganized Debtor’s Charter
Documents. Upon the Effective Date, the Chapter 11 Trustee shall no longer serve
in such capacity and shall be discharged of all duties in connection therewith.

 

  3. Arrangements with the Distribution Trustee

By the Plan Supplement Deadline, the Chapter 11 Trustee, shall file with the
Bankruptcy Court a disclosure identifying the Distribution Trustee under the
Distribution Trust. At the Confirmation Hearing, the Bankruptcy Court shall
ratify such Distribution Trustee. All compensation for the Distribution Trustee
shall be paid from the Distribution Trust Assets in accordance with the
Distribution Trust Agreement. The approved person shall serve as the
Distribution Trustee on execution of the Distribution Trust Agreement at the
Closing.

 

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  4. The Closing

The Closing of the transactions required and contemplated under the Plan shall
take place on the Effective Date at the offices of Haynes and Boone, LLP, 30
Rockefeller Plaza, 26th Floor, New York, New York 10112, or at such other place
identified in a notice provided to those parties listed in Section 13.12 of the
Plan. The Proponents may reschedule the Closing by making an announcement at the
originally scheduled Closing of the new date for the Closing. A notice of the
rescheduled Closing shall be filed with the Bankruptcy Court and served on the
parties identified in Section 13.12 of the Plan within two (2) days after the
originally scheduled Closing. All documents to be executed and delivered by any
party as provided in this Article VI and all actions to be taken by any party to
implement the Plan as provided herein shall be in form and substance
satisfactory to the Proponents. The following actions shall occur at or before
the Closing (unless otherwise specified), and shall be effective on the
Effective Date:

 

  a. Execution of Documents and Corporate Action. The Chapter 11 Trustee shall
deliver all documents and perform all actions reasonably contemplated with
respect to implementation of the Plan. The Chapter 11 Trustee, or his designee,
is authorized (i) to execute on behalf of the Debtor, in a representative
capacity and not individually, any documents or instruments after the
Confirmation Date or at the Closing that may be necessary to consummate the Plan
and (ii) to undertake any other action on behalf of the Debtor to consummate the
Plan. Each of the matters provided for under the Plan involving the corporate
structure of the Debtor or corporate action to be taken by or required of the
Debtor will, as of the Effective Date, be deemed to have occurred and be
effective as provided herein, and shall be authorized, approved, and (to the
extent taken before the Effective Date) ratified in all respects without any
requirement of further action by stockholders, creditors, or directors of the
Debtor. On the Effective Date, all matters provided for in the Plan involving
the corporate structure of the Reorganized Debtor, and all corporate actions
required by the Debtor, the Chapter 11 Trustee, and the Reorganized Debtor in
connection with the Plan, shall be deemed to have occurred and shall be in
effect, without any requirement of further action by the Chapter 11 Trustee or
the Reorganized Debtor. For purposes of effectuating the Plan, none of the
transactions contemplated in the Plan shall constitute a change of control under
any agreement, contract, or document of the Debtor.

 

  b.

Cancellation of Equity Interests. On the Effective Date, all existing Equity
Interests of Debtor shall be retired, cancelled, extinguished and/or discharged
in accordance with the terms of the Plan. Except as otherwise provided in the
Plan or the Plan Supplement, on the Effective Date: (1) the obligations of the
Debtor under any certificate, share, note, bond, indenture, purchase right,
option, warrant, or other instrument or document, directly or indirectly,
evidencing or creating any indebtedness or obligation of or ownership interest
in the Debtor giving rise to any Claim or Equity Interest shall be cancelled as
to the Debtor and the Reorganized Debtor shall not have any continuing

 

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  obligations thereunder and (2) the obligations of the Debtor pursuant,
relating, or pertaining to any agreements, indentures, certificates of
designation, bylaws, or certificate or articles of incorporation or similar
documents governing the shares, certificates, notes, bonds, purchase rights,
options, warrants or other instruments or documents evidencing or creating any
indebtedness or obligation of the Debtor shall be released and discharged. On
the Effective Date, 1,000 shares of New Equity of the Reorganized Debtor shall
be issued.

 

  c. Issuance of New Equity. The New Equity shall be free and clear of all
Liens, Claims, Interests, and encumbrances of any kind, except as otherwise
provided in the Plan. All the shares of the New Equity issued pursuant to the
Plan shall be duly authorized, validly issued, fully paid, and non-assignable.
All of the New Equity issued pursuant to the Plan shall be duly authorized,
validly issued, fully paid and non-assessable. On the Effective Date, none of
the New Equity will be listed on a national securities exchange. Reorganized
Debtor may take all necessary actions after the Effective Date to suspend any
requirement to (i) be a reporting company under the Securities Exchange Act, and
(ii) file reports with the Securities and Exchange Commission or any other
entity or party. Furthermore, the Reorganized Debtor shall not be required to
file monthly operating reports, or any other type of report, with the Court
after the Effective Date

 

  d. Funding of the Plan Consideration. On the Effective Date, the Plan Sponsor
shall contribute to the Estate an amount of Cash equal to the Plan Consideration
in consideration of the Plan Sponsor’s purchase of the New Equity, inclusive of
the Enhanced Deposit. The Plan Consideration is not subject to any financing
contingency. The Plan Consideration shall be used to fund Distributions under
the Plan. To the extent Post-Petition Lender does not fully exercise the
Subscription Option, the Financing Consideration payable by the Plan Sponsor
under the Plan shall be in the amount sufficient to account for any Cash payment
to the Post-Petition Lender on account of the Allowed Post-Petition Lender
Financing Claim, such that the Plan Consideration provided to the Estate net of
all Cash payments to the Post-Petition Lender on account of its Allowed
Post-Petition Lender Financing Claim shall be $6,875,000.

 

  e. Execution and Ratification of the Distribution Trust Agreement. On the
Effective Date, the Distribution Trust Agreement shall be executed by all
parties thereto. The Distribution Trust Agreement shall be provided in the Plan
Supplement. Each holder of a Claim or Equity Interest shall be deemed to have
ratified and become bound by the terms and conditions of the Distribution Trust
Agreement.

 

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  f. Transfer of Distribution Trust Assets. All property of the Debtor
constituting the Distribution Trust Assets shall be conveyed and transferred by
the Debtor to the Distribution Trust, free and clear of all Liens, Claims,
Equity Interests, and encumbrances.

 

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  5. Tax Treatment of the Distribution Trust

The Distribution Trust established under the Plan is established for the purpose
of distributions to Administrative Claims, Secured Claims, General Unsecured
Claims, Intercompany Claims and Equity Interests by liquidating the Distribution
Trust Assets transferred to the Distribution Trust and performing related and
incidental functions referenced in the Distribution Trust Agreement, and the
Distribution Trust shall have no objective of continuing or engaging in any
trade or business except to the extent reasonably necessary to, and consistent
with, the liquidating purpose of the trust. The purpose of the Distribution
Trust is to provide a mechanism for the liquidation of the Distribution Trust
Assets, and to distribute the proceeds of the liquidation, net of all claims,
expenses, charges, liabilities, and obligations of the Distribution Trust, to
the Beneficiaries in accordance with the terms of the Plan. No business
activities will be conducted by the Distribution Trust other than those
associated with or related to the liquidation of the Distribution Trust Assets.
It is intended that the Distribution Trust be classified for federal income tax
purposes as a “liquidating trust” within the meaning of the Treasury Regulations
Section 301.7701-4(d). All parties and Beneficiaries shall treat the transfers
in trust described herein as transfers to the Beneficiaries for all purposes of
the Internal Revenue Code of 1986, as amended (including Sections 61(a)(12),
483, 1001, 1012, and 1274 thereof). All the parties and Beneficiaries shall
treat the transfers in trust as if all the transferred assets, including all the
Distribution Trust Assets, had been first transferred to the Beneficiaries and
then transferred by the Beneficiaries to the Distribution Trust. The
Beneficiaries shall be treated for all purposes of the Internal Revenue Code of
1986, as amended, as the grantors of the Distribution Trust and the owners of
the Distribution Trust. The Distribution Trustee shall file returns for the
Distribution Trust as a grantor trust pursuant to Treasury Regulations Section
1.671-4(a) or (b). All parties, including the Beneficiaries and the Distribution
Trustee, shall value the Distribution Trust Assets consistently, and such
valuations shall be used for all federal income tax purposes. Beneficiaries may
wish to consult with a tax professional regarding the tax consequences of
holding a Beneficial Interest in or receiving a Distribution from the
Distribution Trust.

 

  6. Right to Enforce, Compromise, or Adjust Distribution Trust Assets

The Distribution Trustee shall have and retain the sole and full power,
authority, and standing to prosecute, compromise, or otherwise resolve the
Distribution Trust Actions assigned to the Distribution Trust, subject to the
terms and conditions set forth in the Distribution Trust Agreement. All proceeds
derived from such causes of action shall constitute Distribution Trust Assets.
Notwithstanding the foregoing or any other provision herein, the Distribution
Trustee shall not prosecute or pursue any Distribution Trust Actions against any
Person that is a Protected Action Party. Notwithstanding the foregoing, the
Distribution Trustee shall retain the right to assert any right of setoff or
recoupment or any other affirmative defense in connection with any Claim or
cause of action asserted by the Protected Action Parties.

 

  7. Preservation of Rights of Action

The Reorganized Debtor shall retain and shall have the exclusive right to
enforce any and all claims, rights and causes of action arising from its IP.
Unless any Claims against a Person are expressly waived, relinquished,
exculpated, released, compromised, transferred to the Distribution Trust or
settled in the Plan or by a Final Order, in accordance with section 1123(b) of
the Bankruptcy Code, the Reorganized Debtor shall retain and may enforce all
rights to

 

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commence and pursue any and all retained causes of action, whether arising
before or after the Petition Date, and the Reorganized Debtor’s rights to
commence, prosecute or settle such causes of action shall be preserved
notwithstanding the occurrence of the Effective Date.

 

  8. Vesting of Property in Reorganized Debtor

On the Effective Date, except as otherwise expressly provided in the Plan or
Confirmation Order, all Estate Property, other than the Distribution Trust
Assets, shall vest in the Reorganized Debtor free and clear of all Liens,
Claims, and encumbrances of any kind, except as otherwise provided in the Plan.
Notwithstanding the foregoing, any sensitive information of the federal
government, including Defense Advanced Research Projects Agency, the National
Security Agency, or the Department of Defense which resides on the Debtor’s
servers shall not be included in the Estate Property which vests in the
Reorganized Debtor.

 

  9. Tax Exemption

The Plan and the Confirmation Order provide for (a) the issuance, transfer or
exchange of notes, debt instruments and equity securities under or in connection
with the Plan; (b) the creation, assignment, recordation or perfection of any
lien, pledge, other security interest or other instruments of transfer; (c) the
making or assignment of any lease; (d) the creation, execution and delivery of
any agreements or other documents creating or evidencing the formation of the
Reorganized Debtor or the issuance or ownership of any interest in the
Reorganized Debtor; or (e) the making or delivery of any deed or other
instrument of transfer under the Plan in connection with the vesting of the
Estate’s assets in the Reorganized Debtor or the Distribution Trust pursuant to
or in connection with the Plan, including, without limitation, merger
agreements, stock purchase agreement, agreements of consolidation,
restructuring, disposition, liquidation or dissolution, and transfers of
tangible property. Pursuant to section 1146 of the Bankruptcy Code and the Plan,
any such act described or contemplated herein will not be subject to any stamp
tax, transfer tax, filing or recording tax, or other similar tax.

 

  E. Treatment of Executory Contracts and Unexpired Leases

 

  1. Assumption of Executory Contracts

On the Effective Date, and subject to section 8.6 of the Plan, all Executory
Contracts identified on the Schedule of Assumed Contracts and Unexpired Leases,
attached as Exhibit B to the Plan, shall be deemed assumed by the Reorganized
Debtor. The Plan Sponsor may amend the Schedule of Assumed Contracts and
Unexpired Leases through the deadline to file the Plan Supplement. Entry of the
Confirmation Order shall constitute approval of the assumption of such Executory
Contracts under sections 365 and 1123 of the Bankruptcy Code.

The Reorganized Debtor will not assume any employment, severance, bonus,
incentive, commission, compensation or similar agreement (or any agreement
outside the ordinary course of business) with any employees, officers or
directors. To the extent the Debtor’s 401(k) Plan has not yet been formally
rejected and/or terminated prior to the Effective Date, such 401(k) Plan is
being rejected by the Reorganized Debtor, and the Chapter 11 Trustee shall take
all steps necessary prior to the Effective Date to effectuate termination of the
401(k) Plan. The Reorganized Debtor will not assume the Debtor’s employee
handbook, if any.

 

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  2. Rejection of Executory Contracts

All Executory Contracts not identified on the Schedule of Assumed Contracts and
Unexpired Leases (or assumed by the Debtor previously) shall be deemed rejected
on the Effective Date. Entry of the Confirmation Order shall constitute approval
of such rejections under sections 365 and 1123 of the Bankruptcy Code.
Notwithstanding the rejection of an Executory Contract, the terms of any
confidentiality agreement or covenant not to compete contained therein shall
survive and remain in full force and effect.

On the Effective Date, any and all equity based incentive plans or stock
ownership plans of the Debtor entered into before the Effective Date, or other
agreements or documents giving rise to equity interests, including the
contingent cash components of any such plans, agreements, or documents, shall be
immediately terminated without any action of the Debtor, the Chapter 11 Trustee,
the Reorganized Debtor or the Plan Sponsor. To the extent such plans, agreements
or documents are considered to be executory contracts, such plans, agreements or
documents shall be deemed to be, and shall be treated as though they are,
executory contracts that are rejected pursuant to section 365 of the Bankruptcy
Code under the Plan. Any Claims resulting from such rejection shall constitute
subordinated claims pursuant to section 510(b) of the Bankruptcy Code, except
that Claims for contingent cash components of any such plans, agreements or
documents shall constitute General Unsecured Claims. From and after the
Effective Date, all stock options and other equity awards outstanding or issued
at such time, whether included in a contract, agreement or otherwise, will have
no value, shall be cancelled and expire and thus will not entitle any holder
thereof to purchase or otherwise acquire any equity interests in the Reorganized
Debtor.

 

  3. Procedures Related to Assumption of Executory Contracts

 

  a) Establishment of Cure Claim Amounts

The Cure Amounts associated with the assumption of the Executory Contracts
pursuant to Section 8.1 of the Plan are specified in the Schedule of Assumed
Contracts and Unexpired Leases. The Chapter 11 Trustee shall serve
counterparties to the Executory Contracts with a Notice of (I) Possible
Assumption of Contracts and Leases, (II) Fixing of Cure Amounts, and (III)
Deadline to Object Thereto.

Any Objection to Cure Amount including (i) an objection to the applicable Cure
Amount (a “Cure Objection”) and (ii) an objection to the adequate assurance of
future performance (the “Adequate Assurance Objection”) to be provided by the
Plan Sponsor on behalf of the Reorganized Debtor must be in writing, filed with
the Court, and served upon (a) the Chapter 11 Trustee, (b) counsel to the
Chapter 11 Trustee, (c) counsel to the Plan Sponsor, (d) the U.S. Trustee and
(e) counsel to the Committee, if any, no later than fourteen (14) days after the
Notice of (I) Possible Assumption of Contracts and Leases, (II) Fixing of Cure
Amounts, and (III) Deadline to Object Thereto is mailed to the affected party,
as indicated by the date noted on such notice. The objection must set forth the
specific default alleged under the applicable Assumed Contract or Unexpired
Lease and claim a specific monetary amount that differs from the applicable Cure
Amount, if any, and/or further information required of the Reorganized Debtor
with respect to adequate assurance of future performance.

 

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If no Objection to the Cure Amount is received by the Objection Deadline to an
Assumed Contract or Lease, then the assumption of such Assumed Contract or
Unexpired Lease shall be authorized pursuant to section 365 of the Bankruptcy
Code and the applicable Cure Amount, if any, shall be binding upon the
non-Debtor counterparty to such Assumed Contract or Lease for all purposes and
shall constitute a final determination of the cure amount required to be paid to
such Assumed Contract or Unexpired Lease counterparty in connection with the
assumption of such Assumed Contract or Unexpired Lease, and the non-Debtor
counterparty to such Assumed Contract or Unexpired Lease shall be deemed to have
waived its right to object to, contest, condition, or otherwise restrict the
assumption of such Assumed Contract or Unexpired Lease (including, without
limitation, from asserting any additional cure or other amounts with respect to
the Assumed Contract or Unexpired Lease arising prior to such assumption).
Furthermore, upon the assumption of such Assumed Contract or Unexpired Lease,
the Reorganized Debtor shall enjoy all of the Debtor’s rights and benefits
thereunder without the necessity of obtaining any party’s written consent to the
Debtor’s assumption of such rights and benefits.

 

  b) Objection to Disputed Cure Amounts

The Plan Sponsor shall have the right to examine any Objection to Cure Amount
filed by any party, and shall have the right to object to and contest the
Disputed Cure Amount asserted therein.

If an objection to a Disputed Cure Amount has not been resolved by the
Bankruptcy Court or agreement of the parties by the Effective Date, the
Executory Contract related to such Disputed Cure Amount shall be deemed assumed
by the Reorganized Debtor effective on the Effective Date; provided, however,
the Reorganized Debtor may revoke an assumption of any such Executory Contract
within ten (10) days after entry of an order by the Bankruptcy Court
adjudicating the objection to the Disputed Cure Amount related to the Executory
Contract by filing a notice of such revocation with the Bankruptcy Court and
serving a copy on the party(ies) whose Executory Contract is rejected. Any
Executory Contract identified in a revocation notice shall be deemed rejected
retroactively to the Effective Date

 

  c) Payment of Cure Amounts

Within ten (10) Business Days after the Effective Date, the Reorganized Debtor
shall pay, in Cash, all Cure Amounts related to Executory Contracts listed on
the Schedule of Assumed Contracts and Unexpired Leases, other than Disputed Cure
Amounts. Subject to the revocation rights described in Section 8.3(b) above, the
Reorganized Debtor shall pay all Cure Amounts that are subject to an objection
on the Effective Date within ten (10) days after entry of an order by the
Bankruptcy Court resolving the objection or approving an agreement between the
parties concerning the Cure Amount.

 

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  d) No Admission of Liability.

Neither the inclusion nor exclusion of any Executory Contract by the Proponents
on the Schedule of Assumed Contracts and Unexpired Leases, nor anything
contained in the Plan, shall constitute an admission by the Proponents that any
such contract or unexpired lease is in fact an Executory Contract or that the
Debtor has any liability thereunder.

 

  e) Reservation of Rights.

Nothing in the Plan shall waive, excuse, limit, diminish, or otherwise alter any
of the defenses, claims, causes of action, or other rights of the Debtor under
any executory or non-executory contract or any unexpired or expired lease, nor
shall any provision of the Plan increase, augment, or add to any of the duties,
obligations, responsibilities, or liabilities of the Debtor under any such
contract or lease.

 

  4. Rejection Claim Bar Date

Each Claim resulting from the rejection of an Executory Contract pursuant to
Section 8.2 of the Plan shall be filed with the Bankruptcy Court no later than
the Rejection Claim Bar Date; provided, however, any party whose Executory
Contract is rejected pursuant to a revocation notice pursuant to Section 8.3(b)
of the Plan may file a rejection damage Claim arising out of such rejection
within 30 days after the filing of the revocation notice with the Bankruptcy
Court. Any Claim resulting from the rejection of an Executory Contract not filed
by the applicable deadline shall be discharged and forever barred, and shall not
be entitled to any Distributions under the Plan. The Distribution Trustee shall
have the right to object to any rejection damage Claim.

 

  5. Indemnification Obligations

Any obligation of the Debtor to indemnify, reimburse, or limit the liability of
any Person, including any officer or director of the Debtor, or any agent,
professional, financial advisor, or underwriter of any securities issued by the
Debtor, relating to any acts or omissions occurring before the Effective Date,
whether arising pursuant to charter, bylaws, contract or applicable state law,
shall be deemed to be, and shall be treated as, an Executory Contract and
(a) shall be deemed to be rejected, canceled, and discharged pursuant to the
Plan as of the Effective Date and (b) any and all Claims resulting from such
obligations are disallowed under section 502(e) of the Bankruptcy Code or other
applicable grounds, including section 502(d) or violations of sections 327, 362,
363 or other requirements of the Bankruptcy Code, or, if any court of applicable
jurisdiction rules to the contrary, such Claim shall be estimated pursuant to
section 502(c) of the Bankruptcy Code in the amount of $0 or such other amount
as the Bankruptcy Court shall determine. Notwithstanding any of the foregoing,
nothing contained in the Plan impacts, impairs, or prejudices the rights of the
Distribution Trustee to pursue the Distribution Trust Actions.

 

  6. Federal Government Rights

Notwithstanding any other provisions of the Plan, no Executory Contract with or
any sensitive information of the federal government, including Defense Advanced
Research Projects

 

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Agency, the National Security Agency, or the Department of Defense shall be
assumed by or transferred to the Reorganized Debtor absent the express written
consent of the federal government counterparty to such Executory Contract.

 

  F. Provisions Governing Distributions of Property

 

  1. Distributions Procedures Regarding Allowed Claims

 

  a) In General.

The Distribution Trustee shall make all Distributions required to be made under
the Plan, including Distributions from the Distribution Trust.

 

  b) Distributions on Allowed Claims Only.

Distributions from Available Cash shall be made only to the holders of Allowed
Claims and Equity Interests. Until a Disputed Claim becomes an Allowed Claim,
the holder of that Disputed Claim shall not receive a Distribution from
Available Cash. No Distributions shall be made to holders of Allowed Equity
Interests unless and until holders of Allowed Claims have been paid in full and
any Disputed Claims have been disallowed pursuant to an Order of the Bankruptcy
Court.

 

  c) Place and Manner of Payments of Distributions.

Except as otherwise specified in the Plan, Distributions from Available Cash
shall be made by mailing such Distribution to the Creditor or Interest Holder at
the address listed in any proof of claim or interest filed by the Creditor or
Interest Holder or at such other address as such Creditor or Interest Holder
shall have specified for payment purposes in a written notice received by the
Distribution Trustee at least twenty (20) days before a Distribution Date. If a
Creditor or Interest Holder has not filed a proof of claim or interest or sent
the Distribution Trustee a written notice of payment address, then the
Distribution(s) for such Creditor or Interest Holder will be mailed to the
address identified in the Schedules of Assets and Liabilities or as provided by
the Debtor’s stock transfer agent. The Distribution Trustee shall distribute any
Cash by wire, check, or such other method as it deems appropriate under the
circumstances. Before receiving any Distributions, all Creditors and Interest
Holders, at the request of the Distribution Trustee, must provide written
notification of their respective Federal Tax Identification Numbers or Social
Security Numbers to the Distribution Trustee; otherwise, the Distribution
Trustee may suspend Distributions to any Creditors or Interest Holders who have
not provided their Federal Tax Identification Numbers or Social Security
Numbers.

 

  d) Undeliverable Distributions.

If a Distribution made from Available Cash to any Creditor or Interest Holder is
returned as undeliverable, the Distribution Trustee shall use reasonable efforts
to determine the then current address for such Creditor or Interest Holder. If
the Distribution Trustee cannot determine, or is not notified of, a then current
address for such Creditor or Interest Holder within six months after the
Effective Date, the Distribution reserved for such Creditor or Interest Holder
shall be deemed an unclaimed Distribution, and Section 7.5(e) of the Plan shall
be applicable thereto.

 

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  e) Unclaimed Distributions.

If the current address for a Creditor or Interest Holder entitled to a
Distribution from Available Cash under the Plan has not been determined within
six months after the Effective Date or such Creditor or Interest Holder has
otherwise not been located or submitted a valid Federal Tax Identification
Number or Social Security Number to the Distribution Trustee, then such Creditor
or Interest Holder (i) shall no longer be a Creditor or Interest Holder (as
applicable) and (ii) shall be deemed to have released such Claim.

 

  f) Withholding.

The Distribution Trustee may, but shall not be required to, at any time withhold
from a Distribution from Available Cash to any Person (except the Internal
Revenue Service) amounts sufficient to pay any tax or other charge that has been
or may be imposed on such Person with respect to the amount distributable or to
be distributed under the income tax laws of the United States or of any state or
political subdivision or entity by reason of any Distribution provided for in
the Plan, whenever such withholding is determined by the Distribution Trustee
(in its sole discretion) to be required by any law, regulation, rule, ruling,
directive, or other governmental requirement. The Distribution Trustee, in the
exercise of its sole discretion and judgment, may enter into agreements with
taxing or other authorities for the payment of such amounts that may be withheld
in accordance with the provisions of this section.

 

  g) Dissolution.

i. The Distribution Trustee and Distribution Trust shall be discharged or
dissolved, as the case may be, at such time as all of the Distribution Trust
Assets have been distributed pursuant to the Plan and the Distribution Trust
Agreement; provided, however, that in no event shall the Distribution Trust be
dissolved later than three (3) years from the creation of the Distribution Trust
unless the Bankruptcy Court, upon motion within the six-month period prior to
the third (3rd) anniversary (or within the six-month period prior to the end of
an extension period), determines that a fixed period extension (not to exceed
three (3) years, together with any prior extensions, without a favorable private
letter ruling from the Internal Revenue Service or an opinion of counsel
satisfactory to the Distribution Trustee that any further extension would not
adversely affect the status of the trust as a liquidating trust for United
States federal income tax purposes) is necessary to facilitate or complete the
liquidation of the Distribution Trust Assets.

ii. If at any time the Distribution Trustee determines, in reliance upon such
professionals as a Distribution Trustee may retain, that the expense of
administering the Distribution Trust so as to make a final distribution to
Distribution Trust Beneficiaries is likely to exceed the value of the assets
remaining in the Distribution Trust, the Distribution Trustee may (i) reserve
any amount necessary to dissolve the Distribution Trust, (ii) donate any balance
to a charitable organization (A) described in section 501(c)(3) of the Internal
Revenue Code, (B) exempt from United States federal income tax under section
501(a) of the Internal Revenue Code, (C) not a “private foundation,” as defined
in section 509(a) of the Internal Revenue Code, and (D) that is unrelated to the
Debtor, the Distribution Trust, and any insider of the Distribution Trustee, and
(iii) dissolve the Distribution Trust.

 

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  2. Procedures Regarding Distributions from the Distribution Trust

Procedures regarding Distributions from the Distribution Trust to holders of
Class 3 Allowed General Unsecured Claims, Class 4 Allowed Intercompany Claims,
and Class 5 Allowed Equity Interests shall be governed by the Distribution Trust
Agreement.

 

  G. Procedures for Resolution of Disputed Claims

 

  1. Right to Object to Claims

The Plan Sponsor and the Reorganized Debtor shall have the authority, but not
the obligation, to object to, litigate, and, subject to the approval of the
Chapter 11 Trustee or the Distribution Trustee (as applicable), settle, the
amount, priority or the extent of any Administrative Claim, Secured Claim,
Priority Tax Claim, or Priority Unsecured Non-Tax Claim. Notwithstanding
anything to the contrary herein, subject to the terms and conditions set forth
in the Distribution Trust Agreement, and notwithstanding any requirements that
may be imposed pursuant to Bankruptcy Rule 9019, except insofar as a Claim is
Allowed under the Plan on and after the Effective Date, the Distribution Trustee
shall have the authority, but not the obligation, to: (1) file, withdraw or
litigate to judgment objections to and requests for estimation of Claims;
(2) settle or compromise any Disputed Claim without any further notice to or
action, order or approval by the Bankruptcy Court; and (3) administer and adjust
the Claims register to reflect any such settlements or compromises without any
further notice to or action, order or approval by the Bankruptcy Court. The
Distribution Trustee shall succeed to any pending objections to Claims filed by
the Chapter 11 Trustee prior to the Effective Date, and shall have and retain
any and all rights and defenses the Debtor and/or the Estate had immediately
prior to the Effective Date with respect to any Disputed Claim, including the
causes of action retained under the Plan. The Reorganized Debtor shall provide
commercially reasonable assistance and cooperation to the Distribution Trustee
in connection with the Distribution Trustee’s prosecution of objections to
Claims, including, without limitation, access to the books and records of the
Debtor or the Reorganized Debtor (as the case may be) and other information
reasonably requested by the Distribution Trustee to enable the Distribution
Trustee to perform its obligations under the Distribution Trust Agreement.

 

  2. Deadline for Objecting to Claims

Objections to Claims must be filed with the Bankruptcy Court, and a copy of the
objection must be served on the subject Creditor before the expiration of the
Claim Objection Deadline (unless such period is further extended by subsequent
orders of the Bankruptcy Court); otherwise such Claims shall be deemed Allowed
in accordance with section 502 of the Bankruptcy Code. The objection shall
notify the Creditor of the deadline for responding to such objection.

 

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  3. Deadline for Responding to Claim Objections

Within twenty (20) days after service of an objection, or such other date as is
indicated on such objection or the accompanying notice thereof, the Creditor
whose Claim was objected to must file a written response to the objection with
the Bankruptcy Court and serve a copy on the Distribution Trustee. Failure to
file a written response within the twenty (20) day time period shall constitute
a waiver and release of that portion of the subject Claim that was subject to
the objection, and shall cause the Bankruptcy Court to enter a default judgment
against the non-responding Creditor or granting the relief requested in the
claim objection.

 

  4. Right to Request Estimation of Claims

Pursuant to section 502(c) of the Bankruptcy Code, the Debtor, the Reorganized
Debtor, and the Distribution Trustee may request estimation or liquidation of
any Disputed Claim that is contingent or unliquidated or any Disputed Claim
arising from a right to an equitable remedy or breach of performance.

 

  H. Injunctions, Releases, and Discharge

 

  1. Discharge and Release

To the fullest extent provided under section 1141(d)(1)(A) and other applicable
provisions of the Bankruptcy Code, except as otherwise expressly provided by the
Plan or the Confirmation Order, all distributions under the Plan will be in
exchange for, and in complete satisfaction, settlement, discharge, and release
of, all Claims and causes of action, whether known or unknown, including any
interest accrued on such Claims from and after the Petition Date, against,
liabilities of, Liens on, obligations of, rights against, and Equity Interests
in the Debtor or any of its assets or properties, and regardless of whether any
property will have been distributed or retained pursuant to the Plan on account
of such Claims or Equity Interests. Except as otherwise expressly provided by
the Plan or the Confirmation Order, upon the Effective Date, the Debtor and its
estate will be deemed discharged and released under and to the fullest extent
provided under section 1141(d)(1)(A) and other applicable provisions of the
Bankruptcy Code from any and all Claims and Equity Interests of any kind or
nature whatsoever, including, but not limited to, demands and liabilities that
arose before the Confirmation Date, and all debts of the kind specified in
section 502(g), 502(h), or 502(i) of the Bankruptcy Code. The Confirmation Order
shall be a judicial determination of the discharge of all Claims against and
Equity Interests in the Debtor, subject to the occurrence of the Effective Date.

 

  2. Discharge Injunction

Except as otherwise expressly provided in the Plan, the discharge and releases
set forth in Section 11.1 shall also operate as an injunction permanently
prohibiting and enjoining the commencement or continuation of any action or the
employment of process with respect to, or any act to collect, recover from, or
offset (a) any Claim discharged and released in Section 11.1 (b) any cause of
action, whether known or unknown, based on the same subject matter as any Claim
discharged and released in Section 11.1. Except as otherwise expressly provided
in the Plan, all Persons shall be precluded and forever barred

 

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from asserting against the Protected Parties, their successors or assigns, or
their assets, properties, or interests in property any other or further Claims,
or any other right to legal or equitable relief regardless of whether such right
can be reduced to a right to payment, based upon any act or omission,
transaction, or other activity of any kind or nature that occurred prior to the
Effective Date, whether or not the facts of or legal bases therefor were known
or existed prior to the Effective Date

 

  3. Exculpation and Limitation of Liability

The Chapter 7 Trustees, the Chapter 11 Trustee and their respective
professionals will neither have nor incur any liability to any entity for any
claims or causes of action arising before, on or after the Petition Date and
prior to or on the Effective Date for any act taken or omitted to be taken in
connection with, or related to formulating, negotiating, preparing,
disseminating, implementing, administering, confirming or effecting the
consummation of the Plan, the Disclosure Statement, or any other contract,
instrument, release or other agreement or document created or entered into in
connection with the Plan or any other prepetition or postpetition act taken or
omitted to be taken in connection with or in contemplation of the restructuring
of the Debtor, the approval of the Disclosure Statement or Confirmation or
consummation of the Plan; provided, however, that the foregoing provisions will
have no effect on the liability of any entity that results from any such act or
omission that is determined in a Final Order of the Bankruptcy Court or other
court of competent jurisdiction to have constituted gross negligence or willful
misconduct; provided, further, that the Chapter 7 Trustee and the Chapter 11
Trustee will be entitled to rely upon the advice of counsel concerning their
duties pursuant to, or in connection with, the above referenced documents,
actions or inactions.

 

  4. Releases by the Debtor

NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS PLAN OR THE CONFIRMATION ORDER,
EFFECTIVE AS OF THE EFFECTIVE DATE, FOR GOOD AND VALUABLE CONSIDERATION PROVIDED
BY EACH OF THE RELEASED PARTIES, THE ADEQUACY OF WHICH IS HEREBY ACKNOWLEDGED
AND CONFIRMED, THE DEBTOR WILL BE DEEMED TO HAVE CONCLUSIVELY, ABSOLUTELY,
UNCONDITIONALLY, IRREVOCABLY, AND FOREVER PROVIDED A FULL DISCHARGE, WAIVER AND
RELEASE TO THE RELEASED PARTIES AND THEIR RESPECTIVE RELATED PARTIES (AND EACH
SUCH RELEASED PARTY AND THEIR RESPECTIVE RELATED PARTIES SO RELEASED SHALL BE
DEEMED FOREVER RELEASED, WAIVED AND DISCHARGED BY THE DEBTOR RELEASING PARTIES)
AND THEIR RESPECTIVE PROPERTIES FROM ANY AND ALL RELEASED CLAIMS THAT THE DEBTOR
AND THEIR RESPECTIVE RELATED PARTIES WOULD HAVE BEEN LEGALLY ENTITLED TO ASSERT
IN THEIR OWN RIGHT, ON BEHALF OF ONE ANOTHER, OR ON BEHALF OF ANOTHER PARTY
AGAINST THE RELEASED PARTIES OR THEIR RESPECTIVE RELATED PARTIES; PROVIDED,
HOWEVER, THAT THE FOREGOING PROVISIONS OF THIS RELEASE SHALL NOT OPERATE TO
WAIVE OR RELEASE (I) ANY DISTRIBUTION TRUST ACTION EXPRESSLY SET FORTH IN AND
PRESERVED BY THE PLAN OR THE PLAN SUPPLEMENT; (II) THE

 

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RIGHTS OF THE DEBTOR TO ENFORCE THE PLAN AND THE CONTRACTS, INSTRUMENTS,
RELEASES AND OTHER AGREEMENTS OR DOCUMENTS DELIVERED UNDER OR IN CONNECTION WITH
THE PLAN OR ASSUMED PURSUANT TO THE PLAN OR ASSUMED PURSUANT TO FINAL ORDER OF
THE BANKRUPTCY COURT; AND/OR (III) ANY CLAIMS OR DEFENSES AGAINST THIRD PARTY.

THE FOREGOING RELEASE SHALL BE EFFECTIVE AS OF THE EFFECTIVE DATE WITHOUT
FURTHER NOTICE TO OR ORDER OF THE BANKRUPTCY COURT, ACT OR ACTION UNDER
APPLICABLE LAW, REGULATION, ORDER, OR RULE OR THE VOTE, CONSENT, AUTHORIZATION
OR APPROVAL OF ANY PERSON AND THE CONFIRMATION ORDER WILL PERMANENTLY ENJOIN THE
COMMENCEMENT OR PROSECUTION BY ANY PERSON OR ENTITY, WHETHER DIRECTLY,
DERIVATIVELY OR OTHERWISE, OF ANY CLAIMS, OBLIGATIONS, SUITS, JUDGMENTS,
DAMAGES, DEMANDS, DEBTS, RIGHTS, CAUSES OF ACTION, OR LIABILITIES RELEASED
PURSUANT TO THIS RELEASE. FOR PURPOSES OF THIS RELEASE, AND WITHOUT LIMITING THE
SCOPE OF THE FOREGOING, THE DEBTOR IS SPECIFICALLY NOT RELEASING THE
DISTRIBUTION TRUST ACTIONS.

 

  5. Releases by Third Party

TO THE EXTENT ALLOWED BY APPLICABLE LAW, ON, AND AS OF, THE EFFECTIVE DATE AND
FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH ARE
ACKNOWLEDGED, THE PROTECTED PARTIES (ACTING IN ANY CAPACITY WHATSOEVER) SHALL BE
FOREVER RELEASED AND DISCHARGED FROM ANY AND ALL CLAIMS, OBLIGATIONS, ACTIONS,
SUITS, RIGHTS, DEBTS, ACCOUNTS, CAUSES OF ACTION, REMEDIES, AVOIDANCE ACTIONS,
AGREEMENTS, PROMISES, DAMAGES, JUDGMENTS, DEMANDS, DEFENSES, OR CLAIMS IN
RESPECT OF EQUITABLE SUBORDINATION, AND LIABILITIES THROUGHOUT THE WORLD UNDER
ANY LAW OR COURT RULING THROUGH THE EFFECTIVE DATE (INCLUDING ALL CLAIMS BASED
ON OR ARISING OUT OF FACTS OR CIRCUMSTANCES THAT EXISTED AS OF OR PRIOR TO THE
PLAN IN THE BANKRUPTCY CASE, INCLUDING CLAIMS BASED ON NEGLIGENCE OR STRICT
LIABILITY, AND FURTHER INCLUDING ANY DERIVATIVE CLAIMS ASSERTED ON BEHALF OF THE
DEBTOR, WHETHER KNOWN OR UNKNOWN, FORESEEN OR UNFORESEEN, EXISTING OR
HEREINAFTER ARISING, IN LAW, EQUITY OR OTHERWISE, THAT THE DEBTOR, ITS ESTATE,
OR THE REORGANIZED DEBTOR WOULD HAVE BEEN LEGALLY ENTITLED BY APPLICABLE LAW TO
ASSERT IN ITS OWN RIGHT, WHETHER INDIVIDUALLY OR COLLECTIVELY) WHICH THE DEBTOR,
ITS ESTATE, THE REORGANIZED DEBTOR, CREDITORS OR OTHER PERSONS RECEIVING OR WHO
ARE ENTITLED TO RECEIVE DISTRIBUTIONS UNDER THE PLAN MAY HAVE AGAINST ANY OF
THEM IN ANY WAY RELATED TO THE BANKRUPTCY CASE OR THE DEBTOR (OR ITS
PREDECESSORS); PROVIDED, HOWEVER, THE RELEASES PROVIDED FOR IN THIS PARAGRAPH
SHALL NOT EXTEND TO ANY CLAIMS BY ANY

 

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GOVERNMENTAL UNIT WITH RESPECT TO CRIMINAL LIABILITY UNDER APPLICABLE LAW,
WILLFUL MISCONDUCT OR BAD FAITH UNDER APPLICABLE LAW, OR ULTRA VIRES ACTS UNDER
APPLICABLE LAW. NO COMPLIANCE WITH OR RELIANCE ON THE APPLICABLE LAW OR THE
ORDERS OF THE BANKRUPTCY COURT SHALL BE DEEMED OR PERMITTED TO BE JUDGED,
DECLARED, OR RULED TO BE IN ANY WAY WRONGFUL, IN BAD FAITH, ULTRA VIRES,
INEQUITABLE OR OTHERWISE SUBJECT TO ANY SANCTION OR PUNISHMENT, ALL OF WHICH ARE
PREEMPTED, SUPERSEDED AND NEGATED BY THE PLAN TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW.

A VOTE TO ACCEPT THE PLAN, OR FAILURE TO VOTE BY A CREDITOR ENTITLED TO VOTE,
CONSTITUTES AN ACCEPTANCE OF ALL OF THE TERMS AND PROVISIONS CONTAINED IN THE
PLAN, INCLUDING, BUT NOT LIMITED TO, THE GRANT OF RELEASES, INJUNCTIONS,
EXCULPATION, EXONERATION AND OTHER LIMITATIONS OF LIABILITY IN THE PLAN. IF A
CREDITOR VOTES TO REJECT THE PLAN, THE CREDITOR MAY NEVERTHELESS BE DEEMED TO BE
BOUND TO THE RELEASES AND BE BOUND BY THE INJUNCTIONS, EXCULPATIONS, AND OTHER
LIMITATIONS OF LIABILITY IN THE PLAN TO THE MAXIMUM EXTENT PERMITTED BY LAW, AS
LATER DETERMINED BY THE COURT. IF A CREDITOR ELECTS NOT TO GRANT THE RELEASES
CONTAINED IN THIS ARTICLE 11.5 OF THE PLAN, TO (1) THE PLAN SPONSOR AND ITS
AFFILIATES, (2) THE POST-PETITION LENDER, AND (3) DIRECTORS, OFFICERS, AGENTS,
ATTORNEYS, ACCOUNTANTS, CONSULTANTS, EQUITY HOLDERS, FINANCIAL ADVISORS,
INVESTMENT BANKERS, PROFESSIONALS, EXPERTS, AND EMPLOYEES OF ANY OF THE
FOREGOING, IN THEIR RESPECTIVE CAPACITIES AS SUCH, THEN THE CREDITOR MUST
OPT-OUT IN THE BALLOT. ELECTION TO WITHHOLD CONSENT IS AT THE CREDITOR’S OPTION.

FOR THE AVOIDANCE OF DOUBT, NOTHING IN THIS ARTICLE XI SHALL PREVENT THE
ENFORCEMENT OF THE TERMS OF THE PLAN.

 

  I. Conditions to Confirmation and Effectiveness

 

  1. Conditions to Confirmation

The Confirmation Order will not be effective unless (a) the Confirmation Order
shall be in form and substance acceptable to the Plan Sponsor, in its reasonable
discretion, and shall provide for the Plan Sponsor and the Post-Petition Lender
to acquire the New Equity subject to the Subscription Option, free and clear of
all Liens, Claims, Equity Interests and encumbrances of any kind, except as
otherwise provided in the Plan, and (b) the final version of the Plan, Plan
Supplement, and any other documents, or schedules thereto, shall have been filed
in form and substance acceptable to the Plan Sponsor in its reasonable
discretion.

 

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  2. Conditions to Effectiveness

The Plan will not be effective unless (a) the conditions to confirmation above
have been either satisfied, or waived, by the Plan Sponsor, (b) the Confirmation
Order has been entered by the Bankruptcy Court, and no stay or injunction is in
effect with respect thereto, (c) Plan Sponsor and the Post-Petition Lender shall
acquire the New Equity subject to the Subscription Option, free and clear of all
Liens, Claims, Equity Interests and encumbrances of any kind, except as
otherwise provided in the Plan, and (d) no material adverse change or
development shall have occurred with respect to the Debtor’s IP or capital
structure of the Debtor.

 

  J. Modification, Revocation or Withdrawal of the Plan

 

  1. Defects, Omissions, and Amendments of the Plan

The Proponents may, with the approval of the Bankruptcy Court and without notice
to holders of Claims and Equity Interests, insofar as it does not materially and
adversely affect holders of Claims and Equity Interests, correct any defect,
omission, or inconsistency in the Plan in such a manner and to such extent
necessary or desirable to expedite the execution of the Plan. The Proponents may
propose amendments or alterations to the Plan before the Confirmation Hearing as
provided in section 1127 of the Bankruptcy Code if, in the opinion of the
Bankruptcy Court, the modification does not materially and adversely affect the
interests of holders of Claims and Equity Interests, so long as the Plan, as
modified, complies with sections 1122 and 1123 of the Bankruptcy Code and the
Chapter 11 Trustee has complied with section 1125 of the Bankruptcy Code. The
Proponents may propose amendments or alterations to the Plan after the
Confirmation Date but prior to substantial consummation, in a manner that, in
the opinion of the Bankruptcy Court, does not materially and adversely affect
holders of Claims and Equity Interests, so long as the Plan, as modified,
complies with sections 1122 and 1123 of the Bankruptcy Code, the Proponents have
complied with section 1125 of the Bankruptcy Code, and after notice and a
hearing, the Bankruptcy Court confirms such Plan, as modified, under section
1129 of the Bankruptcy Code.

 

  2. Withdrawal of the Plan

The Proponents reserve the right to withdraw the Plan at any time prior to the
Confirmation Date. If the Proponents withdraw the Plan prior to the Confirmation
Date, or if the Confirmation Date or the Effective Date does not occur, then the
Plan shall be deemed null and void. In such event, nothing contained herein
shall be deemed to constitute an admission, waiver or release of any claims by
or against the Debtor or any other person, or to prejudice in any manner the
rights of the Chapter 11 Trustee, the Debtor’s Estate, or any person in any
further proceedings involving the Debtor.

 

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  K. Retention of Jurisdiction

 

  1. Exclusive Bankruptcy Court Jurisdiction

Notwithstanding the entry of the Confirmation Order or the occurrence of the
Effective Date, the Bankruptcy Court shall retain and have such jurisdiction
over the Bankruptcy Case to the maximum extent as is legally permissible,
including, without limitation, for the following purposes:

 

  a. To allow, disallow, determine, liquidate, classify or establish the
priority or secured or unsecured status of or estimate any Right of Action,
Claim or Equity Interest, including, without limitation, the resolution of any
request for payment of any Administrative Claim and the resolution of any and
all objections to the allowance or priority of Claims or Equity Interests;

 

  b. To ensure that Distributions to holders of Allowed Claims are accomplished
pursuant to the provisions of the Plan;

 

  c. To determine any and all applications or motions pending before the
Bankruptcy Court on the Effective Date of the Plan, including without limitation
any motions for the rejection, assumption or assumption and assignment of any
Executory Contract;

 

  d. To consider and approve any modification of the Plan, remedy any defect or
omission, or reconcile any inconsistency in the Plan, or any order of the
Bankruptcy Court, including the Confirmation Order;

 

  e. To determine all controversies, suits and disputes that may arise in
connection with the interpretation, enforcement or consummation of the Plan or
any Plan Documents or any entity’s obligations in connection with the Plan or
any Plan Documents, or to defend any of the rights, benefits, Estate Property
transferred, created, or otherwise provided or confirmed by the Plan or the
Confirmation Order or to recover damages or other relief for violations thereof;

 

  f. To consider and act on the compromise and settlement of any claim or cause
of action by or against the Debtor, the Estate, the Reorganized Debtor or the
Distribution Trust;

 

  g. To decide or resolve any and all applications, motions, adversary
proceedings, contested or litigated matters, and any other matters, or grant or
deny any applications involving the Debtor, the Chapter 11 Trustee, or the
Estate that may be pending on the Effective Date or that may be brought by the
Reorganized Debtor, the Chapter 11 Trustee, or the Distribution Trustee (as
applicable), including any Distribution Trust Actions, or any other related
proceedings by the Reorganized Debtor, and to enter and enforce any default
judgment on any of the foregoing;

 

  h. To decide or resolve any and all applications filed by the Chapter 7
Trustee or the Chapter 11 Trustee for compensation;

 

  i. To issue orders in aid of execution and implementation of the Plan or any
Plan Documents to the extent authorized by section 1142 of the Bankruptcy Code
or provided by the terms of the Plan;

 

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  j. To decide issues concerning the federal or state tax liability of the
Debtor which may arise in connection with the confirmation or consummation of
the Plan or any Plan Documents;

 

  k. To interpret and enforce any orders entered by the Bankruptcy Court in the
Bankruptcy Case; and

 

  l. To enter an order closing this Bankruptcy Case when all matters
contemplating the use of such retained jurisdiction have been resolved and
satisfied.

 

  2. Limitations on Jurisdiction

In no event shall the provisions of the Plan be deemed to confer in the
Bankruptcy Court jurisdiction greater than that established by the provisions of
28 U.S.C. §§ 157 and 1334, as well as the applicable circumstances that continue
jurisdiction for defense and enforcement of the Plan and Plan Documents. For the
avoidance of doubt, however, such jurisdiction shall be deemed, by the entry of
the Confirmation Order, to:

 

  a. Permit entry of a final judgment by the Bankruptcy Court in any core
proceeding referenced in 28 U.S.C. § 157(b) and to hear and resolve such
proceedings in accordance with 28 U.S.C. § 157(c) and any and all related
proceedings, including, without limitation, (i) all proceedings concerning
disputes with, or Rights of Action or Claims against, any Person that the
Debtor, the Estate, the Distribution Trust or the Reorganized Debtor or any of
their successors or assigns, may have, and (ii) any and all Rights of Action or
other Claims against any Person for harm to or with respect to (x) any Estate
Property, including any infringement of IP or conversion of Estate Property, or
(y) any Estate Property liened or transferred by the Debtor to any other Person;

 

  b. Include jurisdiction over the recovery of any Estate Property (or property
transferred by the Debtor with Bankruptcy Court approval) from any Person
wrongly asserting ownership, possession or control of the same, whether pursuant
to sections 542, 543, 549, 550 of the Bankruptcy Code or otherwise, as well as
to punish any violation of the automatic stay under section 362 of the
Bankruptcy Code or any other legal rights of the Debtor or the Estate under or
related to the Bankruptcy Code; and

 

  c. Permit the taking of any default judgment against any Person who has
submitted himself or herself to the jurisdiction of the Bankruptcy Court.

 

V. POST-EFFECTIVE DATE OPERATIONAL/FINANCIAL INFORMATION

The Chapter 11 Trustee and Plan Sponsor believe that the Plan meets the
feasibility requirement set forth in section 1129(a)(11) of the Bankruptcy Code,
as Confirmation is not likely to be followed by liquidation or the need for
further financial reorganization of the Reorganized Debtor. In connection with
the development of the Plan and for the purposes of determining whether the Plan
satisfies this feasibility standard, the ability of the Reorganized Debtor to
satisfy its financial obligations while maintaining sufficient liquidity and
capital resources has been examined.

 

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In particular, the Plan Sponsor and its affiliates have acquired more than 30
distressed software-related companies in the past 5 years. The Plan Sponsor and
its affiliates are experienced in successfully turning around distressed
situations to generate sustainable profits. The Plan Sponsor has committed to
providing the Plan Consideration to acquire the Debtor and its assets, through
acquisition of the New Equity. The Plan Sponsor believes that under its
management, the Reorganized Debtor will enhance its relationships with its
employees, customers and vendors, while simultaneously engaging in cost-cutting
efforts to drive efficiency and profitability. The Plan Sponsor possesses more
than $20 million of liquidity and believes that it will be able to leverage its
relationships, expertise and know-how to help the Reorganized Debtor thrive.
Accordingly, the Plan Sponsor is confident that the Reorganized Debtor will be
feasible going forward, and will not require a further reorganization. Further,
no Distributions to Creditors or Interest Holders are dependent on any metrics
related to the Reorganized Debtor.

 

VI. RISK FACTORS

 

  A. Risks Related to Bankruptcy

 

  1. Parties May Object to the Plan’s Classification of Claims and Equity
Interests

Section 1122 of the Bankruptcy Code provides that a plan may place a claim or an
interest in a particular class only if such claim or interest is substantially
similar to the other claims or interests in such class. The Chapter 11 Trustee
believes that the classification of the Claims and Equity Interests under the
Plan complies with the requirements set forth in the Bankruptcy Code because the
Chapter 11 Trustee created Classes of Claims and Equity Interests, each
encompassing Claims or Equity Interests, as applicable, that are substantially
similar to the other Claims or Equity Interests in each such Class.
Nevertheless, there can be no assurance that the Bankruptcy Court will reach the
same conclusion.

 

  2. The Proponents May Not Be Able to Obtain Confirmation of the Plan

With regard to any proposed plan of reorganization, the Chapter 11 Trustee may
not receive the requisite acceptances to confirm a plan. In the event that votes
from Claims in Class 3 entitled to vote are received in number and amount
sufficient to enable the Bankruptcy Court to confirm the Plan, the Chapter 11
Trustee intends to seek Confirmation of the Plan by the Bankruptcy Court.

Even if the requisite acceptances of a proposed plan are received, the
Bankruptcy Court might not confirm the Plan as proposed if the Bankruptcy Court
finds that any of the statutory requirements for confirmation under section 1129
of the Bankruptcy Code have not been met.

 

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  3. The Conditions Precedent to the Effective Date of the Plan May Not Occur

As more fully set forth in the Plan, the Effective Date is subject to certain
conditions precedent. If such conditions precedent are not met or waived, the
Effective Date will not occur.

 

  4. Risks Associated with Proving and Collecting Claims Asserted in Litigation

The ultimate recoveries under the Plan to holders of Equity Interests depends in
part upon the ability of the Distribution Trustee to realize favorable
litigation outcomes or settlements of Distribution Trust Actions. It is
extremely difficult to place a value on litigation, and litigation outcomes
cannot be predicted. It is possible that the Distribution Trust may recover
nothing at all, or very little, on account of such litigation.

The risks in such litigation include, but are not limited to, risks associated
with defenses and counter-claims of opposing parties to the litigation, the
delay and expense associated with discovery and trial of factually intensive and
complex disputes, and the additional delay and expense inherent in appellate
review.

 

  5. Allowed Claims May Substantially Exceed Estimates

The projected distributions set forth in this Disclosure Statement are based
upon, among other things, good faith estimates of the total amounts of Claims
that will ultimately be Allowed. The actual amount of Allowed Claims could be
materially greater than anticipated, which will impact the distributions to be
made to holders of Claims and Equity Interests.

 

  B. Risks Related to Financial Information

The financial information contained in this Disclosure Statement has not been
audited. In preparing this Disclosure Statement, the Chapter 11 Trustee relied
on financial data derived from the Debtor’s books and records and schedules and
statements that was available at the time of such preparation. Although the
Chapter 11 Trustee has used reasonable efforts to assure the accuracy of the
financial information provided in this Disclosure Statement the Chapter 11
Trustee is unable to warrant or represent that the financial information
contained herein and attached hereto is without inaccuracies.

 

VII. CONFIRMATION OF THE PLAN

 

  A. The Confirmation Hearing

Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court, after
notice, to hold a hearing on Confirmation of the Plan. Section 1128(b) of the
Bankruptcy Code provides that any party in interest may object to Confirmation
of the Plan.

The Bankruptcy Court has scheduled the Confirmation Hearing to commence on
[DATE], 2016 at [TIME] (Eastern Time), before the Honorable Kevin J. Carey,
United States Bankruptcy Judge, in the United States Bankruptcy Court for the
District of Delaware, 824 North

 

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Market Street, 5th Floor, Wilmington, Delaware 19801. The Confirmation Hearing
may be adjourned from time to time without further notice except for an
announcement of the adjourned date made at the Confirmation Hearing or any
adjournment thereof.

Objections to Confirmation of the Plan must be filed and served by no later than
[DATE], 2016 at 4:00 p.m. (Eastern Time). Unless objections to Confirmation of
the Plan are timely served and filed in compliance with the Disclosure Statement
Order, they may not be considered by the Bankruptcy Court.

 

  B. Requirements for Confirmation of the Plan

Among the requirements for the Confirmation of the Plan is that the Plan (i) is
accepted by all Impaired Classes of Claims or Equity Interests, or, if rejected
by an Impaired Class of Claims or Equity Interests, that the Plan “does not
discriminate unfairly” and is “fair and equitable” as to such Impaired Class of
Claims or Equity Interests; (ii) is feasible; and (iii) is in the “best
interests” of Holders of Claims or Equity Interests.

At the Confirmation Hearing, the Bankruptcy Court will determine whether the
Plan satisfies the requirements of section 1129 of the Bankruptcy Code. The
Chapter 11 Trustee believes that: (i) the Plan satisfies or will satisfy all of
the necessary statutory requirements of chapter 11 of the Bankruptcy Code;
(ii) the Chapter 11 Trustee has complied or will have complied with all of the
necessary requirements of chapter 11 of the Bankruptcy Code; and (iii) the Plan
has been proposed in good faith. Specifically, in addition to other applicable
requirements, the Chapter 11 Trustee believes that the Plan satisfies or will
satisfy the following applicable Confirmation requirements of section 1129 of
the Bankruptcy Code:

 

  •   The Plan complies with the applicable provisions of the Bankruptcy Code.

 

  •   The Chapter 11 Trustee, as a plan proponent, has complied with the
applicable provisions of the Bankruptcy Code.

 

  •   The Plan has been proposed in good faith and not by any means forbidden by
law.

 

  •   Any payment made or promised under the Plan for services or for costs and
expenses in, or in connection with, the Bankruptcy Case, or in connection with
the Plan and incident to the Bankruptcy Case, has been disclosed to the
Bankruptcy Court, and any such payment: (1) made before the Confirmation of the
Plan is reasonable; or (2) is subject to the approval of the Bankruptcy Court as
reasonable, if it is to be fixed after Confirmation of the Plan.

 

  •   Either each holder of a Claim in an Impaired Class has accepted the Plan,
or will receive or retain under the Plan on account of such Claim or Equity
Interest property of a value, as of the Effective Date of the Plan, that is not
less than the amount that such holder would receive or retain if the Debtor were
liquidated on the Effective Date of the Plan under chapter 7 of the Bankruptcy
Code.

 

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  •   Each Class of Claims that is entitled to vote on the Plan will have
accepted the Plan.

 

  •   Except to the extent a different treatment is agreed to, the Plan provides
that all Administrative Claims and Allowed Priority Claims will be paid in full
on the Effective Date, or as soon thereafter as is reasonably practicable.

 

  •   At least one Class of Impaired Claims will have accepted the Plan,
determined without including any acceptance of the Plan by any insider holding a
Claim in that Class.

 

  •   Confirmation of the Plan is not likely to be followed by the liquidation
or the need for further financial reorganization of the Debtor or any successors
thereto.

 

  •   All accrued and unpaid fees of the type described in 28 U.S.C. § 1930,
including the fees of the U.S. Trustee, will be paid as of the Effective Date.

 

  C. Best Interests of Creditors / Liquidation Analysis

Often called the “best interests of creditors” test, section 1129(a)(7) of the
Bankruptcy Code requires that a Bankruptcy Court find, as a condition to
confirmation of a chapter 11 plan, that the plan provides, with respect to each
impaired class, that each holder of a claim or an interest in such class either
(i) has accepted the plan or (ii) will receive or retain under the plan property
of a value that is not less than the amount that such holder would receive or
retain if the debtor liquidated under chapter 7 on the Effective Date. To make
these findings, the Bankruptcy Court must: (a) estimate the cash liquidation
proceeds that a chapter 7 trustee would generate if the Chapter 11 Case was
converted to a chapter 7 case on the Effective Date and the assets of the
Debtor’s Estate were liquidated; (b) determine the liquidation distribution that
each non-accepting holder of a Claim or an Equity Interest would receive from
such liquidation proceeds under the priority scheme dictated in chapter 7; and
(c) compare the holder’s liquidation distribution to the distribution under the
Plan that the holder would receive if the Plan were confirmed and consummated.

In this particular case, the analysis is straightforward because the Debtor was
previously in Chapter 7 bankruptcy. The highest offer that contemplated a
purchase of the Debtor’s assets in chapter 7 was for $3,800,000. Conversely, by
this Plan, the Debtor is being reorganized and the Estate is receiving Cash
Consideration of $6,875,000. In addition, because the chapter 11 administrative
expenses are being funded by the Post-Petition Lender and are not being
satisfied from the Cash Consideration, holders of Allowed Claims and Equity
Interests stand to receive approximately $3,075,000 more in aggregate
distributions in chapter 11 than they would if the Debtor’s case had remained in
chapter 7.

As further support, the Chapter 11 Trustee has attached hereto as Exhibit B a
liquidation analysis prepared by his professionals. Based on the foregoing and
the liquidation analysis, the Chapter 11 Trustee believes that holders of Claims
and Equity Interests will receive greater value as of the Effective Date under
the Plan than such holders would receive in a chapter 7 liquidation.

 

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  D. Feasibility

Section 1129(a)(11) of the Bankruptcy Code requires that confirmation of the
plan is not likely to be followed by the liquidation, or the need for further
financial reorganization of the Debtor, or any successor to the Debtor (unless
such liquidation or reorganization is proposed in the plan). To determine
whether the Plan meets this feasibility requirement, the Chapter 11 Trustee and
Plan Sponsor have analyzed the ability of the Reorganized Debtor to meet its
obligations under the Plan. Further, as discussed in Article V of this
Disclosure Statement, the Chapter 11 Trustee and Plan Sponsor believe that the
Reorganized Debtor will be viable following the Effective Date, and that the
Plan therefore meets the feasibility requirements of the Bankruptcy Code. The
Proponents shall present further information and evidence regarding feasibility
as may be necessary in connection with Confirmation of the Plan.

 

  E. Acceptance by Impaired Classes

The Bankruptcy Code requires, as a condition to confirmation, that, except as
described in the following section, each class of claims or interests that is
impaired under a plan accept the plan. A class that is not “impaired” under a
plan is deemed to have accepted the plan and, therefore, solicitation of
acceptances with respect to such class is not required.

A class is “impaired” unless a plan: (a) leaves unaltered the legal, equitable
and contractual rights to which the claim or the interest entitles the holder of
such claim or interest; or (b) cures any default, reinstates the original terms
of such obligation, compensates the holder for certain damages or losses, as
applicable, and does not otherwise alter the legal, equitable or contractual
rights to which such claim or interest entitles the holder of such claim or
interest.

Section 1126(c) of the Bankruptcy Code defines acceptance of a plan by a class
of impaired claims as acceptance by holders of at least two-thirds in dollar
amount and more than one-half in number of allowed claims in that class,
counting only those claims that actually voted to accept or reject the plan.
Thus, a Class of Impaired Claims will have voted to accept the Plan only if
two-thirds in amount and a majority in number actually voting cast their Ballots
in favor of acceptance.

Section 1126(d) of the Bankruptcy Code defines acceptance of a plan by a class
of impaired interests as acceptance by holders of at least two-thirds in amount
of allowed interests in that class, counting only those claims that actually
voted to accept or reject the plan. Thus, a Class of Creditors will have voted
to accept the Plan only if holders of a majority of Creditors actually voting
cast their Ballots in favor of acceptance.

 

  F. Confirmation Without Acceptance by All Impaired Classes

Section 1129(b) of the Bankruptcy Code allows a Bankruptcy Court to confirm a
plan even if all impaired classes have not accepted it, provided that the plan
has been accepted by at least one impaired class, determined without including
the acceptance of the plan by any insider. Notwithstanding an impaired class’s
rejection or deemed rejection of the plan, such plan will be confirmed, at the
plan proponent’s request, in a procedure commonly known as “cramdown,” so long
as the plan does not “discriminate unfairly” (as discussed below) and is “fair
and equitable” (as discussed below) with respect to each class of claims or
interests that is impaired under, and has not accepted, the plan.

 

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To the extent that any Impaired Class rejects the Plan or is deemed to have
rejected the Plan, to the extent applicable, the Chapter 11 Trustee shall
request Confirmation of the Plan under section 1129(b) of the Bankruptcy Code.
The Chapter 11 Trustee reserves the right to alter, amend, modify, revoke, or
withdraw the Plan, the Plan Supplement, or any schedule or exhibit, including to
amend or modify it to satisfy the requirements of section 1129(b) of the
Bankruptcy Code, if necessary, subject to the written approval of the Plan
Sponsor.

 

  1. No Unfair Discrimination

The “unfair discrimination” test applies to classes of claims or interests that
reject or are deemed to have rejected a plan and that are of equal priority with
another class of claims or interests that is receiving different treatment under
such plan. The test does not require that the treatment of such classes of
claims or interests be the same or equivalent, but that such treatment be
“fair.” In general, bankruptcy courts consider whether a plan discriminates
unfairly in its treatment of classes of claims of equal rank (e.g., classes of
the same legal character). Bankruptcy courts will take into account a number of
factors in determining whether a plan discriminates unfairly, and, accordingly,
a plan could treat two classes of unsecured creditors differently without
unfairly discriminating against either class. The Chapter 11 Trustee submits
that if the Chapter 11 Trustee “crams down” the Plan pursuant to section 1129(b)
of the Bankruptcy Code, the Plan is structured such that it does not
“discriminate unfairly” against any rejecting Class.

 

  2. Fair and Equitable Test

The “fair and equitable” test applies to classes that reject or are deemed to
have rejected a plan and are of different priority and status vis-à-vis another
class (e.g., secured versus unsecured claims, or unsecured claims versus equity
interests), and includes the general requirement that no class of claims receive
more than 100% of the amount of the allowed claims in such class, including
interest. As to the rejecting class, the test sets different standards depending
upon the type of claims or interests in such rejecting class. The Chapter 11
Trustee submits that if the Chapter 11 Trustee “crams down” the Plan pursuant to
section 1129(b) of the Bankruptcy Code, the Plan is structured such that the
applicable “fair and equitable” standards are met.

 

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VIII. TAX CONSEQUENCES OF THE PLAN

THE FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN ARE COMPLEX. ALL HOLDERS OF
CLAIMS AGAINST AND EQUITY INTERESTS IN THE DEBTOR SHOULD CONSULT WITH THEIR TAX
ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE TRANSACTIONS
CONTEMPLATED BY THE PLAN, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE,
LOCAL OR FOREIGN TAX LAWS AND OF ANY CHANGE IN APPLICABLE TAX LAWS.

 

IX. CERTAIN SECURITIES LAW MATTERS

 

  A. In General

The Plan provides for the establishment of the Distribution Trust and for the
issuance of Beneficial Interests therein. In general, beneficial interests in
trusts may sometimes be subject to regulation under applicable federal and state
securities laws. However, as discussed herein, the Proponents do not believe
that the Beneficial Interests constitute “securities” for purposes of applicable
nonbankruptcy law. Alternatively, even if the Beneficial Interests were to
constitute “securities,” the Proponents believe that they would be exempt from
registration pursuant to Bankruptcy Code section 1145(a)(1).

Further, as provided in Section 13.4 of the Plan, the Proponents believe that
the New Equity in the Reorganized Debtor and the offering and issuance thereof
shall be exempt from Section 5 of the Securities Act of 1933, if applicable, and
from any state or federal securities laws requiring registration for offer or
sale of a security or registration or licensing of an issuer of, underwriter of,
or broker or dealer in, a security, and shall otherwise enjoy all exemptions
available for Distributions of securities under a plan of reorganization in
accordance with all applicable law, including, without limitation, section 1145
of the Bankruptcy Code. As set forth in Section 13.4 of the Plan, if the
issuance of the New Equity does not qualify for an exemption under section 1145
of the Bankruptcy Code, the New Equity shall be issued in a manner, which
qualifies for any other available exemption from registration, whether as a
private placement under Rule 506 of the Securities Act, Section 4(2) of the
Securities Act, and/or the safe harbor provisions promulgated thereunder.

 

  B. Distribution Trust Related Matters

 

  1. Initial Issuance of Beneficial Interests

Unless an exemption is available, the offer and sale of a security generally is
subject to registration with the United States Securities and Exchange
Commission (the “SEC”) under Section 5 of the Securities Act of 1933, as amended
(the “Securities Act”). In the opinion of the Proponents, and based on “no
action” letters by the SEC, the Beneficial Interests will not be considered
“securities” within the definition of Section 2(11) of the Securities Act and
corresponding definitions under state securities laws and regulations (“Blue Sky
Laws”) because the Beneficial Interests will be uncertificated and
non-transferable other than by operation of law. Accordingly, the Beneficial
Interests should be issuable in accordance with the Plan without registration
under the Securities Act or any Blue Sky Law.

 

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Alternatively, in the event that the Beneficial Interests are deemed to
constitute securities, section 1145(a)(1) of the Bankruptcy Code exempts the
offer and sale of securities under a plan of reorganization from registration
under the Securities Act and Blue Sky Laws if three principal requirements are
satisfied:

A. the securities are offered and sold under a plan of reorganization and are
securities of the debtor, of an affiliate of the debtor participating in a joint
plan with the debtor, or of a successor to the debtor under the plan;

B. the recipients of the securities hold a pre-petition or administrative claim
against the debtor or an interest in the debtor; and

C. the securities are issued entirely in exchange for recipient’s claim against
or interest in the debtor, or principally in such exchange and partly for cash
or property.

If and to the extent that the Beneficial Interests may constitute securities,
the Proponents believe that these beneficial interests issued in respect of
certain Allowed Claims and Equity Interests will qualify as securities “of the
debtor … or of a successor to the debtor” pursuant to section 1145(a)(1). In
addition, the Beneficial Interests will be issued entirely in exchange for such
Claims and Equity Interests. Thus, the Proponents believe that the issuance of
the Beneficial Interests pursuant to the Plan will satisfy the applicable
requirements of section 1145(a)(1) of the Bankruptcy Code, and that such
issuance should be exempt from registration under the Securities Act and any
applicable Blue Sky Law.

The Proponents believe that their reliance upon the foregoing exemptions in
respect of the issuance of the Beneficial Interests is consistent with positions
taken by the SEC with respect to similar transactions and arrangements by other
chapter 11 trustees. However, the Proponents have not sought any “no-action”
letter by the SEC with respect to any such matters, and therefore no assurance
can be given regarding the availability of any exemptions from registration with
respect to any securities, if any, issued pursuant to the Plan.

 

  2. Resales

The Beneficial Interests will be subject to transfer restrictions under the
terms of the Distribution Trust Agreement. As provided in said agreement,
generally, the Beneficial Interests cannot be assigned or transferred other than
by operation of law, and will not be represented by certificates.

 

  3. Exchange Act Compliance

Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), applies only to a company that has both (i) total assets in excess of
$10.0 million and (ii) a class of equity securities held of record by more than
2,000 persons or 500 persons who are not accredited investors (within 120 days
after the last day of the company’s fiscal year). The Proponents believe it
unlikely condition (i) will be deemed satisfied in respect to the Distribution

 

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Trust and Beneficial Interests, and in any event, the Distribution Trust should
not be required to register under Section 12(g) of the Exchange Act. The
Proponents understand that the staff of the SEC has issued no-action letters
with respect to the non-necessity of Exchange Act registration of a bankruptcy
plan trust when the following are true:

A. the beneficial interests in the trust are not represented by certificates or,
if they are, the certificates bear a legend stating that the certificates are
transferable only upon death or by operation of law;

B. the trust exists only to effect a liquidation and will terminate within a
reasonable period of time; and

C. the trust will issue annual unaudited financial information to all
beneficiaries.

Based on the foregoing, the Proponents believe that the Distribution Trust will
not be subject to registration under the Exchange Act. However, the views of the
SEC on the matter have not been sought by the Proponents and, therefore, no
assurance can be given regarding this matter.

 

  4. Compliance if Required

Notwithstanding the preceding discussion, if the Distribution Trustee, in
relation to the Distribution Trust, determines, with the advice of counsel, that
the Distribution Trust is required to comply with the registration and reporting
requirements of the Exchange Act, then prior to the registration of the
Distribution Trust under the Exchange Act, the Distribution Trustee (subject to
the terms of the Distribution Trust Agreement) will seek to amend the
Distribution Trust Agreement, to make such changes as are deemed necessary or
appropriate to ensure that the Distribution Trust is not subject to registration
or reporting requirements of the Exchange Act. The Distribution Trust Agreement,
as so amended, will be effective after notice and opportunity for a hearing, and
the entry of an order of the Bankruptcy Court.

If the Distribution Trust Agreement, as amended, is not approved by the
Bankruptcy Court or the Bankruptcy Court otherwise determines in a Final Order
that registration under the Exchange Act (or any other related or similar
federal laws) is required, then the Distribution Trustee will take such actions
as may be required to satisfy the registration and reporting requirements of the
Exchange Act (or any other related or similar federal laws).

[Remainder of Page Intentionally Left Blank]

 

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X. RECOMMENDATION

In the opinion of the Proponents, the Plan is superior and preferable to the
alternatives described in this Disclosure Statement. Furthermore, the value
being provided to Creditors and Interest Holders under the Plan was subject to a
competitive process through which parties other than the Plan Sponsor could have
provided higher and better bids. Accordingly, the Proponents recommend that
holders of Claims and Equity Interests entitled to vote on the Plan vote to
accept the Plan and support Confirmation of the Plan.

Dated: June 17, 2016

 

Respectfully submitted,

 

Wave Systems Corp.

/s/ David W. Carickhoff

Name: David W. Carickhoff Title: Chapter 11 Trustee ESW Capital, LLC

/s/ Andrew Price

Name: Andrew Price Title: Chief Financial Officer

 

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EXHIBIT A

Plan of Reorganization

* The Plan has been separately filed with the Court,

concurrently herewith.

 

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EXHIBIT B

Liquidation Analysis

 

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Wave Systems Inc.

Liquidation Analysis

 

     Chapter 11 Plan      Chapter 7 Liquidation  

Domain Name Sale Proceeds

   $ 420,000       $ 420,000   

Plan/Sale Transaction Proceeds

   $ 6,875,000       $ 3,800,000   

Less Chapter 7 Admin (1)

   $ 361,725       $ 461,725      

 

 

    

 

 

 

Net Proceeds available

   $ 6,933,275       $ 3,758,275   

Less Chapter 11 Expenses (2)

     

Less Success Fee for Growth Point

   $ 984,375       $ 570,000   

Less Chapter 7/Chapter 11 Trustee Fees

   $ 252,573       $ 160,323      

 

 

    

 

 

 

Cash Available for Distribution for Claims (3)

   $ 5,696,327       $ 3,027,952   

 

(1) Chapter 7 Admin expenses if case did not convert to ch 11 assumes an
additional $100,000 of professional fees incurred from sale closing through such
time as a TFR is approved by the Court.

(2) Chapter 11 Admin expenses are being funded by post petition lender and not
being deducted from plan proceeds.

(3) Final claims pool has not yet been determined, to the extent Allowed Claims
do not exceed available cash, excess cash will be available for distribution to
holders of Equity Interests