Form 8-K Fusion Connect, Inc. For: Oct 07
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UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date
of Report (Date of earliest event reported): October 7, 2019
Fusion Connect, Inc.
(Exact
Name of Registrant as Specified in Its Charter)
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Delaware
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001-32421
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58-2342021
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(State
or Other Jurisdiction of Incorporation)
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(Commission
File Number)
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(IRS
Employer Identification No.)
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210 Interstate North Parkway, Suite 300, Atlanta, Georgia
30339
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(Address
of Principal Executive Offices, including Zip Code)
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(212) 201-2400
(Registrant’s
Telephone Number, Including Area Code)
Not
Applicable
(Former
Name or Former Address, if Changed Since Last Report)
Check
the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant
under any of the following provisions:
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☐
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Written
communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d-2(b))
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR 240.13e-4(c))
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Securities
registered pursuant to Section 12(b) of the Act: None
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Title of each classTrading Symbol(s)Name of each exchange on which
registered
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Indicate
by check mark whether the registrant is an emerging growth company
as defined in Rule 405 of the Securities Act of 1933 (§230.405
of this chapter) or Rule 12b-2 of the Securities Exchange
Act of 1934 (§240.12b-2 of this
chapter).
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Emerging
growth company
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If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange
Act. ☐
As
previously reported, on June 3, 2019 Fusion Connect, Inc.
(“Fusion”) and its U.S. subsidiaries (collectively, the
“Debtors” and together with Fusion’s non-debtor
Canadian subsidiaries, collectively, the “Company” or
“Companies”) filed voluntary petitions (and the cases
commenced thereby, the “Chapter 11 Cases”) under
chapter 11 of title 11 of the United States Code (the
“Bankruptcy Code”) in the United States Bankruptcy
Court for the Southern District of New York (the
“Court”). The Chapter 11 Cases are being jointly
administered under the caption In
re Fusion Connect, Inc. (Case No. 19-11811). The Debtors are
operating their businesses as “debtors in possession”
under the jurisdiction of the Court and in accordance with the
applicable provisions of the Bankruptcy Code.
In
connection with the Chapter 11 Cases, on October 7, 2019, the
Debtors filed with the Court the Second Amended Joint Chapter 11
Plan of Fusion Connect, Inc. and Its Subsidiary Debtors (the
“Second Amended Plan”) and the associated Second
Amended Disclosure Statement (the “Second Amended Disclosure
Statement”). The Second Amended Plan and the Second Amended
Disclosure Statement amend the Debtors' previous plan and
disclosure statement on file (which were previously described in
and filed as exhibits to Fusion’s Form 8-K filed on September
6, 2019). Capitalized terms used but not otherwise defined in this
Current Report on Form 8-K have the meanings ascribed to them in
the Second Amended Plan or Second Amended Disclosure Statement, as
applicable.
Item 1.01 Entry into a Material Definitive Agreement
As
previously announced on October 7, 2019, Kevin Brand was appointed
as President, Chief Operating Officer and interim Chief Executive
Officer of the Company. In connection with Mr. Brand’s
appointment, on October 10, 2019 Mr. Brand and Fusion entered into
an employment agreement, dated as of October 8, 2019 (the
“Brand Employment Agreement”), pursuant to which Mr.
Brand shall be paid an annual base salary of $550,000 so long as he
serves as President, Chief Operating Officer and interim Chief
Executive Officer and an annual salary of $450,000 as President and
Chief Operating Officer. The initial term of the Brand Employment
Agreement expires on December 31, 2022 and the agreement
automatically renews for additional one-year terms, unless
terminated earlier by either party. The Brand Employment Agreement
is subject to Court approval.
The
foregoing description of the Brand Employment Agreement does not
purport to be complete and is subject to, and qualified in its
entirety by, the full text of such agreement, a copy of each of
which is filed as Exhibit 10.1 hereto.
Item
7.01.
Regulation
FD Disclosure.
The
Second Amended Plan and the Second Amended Disclosure Statement
were amended to incorporate, among other things, the global
settlement among the Debtors, the Consenting First Lien Lenders and
the Consenting Second Lien Lenders and the Rosen Consulting
Agreement. The Second Amended Disclosure Statement was approved by
the Court on October 7,
2019. The Debtors will solicit acceptances of the Second
Amended Plan by those Classes of creditors eligible to vote thereon
(the “Voting Classes”), as described in the Second
Amended Disclosure Statement.
The
Debtors intend to proceed expeditiously to commence the mailing of
ballots and other solicitation materials (the “Solicitation
Materials”) and soliciting acceptances of the Second Amended
Plan. The Debtors have requested that the Court schedule a hearing
to approve the Second Amended Plan on November 14, 2019. There can
also be no assurance that the Voting Classes will approve the
Second Amended Plan or that the Court will confirm the Second
Amended Plan. The Debtors intend to emerge from chapter 11
protection if and when the Second Amended Plan receives the
requisite acceptances as required by the Bankruptcy Code, the Court
enters an order confirming the Second Amended Plan and the
conditions to effectiveness of the Second Amended Plan, as stated
therein, are satisfied or waived in accordance with the terms of
the Second Amended Plan.
The
Second Amended Plan and the Second Amended Disclosure Statement, as
well as Court filings and other information related to the Chapter
11 Cases, are available at a website administered by the
Debtors’ claims agent, Prime Clerk, at
http://cases.primeclerk.com/Fusion. The Solicitation Materials will
also be available at http://cases.primeclerk.com/Fusion. This
Current Report on Form 8-K is not intended to be, nor should it be
construed as, a solicitation for acceptances of the Second Amended
Plan.
The
foregoing descriptions of the Second Amended Plan and the Second
Amended Disclosure Statement do not purport to be complete and are
qualified in their entirety by reference to the full text of the
Second Amended Plan and the Second Amended Disclosure Statement,
which are filed as Exhibits 99.1 and 99.2 hereto, respectively, and
are incorporated herein by reference.
In
accordance with General Instruction B.2 of Form 8-K, the
information being furnished under this Item 7.01 pursuant to this
Current Report on Form 8-K, including Exhibits 99.1 and 99.2, shall
not be deemed to be “filed” for purposes of Section 18
of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), or otherwise subject to the
liabilities of that section, nor shall it be deemed incorporated by
reference into any registration statement or other document filed
by Fusion under the Securities Act of 1933, as amended (the
“Securities Act”), or the Exchange Act, except as
expressly set forth by specific reference in such
filing.
Cautionary Statements Regarding Trading in Fusion’s
Securities
Fusion
cautions that trading in its securities during the pendency of the
Chapter 11 Cases is highly speculative and poses substantial risks.
Trading prices for Fusion’s securities may bear little or no
relationship to the actual recovery, if any, by holders of
Fusion’s securities in the Chapter 11 Cases. The Second
Amended Plan contemplates that, on the Effective Date, all of the
Parent Equity Interests will be extinguished and shall be of no
further force and effect, whether surrendered for cancellation or
otherwise, and holders of Parent Equity Interests will not receive
any recovery on account of those Interests.
Cautionary Statements Regarding Forward-Looking
Information
Certain
statements in this Current Report on Form 8-K constitute
“forward-looking statements” within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange
Act. Statements that are not historical fact are forward-looking
statements. Certain of these forward-looking statements can be
identified by the use of words such as “believes,”
“anticipates,” “expects,”
“intends,” “plans,” “projects,”
“estimates,” “assumes,” “may,”
“should,” “could,” “shall,”
“will,” “seeks,” “targets,”
“future,” or other similar expressions. Such
forward-looking statements involve known and unknown risks,
uncertainties and other important factors and the Company’s
actual results, performance or achievements could differ materially
from future results, performance or achievements expressed in these
forward-looking statements. Such statements include, but are not
limited to, statements relating to: the failure to obtain Court
approval of the Brand Employment Agreement, or if such agreements
are approved by the Court, to consummate the transactions
contemplated thereby, the terms of the potential transactions
contemplated by the RSA, the Second Amended Plan and the Second
Amended Disclosure Statement. the Chapter 11 Cases and Court
proceedings. the anticipated mailing date of the Solicitation
Materials; management’s strategy, plans, opportunities,
objectives, expectations, or intentions. and descriptions of
assumptions underlying any of the above matters and other
statements that are not historical fact.
These
forward-looking statements are based on the Company’s current
beliefs, intentions and expectations and are not guarantees or
indicative of future performance, nor should any conclusions be
drawn or assumptions be made as to the outcome of any potential
transactions or strategic initiatives the Company considers. Risks
and uncertainties relating to the proposed restructuring include:
ability of the Company to comply with the terms of the RSA and the
DIP Credit Agreement, including completing various stages of the
restructuring within the dates specified in the RSA and DIP Credit
Agreement, as amended. ability of the Company to obtain and
maintain requisite support for the Amended Plan from the required
Voting Classes. ability of the Second Amended Plan to satisfy all
requirements necessary for confirmation by the Court. ability
of the
Company to successfully execute the transactions contemplated by
the RSA, the Second Amended Plan and/or the Second Amended
Disclosure Statement without substantial disruption to its
business. high costs of bankruptcy proceedings and related fees,
including the risk that the restructuring will take longer than
anticipated. actions and decisions of the Company’s creditors
and other third parties who have interests in the Chapter 11 Cases
that may be inconsistent with the Company’s operational and
strategic plans. ability of the Company to continue as a going
concern. and the effects of disruption from the proposed
restructuring making it more difficult to maintain business,
financing and operational relationships, to retain key executives
and to maintain various licenses and approvals necessary for the
Company to conduct its business. Important assumptions and other
important factors that could cause actual results to differ
materially from these forward-looking statements include, but are
not limited to, those factors, risks and uncertainties described in
more detail in the risk factors set forth in Exhibit 99.3 to
Fusion’s Current Report on Form 8-K filed on July 2, 2019
with the Securities and Exchange Commission (the “SEC”)
and other filings with the SEC.
The
above factors, risks and uncertainties are difficult to predict,
contain uncertainties that may materially affect actual results and
may be beyond the Company’s control. New factors, risks and
uncertainties emerge from time to time, and it is not possible for
management to predict all such factors, risks and uncertainties.
Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of
the assumptions could be inaccurate, and therefore any of these
statements may prove to be inaccurate. In light of the significant
uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as
a representation by the Company or any other person that the
results or conditions described in such statements or the
Company’s objectives and plans will be achieved. These
forward-looking statements speak only as of the date such
statements were made or any earlier date indicated, and the Company
does not undertake any obligation to update or revise any
forward-looking statements, whether as a result of new information,
future events, changes in underlying assumptions or otherwise. If
the Company were in any particular instance to update or correct a
forward-looking statement, investors and others should not conclude
that the Company would make additional updates or corrections
thereafter.
Item 9.01. Financial Statements and Exhibits.
(d)
Exhibits.
See
Exhibit Index.
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EXHIBIT INDEX
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Exhibit
Number
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Description
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Employment
Agreement, dated as of October 8, 2019, between Fusion Connect,
Inc. and Kevin Brand
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Second
Amended Joint Chapter 11 Plan of Fusion Connect, Inc. and Its
Subsidiary Debtors, dated October 7, 2019
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Second
Amended Disclosure Statement for Amended Joint Chapter 11 Plan of
Fusion Connect, Inc. and Its Subsidiary Debtors, dated October 7,
2019.
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SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
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Fusion
Connect, Inc.
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Date:
October 11, 2019
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By:
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/s/
James P. Prenetta, Jr.
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Name:
James P. Prenetta, Jr.
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Title:
Executive Vice President and General Counsel
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Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS
EMPLOYMENT AGREEMENT
(“Agreement”)
is made and entered into as of the 8th day of October, 2019 (the
“Execution
Date”) and shall automatically become effective when
it has been approved by the United States Bankruptcy Court for the
Southern District of New York (the
“Effective
Date”), by and
between Fusion Connect, Inc., a Delaware corporation (the
“Fusion”),
and Kevin Brand (the “Executive”).
W I T N E S S E T H:
WHEREAS, on June 3, 2019, Fusion and
each of its U.S. subsidiaries (collectively, the
“Debtors”)
commenced voluntary cases under chapter 11 of title 11 of the
United States Code, 11 U.S.C. §§ 101 et seq.
(“Chapter
11”), in the United States Bankruptcy Court for the
Southern District of New York (the “Bankruptcy
Court”), which cases are being jointly administered
under the caption In re Fusion Connect, Inc., et al, Case No.
19-18111 (SMB);
WHEREAS, the Debtors filed the
Second Amended Joint Plan of
Reorganization of Fusion Connect, Inc. and Its Subsidiary
Debtors, dated as of October 7, 2019 [ECF No. 455] (as it
may be further amended, modified and supplemented from time to
time, the “Amended Plan”)
with the Bankruptcy Court;
WHEREAS, the Debtors expect the Amended
Plan to be approved by the Bankruptcy Court on or about November 7,
2019, and for the Debtors to emerge from Chapter 11 prior to
December 31, 2019;
WHEREAS, Executive currently serves as
Senior Vice President, Customer Experience for Fusion and each of
its subsidiaries (collectively, the “Companies”);
WHEREAS, Fusion wishes to promote
Executive to the position of President and Chief Operating Officer
of the Companies and for Executive to serve as interim Chief
Executive Officer of the Companies until a successor Chief
Executive Officer is retained by Fusion; and
WHEREAS, Executive is willing to assume
the roles of President and Chief Operating Officer and interim
Chief Executive Officer of the Companies.
NOW THEREFORE, Fusion and Executive,
intending to be legally bound, hereby mutually covenant and agree
as follows:
ARTICLE I
Employment and
Term
1.1
Employment and
Term. Fusion hereby agrees to employ Executive and Executive
hereby agrees to serve the Companies, on the terms and conditions
set forth herein, for the period commencing on the Effective Date
and expiring on December 31, 2022 (the “Initial
Term”), unless sooner terminated as hereinafter set
forth; provided, however, that the Initial Term shall automatically
be extended for an additional one (1) year period thereafter (the
“Term
Extension,” together with the
Initial Term, the “Employment
Period”) unless and until one party provides the other
party with written notice of its intent to terminate the Initial
Term no less than ninety (90) days prior to its expiration. This
Agreement shall supersede and replace any prior agreements
concerning the terms of Executive’s employment with any of
the Companies, including, for the avoidance of doubt the employment
agreement, dated October 30, 2017, by and between Fusion and
Executive, but excluding the Key Employee Retention Bonus, dated as
of May 28, 2019 (the “KERP
Agreement”), which shall remain in force and
effect.
1.2 Duties
of Executive. For the Employment Period, Executive shall
serve as the President and Chief Operating Officer of the Companies
and shall have powers and authority normally associated with that
position. In addition, Executive shall serve as Chief Executive
Officer of the Companies until such time as the Board of Directors
of Fusion (the “Board”)
hires a successor Chief Executive Officer. So long as Executive
serves as Chief Executive Officer, he shall have powers and
authority superior to any other officer or employee of the
Companies and shall be required to report solely to, and shall be
subject solely to the supervision and direction of, the Board and
no other person or group shall be given authority to supervise or
direct Executive in the performance of his duties. When a successor
Chief Executive Officer is retained by the Board, Executive shall
report to such person. Executive shall devote substantially all his
working time and attention to the business and affairs of the
Companies (excluding any vacation and sick leave to which the
Executive is entitled), render such services to the best of his
ability, and use his reasonable best efforts to promote the
interests of the Companies. It shall not be a violation of this
Agreement for Executive to (a) serve on corporate, civic or
charitable boards or committees, (b) deliver lectures, fulfill
speaking engagements or teach at educational institutions, and (c)
manage personal investments, so long as such activities do not
interfere in any material manner with the performance of the
Executive’s responsibilities hereunder.
1.3 Place
of Performance. In connection with his employment by Fusion,
the Executive shall be based at the principal executive offices for
the Companies located in Atlanta, Georgia, except for travel
reasonably necessary in connection with business performed on
behalf of the Companies.
ARTICLE II
Compensation and
Benefits
2.1 Base
Salary. With retroactive effect back to the Effective Date,
Executive shall receive an initial annual base salary of
$550,000.00, which amount shall remain in effective until either
(i) the United States Bankruptcy Court for the Southern District of
New York takes action to reject this Agreement or (ii) a successor
Chief Executive Officer is appointed by the Board at which time
Executive’s annual base salary shall be reduced to
$450,000.00 (the “Base
Salary”). The Base Salary shall be payable in
installments consistent with the normal payroll schedule of the
Companies, but in no event less frequently than monthly, and
subject to applicable withholding and other taxes. The Base Salary
shall be reviewed by the Board (or authorized committee thereof) on
an annual basis. Except for the reduction contemplated above, the
Base Salary, at the level indicated above or if subsequently
increased, shall not thereafter be decreased for any
reason.
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2.2 Annual
Incentive Compensation. With effect from January 1, 2020,
for each calendar year during the Employment Period Executive shall
be entitled to receive annual bonus payments and/or incentive
compensation based upon the achievement of corporate and individual
performance targets, which shall be determined by the Board (or any
authorized committee thereof) within the first 90 days of each
calendar year. Such potential bonus payments and/or incentive
compensation shall be considered at least annually by the Board (or
committee, if applicable) and shall be determined in good faith by
the Board (or committee, if applicable) based upon actual corporate
and individual performance for such year and shall be payable in
accordance with the procedures specified by the Board (or
committee, if applicable). Executive’s annual bonus targeted
amount while serving as Chief Executive Officer shall be seventy
five percent (75%) of Executive’s Base Salary then in effect.
Once a successor Chief Executive Officer is appointed by the Board,
Executive’s annual bonus targeted amount while serving as
President and Chief Operating Officer shall be fifty percent (50%)
of Executive’s Base salary then in effect. During a year in
which Executive serves as both Chief Executive Officer and
President and Chief Operating Officer, his bonus percentage shall
be prorated based on days served in each role. Annual bonus
payments and/or incentive compensation shall be paid no later than
March 15th of the year following the end of the performance
period.
2.3 Equity
Compensation.
(a) Executive
shall be entitled to participate in all equity compensation plans
provided by any of the Fusion’s U.S. subsidiaries (the
“Plans”)
in effect during the term of this Agreement.
(b) Within
sixty (60) days following the effective date of the Amended Plan,
Fusion shall grant Executive either (i) options to purchase shares
of Fusion’s common stock, or (ii) shares of restricted common
stock of Fusion, which grant will be made pursuant to the terms of
a management incentive plan to be adopted by Fusion promptly
following the effective date of the Amended Plan. The methodology
for determining the amount, terms, conditions, and restrictions of
such equity-based awards will be comparable to the methodology used
by the Compensation Committee of the Board for other senior
executives of the Companies having a similar level title and/or
level of responsibility (which, at all times that Executive is
serving as Chief Executive Officer or President and Chief Operating
Officer, shall mean other direct reports to the Chief Executive
Officer) (“Comparable
Executives”). If the equity-based award contemplated
by this paragraph is granted while Executive is serving as Chief
Executive Officer, such equity-based award shall be in excess of
equity-based awards granted to any Comparable Executive and shall
represent an amount equal to, or in excess of, the percentage by
which Executive’s overall compensation exceeds the annual
overall compensation of the next highest paid Comparable
Executive.
(c) The
grant contemplated by clause (b) above as well as any subsequent
equity-based grants made to Executive shall have termination and
“Change in Control” (as hereinafter defined) vesting
terms comparable to equity-based grants made concurrently to
Comparable Executives. Moreover, all equity-based awards held by
Executive as of immediately prior to any “Change in
Control” shall vest in full immediately upon a
termination of Executive’s employment pursuant to
Section
3.5 within one (1) year following a Change in Control, with
all applicable performance-based vesting conditions, if any, deemed
fully satisfied.
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(d) During
the Employment Period, Executive shall be eligible to receive, from
time to time, other equity-based awards in amounts, and subject to
such terms, conditions, and restrictions as determined by the
Compensation Committee of the Board in its sole discretion. The
methodology for determining the amount, terms, conditions, and
restrictions of Executive’s equity-based awards during the
Employment Period will be comparable to the methodology used by the
Compensation Committee of the Board for Comparable Executives,
subject to any market or performance adjustments.
2.4 Expense
Reimbursement. During the Employment Period, Fusion, upon
the submission of reasonable supporting documentation by Executive,
shall reimburse Executive for all reasonable expenses actually paid
or incurred by Executive in the course of, and pursuant to, the
business of the Companies, including expenses for travel and
entertainment, in accordance with the applicable policies of the
Companies as in effect from time to time. Expenses shall be
reimbursed under this Section
2.4 within sixty
(60) days of submission of reasonably supporting documentation by
Executive.
2.5 Incentive,
Savings and Retirement Plans. During the Employment Period,
Executive shall be entitled to participate in all incentive,
savings and retirement plans, practices, policies and programs, in
effect from time to time, applicable to Comparable Executives. Such
plans, practices, policies and programs, in the aggregate, shall
provide Executive with compensation, benefits and reward
opportunities comparable to the compensation, benefits and reward
opportunities provided at any time hereafter to Comparable
Executives, subject to any market or performance
adjustments.
2.6 Welfare
Benefit Plans. During the Employment Period, Executive
and/or Executive’s spouse and eligible dependents, as the
case may be, shall be eligible for participation in, and shall
receive all benefits under, welfare benefit plans, practices,
policies and programs provided by the Companies (including, without
limitation, medical, prescription, dental, short term disability,
long term disability, salary continuance, employee life, group
life, accidental death and travel accident insurance plans and
programs), that are comparable to those in effect from time to time
provided to Comparable Executives.
2.7 Working
Facilities. During the Employment Period, Fusion shall
furnish the Executive with an office and such other facilities and
services suitable to his position and adequate for the performance
of his duties hereunder.
2.8 Vacation.
During the Employment Period, the Executive shall be entitled to
five (5) weeks paid vacation per year, subject to the practices of
the Companies as in effect from time to time. In the event the
Companies change to a paid time off policy, the number of days of
paid time off to which Executive shall be entitled shall be
increased to give effect to his vacation entitlement such that he
shall receive no less than five weeks of paid time
off.
2.9 Indemnification;
D&O Insurance. Fusion shall at all times maintain
directors’ and officers’ liability insurance coverage
in an amount determined to be commercially reasonable by the Board
based on such insurance coverage maintained by private companies
operating in the cloud computing or telecommunications sector and
comparable to Fusion in size, pursuant to which Executive shall be
covered on a basis that is comparable to the coverage provided to
any director or executive officer of the Companies, and Fusion
shall otherwise indemnify Executive to the fullest extent permitted
by applicable law, whether under Fusion’s governing documents
or otherwise.
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ARTICLE III
Termination
3.1 Termination
for Cause. Notwithstanding anything contained in this
Agreement to the contrary, this Agreement may be terminated by
Fusion for Cause. As used in this Agreement, “Cause”
means (a) subject to the following sentences, an act or acts of
personal dishonesty taken by Executive and intended to result in
personal enrichment of Executive at the expense of the Companies
and that are not remedied within thirty (30) days after receipt of
written notice thereof from Fusion, (b) subject to the following
sentences, violation by Executive of any material obligations of
Executive under this Agreement which are demonstrably willful and
deliberate on Executive’s part and which are not remedied
promptly (but in any event within thirty (30) days) after receipt
of written notice thereof from Fusion, (c) the conviction of the
Executive for any criminal act which is a felony, (d) any willful
misconduct that is materially harmful to the business or reputation
of the Companies that is not remedied within thirty (30) days after
receipt of written notice from Fusion, or (e) Executive’s
willful and continued failure to follow reasonable lawful
directives of the person(s) to whom the Executive reports that is
not remedied within thirty (30) days after receipt of written
notice from Fusion. Upon any determination by the Board that Cause
exists under clauses (a), (b), (d), or (e) of the preceding
sentence, the Board shall cause a special meeting of the Board to
be called and held at a time mutually convenient to the Board and
Executive, but in no event later than ten (10) business days after
Executive’s receipt of the notice contemplated by clauses
(a), (b), (d) and (e). Executive shall have the right to appear
before such special meeting of the Board with legal counsel of his
choosing to refute any determination of Cause specified in such
notice, and any termination of Executive’s employment by
reason of such Cause determination shall not be effective until
Executive is afforded such opportunity to appear, unless Executive
fails to make himself available during such ten (10) business day
period. Any termination for Cause pursuant to clause (a), (b), (d)
or (e) of the first sentence of this Section 3.1
shall be made in writing by the Board to Executive, which notice
shall set forth in reasonable detail all acts or omissions upon
which the Board is relying for such termination. Upon notice to
Executive and pending the Board’s determination of Cause as
set forth herein, Executive may be suspended from his position and
duties with pay (and notwithstanding anything to the contrary, no
such suspension shall constitute grounds for Good Reason
hereunder). Upon any termination pursuant to this Section 3.1,
Executive shall be entitled to be paid his Base Salary to the date
of termination and Fusion shall have no further liability hereunder
(other than for reimbursement for reasonable business expenses
incurred prior to the date of such termination). For purposes of
this provision, no act or failure to act, on the part of Executive,
shall be considered “willful” unless it is done, or
omitted to be done, by Executive in bad faith or without reasonable
belief that Executive’s action or omission was in the best
interests of the Companies. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board
or based upon the advice of counsel for Fusion shall be
conclusively presumed to be done, or omitted to be done, by
Executive in good faith and in the best interests of the Companies.
If the Board does not deliver to Executive written notice of
termination within ninety (90) days after the Board has actual
knowledge that an event constituting Cause has occurred, the event
will no longer constitute Cause.
5
3.2 Disability.
Notwithstanding anything contained in this Agreement to the
contrary, the Board, by written notice to Executive, shall at all
times have the right to terminate this Agreement, and
Executive’s employment hereunder, as a result of
Executive’s Disability. As used in this Agreement,
“Disability”
means the absence of Executive from Executive’s duties and
responsibilities provided for herein for a period of more than
ninety (90) consecutive days in any 12-month period as a result of
incapacity due to mental or physical illness, which is reasonably
determined by a physician selected by Fusion and acceptable to
Executive to render Executive unable to perform his duties for an
additional period of ninety (90) or more days during the then
ensuing 12-month period. In such event, Executive’s
employment with Fusion shall terminate effective on the tenth
(10th) day
after receipt of such notice by Executive (the “Disability
Effective Date”), provided that, within the ten (10)
days after such receipt, Executive shall not have returned to
full-time performance of Executive's duties. Subject to Section
3.7, upon any termination pursuant to this Section 3.2,
Executive shall be entitled to be paid an amount equal to his Base
Salary for a period of six (6) months. In addition, Executive shall
be entitled to any earned but unpaid bonus payments, incentive
compensation and/or equity compensation pursuant to Article II
above, any accrued but unused vacation pay, reimbursement for
reasonable business expenses incurred prior to the date of
termination (collectively, the “Accrued
Obligations”), as well as any applicable disability
income payments under any disability income plan of the
Companies.
3.3 Death.
In the event of the death of Executive during the term of this
Agreement, Fusion shall pay the estate of Executive an amount equal
to six (6) months of Base Salary. In addition, Executive’s
estate shall be entitled to the Accrued Obligations, as well as any
applicable life insurance benefits under any life insurance plan of
the Companies.
3.4 Optional
Termination. Notwithstanding anything contained in this
Agreement to the contrary, Executive shall, by giving Fusion no
less than thirty (30) days prior written notice, have the right to
terminate this Agreement at his sole discretion. Upon any
termination pursuant to this Section 3.4,
the Executive shall be entitled to be paid his Base Salary to the
date of termination and Fusion shall have no further liability
hereunder (other than the Accrued Obligations), unless the
Executive and Fusion agree to a different arrangement.
6
3.5 Termination
Without Cause.
(a) At
any time during the Employment Period while Executive is serving as
Chief Executive Officer, Fusion shall have the right to terminate
Executive’s employment hereunder by written notice to
Executive; provided, however, that in addition to the Accrued
Obligations, Fusion shall (a) pay, or cause to be paid, to
Executive in cash, in twenty four (24) equal monthly installments,
after the effective date of the termination, the pro-rata portion
of his target annual bonus amount for the calendar year in which
his termination has occurred, (b) pay, or cause to be paid, to
Executive, in cash, in twenty four (24) equal monthly installments,
after the effective date of the termination, an amount equal to one
hundred fifty percent (150%) of his Base Salary then in effect
plus an amount equal to one
hundred fifty percent (150%) of the maximum annual bonus amount
contemplated by Section 2.2 as if Executive and the Company
achieved all targets and objectives for that year, in all cases
subject to Section 3.7,
and (c) use reasonable efforts to maintain Executive’s
coverage (and, where applicable, the coverage for his spouse and
eligible dependents) under the medical plan(s) maintained by the
Companies for the duration of the Post-Employment Restricted Period
(as defined below) on the same terms as immediately prior to the
termination of Executive’s employment, provided that, in the
event that such coverage cannot be maintained, Fusion shall, for
the duration of the Post-Employment Restricted Period, reimburse
Executive for premiums paid by Executive to continue such coverage
pursuant to COBRA. At any time during the Employment Period while
Executive is serving as President and Chief Operating Officer,
Fusion shall have the right to terminate Executive’s
employment hereunder by written notice to Executive; provided,
however, that in addition to the Accrued Obligations, Fusion shall
(a) pay, or cause to be paid, to Executive in cash, in twenty four
(24) equal monthly installments, after the effective date of the
termination, the pro-rata portion of his target annual bonus amount
for the calendar year in which his termination has occurred, (b)
pay, or cause to be paid, to Executive, in cash, in twenty four
(24) equal monthly installments, after the effective date of the
termination, an amount equal to one hundred percent (100%) of his
Base Salary then in effect plus an amount equal to one hundred
percent (100%) of his annual bonus contemplated by Section 2.2 as
if Executive and the Company achieved all targets and objectives
for that year, in all cases subject to Section 3.7,
and (c) use reasonable efforts to maintain Executive’s
coverage (and, where applicable, the coverage for his spouse and
eligible dependents) under the medical plan(s) maintained by the
Companies for the duration of the Post-Employment Restricted Period
(as defined below) on the same terms as immediately prior to the
termination of Executive’s employment, provided that, in the
event that such coverage cannot be maintained, Fusion shall, for
the duration of the Post-Employment Restricted Period, reimburse
Executive for premiums paid by Executive to continue such coverage
pursuant to COBRA. Fusion shall be deemed to have terminated the
Executive’s employment pursuant to this Section 3.5
if such employment is terminated (a) by Fusion without Cause, or
(b) by the Executive voluntarily for “Good Reason.” For
purposes of this Agreement, “Good
Reason” means the occurrence of any of the following
events, in each case without Executive’s consent;
provided that, in each
case, (A) Executive shall provide Fusion with written notice
specifying the circumstances alleged to constitute Good Reason
within ninety (90) days following the first occurrence of such
circumstances; (B) Fusion shall have an opportunity to promptly (in
any event within thirty (30) days following receipt of such notice)
cure such circumstances; and (C) if Fusion has not cured such
circumstances within such thirty (30)-day period, Executive shall
terminate his employment not later than sixty (60) days after the
end of such thirty (30)-day period:
(i) the
assignment to Executive of any duties inconsistent in any material
respect with his position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by Section 1.2
of this Agreement, or any other action by the Companies that
results in a material diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and
which is remedied by Fusion after receipt of notice thereof given
by Executive in accordance with the terms described
above;
(ii)
any material failure by the Companies to comply with any of the
provisions of Article II
or Section 5.9
of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is
remedied by the Fusion after receipt of notice thereof given by
Executive in accordance with the terms described
above;
7
(iii) Fusion
requiring Executive to be based at any office or location more than
thirty (30) miles from the offices of the Companies located at 210
Interstate North Parkway, Atlanta, Georgia, except for travel
reasonably required in the performance of Executive’s
responsibilities;
(iv) any
change in the designation of the position or role that Executive is
obligated to report to under Section 1.2
hereof;
(v) any
purported termination by Fusion of Executive’s employment
otherwise than as expressly permitted by this Agreement;
or
(vi) any
failure by the Companies to comply with and satisfy Section
5.3(c) of this Agreement.
(b) All
payments pursuant to Section 3.5
are conditioned upon Executive’s execution and delivery of a
release (the “Release”)
of any and all claims that Executive may have against the Companies
and their directors, officers or stockholders related to
Executive’s employment and/or termination of employment and
such release becoming effective and irrevocable in accordance with
its terms on or before the 30th day following
Executive’s termination of employment. If Executive fails to
execute and deliver the Release, or if the Release has not become
effective and irrevocable by the 30th day after the date
of Executive’s termination of employment, Executive shall not
be entitled to any payments pursuant to Section 3.5;
provided,
however, that if
the 30-day period begins in one taxable year and ends in a second
taxable year, such payments shall not commence until the second
taxable year. The Release shall be in a form satisfactory to Fusion
and shall be a general release of all claims, except that such
release shall not include and shall not limit or release (A)
Executive’s rights or claims relating to the obligations of
Fusion under this Agreement that are conditioned upon execution of
the Release; (B) Executive’s rights to indemnification from
the Companies in respect of Executive’s services as a
director, officer or employee of the Companies (or of any entity
for which Executive has served in any such capacity or a similar
capacity at the request of the Companies) as provided by law, any
indemnification agreement or similar agreement by and between
Fusion and Executive, the certificates of incorporation or bylaws
(or like constitutive documents), or any of Executive’s
rights to payment under any director’s and officer’s
liability insurance carried by the Companies; (C) Executive’s
entitlement, if any, to continued medical, dental and vision
insurance coverage under and pursuant to COBRA; (D) any rights of
Executive under any welfare benefit plan, practice or program
provided by the Companies (including medical, dental, short-term
and long-term disability, salary continuance, life insurance,
accidental death and travel accident insurance plans and programs)
in which Executive participated prior to the termination date; or
(E) any rights or claims of Executive that may arise out of events
occurring after the effective date of the Release. Fusion shall
promptly deliver the Release to Executive upon termination of his
employment.
3.6 Benefits.
Except as otherwise expressly provided herein or in the applicable
plan, Executive’s accrual of, or participation in plans
providing for, the benefits pursuant to Sections
2.6 and 2.7 shall
cease at the effective date of the termination of employment under
this Agreement, and Executive shall be entitled to accrued benefits
pursuant to such plans only as provided in such plans.
8
3.7 Section
409A.
(a) This
Agreement is intended to comply with or otherwise be exempt from
Section 409A and its corresponding regulations, to the extent
applicable, and shall be so construed. Notwithstanding anything in
this Agreement to the contrary, payments of “nonqualified
deferred compensation” subject to Section 409A may only be
made under this Agreement upon an event and in a manner permitted
by Section 409A, to the extent applicable. For purposes of Section
409A, all payments of “nonqualified deferred
compensation” subject to Section 409A to be made upon the
termination of Executive’s employment under this Agreement
may only be made upon a “separation from service” under
Section 409A. Each payment made under this Agreement shall be
treated as a separate payment and the right to a series of
installment payments under this Agreement is to be treated as a
right to a series of separate payments. In no event shall
Executive, directly or indirectly, designate the calendar year of
payment with respect to any amount that is “nonqualified
deferred compensation” subject to Section 409A. All
reimbursements provided under this Agreement that are
“nonqualified deferred compensation” that is subject to
Section 409A shall be made or provided in accordance with Section
409A, including, where applicable, the requirements that (a) any
reimbursement is for expenses incurred during the Employment Period
(or during such other time period specified in this Agreement), (b)
the amount of expenses eligible for reimbursement during a calendar
year may not affect the expenses eligible for reimbursement in any
other calendar year, (c) the reimbursement of an eligible expense
will be made on or before the last day of the taxable year
following the year in which the expense is incurred, and (d) the
right to reimbursement is not subject to liquidation or exchange
for another benefit. Nothing herein shall be construed as having
modified the time and form of payment of any amounts or payments of
“nonqualified deferred compensation” within the meaning
Section 409A that were otherwise payable pursuant to the terms of
any agreement between Fusion and Executive in effect prior to the
date of this Agreement.
(b) If
Executive is considered a “specified employee” (as
defined under Section 409A) and payment of any amounts under this
Agreement is required to be delayed for a period of six (6) months
after separation from service pursuant to Section 409A, payment of
such amounts shall be delayed as required by Section 409A, and the
accumulated postponed amounts shall be paid in a lump-sum payment
within five (5) days after the end of the six (6) month period. If
Executive dies during the postponement period prior to the payment
of benefits, the amounts postponed on account of Section 409A shall
be paid to the personal representative of Executive’s estate
within sixty (60) days after the date of Executive’s
death.
9
3.8 Definition
of “Change in Control”. For purposes of this
Agreement, a “Change in
Control” shall mean:
(i) Except
for the change in control contemplated by the Amended Plan and the
subsequent change in control that will result from the exercise of
Special Warrants (as defined in the Amended Plan) according to the
terms of the Amended Plan, the acquisition (other than by or from
Fusion) by any unaffiliated person, entity or “group”,
within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934 (the “Exchange
Act”), of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the combined voting power
of Fusion’s then outstanding voting securities entitled to
vote generally in the election of directors; or
(ii) All
or any of the individuals appointed to the Board on the effective
date of the Amended Plan (the “Incumbent
Board”) cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director
subsequent to the effective date of the Amended Plan whose
election, or nomination for election by Fusion’s
stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (other than an
election or nomination of an individual whose initial assumption of
office is in connection with an actual or threatened election
contest relating to the election of the directors of Fusion, as
such terms are used in Rule 14a-l l of Regulation 14A promulgated
under the Exchange Act) shall be, for purposes of this Agreement,
considered as though such person were a member of the Incumbent
Board; or
(iii) Following
the effective date of the Amended Plan, (A) a reorganization,
merger or consolidation with respect to which persons who were the
stockholders of Fusion immediately prior to such reorganization,
merger or consolidation do not, immediately thereafter, own more
than fifty percent (50%) of the combined voting power entitled to
vote generally in the election of directors of the reorganized,
merged or consolidated company’s then outstanding voting
securities, (B) a liquidation or dissolution of Fusion, or (C) the
sale of all or substantially all of the assets of the Companies;
or
(iv) Following
the effective date of the Amended Plan, the sale, distribution
and/or other transfer or action (and/or series of sales,
distributions and/or other transfers or actions from time to time
or over a period of time), that results in Fusion’s ownership
of less than fifty percent (50%) of consolidated assets of the
Companies.
10
ARTICLE IV
Restrictive
Covenants
4.1 Nondisclosure.
During the Employment Period and for twenty four (24) months
thereafter, Executive shall not divulge, communicate, use to the
detriment of the Companies or for the benefit of any other person
or persons, or misuse in any way, any Confidential Information
pertaining to the business of the Companies. Any Confidential
Information or data now or hereafter acquired by Executive with
respect to the business of the Companies shall be deemed a
valuable, special and unique asset of Fusion that is received by
the Executive in confidence and as a fiduciary, and Executive shall
remain a fiduciary to Fusion with respect to all of such
information. For purposes of this Agreement, “Confidential
Information” means all material information about the
business of the Companies disclosed to the Executive or known by
the Executive as a consequence of or through his employment by
Fusion (including information conceived, originated, discovered or
developed by Executive) after the date hereof, and not generally
known or readily available to the public. The above restrictions
shall not apply to: (a) information that at the time of disclosure
is in the public domain through no fault of Executive; (b)
information received from a third party outside of Fusion that was
disclosed without a breach of any confidentiality obligation; (c)
information approved for release by a written authorization of
Fusion; or (d) information that may be required by law or an order
of any court, agency, or proceeding to be disclosed. For the
avoidance of doubt, nothing herein is intended to or shall prohibit
Executive from utilizing any knowledge, information, business
techniques and/or methods that Executive knew prior to his
affiliation with the Companies, or that are generally known and
used by persons with training and experience comparable to that of
Executive, or that are common knowledge in the industry. Moreover,
nothing in this Agreement is intended to or shall limit any
party’s ability to (x) report possible violations of federal
securities laws to the appropriate government enforcing agency and
make such other disclosures that are expressly protected under
federal or state “whistleblower” laws or (y) respond to
inquiries from, or otherwise cooperate with, any governmental or
regulatory investigation. Additionally, Executive shall not be held
criminally or civilly liable under any federal or state trade
secret law for the disclosure of a trade secret that is made (i) in
confidence to a federal, state, or local government official, or to
an attorney, solely for the purpose of reporting or investigating a
suspected violation of law, or (ii) in a complaint or other
document filed in a lawsuit or other proceeding, if such filing is
made under seal. If Executive files a lawsuit for retaliation by
Fusion for reporting a suspected violation of law, Executive may
disclose the trade secret to Executive’s attorney and use the
trade secret information in the court proceeding, if Executive
files any document containing the trade secret under seal and does
not disclose the trade secret, except pursuant to court
order.
4.2 Nonsolicitation
of Employees. During the Employment Period and for a period
of eighteen (18) months thereafter, Executive shall not directly or
indirectly, for himself or for any other person, firm, corporation,
partnership, association or other entity, attempt to employ or
enter into any contractual arrangement with any employee of the
Companies or former employee of the Companies, unless such employee
or former employee has not been employed by Fusion or one of its
subsidiaries for a period in excess of three (3) months.
Notwithstanding the foregoing, the provisions of this Section 4.2
shall not be violated by (a) general advertising or solicitation
not specifically targeted at employees of the Companies or (b)
actions taken by any person or entity with which Executive is
associated if Executive is not directly or personally involved in
any manner in such solicitation or recruitment and has not
identified such employee for recruiting or
solicitation.
11
4.3 Covenant
Not to Compete. Executive will not, at any time, during the
Employment Period, and for a period of twenty four (24) months
thereafter (the “Post-Employment
Restricted Period”), either directly or indirectly,
engage in, with or for any enterprise, institution, whether or not
for profit, business, or company, competitive with the Business (as
defined herein) of the Companies as such Business is conducted on
the date thereof, as a creditor, guarantor, or financial backer,
stockholder, director, officer, consultant, advisor, employee,
member, or otherwise of or through any corporation, partnership,
association, sole proprietorship or other entity; provided, that an
investment by Executive, his spouse or his children is permitted if
such investment is not more than one percent (1%) of the total debt
or equity capital of any such competitive enterprise or business.
As used in this Agreement, the “Business”
of the Companies shall be deemed to include the provision of any
form of traditional communications services, Internet based video
conferencing services, Unified communications as a service
(“UCaaS”),
clouding computing, cloud connectivity, cloud storage, cloud
security and software as a service (“SaaS”).
The foregoing prohibition shall not prevent Executive’s
employment or engagement after the Employment Period (a) by any
entity as long as the activities of such employment or engagement
do not involve work on matters related to the Business or (b) by an
investment fund that invests in entities engaged in the Business so
long as Executive is not employed or engaged as an executive
officer or director of such entity engaged in the Business. This
covenant not to compete for the Post-Employment Restricted Period
shall only be effective if Executive has received all compensation
and benefits due to him pursuant to this Agreement, including but
not limited to compensation and benefits under Section 3.5,
to the extent applicable. For the avoidance of doubt, in the event
of Fusion’s non-renewal of Executive’s employment
following expiration of the Initial Term or any Term Extension in
accordance with Section 1.1,
the covenant not to compete for twenty four (24) months shall only
apply if and to the extent that Fusion elects to pay severance to
Executive in an amount equivalent in all respects to that which he
would be entitled to receive as if he was terminated Without Cause
pursuant to Section 3.5.
Fusion shall have the right in its sole discretion to waive this
non-compete clause, in whole or in part.
4.4 Mutual
Non-disparagement. Executive agrees that he will not,
directly or indirectly, individually or in concert with others,
engage in any conduct or make any statement that is likely to have
the effect of undermining or disparaging the reputation of the
Companies, or their good will, products, or business opportunities,
or that is likely to have the effect of undermining or disparaging
the reputation of any officer, director, agent, representative or
employee, past or present, of the Companies. Fusion agrees that,
except for circumstances relating to a termination of
Executive’s employment by Fusion for Cause, its executive
officers or directors shall not directly or indirectly,
individually or in concert with others, engage in any conduct or
make any statement that is likely to have the effect of undermining
or disparaging the reputation of Executive.
4.5 Injunction.
It is recognized and hereby acknowledged by the parties that a
breach by Executive of any of the covenants contained in
Sections
4.1, 4.2,
4.3 or
4.4 of this
Agreement will cause irreparable harm and damage to Fusion or the
Companies, as the case may be, the monetary amount of which may be
virtually impossible to ascertain. As a result, Executive
recognizes and hereby acknowledges that Fusion shall be entitled to
seek an injunction from any court of competent jurisdiction in
Manhattan, New York enjoining and restraining any violation of any
or all of the covenants contained in this Article IV
by the Executive, and that such right to injunction shall be
cumulative and in addition to whatever other remedies Fusion may
possess.
4.6 Recoupment
upon Breach of Restrictive Covenants. In the event that
Executive violates any of the covenants set forth in this
Article IV, Fusion
shall have no obligation to pay Executive any unpaid portion of the
severance benefits pursuant to Sections 3.2, 3.3 or
3.5.
ARTICLE V
Miscellaneous
5.1 Governing
Law; Jurisdiction. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of
New York without giving effect to any conflicts-of-law provisions.
In respect of any claim arising out of or relating to this
Agreement, the parties irrevocably submit to the exclusive
jurisdiction of the United States District Court for the Southern
District of New York, or any state court located in Manhattan, New
York.
12
5.2 Notices.
Any notice required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been given when
delivered by hand or when deposited in the United States mail, by
registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
|
If to
Fusion:
|
Fusion
Connect, Inc.210 Interstate North Parkway, Suite 300Atlanta,
Georgia 30339Attention: General Counsel
|
|
|
|
|
If to
Executive:
|
Kevin
Brand
2802
Baccurate Drive
Marietta,
Georgia, 30062
(or his
last known address in the records of the Companies)
with a
copy to
Jeffrey
Sand
Weiner
& Sand LLC
800
Battery Avenue, SE
Suite
100
Atlanta,
Georgia 30339
|
or to
such other addresses as either party hereto may from time to time
give notice of to the other in the aforesaid manner.
5.3 Successors.
(a) This
Agreement is personal to Executive and without the prior written
consent of Fusion shall not be assignable by Executive otherwise
than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of, and be enforceable by,
Executive’s legal representatives.
(b) This
Agreement shall inure to the benefit of and be binding upon Fusion
and its successors and permitted assigns.
(c) Fusion
shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of Fusion to
expressly assume and agree to perform this Agreement in the same
manner and to the same extent that Fusion would be required to
perform if no such succession had taken place. As used in this
Agreement, “Fusion”
shall mean Fusion as hereinbefore defined and any successor to its
business and/or assets which assumes and agrees to perform this
Agreement by operation of law or otherwise.
13
5.4 Severability.
The invalidity of any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall not affect
the enforceability of the remaining portions of this Agreement or
any part thereof, all of which are inserted conditionally on their
being valid in law, and, in the event that any one or more of the
words, phrases, sentences, clauses or sections contained in this
Agreement shall be declared invalid, this Agreement shall be
construed as if such invalid word or words, phrase or phrases,
sentence or sentences, clause or clauses, or section or sections
had not been inserted. If such invalidity is caused by length of
time or size of area, or both, the otherwise invalid provision will
be considered to be reduced to a period or area which would cure
such invalidity.
5.5 Waivers.
The waiver by either party of a breach or violation of any term or
provision of this Agreement shall not operate nor be construed as a
waiver of any subsequent breach or violation.
5.6 Damages.
Nothing contained herein shall be construed to prevent Fusion or
the Executive from seeking and recovering from the other damages
sustained by either or both of them as a result of its or his
breach of any term or provision of this Agreement, or any other
remedy available at law or in equity.
5.7 No
Third Party Beneficiary. Nothing expressed or implied in
this Agreement is intended, or shall be construed, to confer upon
or give any person (other than the parties hereto and, in the case
of Executive, his heirs, personal representative(s) and/or legal
representative) any rights or remedies under or by reason of this
Agreement.
5.8 Full
Settlement. Fusion’s obligation to make the payments
provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action
which Fusion may have against Executive or others, or on account of
any remuneration or other benefit earned or received by Executive
after the termination of Executive’s employment hereunder. In
no event shall Executive be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable
to Executive under any of the provisions of this Agreement. Fusion
agrees to pay, to the full extent permitted by law, all legal fees
and expenses which Executive may reasonably incur as a result of
any contest by Fusion or others of the validity or enforceability
of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any
contest by Executive about the amount of any payment pursuant to
Section
5.9 of this Agreement), plus in each case interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the
Internal Revenue Code of 1986, as amended (the “Code”).
14
5.9 Section
280G of the Code.
Notwithstanding any other provision of this Agreement or any other
plan, arrangement or agreement to the contrary, if any of the
payments or benefits provided or to be provided by Fusion or its
affiliates to Executive or for Executive’s benefit pursuant
to the terms of this Agreement or otherwise (the
“Covered
Payments”) constitute parachute payments (the
“Parachute
Payments”) within the meaning of Section 280G of the
Code and, but for this Section 5.9,
would be subject to the excise tax imposed under Section 4999 of
the Code (or any successor provision thereto) or any similar tax
imposed by state or local law or any interest or penalties with
respect to such taxes (collectively, the “Excise
Tax”), then prior to making the Covered Payments, a
calculation shall be made comparing (i) the Net Benefit (as defined
below) to Executive of the Covered Payments after payment of the
Excise Tax to (ii) the Net Benefit to Executive if the Covered
Payments are limited to the extent necessary to avoid being subject
to the Excise Tax. Only if the amount calculated under (i) above is
less than the amount under (ii) above will the Covered Payments be
reduced to the minimum extent necessary to ensure that no portion
of the Covered Payments is subject to the Excise Tax (that amount,
the “Reduced
Amount”). “Net
Benefit” shall mean the present value of the Covered
Payments net of all federal, state, local, foreign income,
employment and excise taxes.
Any
such reduction shall be made in accordance with Section 409A and
the following:
(i) the
Covered Payments consisting of cash severance benefits that do not
constitute nonqualified deferred compensation subject to Section
409A shall be reduced first, in reverse chronological order;
and
(ii) all
other Covered Payments consisting of cash payments, and Covered
Payments consisting of accelerated vesting of equity based awards
to which Treas. Reg. § 1.280G-1 Q/A-24(c) does not apply, and
that in either case do not constitute nonqualified deferred
compensation subject to Section 409A, shall be reduced second, in
reverse chronological order;
(iii) all
Covered Payments consisting of cash payments that constitute
nonqualified deferred compensation subject to Section 409A shall be
reduced third, in reverse chronological order; and
(iv) all
Covered Payments consisting of accelerated vesting of equity-based
awards to which Treas. Reg. § 1.280G-1 Q/A-24(c) applies shall
be the last Covered Payments to be reduced.
Any
determination required under this Section 5.9
shall be made in writing in good faith by an independent accounting
firm selected by Fusion (the “Accountants”).
Fusion and Executive shall provide the Accountants with such
information and documents as the Accountants may reasonably request
in order to make a determination under this Section 5.9.
For purposes of making the calculations and determinations required
by this Section 5.9,
the Accountants may rely on reasonable, good-faith assumptions and
approximations concerning the application of Section 280G and
Section 4999 of the Code. The Accountants’ determinations
shall be final and binding on Fusion and Executive. Fusion shall be
responsible for all fees and expenses incurred by the Accountants
in connection with the calculations required by this Section
5.9.
(v) It
is possible that after the determinations and selections made
pursuant to this Section 5.9
Executive will receive Covered Payments that are in the aggregate
more than the amount intended or required to be provided after
application of this Section 5.9
(“Overpayment”)
or less than the amount intended or required to be provided after
application of this Section 5.9
(“Underpayment”).
15
(vi) In
the event that: (A) the Accountants determine, based upon the
assertion of a deficiency by the Internal Revenue Service against
either Fusion or Executive that the Accountants believe has a high
probability of success, that an Overpayment has been made or (B) it
is established pursuant to a final determination of a court or an
Internal Revenue Service proceeding that has been finally and
conclusively resolved that an Overpayment has been made, then
Executive shall pay any such Overpayment to Fusion together with
interest at the applicable federal rate (as defined in Section
7872(f)(2)(A) of the Code) from the date of Executive’s
receipt of the Overpayment until the date of
repayment.
(vii) In
the event that: (A) the Accountants, based upon controlling
precedent or substantial authority, determine that an Underpayment
has occurred or (B) a court of competent jurisdiction determines
that an Underpayment has occurred, any such Underpayment will be
paid promptly by Fusion to or for the benefit of Executive together
with interest at the applicable federal rate (as defined in Section
7872(f)(2)(A) of the Code) from the date the amount should have
otherwise been paid to Executive until the payment
date.
5.10 Post-Employment
Cooperation. Executive agrees to reasonably cooperate with
and provide assistance to the Companies and their legal counsel in
connection with any litigation (including arbitration or
administrative hearings) or investigation affecting the Companies,
in which, in the reasonable judgment of counsel to the Companies,
Executive’s assistance or cooperation is needed; provided, however, that in no event shall
Executive be required to cooperate pursuant to this Section 5.10
with respect to any matter that could reasonably be expected to be
materially adverse to Executive’s interests. Executive shall,
when reasonably requested by the Companies, provide truthful
testimony or other assistance and shall travel at the
Companies’ request in order to fulfill this obligation;
provided,
however, that, in
connection with such litigation or investigation, any such requests
of Executive’s time shall take into account Executive’s
then existing employment or other obligations and not place an
undue or unreasonable burden on Executive. The Companies shall
provide Executive with reasonable notice in advance of the times in
which Executive’s cooperation or assistance is needed and
shall advance or reimburse (as requested by Executive) reasonable
expenses (including for professional advisors) incurred by
Executive in connection with such matters, as well as for any
actual lost wages suffered as a result of absence from
employment.
5.11 Entire
Agreement; Amendments.
(a) This
Agreement contains the entire agreement between the parties with
respect to the subject matter hereof, and supersedes and replaces
all prior agreements and understandings, oral or written, among the
parties hereto with respect to Executive’s employment with
the Companies, including for the avoidance of doubt, the employment
agreement, dated October 30, 2017, by and between Fusion and
Executive, but excluding the KERP Agreement.
16
(b) Notwithstanding
any legal principle to the contrary, the parties expressly agree
that any oral amendment to or modification of this Agreement,
including any oral modification to this Section 5.11,
shall be ineffective, and that this Agreement, including this
Section 5.11,
may be amended only by an agreement in writing signed by the
parties hereto, it being the express intent of the parties that
such amendment in writing shall be the exclusive means of effecting
any amendment or modification of any provision of this Agreement
whatsoever.
5.12 Tax
Withholding. Fusion may withhold or, if applicable, cause
one or more of the Companies to withhold from any amounts payable
under this Agreement such federal, state, local or foreign taxes as
shall be required to be with-held pursuant to any applicable law or
regulation. Executive is solely responsible for all taxes imposed
on him as a result of his receipt of any payment or benefit arising
under this Agreement, other than such taxes that are, by their
nature, obligations of Fusion (for example, and without limitation,
the employer portion of the Federal Insurance Contributions Act
(FICA) taxes, and any corporate taxes incurred by Fusion as a
result of the disallowance of any tax deduction for compensation
paid to Executive, and Fusion does not guarantee the tax treatment
or tax consequences associated with any payment or benefit arising
under this Agreement.
5.13 Section
Headings; Construction. The headings of Sections in this
Agreement are provided for convenience only and shall not affect
its construction or interpretation. All references to
“Sections” or “Articles” refer to the
corresponding Sections or Articles of this Agreement unless
otherwise specified. All words used in this Agreement shall be
construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word
“including” does not limit the preceding words or
terms.
5.14 Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original copy of this Agreement and
all of which, when taken together, shall be deemed to constitute
one and the same agreement. Signatures transmitted by electronic
copies of e-mailed documents (e.g., in .pdf format) shall be deemed
originals for this purpose.
5.15 Survival.
The terms, conditions, rights and obligations of the parties shall
survive any termination or expiration of this Agreement to the
extent necessary to the intended preservation of such terms,
conditions, rights, and obligations, including, without limitation,
Articles
II, III,
and IV and
Section 5.10 of this Agreement.
[remainder of page
intentionally left blank]
17
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the Execution Date.
FUSION
CONNECT, INC.
By:
/s/ James P. Prenetta,
Jr.
Name:
James P. Prenetta, Jr.
Title:
Executive Vice President and General Counsel
EXECUTIVE:
/s/ Kevin Brand
Kevin
Brand
18
Exhibit 99.1
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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X
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:
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In re
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:
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Chapter
11
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:
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FUSION CONNECT, INC., et
al.,
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:
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Case
No. 19-11811 (SMB)
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:
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Debtors.1
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:
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(Jointly
Administered)
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:
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--------------------------------------------------------------------
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X
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SECOND AMENDED JOINT CHAPTER 11 PLAN
OF FUSION CONNECT, INC., AND ITS SUBSIDIARY DEBTORS
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WEIL, GOTSHAL & MANGES LLP
Gary T.
Holtzer
Sunny
Singh
Gaby
Smith
767
Fifth Avenue
New
York, New York 10153
Telephone:
(212) 310-8000
Facsimile:
(212) 310-8007
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Counsel for Debtors
and Debtors in Possession
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Dated:
October 7,
2019
New
York, New York
The Debtors in these
chapter 11 cases, along with the last four digits of each
Debtor’s federal tax identification number, as applicable,
are: Fusion Connect, Inc. (2021); Fusion BCHI Acquisition LLC
(7402); Fusion NBS Acquisition Corp. (4332); Fusion LLC (0994);
Fusion MPHC Holding Corporation (3066); Fusion MPHC Group, Inc.
(1529); Fusion Cloud Company LLC (5568); Fusion Cloud Services, LLC
(3012); Fusion CB Holdings, Inc. (6526); Fusion Communications, LLC
(8337); Fusion Telecom LLC (0894); Fusion Texas Holdings, Inc.
(2636); Fusion Telecom of Kansas, LLC (0075); Fusion Telecom of
Oklahoma, LLC (3260); Fusion Telecom of Missouri, LLC (5329);
Fusion Telecom of Texas Ltd., L.L.P. (8531); Bircan Holdings, LLC
(2819); Fusion Management Services LLC (5597); and Fusion PM
Holdings, Inc. (2478). The Debtors’ principal offices are
located at 210 Interstate North Parkway, Suite 300, Atlanta,
Georgia 30339.
Table of Contents
Page
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Article I
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DEFINITIONS AND INTERPRETATION.
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1
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|
A.
|
Definitions.
|
1
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|
B.
|
Interpretation; Application of Definitions and Rules of
Construction.
|
16
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|
C.
|
Reference to Monetary Figures.
|
17
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|
D.
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Controlling Document.
|
17
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|
E.
|
Certain Consent Rights.
|
17
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|
Article II
|
ADMINISTRATIVE EXPENSE AND PRIORITY CLAIMS.
|
17
|
|
2.1.
|
Administrative Expense Claims.
|
17
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|
2.2.
|
Fee Claims.
|
18
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|
2.3.
|
Priority Tax Claims.
|
18
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|
2.4.
|
DIP Claims.
|
19
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|
2.5.
|
Restructuring Expenses.
|
19
|
|
Article III
|
CLASSIFICATION OF CLAIMS AND INTERESTS.
|
19
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|
3.1.
|
Classification in General.
|
19
|
|
3.2.
|
Summary of Classification.
|
19
|
|
3.3.
|
Special Provision Governing Unimpaired Claims.
|
20
|
|
3.4.
|
Elimination of Vacant Classes.
|
20
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|
Article IV
|
TREATMENT OF CLAIMS AND INTERESTS.
|
20
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|
4.1.
|
Priority Non-Tax Claims (Class 1).
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20
|
|
4.2.
|
Other Secured Claims (Class 2).
|
21
|
|
4.3.
|
First Lien Claims (Class 3).
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21
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|
4.4.
|
Second Lien Claims (Class 4).
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22
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|
4.5.
|
General Unsecured Claims (Class 5).
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22
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|
4.6.
|
Intercompany Claims (Class 6).
|
22
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|
4.7.
|
Intercompany Interests (Class 7).
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22
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|
4.8.
|
Parent Equity Interests (Class 8).
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23
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4.9.
|
Subordinated Securities Claims (Class 9).
|
23
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Article V
|
MEANS FOR IMPLEMENTATION.
|
23
|
|
5.1.
|
No Substantive Consolidation.
|
23
|
|
5.2.
|
Compromise and Settlement of Claims, Interests, and
Controversies.
|
24
|
|
5.3.
|
Sources of Consideration for Plan Distributions Implementing the
Reorganization Transaction.
|
27
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|
5.4.
|
Reorganization Transaction.
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27
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|
5.5.
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FCC Licenses and State PUC Authorizations
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29
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|
5.6.
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Employee Matters.
|
30
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5.7.
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Effectuating Documents; Further Transactions.
|
30
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|
5.8.
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Section 1145 Exemption.
|
31
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|
5.9.
|
Cancellation of Existing Securities and Agreements.
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32
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5.10.
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Cancellation of Liens.
|
33
|
i
Table of Contents
(continued)
Page
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5.11.
|
Subordination Agreements.
|
33
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|
5.12.
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Nonconsensual Confirmation.
|
34
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5.13.
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Closing of Chapter 11 Cases.
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34
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5.14.
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Notice of Effective Date.
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34
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5.15.
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Separability.
|
34
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5.16.
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Litigation Trust
|
34
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Article VI
|
DISTRIBUTIONS.
|
37
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6.1.
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Distributions Generally.
|
37
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6.2.
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Distribution Record Date.
|
38
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6.3.
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Date of Distributions.
|
38
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6.4.
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Disbursing Agent.
|
38
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6.5.
|
Rights and Powers of Disbursing Agent.
|
38
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6.6.
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Expenses of Disbursing Agent.
|
39
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6.7.
|
No Postpetition Interest on Claims.
|
39
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|
6.8.
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Delivery of Distributions.
|
39
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|
6.9.
|
Distributions after Effective Date.
|
40
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|
6.10.
|
Unclaimed Property.
|
40
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|
6.11.
|
Time Bar to Cash Payments.
|
40
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|
6.12.
|
Manner of Payment under Plan.
|
40
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|
6.13.
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Satisfaction of Claims.
|
40
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|
6.14.
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Fractional Stock and Notes.
|
40
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|
6.15.
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Minimum Cash Distributions.
|
41
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6.16.
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Setoffs and Recoupments.
|
41
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6.17.
|
Allocation of Distributions between Principal and
Interest.
|
41
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6.18.
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No Distribution in Excess of Amount of Allowed Claim.
|
41
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6.19.
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Withholding and Reporting Requirements.
|
41
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6.20.
|
Hart-Scott-Rodino Antitrust Improvements Act.
|
42
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Article VII
|
PROCEDURES FOR DISPUTED CLAIMS.
|
42
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7.1.
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Objections to Claims.
|
42
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|
7.2.
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Resolution of Disputed Claims.
|
42
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|
7.3.
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Payments and Distributions with Respect to Disputed
Claims.
|
43
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7.4.
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Distributions after Allowance.
|
43
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|
7.5.
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Disallowance of Claims.
|
43
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7.6.
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Estimation of Claims.
|
43
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|
7.7.
|
No Distributions Pending Allowance.
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43
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7.8.
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Claim Resolution Procedures Cumulative.
|
44
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7.9.
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Interest.
|
44
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7.10.
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Insured Claims.
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44
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ii
Table of Contents
(continued)
Page
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Article VIII
|
EXECUTORY CONTRACTS AND UNEXPIRED LEASES.
|
44
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|
8.1.
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General Treatment.
|
44
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|
8.2.
|
Determination of Assumption Disputes and Deemed
Consent.
|
44
|
|
8.3.
|
Rejection Damages Claims.
|
46
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|
8.4.
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Insurance Policies.
|
46
|
|
8.5.
|
Intellectual Property Licenses and Agreements.
|
46
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|
8.6.
|
Tax Agreements.
|
47
|
|
8.7.
|
Assignment.
|
47
|
|
8.8.
|
Modifications, Amendments, Supplements, Restatements, or Other
Agreements.
|
47
|
|
8.9.
|
Reservation of Rights.
|
47
|
|
Article IX
|
CONDITIONS PRECEDENT TO CONFIRMATION OF PLAN AND EFFECTIVE
DATE.
|
48
|
|
9.1.
|
Conditions Precedent to Confirmation of Plan.
|
48
|
|
9.2.
|
Conditions Precedent to Effective Date.
|
48
|
|
9.3.
|
Waiver of Conditions Precedent.
|
50
|
|
9.4.
|
Effect of Failure of a Condition.
|
50
|
|
Article X
|
EFFECT OF CONFIRMATION OF PLAN.
|
50
|
|
10.1.
|
Vesting of Assets.
|
50
|
|
10.2.
|
Binding Effect.
|
50
|
|
10.3.
|
Discharge of Claims and Termination of Interests.
|
51
|
|
10.4.
|
Term of Injunctions or Stays.
|
51
|
|
10.5.
|
Injunction.
|
51
|
|
10.6.
|
Releases.
|
52
|
|
10.7.
|
Exculpation.
|
53
|
|
10.8.
|
Limitations on Executable Assets with Respect to Certain Causes of
Action.
|
54
|
|
10.9.
|
SEC Rights and Powers
|
54
|
|
10.10.
|
FCC Rights and Powers
|
54
|
|
10.11.
|
Subordinated Claims.
|
54
|
|
10.12.
|
Retention of Causes of Action/Reservation of Rights.
|
55
|
|
10.13.
|
Solicitation of Plan.
|
55
|
|
10.14.
|
Corporate and Limited Liability Company Action.
|
55
|
|
Article XI
|
RETENTION OF JURISDICTION.
|
56
|
|
11.1.
|
Retention of Jurisdiction.
|
56
|
|
11.2.
|
Courts of Competent Jurisdiction.
|
57
|
|
Article XII
|
MISCELLANEOUS PROVISIONS.
|
57
|
|
12.1.
|
Payment of Statutory Fees.
|
57
|
|
12.2.
|
Substantial Consummation of the Plan.
|
58
|
|
12.3.
|
Plan Supplement.
|
58
|
|
12.4.
|
Request for Expedited Determination of Taxes.
|
58
|
iii
Table of Contents
(continued)
Page
|
12.5.
|
Exemption from Certain Transfer Taxes.
|
58
|
|
12.6.
|
Amendments.
|
59
|
|
12.7.
|
Effectuating Documents and Further Transactions.
|
59
|
|
12.8.
|
Revocation or Withdrawal of Plan.
|
59
|
|
12.9.
|
Dissolution of Statutory Committees.
|
59
|
|
12.10.
|
Severability of Plan Provisions.
|
60
|
|
12.11.
|
Governing Law.
|
60
|
|
12.12.
|
Time.
|
60
|
|
12.13.
|
Dates of Actions to Implement the Plan.
|
60
|
|
12.14.
|
Immediate Binding Effect.
|
60
|
|
12.15.
|
Deemed Acts.
|
60
|
|
12.16.
|
Successor and Assigns.
|
60
|
|
12.17.
|
Entire Agreement.
|
61
|
|
12.18.
|
Exhibits to Plan.
|
61
|
|
12.19.
|
Notices.
|
61
|
iv
Each of
Fusion Connect, Inc., Fusion BCHI Acquisition LLC, Fusion NBS
Acquisition Corp., Fusion LLC, Fusion MPHC Holding Corporation,
Fusion MPHC Group, Inc., Fusion Cloud Company LLC, Fusion Cloud
Services, LLC, Fusion CB Holdings, Inc., Fusion Communications,
LLC, Fusion Telecom, LLC, Fusion Texas Holdings, Inc., Fusion
Telecom of Kansas, LLC, Fusion Telecom of Oklahoma, LLC, Fusion
Telecom of Missouri, LLC, Fusion Telecom of Texas Ltd., L.L.P.,
Bircan Holdings, LLC, Fusion Management Services LLC, and Fusion PM
Holdings, Inc. (each, a “Debtor” and, collectively, the
“Debtors”)
propose the following joint chapter 11 plan of reorganization
pursuant to section 1121(a) of the Bankruptcy Code. Capitalized
terms used herein shall have the meanings set forth in Article
I.A or elsewhere
herein.
ARTICLE
I DEFINITIONS AND INTERPRETATION.
The
following terms shall have the respective meanings specified
below:
1.1 Accepting
Class means a Class that votes to accept the Plan in
accordance with section 1126 of the Bankruptcy Code.
1.2 Administrative
Expense Claim means any Claim for costs or expenses of
administration incurred during the Chapter 11 Cases of a kind
specified under sections 503(b), 507(a)(2), 507(b), or 1114(e)(2)
of the Bankruptcy Code, including, without limitation, (a) the
actual and necessary costs and expenses incurred after the
Commencement Date and through the Effective Date of preserving the
Estates and operating the businesses of the Debtors; (b) Fee
Claims; (c) Restructuring Expenses; and (d) the DIP
Claims.
1.3 Affiliates
means “Affiliates” as such
term is defined in section 101(2) of the Bankruptcy
Code.
1.4 Allowed
means, with reference to any Claim or Interest, a Claim or Interest
(a) arising on or before the Effective Date as to which (i) no
objection to allowance or priority, and no request for estimation
or other challenge, including, without limitation, pursuant to
section 502(d) of the Bankruptcy Code or otherwise, has been
interposed and not withdrawn within the applicable period fixed by
the Plan or applicable law, or (ii) any objection has been
determined in favor of the holder of the Claim or Interest by a
Final Order; (b) that is compromised, settled, or otherwise
resolved pursuant to the authority of the Debtors, the Reorganized
Debtors, or the Litigation Trust Oversight Committee, as
applicable; (c) as to which the liability of the Debtors or the
Reorganized Debtors, as applicable, and the amount thereof are
determined by a Final Order of a court of competent jurisdiction;
or (d) expressly allowed hereunder; provided, however, that
notwithstanding the foregoing, (x) unless expressly waived by the
Plan, the Allowed amount of Claims or Interests shall be subject to
and shall not exceed the limitations or maximum amounts permitted
by the Bankruptcy Code, including sections 502 or 503 of the
Bankruptcy Code, to the extent applicable, and (y) the Reorganized
Debtors or the Litigation Trust, as applicable, shall retain all
claims and defenses with respect to Allowed Claims that are
Reinstated or otherwise Unimpaired pursuant to the Plan, if
any.
1.5 Amended
Organizational Documents means the forms of certificates of
incorporation, certificates of formation, limited liability company
agreements, partnership agreements or other forms of organizational
documents and bylaws, as applicable, of the Reorganized Debtors, to
be amended in connection with the Reorganization Transaction,
substantially final forms of which shall be contained in the Plan
Supplement to the extent they contain material changes to the
existing forms.
1
1.6
Asset means all of
the right, title, and interest of the Debtors in and to property of
whatever type or nature (including, without limitation, real,
personal, mixed, intellectual, tangible, and intangible
property).
1.7
Assumption Dispute
means a pending objection relating to assumption of an executory
contract or unexpired lease pursuant to section 365 of the
Bankruptcy Code.
1.8
Assumption Schedule
means the schedule of executory contracts and unexpired leases to
be assumed by the Debtors pursuant to the Plan that will be
included in the Plan Supplement.
1.9
Bankruptcy
Code means title 11 of the United States Code, 11 U.S.C.
§ 101, et seq.,
as amended from time to time, as applicable to the Chapter 11
Cases.
1.10
Bankruptcy
Court means the United States Bankruptcy Court for the
Southern District of New York having jurisdiction over the Chapter
11 Cases or any other court having jurisdiction over the Chapter 11
Cases, including, to the extent of the withdrawal of any reference
under 28 U.S.C. § 157, the United States District Court for
the Southern District of New York.
1.11 Bankruptcy
Rules means the Federal Rules of Bankruptcy Procedure as
promulgated by the United States Supreme Court under section 2075
of title 28 of the United States Code and any local bankruptcy
rules of the Bankruptcy Court, in each case, as amended from time
to time and applicable to the Chapter 11 Cases.
1.12 Benefit
Plans means each (a) “employee benefit plan,” as
defined in section 3(3) of ERISA and (b) all other pension,
retirement, bonus, incentive, health, life, disability, group
insurance, vacation, holiday and fringe benefit plan, program,
contract, or arrangement (whether written or unwritten) maintained,
contributed to, or required to be contributed to, by the Debtors
for the collective benefit of any of its current or former
employees or independent contractors, other than those that entitle
employees to, or that otherwise give rise to, Interests or
consideration based on the value of Interests, in the
Debtors.
1.13 Board
of Directors means FCI’s board of directors during the
Chapter 11 Cases.
1.14 Business
Day means any day other than a Saturday, a Sunday, or any
other day on which banking institutions in New York, New York are
required or authorized to close by law or executive
order.
1.15 Cash
means legal tender of the United States of America.
1.16 Causes
of Action means any action, claim,
cross-claim, third-party claim, cause of action, controversy,
demand, right, lien, indemnity, guaranty, suit, obligation,
liability, loss, debt, damage, judgment, account, defense, remedy,
offset, power, privilege, proceeding, license and franchise of any
kind or character whatsoever, known, unknown, foreseen or
unforeseen, existing or hereafter arising, contingent or
non-contingent, matured or unmatured, suspected or unsuspected,
liquidated or unliquidated, disputed or undisputed, secured or
unsecured, assertable directly or derivatively, whether arising
before, on, or after the Commencement Date, in contract or in tort,
in law or in equity or pursuant to any other theory of law
(including, without limitation, under any state or federal
securities laws). Causes of Action also includes: (a) any right of
setoff, counterclaim or recoupment and any claim for breach of
contract or for breach of duties imposed by law or in equity; (b)
the right to object to Claims or Interests; (c) any claim pursuant
to section 362 or chapter 5 of the Bankruptcy Code; (d) any claim
or defense including fraud, mistake, duress and usury and any other
defenses set forth in section 558 of the Bankruptcy Code; and
(e) any claims under any state law or foreign law, including,
without limitation, any fraudulent transfer or similar
claims.
2
1.17 Chapter
11 Cases means the jointly administered cases under chapter
11 of the Bankruptcy Code commenced by the Debtors on the
Commencement Date in the Bankruptcy Court styled In re Fusion Connect, Inc., et al.,
Case No. 19-11811 (SMB).
1.18 Claim
has the meaning set forth in section 101(5) of the Bankruptcy Code,
as against any Debtor.
1.19 Class
means any group of Claims or Interests classified under the Plan
pursuant to sections 1122 and 1123(a)(1) of the Bankruptcy
Code.
1.20 Commencement Date means
June 3, 2019.
1.21 Communications
Act means chapter 5 of title 47 of the United States Code,
47 U.S.C. §§ 151-622, as now in effect or hereafter
amended, or any other successor federal statute, and the rules and
regulations promulgated thereunder.
1.22 Confirmation
Date means the date on which the Clerk of the Bankruptcy
Court enters the Confirmation Order.
1.23 Confirmation
Hearing means the hearing to be held by the Bankruptcy Court
to consider confirmation of the Plan, as such hearing may be
adjourned or continued from time to time.
1.24 Confirmation
Order means the order of the Bankruptcy Court confirming the
Plan pursuant to section 1129 of the Bankruptcy Code.
1.25 Consenting
First Lien
Lenders means the Prepetition
First Lien Lenders that are or become party to the RSA together
with their respective successors and permitted
assigns.
1.26 Consenting
Second Lien
Lenders means the Prepetition
Second Lien Lenders that vote to accept the Plan together with
their respective successors and permitted
assigns.
1.27 Consulting
Agreement means that certain Consulting Agreement, in the
form attached to Matthew D. Rosen's resignation letter or otherwise
mutually acceptable to the First Lien Lender Group and Matthew D.
Rosen, to be executed as soon as reasonably practicable and to go
into effect on the Effective Date, by and among Reorganized FCI and
Matthew D. Rosen.
1.28 Contingent
DIP Obligations means
all of the Debtors’ obligations under the DIP Documents and
the DIP Order that are contingent and/or unliquidated, other than
DIP Claims that are paid in full in Cash on or prior to the
Effective Date and contingent indemnification obligations as to
which a Claim has been asserted on or prior to the Effective
Date.
1.29 Creditors’
Committee means the statutory committee of unsecured creditors
appointed by the U.S. Trustee in the Chapter 11 Cases pursuant to
section 1102 of the Bankruptcy Code.
1.30 Cure
Amount means the payment of Cash by the Debtors, or the
distribution of other property (as the parties may agree or the
Bankruptcy Court may order), as necessary pursuant to section
365(b)(1)(A) of the Bankruptcy Code to permit the Debtors to assume
an executory contract or unexpired lease.
3
1.31 D&O
Policy means any insurance
policy that covers, among others, current or former directors,
members, trustees, managers, and officers liability issued at any
time to or providing coverage to the Debtors and all agreements,
documents or instruments relating thereto, including any runoff policies or tail
coverage.
1.32 Debtor
or Debtors has the meaning set
forth in the introductory paragraph of the
Plan.
1.33 Debtor
Employees means
any employee of the Debtors as of the Commencement Date and
immediately prior to the Effective Date other than any director or
officer of the Debtors identified as such in the Disclosure
Statement.
1.34 Debtor
Exculpated Parties means (a) any individual serving as an
officer of the Debtors during the Chapter 11 Cases; (b) any
individual serving as a director on the Restructuring Committee
and/or the Special Committee during the Chapter 11 Cases; (c) Mr.
Marvin Rosen; and (d) the Debtor Related Parties.
1.35 Debtors
in Possession means the Debtors in their capacity as debtors
in possession in the Chapter 11 Cases pursuant to sections 1101,
1107(a), and 1108 of the Bankruptcy Code.
1.36
Debtor Related
Parties means with respect to the Debtors, each
Debtor’s successors, Debtor Employees, postpetition financial
advisors, postpetition attorneys, postpetition accountants,
postpetition investment bankers, postpetition investment advisors,
postpetition consultants, postpetition representatives, and other
postpetition professionals; for the avoidance of doubt, Debtor
Related Parties do not include the Debtors themselves, any
Non-Released Party, or any current or former director or officer of
the Debtors.
1.37 Declaratory
Ruling means a declaratory ruling adopted by the FCC
granting the relief requested in a Petition for Declaratory
Ruling.
1.38 Definitive
Documents means the
documents (including any related orders, agreements, instruments,
schedules or exhibits) that are necessary or desirable to
implement, or otherwise relate to the Reorganization Transaction,
including, but not limited to: (a) the Plan; (b) the
Disclosure Statement; (c) the Disclosure Statement Motion;
(d) the Disclosure Statement Order; (e) the Consulting
Agreement; (f) each of the documents comprising the Plan
Supplement; and (g) the Confirmation Order.
1.39 DIP
Agent means the “DIP
Agent” as defined in the DIP Order.
1.40 DIP
Claims means all Claims held by the DIP Lenders on account
of, arising under or relating to the DIP Documents or the DIP
Order, which, for the avoidance of doubt, shall include all
“DIP Obligations” as such term is defined in the DIP
Order.
1.41 DIP
Credit Agreement means the
“DIP Credit Agreement” as defined in the DIP
Order.
1.42 DIP
Documents means the “DIP
Documents” as defined in the DIP Order.
1.43 DIP
Lenders means the “DIP
Lenders” as defined in the DIP Order.
1.44 DIP
Motion means the Motion of
Debtors for (I) Authorization (A) To Obtain Postpetition
Financing, (B) To Use Cash Collateral, (C) To Grant Liens
and Provide Superpriority Administrative Expense Status,
(D) To Grant Adequate Protection, (E) To Modify the
Automatic Stay; (F) To Schedule a Final Hearing and
(II) Related Relief (ECF No. 17).
4
1.45 DIP
Order means the
Final Order
(I) Authorizing the Debtors To (A) Obtain Postpetition
Financing, (B) Use Cash Collateral, (II) Granting Liens
and Providing Superpriority Administrative Expense Status,
(III) Granting Adequate Protection To the Prepetition Secured
Parties, (IV) Modifying the Automatic Stay, and
(V) Granting Related Relief (ECF No. 160).
1.46 Disallowed
means, with respect to any Claim or Interest, that such Claim or
Interest has been determined by a Final Order or specified in a
provision of the Plan not to be Allowed.
1.47 Disbursing
Agent means (a) with respect to the Reorganization
Transaction, the Reorganized Debtors; and (b) with respect to
the Litigation Trust Assets, the Litigation Trust or its
agent.
1.48 Disclosure
Statement means the
disclosure statement filed by the Debtors in support of the Plan,
as amended, supplemented or modified from time to time, as approved
by the Bankruptcy Court pursuant to section 1125 of the Bankruptcy
Code.
1.49 Disclosure
Statement Motion means the motion of the Debtors seeking
entry of an order approving the Disclosure Statement and
authorizing solicitation of the Plan.
1.50 Disclosure
Statement Order means the order entered by the Bankruptcy
Court granting the Disclosure Statement Motion.
1.51 Disputed
means with respect to a Claim or Interest, any Claim or Interest
that (a) is neither Allowed nor Disallowed under the Plan or a
Final Order, nor deemed Allowed under sections 502, 503, or 1111 of
the Bankruptcy Code; or (b) the Debtors or any parties in
interest have interposed a timely objection or request for
estimation, and such objection or request for estimation has not
been withdrawn or determined by a Final Order. If the Debtors
dispute only a portion of a Claim, such Claim shall be deemed
Allowed in any amount the Debtors do not dispute, and Disputed as
to the balance of such Claim.
1.52 Distribution
Record Date means the Effective Date.
1.53 Effective
Date means the date that is the first Business Day on which
all conditions to the effectiveness of the Plan set forth in
Article IX hereof have been
satisfied or waived in accordance with the terms of the
Plan.
1.54 Employee
Arrangements shall have the meaning ascribed to such term in
Section 5.8 of the Plan.
1.55 Entity
means an individual, corporation, partnership, limited partnership,
limited liability company, association, joint stock company, joint
venture, estate, trust, unincorporated organization, governmental
unit (as defined in section 101(27) of the Bankruptcy Code) or any
political subdivision thereof, or other person (as defined in
section 101(41) of the Bankruptcy Code) or other
entity.
1.56 Equity
Allocation Mechanism means the methodology for allocating
the New Equity Interests and/or Special Warrants among the holders
of Allowed First Lien Claims set forth on Exhibit A to the Plan.
1.57 ERISA
means the Employee Retirement Income
Security Act of 1974, as amended.
1.58 Estate
or Estates means, individually
or collectively, the estate or estates of the Debtors
created under section 541 of the Bankruptcy Code.
5
1.59 Exculpated
Parties means
collectively, each solely in their capacities as such, the
(a) Debtors; (b) Reorganized Debtors; (c) Consenting
First Lien Lenders; (d) Prepetition First Lien Administrative
Agent; (e) Prepetition Super
Senior Administrative Agent; (f) DIP Agent,
(g) DIP Lenders; (h) New First Lien Lenders; (i) New
First Lien Agent; (j) New Exit Facility Lenders; (k) New
Exit Facility Agent; (l) Litigation Trust Oversight Committee;
(m) Creditors’ Committee and each of its members in such
capacity; (n) Non-Debtor Related Parties; and (o) Debtor
Exculpated Parties.
1.60 FCC means
the Federal Communications Commission, including any official
bureau or division thereof acting on delegated authority, and any
successor governmental agency performing functions similar to those
performed by the Federal Communications Commission on the Effective
Date.
1.61 FCC
Applications means, collectively, each requisite
application, petition, or other request filed or to be filed with
the FCC in connection with the Reorganization Transaction and this
Plan, including the FCC Applications.
1.62 FCC
Approval means the FCC’s grant of the FCC
Applications; provided that, subject to the consent of the
Requisite First Lien Lenders, the possibility that an appeal,
request for stay, or petition for rehearing or review by a court or
administrative agency may be filed with respect to such grant, or
that the FCC may reconsider or review such grant on its own
authority, shall not prevent such grant from constituting FCC
Approval for purposes of the Plan.
1.63 FCC
Licenses means licenses, authorizations, waivers, and
permits that are issued from time to time by the FCC.
1.64 FCC
Applications means the applications filed with the FCC
seeking FCC consent to the Transfer of Control.
1.65 FCC
Ownership Procedures Order means an order entered by the
Bankruptcy Court establishing procedures for, among other things,
completion and submission of the Ownership Certifications, which
order shall be in form and substance reasonably acceptable to the
Requisite First Lien Lenders.
1.66 FCI
means Fusion Connect,
Inc.
1.67 Fee
Claim means a
Claim for
professional services rendered or costs incurred on or after the
Commencement Date through the Effective Date by professional
persons retained by the Debtors or the Creditors’ Committee
by an order of the Bankruptcy Court pursuant to sections 327, 328,
329, 330, 331, or 503(b) of the Bankruptcy Code in the Chapter 11
Cases.
1.68 Final
Order means an order or judgment of a court of competent
jurisdiction that has been entered on the docket maintained by the
clerk of such court and is in full force and effect, which has not
been reversed, vacated or stayed and as to which (a) the time to
appeal, petition for certiorari, or move for a new trial,
reargument or rehearing has expired and as to which no appeal,
petition for certiorari, or other proceedings for a new trial,
reargument, or rehearing shall then be pending; or (b) if an
appeal, writ of certiorari, new trial, reargument, or rehearing
thereof has been sought, such order or judgment shall have been
affirmed by the highest court to which such order was appealed, or
certiorari shall have been denied, or a new trial, reargument, or
rehearing shall have been denied or resulted in no modification of
such order, and the time to take any further appeal, petition for
certiorari or move for a new trial, reargument, or rehearing shall
have expired; provided, however, that no order or judgment shall
fail to be a “Final Order” solely because of the
possibility that a motion under Rules 59 or 60 of the Federal Rules
of Civil Procedure or any analogous Bankruptcy Rule (or any
analogous rules applicable in another court of competent
jurisdiction) or sections 502(j) or 1144 of the Bankruptcy Code has
been or may be filed with respect to such order or
judgment.
6
1.69 First
Lien Claims means all Claims
arising under or in connection with the Prepetition First Lien
Credit Agreement.
1.70 First
Lien Lender Equity Distribution means a distribution of New Equity Interests
and/or Special Warrants, which New Equity Interests shall
constitute one hundred percent (100%) of all of the issued and
outstanding New Equity Interests issued on the Effective Date,
subject to dilution by the Special Warrants and the Management
Incentive Plan, and to be allocated among the holders of Allowed
First Lien Claims pursuant to, and subject to the terms and
conditions of, the Equity Allocation Mechanism; provided, that
holders of Allowed First Lien Claims may receive a distribution on
account of their Claims in lieu of Special Warrants that is
otherwise satisfactory to such holders and compliant with the rules
and regulations of the FCC and in the reasonable judgment of the
Debtors, with the consent of the Requisite First Lien Lenders,
would not result in an undue delay of obtaining FCC
Approval.
1.71 First
Lien Lender Group means the ad
hoc group of Consenting First Lien Lenders represented by Davis
Polk & Wardwell LLP and Greenhill & Co.,
LLC.
1.72 General
Unsecured Claim means any Claim against the Debtors (other
than any Intercompany Claims) as of the Commencement Date that is
neither secured by collateral nor entitled to priority under the
Bankruptcy Code or any Final Order of the Bankruptcy Court,
including any deficiency claim under section 506(a) of the
Bankruptcy Code. For the avoidance of doubt, the Prepetition
Subordinated Notes Claim shall be deemed a General Unsecured Claim,
but the Prepetition Subordinated Notes Claim is not being deemed
Allowed under this Plan.
1.73 Global
Settlement shall have the meaning ascribed to such term in
Section 5.2(b) of the Plan.
1.74 Impaired
means, with respect to a Claim, Interest, or Class of Claims or
Interests, “impaired” within the meaning of sections
1123(a)(4) and 1124 of the Bankruptcy Code.
1.75 Independent
Directors means the independent directors (other than Mr.
Neal Goldman) who have served on the Restructuring Committee at all
times from its formation until immediately prior to the Effective
Date.
1.76 Insured
Claims means any Claim or portion of a Claim
that is, or may be, insured under any of the Debtors’
insurance policies.
1.77 Intercompany
Claim means any pre- or postpetition Claim against a Debtor
held by another Debtor.
1.78 Intercompany
Interest means an Interest in a Debtor held by another
Debtor. For the avoidance of doubt, an Intercompany Interest shall
exclude a Parent Equity Interest.
1.79 Interests
means any equity security (as defined in section 101(16) of the
Bankruptcy Code) of a Debtor, including all shares, common stock,
preferred stock, units, membership interest, partnership interest,
or other instrument evidencing any fixed or contingent ownership
interest in any Debtor, whether or not transferable, and any
option, warrant, or other right, contractual or otherwise, to
acquire any such interest in the Debtors, whether fully vested or
vesting in the future, including, without limitation, equity or
equity-based incentives, grants, or other instruments issued,
granted or promised to be granted to current or former employees,
directors, officers, or contractors of the Debtors, to acquire any
such interests in the Debtors that existed immediately before the
Effective Date.
7
1.80 Key
Employee Retention Agreements shall mean the key employee
retention agreements entered into by FCI and certain key employees
of FCI on or about May 30, 2019.
1.81 Lien
has the meaning set forth in section 101(37) of the Bankruptcy
Code.
1.82 Lingo
Receivable means amounts payable to the Debtors
under the Carrier Solutions Master Services Agreement and
Transition Services Agreement among the Debtors and Lingo
Communications, Inc.
1.83 Litigation
Trust means the trust that will be created on the Effective
Date pursuant to the Litigation Trust Agreement and in accordance
with the terms of this Plan.
1.84 Litigation
Trust Agreement means the trust agreement by and among the
Reorganized Debtors (solely in their capacity as successors to the
Debtors), the Litigation Trust Oversight Committee and the
Creditors’ Committee, that, among other things, establishes
the Litigation Trust and describes the powers, duties, and
responsibilities of the Litigation Trust Oversight Committee,
substantially in the form included in the Plan Supplement and
consistent with Section 5.2(b) and Section 5.16 of the Plan, which
shall be in form and substance reasonably acceptable to the
Requisite First Lien
Lenders.
1.85 Litigation
Trust Assets means the
Litigation Trust Causes of Action and the Litigation Trust
Proceeds.
1.86 Litigation
Trust Causes of Action means, collectively, the Litigation
Trust Debtor Causes of Action and the Litigation Trust First Lien
Lender Causes of Action (as defined in Section
5.2(b)).
1.87 Litigation
Trust Debtor Causes of Action means (i) all Causes of Action
of the Debtors under chapter 5 of the Bankruptcy Code or under
similar or related state or federal statutes and common law,
including, without limitation, all preference, fraudulent
conveyance, fraudulent transfer, and/or other similar avoidance
claims, rights, and causes of action, and commercial tort law, (ii)
all Causes of Action of any Debtor (including for the avoidance of
doubt any predecessor of any Debtor) or any Debtor’s Estate
against any Non-Released Party, other than Causes of Action arising
in connection with the Lingo Receivable, (iii) all Causes of
Action of the Debtors arising in connection with the Debtors and
relating to any act or omission of any Non-Released Party; and
(iv) all Causes of Action of any Debtor (including for the
avoidance of doubt any predecessor of any Debtor), the
Debtors’ Estates, and the Reorganized Debtors arising under
any D&O Policy solely to the extent such Causes of Action are
based on Causes of Action described in sub-sections (i), (ii), and
(iii) of this section and to the extent assignable to the
Litigation Trust pursuant to the terms of the applicable D&O
Policy; provided, however, that Litigation Trust Debtor Causes of
Action shall not include: (a) any Causes of Action against any
Released Party that is released pursuant to the Plan and (b)
Preference Actions against any Entity other than Non-Released
Parties.
1.88 Litigation
Trust Expenses means all reasonable fees, costs, and
expenses of and incurred by the Litigation Trust, including legal
and other professional fees, costs, and expenses, administrative
fees and expenses, insurance fees, taxes, and escrow expenses,
including reasonable fees and expenses of the Litigation Trust
Oversight Committee, which shall be paid in accordance with the
Litigation Trust Agreement; provided, however, that neither the
Debtors nor the Reorganized Debtors shall be required in any event
to pay the Litigation Trust Expenses.
8
1.89 Litigation
Trust First Lien Lender Causes of Action has the meaning set
forth in Section 5.2 of this Plan.
1.90 Litigation
Trust Initial Funding means an
initial amount of $1,500,000 cash to be funded by the Reorganized
Debtors to the Litigation Trust on the Effective
Date.
1.91 Litigation
Trust Interest means a non-certificated beneficial interest
in the Litigation Trust granted to each holder of an Allowed
General Unsecured Claim (other than the Term Loan Deficiency Claim
and the Second Lien Deficiency Claim), which shall entitle such
holder to a Pro Rata share in the Litigation Trust Assets in
accordance with the Litigation Trust Agreement and Sections 4.4,
4.5, 5.2(b) and 5.16 of the Plan.
1.92 Litigation
Trust Litigation Proceeds means proceeds of the Litigation Trust Causes of Action
payable to the Litigation Trust in accordance with Section
5.2(b) of the
Plan.
1.93 Litigation
Trust Loan means an interest-bearing loan in the aggregate amount of
$3,500,000 to be made by Reorganized FCI or its affiliates to the
Litigation Trust in accordance with the Litigation Trust Loan
Agreement and Sections 5.2(b) and 5.16 of the
Plan.
1.94 Litigation
Trust Loan Agreement means an agreement among the
Reorganized Debtors and the Litigation Trust governing the
Litigation Trust Loan Proceeds to be entered on the Effective Date,
or as soon thereafter as reasonably practicable, consistent
with Sections 5.2(b) and 5.16 of the Plan, which shall be in form
and substance reasonably acceptable to the Committee and the
Requisite First Lien Lenders.
1.95 Litigation
Trust Loan Proceeds means the proceeds of the Litigation Trust Loan.
1.96 Litigation
Trust Oversight Committee means
a three-person committee with the role, responsibilities, and
authority relating to the Litigation Trust and the
Litigation Trust Assets set forth in
the Litigation Trust Agreement and Sections 5.2(b) and 5.16 of the
Plan, which shall initially be comprised of: (a) a member
appointed by the Creditors’ Committee; (b) a member
appointed by the First Lien Lender Group; and (c) Mr. Neal
Goldman.
1.97 Litigation
Trust Proceeds means the Litigation Trust Initial Funding, the
Litigation Trust Litigation Proceeds, and the Litigation Trust Loan
Proceeds.
1.98 Management
Incentive Plan means a post-emergence management incentive
plan, under which up to ten percent (10%) of the New Equity
Interests (after taking into account the shares to be issued under
the Management Incentive Plan) will be reserved for issuance as
awards on terms and conditions as agreed to by the New
Board.
1.99 New
Board means the new board of
directors of Reorganized FCI selected in accordance with Section
5.5 of the Plan.
1.100
New Equity
Interests means the new common stock to be issued by
Reorganized FCI on the Effective Date or upon exercise of the
Special Warrants, authorized pursuant to the Amended Organizational
Documents of Reorganized FCI.
1.101
New Exit
Facility means the facility arising pursuant to the New Exit
Facility Credit Agreement.
9
1.102
New Exit
Facility Agent means the administrative agent under the New
Exit Facility Credit Agreement.
1.103
New Exit Facility Credit
Agreement means the agreement to be entered into by the
Reorganized Debtors, the New Exit Facility Agent and the New Exit
Facility Lenders on the Effective Date that shall govern the New
Exit Facility.
1.104
New Exit
Facility Documents means, collectively, the New Exit
Facility Credit Agreement and all other documents required to be
delivered by any of the Reorganized Debtors pursuant to the New
Exit Facility Credit Agreement.
1.105
New Exit
Facility means the facility arising pursuant to the New Exit
Facility Credit Agreement.
1.106
New Exit
Facility Lenders means the Persons party to the New Exit
Facility Credit Agreement as “Lenders” thereunder, each
in its capacity as such, and each of their respective successors
and permitted assigns.
1.107
New First Lien
Agent means the administrative agent under the New First
Lien Credit Agreement.
1.108
New First Lien Credit
Agreement means the agreement to be entered into by the
Reorganized Debtors, the New First Lien Agent, and the New First
Lien Lenders on the Effective Date that shall govern the New First
Lien Credit Facility.
1.109
New First Lien
Credit Facility means the facility arising pursuant to the
New First Lien Credit Agreement, on terms consistent with the New
First Lien Term Sheet.
1.110
New First Lien
Documents means, collectively, the New First Lien Credit
Agreement and all other documents required to be delivered by any
of the Reorganized Debtors pursuant to the New First Lien Credit
Agreement.
1.111
New First Lien
Lenders means
the Persons party to the New First Lien Credit Agreement as
“Lenders” thereunder, each in its capacity as such, and
each of their respective successors and permitted
assigns.
1.112
New First Lien
Term Sheet means the term sheet attached as
Schedule 2 to the Restructuring Term Sheet attached as Exhibit A to
the RSA and as Exhibit
B to the Plan, as may be amended from time to
time.
1.113
Non-Debtor
Related Parties means with respect to any
Exculpated Party (other than the Debtors and the Debtor Exculpated
Parties) or any Released Party (other than the Debtor Related
Parties), and in their capacities as such, such Entities’
predecessors (other than predecessors of the Reorganized Debtors),
successors and assigns, subsidiaries, Affiliates, managed accounts
or funds, and all of their respective current and former officers,
directors, managers, limited partners, principals, stockholders
(and any fund managers, fiduciaries or other agents of stockholders
with any involvement related to the Debtors), members, partners,
managers, employees, subcontractors, agents, advisory board
members, financial advisors, attorneys, accountants, investment
bankers, investment managers, investment advisors, consultants,
representatives, management companies, fund advisors and other
professionals, and such persons’ respective heirs, executors,
estates, servants and nominees; for the avoidance of doubt, the
Non-Debtor Related Parties do not include the Debtors themselves or
any Non-Released Party.
10
1.114 Non-Released
Party means (i) any current or former director, officer,
member, shareholder, or employee of the Debtors or predecessor of
the Debtors, other than the Specified Officers and Directors and
the Debtor Employees, (ii) any Affiliate of the Debtors or
predecessors of the Debtors, and any directors, officers,
shareholders, or employees thereof, (iii) any predecessor of a
Debtor, (iv) Lingo Communications LLC, any Affiliates thereof, and
their directors, officers, shareholders, and employees, (v) any
subsequent transferee of any of the foregoing, (vii) any counsel,
accountant or other professional advisor to (x) any of the
foregoing and (y) the Debtors or predecessor of any Debtor prior to
March 1, 2019; provided, that vendors and contract counterparties
of Reorganized FCI, other than Lingo Communications LLC and any
Affiliates thereof, shall not be Non-Released Parties solely with
respect to any Preference Action against them; provided further,
that no Reorganized Debtor, Reorganized Debtor’s successor or
Consenting First Lien Lender shall be a Non-Released
Party.
1.115 Other
Officers and Directors means the following directors and
officers of the Debtors as of the Commencement Date: (i) Chief
Executive Officer, (ii) President and Chief Operating Officer,
and (iii) Marvin S. Rosen.
1.116 Other
Secured Claim means a Secured Claim, other than an
Administrative Expense Claim, a DIP Claim, a Priority Tax Claim, a
First Lien Claim, or a Second Lien Claim.
1.117 Ownership
Certification means a written certification, in the form
attached to the FCC Ownership Procedures Order, which shall, among
other things, be sufficient to enable the Debtors or Reorganized
Debtors, as applicable, to determine the extent to which direct and
indirect voting and equity interests of the certifying party are
held by non-U.S. Persons, as determined under sections 214 and
310(b) of the Communications Act, as interpreted and applied by the
FCC.
1.118 Ownership
Certification Deadline means the deadline set forth in the
FCC Ownership Procedures Order for returning Ownership
Certifications.
1.119 Parent
Equity Interests means any Interest in FCI.
1.120 Person
means any individual, corporation, partnership, limited liability
company, association, organization, joint stock company, joint
venture, estate, trust, Governmental Unit or any political
subdivision thereof, or any other Entity.
1.121 Petition
for Declaratory Ruling means a filing that shall be
submitted to the FCC by the Debtors or Reorganized Debtors, as
applicable, pursuant to 47 C.F.R. §§ 1.5000 et seq. for Reorganized FCI to exceed
the twenty five percent (25%) indirect foreign ownership benchmark
contained in 47 U.S.C. § 310(b)(4).
1.122 Plan
means this joint chapter 11 plan,
including all appendices, exhibits, schedules, and supplements
hereto (including, without limitation, any appendices, schedules,
and supplements to the Plan contained in the Plan Supplement), as
the same may be amended, supplemented, or modified from time to
time in accordance with the RSA, the provisions of the Bankruptcy
Code and the terms hereof.
1.123 Plan
Supplement means a supplemental appendix to the Plan
containing, among other things, forms of applicable documents,
schedules, and exhibits to the Plan to be filed with the Bankruptcy
Court, including, but not limited to, the following:
(a) Amended Organizational Documents (to the extent such
Amended Organizational Documents reflect material changes from the
Debtors’ existing organizational documents and bylaws);
(b) New First Lien Credit Agreement; (c) New Exit
Facility Credit Agreement; (d) Stockholders Agreement;
(e) Special Warrant Agreement; (f) Assumption Schedule;
(g) the Litigation Trust Agreement; (h) the Litigation
Trust Loan Agreement; and (i) to the extent known, information
required to be disclosed in accordance with section 1129(a)(5) of
the Bankruptcy Code; provided, that through the Effective Date, the
Debtors shall have the right to amend the Plan Supplement and any
schedules, exhibits, or amendments thereto, in accordance with the
terms of the Plan and the RSA. The Plan Supplement shall be filed
with the Bankruptcy Court no later than seven (7) calendar days
prior to the deadline to object to the Plan. The Debtors shall have
the right to amend the documents contained in the Plan Supplement
through and including the Effective Date in accordance with the
terms of the Plan.
11
1.124 Preference
Actions means any Causes of Action arising under section 547
of the Bankruptcy Code or similar preference-related actions
arising under the Bankruptcy Code or applicable non-bankruptcy
law.
1.125 Prepetition
First Lien Administrative Agent means Wilmington Trust, in
its capacity as administrative agent under the Prepetition First
Lien Credit Agreement, and its successors and assigns.
1.126 Prepetition
First Lien Credit Agreement means that certain First Lien
Credit and Guaranty Agreement, dated as of May 4, 2018, by and
among FCI, as borrower, certain subsidiaries of FCI, as guarantor
subsidiaries, Wilmington Trust, as administrative agent and
collateral agent, and the Prepetition First Lien Lenders, as
amended, restated, modified or supplemented from time to time prior
to the Commencement Date.
1.127 Prepetition
First Lien Credit Documents means, collectively, each
“Credit Document” as defined in the Prepetition First
Lien Credit Agreement.
1.128 Prepetition
First Lien Lenders means any lender party to the Prepetition
First Lien Credit Agreement, each in its capacity as
such.
1.129 Prepetition
First Lien Loans means “Loans” as
defined in the Prepetition First Lien Credit
Agreement.
1.130 Prepetition
Intercreditor Agreement means
that certain Intercreditor Agreement, dated as of May 4, 2018,
among Wilmington Trust, as First Lien representative, and GLAS
Americas LLC (as successor to Wilmington Trust), as Second Lien
representative.
1.131 Prepetition
Second Lien Administrative Agent means GLAS USA LLC, in its
capacity as successor administrative agent under the Prepetition
Second Lien Credit Agreement, and its successors and
assigns.
1.132 Prepetition
Second Lien Credit Agreement means that certain Second Lien
Credit and Guaranty Agreement, dated as of May 4, 2018, by and
among FCI, as borrower, certain subsidiaries of FCI, as guarantor
subsidiaries, GLAS Americas LLC as collateral agent (as successor
to Wilmington Trust in such capacity), GLAS USA LLC, as
administrative agent (as successor to Wilmington Trust in such
capacity), and the Prepetition Second Lien Lenders, as amended,
restated, modified or supplemented from time to time prior to the
Commencement Date.
1.133 Prepetition
Second Lien Lenders means any lender under the Prepetition
Second Lien Credit Agreement, each in its capacity as
such.
1.134 Prepetition
Subordinated Notes means,
collectively, the subordinated unsecured note, dated as of May 4,
2018, in favor of Holcombe T. Green, Jr. (or an entity
majority-owned and controlled by Holcombe T. Green, Jr. or his
heirs, beneficiaries, trusts or estate) and the subordinated
unsecured notes, each dated as of October 28, 2016, as amended and
restated as of May 4, 2018, in favor of Holcombe T. Green, Jr., R.
Kirby Godsey and the Holcombe T. Green, Jr. 2013 Five-Year Annuity
Trust.
12
1.135 Prepetition
Subordinated Notes Claims means all Claims on account of,
arising under, or relating to the Prepetition Subordinated
Notes.
1.136 Prepetition
Super Senior Administrative Agent
means Wilmington
Trust, in its capacity as administrative agent under the
Prepetition Super Senior Credit Agreement.
1.137 Prepetition
Super Senior Credit Agreement means that certain Super Senior Secured
Credit Agreement, dated as of May 9, 2019, by and among FCI, as
borrower, certain subsidiaries of FCI, as guarantor subsidiaries,
Wilmington Trust, as administrative agent and collateral agent, and
the lenders party thereto, as amended by that certain Incremental
Amendment and Amendment No. 1 thereto, dated as of May 28, 2019,
and as further amended, restated, modified or supplemented from
time to time prior to the Commencement Date.
1.138 Prepetition
Super Senior Credit Documents means, collectively, each
“Credit Document” as defined in the Prepetition Super
Senior Credit Agreement.
1.139 Priority
Non-Tax Claim means any Claim other than an Administrative
Expense Claim or a Priority Tax Claim, entitled to priority in
payment as specified in section 507(a) of the Bankruptcy
Code.
1.140 Priority
Tax Claim means any Claim of a governmental unit as defined
in section 101(27) of the Bankruptcy Code of the kind entitled to
priority in payment as specified in sections 502(i) and 507(a)(8)
of the Bankruptcy Code.
1.141 Pro
Rata means the proportion that an Allowed Claim or Interest
in a particular Class bears to the aggregate amount of Allowed
Claims or Interests in that Class, or the proportion that Allowed
Claims or Interests in a particular Class bear to the aggregate
amount of Allowed Claims and Disputed Claims or Allowed Interests
and Disputed Interests in a particular Class and other Classes
entitled to share in the same recovery as such Class under the
Plan.
1.142 Reinstate,
Reinstated, or Reinstatement means leaving a Claim
Unimpaired under the Plan.
1.143 Released
Parties means
collectively the: (a) Reorganized Debtors; (b) Consenting
First Lien Lenders; (c) Prepetition First Lien Administrative
Agent; (d) Consenting Second Lien Lenders;
(e) Prepetition Second Lien Administrative Agent; (f) DIP
Agent; (g) DIP Lenders; (h) Prepetition Super Senior Administrative
Agent; (i) Prepetition Super Senior Lenders;
(j) Creditors’ Committee and each of its members in such
capacity; (k) the Specified Officers and Directors;
(l) Non-Debtor Related Parties; and (m) Debtor Related
Parties; provided, however, that notwithstanding anything to the
contrary herein, no Non-Released Party shall be a Released
Party.
1.144 Reorganization
Transaction means,
collectively, (a) issuance of the New Equity Interests;
(b) entry into the New First Lien Credit Documents;
(c) entry into the New Exit Facility Documents; (d) entry
into the Special Warrant Agreement; (e) entry into the
Litigation Trust Agreement; (f) entry into the Litigation
Trust Loan Agreement; (g) execution of the Amended
Organizational Documents; (h) vesting of the Debtors’
assets in the Reorganized Debtors, in each case, in accordance with
the Plan; and (i) the other transactions that the Debtors and
the Requisite First Lien Lenders reasonably determine are necessary
or appropriate to implement the foregoing, in each case, in
accordance with the Plan and the RSA.
13
1.145 Reorganized
Debtors means, the Debtors, as reorganized pursuant to and
under the Plan on and after the Effective Date.
1.146 Reorganized
FCI means, FCI, as reorganized pursuant to and under the
Plan on or after the Effective Date
1.147 Requisite
First Lien Lenders means, as of the date of determination,
Consenting First Lien Lenders holding at least a majority in
aggregate principal amount outstanding of the Prepetition First
Lien Loans held by the Consenting First Lien Lenders as of such
date.
1.148 Restructuring
Committee means the restructuring committee
appointed by the Board of Directors on May 28, 2019.
1.149
Restructuring
Expenses means the reasonable and documented fees and
expenses incurred by the Consenting First Lien Lenders in
connection with the Chapter 11 Cases, including the fees and
expenses of (i) Davis Polk & Wardwell LLP,
(ii) Greenhill & Co., LLC, (iii) Altman Vilandrie
& Company and its sub-contractors, (iv) Wiley Rein LLP,
(v) the Prepetition First Lien Administrative Agent,
(vi) Arnold & Porter Kaye Scholer LLP, (vii) one firm
acting as local counsel (if any), and (vi) any other advisors
retained by the Requisite First Lien Lenders, payable in accordance
with the terms of any applicable engagement or fee letters executed
with such parties and without the requirement for the filing of
retention applications, fee applications, or any other application
in the Chapter 11 Cases, which shall be Allowed as Administrative
Expense Claims upon incurrence and shall not be subject to any
offset, defense, counterclaim, reduction, or credit.
1.150 RSA
means that certain
Restructuring Support Agreement, dated as of June 3, 2019, by and
among the Debtors and the Consenting First Lien Lenders (as may be
amended, supplemented, or modified from time to time in accordance
with the terms thereof) annexed to the Disclosure Statement as
Exhibit B.
1.151 SEC
means the U.S. Securities and Exchange
Commission and any successor agency.
1.152 Second
Lien Claims means any Claims arising from or in connection
with the Prepetition Second Lien Credit Agreement.
1.153 Second
Lien Deficiency Claim means the unsecured Claims on account
of the indebtedness under the Prepetition Second Lien Credit
Agreement under section 506(a) of the Bankruptcy Code.
1.154 Second
Lien Lender Group means the ad
hoc group of Consenting Second Lien Lenders represented by
Proskauer Rose, LLP.
1.155 Second
Lien Lender Restructuring Expenses means the reasonable and
documented fees and expenses incurred by the Second Lien Lender
Group in connection with the Chapter 11 Cases, including:
(i) the fees and expenses of Proskauer Rose, LLP and (ii) M-III Partners,
in an aggregate amount not to exceed $1.25
million.
1.156 Second
Lien Lender Special Warrant Distribution means a distribution of Special Warrants to
purchase 2.5% of all of the issued and outstanding New Equity
Interests, subject to dilution by the Management Incentive
Plan; provided, that holders of Allowed Second Lien Claims may
receive a distribution on account of their Claims in lieu of
Special Warrants that is otherwise satisfactory to such holders and
compliant with the rules and regulations of the FCC and in the
reasonable judgment of the Debtors would not result in an undue
delay of obtaining FCC Approval.
14
1.157 Secured
Claim means a Claim (a) secured by a Lien on collateral
to the extent of the value of such collateral as (i) set forth in
the Plan, (ii) agreed to by the holder of such Claim and the
Debtors, or (iii) determined by a Final Order in accordance with
section 506(a) of the Bankruptcy Code; or (b) secured by the amount
of any right of setoff of the holder thereof in accordance with
section 553 of the Bankruptcy Code.
1.158 Security
has the meaning set forth in section 101(49) of the Bankruptcy
Code.
1.159 Settlement
Restructuring Expenses means the reasonable and documented
fees and expenses incurred by O’Melveny & Myers LLP,
counsel to Matthew D. Rosen, solely to the extent directly related
to negotiating and finalizing the Consulting Agreement and Mr.
Rosen’s resignation as Chief Executive Officer of the
Debtors.
1.160 Special
Committee means the committee established by the Board of
Directors prior to the Commencement Date.
1.161
Special
Warrant means a warrant, issued by Reorganized FCI pursuant
to the Plan, the Equity Allocation Mechanism and the Special
Warrant Agreement, to purchase New Equity Interests, the terms of
which will provide that (i) the holder may exercise its rights
to purchase New Equity Interests at no cost and (ii) it will
not be exercisable unless such exercise complies with applicable
law, including, without limitation, the Communications Act and the
rules and regulations of the FCC, which shall be in form and
substance acceptable to the Debtors and the Requisite First Lien
Lenders.
1.162 Special
Warrant Agreement means the warrant agreement, to be
effective on the Effective Date, governing the Special Warrants to
be issued by Reorganized FCI, the form of which shall be included
in the Plan Supplement.
1.163 Specified
Officers and Directors means (a) the following officers
of the Debtors who served in such capacity during the Chapter 11
Cases, so long as such officers do not voluntarily terminate their
employment or are not terminated for cause prior to the Effective
Date: (i) Chief Financial Officer; (ii) Executive Vice
President and General Counsel; and (iii) Chief Technology
Officer; and (b) Mr. Neal Goldman.
1.164 State
Public Utility Commissions (PUCs) means the regulatory agency in
each U.S. state (which, for this definition, shall include the
District of Columbia) with jurisdiction over intrastate
telecommunications services.
1.165 State
PUC Applications means, collectively, each requisite
application, petition, or other request filed or to be filed with
the PUCs in connection with the Reorganization Transaction and this
Plan.
1.166 State
PUC Approvals means the State PUCs’ grant(s) of the
State PUC Applications; provided that, subject to the consent of the
Requisite First Lien Lenders, the possibility that an appeal,
request for stay, or petition for rehearing or review by a court or
administrative agency may be filed with respect to such grant(s),
or that the State PUCs may reconsider or review such grant(s) on
their own authority, shall not prevent such grant(s) from
constituting State PUC Approval(s) for purposes of the
Plan.
15
1.167 State
PUC Licenses means licenses, authorizations, waivers and
permits that are issued from time to time by the State PUCs in
connection with the provision of intrastate telecommunications
services and Voice-over-Internet-Protocol (VoIP)
services.
1.168 State
PUC Notices means the required or customary informational
filings to be made with State PUCs where applications for approval
are not required in connection with the Reorganization Transaction
and this Plan.
1.169 Stockholders
Agreement means that certain stockholders agreement
substantially in the form included as an exhibit to the Plan
Supplement.
1.170 Subordinated
Securities Claims means a Claim subject to subordination
under section 510(b) of the Bankruptcy Code.
1.171 Tax
Code means the Internal Revenue Code of 1986, as
amended.
1.172 Term
Loan Deficiency Claim means the unsecured Claims on account
of the indebtedness under the Prepetition First Lien Credit
Agreement under section 506(a) of the Bankruptcy Code (if
any).
1.173 Transfer
of Control means the transfer of control of the FCC Licenses
and State PUC Licenses held by any of FCI or its subsidiaries as a
result of the issuance of the New Equity Interests and/or Special
Warrants to holders of First Lien Claims after the FCC grants the
FCC Applications.
1.174 Unimpaired
means, with respect to a Claim, Interest, or Class of Claims or
Interests, not “impaired” within the meaning of
sections 1123(a)(2) and 1124 of the Bankruptcy Code.
1.175 U.S.
Trustee means the United States Trustee for the Southern
District of New York.
1.176 Voting
Deadline means the date by which all persons or Entities
entitled to vote on the Plan must vote to accept or reject the
Plan.
1.177 Wilmington
Trust means Wilmington Trust, National
Association.
B.
Interpretation;
Application of Definitions and Rules of Construction.
Unless
otherwise specified, all section or exhibit references in the Plan
are to the respective section in, or exhibit to, the Plan, as the
same may be amended, waived, or modified from time to time. The
words “herein,” “hereof,”
“hereto,” “hereunder,” and other words of
similar import refer to the Plan as a whole and not to any
particular section, subsection, or clause contained therein. The
headings in the Plan are for convenience of reference only and
shall not limit or otherwise affect the provisions hereof. For
purposes herein: (a) in the appropriate context, each term,
whether stated in the singular or the plural, shall include both
the singular and the plural, and pronouns stated in the masculine,
feminine, or neuter gender shall include the masculine, feminine,
and the neuter gender; (b) any reference herein to a contract,
lease, instrument, release, indenture, or other agreement or
document being in a particular form or on particular terms and
conditions means that the referenced document shall be
substantially in that form or substantially on those terms and
conditions; (c) unless otherwise specified, all references
herein to “Sections” are references to Sections hereof
or hereto; (d) the rules of construction set forth in section
102 of the Bankruptcy Code shall apply; and (e) any term used
in capitalized form herein that is not otherwise defined but that
is used in the Bankruptcy Code or the Bankruptcy Rules shall have
the meaning assigned to that term in the Bankruptcy Code or the
Bankruptcy Rules, as the case may be.
16
C.
Reference
to Monetary Figures.
All
references in the Plan to monetary figures shall refer to the legal
tender of the United States of America, unless otherwise expressly
provided.
D.
Controlling
Document.
In the
event of any conflict between the terms and provisions in the Plan
(without reference to the Plan Supplement) and the terms and
provisions in the Disclosure Statement, the Plan Supplement, any
other instrument or document created or executed pursuant to the
Plan (including any other Definitive Document), or any order (other
than the Confirmation Order) referenced in the Plan (or any
exhibits, schedules, appendices, supplements, or amendments to any
of the foregoing), the Plan (without reference to the Plan
Supplement) shall govern and control; provided, however, that, in
the event of a conflict between the Confirmation Order, on the one
hand, and any of the Plan, the Plan Supplement, the other
Definitive Documents, on the other hand, the Confirmation Order
shall govern and control in all respects.
E.
Certain
Consent Rights.
Notwithstanding
anything in the Plan to the contrary, any and all consent rights of
the parties to the RSA and the DIP Agent as set forth in the RSA
and the DIP Documents with respect to the form and substance of the
Plan, the Plan Supplement, and any Definitive Document, including
any amendments, restatements, supplements, or other modifications
to such documents, and any consents, waivers, or other deviations
under or from any such documents, shall be incorporated herein by
this reference (including to the applicable definitions in Article
I hereof) and fully enforceable as if stated in full
herein.
ARTICLE
II ADMINISTRATIVE EXPENSE AND PRIORITY
CLAIMS.
2.1.
Administrative
Expense Claims.
Except
as otherwise set forth herein, and except to the extent that a
holder of an Allowed Administrative Expense Claim agrees to less
favorable treatment, each holder of an Allowed Administrative
Expense Claim (other than a Fee Claim, a DIP Claim, or a
Restructuring Expense) shall receive, in full and final
satisfaction of such Claim, Cash in an amount equal to such Allowed
Administrative Expense Claim on, or as soon thereafter as is
reasonably practicable, the later of (a) the Effective Date
and (b) the first Business Day after the date that is thirty
(30) calendar days after the date such Administrative Expense Claim
becomes an Allowed Administrative Expense Claim; provided, that
Allowed Administrative Expense Claims representing liabilities
incurred in the ordinary course of business by the Debtors, as
Debtors in Possession, shall be paid by the Debtors or the
Reorganized Debtors, as applicable, in the ordinary course of
business, consistent with past practice and in accordance with the
terms and subject to the conditions of any course of dealing or
agreements governing, instruments evidencing, or other documents
relating to such transactions.
17
2.2.
Fee
Claims.
(a) All
Entities seeking an award by the Bankruptcy Court of Fee Claims
shall file and serve on counsel to the Debtors or the
Creditors’ Committee, as applicable, the U.S. Trustee, and
counsel to the First Lien Lender Group, on or before the date that
is forty-five (45) days after the Effective Date, their respective
final applications for allowance of compensation for services
rendered and reimbursement of expenses incurred from the
Commencement Date through the Effective Date. Objections to any Fee
Claims must be filed and served on counsel to the Debtors, counsel
to the First Lien Lender Group, and the requesting party no later
than twenty-one (21) calendar days after the filing of the final
applications for compensation or reimbursement (unless otherwise
agreed by the Debtors or the Reorganized Debtors, as applicable,
and the party requesting compensation of a Fee Claim).
(b) Allowed
Fee Claims shall be paid in full, in Cash, in such amounts as are
Allowed by the Bankruptcy Court (i) on the date upon which an order
relating to any such Allowed Fee Claim is entered or as soon as
reasonably practicable thereafter; or (ii) upon such other terms as
may be mutually agreed upon between the holder of such an Allowed
Fee Claim and the Debtors or the Reorganized Debtors, as
applicable. Notwithstanding the foregoing, any Fee Claims that are
authorized to be paid pursuant to any administrative orders entered
by the Bankruptcy Court may be paid at the times and in the amounts
authorized pursuant to such orders.
(c) On
or about the Effective Date, holders of Fee Claims shall provide a
reasonable estimate of unpaid Fee Claims incurred in rendering
services before the Effective Date to the Debtors, and the Debtors
or Reorganized Debtors, as applicable, shall escrow such estimated
amounts for the benefit of the holders of the Fee Claims until the
fee applications related thereto are resolved by Final Order or
agreement of the parties. If a holder of a Fee Claim does not
provide an estimate, the Debtors or the Reorganized Debtors, as
applicable, may estimate the unpaid and unbilled reasonable and
necessary fees and out-of-pocket expenses of such holder of a Fee
Claim. When all such Allowed Fee Claims have been paid in full, any
remaining amount in such escrow shall promptly be released from
such escrow and revert to, and ownership thereof shall vest in, the
Reorganized Debtors without any further action or order of the
Bankruptcy Court.
(d) The
Reorganized Debtors are authorized to pay compensation for services
rendered or reimbursement of expenses incurred after the Effective
Date in the ordinary course and without the need for Bankruptcy
Court approval.
2.3.
Priority Tax
Claims.
Except
to the extent that a holder of an Allowed Priority Tax Claim agrees
to less favorable treatment, each holder of an Allowed Priority Tax
Claim shall receive, in full and final satisfaction of such Allowed
Priority Tax Claim, at the sole option of the Debtors or the
Reorganized Debtors, as applicable, (a) Cash in an amount equal to
such Allowed Priority Tax Claim on, or as soon thereafter as is
reasonably practicable, the later of (i) the Effective Date,
to the extent such Claim is an Allowed Priority Tax Claim on the
Effective Date; (ii) the first Business Day after the date
that is thirty (30) calendar days after the date such Priority Tax
Claim becomes an Allowed Priority Tax Claim; and (iii) the
date such Allowed Priority Tax Claim is due and payable in the
ordinary course as such obligation becomes due; provided, that the
Debtor reserves the right to prepay all or a portion of any such
amounts at any time under this option without penalty or premium;
or (b) equal annual Cash payments in an aggregate amount equal to
the amount of such Allowed Priority Tax Claim, together with
interest at the applicable rate under section 511 of the Bankruptcy
Code, over a period not exceeding five (5) years from and after the
Commencement Date.
18
2.4. DIP
Claims.
As of
the Effective Date, the DIP Claims shall be Allowed in the full
amount outstanding under the DIP Credit Agreement, including
principal, interest, fees, and expenses. On the Effective Date, in
full and final satisfaction of the DIP Claims, such claims shall be
paid in full in Cash from the proceeds of the New Exit Facility.
Notwithstanding anything to the contrary in the Plan or the
Confirmation Order, (i) the Contingent DIP Obligations shall
survive the Effective Date and shall not be discharged or released
pursuant to the Plan or the Confirmation Order, and (ii) the DIP
Documents shall continue in full force and effect after the
Effective Date with respect to any obligations thereunder governing
(1) the Contingent DIP Obligations and (2) the
relationships among the DIP Agent and the DIP Lenders.
On the
later of (1) the Effective Date and (2) the date on which such
fees, expenses, or disbursements would be required to be paid under
the terms of the DIP Order, the Debtors or Reorganized Debtors (as
applicable) shall pay all fees, expenses, and disbursements of the
DIP Agent and DIP Lenders, in each case that have accrued and are
unpaid as of the Effective Date and are required to be paid under
or pursuant to the DIP Order. After the Effective Date, the
Reorganized Debtors shall continue to reimburse the DIP Agent and
the DIP Lenders for the reasonable fees and expenses (including
reasonable and documented legal fees and expenses) incurred by the
DIP Agent and the DIP Lenders after the Effective Date in
accordance with the terms thereof and/or the DIP Order. The
Reorganized Debtors shall pay all of the amounts that may become
payable to the DIP Agent or any of the DIP Lenders on account of
any Contingent DIP Obligations in accordance with the terms of the
DIP Documents and the DIP Order.
2.5. Restructuring
Expenses.
During
the period commencing on the Commencement Date through the
Effective Date, the Debtors will promptly pay in full in Cash any
Restructuring Expenses in accordance with the terms of the RSA.
Without limiting the foregoing, to the extent that any
Restructuring Expenses remain unpaid as of the Business Day prior
to the Effective Date, on the Effective Date, the Reorganized
Debtors shall pay in full in Cash any outstanding Restructuring
Expenses that are invoiced without the requirement for the filing
of retention applications, fee applications, or any other
applications in the Chapter 11 Cases, and without any requirement
for further notice or Bankruptcy Court review or approval. For the
avoidance of doubt, any Restructuring Expenses invoiced after the
Effective Date shall be paid promptly, but no later than ten (10)
business days of receiving an invoice.
ARTICLE
III CLASSIFICATION OF CLAIMS AND
INTERESTS.
3.1. Classification
in General.
A Claim
or Interest is placed in a particular Class for all purposes,
including voting, confirmation, and distribution under the Plan and
under sections 1122 and 1123(a)(1) of the Bankruptcy Code;
provided, that a Claim or Interest is placed in a particular Class
for the purpose of receiving distributions pursuant to the Plan
only to the extent that such Claim or Interest is an Allowed Claim
or Allowed Interest in that Class and such Allowed Claim or Allowed
Interest has not been satisfied, released, or otherwise settled
prior to the Effective Date.
3.2. Summary
of Classification.
The
following table designates the Classes of Claims against and
Interests in the Debtor and specifies which of those Classes are
(a) Impaired or Unimpaired by the Plan; (b) entitled to
vote to accept or reject the Plan in accordance with section 1126
of the Bankruptcy Code; and (c) deemed to accept or reject the
Plan. In accordance with section 1123(a)(1) of the Bankruptcy Code,
Administrative Expense Claims and Priority Tax Claims have not been
classified.
19
|
Class
|
Designation
|
Treatment
|
Entitled to
Vote
|
|
1
|
Priority Non-Tax
Claims
|
Unimpaired
|
No
(Presumed to accept)
|
|
2
|
Other
Secured Claims
|
Unimpaired
|
No
(Presumed to accept)
|
|
3
|
First
Lien Claims
|
Impaired
|
Yes
|
|
4
|
Second
Lien Claims
|
Impaired
|
Yes
|
|
5
|
General
Unsecured Claims
|
Impaired
|
Yes
|
|
6
|
Intercompany
Claims
|
Unimpaired
|
No
(Presumed to accept)
|
|
7
|
Intercompany
Interests
|
Unimpaired
|
No
(Presumed to accept)
|
|
8
|
Parent
Equity Interests
|
Impaired
|
No
(Deemed to reject)
|
|
9
|
Subordinated
Securities Claims
|
Impaired
|
No
(Deemed to reject)
|
3.3. Special
Provision Governing Unimpaired Claims.
Nothing
under the Plan shall affect the rights of the Debtors or the
Reorganized Debtors, as applicable, in respect of any Unimpaired
Claims, including all rights in respect of legal and equitable
defenses to, or setoffs or recoupments against, any such Unimpaired
Claims.
3.4. Elimination
of Vacant Classes.
Any
Class of Claims against or Interests in the Debtors that, as of the
commencement of the Confirmation Hearing, does not have at least
one holder of a Claim or Interest that is Allowed in an amount
greater than zero for voting purposes shall be considered vacant,
deemed eliminated from the Plan for purposes of voting to accept or
reject the Plan, and disregarded for purposes of determining
whether the Plan satisfies section 1129(a)(8) of the Bankruptcy
Code with respect to that Class.
4.1. Priority
Non-Tax Claims (Class 1).
(a) Classification:
Class 1 consists of Priority Non-Tax Claims.
(b) Treatment:
Except to the extent that a holder of an Allowed Priority Non-Tax
Claim against the Debtors agrees to a less favorable treatment of
such Claim, in full and final satisfaction of such Allowed Priority
Non-Tax Claim, at the sole option of the Debtors or the Reorganized
Debtors, as applicable: (i) each such holder shall receive
payment in Cash in an amount equal to such Claim, payable on the
later of the Effective Date and the date that is ten (10) Business
Days after the date on which such Priority Non-Tax Claim becomes an
Allowed Priority Non-Tax Claim, or as soon thereafter as is
reasonably practicable; or (ii) such holder’s Allowed
Priority Non-Tax Claim shall be Reinstated.
(c) Voting:
Class 1 is Unimpaired, and holders of Priority Non-Tax Claims are
conclusively presumed to have accepted the Plan pursuant to section
1126(f) of the Bankruptcy Code. Therefore, holders of Priority
Non-Tax Claims are not entitled to vote to accept or reject the
Plan, and the votes of such holders will not be solicited with
respect to Priority Non-Tax Claims.
20
4.2. Other
Secured Claims (Class 2).
(a) Classification:
Class 2 consists of the Other Secured Claims. To the extent that
Other Secured Claims are secured by different collateral or
different interests in the same collateral, such Claims shall be
treated as separate subclasses of Class 2 for purposes of voting to
accept or reject the Plan and receiving distributions under the
Plan.
(b) Treatment:
Except to the extent that a holder of an Allowed Other Secured
Claim agrees to different treatment, on the later of the Effective
Date and the date that is ten (10) Business Days after the date
such Other Secured Claim becomes an Allowed Claim, or as soon
thereafter as is reasonably practicable, each holder of an Allowed
Other Secured Claim will receive, on account of such Allowed Claim,
at the sole option of the Debtors or the Reorganized Debtors, as
applicable: (i) Cash in an amount equal to the Allowed amount
of such Claim; (ii) Reinstatement of such holder’s
Allowed Other Secured Claim; or (iii) such other treatment
sufficient to render such holder’s Allowed Other Secured
Claim Unimpaired.
(c) Voting:
Class 2 is Unimpaired, and holders of Other Secured Claims are
conclusively presumed to have accepted the Plan pursuant to section
1126(f) of the Bankruptcy Code. Therefore, holders of Other Secured
Claims are not entitled to vote to accept or reject the Plan, and
the votes of such holders will not be solicited with respect to
such Other Secured Claims.
4.3. First
Lien Claims (Class 3).
(a) Classification:
Class 3 consists of First Lien Claims.
(b) Allowance:
The First Lien Claims are Allowed pursuant to section 506(a) of the
Bankruptcy Code against the Debtors in the aggregate principal
amount of $585,481,310.80 consisting of (i) $545,150,569.11 in
aggregate outstanding principal amount of term loans,
(ii) $39,818,694.44 in aggregate outstanding principal amount
of revolving loans, and (iii) $512,047.25 in aggregate
outstanding face amount of letters of credit issued, in each case,
under the Prepetition First Lien Credit Agreement, plus accrued and
unpaid prepetition interest, accrued and unpaid post-petition
interest, fees, expenses and other amounts arising under the
Prepetition First Lien Credit Agreement.
(c) Treatment:
Except to the extent that a holder of a First Lien Claim agrees to
less favorable treatment, in full and final satisfaction,
settlement, release, and discharge of, and in exchange for such
First Lien Claim, each such holder thereof (or, with respect to any
New Equity Interests to be issued pursuant to the First Lien Lender
Equity Distribution, such holder’s permitted designee) shall
receive on the Effective Date such holder’s Pro Rata share of
(a) the First Lien Lender Equity Distribution; provided, that
notwithstanding anything herein to the contrary, the distribution
of the First Lien Lender Equity Distribution shall be made pursuant
to, and subject to the terms and conditions of, the Equity
Allocation Mechanism, (b) the loans under the New First Lien
Credit Facility; and (c) cash or other proceeds, if any, from
the sale of the Debtors’ Canadian business unless otherwise
agreed to by the Requisite First Lien Lenders.
For the
avoidance of doubt, on the Effective Date, the Prepetition First
Lien Credit Agreement shall be deemed cancelled (except as set
forth in Section 5.9 hereof) without further action by or order of
the Bankruptcy Court.
(d) Voting:
Class 3 is Impaired, and holders of First Lien Claims in Class 3
are entitled to vote to accept or reject the Plan.
21
4.4. Second
Lien Claims (Class 4).
(a) Classification:
Class 4 consists of Second Lien Claims in the aggregate principal
amount of $85,000,000 of term loans issued under the Prepetition
Second Lien Credit Agreement, plus interest, fees, expenses and
other amounts arising under the Prepetition Second Lien Credit
Agreement.
(b) Treatment:
Except to the extent that a holder of an Allowed Second Lien Claim
agrees to less favorable treatment, in full and final satisfaction,
settlement, release, and discharge of, and in exchange for such
Allowed Second Lien Claim, each such holder thereof shall receive
on the Effective Date such holder’s Pro Rata share of the
Second Lien Lender Special Warrant Distribution.
For the avoidance of doubt, on the
Effective Date, the Prepetition Second Lien Credit Agreement shall
be deemed cancelled (except as set forth in Section 5.9 hereof)
without further action by or order of the Bankruptcy
Court.
(c) Voting:
Class 4 is Impaired, and holders of Second Lien Claims are entitled
to vote to accept or reject the Plan.
4.5. General
Unsecured Claims (Class 5).
(a) Classification:
Class 5 consists of General Unsecured Claims.
(b) Treatment:
Except to the extent that a holder of an Allowed General Unsecured
Claim agrees to less favorable treatment, in full and final
satisfaction, settlement, release, and discharge of, and in
exchange for an Allowed General Unsecured Claim, each such holder
thereof shall receive such holder’s Pro Rata share of the
Litigation Trust Interests on the Effective Date.
(c) Voting:
Class 5 is Impaired, and holders of General Unsecured Claims are
entitled to vote to accept or reject the Plan.
4.6. Intercompany
Claims (Class 6).
(a) Classification:
Class 6 consists of Intercompany Claims.
(b) Treatment:
On or after the Effective Date, all Intercompany Claims will be
adjusted, continued, settled, reinstated, discharged, or eliminated
as determined by the Debtors or the Reorganized Debtors, as
applicable, and the Requisite First Lien Lenders, in their
respective reasonable discretion, but not paid in
Cash.
(c) Voting:
Class 6 is Unimpaired, and holders of Intercompany Claims are
conclusively presumed to have accepted the Plan pursuant to section
1126(f) of the Bankruptcy Code. Therefore, holders of Intercompany
Claims are not entitled to vote to accept or reject the Plan, and
the votes of such holders will not be solicited with respect to
such Intercompany Claims.
4.7. Intercompany
Interests (Class 7).
(a) Classification:
Class 7 consists of Intercompany Interests.
(b) Treatment:
On or after the Effective Date, all Intercompany Interests shall be
cancelled, reinstated, or receive such other treatment as
determined by the Debtors or the Reorganized Debtors, as
applicable, and the Requisite First Lien Lenders, in their
respective reasonable discretion.
22
(c) Voting:
Class 7 is Unimpaired, and holders of Intercompany Interests are
conclusively presumed to have accepted the Plan pursuant to section
1126(f) of the Bankruptcy Code. Therefore, holders of Intercompany
Interests are not entitled to vote to accept or reject the Plan,
and the votes of such holders will not be solicited with respect to
such Intercompany Interests.
4.8. Parent
Equity Interests (Class 8).
(a) Classification:
Class 8 consists of Parent Equity Interests.
(b) Treatment:
on the Effective Date, all Parent Equity Interests shall be deemed
cancelled without further action by or order of the Bankruptcy
Court, and shall be of no further force and effect, whether
surrendered for cancellation or otherwise. To the extent permitted
by applicable law, on or promptly after the Effective Date, the
Reorganized Debtors shall file with the SEC a Form 15 for the
purpose of terminating the registration of any of FCI’s
publicly traded securities.
(c) Voting:
Class 8 is Impaired, and holders of Parent Equity Interests are
conclusively deemed to have rejected the Plan pursuant to section
1126(g) of the Bankruptcy Code. Therefore, holders of Parent Equity
Interests are not entitled to vote to accept or reject the Plan,
and the votes of such holders will not be solicited with respect to
such Parent Equity Interests.
4.9. Subordinated
Securities Claims (Class 9).
(a) Classification:
Class 9 consists of Subordinated Securities Claims.
(b) Treatment:
Holders of Subordinated Securities Claims shall not receive or
retain any property under the Plan on account of such Subordinated
Securities Claims. On the Effective Date, all Subordinated
Securities Claims shall be deemed cancelled without further action
by or order of the Bankruptcy Court, and shall be of no further
force and effect, whether surrendered for cancellation or
otherwise.
(c) Voting:
Class 9 is Impaired, and the holders of Subordinated Securities
Claims are conclusively deemed to have rejected the Plan.
Therefore, holders of Subordinated Securities Claims are not
entitled to vote to accept or reject the Plan, and the votes of
such holders of Subordinated Securities Claims will not be
solicited.
ARTICLE
V MEANS FOR
IMPLEMENTATION.
5.1. No
Substantive Consolidation.
The
Plan is being proposed as a joint plan of reorganization of the
Debtors for administrative purposes only and constitutes a separate
chapter 11 plan of reorganization for each Debtor. However, this
Plan contemplates and is predicated upon the deemed substantive
consolidation of the Estate and Chapter 11 Case of each Debtor with
the Estate and Chapter 11 Case of each other Debtor for purposes of
distributions made by the Litigation Trust only. On the Effective
Date, each Claim filed or to be filed against any Debtor shall be
deemed filed only against Fusion Connect, Inc. and shall be deemed
a single Claim against and a single obligation of Fusion Connect,
Inc. for purposes of distributions made by the Litigation Trust
only and the claims register shall be updated accordingly. This
limited substantive consolidation effected pursuant to this Section
5.1 of the Plan shall not affect the vesting of any Litigation
Trust Cause of Action in the Litigation Trust, nor shall it affect
the prosecution of any Litigation Trust Cause of Action by the
Litigation Trust.
23
5.2. Compromise
and Settlement of Claims, Interests, and
Controversies.
(a) Pursuant
to sections 363 and 1123(b)(3) of the Bankruptcy Code and
Bankruptcy Rule 9019 and in consideration for the distributions and
other benefits provided pursuant to the Plan, the provisions of the
Plan and the Global Settlement shall constitute a good faith
compromise of Claims, Interests, and controversies relating to the
contractual, legal, and subordination rights that a creditor or an
Interest holder may have with respect to any Claim or Interest or
any distribution to be made on account of an Allowed Claim or
Interest. The entry of the Confirmation Order shall constitute the
Bankruptcy Court’s approval of the compromise or settlement
of all such Claims, Interests, and controversies, as well as a
finding by the Bankruptcy Court that such compromise or settlement
is in the best interests of the Debtors, their Estates, and holders
of such Claims and Interests, and is fair, equitable, and
reasonable.
(b) The
Plan incorporates and reflects the following compromise and
settlement by and among the Debtors, the Creditors’
Committee, the Consenting First Lien Lenders, and the Consenting
Second Lien Lenders (the “Global
Settlement”).
i.
On the Effective
Date, the Litigation Trust shall be established in accordance with
Section 5.16 of the Plan and shall be governed and administered in
accordance with the Litigation Trust Agreement.
ii.
On the Effective
Date, or as soon as reasonably practicable thereafter, (1) the
Debtors shall be deemed to transfer to the Litigation Trust the
Litigation Trust Debtor Causes of Action, (2) the Reorganized
Debtors shall transfer to the Litigation Trust the Litigation Trust
Initial Funding and (3) holders of Allowed First Lien Claims
shall be deemed to transfer to the Litigation Trust any direct
Cause of Action they may assert solely in their capacities as
lenders under the Prepetition First Lien Credit Agreement relating
to the Debtors, which, for the avoidance of doubt, shall not
include any Cause of Action against any Prepetition First Lien
Lender or the Prepetition First Lien Administrative Agent, to the
extent such Causes of Action are not released or subject to the
exculpation provisions under the Plan (the “Litigation Trust First Lien
Lender Causes of Action”), each free and clear of all
Liens, charges, Claims, encumbrances, and interests, in accordance
with Section 1141 of the Bankruptcy Code. All of the Litigation
Trust Assets, as well as the rights and powers of the
Debtors’ Estates applicable to the Litigation Trust Assets,
shall vest in the Litigation Trust, for the benefit of the holders
of Litigation Trust Interests and Reorganized FCI.
iii.
On the Effective
Date, or as soon as reasonably practicable thereafter, the
Reorganized Debtors and Litigation Trust shall enter into the
Litigation Trust Loan Agreement pursuant to which the Reorganized
Debtors shall agree to lend the Litigation Trust Loan Proceeds to
the Litigation Trust. The Litigation Trust Loan Proceeds shall be
available to be drawn in $1,000,000 installments six (6) and twelve
(12) months after the Effective Date, and $500,000 installments
eighteen (18), twenty-four (24), and thirty (30) months after the
Effective Date. The Litigation Trust Loan shall accrue
payment-in-kind interest at same rate as the New First Lien Credit
Facility. The amount of the Litigation Trust Loan may be increased
post-Effective Date upon the agreement of the Reorganized Debtors
and the Litigation Trust. In the event the Reorganized Debtors fail
to honor a Litigation Trust Loan draw installment when due, such
failure shall be deemed to be an automatic exercise of the
Termination Right (as defined below) without the consent of the
member the Creditors’ Committee appointed to the Litigation
Trust Oversight Committee.
24
iv.
On the Effective
Date, all Preference Actions against any Entity other than a
Non-Released Party that the Debtors or the Estates would have been
legally entitled to assert in their own right (whether individually
or collectively) or on behalf of the holder of any Claim or
Interest or other Person shall be deemed conclusively, absolutely,
unconditionally, irrevocably and forever, released.
v.
The Litigation
Trust shall be overseen and controlled by the Litigation Trust
Oversight Committee in accordance with the Litigation Trust
Agreement. The Litigation Trust Oversight Committee shall have the
authority to determine whether to enforce, settle, release, or
compromise the Litigation Trust Causes of Action (or decline to do
any of the foregoing). The Litigation Trust Oversight Committee
shall be solely responsible for selecting and retaining advisors to
the Litigation Trust.
vi.
In accordance with
the Litigation Trust Agreement, payment of Litigation Trust
Expenses shall be deemed to be made first from the Litigation Trust
Initial Funding and then from the Litigation Trust Loan Proceeds.
The Litigation Trust shall be deemed to be prohibited from using
any Litigation Trust Loan Proceeds until no portion of the
Litigation Trust Initial Funding is remaining.
vii.
After payment of
Litigation Trust Expenses pursuant to the Litigation Trust
Agreement, the Litigation Trust Assets (other than any proceeds of
the Litigation Trust First Lien Lender Causes of Action) shall be
shared and distributed as follows: first, payment in full in Cash of all
amounts due to Reorganized FCI under the Litigation Trust Loan;
second, distribution of up
to $180,000 to Reorganized FCI; third, distribution to the Litigation
Trust for the benefit of the holders of Litigation Trust Interests
in accordance with the Plan of up to $1,500,000 (the
“GUC
Payment”); fourth, to the extent the remaining
Litigation Trust Assets are equal to or less than $20,000,000,
sixty percent (60%) of such Litigation Trust Assets shall be
distributed to Reorganized FCI and forty percent (40%) of such
Litigation Trust Assets shall be distributed to the Litigation
Trust for the benefit of the holders of Litigation Trust Interests
in accordance with the Plan; and fifth, to the extent there are any
remaining Litigation Trust Assets greater than $20,000,000, fifty
percent (50%) of such Litigation Trust Assets shall be distributed
to Reorganized FCI and fifty percent (50%) of such Litigation Trust
Assets shall be distributed to the Litigation Trust for the benefit
of the holders of Litigation Trust Interests in accordance with the
Plan.
viii.
After payment of
Litigation Trust Expenses pursuant to the Litigation Trust
Agreement, any Litigation Trust Assets that are proceeds of the
Litigation Trust First Lien Lender Causes of Action shall be shared
and distributed as follows: first, payment in full in Cash of all
amounts due to the Reorganized Debtors under the Litigation Trust
Loan; second, eighty-five
percent (85%) of such Litigation Trust Assets shall be distributed
to the Reorganized FCI and fifteen percent (15%) of such Litigation
Trust Assets shall be distributed to the Litigation Trust for the
benefit of the holders of Litigation Trust Interests in accordance
with the Plan.
25
ix.
Holders of Allowed
First Lien Claims shall not be entitled to receive a distribution
from the Litigation Trust on account of the Term Loan Deficiency
Claim.
x.
Holders of Allowed
Second Lien Claims shall not be entitled to receive a distribution
from the Litigation Trust on account of the Second Lien Deficiency
Claim.
xi.
Upon entry of the
Confirmation Order, the Challenge Period (as defined in the DIP
Order) shall be deemed expired.
xii.
The Litigation
Trust may be terminated in accordance with Section 5.16 of this
Plan and the Litigation Trust Agreement.
xiii.
The Litigation
Trust shall have the authority and right on behalf of each of the
Debtors, without the need for Bankruptcy Court approval (unless
otherwise indicated), to, except to the extent Claims have been
Allowed, control and effectuate the Claims reconciliation process
of General Unsecured Claims, including to object to, seek to
subordinate, compromise or settle any and all General Unsecured
Claims against the Debtors.
xiv.
The Litigation
Trust shall have authority under Bankruptcy Rule 2004 to issue
subpoenas for documents and testimony in connection with the
Litigation Trust Causes of Action.
xv.
On the Effective
Date, Reorganized FCI shall enter into the Consulting
Agreement.
xvi.
On the Effective
Date, proofs of Claim nos. 724, 777 and 840 filed by Greenberg
Traurig, LLP against the Debtors on account of services performed
prior to the Commencement Date shall be deemed withdrawn and
expunged with prejudice.
xvii.
The Other Officers
and Directors shall be included in Section 10.8 of the
Plan.
xviii.
On the Effective
Date, the Debtors shall pay the Settlement Restructuring
Expenses.
xix.
On the Effective
Date, the Debtors shall pay the Second Lien Lender Restructuring
Expenses.
xx.
As a condition
precedent to consummation of the Global Settlement, the
Creditors’ Committee, the First Lien Lender Group, the Second
Lien Lender Group, and the Other Officers and Directors shall not
object to the Disclosure Statement or the Plan, or take any other
action that is inconsistent with or that would reasonably be
expected to prevent, interfere with, delay, or impede the
confirmation and consummation of the Plan or approval of the Global
Settlement.
26
5.3. Sources
of Consideration for Plan Distributions Implementing the
Reorganization Transaction.
The
Debtors shall fund distributions and satisfy applicable Allowed
Claims and Allowed Interests under the Plan with Cash on hand, the
proceeds of the New Exit Facility, loans under the New First Lien
Credit Facility, the New Equity Interests, and the Special
Warrants, and through the issuance and distribution of the
Litigation Trust Interests.
5.4. Reorganization
Transaction.
(a) The
Debtors shall implement the Reorganization Transaction as set forth
herein.
(b) New
First Lien Credit Facility.
(i) On
the Effective Date, the New First Lien Credit Agreement shall be
executed and delivered, and the Reorganized Debtors shall be
authorized to execute, deliver and enter into, the New First Lien
Credit Documents, without the need for any further corporate,
limited liability partnership or limited liability company action
and without further action by the holders of Claims or
Interests.
(ii) The
obligations arising under the New First Lien Credit Agreement shall
be secured by a senior priority perfected security interest (junior
to the liens securing the New Exit Facility Credit Agreement) in
substantially all present and after acquired property (whether
tangible, intangible, real, personal or mixed) of the Reorganized
Debtors, wherever located, including, without limitation, all
accounts, inventory, equipment, capital stock in subsidiaries of
the Reorganized Debtors, investment property, instruments, chattel
paper, real estate, leasehold interests, contracts, patents,
copyrights, trademarks and other general intangibles, and all
products and proceeds thereof, subject to any exceptions and
materiality thresholds reasonably acceptable to the Requisite New
First Lien Lenders (as defined in the New First Lien Term
Sheet).
(iii) The
Reorganized Debtors shall be authorized to execute, deliver, and
enter into and perform under the New First Lien Credit Agreement
without the need for any further corporate, limited liability
partnership or limited liability company action and without further
action by the holders of Claims or Interests.
(c) New
Exit Facility.
On the
Effective Date, the Reorganized Debtors shall be authorized to
execute, deliver, enter into and perform under the New Exit
Facility Credit Agreement without the need for any further
corporate, limited liability partnership or limited liability
company action and without further action by the holders of Claims
or Interests.
27
(d) Authorization
and Issuance of New Equity Interests and Special
Warrants
(i) On
the Effective Date, the Debtors or the Reorganized Debtors, as
applicable, are authorized to issue or cause to be issued and shall
issue the New Equity Interests and Special Warrants in accordance
with the terms of the Plan, the Amended Organizational Documents,
the Special Warrant Agreement, and the Equity Allocation Mechanism
without the need for any further corporate or stockholder action.
All of the New Equity Interests issuable under the Plan, when so
issued, shall be duly authorized, validly issued, fully paid, and
non-assessable, and the Special Warrants issued pursuant to the
Plan shall be duly authorized and validly issued. For the avoidance
of doubt, the acceptance of New Equity Interests and/or Special
Warrants by a holder of an Allowed First Lien Claim or Second Lien
Claim shall be deemed as such holder’s agreement to the
Amended Organizational Documents and/or the Special Warrant
Agreement, as applicable, as each may be amended or modified from
time to time following the Effective Date in accordance with the
terms of such documents.
(ii) The
distribution of the New Equity Interests and Special Warrants
pursuant to the Plan may be made by means of book-entry
registration on the books of a transfer agent for shares of New
Equity Interests and Special Warrants or by means of book-entry
exchange through the facilities of a transfer agent reasonably
satisfactory to the Debtors, in accordance with the customary
practices of such agent, as and to the extent
practicable.
(e) Continued
Corporate Existence.
(i) The
Debtors shall continue to exist after the Effective Date as
Reorganized Debtors as a private company in accordance with the
applicable laws of the respective jurisdictions in which they are
incorporated or organized and pursuant to the Amended
Organizational Documents unless otherwise determined in accordance
with Section 5.9 of the Plan.
(ii) On
or after the Effective Date, the Reorganized Debtors may take such
reasonable action that may be necessary or appropriate as permitted
by applicable law and the Amended Organizational Documents, as the
Reorganized Debtors may reasonably determine is reasonable and
appropriate to effect any transaction described in, approved by, or
necessary or appropriate to effectuate the Plan, including, without
limitation, taking necessary steps to dissolve or merge out of
existence any of the Reorganized Debtors that are reasonably
determined to be unnecessary for the continued successful
performance of the Reorganized Debtors.
(f) Officers
and Board of Directors.
(i) Upon
the Effective Date, the New Board shall consist of seven (7)
directors. If known, the identities of the directors and officers
of the Reorganized Debtors shall be disclosed prior to the
Confirmation Hearing in accordance with section 1129(a)(5) of the
Bankruptcy Code.
(ii) Except
to the extent that a member of the board of directors, managers, or
limited partners, as applicable, of a Debtor continues to serve as
a director, manager, or limited partner of such Debtor on and after
the Effective Date, the members of the board of directors,
managers, or limited partners of each Debtor prior to the Effective
Date, in their capacities as such, shall have no continuing
obligations to the Reorganized Debtors on or after the Effective
Date and each such director, manager or limited partner will be
deemed to have resigned or shall otherwise cease to be a director,
manager or limited partner of the applicable Debtor on the
Effective Date.
28
(g) Reorganized
Debtors’ Authority.
(i) The
Reorganized Debtors shall have the authority and right on behalf of
each of the Debtors, without the need for Bankruptcy Court approval
(unless otherwise indicated), to carry out and implement all
provisions of the Plan, including, without limitation, to: (a)
except to the extent Claims have been previously Allowed, control
and effectuate the Claims reconciliation process, including to
object to, seek to subordinate, compromise or settle any and all
Claims against the Debtors, other than with respect to General
Unsecured Claims; (b) make distributions to holders of Allowed
Claims in accordance with the Plan, other than with respect to
General Unsecured Claims; (c) prosecute all Causes of Action
on behalf of the Debtors, elect not to pursue any Causes of Action,
and determine whether and when to compromise, settle, abandon,
dismiss, or otherwise dispose of any such Causes of Action, other
than with respect to the Litigation Trust Causes of Action;
(d) retain professionals to assist in performing their duties
under the Plan; (e) maintain the books, records, and accounts
of the Debtors; (f) complete and file, as necessary, all final or
otherwise required federal, state, and local tax returns for the
Debtors; and (g) perform other duties and functions that are
consistent with the implementation of the Plan.
(ii) After
the Effective Date, the Reorganized Debtors may operate the
Debtors’ business and may use, acquire, or dispose of
property and compromise or settle any Claims, Interests, or Causes
of Action without approval by the Bankruptcy Court and free of any
restrictions of the Bankruptcy Code or Bankruptcy
Rules.
5.5. FCC
Licenses and State PUC Authorizations
The
required FCC Applications were filed prior to the date of this
Plan, as were applications seeking the consent of State PUCs with
jurisdiction over the Reorganized Debtors to the transactions
contemplated by the Reorganization Transaction (which, for the
avoidance of doubt, excludes any transactions which may occur on or
after the Exercise Date, as defined in the Equity Allocation
Mechanism). As a result, any Entity that acquires a First Lien
Claim may be issued Special Warrants in lieu of any New Equity
Interests that would otherwise be issued to such Entity under the
Plan. In addition, the Debtors may request that the Bankruptcy
Court implement restrictions on trading of Claims and Interests
that might adversely affect the FCC Approval or State PUC approval
processes that will be sought on or prior to the Effective
Date.
The
Petition for Declaratory Ruling and the FCC and/or state transfer
of control applications necessary to enable the exercise of the
Special Warrants (the “Post-Effective Date Transfer
Applications”) shall be filed as promptly as
practicable following the Effective Date. The Debtors or the
Reorganized Debtors, as applicable, shall diligently prosecute all
FCC Applications and the State PUC Applications associated with the
Reorganization Transaction and, after the Effective Date, the
Post-Effective Date Transfer Applications and the Petition for
Declaratory Ruling. The Debtors or Reorganized Debtors, as
applicable, shall promptly provide such additional documents or
information requested by the FCC or any State PUC in connection
with the respective agencies’ review of the foregoing
applications.
29
5.6. Employee
Matters.
(a) Subject
to Section 5.6(c) of the Plan, on the Effective Date, the
Reorganized Debtors shall be deemed (i) to have assumed all Benefit
Plans and (ii) to have rejected any employment agreements, offer
letters, or award letters to which the Debtors are a party
(collectively, the “Employee
Arrangements”), unless set forth on the Assumption
Schedule. With respect to any Benefit Plan and Employee Arrangement
that is set forth on the Assumption Schedule, upon the Effective
Date such Benefit Plan and Employee Arrangement shall be deemed to
be amended where applicable to provide and clarify that the
consummation of the Reorganization Transaction and any associated
organizational changes shall not constitute a “Change in
Control,” be considered a “Good Reason” event, or
serve as a basis to trigger any rights or benefits under such
Benefit Plan or Employee Arrangement. To the extent that the
Benefit Plans or any Employee Arrangements set forth on the
Assumption Schedule are executory contracts, pursuant to sections
365 and 1123 of the Bankruptcy Code, unless an Assumption Dispute
is timely filed and properly served, each of them will be deemed
assumed (as modified or terminated) as of the Effective Date with a
Cure Amount of zero dollars. However, notwithstanding anything else
herein, the assumed Benefit Plans and Employee Arrangements, if
any, shall be subject to modification in accordance with the terms
thereof at the discretion of the Reorganized Debtors.
(b) Following
the Effective Date, the applicable Reorganized Debtors shall enter
into the Management Incentive Plan. All awards issued under the
Management Incentive Plan will be dilutive of all other New Equity
Interests issued pursuant to the Plan (including those issued upon
the exercise of any Special Warrants).
(c) For
the avoidance of doubt, if an Employee Arrangement or a Benefit
Plan provides for an award or potential award of Interests or
consideration based on the value of Interests prior to the
Effective Date, such Interest shall be treated in accordance with
Section 4.8 of the Plan and cancelled notwithstanding assumption of
the applicable Employee Arrangement or Benefit Plan.
(d) On
the Effective Date, the Reorganized Debtors shall be deemed to have
assumed all prepetition Key Employee Retention Agreements.
Notwithstanding anything to the contrary in Section 5.6(a), the
consummation of the Restructuring Transactions and any associated
organizational changes shall constitute a “Change of
Control” under all prepetition Key Employee Retention
Agreements.
5.7. Effectuating
Documents; Further Transactions.
(a) On
or as soon as practicable after the Effective Date, the Reorganized
Debtors shall take such reasonable actions as may be or become
necessary or appropriate to effect any transaction described in,
approved by, contemplated by, or necessary to effectuate the Plan
and the Global Settlement, including (i) the execution and
delivery of appropriate agreements or other documents of merger,
consolidation, restructuring, financing, conversion, disposition,
transfer, dissolution, or liquidation containing terms that are
consistent with the terms of the Plan and that satisfy the
applicable requirements of applicable law and any other terms to
which the applicable Entities may determine; (ii) the
execution and delivery of appropriate instruments of transfer,
assignment, assumption, or delegation of any Asset, property,
right, liability, debt, or obligation on terms consistent with the
terms of the Plan and having other terms to which the applicable
parties agree; (iii) the filing of appropriate certificates or
articles of incorporation, reincorporation, merger, consolidation,
conversion, or dissolution and the Amended Organizational Documents
pursuant to applicable state law; (iv) the issuance of
securities, all of which shall be authorized and approved in all
respects, in each case, without further action being required under
applicable law, regulation, order, or rule; (v) the execution,
delivery, or filing of contracts, instruments, releases, and other
agreements to effectuate and implement the distribution of the
Litigation Trust Interests to be issued pursuant hereto without the
need for any approvals, authorizations, actions, or consents; and
(vi) all other actions that the applicable Entities determine
to be necessary or appropriate, including making filings or
recordings that may be required by applicable law or to
reincorporate in another jurisdiction, subject, in each case, to
the Amended Organizational Documents.
30
(b) Each
officer, manager, limited partner or member of the board of
directors of the Debtors is (and each officer, manager, limited
partner or member of the board of directors of the Reorganized
Debtors shall be) authorized and directed to issue, execute,
deliver, file, or record such contracts, securities, instruments,
releases, indentures, and other agreements or documents and take
such actions as may be necessary or appropriate to effectuate,
implement, and further evidence the terms and conditions of the
Plan and the securities issued pursuant to the Plan in the name of
and on behalf of the Reorganized Debtors, all of which shall be
authorized and approved in all respects, in each case, without the
need for any approvals, authorization, consents, or any further
action required under applicable law, regulation, order, or rule
(including, without limitation, any action by the stockholders,
limited partners, directors or managers of the Debtors, the
Reorganized Debtors) except for those expressly required pursuant
to the Plan.
(c) In
order to preserve the Reorganized Debtors’ ability to utilize
certain tax attributes that exist as of the Effective Date, the
charter, bylaws, and other organizational documents may restrict
certain transfers of the New Equity Interests.
(d) The
Reorganization Transaction and the Global Settlement, including the
creation of the Litigation Trust, shall be conducted in a manner
that, in the business judgment of the Debtors, with the consent of
the Requisite First Lien Lenders (which consent shall not be
unreasonably withheld), ensures that the Reorganized Debtors
receive favorable and efficient tax treatment, given the totality
of the circumstances.
(e) All
matters provided for herein involving the corporate structure of
the Debtors, Reorganized Debtors, to the extent applicable, or any
corporate or related action required by the Debtors, or the
Reorganized Debtors in connection herewith shall be deemed to have
occurred and shall be in effect, without any requirement of further
action by the stockholders, members, limited partners, directors or
managers of the Debtors or Reorganized Debtors, and with like
effect as though such action had been taken unanimously by the
stockholders, members, limited partners, directors, managers, or
officers, as applicable, of the Debtors, or the Reorganized
Debtors.
5.8. Section
1145 Exemption.
(a) The
offer, issuance, and distribution of (i) the New Equity
Interests and the Special Warrants hereunder to holders of the
First Lien Claims (ii) the Special Warrants hereunder to
holders of the Second Lien Claims and (iii) the Litigation
Trust Interests (to the extent they are deemed to be securities)
hereunder to holders of General Unsecured Claims shall be exempt,
pursuant to section 1145 of the Bankruptcy Code, without further
act or action by any Entity, from registration under (a) the
Securities Act of 1933, as amended, and all rules and regulations
promulgated thereunder and (b) any state or local law
requiring registration for the offer, issuance, or distribution of
Securities.
(b) The
New Equity Interests shall be freely tradable by the recipients
thereof, subject to (i) the provisions of section 1145(b)(1) of the
Bankruptcy Code relating to the definition of an underwriter in
section 2(a)(11) of the Securities Act of 1933;
(ii) compliance with any rules and regulations of the
Securities and Exchange Commission, if any, applicable at the time
of any future transfer of such securities or instruments; (iii) any
reasonable restrictions, to the extent necessary for the Debtors to
preserve their ability to utilize certain tax attributes that exist
as of the Effective Date, on the transferability and ownership of
New Equity Interests; (iv) applicable regulatory approval;
(v) the Stockholders Agreement; (vi) the Amended
Organizational Documents and (vii) any other applicable
law.
31
5.9. Cancellation
of Existing Securities and Agreements.
(a) Except
for the purpose of evidencing a right to a distribution under the
Plan and except as otherwise set forth in the Plan, including with
respect to executory contracts or unexpired leases that shall be
assumed by the Reorganized Debtors, and subject in all respects to
the Prepetition Intercreditor Agreement (as applicable), on the
Effective Date, all agreements, instruments, and other documents
evidencing or issued pursuant to the DIP Documents, the Prepetition
First Lien Credit Documents, the Prepetition Second Lien Credit
Agreement and any other “Credit Document” as defined
therein, the Prepetition Subordinated Notes, or any indebtedness or
other obligations thereunder, and any Interest in any of the
Debtors (other than Intercompany Interests), or any other
certificate, share, note, bond, indenture, purchase right, option,
warrant, call, put, award, commitment, registration rights,
preemptive right, right of first refusal, right of first offer,
co-sale right, investor rights, or other instrument or document of
any character directly or indirectly evidencing or creating any
indebtedness or obligation of or ownership interest in the Debtors
giving rise to any Claim or Interest, and any rights of any holder
in respect thereof, shall be deemed cancelled, discharged, and of
no force or effect, and the obligations of the Debtors thereunder
shall be deemed fully satisfied, released, and
discharged.
(b) Notwithstanding
such cancellation and discharge, the DIP Documents, the Prepetition
First Lien Credit Documents and the Prepetition Second Lien Credit
Agreement, the Prepetition Subordinated Notes and any other
indenture or agreement that governs the rights of a holder of an
Allowed Claim shall continue in effect to the extent necessary (i)
to allow the holders of such Claims to receive distributions under
the Plan; (ii) to allow the Debtors, the Reorganized Debtors, the
DIP Agent, the Prepetition First Lien Administrative Agent, and the
Prepetition Second Lien Administrative Agent to make post-Effective
Date distributions or take such other action pursuant to the Plan
on account of such Claims and to otherwise exercise their rights
and discharge their obligations relating to the interests of the
holders of such Claims; (iii) to allow holders of Claims to retain
their respective rights and obligations vis-à-vis other
holders of Claims pursuant to any applicable loan document or other
agreement; (iv) to allow the DIP Agent, the Prepetition First Lien
Administrative Agent and the Prepetition Second Lien Administrative
Agent to enforce their rights, claims, and interests vis-à-vis
any party other than the Debtors, including any rights with respect
to priority of payment and/or to exercise charging liens; (v) to
preserve any rights of the DIP Agent, the Prepetition First Lien
Administrative Agent and the Prepetition Second Lien Administrative
Agent to payment of fees, expenses, and indemnification obligations
as against any money or property distributable to lenders under the
DIP Documents, the Prepetition First Lien Credit Agreement and the
Prepetition Second Lien Credit Agreement, as applicable, including
any rights to priority of payment and/or to exercise charging
liens; (vi) to allow the DIP Agent, the Prepetition First Lien
Administrative Agent and the Prepetition Second Lien Administrative
Agent to enforce any obligations owed to it under the Plan; (vii)
to allow the DIP Agent, the Prepetition First Lien Administrative
Agent and the Prepetition Second Lien Administrative Agent to
exercise rights and obligations relating to the interests of
lenders under the DIP Documents, the Prepetition First Lien Credit
Agreement and the Prepetition Second Lien Credit Agreement, as
applicable; (viii) to permit the DIP Agent, the Prepetition First
Lien Administrative Agent and the Prepetition Second Lien
Administrative Agent to perform any function necessary to
effectuate the foregoing; (ix) to allow the DIP Agent, the
Prepetition First Lien Administrative Agent and the Prepetition
Second Lien Administrative Agent to appear in the Chapter 11 Cases
or in any proceeding in the Bankruptcy Court or any other court
relating to the DIP Documents, the Prepetition First Lien Credit
Agreement or the Prepetition Second Lien Credit Agreement; provided
that, nothing in this Section 5.9 shall affect the discharge of
Claims pursuant to the Bankruptcy Code, the Confirmation Order, or
the Plan; and (x) to preserve all rights of the Prepetition First
Lien Lenders to the extent necessary for the Litigation Trust to
pursue the Litigation Trust First Lien Lender Causes of
Action.
32
(c) Except
for the foregoing, subsequent to the performance by the DIP Agent
of its obligations pursuant to the Plan, the DIP Agent and its
agents shall be relieved of all further duties and responsibilities
related to the DIP Documents. Nothing in this Section 5.9 shall in
any way affect or diminish the rights of the DIP Agent to exercise
any charging lien against distributions to holders of DIP Claims
with respect to any unpaid fees.
(d) Except
for the foregoing, subsequent to the performance by the Prepetition
First Lien Administrative Agent of its obligations pursuant to the
Plan, the Prepetition First Lien Administrative Agent and its
agents shall be relieved of all further duties and responsibilities
related to the Prepetition First Lien Credit Agreement. Nothing in this Section 5.9
shall in any way affect or diminish the rights of the Prepetition
First Lien Administrative Agent to exercise any charging lien
against distributions to holders of First Lien Claims with respect
to any unpaid fees.
(e) Except
for the foregoing, subsequent to the performance by the Prepetition
Second Lien Administrative Agent of its obligations pursuant to the
Plan, the Prepetition Second Lien Administrative Agent and its
agents shall be relieved of all further duties and responsibilities
related to the Prepetition Second Lien Credit Agreement. Nothing in
this Section 5.9 shall in any way affect or diminish the rights of
the Prepetition Second Lien Administrative Agent to exercise any
charging lien against distributions to holders of Second Lien
Claims with respect to any unpaid fees.
(f) Notwithstanding
anything to the contrary herein, all rights under the Prepetition
First Lien Credit Agreement and the Prepetition Second Lien Credit
Agreement shall remain subject to the Prepetition Intercreditor
Agreement.
(g) Notwithstanding
the foregoing, any provision in any document, instrument, lease, or
other agreement that causes or effectuates, or purports to cause or
effectuate, a default, termination, waiver, or other forfeiture of,
or by, the Debtors as a result of the cancellations, terminations,
satisfaction, releases, or discharges provided for in the Plan
shall be deemed null and void and shall be of no force and effect.
Nothing contained herein shall be deemed to cancel, terminate,
release, or discharge the obligation of the Debtors or any of their
counterparties under any executory contract or unexpired lease to
the extent such executory contract or unexpired lease has been
assumed by the Debtors pursuant to a Final Order of the Bankruptcy
Court or hereunder.
5.10. Cancellation
of Liens.
Except
as otherwise specifically provided herein, on the Effective Date,
any Lien securing an Allowed Claim that is paid in full, in Cash,
shall be deemed released, and the holder of such Other Secured
Claim shall be authorized and directed to release any collateral or
other property of the Debtors (including any Cash collateral) held
by such holder and to take such actions as may be requested by the
Reorganized Debtors, to evidence the release of such Lien,
including the execution, delivery and filing or recording of such
releases as may be requested by the Reorganized
Debtors.
5.11. Subordination
Agreements.
Pursuant to section
510(a) of the Bankruptcy Code, all subordination agreements,
including but not limited to, the Prepetition Intercreditor
Agreement, governing Claims or Interests shall be enforced in
accordance with such agreement’s terms.
33
5.12. Nonconsensual
Confirmation.
The
Debtors intend to undertake to have the Bankruptcy Court confirm
the Plan under section 1129(b) of the Bankruptcy Code as to any
Classes that reject or are deemed to reject the Plan.
5.13. Closing
of Chapter 11 Cases.
After
an Estate has been fully administered, the Reorganized Debtors
shall seek authority from the Bankruptcy Court to close the
applicable Chapter 11 Case(s) in accordance with the Bankruptcy
Code and Bankruptcy Rules.
5.14. Notice
of Effective Date.
As soon
as practicable, but not later than three (3) Business Days
following the Effective Date, the Debtors shall file a notice of
the occurrence of the Effective Date with the Bankruptcy
Court.
5.15. Separability.
Notwithstanding the
combination of the separate plans of reorganization for the Debtors
set forth in the Plan for purposes of economy and efficiency, the
Plan constitutes a separate chapter 11 plan for each Debtor.
Accordingly, if the Bankruptcy Court does not confirm the Plan with
respect to one or more Debtors, it may still, subject to the
consent of the applicable Debtors, confirm the Plan with respect to
any other Debtor that satisfies the confirmation requirements of
section 1129 of the Bankruptcy Code.
5.16. Litigation
Trust
(a) Interest
in the Litigation Trust. Any and all interests in the
Litigation Trust will not constitute “securities” and
will not be registered pursuant to the Securities Act, as amended,
or any state securities law. However, if it should be determined
that interests in the Litigation Trust constitute
“securities,” the exemption provisions of Section 1145
of the Bankruptcy Code will apply to the interests in the
Litigation Trust. Any and all interests in the Litigation Trust
shall not be certificated, shall be subject to certain
restrictions, and all interests shall be non-transferable other
than if transferred by will, intestate succession, or otherwise by
operation of law.
34
(b) Creation
and Governance of the Litigation Trust. On the Effective
Date, the Debtors shall be deemed to transfer the Litigation Trust
Debtor Causes of Action to the Litigation Trust, the Reorganized
Debtors shall transfer the Litigation Trust Initial Funding to the
Litigation Trust, the holders of Allowed First Lien Claims shall be
deemed to transfer the Litigation Trust First Lien Lender Causes of
Action to the Litigation Trust and the Reorganized Debtors (solely
in their capacity as successors to the Debtors), the Litigation
Trust Oversight Committee and the Creditors’ Committee shall
execute the Litigation Trust Agreement and shall take all steps
necessary to establish the Litigation Trust in accordance with the
Plan and the beneficial interests therein, which shall be for the
benefit of the holders of Litigation Trust Interest and Reorganized
FCI. In the event of any conflict between the terms of the Plan and
the terms of the Litigation Trust Agreement, the terms of the Plan
shall govern. Additionally, on the Effective Date, (1) the Debtors
shall be deemed to transfer to the Litigation Trust all of their
rights, title and interest in and to all of the Litigation Trust
Debtor Causes of Action (2) the Reorganized Debtors shall transfer
to the Litigation Trust all of their rights, title and interest in
and to all of the Litigation Trust Initial Funding and (3) the
holders of Allowed First Lien Claims shall be deemed to transfer to
the Litigation Trust all of their rights, title and interest in and
to all of the Litigation Trust First Lien Lender Causes of Action,
and in accordance with section 1141 of the Bankruptcy Code, the
Litigation Trust Debtor Causes of Action, the Litigation Trust
Initial Funding and the Litigation Trust First Lien Lender Causes
of Action shall automatically vest in the Litigation Trust free and
clear of all Claims and Liens and such transfer shall be exempt
from any stamp, real estate transfer, mortgage reporting, sales,
use or other similar tax. The Litigation Trust Oversight Committee
shall be the exclusive administrator of the assets of the
Litigation Trust for purposes of 31 U.S.C. § 3713(b) and 26
U.S.C. § 6012(b)(3), as well as the representatives of the
Estate of each of the Debtors appointed pursuant to section
1123(b)(3)(B) of the Bankruptcy Code, solely for purposes of
carrying out the Litigation Trust Oversight Committee’s
duties under the Litigation Trust Agreement. Notwithstanding the
foregoing, all net proceeds of such Litigation Trust Debtor Cause
of Action shall be transferred to the Litigation Trust to be
distributed in accordance with this Plan. The Litigation Trust
shall be governed by the Litigation Trust Agreement and
administered by the Litigation Trust Oversight Committee. The
powers, rights, and responsibilities of the Litigation Trust
Oversight Committee shall be specified in the Litigation Trust
Agreement and shall include the authority and responsibility to,
among other things, take the actions set forth in this Section
5.16. The Litigation Trust Oversight Committee shall hold and
distribute the Litigation Trust Assets in accordance with the
provisions of this Plan and the Litigation Trust Agreement. Other
rights and duties of the Litigation Trust Oversight Committee shall
be as set forth in the Litigation Trust Agreement. After the
Effective Date, the Debtors and the Reorganized Debtors shall have
no interest in the Litigation Trust Assets except as set forth in
the Litigation Trust Agreement.
(c) Litigation
Trust Oversight Committee and Litigation Trust Agreement.
The Litigation Trust Agreement generally will provide for, among
other things: (i) the transfer of the Litigation Trust Assets
to the Litigation Trust; (ii) the payment of Litigation Trust
Expenses; (iii) the retention of counsel, accountants,
financial advisors, or other professionals; (iv) litigation of
any Litigation Trust Causes of Action, which may include the
prosecution, settlement, abandonment or dismissal of any such
Causes of Action; and (v) making distributions to holders of
Litigation Trust Interests and to Reorganized FCI, as provided in
this Plan and in the Litigation Trust Agreement. The Litigation
Trust Oversight Committee, on behalf of the Litigation Trust, may
employ, without further order of the Bankruptcy Court,
professionals to assist in carrying out its duties hereunder and
may compensate and reimburse the reasonable expenses of those
professionals without further order of the Bankruptcy Court from
the Litigation Trust Assets in accordance with this Plan and the
Litigation Trust Agreement. The Litigation Trust Agreement shall
include reasonable and customary provisions that allow for
indemnification of the Litigation Trust Oversight
Committee by the
Litigation Trust. Any such indemnification shall be the sole
responsibility of the Litigation Trust and payable solely from the
Litigation Trust Assets. The Litigation Trust Oversight
Committee shall be
responsible for all decisions and duties with respect to the
Litigation Trust and the Litigation Trust Assets, except as
otherwise provided in the Litigation Trust Agreement.
35
(d) Cooperation
of Reorganized Debtors. The Reorganized Debtors shall
reasonably cooperate with the Litigation Trust and its agents and
representatives in the administration of the Litigation Trust,
including, providing reasonable access to books and records and
current employees and officers, including for interviews,
deposition, or testimony, with respect to (i) the
investigation, prosecution, compromise, and/or settlement of the
Litigation Trust Causes of Action, (ii) contesting, settling,
compromising, reconciling, and objecting to General Unsecured
Claims, and (iii) administering the Litigation Trust
(collectively, “Trust
Responsibilities”) and in each case, the Litigation
Trust agrees to reimburse reasonable out-of-pocket expenses
incurred in connection with such cooperation. The Reorganized
Debtors shall take all reasonable efforts to assist the Litigation
Trust with the Trust Responsibilities and the Litigation Trust may
enter into agreements with the Reorganized Debtors and/or the
Creditors’ Committee in order to obtain information from the
Reorganized Debtors and/or the Creditors’ Committee on a
confidential basis, without being restricted by or waiving any
applicable work product, attorney-client, or other privilege. The
Litigation Trust’s receipt of documents, information or
communications from the Reorganized Debtors shall not constitute a
waiver of any privilege. For the avoidance of doubt, the Litigation
Trust shall not be responsible for legal fees, if any, incurred by
the Reorganized Debtors in fulfilling its obligations under this
Section.
(e) Cooperation
Agreements. To the extent requested by the Committee, with
the consent of the First Lien Lender Group (not to be unreasonably
withheld), any of the Specified Officers and Directors shall enter
into an agreement prior to the Effective Date pursuant to which he
will agree to cooperate with the Litigation Trust and provide
reasonable assistance to the Litigation Trust until the Litigation
Trust is terminated, regardless of whether he remains an officer of
the Reorganized Debtors.
(f) Litigation
Trust Assets. The Litigation Trust Oversight
Committee shall have
the exclusive right in respect of all Litigation Trust Causes of
Action to institute, file, prosecute, enforce, settle, compromise,
release, abandon, or withdraw any and all Litigation Trust Causes
of Action without any further order of the Bankruptcy Court or
consent of any other party, except as otherwise provided herein or
in the Litigation Trust Agreement. From and after the Effective
Date, the Litigation Trust Oversight Committee, in accordance with
section 1123(b)(3) of the Bankruptcy Code, and on behalf of the
Litigation Trust, shall serve as a representative of the Estates,
solely for purposes of carrying out the Litigation Trust Oversight
Committee’s duties under the Litigation Trust
Agreement. In connection with the investigation, prosecution and/or
compromise of the Litigation Trust Causes of Action, the Litigation
Trust Oversight Committee may expend such portion of the
Litigation Trust Assets as the Litigation Trust Oversight
Committee deems
necessary.
(g) Litigation
Trust Fees and Expenses. From and after the Effective Date,
the Litigation Trust, shall, in the ordinary course of business and
without the necessity of any approval by the Bankruptcy Court, pay
the Litigation Trust Expenses, including but not limited to
reasonable fees and expenses of the Litigation Trust Oversight
Committee and the fees and expenses of any professionals retained
by the Litigation Trust from the Litigation Trust Assets, except as
otherwise provided in the Litigation Trust Agreement. The
Reorganized Debtors shall not be responsible for any costs, fees,
or expenses of the Litigation Trust.
36
(h) Tax
Treatment. In furtherance of this Section 5.16 of the Plan,
(i) the Litigation Trust shall be structured to qualify as a
“liquidating trust” within the meaning of Treasury
Regulation section 301.7701-4(d) and in compliance with Revenue
Procedure 94-45, 1994-2 C.B. 684, and, thus, as a “grantor
trust” within the meaning of sections 671 through 679 of the
Tax Code to the holders of Litigation Trust Interests, consistent
with the terms of the Plan; (ii) the sole purpose of the
Litigation Trust shall be the liquidation and distribution of the
Litigation Trust Assets in accordance with Treasury Regulation
section 301.7701-4(d), including the resolution of General
Unsecured Claims in accordance with this Plan, with no objective to
continue or engage in the conduct of a trade or business;
(iii) all parties (including the Debtors and the Estates,
holders of Litigation Trust Interests and the Litigation Trust
Oversight Committee) shall report consistently with such treatment
(including the deemed receipt of the underlying assets, subject to
applicable liabilities and obligations, by the holders of
Litigation Trust Interests, followed by the deemed transfer of such
assets to the Litigation Trust); (iv) all parties shall report
consistently with the valuation of the Litigation Trust Assets
transferred to the Litigation Trust as determined by the Litigation
Trust Oversight Committee (or its designee); (v) the
Litigation Trust Oversight Committee shall be responsible for filing
returns for the Litigation Trust as a grantor trust pursuant to
Treasury Regulation section 1.671-4(a); and (vi) the
Litigation Trust Oversight Committee shall annually send to each
holder of Litigation Trust Interests a separate statement regarding
the receipts and expenditures of the trust as relevant for U.S.
federal income tax purposes. Subject to definitive guidance from
the Internal Revenue Service or a court of competent jurisdiction
to the contrary (including the receipt by the Litigation Trust
Oversight Committee of
a private letter ruling if the Litigation Trust Oversight
Committee so requests
one, or the receipt of an adverse determination by the Internal
Revenue Service upon audit if not contested by the Litigation Trust
Oversight Committee), the Litigation Trust Oversight Committee,
with the consent of the Requisite First Lien Lenders (which consent
shall not be unreasonably withheld or delayed), may timely elect to
(i) treat any portion of the Litigation Trust allocable to
Disputed General Unsecured Claims as a “disputed ownership
fund” governed by Treasury Regulation section 1.468B-9 (and
make any appropriate elections) and (ii) to the extent
permitted by applicable law, report consistently with the foregoing
for state and local income tax purposes. If a “disputed
ownership fund” election is made, all parties (including the
Debtors and the Estates, holders of Litigation Trust Interests and
the Litigation Trust Oversight Committee) shall report for United
States federal, state, and local income tax purposes consistently
with the foregoing. As to any assets allocable to, or retained on
account of, Disputed General Unsecured Claims, all distributions
shall be net of any expenses, including taxes, relating to the
retention or disposition of such assets, and the Litigation Trust
Oversight Committee shall be responsible for payment, out of
the assets of such retained assets, of any taxes imposed on or in
respect of such assets. All parties (including, without
limitation, the Debtors, the Reorganized Debtors, the Litigation
Trust and the holders of Litigation Trust Interests) will be
required to report for tax purposes consistently with the
foregoing.
(i) Termination
and Dissolution of the Litigation Trust. The Litigation
Trust Oversight Committee shall have the right to terminate the
Litigation Trust, when it determines, in its sole discretion, that
the pursuit of additional Litigation Trust Causes of Action is not
likely to yield sufficient additional proceeds to justify further
pursuit of such claims (the “Termination
Right”). The Litigation Trust Oversight
Committee and the
Litigation Trust shall be discharged or dissolved, as the case may
be, at such time as (i) the Litigation Trust Oversight
Committee exercises
its Termination Right and (ii) all distributions required to
be made by the Litigation Trust Oversight Committee under the Plan and the Litigation
Trust Agreement have been made. Upon termination and dissolution of
the Litigation Trust, any remaining Litigation Trust Proceeds shall
be distributed to holders of Litigation Trust Interests and
Reorganized FCI in accordance with Section 5.2(b) of the Plan and
the Litigation Trust Agreement; provided, that in the event the
Litigation Trust Oversight Committee exercises its Termination
Right without the consent (which may not be unreasonably withheld,
conditioned or delayed) of the member appointed by the
Creditors’ Committee to the Litigation Trust Oversight
Committee, the Litigation Trust shall distribute the GUC Payment
before making any other distributions pursuant to Section 5.2 of
the Plan (with the GUC Payment deemed to have been made for
purposes of the waterfall set forth in Section 5.2(b)(vi));
provided that the member appointed by the Creditors’
Committee to the Litigation Trust Oversight Committee may choose to
use the GUC Payment to either (a) make a distribution to holders of
Litigation Trust Interests that are holders of Allowed General
Unsecured Claims or (b) continue the Litigation Trust and prosecute
Litigation Trust Causes of Action for the sole benefit of holders
of Litigation Trust Interests that are holders of Allowed General
Unsecured Claims.
(j) Single
Satisfaction of Allowed Claims From Litigation Trust.
Notwithstanding anything to the contrary herein, in no event shall
holders of Litigation Trust Interests recover more than the full
amount of their Allowed Claims from the Litigation
Trust.
ARTICLE
VI DISTRIBUTIONS.
6.1. Distributions
Generally.
Except
as otherwise provided in the Plan and the Litigation Trust
Agreement, one or more Disbursing Agents shall make all
distributions under the Plan to the appropriate holders of Allowed
Claims in accordance with the terms of the Plan.
37
6.2. Distribution
Record Date.
As of
the close of business on the Distribution Record Date, the various
transfer registers for each of the Classes of Claims or Interests
as maintained by the Debtors or their respective agents shall be
deemed closed for purposes of determining whether a holder of such
a Claim or Interest is a record holder entitled to distributions
under the Plan, and there shall be no further changes in the record
holders or the permitted designees of any such Claims or Interests.
The Debtors, the Reorganized Debtors, or the Litigation Trust
Oversight Committee, as applicable, shall have no obligation to
recognize any transfer or designation of such Claims or Interests
occurring after the close of business on the Distribution Record
Date. In addition, with respect to payment of any Cure Amounts or
assumption disputes, neither the Debtors nor the Disbursing Agent
shall have any obligation to recognize or deal with any party other
than the non-Debtor party to the applicable executory contract or
unexpired lease as of the close of business on the Distribution
Record Date, even if such non-Debtor party has sold, assigned, or
otherwise transferred its Claim for a Cure Amount.
6.3. Date
of Distributions.
Except
as otherwise provided in the Plan and in the Litigation Trust
Agreement, any distributions and deliveries to be made under the
Plan shall be made on the Effective Date or as otherwise determined
in accordance with the Plan, including, without limitation, the
treatment provisions of Article
IV of the Plan, or as soon as practicable thereafter; provided,
that the Litigation Trust Oversight Committee shall from time to
time determine distribution dates of Litigation Trust Assets as and
when they determine to be appropriate.
6.4. Disbursing
Agent.
All
distributions under this Plan shall be made by the Disbursing Agent
on and after the Effective Date as provided herein. The Disbursing
Agent shall not be required to give any bond or surety or other
security for the performance of its duties. The Reorganized Debtors
shall use all commercially reasonable efforts to provide the
Disbursing Agent (if other than the Reorganized Debtors) with the
amounts of Claims and the identities and addresses of holders of
Claims, in each case, as set forth in the Debtors’ or the
Reorganized Debtors’ books and records. The Reorganized
Debtors shall cooperate in good faith with the applicable
Disbursing Agent (if other than the Reorganized Debtors) to comply
with the reporting and withholding requirements outlined in Section
6.19 of the Plan.
6.5. Rights
and Powers of Disbursing Agent.
(a) From
and after the Effective Date, the Disbursing Agent, solely in its
capacity as Disbursing Agent, shall be exculpated by all Entities,
including, without limitation, holders of Claims against and
Interests in the Debtors and other parties in interest, from any
and all Claims, Causes of Action, and other assertions of liability
arising out of the discharge of the powers and duties conferred
upon such Disbursing Agent by the Plan or any order of the
Bankruptcy Court entered pursuant to or in furtherance of the Plan,
or applicable law, except for actions or omissions to act arising
out of the gross negligence or willful misconduct, fraud,
malpractice, criminal conduct, or ultra vires acts of such Disbursing
Agent. No holder of a Claim or Interest or other party in interest
shall have or pursue any claim or Cause of Action against the
Disbursing Agent, solely in its capacity as Disbursing Agent, for
making distributions in accordance with the Plan or for
implementing provisions of the Plan, except for actions or
omissions to act arising out of the gross negligence or willful
misconduct, fraud, malpractice, criminal conduct, or ultra vires acts of such Disbursing
Agent.
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(b) A
Disbursing Agent shall be empowered to (i) effect all
reasonable actions and execute all agreements, instruments, and
other documents necessary to perform its duties hereunder;
(ii) make all distributions contemplated hereby; and
(iii) exercise such other powers as may be vested in the
Disbursing Agent by order of the Bankruptcy Court, pursuant to the
Plan, or as deemed by the Disbursing Agent to be necessary and
proper to implement the provisions of the Plan.
6.6. Expenses
of Disbursing Agent.
Except
as otherwise ordered by the Bankruptcy Court, any reasonable and
documented fees and expenses incurred by the Disbursing Agent
acting in such capacity (including reasonable documented
attorneys’ and other professional fees and expenses) on or
after the Effective Date shall be paid in Cash.
6.7. No
Postpetition Interest on Claims.
Except
as otherwise provided in the Plan, the Confirmation Order, the DIP
Order, or another order of the Bankruptcy Court or required by the
Bankruptcy Code (including postpetition interest in accordance with
sections 506(b) and 726(a)(5) of the Bankruptcy Code), interest
shall not accrue or be paid on any Claims on or after the
Commencement Date; provided, that if interest is payable pursuant
to the preceding sentence, interest shall accrue at the federal
judgment rate pursuant to 28 U.S.C. § 1961 on a
non-compounded basis from the date the obligation underlying the
Claim becomes due and is not timely paid through the date of
payment.
6.8. Delivery
of Distributions.
(a) Subject
to Bankruptcy Rule 9010, all distributions to any holder or
permitted designee, as applicable, of an Allowed Claim or Interest
shall be made to a Disbursing Agent, who shall transmit such
distribution to the applicable holders or permitted designees of
Allowed Claims or Interests on behalf of the Debtors. In the event
that any distribution to any holder or permitted designee is
returned as undeliverable, no further distributions shall be made
to such holder or such permitted designee unless and until such
Disbursing Agent is notified in writing of such holder’s or
permitted designee’s, as applicable, then-current address, at
which time all currently-due, missed distributions shall be made to
such holder as soon as reasonably practicable thereafter without
interest. Nothing herein shall require the Disbursing Agent to
attempt to locate holders or permitted designees, as applicable, of
undeliverable distributions and, if located, assist such holders or
permitted designees, as applicable, in complying with Section 6.19
of the Plan.
(b) Notwithstanding
the foregoing, all distributions of Cash on account of First Lien
Claims or Second Lien Claims, if any, shall be deposited with the
Prepetition First Lien Administrative Agent and the Prepetition
Second Lien Administrative Agent, as applicable, for distribution
to holders of First Lien Claims or Second Lien Claims in accordance
with the terms of the Prepetition Credit Agreement, the Prepetition
Second Lien Credit Agreement and the Prepetition Intercreditor
Agreement. All distributions other than of Cash on account of First
Lien Claims or Second Lien Claims, if any, may, with the consent of
the Prepetition First Lien Administrative Agent and the Prepetition
Second Lien Administrative Agent, be made by the Disbursing Agent
directly to holders of First Lien Claims and Second Lien Claims in
accordance with the terms of the Plan, the Prepetition First Lien
Credit Agreement, the Prepetition Second Lien Credit Agreement and
the Prepetition Intercreditor Agreement. To the extent the
Prepetition First Lien Administrative Agent or the Prepetition
Second Lien Administrative Agent effectuates, or is requested to
effectuate, any distributions hereunder, the Prepetition First Lien
Administrative Agent and the Prepetition Second Lien Administrative
Agent shall be deemed a “Disbursing Agent” for purposes
of the Plan.
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6.9. Distributions
after Effective Date.
Distributions made
after the Effective Date to holders of Disputed Claims that are not
Allowed Claims as of the Effective Date but which later become
Allowed Claims shall be deemed to have been made on the Effective
Date.
6.10. Unclaimed
Property.
Undeliverable
distributions or unclaimed distributions shall remain in the
possession of the Debtors or the Litigation Trust, as applicable,
until such time as a distribution becomes deliverable or holder
accepts distribution, or such distribution reverts back to the
Debtors, Reorganized Debtors, or Litigation Trust, as applicable,
and shall not be supplemented with any interest, dividends, or
other accruals of any kind. Such distributions shall be deemed
unclaimed property under section 347(b) of the Bankruptcy Code at
the expiration of three hundred and sixty-five (365) days from the
date of distribution. After such date all unclaimed property or
interest in property shall revert to the Reorganized Debtors or
Litigation Trust, as applicable, and the Claim of any other holder
to such property or interest in property shall be discharged and
forever barred.
6.11. Time
Bar to Cash Payments.
Checks
issued by the Disbursing Agent in respect of Allowed Claims shall
be null and void if not negotiated within one hundred and twenty
(120) days after the date of issuance thereof. Thereafter, the
amount represented by such voided check shall irrevocably revert to
the Reorganized Debtors or the Litigation Trust, as applicable, and
any Claim in respect of such voided check shall be discharged and
forever barred, notwithstanding any federal or state escheat laws
to the contrary. Requests for re-issuance of any check shall be
made to the Disbursing Agent or Litigation Trust Oversight
Committee, as applicable, by the holder of the Allowed Claim to
whom such check was originally issued.
6.12. Manner
of Payment under Plan.
Except
as otherwise specifically provided in the Plan, at the option of
the Debtors, the Reorganized Debtors, or Litigation Trust Oversight
Committee, as applicable, any Cash payment to be made hereunder may
be made by a check or wire transfer or as otherwise required or
provided in applicable agreements or customary practices of the
Debtors.
6.13. Satisfaction
of Claims.
Except
as otherwise specifically provided in the Plan, any distributions
and deliveries to be made on account of Allowed Claims under the
Plan shall be in complete and final satisfaction, settlement, and
discharge of and exchange for such Allowed Claims.
6.14. Fractional
Stock and Notes.
If any
distributions of New Equity Interests pursuant to the Plan would
result in the issuance of a fractional share of New Equity
Interests, then the number of shares of New Equity Interests to be
issued in respect of such distribution will be calculated to one
decimal place and rounded up or down to the closest whole share
(with a half share or greater rounded up and less than a half share
rounded down). The total number of shares of New Equity Interests
to be distributed in connection with the Plan shall be adjusted as
necessary to account for the rounding provided for in this Section
6.14. No consideration shall be provided in lieu of fractional
shares that are rounded down. Neither the Reorganized Debtors, nor
the Disbursing Agent shall have any obligation to make a
distribution that is less than one (1) share of New Equity
Interests.
40
6.15. Minimum
Cash Distributions.
The
Disbursing Agent shall not be required to make any distribution of
Cash less than One Hundred Dollars ($100) to any holder of an
Allowed Claim; provided, that if any distribution is not made
pursuant to this Section 6.15, such distribution shall be added to
any subsequent distribution to be made on behalf of the
holder’s Allowed Claim.
6.16. Setoffs
and Recoupments.
The
Debtors or the Reorganized Debtors, as applicable, or such
entity’s designee (including, without limitation, the
Disbursing Agent) may, but shall not be required to, set off or
recoup against any Claim, and any distribution to be made on
account of such Claim, any and all claims, rights, and Causes of
Action of any nature whatsoever that the Debtors or the Reorganized
Debtors may have against the holder of such Claim pursuant to the
Bankruptcy Code or applicable non-bankruptcy law; provided, that
neither the failure to do so nor the allowance of any Claim
hereunder shall constitute a waiver or release by a Debtor or
Reorganized Debtor or its successor of any claims, rights, or
Causes of Action that a Debtor or Reorganized Debtor or its
successor or assign may possess against the holder of such
Claim.
6.17. Allocation
of Distributions between Principal and
Interest.
Except
as otherwise required by law (as reasonably determined by the
Reorganized Debtors), distributions with respect to an Allowed
Claim shall be allocated first to the principal portion of such
Allowed Claim (as determined for United States federal income tax
purposes) and, thereafter, to the remaining portion of such Allowed
Claim, if any.
6.18. No
Distribution in Excess of Amount of Allowed
Claim.
Except
as provided in Section 6.7 of the Plan, no holder of an Allowed
Claim shall receive, on account of such Allowed Claim,
distributions in excess of the Allowed amount of such
Claim.
6.19. Withholding
and Reporting Requirements.
(a) Withholding
Rights. In connection with the Plan, any party issuing any
instrument or making any distribution described in the Plan shall
comply with all applicable withholding and reporting requirements
imposed by any federal, state, or local taxing authority, and all
distributions pursuant to the Plan and all related agreements shall
be subject to any such withholding or reporting requirements. In
the case of a non-Cash distribution that is subject to withholding,
the distributing party may withhold an appropriate portion of such
distributed property and either (i) sell such withheld
property to generate Cash necessary to pay over the withholding tax
(or reimburse the distributing party for any advance payment of the
withholding tax), or (ii) pay the withholding tax using its
own funds and retain such withheld property. Any amounts withheld
pursuant to the preceding sentence shall be deemed to have been
distributed to and received by the applicable recipient for all
purposes of the Plan. Notwithstanding the foregoing, each holder of
an Allowed Claim or any other Entity that receives a distribution
pursuant to the Plan shall have responsibility for any taxes
imposed by any governmental unit, including, without limitation,
income, withholding, and other taxes, on account of such
distribution. Any party issuing any instrument or making any
distribution pursuant to the Plan has the right, but not the
obligation, to not make a distribution until such holder has made
arrangements satisfactory to such issuing or disbursing party for
payment of any such tax obligations.
41
(b) Forms.
Any party entitled to receive any property as an issuance or
distribution under the Plan shall, upon request, deliver to the
Disbursing Agent or such other Entity designated by the Reorganized
Debtors or Litigation Trust, as applicable (which Entity shall
subsequently deliver to the Disbursing Agent any applicable IRS
Form W-8 or Form W-9 received) an appropriate Form W-9 or (if the
payee is a foreign Entity) Form W-8. If such request is made by the
Reorganized Debtors, the Disbursing Agent, or such other Entity
designated by the Reorganized Debtors or Disbursing Agent and the
holder fails to comply before the earlier of (i) the date that is
one hundred and eighty (180) days after the request is made and
(ii) the date that is one hundred and eighty (180) days after the
date of distribution, the amount of such distribution shall
irrevocably revert to the applicable Reorganized Debtor and any
Claim in respect of such distribution shall be discharged and
forever barred from assertion against such Reorganized Debtor or
its respective property.
6.20. Hart-Scott-Rodino
Antitrust Improvements Act.
Any New
Equity Interests to be distributed under the Plan to an Entity
required as a result of such distribution to file a premerger
notification and report form under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, to the extent applicable,
shall not be distributed until the notification and waiting periods
applicable under such Act to such Entity have expired or been
terminated.
ARTICLE
VII PROCEDURES FOR DISPUTED CLAIMS.
7.1. Objections
to Claims.
The
Debtors, the Reorganized Debtors, or the Litigation Trust, as
applicable, shall exclusively be entitled to object to Claims.
After the Effective Date, the Reorganized Debtors or the Litigation
Trust Oversight Committee, as applicable, shall have and retain any
and all rights and defenses that the Debtors had with regard to any
Claim to which they may object, except with respect to any Claim
that is Allowed. Any objections to proofs of Claim shall be served
and filed on or before the later of (a) one-hundred and eighty
(180) days after the Effective Date, and (b) on such later
date as may be fixed by the Bankruptcy Court, after notice and a
hearing, upon a motion by the Reorganized Debtors that is filed
before the date that is one-hundred and eighty (180) days after the
Effective Date. The expiration of such period shall not limit or
affect the Debtors’ or the Reorganized Debtors’ rights
to dispute Claims asserted in the ordinary course of business other
than through a proof of Claim.
7.2. Resolution
of Disputed Claims.
On and
after the Effective Date, (a) the Debtors or the Reorganized
Debtors, as applicable, shall have the authority to compromise,
settle, otherwise resolve, or withdraw any objections to Claims
(other than General Unsecured Claims) without approval of the
Bankruptcy Court, other than with respect to Fee Claims; and
(b) upon the creation of the Litigation Trust, the Litigation
Trust Oversight Committee shall have the exclusive authority to
compromise, settle, otherwise resolve, or withdraw any objections
to General Unsecured Claims without approval of the Bankruptcy
Court. The Debtors or the Reorganized Debtors, as applicable, and
the Litigation Trust Oversight Committee shall cooperate with
respect to any objections to Claims that seek to convert Claims
into General Unsecured Claims or General Unsecured Claims into
other Claims. The rights and defenses of the Debtors, the
Reorganized Debtors or the Litigation Trust, as applicable, to any
such objections are fully preserved.
42
7.3. Payments
and Distributions with Respect to Disputed
Claims.
Notwithstanding
anything herein to the contrary, if any portion of a Claim is a
Disputed Claim, no payment or distribution provided hereunder shall
be made on account of such Claim unless and until such Disputed
Claim becomes an Allowed Claim.
7.4. Distributions
after Allowance.
After
such time as a Disputed Claim becomes, in whole or in part, an
Allowed Claim, the holder thereof shall be entitled to
distributions, if any, to which such holder is then entitled as
provided in this Plan, without interest, as provided in Section 7.9
of the Plan. Such distributions shall be made as soon as
practicable after the date that the order or judgment of the
Bankruptcy Court allowing such Disputed Claim (or portion thereof)
becomes a Final Order.
7.5. Disallowance
of Claims.
Except
to the extent otherwise agreed to by the Debtors, the Reorganized
Debtors, or the Litigation Trust Oversight Committee, as
applicable, or as provided in Section .2(b) of the Plan, any Claims
held by Entities from which property is recoverable under sections
542, 543, 550, or 553 of the Bankruptcy Code or that is a
transferee of a transfer avoidable under section 522(f), 522(h),
544, 545, 547, 548, 549, or 724(a) of the Bankruptcy Code, as
determined by a Final Order, shall be deemed disallowed pursuant to
section 502(d) of the Bankruptcy Code, and holders of such Claims
may not receive any distributions on account of such Claims until
such time as such Causes of Action against that Entity have been
settled or a Final Order with respect thereto has been entered and
all sums due, if any, to the Debtors by that Entity have been
turned over or paid to the Debtors, the Reorganized Debtors, or the
Litigation Trust Oversight Committee, as applicable.
7.6. Estimation
of Claims.
The
Debtors, the Reorganized Debtors, or the Litigation Trust Oversight
Committee, as applicable, may (a) determine, resolve and
otherwise adjudicate all contingent, unliquidated, and Disputed
Claims in the Bankruptcy Court and (b) at any time request that the
Bankruptcy Court estimate any contingent, unliquidated, or Disputed
Claim pursuant to section 502(c) of the Bankruptcy Code regardless
of whether the Debtors previously objected to such Claim or whether
the Bankruptcy Court has ruled on any such objection. The
Bankruptcy Court will retain jurisdiction to estimate any Claim at
any time during litigation concerning any objection to any Claim,
including, without limitation, during the pendency of any appeal
relating to any such objection. In the event that the Bankruptcy
Court estimates any contingent, unliquidated, or Disputed Claim,
the amount so estimated shall constitute either the Allowed amount
of such Claim or a maximum limitation on such Claim, as determined
by the Bankruptcy Court. If the estimated amount constitutes a
maximum limitation on the amount of such Claim, the Debtors, the
Reorganized Debtors, or the Litigation Trust Oversight Committee,
as applicable, may pursue supplementary proceedings to object to
the allowance of such Claim; provided, that such limitation shall
not apply to Claims requested by the Debtors to be estimated for
voting purposes only.
7.7. No
Distributions Pending Allowance.
If an
objection, motion to estimate, or other challenge to a Claim is
filed, no payment or distribution provided under the Plan shall be
made on account of such Claim unless and until (and only to the
extent that) such Claim becomes an Allowed Claim.
43
7.8. Claim
Resolution Procedures Cumulative.
All of
the objection, estimation, and resolution procedures in the Plan
are intended to be cumulative and not exclusive of one another.
Claims may be estimated and subsequently settled, compromised,
withdrawn, or resolved in accordance with the Plan without further
notice or Bankruptcy Court approval.
7.9. Interest.
To the
extent that a Disputed Claim becomes an Allowed Claim after the
Effective Date, the holder of such Claim shall not be entitled to
any interest that accrued thereon from and after the Effective
Date, except as provided in Section 6.7 of the Plan.
7.10. Insured
Claims.
If any
portion of an Allowed Claim is an Insured Claim, no distributions
under the Plan shall be made on account of such Allowed Claim until
the holder of such Allowed Claim has exhausted all remedies with
respect to any applicable insurance policies. To the extent that
the Debtors’ insurers agree to satisfy a Claim in whole or in
part, then immediately upon such agreement, the portion of such
Claim so satisfied may be expunged without an objection to such
Claim having to be filed and without any further notice to or
action, order or approval of the Court.
ARTICLE
VIII EXECUTORY CONTRACTS AND UNEXPIRED
LEASES.
(a) As
of and subject to the occurrence of the Effective Date, all
executory contracts and unexpired leases to which any of the
Debtors are parties shall be deemed rejected, unless such contract
or lease (i) was previously assumed or rejected by the Debtors
pursuant to an order of the Bankruptcy Court; (ii) previously
expired or terminated pursuant to its own terms or by agreement of
the parties thereto; (iii) is the subject of a motion to
assume filed by the Debtors on or before the Confirmation Date;
(iv) is identified in section 5.7(a) of the Plan; (v) is
identified in section 8.4 of the Plan; or (vi) is identified for
assumption on the Assumption Schedule included in the Plan
Supplement.
(b) Subject
to the occurrence of the Effective Date, entry of the Confirmation
Order by the Bankruptcy Court shall constitute approval of the
assumptions, assumptions and assignments, or rejections provided
for in the Plan pursuant to sections 365(a) and 1123 of the
Bankruptcy Code and a determination by the Bankruptcy Court that
the Reorganized Debtors or the Successful Bidder, as applicable,
have provided adequate assurance of future performance under such
assumed executory contracts and unexpired leases. Each executory
contract and unexpired lease assumed or assumed and assigned
pursuant to the Plan shall vest in and be fully enforceable by the
Reorganized Debtors or the Successful Bidder, as applicable, in
accordance with its terms, except as modified by the provision of
the Plan, any order of the Bankruptcy Court authorizing and
providing for its assumption, or applicable law.
8.2. Determination
of Assumption Disputes and Deemed Consent.
(a) Any
Cure Amount shall be satisfied, pursuant to section 365(b)(1) of
the Bankruptcy Code, by payment of the Cure Amount, as reflected in
the applicable cure notice, in Cash on the Effective Date, subject
to the limitations described below, or on such other terms as the
parties to such executory contracts or unexpired leases and the
Debtors may otherwise agree.
44
(b) The
Debtors shall file, as part of the Plan Supplement, the Assumption
Schedule. The Debtors shall serve a notice on parties to executory
contracts or unexpired leases to be assumed or assumed and assigned
reflecting the Debtors’ intention to assume or assume and
assign the contract or lease in connection with this Plan and,
where applicable, setting forth the proposed Cure Amount (if any),
in accordance with the Disclosure Statement Order. Any objection by
a counterparty to an executory contract or unexpired lease to the
proposed assumption, assumption and assignment, or related Cure
Amount must be filed and served in accordance with the Disclosure
Statement Order.
Any counterparty to an executory contract or
unexpired lease that does not timely object to the notice of the
proposed assumption of such executory contract or unexpired lease
shall be deemed to have assented to assumption of the applicable
executory contract or unexpired lease notwithstanding any provision
thereof that purports to (i) prohibit, restrict, or condition
the transfer or assignment of such contract or lease;
(ii) terminate or modify, or permit the termination or
modification of, a contract or lease as a result of any direct or
indirect transfer or assignment of the rights of any Debtor under
such contract or lease or a change, if any, in the ownership or
control to the extent contemplated by the Plan;
(iii) increase, accelerate, or otherwise alter any obligations
or liabilities of any Debtor or any Reorganized Debtor under such
executory contract or unexpired lease; or (iv) create or impose a
Lien upon any property or Asset of any Debtor or any Reorganized
Debtor, as applicable. Each such provision shall be deemed to not
apply to the assumption of such executory contract or unexpired
lease pursuant to the Plan and counterparties to assumed executory
contracts or unexpired leases that fail to object to the proposed
assumption in accordance with the terms set forth in this Section
8.2(b), shall forever be barred
and enjoined from objecting to the proposed assumption or to the
validity of such assumption (including with respect to any Cure
Amounts or the provision of adequate assurance of future
performance), or taking actions prohibited by the foregoing or the
Bankruptcy Code on account of transactions contemplated by the
Plan.
(c) If
there is an Assumption Dispute pertaining to assumption of an
executory contract or unexpired lease (other than a dispute
pertaining to a Cure Amount), such dispute shall be heard by the
Bankruptcy Court prior to such assumption being effective,
provided, that the Debtors or the Reorganized Debtors, as
applicable, may settle any dispute regarding the Cure Amount or the
nature thereof without any further notice to any party or any
action, order, or approval of the Bankruptcy Court.
(d) To
the extent an Assumption Dispute relates solely to the Cure Amount,
the Debtors may assume and/or assume and assign the applicable
executory contract or unexpired lease prior to the resolution of
such Assumption Dispute; provided, that the Debtors or the
Reorganized Debtors reserve Cash in an amount sufficient to pay the
full amount reasonably asserted as the required cure payment by the
non-Debtor party to such executory contract or unexpired lease (or
such smaller amount as may be fixed or estimated by the Bankruptcy
Court or otherwise agreed to by such non-Debtor party and the
applicable Reorganized Debtor).
(e) Assumption
or assumption and assignment of any executory contract or unexpired
lease pursuant to the Plan or otherwise shall result in the full
release and satisfaction of any Claims against any Debtor or
defaults by any Debtor, whether monetary or nonmonetary, including
defaults of provisions restricting the change in control or
ownership interest composition or other bankruptcy-related
defaults, arising under any assumed executory contract or unexpired
lease at any time before the date that the Debtors assume or assume
and assign such executory contract or unexpired lease. Any proofs
of Claim filed with respect to an executory contract or unexpired
lease that has been assumed or assumed and assigned shall be deemed
disallowed and expunged, without further notice to or action,
order, or approval of the Bankruptcy Court or any other Entity,
upon the assumption of such executory contract or unexpired
lease.
45
8.3. Rejection
Damages Claims.
In the
event that the rejection of an executory contract or unexpired
lease hereunder results in damages to the other party or parties to
such executory contract or unexpired lease, any Claim for such
damages shall be classified and treated in Class 5 (General
Unsecured Claims). Such Claim shall be forever barred and shall not
be enforceable against the Debtors, the Reorganized Debtors, or the
Litigation Trust, as applicable, or their respective Estates,
properties or interests in property as agents, successors, or
assigns, unless a proof of Claim is filed with the Bankruptcy Court
and served upon counsel for the Debtors or the Reorganized Debtors,
as applicable, no later than forty-five (45) days after the filing
and service of the notice of the occurrence of the Effective
Date.
8.4. Insurance
Policies.
Notwithstanding
anything to the contrary in the Definitive Documents, the Plan, the
Plan Supplement, any bar date notice or claim objection, and any
other document related to any of the foregoing: on the
Effective Date (a) all insurance policies issued or providing
coverage to the Debtors and all related agreements shall be assumed
in their entirety by the Debtors or the Reorganized Debtors, as
applicable pursuant to sections 105 and 365(a) of the Bankruptcy
Code, shall continue in full force and effect thereafter in
accordance with their respective terms, and upon such assumption,
the Reorganized Debtors shall remain liable in full for any and all
now existing or hereinafter arising obligations, liabilities,
terms, provisions, and covenants of any of the Debtors under such
insurance policies and agreements, without the need or requirement
for an insurer to file a proof of Claim, Administrative Claim, or
objection to any cure amount; (b) the Debtors or the Reorganized
Debtors, as applicable, shall not sell, assign or otherwise
transfer any insurance policies or related agreements except in
accordance with the terms of thereof and applicable non-bankruptcy
law; and (c) the automatic stay of Bankruptcy Code section 362(a)
and the injunctions set forth in the Plan, if and to the extent
applicable, shall be deemed lifted without further order of this
Court, solely to permit: (I) claimants with valid
workers’ compensation claims or direct action claims against
an insurer under applicable non-bankruptcy law to proceed with
their claims; and (II) the insurers to administer, handle, defend,
settle, and/or pay, in the ordinary course of business and without
further order of the Bankruptcy Court, (A) workers’
compensation claims, (B) claims where a claimant asserts a direct
claim against any insurer under applicable non-bankruptcy law, or
an order has been entered by the Bankruptcy Court granting a
claimant relief from the automatic stay to proceed with its claim,
and (C) all costs in relation to each of the
foregoing.
8.5. Intellectual
Property Licenses and Agreements.
Notwithstanding
anything to the contrary in the Definitive Documents, the Plan, the
Plan Supplement, any bar date notice or claim objection, and any
other document related to any of the foregoing, all intellectual
property contracts, licenses, royalties, or other similar
agreements to which the Debtors have any rights or obligations in
effect as of the date of the Confirmation Order shall be deemed and
treated as executory contracts pursuant to the Plan and shall, with
the consent of the Requisite First Lien Lenders (which consent
shall not be unreasonably withheld), be assumed by the Debtors and
Reorganized Debtors and shall continue in full force and effect
unless any such intellectual property contract, license, royalty,
or other similar agreement otherwise is specifically rejected
pursuant to a separate order of the Bankruptcy Court or is the
subject of a separate rejection motion filed by the Debtors in
accordance with Section 8.1 of
the Plan. Unless otherwise noted hereunder, all other intellectual
property contracts, licenses, royalties, or other similar
agreements shall vest in the Reorganized Debtors and the
Reorganized Debtors may take all actions as may be necessary or
appropriate to ensure such vesting as contemplated
herein.
46
8.6. Tax
Agreements.
Notwithstanding
anything to the contrary in the Definitive Documents, the Plan, the
Plan Supplement, any bar date notice or claim objection, and any
other document related to any of the foregoing, any tax sharing
agreements to which the Debtors are a party (of which the principal
purpose is the allocation of taxes) in effect as of the date of the
Confirmation Order shall be deemed and treated as executory
contracts pursuant to the Plan and, to the extent the Debtors
determine, with the consent of the Requisite First Lien Lenders
(which consent shall not be unreasonably withheld), that such
agreements are beneficial to the Debtors, shall be assumed by the
Debtors and Reorganized Debtors and shall continue in full force
and effect thereafter in accordance with their respective terms,
unless any such tax sharing agreement (of which the principal
purpose is the allocation of taxes) otherwise is specifically
rejected pursuant to a separate order of the Bankruptcy Court or is
the subject of a separate rejection motion filed by the Debtors in
accordance with Section 8.1 of the Plan. Unless otherwise noted
hereunder, all other tax sharing agreements to which the Debtors
are a party (of which the principal purpose is the allocation of
taxes) shall vest in the Reorganized Debtors and the Reorganized
Debtors may take all actions as may be necessary or appropriate to
ensure such vesting as contemplated herein.
8.7. Assignment.
To the
extent provided under the Bankruptcy Code or other applicable law,
any executory contract or unexpired lease transferred and assigned
hereunder shall remain in full force and effect for the benefit of
the transferee or assignee in accordance with its terms,
notwithstanding any provision in such executory contract or
unexpired lease (including those of the type set forth in section
365(b)(2) of the Bankruptcy Code) that prohibits, restricts, or
conditions such transfer or assignment. To the extent provided
under the Bankruptcy Code or other applicable law, any provision
that prohibits, restricts, or conditions the assignment or transfer
of any such executory contract or unexpired lease or that
terminates or modifies such executory contract or unexpired lease
or allows the counterparty to such executory contract or unexpired
lease to terminate, modify, recapture, impose any penalty,
condition renewal or extension, or modify any term or condition
upon any such transfer and assignment, constitutes an unenforceable
anti-assignment provision and is void and of no force or effect
with respect to any assignment pursuant to the Plan.
8.8. Modifications,
Amendments, Supplements, Restatements, or Other
Agreements.
Unless
otherwise provided herein or by separate order of the Bankruptcy
Court, each executory contract and unexpired lease that is assumed
shall include any and all modifications, amendments, supplements,
restatements, or other agreements made directly or indirectly by
any agreement, instrument, or other document that in any manner
affects such executory contract or unexpired lease, without regard
to whether such agreement, instrument, or other document is listed
in the notice of assumed contracts.
8.9. Reservation
of Rights.
(a) The
Debtors, with the consent of the Requisite First Lien Lenders,
which consent may not be unreasonably withheld, may amend the
Assumption Schedule and any cure notice until the Business Day
immediately prior to the commencement of the Confirmation Hearing
in order to (i) add, delete, or reclassify any executory contract
or unexpired lease or amend a proposed assignment and/or
(ii) amend the proposed Cure Amount; provided,
that if the
Confirmation Hearing is adjourned for a period of more than two (2)
consecutive calendar days, the Debtors’ right to amend such
schedules and notices shall be extended to the Business Day
immediately prior to the adjourned date of the Confirmation
Hearing, with such extension applying in the case of any and all
subsequent adjournments of the Confirmation Hearing. The Debtors
shall provide notice of such amendment to any affected counterparty
as soon as reasonably practicable.
47
(b) Neither
the exclusion nor inclusion of any contract or lease by the Debtors
on any exhibit, schedule, or other annex to the Plan or in the Plan
Supplement, nor anything contained in the Plan, will constitute an
admission by the Debtors that any such contract or lease is or is
not in fact an executory contract or unexpired lease or that the
Debtors, the Reorganized Debtors or their respective Affiliates
have any liability thereunder.
(c) Except
as otherwise provided in the Plan, nothing herein shall waive,
excuse, limit, diminish, or otherwise alter any of the defenses,
Claims, Causes of Action, or other rights of the Debtors and the
Reorganized Debtors under any executory or non-executory contract
or any unexpired or expired lease.
(d) Nothing
in the Plan will increase, augment, or add to any of the duties,
obligations, responsibilities, or liabilities of the Debtors or the
Reorganized Debtors, as applicable, under any executory or
non-executory contract or any unexpired or expired
lease.
The
following are conditions precedent to entry of the Confirmation
Order:
(a) the
Disclosure Statement Order shall have been entered and shall be in
full force and effect and no stay thereof shall be in
effect;
(b) the
Plan Supplement and all of the schedules, documents, and exhibits
contained therein shall have been filed;
(c) the
RSA shall not have been terminated and shall be in full force and
effect; and
(d) the
DIP Order and the DIP Documents shall be in full force and effect
in accordance with the terms thereof, and no event of default shall
have occurred and be continuing thereunder.
(a) The
following are conditions precedent to the Effective Date of the
Plan:
(i) the
Confirmation Order shall have been entered and shall be in full
force and effect and no stay thereof shall be in
effect;
(ii) no
event of default under the DIP Documents shall have occurred or be
continuing and an acceleration of the obligations or termination of
the DIP Lenders’ commitments under the DIP Documents shall
not have occurred;
(iii) all
actions, documents, and agreements necessary to implement and
consummate the Plan shall have been effected or executed and
binding on all parties thereto and, to the extent required, filed
with the applicable governmental units in accordance with
applicable laws;
48
(iv) all
applicable governmental, regulatory and/or third-party approvals
and consents, including FCC Approval, approval of State PUCs, and
Bankruptcy Court approval, necessary in connection with the
transactions contemplated by the Plan shall have been obtained
(including approval of the FCC Applications), not be subject to
unfulfilled conditions, and be in full force and effect, and all
applicable waiting periods shall have expired without any action
being taken or threatened by any competent authority that would
restrain, prevent, or otherwise impose materially adverse
conditions on such transactions;
(v) the
RSA shall not have been terminated and shall be in full force and
effect, and no notice shall have been delivered in accordance with
the RSA that, upon expiration of a cure period, would give rise to
a Lender Termination Event (as defined in the RSA;
(vi) the
Global Settlement shall have been approved by the Bankruptcy Court
without material modification (unless the modification is consented
to by the Debtors, the Requisite First Lien Lenders, and the
Creditors’ Committee);
(vii) all
accrued and unpaid Restructuring Expenses, Second Lien Lender
Restructuring Expenses, and Settlement Restructuring Expenses shall
have been paid in Cash to the extent invoiced at least two (2)
business days prior to the Effective Date (or such shorter period
as the Debtors may agree); provided that, any modification to the
Plan that adversely affects the treatment of Second Lien Claims or
the rights of the Second Lien Lender Group to receive Second Lien
Lender Restructuring Expenses shall be in form and substance
reasonably acceptable to the Second Lien Lender Group;
(viii) the
Amended Organizational Documents shall have been filed with the
appropriate governmental authority, as applicable;
(ix) the
Special Warrant Agreement shall have been executed and delivered,
and any conditions precedent to effectiveness contained therein
have been satisfied or waived in accordance therewith;
(x) the
New First Lien Credit Documents and the New Exit Facility Credit
Documents, shall (i) have been (or deemed) executed and delivered,
and any conditions precedent to effectiveness contained therein
have been satisfied or waived in accordance therewith, (ii) be in
full force and effect and binding upon the relevant parties; and
(iii) contain terms and conditions consistent in all material
respects with the RSA; and
(xi) the
Consulting Agreement shall have been executed and delivered, and
any conditions precedent therein shall have been satisfied or
waived in accordance therewith and be in full force and effect and
binding on the relevant parties.
(b) Notwithstanding
when a condition precedent to the Effective Date occurs, for
purposes of the Plan, such condition precedent shall be deemed to
have occurred simultaneously upon the occurrence of the applicable
conditions precedent to the Effective Date; provided, that to the
extent a condition precedent (a “Prerequisite Condition”) may be
required to occur prior to another condition precedent (a
“Subsequent
Condition”) then, for purposes of the Plan, the
Prerequisite Condition shall be deemed to have occurred immediately
prior to a Subsequent Condition regardless of when such
Prerequisite Condition or Subsequent Condition shall have
occurred.
49
9.3. Waiver
of Conditions Precedent.
(a) Except
as otherwise provided herein, all actions required to be taken on
the Effective Date shall take place and shall be deemed to have
occurred simultaneously and no such action shall be deemed to have
occurred prior to the taking of any other such action. Each of the
conditions precedent in Section 9.1 and Section 9.2 of the Plan may be waived in
writing by the Debtors with the prior written consent of
(i) the Requisite First Lien Lenders, which consent shall not
be unreasonably withheld (and (a) solely with respect to the
condition set forth in Section 9.1(d) and 9.2(a)(ii) of the Plan,
with the consent of the DIP Agent, such consent not to be
unreasonably withheld, and (b) solely with respect to the
condition set forth in Section 9.2(a)(xi) of the Plan, with the
consent of Matthew D. Rosen, such consent not to be unreasonably
withheld) without leave of or order of the Bankruptcy Court, and
(ii) the Creditors’ Committee, with respect to Section
9.2(a)(vi) of the Plan, which consent shall not be unreasonably
withheld. If the Plan is confirmed for fewer than all of the
Debtors as provided for in Section 5.16 of the Plan, only the
conditions applicable to the Debtor or Debtors for which the Plan
is confirmed must be satisfied or waived for the Effective Date to
occur as to such Debtors.
(b) The
stay of the Confirmation Order pursuant to Bankruptcy Rule 3020(e)
shall be deemed waived by and upon the entry of the Confirmation
Order, and the Confirmation Order shall take effect immediately
upon its entry.
9.4. Effect
of Failure of a Condition.
If the
conditions listed in Section 9.2 of the Plan are not satisfied or
waived in accordance with Section 9.2(c)(i) of the Plan on or before the
first Business Day that is more than sixty (60) days after the date
on which the Confirmation Order is entered or by such later date as
set forth by the Debtors in a notice filed with the Bankruptcy
Court prior to the expiration of such period, the Plan shall be
null and void in all respects and nothing contained in the Plan or
the Disclosure Statement shall (a) constitute a waiver or
release of any Claims by or against or any Interests in the
Debtors, (b) prejudice in any manner the rights of any Entity,
or (c) constitute an admission, acknowledgement, offer, or
undertaking by the Debtors, the Requisite First Lien Lenders, or
any other Entity.
10.1. Vesting
of Assets.
On the
Effective Date, pursuant to sections 1141(b) and (c) of the
Bankruptcy Code, all remaining property of the Debtors’
Estates shall vest in the Reorganized Debtors free and clear of all
Claims, Liens, encumbrances, charges, and other interests, except
as provided pursuant to the Plan, the Confirmation Order, the
Litigation Trust Agreement, the New First Lien Credit Documents, or
the New Exit Facility Credit Documents. On and after the Effective
Date, the Reorganized Debtors may take any action, including,
without limitation, the operation of its businesses; the use,
acquisition, sale, lease and disposition of property; and the entry
into transactions, agreements, understandings, or arrangements,
whether in or other than in the ordinary course of business, and
execute, deliver, implement, and fully perform any and all
obligations, instruments, documents, and papers or otherwise in
connection with any of the foregoing, free of any restrictions of
the Bankruptcy Code or Bankruptcy Rules and in all respects as if
there were no pending cases under any chapter or provision of the
Bankruptcy Code, except as expressly provided herein. Without
limiting the foregoing, the Reorganized Debtors may pay the charges
that they incur on or after the Effective Date for professional
fees, disbursements, expenses, or related support services without
application to the Bankruptcy Court.
10.2. Binding
Effect.
As of
the Effective Date, the Plan shall bind all holders of Claims
against and Interests in the Debtors and their respective
successors and assigns, notwithstanding whether any such holders
(a) were Impaired or Unimpaired under the Plan; (b) were
deemed to accept or reject the Plan; (c) failed to vote to
accept or reject the Plan; (d) voted to reject the Plan; or
(e) received any distribution under the Plan.
50
10.3. Discharge
of Claims and Termination of Interests.
Upon
the Effective Date, and in consideration of the distributions to be
made hereunder, except as otherwise expressly provided under the
Plan, each holder (as well as any representatives, trustees, or
agents on behalf of each holder) of a Claim or Interest and any
Affiliate of such holder shall be deemed to have forever waived,
released, and discharged the Debtors, to the fullest extent
permitted by section 1141 of the Bankruptcy Code, of and from any
and all Claims, Interest, rights, and liabilities that arose prior
to the Effective Date. Upon the Effective Date, all such Entities
shall be forever precluded and enjoined, pursuant to section 524 of
the Bankruptcy Code, from prosecuting or asserting any such
discharged Claim against or terminated Interest in the Debtors
against the Debtors, the Reorganized Debtors, or any of their
Assets or property, whether or not such holder has filed a proof of
Claim and whether or not the facts or legal bases therefor were
known or existed prior to the Effective Date.
10.4. Term
of Injunctions or Stays.
Unless
otherwise provided under the Plan, the Confirmation Order, or in a
Final Order of the Bankruptcy Court, all injunctions or stays
arising under or entered during the Chapter 11 Cases under section
105 or 362 of the Bankruptcy Code, or otherwise, and in existence
on the Confirmation Date, shall remain in full force and effect
until the later of the Effective Date and the date indicated in the
order providing for such injunction or stay.
10.5. Injunction.
(a) Upon
entry of the Confirmation Order, all holders of Claims and
Interests and other parties in interest, along with their
respective present or former employees, agents, officers,
directors, principals, and Affiliates, shall be enjoined from
taking any actions to interfere with the implementation or
consummation of the Plan in relation to any Claim or Interest
extinguished, discharged, or released pursuant to the
Plan.
(b) Except
as expressly provided in the Plan, the Confirmation Order, or a
separate order of the Bankruptcy Court or as agreed to by the
Debtors and a holder of a Claim against or Interest in the Debtors,
all Entities who have held, hold, or may hold Claims against or
Interests in the Debtors (whether proof of such Claims or Interests
has been filed or not and whether or not such Entities vote in
favor of, against or abstain from voting on the Plan or are
presumed to have accepted or deemed to have rejected the Plan) and
other parties in interest, along with their respective present or
former employees, agents, officers, directors, principals, and
Affiliates are permanently enjoined, on and after the Effective
Date, solely with respect to any Claims, Interests, and Causes of
Action that will be or are extinguished, discharged, or released
pursuant to the Plan from (i) commencing, conducting, or
continuing in any manner, directly or indirectly, any suit, action,
or other proceeding of any kind (including, without limitation, any
proceeding in a judicial, arbitral, administrative or other forum)
against or affecting the Debtors, the Reorganized Debtors, or the
Litigation Trust, or the property of any of the Debtors, the
Reorganized Debtors, or the Litigation Trust; (ii) enforcing,
levying, attaching (including, without limitation, any prejudgment
attachment), collecting, or otherwise recovering by any manner or
means, whether directly or indirectly, any judgment, award, decree,
or order against the Debtors, the Reorganized Debtors, or the
Litigation Trust, or the property of any of the Debtors, the
Reorganized Debtors, or the Litigation Trust; (iii) creating,
perfecting, or otherwise enforcing in any manner, directly or
indirectly, any encumbrance of any kind against the Debtors, the
Reorganized Debtors, or the Litigation Trust, or the property of
any of the Debtors, the Reorganized Debtors, or the Litigation
Trust; (iv) asserting any right of setoff, directly or
indirectly, against any obligation due from the Debtors, the
Reorganized Debtors, or the Litigation Trust, or against property
or interests in property of any of the Debtors, the Reorganized
Debtors, or the Litigation Trust, except as contemplated or Allowed
by the Plan; and (v) acting or proceeding in any manner, in any
place whatsoever, that does not conform to or comply with the
provisions of the Plan.
(c) Each
holder of an Allowed Claim or Interest extinguished, discharged, or
released pursuant to the Plan will be deemed to have affirmatively
and specifically consented to be bound by the Plan, including,
without limitation, the injunctions set forth in this Section
10.5.
(d) The
injunctions in this Section 10.5 shall extend to any successors of
the Debtors, the Reorganized Debtors, and the Litigation Trust, and
their respective property and interests in
property.
51
10.6. Releases.
(a) Estate
Releases.
As
of the Confirmation Date, pursuant to section 1123(b) of the
Bankruptcy Code, except for the rights that remain in effect from
and after the Confirmation Date to enforce the Plan and the
Definitive Documents, for good and valuable consideration, the
adequacy of which is hereby confirmed, including, without
limitation, the service of the Released Parties to facilitate the
reorganization of the Debtors and the implementation of the
restructuring, and except as otherwise provided in the Plan or in
the Confirmation Order, the Released Parties will be deemed
expressly, conclusively, absolutely, unconditionally, irrevocably
and forever released and discharged, to the maximum extent
permitted by law, by the Debtors and their Estates, the Reorganized
Debtors, and the Litigation Trust, from any and all Claims,
obligations, suits, judgments, damages, demands, debts, rights,
Causes of Action, remedies, losses, and liabilities whatsoever,
including any derivative claims, asserted or assertable on behalf
of the Debtors, or the Reorganized Debtors, as applicable, the
Litigation Trust, or the Estates, or their respective successors,
predecessors, assigns, and representatives and any and all other
Persons or Entities that may purport to assert any Cause of Action
derivatively, by or through the foregoing, whether liquidated or
unliquidated, fixed or contingent, matured or unmatured, known or
unknown, foreseen or unforeseen, existing or hereafter arising, in
law, equity, contract, tort, by statute, violations of federal or
state securities law, or otherwise, that the Debtors or the
Reorganized Debtors (as applicable), the Litigation Trust, or the
Estates would have been legally entitled to assert in their own
right (whether individually or collectively) or on behalf of the
holder of any Claim or Interest or other Person, based on or
relating to, or in any manner arising prior to the Confirmation
Date from, in whole or in part, the Debtors, the Chapter 11 Cases,
the pre- and postpetition marketing and sale process, the purchase,
sale, or rescission of the purchase or sale of any Security of the
Debtors, the subject matter of, or the transactions or events
giving rise to, any Claim or Interest that is treated in the Plan,
the Prepetition First Lien Credit Documents, the Prepetition Super
Senior Credit Documents, the Forbearance Agreement (as defined in
the RSA), the DIP Documents, the business or contractual
arrangements between any of the Debtors and any Released Party, the
restructuring, the restructuring of any Claim or Interest before or
during the Chapter 11 Cases, the Disclosure Statement, the RSA, and
the Plan (including, for the avoidance of doubt, the Plan
Supplement) and related agreements, instruments, and other
documents (including the Definitive Documents), and the
negotiation, formulation, or preparation of any documents or
transactions in connection with any of the foregoing, the
solicitation of votes with respect to the Plan, the pursuit of the
confirmation and consummation of the Plan, or any other act or
omission, in all cases based upon any act or omission, transaction,
agreement, event or other occurrence taking place on or before the
Confirmation Date; provided, that nothing in this Section 10.6(a)
shall be construed to release the Released Parties from gross
negligence, willful misconduct, or fraud as determined by a Final
Order; provided, further, that nothing in this Section 10.6(a)
shall be construed to release the obligations of Vector SPV (as
defined in the Prepetition First Lien Credit Agreement) arising
under the Vector Subordinated Note (as defined in the Prepetition
First Lien Credit Agreement). The Debtors, the Reorganized Debtors
and their Estates, and the Litigation Trust, or their respective
successors, predecessors, assigns, and representatives and any and
all other Persons or Entities that may purport to assert any Cause
of Action derivatively, by or through the foregoing, shall be
permanently enjoined from prosecuting any of the foregoing Claims
or Causes of Action released under this Section 10.6(a) against
each of the Released Parties. Notwithstanding anything to the
contrary in the foregoing or in this Plan, the releases set forth
above do not release any post-Confirmation Date obligations of any
Entity under the Plan, the Confirmation Order, the Litigation Trust
Agreement, or any document, instrument, or agreement (including
those set forth in the Plan Supplement) executed to implement the
Plan.
(b) Consensual
Releases by Holders of Impaired Claims.
As
of the Confirmation Date, except (i) for the right to enforce
the Plan or any right or obligation arising under the Definitive
Documents that remains in effect or becomes effective after the
Confirmation Date or (ii) as otherwise expressly provided in the
Plan or in the Confirmation Order, in exchange for good and
valuable consideration, the adequacy of which is hereby confirmed,
including the obligations of the Debtors under the Plan and the
contributions of the Released Parties to facilitate and implement
the Plan, to the fullest extent permissible under applicable law,
as such law may be extended or integrated after the Confirmation
Date, the Released Parties shall be deemed expressly, conclusively,
absolutely, unconditionally, irrevocably and forever, released, and
discharged by:
(i)
the
holders of Impaired Claims who voted to accept the
Plan;
(ii) the
Consenting First Lien Lenders;
(iii) the
Consenting Second Lien Lenders;
(iv) the
Creditors’ Committee and each of its members in their
capacity as such; and
(v)
with respect to any Entity in the
foregoing clauses (i) through (iii), such Entity’s (x)
predecessors, successors and assigns, (y) subsidiaries, Affiliates,
managed accounts or funds, managed or controlled by such Entity and
(z) all Persons entitled to assert Claims through or on behalf of
such Entities with respect to the matters for which the releasing
entities are providing releases.
52
in
each case, from any and all Claims, Interests, or Causes of Action
whatsoever, including any derivative Claims asserted on behalf of a
Debtor, whether known or unknown, foreseen or unforeseen, existing
or hereafter arising, in law, equity, contract, tort, by statute,
violation of federal or state securities law, or otherwise, that
such Entity would have been legally entitled to assert (whether
individually or collectively), based on, relating to, or arising
prior to the Confirmation Date from, in whole or in part, the
Debtors, the restructuring, the Chapter 11 Cases, the pre- and
postpetition marketing and sale process, the purchase, sale or
rescission of the purchase or sale of any security of the Debtors
or Reorganized Debtors, the subject matter of, or the transactions
or events giving rise to, any Claim or Interest that is treated in
the Plan, the Prepetition First Lien Credit Documents, the
Prepetition Super Senior Credit Documents, the Forbearance
Agreement (as defined in the RSA), the DIP Documents, the business
or contractual arrangements between any Debtor and any Released
Party, the restructuring of Claims and Interests before or during
the Chapter 11 Cases, the negotiation, formulation, preparation, or
consummation of the Plan (including the Plan Supplement), the RSA,
the Definitive Documents, or any related agreements, instruments,
or other documents, the solicitation of votes with respect to the
Plan, the pursuit of the confirmation and consummation of the Plan,
in all cases based upon any act or omission, transaction,
agreement, event or other occurrence taking place on or before the
Confirmation Date; provided, that nothing in this Section 10.6(b)
shall be construed to release the Released Parties from gross
negligence, willful misconduct, or fraud as determined by a Final
Order. The Persons and Entities in (i) through (iv) of this Section
10.6(b) shall be permanently enjoined from prosecuting any of the
foregoing Claims or Causes of Action released under this Section
10.6(b) against each of the Released Parties. Notwithstanding
anything to the contrary in the foregoing or in this Plan, the
releases set forth above do not release any post-Confirmation Date
obligations of any Entity under the Plan, the Confirmation Order,
the Litigation Trust Agreement, or any document, instrument, or
agreement (including those set forth in the Plan Supplement)
executed to implement the Plan.
10.7. Exculpation.
To
the maximum extent permitted by Section 1125(e) of the Bankruptcy
Code and without affecting or limiting either the estate release
set forth in Section 10.5 or the consensual releases by holders of
Impaired Claims set forth in Section 10.6, and notwithstanding
anything herein to the contrary, no Exculpated Party will have or
incur, and each Exculpated Party is hereby released and exculpated
from, any claim, obligation, suit, judgment, damage, demand, debt,
right, cause of action, remedy, loss, and liability for any claim
in connection with or arising out of the administration of the
Chapter 11 Cases, the postpetition marketing and sale process, the
postpetition purchase, sale, or rescission of the purchase or sale
of any security of the Debtors; the negotiation and pursuit of the
Disclosure Statement, the RSA, the Reorganization Transaction, the
Plan, the solicitation of votes for, or confirmation of, the Plan
or the Litigation Trust Agreement; the funding or consummation of
the Plan; the occurrence of the Effective Date; the administration
of the Plan or the property to be distributed under the Plan,
including but not limited to the issuance and distribution of the
Litigation Trust Interests; the issuance of Securities under or in
connection with the Plan; or the transactions in furtherance of any
of the foregoing; provided, that nothing in this Section 10.7 shall
be construed to release or exculpate an Exculpated Party from gross
negligence, willful misconduct, or fraud as determined by a Final
Order; provided, further, that nothing in this Section 10.7 shall
be construed to release the obligations of Vector SPV (as defined
in the Prepetition First Lien Credit Agreement) arising under the
Vector Subordinated Note (as defined in the Prepetition First Lien
Credit Agreement).
53
10.8. Limitations
on Executable Assets with Respect to Certain Causes of
Action.
The
Independent Directors and Other Officers and Directors shall remain
legally obligated to pay for any wrongful acts to the extent of the
Debtors’ available D&O Policies’ combined limits,
subject to the following: any recovery by or on behalf of the
Litigation Trust (and the beneficiaries thereof) on account of any
Litigation Trust Causes of Action (other than with respect to
claims for gross negligence, willful misconduct or fraud) or the
Reorganized Debtors on account of any Causes of Action (other than
with respect to claims for gross negligence, willful misconduct, or
fraud) against any Independent Directors or Other Officers and
Directors, each solely in his capacity as a director or officer of
the Debtors prior to the Effective Date, including in each case by
way of settlement or judgment, shall be limited to the
Debtors’ available D&O Policies’ combined limits,
after payment from such D&O Policies of any and all covered
costs and expenses incurred by the covered parties in connection
with the defense of any such Litigation Trust Causes of Action or
Causes of Action.
10.9. SEC
Rights and Powers
Notwithstanding any
language to the contrary contained in the Plan, Disclosure
Statement or the Confirmation Order, no provision of the Plan or
the Confirmation Order shall (i) preclude the SEC from
enforcing its police or regulatory powers; or (ii) enjoin, limit,
impair or delay the SEC from commencing or continuing any claims,
causes of action, proceedings or investigations against any
non-Debtor person or non-Debtor entity in any forum.
10.10.
FCC Rights and
Powers
No
provision in the Plan or the Confirmation Order relieves the
Debtors or the Reorganized Debtors from their obligations to comply
with the Communications Act of 1934, as amended, and the rules,
regulations and orders promulgated thereunder by the FCC. No
transfer of any FCC license or authorization held by Debtors or
transfer of control of any Debtor, or transfer of control of a FCC
licensee controlled by Debtors shall take place prior to the
issuance of FCC regulatory approval for such transfer pursuant to
applicable FCC regulations. The FCC’s rights and powers to
take any action pursuant to its regulatory authority including, but
not limited to, imposing any regulatory conditions on any of the
above described transfers, are fully preserved, and nothing herein
shall proscribe or constrain the FCC’s exercise of such power
or authority.
10.11.
Subordinated
Claims.
The
allowance, classification, and treatment of all Allowed Claims and
Interests and the respective distributions and treatments under the
Plan take into account and conform to the relative priority and
rights of the Claims and Interests in each Class in connection with
any contractual, legal, and equitable subordination rights relating
thereto, whether arising under general principles of equitable
subordination, section 510(b) of the Bankruptcy Code, or otherwise.
Pursuant to section 510 of the Bankruptcy Code, the Debtors (or the
Litigation Trust, solely with respect to General Unsecured Claims)
reserve the right, with the consent of the Required First Lien
Lenders, which consent shall not be unreasonably withheld, to
reclassify any Allowed Claim or Interest in accordance with any
contractual, legal, or equitable subordination relating
thereto.
54
10.12.
Retention of
Causes of Action/Reservation of Rights.
Except
as otherwise provided in Sections 10.5, 10.6, and 10.7 of the Plan,
nothing contained in the Plan or the Confirmation Order shall be
deemed to be a waiver or relinquishment of any rights, Claims,
Causes of Action (including, for the avoidance of doubt, Litigation
Trust Causes of Action), rights of setoff or recoupment, or other
legal or equitable defenses that the Debtors had immediately prior
to the Effective Date on behalf of their Estates or itself in
accordance with any provision of the Bankruptcy Code or any
applicable non-bankruptcy law, including, without limitation, any
affirmative Causes of Action against parties with a relationship
with the Debtors including actions arising under chapter 5 of the
Bankruptcy Code. Except as provided in any order entered by the
Bankruptcy Court, the Reorganized Debtors or the Litigation Trust
Oversight Committee, in connection with the pursuit of Litigation
Trust Causes of Action or objection to General Unsecured Claims,
shall have, retain, reserve, and be entitled to assert all such
Claims, Causes of Action, rights of setoff or recoupment, and other
legal or equitable defenses as fully as if the Chapter 11 Cases had
not been commenced, and all of the Debtors’ legal and
equitable rights in respect of any Unimpaired Claim may be asserted
after the Confirmation Date and Effective Date to the same extent
as if the Chapter 11 Cases had not been commenced. Notwithstanding
the foregoing, the Debtors and the Reorganized Debtors shall not
retain any Claims or Causes of Action released or barred pursuant
to the Plan against the Released Parties.
10.13.
Solicitation of
Plan.
As of
and subject to the occurrence of the Confirmation Date: (a) the
Debtors shall be deemed to have solicited acceptances of the Plan
in good faith and in compliance with the applicable provisions of
the Bankruptcy Code, including without limitation, sections 1125(a)
and (e) of the Bankruptcy Code, and any applicable non-bankruptcy
law, rule, or regulation governing the adequacy of disclosure in
connection with such solicitation; and (b) the Debtors and each of
their respective directors, officers, employees, Affiliates,
agents, financial advisors, investment bankers, professionals,
accountants, and attorneys shall be deemed to have participated in
good faith and in compliance with the applicable provisions of the
Bankruptcy Code in the offer and issuance of any securities under
the Plan, and therefore are not, and on account of such offer,
issuance, and solicitation shall not be, liable at any time for any
violation of any applicable law, rule, or regulation governing the
solicitation of acceptances or rejections of the Plan or the offer
and issuance of any securities under the Plan.
10.14.
Corporate and
Limited Liability Company Action.
Upon
the Effective Date, all actions contemplated by the Plan shall be
deemed authorized and approved in all respects, including (a) those
set forth in Sections 5.5 and 5.6 of the Plan; (b) the performance
of the RSA; and (c) all other actions contemplated by the Plan
(whether to occur before, on, or after the Effective Date), in each
case, in accordance with and subject to the terms hereof. All
matters provided for in the Plan involving the corporate, limited
liability company or partnership structure of the Debtors or the
Reorganized Debtors, and any corporate, limited liability company
or partnership action required by the Debtors or the Reorganized
Debtors in connection with the Plan shall be deemed to have
occurred and shall be in effect, without any requirement of further
action by the Security holders, directors, managers, limited
partners or officers of the Debtors or the Reorganized Debtors. On
or (as applicable) before the Effective Date, the authorized
officers of the Debtors or the Reorganized Debtors, as applicable,
shall be authorized and directed to issue, execute, and deliver the
agreements, documents, Securities, and instruments contemplated by
the Plan (or necessary or desirable to effect the transactions
contemplated by the Plan) in the name and on behalf of the
Reorganized Debtors, including, but not limited to: (i) the Amended
Organizational Documents; (ii) the New First Lien Credit
Agreement; (iii) the New Exit Facility Credit Agreement;
(iv) the Litigation Trust Agreement; and (v) any and all
other agreements, documents, securities, and instruments relating
to the foregoing. The authorizations and approvals contemplated by
this Section 10.11 shall be effective notwithstanding any
requirements under non-bankruptcy law.
55
ARTICLE
XI RETENTION OF JURISDICTION.
11.1. Retention
of Jurisdiction.
On and
after the Effective Date, the Bankruptcy Court shall retain
non-exclusive jurisdiction over all matters arising in, arising
under, and related to the Chapter 11 Cases for, among other things,
the following purposes:
(a) to
hear and determine motions and/or applications for the assumption
or rejection of executory contracts or unexpired leases, including
Assumption Disputes, and the allowance, classification, priority,
compromise, estimation, or payment of Claims resulting
therefrom;
(b) to
determine any motion, adversary proceeding, application, contested
matter, and other litigated matter pending on or commenced after
the Confirmation Date;
(c) to
ensure that distributions to holders of Allowed Claims are
accomplished as provided for in the Plan and Confirmation Order and
to adjudicate any and all disputes arising from or relating to
distributions under the Plan, including, cases, controversies,
suits, disputes, or Causes of Action with respect to the repayment
or return of distributions and the recovery of additional amounts
owed by the holder of a Claim or Interest for amounts not timely
paid;
(d) to
consider the allowance, classification, priority, compromise,
estimation, or payment of any Claim;
(e) to
resolve disputes concerning Disputed Claims or the administration
thereof;
(f) to
hear and determine all Fee Claims and Restructuring
Expenses;
(g) to
hear and resolve any dispute over the application to any Claim of
any limit on the allowance of such Claim set forth in sections 502
or 503 of the Bankruptcy Code, other than defenses or limits that
are asserted under non-bankruptcy law pursuant to section 502(b)(1)
of the Bankruptcy Code;
(h) to
enter, implement, or enforce such orders as may be appropriate in
the event the Confirmation Order is for any reason stayed,
reversed, revoked, modified, or vacated;
(i) to
issue injunctions, enter and implement other orders, and take such
other actions as may be necessary or appropriate to restrain
interference by any Entity with the consummation, implementation,
or enforcement of the Plan, the Confirmation Order, or any other
order of the Bankruptcy Court;
(j) to
hear and determine any application to modify the Plan in accordance
with section 1127 of the Bankruptcy Code, to remedy any defect or
omission or reconcile any inconsistency in the Plan, or any order
of the Bankruptcy Court, including the Confirmation Order, in such
a manner as may be necessary to carry out the purposes and effects
thereof;
(k) to
hear and determine disputes arising in connection with the
interpretation, implementation, or enforcement of the Plan, the
Plan Supplement, the Global Settlement, the Litigation Trust
Agreement, the Confirmation Order, or any agreement, instrument, or
other document governing or relating to any of the
foregoing;
56
(l) to
take any action and issue such orders as may be necessary to
construe, interpret, enforce, implement, execute, and consummate
the Plan;
(m) to
determine such other matters and for such other purposes as may be
provided in the Confirmation Order;
(n) to
hear and determine matters concerning state, local, and federal
taxes in accordance with sections 346, 505, and 1146 of the
Bankruptcy Code (including any requests for expedited
determinations under section 505(b) of the Bankruptcy
Code);
(o) to
hear, adjudicate, decide, or resolve any and all matters related to
Article X of the Plan,
including, without limitation, the releases, discharge,
exculpations, and injunctions issued thereunder;
(p) to
recover all Assets of the Debtors and property of the
Debtors’ Estates, wherever located;
(q) to
resolve any disputes concerning whether an Entity had sufficient
notice of the Chapter 11 Cases, the Disclosure Statement, any
solicitation conducted in connection with the Chapter 11 Cases, any
bar date established in the Chapter 11 Cases, or any deadline for
responding or objecting to a Cure Amount, in each case, for the
purpose of determining whether a Claim or Interest is discharged
hereunder or for any other purpose;
(r) to
hear and determine any rights, Claims, or Causes of Action held by
or accruing to the Reorganized Debtors or the Litigation Trust
pursuant to the Bankruptcy Code or pursuant to any federal statute
or legal theory;
(s) to
enter one or more final decrees closing the Chapter 11
Cases;
(t) to
consider any motion brought under or in connection with Bankruptcy
Rule 2004; and
(u) to
hear and determine any other matters related hereto and not
inconsistent with the Bankruptcy Code and title 28 of the United
States Code.
11.2. Courts
of Competent Jurisdiction.
If the
Bankruptcy Court abstains from exercising, or declines to exercise,
jurisdiction or is otherwise without jurisdiction over any matter
arising out of the Plan, such abstention, refusal, or failure of
jurisdiction shall have no effect upon and shall not control,
prohibit, or limit the exercise of jurisdiction by any other court
having competent jurisdiction with respect to such
matter.
ARTICLE
XII MISCELLANEOUS PROVISIONS.
12.1. Payment
of Statutory Fees.
On the
Effective Date and thereafter as may be required, the Reorganized
Debtors shall pay all fees incurred pursuant to sections 1911
through 1930 of chapter 123 of title 28 of the United States Code,
together with interest, if any, pursuant to section 3717 of title
31 of the United States Code with the Chapter 11 Cases, or until
such time as a final decree is entered closing the Chapter 11
Cases, a Final Order converting the Chapter 11 Cases to cases under
chapter 7 of the Bankruptcy Code is entered, or a Final Order
dismissing the Chapter 11 Cases is entered.
57
12.2. Substantial
Consummation of the Plan.
On the
Effective Date, the Plan shall be deemed to be substantially
consummated under sections 1101 and 1127(b) of the Bankruptcy
Code.
12.3. Plan
Supplement.
The
Plan Supplement shall be filed with the Clerk of the Bankruptcy
Court. Upon its filing with the Bankruptcy Court, the Plan
Supplement may be inspected in the office of the Clerk of the
Bankruptcy Court during normal court hours. Documents included in
the Plan Supplement will be posted at the website of the
Debtors’ notice, claims, and solicitation agent.
12.4. Request
for Expedited Determination of Taxes.
The
Debtors shall have the right to request an expedited determination
under section 505(b) of the Bankruptcy Code with respect to tax
returns filed, or to be filed, for any and all taxable periods
ending after the Commencement Date through the dissolution of the
Debtors.
12.5. Exemption
from Certain Transfer Taxes.
Pursuant to section
1146 of the Bankruptcy Code, (a) the issuance, transfer or exchange
of any securities, instruments or documents, (b) the creation of
any Lien, mortgage, deed of trust, or other security interest, (c)
the making or assignment of any lease or sublease or the making or
delivery of any deed or other instrument of transfer under,
pursuant to, in furtherance of, or in connection with the Plan,
including, without limitation, any deeds, bills of sale, or
assignments executed in connection with any of the transactions
contemplated under the Plan or the reinvesting, transfer, or sale
of any real or personal property of the Debtors pursuant to, in
implementation of or as contemplated in the Plan (whether to one or
more of the Reorganized Debtors or otherwise), (d) the grant of
collateral under the New Exit Facility and the New First Lien
Credit Facility, and (e) the issuance, renewal, modification,
or securing of indebtedness by such means, and the making, delivery
or recording of any deed or other instrument of transfer under, in
furtherance of, or in connection with, the Plan, including, without
limitation, the Confirmation Order, shall not be subject to any
document recording tax, stamp tax, conveyance fee, or other similar
tax, mortgage tax, real estate transfer tax, mortgage recording
tax, Uniform Commercial Code filing or recording fee, regulatory
filing or recording fee, sales tax, use tax, or other similar tax
or governmental assessment. Consistent with the foregoing, each
recorder of deeds or similar official for any county, city, or
governmental unit in which any instrument hereunder is to be
recorded shall, pursuant to the Confirmation Order, be ordered and
directed to accept such instrument without requiring the payment of
any filing fees, documentary stamp tax, deed stamps, stamp tax,
transfer tax, intangible tax, or similar tax.
58
12.6. Amendments.
(a) Plan
Modifications. Subject to the terms of the RSA, (i) the
Debtors reserve the right, in accordance with the Bankruptcy Code
and the Bankruptcy Rules, to amend or modify the Plan prior to the
entry of the Confirmation Order, including amendments or
modifications to satisfy section 1129(b) of the Bankruptcy Code,
and (ii) after entry of the Confirmation Order, the Debtors
may, upon order of the Court, amend, modify or supplement the Plan
in the manner provided for by section 1127 of the Bankruptcy Code
or as otherwise permitted by law, in each case without additional
disclosure pursuant to section 1125 of the Bankruptcy Code. In
addition, after the Confirmation Date, so long as such action does
not materially and adversely affect the treatment of holders of
Allowed Claims or Allowed Interests pursuant to this Plan and
subject to the reasonable consent of the Requisite First Lien
Lenders (and the Creditors’ Committee, solely as it pertains
to the Global Settlement or treatment of General Unsecured Claims),
the Debtors may remedy any defect or omission or reconcile any
inconsistencies in this Plan or the Confirmation Order with respect
to such matters as may be necessary to carry out the purposes or
effects of this Plan, and any holder of a Claim or Interest that
has accepted this Plan shall be deemed to have accepted this Plan
as amended, modified, or supplemented.
(b) Other
Amendments. Subject to the terms of the RSA, before the
Effective Date, the Debtors may make appropriate technical
adjustments and modifications to the Plan and the documents
contained in the Plan Supplement without further order or approval
of the Bankruptcy Court.
12.7. Effectuating
Documents and Further Transactions.
Each of
the officers, managers, limited partners or members of the
Reorganized Debtors is authorized to execute, deliver, file, or
record such contracts, instruments, releases, indentures, and other
agreements or documents and take such reasonable actions as may be
necessary or appropriate to effectuate and further evidence the
terms and conditions of the Plan.
12.8. Revocation
or Withdrawal of Plan.
Subject
to the terms of the RSA, the Debtors reserve the right to revoke or
withdraw the Plan prior to the Effective Date. If the Plan has been
revoked or withdrawn prior to the Effective Date, or if
confirmation or the occurrence of the Effective Date does not
occur, then: (a) the Plan shall be null and void in all
respects; (b) any settlement or compromise embodied in the
Plan (including the fixing or limiting to an amount any Claim or
Interest or Class of Claims or Interests), assumption of executory
contracts or unexpired leases affected by the Plan, and any
document or agreement executed pursuant to the Plan shall be deemed
null and void; and (c) nothing contained in the Plan shall
(i) constitute a waiver or release of any Claim by or against,
or any Interest in, the Debtors or any other Entity;
(ii) prejudice in any manner the rights of the Debtors or any
other Entity; or (iii) constitute an admission of any sort by
the Debtors, any Consenting First Lien Lenders, or any other
Entity. This provision shall have no impact on the rights of the
Consenting First Lien Lenders or the Debtors, as set forth in the
RSA, in respect of any such revocation or withdrawal.
12.9.
Dissolution of
Statutory Committees.
On the
Effective Date, any statutory committee (a “Committee”) formed in these
Chapter 11 Cases shall dissolve and, on the Effective Date, each
member (including each officer, director, employee, or agent
thereof) of such Committee and each professional retained by such
Committee shall be released and discharged from all rights, duties,
responsibilities, and obligations arising from, or related to, the
Debtors, their membership on such Committee, the Plan, or the
Chapter 11 Cases, except with respect to any matters concerning any
Fee Claims held or asserted by any professional retained by such
Committee.
59
12.10. Severability
of Plan Provisions.
If,
before the entry of the Confirmation Order, any term or provision
of the Plan is held by the Bankruptcy Court to be invalid, void, or
unenforceable, the Bankruptcy Court, at the request of the Debtors,
shall have the power to alter and interpret such term or provision
to make it valid or enforceable to the maximum extent practicable,
consistent with the original purpose of the term or provision held
to be invalid, void, or unenforceable, and such term or provision
shall then be applicable as altered or interpreted. Notwithstanding
any such holding, alteration, or interpretation, the remainder of
the terms and provisions of the Plan will remain in full force and
effect and will in no way be affected, impaired or invalidated by
such holding, alteration, or interpretation. The Confirmation Order
shall constitute a judicial determination and shall provide that
each term and provision of the Plan, as it may have been altered or
interpreted in accordance with the foregoing, is (a) valid and
enforceable pursuant to its terms, (b) integral to the Plan
and may not be deleted or modified without the consent of the
Debtors or the Reorganized Debtors (as the case may be), and
(c) nonseverable and mutually dependent.
12.11. Governing
Law.
Except
to the extent that the Bankruptcy Code or other federal law is
applicable, or to the extent an exhibit hereto or a schedule in the
Plan Supplement or a Definitive Document provides otherwise, the
rights, duties, and obligations arising under the Plan shall be
governed by, and construed and enforced in accordance with, the
laws of the State of New York, without giving effect to the
principles of conflict of laws thereof; provided, however, that
corporate or entity governance matters relating to any Debtors or
Reorganized Debtors shall be governed by the laws of the state of
incorporation or organization of the applicable Debtors or
Reorganized Debtors.
12.12. Time.
In
computing any period of time prescribed or allowed by the Plan,
unless otherwise set forth herein or determined by the Bankruptcy
Court, the provisions of Bankruptcy Rule 9006 shall
apply.
12.13. Dates
of Actions to Implement the Plan.
In the
event that any payment or act under the Plan is required to be made
or performed on a date that is not a Business Day, then the making
of such payment or the performance of such act may be completed on
or as soon as reasonably practicable after the next succeeding
Business Day, but shall be deemed to have been completed as of the
required date.
12.14. Immediate
Binding Effect.
Notwithstanding
Bankruptcy Rules 3020(e), 6004(h), 7062, or otherwise, upon the
occurrence of the Effective Date, the terms of the Plan and Plan
Supplement shall be immediately effective and enforceable and
deemed binding upon and inure to the benefit of the Debtors, the
holders of Claims and Interests, the Released Parties, and each of
their respective successors and assigns, including, without
limitation, the Reorganized Debtors.
12.15. Deemed
Acts.
Subject
to and conditioned on the occurrence of the Effective Date,
whenever an act or event is expressed under the Plan to have been
deemed done or to have occurred, it shall be deemed to have been
done or to have occurred without any further act by any party, by
virtue of the Plan and the Confirmation Order.
12.16. Successor
and Assigns.
The
rights, benefits, and obligations of any Entity named or referred
to in the Plan shall be binding on, and shall inure to the benefit
of any heir, executor, administrator, successor, or permitted
assign, if any, of each Entity.
60
12.17. Entire
Agreement.
On the
Effective Date, the Plan, the Plan Supplement, and the Confirmation
Order shall supersede all previous and contemporaneous
negotiations, promises, covenants, agreements, understandings, and
representations on such subjects, all of which have become merged
and integrated into the Plan.
12.18. Exhibits
to Plan.
All
exhibits, schedules, supplements, and appendices to the Plan
(including the Plan Supplement) are incorporated into and are a
part of the Plan as if set forth in full herein.
12.19. Notices.
All
notices, requests, and demands hereunder to be effective shall be
in writing (including by electronic transmission) and, unless
otherwise expressly provided herein, shall be deemed to have been
duly given or made when actually delivered as follows:
(a) If
to the Debtors or the Reorganized Debtors:
|
Fusion Connect,
Inc.,
210 Interstate
North Parkway, Suite 300,
Atlanta, Georgia
30339
Attn: James P.
Prenetta, Jr., Executive Vice President and General
Counsel
Email:
[email protected]
|
-and-
| Weil, Gotshal &
Manges LLP
767 Fifth
Avenue
New York, New York
10153
Attn:
Gary T. Holtzer
Sunny
Singh
Gaby
Smith
Telephone: (212)
310-8000
Email:
[email protected]
|
(b) If to the
Consenting First Lien Lenders:
|
Davis Polk &
Wardwell LLP
450 Lexington
Avenue
New York, NY
10017
Attn: Damian S.
Schaible
Adam
L. Shpeen
Email:
damian.schaible.davispolk.com
|
After
the Effective Date, the Debtors have authority to send a notice to
Entities providing that, to continue to receive documents pursuant
to Bankruptcy Rule 2002, they must file a renewed request to
receive documents pursuant to Bankruptcy Rule 2002. After the
Effective Date, the Debtors and/or the Reorganized Debtors are
authorized to limit the list of Entities receiving documents
pursuant to Bankruptcy Rule 2002 to those Entities who have filed
such renewed requests.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
61
Dated:
October 7,
2019
FUSION
CONNECT, INC.
FUSION
BCHI ACQUISITION LLC
FUSION
NBS ACQUISITION CORP.
FUSION
LLC
FUSION
MPHC HOLDING CORPORATION
FUSION
MPHC GROUP, INC.
FUSION
CLOUD COMPANY LLC
FUSION
CLOUD SERVICES, LLC
FUSION
CB HOLDINGS, INC.
FUSION
COMMUNICATIONS, LLC
FUSION
TELECOM, LLC
FUSION
TEXAS HOLDINGS, INC.
FUSION
TELECOM OF KANSAS, LLC
FUSION
TELECOM OF OKLAHOMA, LLC
FUSION
TELECOM OF MISSOURI, LLC
BIRCAN
HOLDINGS, LLC
FUSION
MANAGEMENT SERVICES LLC
FUSION
PM HOLDINGS, INC.
By:
/s/ James P.
Prenetta, Jr.________
Name:
James P. Prenetta, Jr.
Title:
Executive Vice President and
General
Counsel
FUSION
TELECOM OF TEXAS LTD., L.L.P.
BY:
FUSION TEXAS HOLDINGS, INC., AS LIMITED PARTNER
By:
/s/ James P.
Prenetta, Jr.________
Name:
James P. Prenetta, Jr.
Title:
Executive Vice President and
General
Counsel
62
Exhibit A
Equity Allocation Mechanism
63
EQUITY ALLOCATION MECHANISM2
Solely
with respect to the Reorganization Transaction, on the Effective
Date, the allocation of Plan consideration to holders of Allowed
First Lien Claims will include distributing New Equity Interests
and Special Warrants pursuant to the terms and conditions set forth
herein. This mechanism also provides information regarding when and
under what conditions Special Warrants may be exercised for New
Equity Interests after the Effective Date.3
A.
GENERAL
1.
Overview.
a.
FCI holds domestic
and international Section 214 telecommunications service authority
from the FCC and a number of FCI’s
wholly-owned operating subsidiaries hold domestic Section 214
authority to provide interstate telecommunications services and to
provide international telecommunications services pursuant to FCI’s international Section 214
authority. Fusion Cloud Services, LLC holds FCC-issued common
carrier radio station licenses and a private radio station license.
FCI’s operating subsidiaries also hold various intrastate
telecommunications authorizations issued by state public utility
commissions (“State PUCs”). The FCC and certain State PUCs require
that entities holding such authorizations obtain prior consent in
the event of a material change in the equity ownership of a
licensed entity,4 which will
be triggered upon the issuance of the New Equity Interests and the
cancellation of the Debtors’ existing equity on the Effective
Date.
b.
The applications
seeking the FCC’s consent to the transfer of control of the
Debtors pursuant to the Reorganization Transaction (the
“FCC
Applications”) require, among other things, the
disclosure of any entity that will, directly or indirectly, hold
ten percent (10%) or more of the New Equity Interests on the
Effective Date (including affiliated entities whose interests must
be aggregated under applicable FCC
rules). In addition, under FCC procedures, any transfer of control
application involving international or domestic 214 authorizations
or common carrier radio licenses that discloses a non-U.S. holder
will be referred to Team Telecom for a national security review. As
discussed more fully below, FCI’s common carrier radio
station authorizations are subject to the restrictions on foreign
ownership set forth in Section 310(b) of the Communications Act.
Under Section 310(b) of the Communications Act and applicable FCC
rules, any common carrier licensee that would have non-U.S.
ownership exceeding twenty-five percent (25%) of its voting or
equity interests must first obtain a declaratory ruling from the
FCC approving such non-U.S. ownership. The Debtors understand that
non-U.S. holders represent significantly more than twenty-five
percent (25%) of the holders of Allowed First Lien Claims. Because
it is anticipated that a referral to Team Telecom or the filing of
a Petition for Declaratory Ruling would delay the receipt of FCC
approval of the FCC Applications, Special Warrants will be issued
to enable FCI to emerge from bankruptcy with an ownership structure
in which (i) less than twenty-five percent (25%) of the voting and
equity interests are held by non-U.S. entities and (ii) only one
U.S. entity, Telecom Holdings, LLC (“Telecom Holdings”), will hold ten
percent (10%) or more of the New Equity Interests on the Effective
Date. The remainder of the New
Equity Interests to be issued on the Effective Date will be held by
certain holders of Allowed First Lien Claims, none of whom will
hold New Equity Interests that represent voting or equity interests
of ten percent (10%) or more of Reorganized FCI.
2
Capitalized terms
used but not otherwise defined herein shall have the respective
meanings ascribed to such terms in the Plan.
3
For the avoidance
of doubt, the procedures set forth in this Equity Allocation
Mechanism shall not affect the issuance of any securities or other
instruments under the Management Incentive Plan, which issuance
shall be governed by the terms of the Management Incentive Plan.
The individuals that will be eligible to receive securities or
other instruments under the Management Incentive Plan are (or will
be) U.S. Holders (as defined herein) and as such, the terms of the
Management Incentive Plan will not affect the amount of foreign
ownership of Reorganized FCI’s securities. Furthermore, as
currently contemplated, the Management Incentive Plan will not
result in a distribution of ten percent (10%) or more of direct or
indirect economic interests in Reorganized FCI to any individual
Management Incentive Plan participant. As such, the issuance of
securities under the Management Incentive Plan will not affect the
amount of reportable interest as described herein.
64
c.
As a result of
these considerations, on the Effective Date, Telecom Holdings will
hold over fifty percent (50%) of the New Equity Interests and will
have de jure control of
Reorganized FCI. The Debtors have submitted the FCC Applications to
obtain consent to the ownership changes described herein in
addition to submitting applications to the requisite State
PUCs.
2.
Ownership Certification. In
order to determine the proper distribution of New Equity Interests
and Special Warrants on the Effective Date, each eligible holder of
an Allowed First Lien Claim will be required to provide an
Ownership Certification by the Ownership Certification
Deadline.
3.
FCC Foreign Ownership Rules and
Practices.
a.
The Communications
Act as well as the FCC’s foreign ownership rules and
practices impose certain reporting requirements related to,
restrictions on, and special treatment of carriers and common
carrier radio station licenses in cases where foreign ownership or
foreign control of an authorized carrier is proposed.
b.
Section 310 of the Communications Act
prohibits foreign individuals
and foreign entities from having direct or indirect equity
ownership or voting rights totaling more than twenty-five percent
(25%) in a U.S. corporation that controls a U.S. broadcast, common
carrier, or aeronautical fixed or en route radio station licensee
(“Licensee”), unless the FCC authorizes aggregate
foreign equity ownership or voting interests to exceed the
twenty-five percent (25%) limitation by granting a declaratory
ruling in response to the filing of a Petition for Declaratory Ruling by the
applicable Licensee. In addition, if the parent company of a
Licensee already has, or proposes to have, foreign ownership that
exceeds the twenty-five percent (25%) foreign ownership limitation,
any entity that has or would receive in excess of either five
percent (5%) or, in certain cases, ten percent (10%) of the equity
or voting rights in the Licensee’s parent company must
receive prior specific approval from the FCC (a
“Specific
Approval”). The
determination of whether the five percent (5%) or ten percent (10%)
Specific Approval threshold applies to an entity is determined
pursuant to the FCC foreign ownership rules. To ensure compliance with the twenty-five percent
(25%) limitation, the distribution of New Equity Interests and/or Special Warrants to
holders of Allowed First Lien
Claims is being structured in a manner that will prevent the
aggregate foreign equity ownership or aggregate foreign voting
percentage in Reorganized FCI from exceeding twenty-two and
one-half percent (22.5%) (the
“22.5
Percent Limitation”). Any
distribution in contravention of the preceding sentence shall be
deemed automatically adjusted to the minimum extent necessary to
comply with this limitation.
65
c.
Section 214
of the Communications Act
requires a U.S. company that
holds domestic and international Section 214 telecommunications
service authority to disclose the identity of all direct or
indirect holders of ten percent (10%) or more of the equity or
voting rights in such company when applying for authority or
consent to a transfer of control or assignment. To ensure that this threshold is not exceeded,
except in connection with the distribution of New Equity Interests
to Telecom Holdings, the distribution of New Equity Interests to any
holders of Allowed First Lien
Claims is being limited to nine and three-quarters percent (9.75%)
of the equity or voting percentage of Reorganized FCI (the
“9.75 Percent
Limitation”). Any
distribution of New Equity Interests that would contravene the 9.75
Percent Limitation shall be deemed automatically adjusted to the
minimum extent necessary to comply with this
limitation.
d.
In determining
foreign ownership for distributions of New Equity Interests on the
Effective Date, FCI will rely on the information provided in each
holder’s Ownership Certification. FCI will treat any holder
that does not (i) timely deliver an Ownership Certification by
the Ownership Certification Deadline or (ii) deliver an
Ownership Certification that allows FCI to clearly determine such
holder’s foreign ownership as a one hundred percent (100%)
foreign-owned, non-U.S. holder; provided, that FCI shall have discretion, in
consultation with counsel to the First Lien Lender Group, to treat
any Ownership Certification delivered after the Ownership
Certification Deadline but prior to the Effective Date as if such
Ownership Certification had been delivered prior to the Ownership
Certification Deadline if FCI reasonably believes, after consulting
with counsel to the First Lien Lender Group, that doing so will not
delay the receipt of FCC Approval or the occurrence of the
Effective Date.
4.
Aggregation of Interests. In
determining whether a holder of Allowed First Lien Claims would
exceed or cause FCI to exceed the 9.75 Percent Limitation, a holder
will be attributed with any equity held by another holder under
common ownership or control or whose interests otherwise would be
aggregated under the FCC’s ownership attribution rules or
foreign ownership rules, as applicable.
5.
Compliance with the Communications Act
and FCC Rules. All distributions made on the Effective Date
and, thereafter, all exercises of Special Warrants for New Equity
Interests, shall be subject, as applicable, to the Communications
Act, the FCC’s foreign ownership rules, the FCC’s rules
concerning ownership and control of radio station licenses, and the
FCC’s rules governing Section 214 authority. To the extent
the Communications Act and applicable FCC rules require approval
from or notice to the FCC regarding changes in ownership interests
resulting from any such distribution or exercise, no such
distribution or exercise shall be made until all required approvals
from or notices to the FCC have been obtained or made.
6.
Threshold Compliance. All
distributions made on the Effective Date and, thereafter, all
exercises of Special Warrants, shall be subject to, as applicable,
the 22.5 Percent Limitation, 9.75 Percent Limitation, and any
limitations set forth in the Special Warrants, unless and until the
FCC grants the Petition for Declaratory Ruling and/or other
approvals necessary to enable holders of New Equity Interests
and/or Special Warrants to exceed those limits, and are, in all
cases, subject to the provisions of the Communications Act and
applicable FCC rules.
66
B.
ALLOCATION
OF NEW EQUITY INTERESTS AND SPECIAL WARRANTS
The
distribution of New Equity Interests on and as of the Effective
Date shall be as follows:
1.
First, each holder of an
Allowed First Lien Claim that (i) timely delivers an Ownership
Certification by the Ownership Certification Deadline (or delivers
an Ownership Certification that FCI determines in its discretion to
treat as timely pursuant to Section A.3(d) herein) and
(ii) certifies therein that its foreign ownership, as
calculated in accordance with FCC rules, is zero, and is thus a
“U.S. Holder”,
shall receive New Equity Interests on the Effective Date,
provided, that, in
all cases, (x) all holders other than Telecom Holdings shall be
subject to the 9.75 Percent Limitation., (y) Telecom Holdings shall
receive more than fifty percent (50%) of the New Equity Interests,
and (z) to the extent that a U.S. Holder does not receive its full
pro rata share of the distribution in the form of New Equity
Interests, it shall receive the remainder of its distribution in
the form of Special Warrants.
2.
Second, each holder of an
Allowed First Lien Claim that (i) (A) timely delivers an
Ownership Certification by the Ownership Certification Deadline (or
delivers an Ownership Certification that FCI determines in its
discretion to treat as timely pursuant to Section A.3(d) herein)
and (B) certifies therein that its foreign ownership, calculated in
accordance with FCC rules, is greater than zero, (ii) does not
timely deliver, and FCI is not treating as having timely delivered
pursuant to Section A.3(d) herein, an Ownership Certification by
the Ownership Certification Deadline, or (iii) delivers an
Ownership Certification that does not allow FCI to determine such
holder’s foreign ownership (with respect to sections
(A)–(C) herein, each a “Non-U.S. Holder,” and
collectively, the “Non-U.S.
Holders”) shall, on the Effective Date, receive a
combination of New Equity Interests and Special Warrants, as
determined on a pro rata
basis based on the amount of its Allowed First Lien Claim subject,
in each case, to the satisfaction of the 9.75 Percent Limitation
and 22.5 Percent Limitation.
3.
Third, Special Warrants may be
exercised only on or after the Exercise Date,5 subject to the terms and conditions set
forth in Section C herein and the provisions of the Special Warrant
Agreement.
C. POST-EFFECTIVE DATE
DECISIONS
Subject
to the terms of the Special Warrants, if the FCC issues a
Declaratory Ruling,6 any exercise or
deemed exercise of the Special Warrants by a Non-U.S. Holder
thereafter shall be made as follows on the Exercise
Date:
1.
100% Foreign
Ownership. If the FCC
adopts a Declaratory Ruling allowing one hundred percent (100%)
foreign ownership of Reorganized FCI (the “100% Declaratory Ruling”), then
all Non-U.S. Holders that complete and deliver an Ownership
Certification that is satisfactory to Reorganized FCI shall be
deemed to have exercised their Special Warrants on the Exercise
Date and shall receive the corresponding number of New Equity
Interests; provided, however, that a
Non-U.S. Holder of Special Warrants may not hold more than five
percent (5%) of the New Equity Interests until the requisite
Specific Approval has been obtained from the FCC.
6
The Petition for
Declaratory Ruling submitted to the FCC shall seek Specific
Approval for any Non-U.S. Holder that is anticipated to hold more
than five percent (5%) of the New Equity Interests upon exercising
the Special Warrants.
67
2.
Foreign Ownership Between 25% and
100%. If the FCC adopts a Declaratory Ruling allowing
foreign ownership of Reorganized FCI between twenty-five percent
(25%) and ninety-nine and nine-tenths percent (99.9%) (the
“Partial Declaratory Ruling
Percentage” and the “Partial Declaratory Ruling”), then
each Non-U.S. Holder of Special Warrants that completes and
delivers an Ownership Certification that is satisfactory to
Reorganized FCI will have all or a portion of its Special Warrants
exercised and converted into New Equity Interests on the Exercise
Date, according to the following principles:
a.
each such Non-U.S.
Holder’s ownership of New Equity Interests, after giving
effect to this Section C.2(a), shall be maximized to the extent
possible taking into account such Non-U.S. Holder’s foreign
equity and voting percentage and Reorganized FCI’s aggregate
foreign equity and voting percentage upon completion of all such
exercises; provided, however, that
Non-U.S. Holders of Special Warrants may not hold more than five
percent (5%) of the New Equity Interests until the requisite
Specific Approval has been obtained from the FCC;
b.
each such Non-U.S.
Holder shall be entitled to receive New Equity Interests
corresponding to its domestic equity percentage and/or its domestic
voting percentage, as determined by Reorganized FCI;
and
c.
after taking into
account the exercise of the Special Warrants pursuant to the
principle set forth in Section C.2(b), the remaining Special
Warrants held by each such Non-U.S. Holder shall be exercised on a
pro rata basis based upon
the aggregate number of Special Warrants held by all such Non-U.S.
Holders after giving effect to the exercise of Special Warrants
pursuant to the principle set forth in Section C.2.(b) into New
Equity Interests.
3.
Foreign Ownership in the Absence of a
Declaratory Ruling. If the FCC
does not issue a Declaratory Ruling, then Non-U.S. Holders may not
elect to exercise their Special Warrants and must either hold such
Special Warrants or transfer them, except to the extent that
Reorganized FCI reasonably determines that such exercise will not
cause a violation of the 22.5 Percent Limitation, 9.75 Percent
Limitation, or any other limitations on equity or voting ownership
set forth in the Special Warrants.
4.
Required Applications. In each
of Sections C(1)-(3) above, because the proposed exercise of
Special Warrants will cause Telecom Holdings to hold less than
fifty percent (50%) of the ownership of Reorganized FCI,
Reorganized FCI shall file the requisite applications under
Sections 214 and 310 of the Communications Act and the requisite
State PUC applications for consent to the transfer of control of
Reorganized FCI. If the exercise of Special Warrants would result
in a holder owning ten percent (10%) or more of the New Equity
Interests, Reorganized FCI shall disclose the identity of such
holder in the requisite applications. The FCC and applicable State
PUCs must grant such applications as a condition to a holder of a
Special Warrant exercising its rights thereunder.
68
Exhibit B
New First Lien Term Sheet
69
NEW FIRST LIEN CREDIT AGREEMENT
Summary
of Terms
This
term sheet (the “New First Lien Term Loan
Term Sheet”) is Schedule 2 to the Restructuring
Support Agreement Term Sheet (the “Term Sheet”).
Capitalized terms used but not defined herein have the meanings
given to them in the Term Sheet attached to the Restructuring
Support Agreement as Exhibit B and the Restructuring Support
Agreement, as applicable.
This
New First Lien Term Loan Term Sheet sets forth the principal terms
of a potential takeback first lien term loan facility (the
“New
First Lien Credit Facility”; the credit agreement
evidencing the New First Lien Credit Facility, the
“New
First Lien Credit Agreement” and, together with the
other definitive documents governing the New First Lien Credit
Facility, the “New First Lien Credit
Documents,” each of which shall be in form and
substance reasonably acceptable to the New First Lien Agent and the
Requisite New First Lien Lenders (each as defined herein)) to be
entered into with the Loan Parties (as defined herein). The New
First Lien Credit Facility will be subject to (a) the approval of
the Bankruptcy Court and (b) emergence by the Loan Parties from the
Chapter 11 Cases (the date of such emergence, the
“Plan
Effective Date” or the “Closing
Date”), in accordance with (i) the chapter 11 plan of
reorganization (the “Plan”), (ii)
any order entered by the Bankruptcy Court authorizing the Loan
Parties to enter into the New First Lien Credit Facility, which
order may be part of the order confirming the Plan, each of which
shall be in form and substance reasonably acceptable to the New
First Lien Agent and the Requisite New First Lien Lenders, and
(iii) the New First Lien Credit Documents to be executed by the
Loan Parties, the New First Lien Agent and the New First Lien
Lenders (as defined below).
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Borrower:
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Reorganized
FCI (the “Borrower” or
the “Company”).
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Guarantors:
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All of
the obligations of the Borrower under the New First Lien Credit
Agreement shall be guaranteed by each of the Reorganized Debtors
and each of their non-Debtor subsidiaries (subject, in the case of
non-domestic subsidiaries, to limitations as required by legal
requirements or fiduciary duties under applicable local law)
(collectively, the “Guarantors”; and Guarantors,
together with the Borrower, the “Loan Parties”).
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Administrative Agent:
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An
entity to be selected by the Requisite First Lien Lenders, with the
consent of the Borrower (not to be unreasonably withheld or
delayed), shall act as administrative agent and collateral agent
for the New First Lien Credit Facility (in such capacities, the
“New
First Lien Agent”) on behalf of the New First Lien
Lenders.
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Lenders:
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The
Prepetition First Lien Lenders (collectively, the
“New
First Lien Lenders”).
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Amount & Type:
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A
junior secured term loan credit facility in an aggregate principal
amount of (i) $350.0 million (subject to reduction to be reasonably
agreed if the Canadian subsidiaries of the Borrower are sold prior
to the Plan Effective Date) minus (ii) the aggregate amount of the
loans and commitments under the New Exit Credit Agreement on the
Plan Effective Date, which is currently anticipated to be $125.0
million (the loans made thereunder, the “New First Lien Term
Loans”).
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70
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Maturity Date:
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The
date that is 4 years after the Closing Date.
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Fees and Interest Rate:
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Interest
shall be paid in cash at the LIBOR Rate plus the Margin.
“Margin” means 8.00% per annum. The term “LIBOR
Rate” will have a meaning customary for financings of this
type (and in no event shall be less than 1.00%), and the basis for
calculating accrued interest and the interest periods for loans
bearing interest at the LIBOR Rate will be customary for financings
of this type.
During
the continuance of a payment event of default, any overdue amount
under the New First Lien Credit Documents, and during the
continuance of a bankruptcy event of default, the New First Lien
Term Loans and all other outstanding obligations will bear interest
at an additional 2.00% per annum above the otherwise applicable
interest rate.
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Amortization:
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The New
First Lien Term Loans will amortize in equal quarterly installments
(commencing with the fiscal quarter during which the Closing Date
occurs), in aggregate amounts equal to (i) during the first two
years after the Closing Date, 0.5% of the original principal amount
of the New First Lien Term Loans and (ii) thereafter, 1.25% of the
original principal amount of the New First Lien Term
Loans.
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Collateral:
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The New
First Lien Term Loans will be secured by a senior priority
perfected security interest (junior to the liens securing the New
Exit Credit Agreement) in substantially all present and after
acquired property (whether tangible, intangible, real, personal or
mixed) of the Loan Parties, wherever located, including, without
limitation, all accounts, inventory, equipment, capital stock in
subsidiaries of the Loan Parties, investment property, instruments,
chattel paper, real estate, leasehold interests, contracts,
patents, copyrights, trademarks and other general intangibles, and
all products and proceeds thereof, subject to certain exceptions
and materiality thresholds reasonably acceptable to the Requisite
New First Lien Lenders (collectively, the “Collateral”).
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Representations and Warranties:
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Customary
for facilities of this type and reasonably acceptable to the
Requisite New First Lien Lenders.
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71
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Mandatory Prepayments:
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Customary
for facilities of this type and reasonably acceptable to the
Requisite New First Lien Lenders.
Mandatory
prepayments will, in any event, be required from 75% of Excess Cash
Flow (to be defined), with step downs to 50% if the Leverage Ratio
(to be defined as the ratio of total funded indebtedness, including
capital leases, to EBITDA) is below 3.00:1.00 and 0% if the
Leverage Ratio is below 2.00:1.00.
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Voluntary Prepayments:
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All
voluntary prepayments (regardless of whether before or after the
occurrence of an event of default, an acceleration of the New First
Lien Term Loans or the commencement of any bankruptcy or insolvency
proceeding) of the New First Lien Term Loans shall be subject to a
prepayment premium in an amount equal to (a) 103.0% of the New
First Lien Term Loans if such prepayment is made on or prior to the
first anniversary of the Closing Date, and (b) 102.0% of the New
First Lien Term Loans if such prepayment is made after the first
anniversary of the Closing Date but prior to the second anniversary
of the Closing Date (the premium referred to in clauses (a) and (b)
above, the “New First Lien Prepayment
Premium”).
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Affirmative Covenants:
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Customary
for facilities of this type and reasonably acceptable to the
Requisite New First Lien Lenders.
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Reporting Requirements:
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Customary for facilities of this type and reasonably acceptable to
the Requisite New First Lien Lenders and to be initially based on
the reporting requirements in the Prepetition Super Senior Secured
Credit Agreement, but (i) to include a customary covenant to
deliver annual audited financial statements within 90 days after
the end of each fiscal year, (ii) to include a requirement to deliver a budget within 90 days
after the end of each fiscal year to be built on a monthly basis
and to include a balance sheet, income statement and cash flow
statement and KPIs, (iii) not to include clauses (o) (updated
budget), (p) (variance reports), (q) (telecommunications supplier
report) and (s) (Lingo report) of Section 5.1 of the
Prepetition Super Senior
Secured Credit Agreement, and
(iv) to provide that the requirement to deliver unaudited monthly
financials and associated monthly KPIs will no longer apply if the
Leverage Ratio (calculated on a four-quarter basis) for two
consecutive fiscal quarters is less than
2.50:1.00.
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Negative Covenants:
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Customary
for facilities of this type with exceptions and baskets reasonably
acceptable to the Requisite New First Lien Lenders.
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Financial Covenants:
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Customary
for facilities of this type and reasonably acceptable to the
Requisite New First Lien Lenders, but in any event to include a
minimum EBITDA covenant, a maximum capital expenditures covenant
and a maximum Leverage Ratio covenant, in each case with a 20%
cushion to the then approved forecast.
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72
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Voting
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Amendments
and waivers of the New First Lien Credit Agreement will require the
approval of at least two (2) New First Lien Lenders (New First Lien
Lenders affiliated with each other or under common management being
deemed to be one single New First Lien Lender), collectively
holding more than 50% in the aggregate of the amount of the New
First Lien Term Loans (the “Requisite New First Lien
Lenders”); provided that, notwithstanding the
foregoing, the vote of each affected New First Lien Lender shall be
required for, among other things, (i) reductions of interest (or
the rate thereon or any increase in the allowed amount of, or
acceleration in the allowed or prescribed date with respect to,
interest payable in kind) or principal or fees or any postponement
of any date for payment for any of the foregoing, (ii) extension of
the maturity date, (iii) changes to the payment waterfall, (iv)
changes to certain pro rata sharing provisions, (v) releases of all
or substantially all of the value of the guarantees of the
Guarantors or a release of all or substantially all of the
Collateral and (vi) changes in the voting provisions, the
definition of required lenders (or similar terms) or voting
percentages specified in the definition of required lenders or
related terms.
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Events of Default:
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Substantially
consistent with the New Exit Credit Agreement with such changes as
may be mutually agreed.
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Conditions Precedent to Closing Date:
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Customary
for facilities of this type and reasonably acceptable to the
Requisite New First Lien Lenders.
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Fees and Expenses Indemnification:
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The
facilities documentation will include expense reimbursement,
indemnification and other provisions as are usual and customary for
facilities of this kind and in the case of expense reimbursement
and indemnification provisions, reimbursement for the costs, fees
and expenses of the advisors to the New First Lien
Lenders.
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Governing Law and Submission to Jurisdiction:
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New
York.
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Counsel to the New First Lien Lenders:
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Davis
Polk & Wardwell LLP.
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73
Exhibit 99.2
UNITED
STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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X
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:
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|
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In re
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:
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Chapter
11
|
|
|
:
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|
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FUSION CONNECT, INC., et
al.,
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:
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Case
No. 19-11811 (SMB)
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:
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Debtors.1
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:
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(Jointly
Administered)
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:
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--------------------------------------------------------------------
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X
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AMENDED DISCLOSURE STATEMENT FOR SECOND AMENDED JOINT
CHAPTER 11 PLAN OF FUSION CONNECT, INC. AND ITS SUBSIDIARY
DEBTORS
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WEIL, GOTSHAL & MANGES LLP
Gary T.
Holtzer
Sunny
Singh
Gaby
Smith
767
Fifth Avenue
New
York, New York 10153
Telephone:
(212) 310-8000
Facsimile:
(212) 310-8007
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Counsel for Debtors and Debtors in Possession
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Dated:
October 7,
2019
New
York, New York
The Debtors in these chapter 11 cases, along with
the last four digits of each Debtor’s federal tax
identification number, as applicable, are: Fusion Connect, Inc.
(2021); Fusion BCHI Acquisition LLC (7402); Fusion NBS Acquisition
Corp. (4332); Fusion LLC (0994); Fusion MPHC Holding Corporation
(3066); Fusion MPHC Group, Inc. (1529); Fusion Cloud Company LLC
(5568); Fusion Cloud Services, LLC (3012); Fusion CB Holdings, Inc.
(6526); Fusion Communications, LLC (8337); Fusion Telecom, LLC
(0894); Fusion Texas Holdings, Inc. (2636); Fusion Telecom of
Kansas, LLC (0075); Fusion Telecom of Oklahoma, LLC (3260); Fusion
Telecom of Missouri, LLC (5329); Fusion Telecom of Texas Ltd.,
L.L.P. (8531); Bircan Holdings, LLC (2819); Fusion Management
Services LLC (5597); and Fusion PM Holdings, Inc. (2478). The
Debtors’ principal offices are located at 210 Interstate
North Parkway, Suite 300, Atlanta, Georgia
30339.
THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT
(THE “DISCLOSURE STATEMENT”) IS
INCLUDED FOR THE PURPOSE OF SOLICITING ACCEPTANCES OF THE
SECOND AMENDED JOINT CHAPTER 11
PLAN OF FUSION CONNECT, INC. AND ITS SUBSIDIARY DEBTORS,
DATED OCTOBER 7, 2019
(AS MAY BE AMENDED, MODIFIED, OR SUPPLEMENTED FROM TIME TO TIME,
THE “SECOND
AMENDED PLAN”) AND IS INTENDED TO BE USED
SOLELY TO DETERMINE HOW TO VOTE ON THE SECOND AMENDED
PLAN.
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THE
VOTING DEADLINE TO ACCEPT OR REJECT THE SECOND AMENDED PLAN IS 4:00
P.M., PREVAILING
EASTERN TIME, ON NOVEMBER 4, 2019, UNLESS EXTENDED BY
THE DEBTORS WITH THE CONSENT OF THE FIRST LIEN LENDER
GROUP.
THE
RECORD DATE FOR DETERMINING WHICH HOLDERS OF CLAIMS MAY VOTE ON THE
SECOND AMENDED PLAN IS SEPTEMBER 24, 2019 AT 5:00 PM
PREVAILING EASTERN TIME (THE “VOTING RECORD
DATE”).
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RECOMMENDATION BY THE DEBTORS, THE FIRST LIEN LENDER GROUP, THE
SECOND LIEN LENDER GROUP, AND THE OFFICIAL COMMITTEE OF UNSECURED
CREDITORS (THE “CREDITORS’ COMMITTEE”) TO APPROVE
THE SECOND AMENDED PLAN
The
Restructuring Committee of the Board of Directors of Fusion
Connect, Inc. (the “Restructuring Committee”) and the
board of directors, managers, limited partners or members, as
applicable, of each of its subsidiary Debtors have unanimously
approved the transactions contemplated by the Second Amended Plan
and recommend that all creditors whose votes are being solicited
submit ballots to accept the Second Amended Plan. Holders of
approximately 85% of First Lien Claims (as defined herein) have
already agreed to vote in favor of the Second Amended Plan. The
Second Lien Lender Group which holds 100% of Second Lien Claims (as
defined herein) and the Creditors’ Committee also support
confirmation of the Second Amended Plan and recommends that all
holders of Second Lien Claims and all unsecured creditors vote to
accept the Second Amended Plan.
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HOLDERS OF CLAIMS OR INTERESTS SHOULD NOT CONSTRUE THE CONTENTS OF
THIS DISCLOSURE STATEMENT AS PROVIDING ANY LEGAL, BUSINESS,
FINANCIAL, OR TAX ADVICE AND SHOULD CONSULT WITH THEIR OWN ADVISORS
BEFORE VOTING ON THE SECOND AMENDED PLAN.
THE ISSUANCE AND DISTRIBUTION UNDER THE SECOND AMENDED PLAN OF NEW
EQUITY INTERESTS AND/OR SPECIAL WARRANTS (EACH TERM AS DEFINED
HEREIN) WILL BE EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”) AND ANY
OTHER APPLICABLE SECURITIES LAWS PURSUANT TO SECTION 1145 OF THE
BANKRUPTCY CODE. THESE SECURITIES MAY BE RESOLD WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OR OTHER FEDERAL SECURITIES
LAWS PURSUANT TO THE EXEMPTION PROVIDED BY SECTION 4(A)(1) OF THE
SECURITIES ACT, UNLESS THE HOLDER IS AN “UNDERWRITER”
WITH RESPECT TO SUCH SECURITIES, AS THAT TERM IS DEFINED IN SECTION
1145(B)(1) OF THE BANKRUPTCY CODE. IN ADDITION, SUCH SECTION 1145
EXEMPT SECURITIES GENERALLY MAY BE RESOLD WITHOUT REGISTRATION
UNDER STATE SECURITIES LAWS PURSUANT TO VARIOUS EXEMPTIONS PROVIDED
BY THE RESPECTIVE LAWS OF THE SEVERAL STATES. THE AVAILABILITY OF
THE EXEMPTION UNDER SECTION 1145 OF THE BANKRUPTCY CODE OR ANY
OTHER APPLICABLE SECURITIES LAWS SHALL NOT BE A CONDITION TO THE
OCCURRENCE OF THE EFFECTIVE DATE (AS DEFINED IN THE SECOND AMENDED
PLAN).
THE NEW EQUITY INTERESTS AND/OR SPECIAL WARRANTS TO BE ISSUED ON
THE EFFECTIVE DATE HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) OR BY ANY STATE
SECURITIES COMMISSION OR SIMILAR PUBLIC, GOVERNMENTAL, OR
REGULATORY AUTHORITY, AND NEITHER THE SEC NOR ANY SUCH AUTHORITY
HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DISCLOSURE STATEMENT OR UPON THE MERITS OF THE
SECOND AMENDED PLAN. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CERTAIN STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT,
INCLUDING STATEMENTS INCORPORATED BY REFERENCE, PROJECTED FINANCIAL
INFORMATION, AND OTHER FORWARD-LOOKING STATEMENTS, ARE BASED ON
ESTIMATES AND ASSUMPTIONS. CERTAIN OF THESE FORWARD-LOOKING
STATEMENTS CAN BE IDENTIFIED BY THE USE OF WORDS SUCH AS
“BELIEVES,” “EXPECTS,”
“PROJECTS,” “INTENDS,” “PLANS,”
“ESTIMATES,” “ASSUMES,” “MAY,”
“SHOULD,” “WILL,” “SEEKS,”
“ANTICIPATES,” “OPPORTUNITY,” “PRO
FORMA,” “PROJECTIONS,” OR OTHER SIMILAR
EXPRESSIONS. THERE CAN BE NO ASSURANCE THAT SUCH STATEMENTS WILL BE
REFLECTIVE OF ACTUAL OUTCOMES. FORWARD-LOOKING STATEMENTS ARE
PROVIDED IN THIS DISCLOSURE STATEMENT PURSUANT TO THE SAFE HARBOR
ESTABLISHED UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995 AND SHOULD BE EVALUATED IN THE CONTEXT OF THE ESTIMATES,
ASSUMPTIONS, UNCERTAINTIES, AND RISKS DESCRIBED HEREIN AND IN
FUSION CONNECT’S (AS DEFINED HEREIN) FILINGS WITH THE
SEC.
READERS ARE CAUTIONED THAT ANY FORWARD-LOOKING STATEMENTS CONTAINED
HEREIN ARE BASED ON ASSUMPTIONS THAT ARE BELIEVED TO BE REASONABLE,
BUT ARE SUBJECT TO A WIDE RANGE OF RISKS, INCLUDING THOSE
IDENTIFIED IN SECTION IX OF THIS DISCLOSURE STATEMENT. IMPORTANT
ASSUMPTIONS AND OTHER IMPORTANT FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE EXPECTED ALSO INCLUDE, BUT
ARE NOT LIMITED TO, THOSE FACTORS, RISKS, AND UNCERTAINTIES
DESCRIBED IN MORE DETAIL UNDER THE HEADING “RISK
FACTORS” AND ELSEWHERE IN THE ANNUAL, QUARTERLY AND CURRENT
REPORTS OF FUSION CONNECT, INCLUDING AMENDMENTS THERETO, AND ITS
OTHER FILINGS WITH THE SEC. DUE TO THESE UNCERTAINTIES, READERS
CANNOT BE ASSURED THAT ANY FORWARD-LOOKING STATEMENTS WILL PROVE TO
BE CORRECT. THE DEBTORS ARE UNDER NO OBLIGATION TO (AND EXPRESSLY
DISCLAIM ANY OBLIGATION TO) UPDATE OR ALTER ANY FORWARD-LOOKING
STATEMENTS WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS,
OR OTHERWISE, UNLESS INSTRUCTED TO DO SO BY THE BANKRUPTCY COURT
(AS DEFINED BELOW).
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE AS
OF THE DATE HEREOF UNLESS OTHERWISE SPECIFIED. THE TERMS OF THE
SECOND AMENDED PLAN GOVERN IN THE EVENT OF ANY INCONSISTENCY WITH
THE SUMMARIES IN THIS DISCLOSURE STATEMENT.
THE INFORMATION IN THIS DISCLOSURE STATEMENT IS BEING PROVIDED
SOLELY FOR PURPOSES OF VOTING TO ACCEPT OR REJECT THE SECOND
AMENDED PLAN OR IN CONNECTION WITH CONFIRMATION OF THE SECOND
AMENDED PLAN. NOTHING IN THIS DISCLOSURE STATEMENT MAY BE USED BY
ANY PARTY FOR ANY OTHER PURPOSE.
ALL EXHIBITS TO THE DISCLOSURE STATEMENT ARE INCORPORATED INTO, AND
ARE MADE A PART OF, THIS DISCLOSURE STATEMENT AS IF SET FORTH IN
FULL HEREIN.
Table of Contents
Page
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I. INTRODUCTION
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1
|
|
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Summary of Plan Release and Exculpation Provisions
|
7
|
|
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II. OVERVIEW OF COMPANY’S OPERATIONS
|
10
|
|
|
A.
|
Debtors’ Business
|
10
|
|
B.
|
Debtors’ Organizational Structure
|
12
|
|
C.
|
Directors and Officers
|
13
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|
D.
|
Regulation of Company’s Business
|
15
|
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E.
|
Debtors’ Existing Capital Structure
|
17
|
|
III. CIRCUMSTANCES LEADING TO COMMENCEMENT OF CHAPTER 11
CASES
|
19
|
|
|
A.
|
Birch Merger
|
19
|
|
B.
|
Amortization and Interest Payments
|
20
|
|
C.
|
Vendor Relationships and Lingo Dispute
|
20
|
|
D.
|
Pursuit of New Equity Investment
|
20
|
|
E.
|
Forbearance Agreement
|
20
|
|
F.
|
Super Senior Financing
|
21
|
|
G.
|
Formation of Restructuring Committee
|
21
|
|
H.
|
Formation and Function of Special Committee
|
22
|
|
I.
|
Marketing Process
|
23
|
|
J.
|
Alternative Restructuring Proposals
|
23
|
|
IV. OVERVIEW OF THE CHAPTER 11 CASES
|
23
|
|
|
A.
|
Commencement of Chapter 11 Cases and First Day Motions
|
23
|
|
B.
|
DIP Facility and Cash Collateral
|
24
|
|
C.
|
Procedural Motions and Retention of Professionals
|
28
|
|
D.
|
Appointment of the Creditors’ Committee
|
28
|
|
E.
|
Schedules and Statements; Rule 2015.3 Financial
Reports
|
28
|
|
F.
|
Bar Date
|
28
|
|
G.
|
Lease Rejection Motions
|
28
|
|
H.
|
Exclusivity
|
29
|
|
I.
|
Litigation Matters
|
29
|
|
J.
|
Marketing Process and Bidding Procedures
|
30
|
|
K.
|
Creditors’ Committee’s Investigation
|
30
|
|
L.
|
Plan Settlement Negotiations and the Global Settlement
|
30
|
Table of Contents
(continued)
Page
|
V. SUMMARY OF AMENDED PLAN
|
33
|
|
|
A.
|
Administrative Expense and Priority Claims.
|
33
|
|
B.
|
Classification of Claims and Interests.
|
35
|
|
C.
|
Treatment of Claims and Interests.
|
36
|
|
D.
|
Means for Implementation
|
39
|
|
E.
|
Distributions
|
53
|
|
F.
|
Procedures for Disputed Claims
|
57
|
|
G.
|
Executory Contracts and Unexpired Leases
|
59
|
|
H.
|
Conditions Precedent to Confirmation of Plan and Effective
Date
|
63
|
|
I.
|
Effect of Confirmation of Plan
|
66
|
|
J.
|
Retention of Jurisdiction
|
72
|
|
K.
|
Miscellaneous Second Amended Plan Provisions
|
74
|
|
VI. TRANSFER RESTRICTIONS AND CONSEQUENCES UNDER FEDERAL SECURITIES
LAWS
|
79
|
|
|
VII. REGULATORY MATTERS
|
80
|
|
|
VIII. CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF SECOND
AMENDED PLAN
|
86
|
|
|
A.
|
Consequences to the Debtors.
|
87
|
|
B.
|
Consequences to Holders of Certain Claims
|
89
|
|
C.
|
Tax Treatment of Litigation Trust and Holders of Litigation Trust
Interests
|
99
|
|
D.
|
Information Reporting and Withholding
|
101
|
|
IX. Certain Risk Factors to be Considered
|
101
|
|
|
A.
|
Certain Bankruptcy Law Considerations
|
102
|
|
B.
|
Additional Factors Affecting Value of Reorganized
Debtors
|
104
|
|
C.
|
Risks Relating to Debtors’ Business and Financial
Condition
|
105
|
|
D.
|
Factors Relating to Securities to be Issued Under Second Amended
Plan, Generally
|
107
|
|
E.
|
Risk Related to Obtaining Exit Financing
|
107
|
|
F.
|
Risks Related to Investment in New Equity Interests
|
108
|
|
G.
|
Additional Factors
|
108
|
|
X. Voting Procedures and Requirements
|
109
|
|
|
A.
|
Voting Deadline
|
109
|
|
B.
|
Voting Procedures
|
110
|
|
C.
|
Parties Entitled to Vote
|
110
|
Table of Contents
(continued)
Page
|
XI. Confirmation of Amended Plan
|
117
|
|
|
A.
|
Confirmation Hearing
|
117
|
|
B.
|
Objections to Confirmation
|
117
|
|
C.
|
Requirements for Confirmation of Second Amended Plan
|
119
|
|
XII. Alternatives To Confirmation and consummation of Second
Amended Plan
|
124
|
|
|
A.
|
Alternative Plan of Reorganization
|
124
|
|
B.
|
Sale Under Section 363 of Bankruptcy Code
|
124
|
|
C.
|
Liquidation Under Chapter 7 or Applicable Non-Bankruptcy
Law
|
124
|
|
XIII. Conclusion and Recommendation
|
126
|
|
Table of Contents
(continued)
EXHIBIT
A:
Amended Joint Plan
of Reorganization
EXHIBIT
B:
Restructuring
Support Agreement
EXHIBIT
C:
Financial
Projections
EXHIBIT
D:
Liquidation
Analysis
EXHIBIT
E:
Valuation
Analysis
INTRODUCTION
Fusion
Connect, Inc. (“Fusion
Connect” or “FCI”) and its U.S. subsidiary
debtors (collectively, the “Debtors” and together with
FCI’s non-debtor Canadian subsidiaries, the
“Company”)
submit this Disclosure Statement pursuant to Section 1125 of the
Bankruptcy Code in connection with the solicitation of votes with
respect to the Second Amended Plan.2 The Second Amended Plan is annexed
hereto as Exhibit A
and is incorporated herein by reference. The Debtors commenced
their chapter 11 cases (the “Chapter 11 Cases”) in the United
States Bankruptcy Court for the Southern District of New York (the
“Bankruptcy
Court”) on June 3, 2019 (the “Commencement Date”).
The
purpose of this Disclosure Statement, including the exhibits
annexed hereto, is to provide information of a kind, and in
sufficient detail, to enable creditors of the Debtors that are
entitled to vote on the Second Amended Plan to make an informed
decision on whether to vote to accept or reject the Second Amended
Plan. This Disclosure Statement contains summaries of the Second
Amended Plan, certain statutory provisions, events contemplated in
the Chapter 11 Cases, and certain documents related to the Second
Amended Plan.
Fusion
Connect is the ultimate parent of twenty (20) direct and indirect
subsidiaries, eighteen (18) of which, together with Fusion Connect,
are Debtors in these Chapter 11 Cases. The Company is a provider of
integrated cloud solutions to small, medium, and large businesses
in the United States and residential and business customers in
Canada. The Company offers services to customers, enabling them to
successfully migrate to and efficiently use the increasing power of
the cloud. Such services include cloud communications, cloud
connectivity, and cloud computing. A significant part of the
Company’s historical expansion strategy has been to make
strategic acquisitions of other providers. In May and June of 2018,
the Company closed a reverse merger transaction with Birch
Communications Holdings, Inc. (“Birch” and such transaction,
the “Birch
Merger”) and an acquisition of MegaPath Holding Corp.
(“MegaPath” and
such transaction, the “MegaPath Merger”), respectively.
The Company pursued the Birch Merger with a vision of leveraging
its existing processes and structures to create synergies between
Fusion Connect’s and Birch’s joined customer bases,
combine network infrastructure assets to improve operational
efficiencies, and ultimately drive material growth in the combined
companies’ annual revenue. In connection with the Birch
Merger and the MegaPath Merger, the Company incurred
$680 million in secured debt.
Due to
underperformance compared to business projections, the Company
found itself with limited liquidity and at risk of default under
its debt documents by early 2019. Accordingly, in early 2019, the
Company began its formal review of strategic alternatives,
including by engaging in dialogue and communications with its key
stakeholders. These efforts culminated in a restructuring support
agreement (the “Restructuring
Support Agreement”) with the First Lien Lender Group
— the Company’s senior creditors — holding, in
the aggregate, over 66 2/3% in aggregate
principal amount of the outstanding First Lien Claims. The
Restructuring Support Agreement contemplates the continuation of
the Company’s prepetition marketing process that commenced in
May 2019. A copy of the Restructuring Support Agreement is attached
hereto as Exhibit
B.3
By
virtue of the Restructuring Support Agreement, the Company
commenced the Chapter 11 Cases with a clear path to a confirmable
chapter 11 plan of reorganization and a viable
recapitalization — in which, among other things,
approximately $411 million in funded debt will be extinguished,
leaving a significantly deleveraged reorganized Company wholly
owned by the First Lien Lenders and an appropriately sized exit
working capital facility (the “Reorganization Transaction”). In
addition, the Restructuring Support Agreement also provides for the
continuation of the Company’s prepetition marketing process
(the “Prepetition
Marketing Process” and together with the postpetition
sale and marketing process, the “Marketing Process”). Pursuant to
the Marketing Process, any and all bids for all or some portion of
the Company’s business have been evaluated as a precursor to
confirmation of the chapter 11 plan. The Marketing Process has
provided a public and competitive forum in which the Debtors sought
bids or proposals for potential transactions that, if representing
higher or otherwise better value for creditors of the Debtors than
the Reorganization Transaction, would have been pursued in lieu of
the Reorganization Transaction (the “Sale Transaction”).
The
Debtors solicited bids for an investment in, or other acquisition
of, the Debtors’ domestic business (the “U.S. Business”), FCI’s
Canadian business (the “Canadian Business”) and the U.S.
Business and the Canadian Business on a consolidated basis.
Pursuant to the Bidding Procedures Order, the deadline for parties
to submit non-binding indications of interest was July 16, 2019.
The Debtors and their advisors have evaluated the indications of
interest received and communicated with numerous potential bidders,
including the Second Lien Lenders. Based on this analysis, and with
the support of each of the Consultation Parties4 (as defined in the Bidding Procedures
Order), the Debtors have decided to terminate the Marketing Process
solely with respect to their U.S. Business and to pursue the
Reorganization Transaction.
Upon
consummation of the Reorganization Transaction, on the Effective
Date, pursuant to and in accordance with the Second Amended Plan,
the Reorganized Debtors will, among other things: (a) issue one
hundred percent (100%) of the issued and outstanding New Equity
Interests to be issued on the Effective Date to the holders of
Allowed First Lien Claims (subject to dilution by the Special
Warrants and Management Incentive Plan) in accordance with the
Equity Allocation Mechanism and the Special Warrant Agreement,
including a distribution of the Special Warrants to the holders of
Allowed First Lien Claims in an amount such that, after the
exercise of all Special Warrants issued on the Effective Date,
holders of Allowed First Lien Claims would hold ninety-seven and
one-half percent (97.5%) of the issued and outstanding New Equity
Interests (subject to dilution by the Management Incentive Plan),
(b) issue the Special Warrants to the holders of Allowed Second
Lien Claims in an amount such that, after the exercise of all
Special Warrants issued on the Effective Date, holders of Allowed
Second Lien Claims would hold two and one-half percent (2.5%) of
the issued and outstanding New Equity Interests (subject to
dilution by the Management Incentive Plan), (c) enter into the New
Exit Facility Credit Agreement, which is currently estimated to
consist of loans and undrawn revolving commitments in an aggregate
amount of $125 million, the proceeds of which would provide for the
payment of the DIP Facility and provide liquidity for the
Company’s working capital purposes, and (d) enter into the
New First Lien Credit Agreement of up to $225 million to be issued
to holders of Allowed First Lien Clams.
The Debtors filed their initial chapter 11 plan on July 1, 2019
(ECF No. 146) (the “Initial
Plan”) with
the support of the First Lien Lender Group. The Creditors’
Committee, however, raised certain concerns and potential
objections with respect to the Initial Plan. Since filing the
Initial Plan, the Debtors and the First Lien Lender Group engaged
in numerous discussions with the Creditors’ Committee
regarding Plan-related issues in order to determine whether support
of the Creditors’ Committee could be secured. The Debtors
filed an amended chapter 11 plan (ECF No. 368) dated as of
September 3, 2019, which reflects the terms of a settlement reached
by the Debtors, the Creditors’ Committee, and the First Lien
Lender Group (the “Global
Settlement”).
The terms of the Global Settlement are incorporated in that Amended
Plan and the Global Settlement is set out in greater detail in
Section 4(L) of this Disclosure Statement. Pursuant to the Global
Settlement, a litigation trust will be created and initially funded
with $1.5 million (and have a committed loan from Reorganized FCI
for an additional $3.5 million, available to be drawn in
installments) to pursue certain causes of action. The proceeds of
the litigation trust will be shared among Reorganized FCI and
holders of Litigation Trust Interests as described in Section 4(L)
below.
Capitalized
terms used but not defined herein shall have the meanings ascribed
to such terms in the Second Amended Plan. To the extent any
inconsistencies exist between this Disclosure Statement and the
Second Amended Plan, the Second Amended Plan shall
govern.
The signature pages for the Consenting First Lien
Lenders (as defined in the Restructuring Support Agreement) have
been removed from Exhibit
B.
The
Company and its advisors continue to evaluate proposals for the
sale of the Canadian Business.
During the Chapter 11 Cases, the Debtors, the First Lien Lender
Group, and the Creditors’ Committee have also engaged with an
ad hoc group of holders of the Second Lien Claims (the
“Second Lien Lender
Group”), which
collectively holds one hundred percent (100%) of Second Lien Claims
regarding the terms of the Plan. On September 20, 2019, the Second
Lien Lender Group filed an objection to the Disclosure Statement
that included potential objections to the Initial Plan and the
Global Settlement, including the proposed scope and beneficiaries
of the releases and exculpation provisions of the Initial Plan,
among other issues. The Second Lien Lender Group also served
discovery requests on the Debtors and other parties. On September
24, 2019, the Debtors announced that the parties had reached a
settlement in principle on the terms of the Second Amended Plan and
Global Settlement. Contemporaneously herewith, the Debtors have
filed the Second Amended Plan, which incorporates the resolution
reached among the Debtors, the First Lien Lender Group, the Second
Lien Lender Group, and the Creditors’ Committee and the
amended terms of the Global Settlement.
Generally,
the Second Amended Plan contemplates the following treatment for
creditors or interest holders under the Reorganization
Transaction.
■
As part of the
restructuring contemplated by the Restructuring Support Agreement,
the First Lien Lender Group backstopped a debtor-in-possession
financing in the aggregate amount of $59.5 million
(the “DIP
Facility”) to support the Company’s operations
during the Chapter 11 Cases. On the Effective Date, the DIP
Facility will be paid in full in cash or refinanced in full in cash
from borrowing under the Exit Financing Facility.
■
First Lien Claims. On the
Effective Date, the holders of First Lien Claims will receive their
Pro Rata share of (i) the First Lien Lender Equity
Distribution (consisting of one hundred percent (100%) of the New
Equity Interests issued and outstanding on the Effective Date and
Special Warrants that, when all Special Warrants are exercised on a
fully distributed basis, will cause holders of First Lien Claims to
hold ninety-seven and one-half percent (97.5%) of the New Equity
Interests (subject to dilution by the Management Incentive Plan));
provided, that, notwithstanding anything herein or in the Second
Amended Plan to the contrary, the distribution of the First Lien
Lender Equity Distribution shall be made pursuant to, and subject
to the terms and conditions of, the Equity Allocation Mechanism
attached as Exhibit A to the Second Amended Plan; (ii) the
loans under the New First Lien Credit Facility in the aggregate
amount of up to $225.0 million (the “New First Lien Term Loans”); and
(iii) cash or other proceeds, if any, from the sale of the
Debtors’ Canadian Business unless otherwise agreed to by the
Requisite First Lien Lenders.
■
Second Lien Claims. On the
Effective Date, the holders of Second Lien Claims will receive
their Pro Rata share of the Second Lien Lender Special Warrant
Distribution (consisting of Special Warrants that, when all Special
Warrants are exercised on a fully distributed basis, will cause
holders of Second Lien Claims to hold two and one-half percent
(2.5%) of the New Equity Interests (subject to dilution by the
Management Incentive Plan).
■
General Unsecured Claims. On
the Effective Date, the holders of General Unsecured Claims will
receive their Pro Rata share of the Litigation Trust
Interests.
2
■
Parent Equity Interests. On the
Effective Date, the Parent Equity Interests will be extinguished
and shall be of no further force and effect, whether surrendered
for cancellation or otherwise.
■
All Priority
Non-Tax Claims, Other Secured Claims, Intercompany Claims, and
Intercompany Interests are Unimpaired under the Second Amended
Plan.
■
Following the
Effective Date, Reorganized FCI will adopt a post-emergence
management incentive plan (the “Management Incentive Plan”), under
which up to ten percent (10%) of the New Equity Interests (after
taking into account the shares to be issued under the Management
Incentive Plan) will be reserved for issuance as awards on terms
and conditions as agreed to by the New Board.
The Equity Allocation Mechanism. As set forth in Section VII
herein, the Debtors hold certain licenses and telecommunications
service authority necessary for their business operations. The
Federal Communications Commission (the “FCC”) and the various state public
utility commissions or public service commissions (the
“State PUCs”)
require that entities holding such licenses and authority obtain
prior consent in the event of a material change in the equity or
voting ownership of the licensed entities. Moreover, Section 310(b)
of the Communications Act and the FCC’s foreign ownership
rules limit the aggregate foreign equity ownership or aggregate
foreign voting percentage in Reorganized FCI to twenty-five percent
(25%) absent the issuance of a Declaratory Ruling by the FCC
finding that the public interest would not be served by refusing or
revoking the Company’s licenses. In order to allow
Reorganized FCI to emerge without the need to seek such a
Declaratory Ruling, the Equity Allocation Mechanism is designed so
that foreign ownership of the Company will not exceed twenty-two
and one-half percent (22.5%) at emergence. In addition, because the
FCC rules require that Reorganized FCI disclose the identity of any
individual or entity that holds ten percent (10%) or more of its
equity or voting interests, the Equity Allocation Mechanism is
designed so that, with the exception of Telecom Holdings, holders
cannot hold equity ownership or voting rights in Reorganized FCI in
excess of nine and three-quarters percent (9.75%). As such, the
Debtors have submitted applications to the FCC and the State PUCs
to obtain authorization for Telecom Holdings, LLC, a domestic U.S.
entity established by the First Lien Lenders, to hold in excess of
fifty percent (50%) but no more than seventy-seven and one-half
percent (77.5%) of New Equity Interests on the Effective Date.
Telecom Holdings, LLC is owned by twelve (12) U.S. Holders (as
defined below). The remainder of the New Equity Interests in
Reorganized FCI will be distributed on a Pro Rata basis to all
other holders of First Lien Claims, who, together with Telecom
Holdings, LLC, will hold one hundred percent (100%) of the New
Equity Interests in Reorganized FCI on the Effective Date. The
other holders of First Lien Claims will also receive Special
Warrants in accordance with the procedures set forth in the Equity
Allocation Mechanism. In total, the combination of New Equity
Interests and Special Warrants issued to holders of First Lien
Claims will represent ninety-seven and one-half percent (97.5%) of
Reorganized FCI’s Common Stock on a fully diluted basis after
the Exercise Date. All holders of Second Lien Claims will receive
Special Warrants representing two and one-half percent (2.5%) of
Reorganized FCI’s Common Stock on a fully diluted basis,
pursuant to the Second Lien Lender Special Warrant
Distribution.
The
First Lien Lender Equity Distribution, along with the Equity
Allocation Mechanism, govern the distribution of New Equity
Interests and/or Special Warrants to the First Lien Lenders on the
Effective Date. On the Effective Date, holders of First Lien Claims
will receive New Equity Interests to the maximum extent permissible
by relevant FCC rules and regulations, and will receive Special
Warrants, which may be freely transferred or sold, subject to
applicable laws, for the remainder of the value of such Claims. The
implied value of the Special Warrants is equal to the value of a
proportionate amount of New Equity Interests. On the Effective Date
or shortly thereafter, Reorganized FCI will submit a Petition for
Declaratory Ruling seeking authority to exceed twenty-five percent
(25%) of foreign ownership and other applications with the FCC and
State PUCs needed to obtain other relevant regulatory approvals.
Once such approvals are obtained, holders of Special Warrants are
automatically deemed to exercise their Special Warrants in exchange
for a corresponding number of New Equity Interests and convert into
direct equity of Reorganized FCI, subject to the procedures set
forth in the Special Warrant Agreement and the relevant regulatory
approvals.
3
Included in this Amended Disclosure Statement are the
Financial Projections, a revised Liquidation Analysis, and the
Valuation Analysis, each attached to this Amended Disclosure
Statement as Exhibit C,
Exhibit
D, and Exhibit E,
respectively. In preparing each of these exhibits, the Debtors
worked closely with their advisors to develop a reasonably
achievable business plan. The revisions to the Company’s
business plan involved, among other measures, observation and
modeling of base trends and past performance followed by
forecasting of individual items, including revenue, expenses, and
other line items. The Debtors consulted with numerous internal and
external parties and advisors to ensure that this business plan was
constructed with the utmost understanding of the Company’s
business from financial, regulatory, and marketing perspectives.
The Debtors and their advisors also considered industry trends in
the development of the business plan, including both macro-trends
within the telecommunications industry and trends at the product
level.
With
this background, the Company and its advisors have concluded that
the Reorganization Transaction is expected to leave the U.S.
business intact and significantly deleverage the Company’s
balance sheet. It is also expected to enhance Fusion
Connect’s long-term growth prospects and operational
performance.
Accomplishing
a speedy and efficient resolution of the Chapter 11 Cases is
essential to maximizing the value of the Company. Under the
Restructuring Support Agreement and pursuant to the terms of the
DIP Documents, the Debtors are obligated to meet certain
milestones. Specifically, the Restructuring Support Agreement and
the DIP Facility may be terminated if, among other things, the
Debtors fail to satisfy the following milestones (unless the
Requisite First Lien Lenders (as defined in the Restructuring
Support Agreement) agree to extend the relevant milestone in
advance or waive the default):
|
Milestone
|
Deadline (as
extended from time to time)
|
|
Entry
of Order Approving Bidding Procedures (as defined
below)
|
July 3,
2019
|
|
Commence
Solicitation of Non-Binding Indications of Interest
(“Exit Financing
IOIs”)
|
July 3,
2019
|
|
Entry
of Final DIP Order
|
July 8,
2019
|
|
Filing
of State PUC Applications
|
August
10, 2019
|
|
Entry
of Order Approving Disclosure Statement
|
October
11, 2019
|
|
Receive
Binding Commitment Letter for the New Exit Credit
Agreement
|
November 1,
2019
|
|
Entry
of Order Confirming Second Amended Plan
|
November 14, 2019
(Pending the Court’s availability)
|
|
Occurrence of
Second Amended Plan Effective Date
|
December 4, 2019
(or December 19, 2019 if 15-day extension is exercised in
accordance with the terms of the Restructuring Support
Agreement)
|
|
THE
DEBTORS, THE CREDITORS’ COMMITTEE, THE FIRST LIEN LENDER
GROUP, AND THE SECOND LIEN LENDER GROUP SUPPORT CONFIRMATION OF THE
SECOND AMENDED PLAN AND URGE ALL HOLDERS OF CLAIMS ENTITLED TO VOTE
ON THE SECOND AMENDED PLAN TO VOTE TO ACCEPT THE SECOND AMENDED
PLAN, BECAUSE THEY BELIEVE THAT THE SECOND AMENDED PLAN PROVIDES
THE HIGHEST AND BEST RECOVERY FOR ALL STAKEHOLDERS.
|
WHO IS ENTITLED TO VOTE: Under the Bankruptcy Code, only
holders of claims or interests in “impaired” Classes
are entitled to vote on the Second Amended Plan (unless, for
reasons discussed in more detail below, such holders are deemed to
reject the Second Amended Plan pursuant to section 1126(g) of the
Bankruptcy Code). Under section 1124 of the Bankruptcy Code, a
class of claims or interests is deemed to be “impaired”
unless (i) the Second Amended Plan leaves unaltered the legal,
equitable, and contractual rights to which such claim or interest
entitles the holder thereof or (ii) notwithstanding any legal
right to an accelerated payment of such claim or interest, the
Second Amended Plan, among other things, cures all existing
defaults (other than defaults resulting from the occurrence of
events of bankruptcy) and reinstates the maturity of such claim or
interest as it existed before the default.
Holders
of Claims in Class 3 (First Lien Claims), Class 4 (Second Lien
Claims), and Class 5 (General Unsecured Claims) are the only
Classes being solicited under, and the only Classes entitled to
vote on, the Second Amended Plan.
THE SECOND AMENDED PLAN PROVIDES THAT THE HOLDERS OF CLAIMS IN
CLASS 3, CLASS 4, AND CLASS 5 WHO VOTE TO ACCEPT THE SECOND
AMENDED PLAN ARE DEEMED TO HAVE GRANTED THE RELEASES CONTAINED IN
SECTION 10.6(b)
OF THE SECOND AMENDED
PLAN.
The
following table summarizes (i) the treatment of Claims and
Interests that are classified under the Second Amended Plan,
(ii) which Classes are impaired by the Second Amended Plan,
(iii) which Classes are entitled to vote on the Second Amended
Plan, and (iv) the estimated recoveries for holders of Claims
and Interests in the Reorganization Transaction. The table is
qualified in its entirety by reference to the full text of the
Second Amended Plan. For a more detailed summary of the terms and
provisions of the Second Amended Plan, see Article V—Summary of Second Amended Plan below.
The Second Amended Plan constitutes a separate plan for each
Debtor. Each class of Claims and Interests only address claims
against or interest in a particular Debtor. A discussion of the
amount of Claims in each Class is set forth in Article V.C
hereof.
4
|
Class
|
Claim or Equity Interest
|
Treatment
|
Impaired or Unimpaired
|
Entitled to Vote onthe Second Amended Plan
|
Approx. Recovery in Reorganization
|
|
1
|
Priority
Non-Tax Claims
|
Except
to the extent that a holder of an Allowed Priority Non-Tax Claim
against the Debtors agrees to a less favorable treatment of such
Claim, in full and final satisfaction of such Allowed Priority
Non-Tax Claim, at the sole option of the Debtors or the Reorganized
Debtors, as applicable: (i) each such holder shall receive
payment in Cash in an amount equal to such Claim, payable on the
later of the Effective Date and the date that is ten (10) Business
Days after the date on which such Priority Non-Tax Claim becomes an
Allowed Priority Non-Tax Claim, or as soon thereafter as is
reasonably practicable; or (ii) such holder’s Allowed
Priority Non-Tax Claim shall be Reinstated.
|
Unimpaired
|
No
(Presumed to Accept)
|
100.0%
|
|
2
|
Other
Secured Claims
|
Except
to the extent that a holder of an Allowed Other Secured Claim
agrees to different treatment, on the later of the Effective Date
and the date that is ten (10) Business Days after the date such
Other Secured Claim becomes an Allowed Claim, or as soon thereafter
as is reasonably practicable, each holder of an Allowed Other
Secured Claim will receive, on account of such Allowed Claim, at
the sole option of the Debtors or the Reorganized Debtors, as
applicable: (i) Cash in an amount equal to the Allowed amount
of such Claim; (ii) Reinstatement of such holder’s
Allowed Other Secured Claim; or (iii) such other treatment
sufficient to render such holder’s Allowed Other Secured
Claim Unimpaired.
|
Unimpaired
|
No
(Presumed to Accept)
|
100.0%
|
5
|
3
|
First
Lien Claims
|
Except
to the extent that a holder of a First Lien Claim agrees to less
favorable treatment, in full and final satisfaction, settlement,
release, and discharge of, and in exchange for such First Lien
Claim, each such holder thereof (or, with respect to any New Equity
Interests to be issued pursuant to the First Lien Lender Equity
Distribution, such holder’s permitted designee) shall receive
on the Effective Date such holder’s Pro Rata share of
(a) the First Lien Lender Equity Distribution; provided, that
notwithstanding anything in the Second Amended Plan to the
contrary, the distribution of the First Lien Lender Equity
Distribution shall be made pursuant to, and subject to the terms
and conditions of, the Equity Allocation Mechanism; (b) the
loans under the New First Lien Credit Facility; and (c) cash
or other proceeds, if any, from the sale of the Debtors’
Canadian business unless otherwise agreed to by the Requisite First
Lien Lenders.
For the
avoidance of doubt, on the Effective Date, the Prepetition First
Lien Credit Agreement shall be deemed cancelled (except as set
forth in Section 5.9 of the Second Amended Plan) without further
action by or order of the Bankruptcy Court.
|
Impaired
|
Yes
|
60.0-76.1%
|
|
4
|
Second
Lien Claims
|
Except
to the extent that a holder of an Allowed Second Lien Claim agrees
to less favorable treatment, in full and final satisfaction,
settlement, release, and discharge of, and in exchange for such
Allowed Second Lien Claim, on the each such holder thereof shall
receive on the Effective Date such holder’s Pro Rata share
of the Second Lien Lender Special Warrant
Distribution.
For the avoidance of doubt, on the Effective Date, the
Prepetition Second Lien Credit Agreement shall be deemed cancelled
(except as set forth in Section 5.9 of the Second Amended Plan)
without further action by or order of the Bankruptcy
Court.
|
Impaired
|
Yes
|
4.0-6.9%
|
|
5
|
General
Unsecured Claims
|
Except
to the extent that a holder of an Allowed General Unsecured Claim
agrees to less favorable treatment, in full and final satisfaction,
settlement, release, and discharge of, and in exchange for an
Allowed General Unsecured Claim, each such holder thereof shall
receive such holder’s Pro Rata share of the Litigation Trust
Interests on the Effective Date.
|
Impaired
|
Yes
|
N/A4
|
6
|
6
|
Intercompany
Claims
|
On or
after the Effective Date, all Intercompany Claims will be adjusted,
continued, settled, reinstated, discharged, or eliminated as
determined by the Debtors or the Reorganized Debtors, as
applicable, and the Requisite First Lien Lenders, in their
respective reasonable discretion, but not paid in
Cash.
|
Unimpaired
|
No
(Presumed to Accept)
|
N/A
|
|
7
|
Intercompany
Interests
|
On or
after the Effective Date, all Intercompany Interests shall be
cancelled, reinstated, or receive such other treatment as
determined by the Debtors or the Reorganized Debtors, as
applicable, and the Requisite First Lien Lenders, in their
respective reasonable discretion.
|
Unimpaired
|
No
(Presumed to Accept)
|
N/A
|
|
8
|
Parent
Equity Interests
|
On the
Effective Date, all Parent Equity Interests shall be deemed
cancelled without further action by or order of the Bankruptcy
Court, and shall be of no further force and effect, whether
surrendered for cancellation or otherwise. To the extent permitted
by applicable law, on or promptly after the Effective Date, the
Reorganized Debtors shall file with the SEC a Form 15 for the
purpose of terminating the registration of any of FCI’s
publicly traded securities.
|
Impaired
|
No
(Deemed to reject)
|
0.0%
|
|
9
|
Subordinated
Securities Claims
|
Holders
of Subordinated Securities Claims shall not receive or retain any
property under the Second Amended Plan on account of such
Subordinated Securities Claims. On the Effective Date, all
Subordinated Securities Claims shall be deemed cancelled without
further action by or order of the Bankruptcy Court, and shall be of
no further force and effect, whether surrendered for cancellation
or otherwise.
|
Impaired
|
No
(Deemed to reject)
|
0.0%
|
4 “N/A” indicates that the amount cannot
be calculated.
Summary of Plan Release and Exculpation Provisions
Section 10 of the Second Amended Plan provides for the release of
the Released Parties (as defined below) and the exculpation of the
Exculpated Parties (as defined below). The Debtors’ releases
of the Released Parties pursuant to Section 10.6(a) of the Second
Amended Plan (the “Estate
Releases”),
the consensual third-party releases of the Released Parties
pursuant to Section 10.6(b) of the Second Amended Plan (the
“Consensual
Releases”),
and the exculpation of the Exculpated Parties pursuant to Section
10.7 of the Second Amended Plan are an integral part of the
Debtors’ overall restructuring efforts and are an essential
element of the Second Amended Plan and the Global
Settlement.
7
The Debtors believe that the Estate Releases satisfy the business
judgment standard. The Estate Releases provided in the Second
Amended Plan grant a release and discharge of limited parties by
the Debtors and their Estates, the Reorganized Debtors, and the
Litigation Trust. In exchange for the material benefits they will
receive from the Released Parties through the Second Amended Plan,
among other things, the Debtors have proposed to release the
Released Parties. When considering
releases by a debtor of non-debtor third parties pursuant to
section 1123(b)(3)(A), the appropriate
standard is whether the release is a valid exercise of the
debtor’s business judgment and is fair, reasonable, and in
the best interests of the estate. See In
re Angelica Corp.,
Case No. 17-10870 (JLG), Aug. 29, 2017
Hr’g Tr. at
12:23-13:11 (“In cases like
this one where there are no known claims against a party to receive
a Release, Courts in this district approved Debtor Releases when
they represent a valid exercise of the Debtor’s business
judgement and are in the best interest of the
estate.”); In
re Motors Liquidation Co., 447 B.R. 198, 220 (Bankr. S.D.N.Y.
2011) (“Releases by
estates involve a give-up of potential rights that are owned by the
estate, and are perfectly permissible in a plan, either as parts of
plan settlements or otherwise, though the court must satisfy itself
(at least if anyone raises the issue) that the give-up is an
appropriate exercise of business judgment, and, possibly, in the
best interests of the estate.”); In
re DBSD N. Am., Inc., 419 B.R. 179, 217 (Bankr. S.D.N.Y.
2009) (approving plan provision that released and discharged claims
and causes of action by debtors on basis that such releases and
discharges “represent a valid exercise of the Debtors’
business judgment, and are fair, reasonable and in the best
interests of the estate.”), aff’d,
Case No. 90–13061 (REG), 2010 WL 1223109 (S.D.N.Y. Mar. 24,
2010), aff’d in
part, rev’d in part sub nom. DISH Network Corp. v. DBSD N.
Am. Inc. (In re DBSD N. Am.), 634 F.3d 79 (2d Cir.
2011); In
re Charter Commc’ns, 419 B.R. 221, 257-60 (Bankr. S.D.N.Y.
2009) (“When reviewing
releases in a debtor’s plan, courts consider whether such
releases are in the best interest of the estate”);
In
re Bally Total Fitness of
Greater N.Y., Inc., Case No. 07-12395
(BRL), 2007 WL 2779438, at *12 (Bankr. S.D.N.Y.
Sept. 17, 2007) (finding debtor
releases appropriate where they represented a valid exercise of the
debtors’ business judgment and were in the best interests of
the estate). Debtors have considerable leeway in issuing releases
of their own claims, and such releases are considered
“uncontroversial.” See
In
re Adelphia Commc’ns Corp., 368 B.R. 140, at 263 n. 289 (Bankr.
S.D.N.Y. 2007).
During the course of plan negotiations with the Consenting First
Lien Lenders, it was clear that the Estate Releases of such parties
would be a necessary condition to entry into and consummation of
the restructuring transaction embodied in the Second Amended Plan.
Without the Estate Releases, the Debtors and their stakeholders
would likely not have been able to secure the substantial benefits
provided by the First Lien Lender Group, including, without
limitation, the Consenting First Lien Lenders’ financing of
the Prepetition Super Senior Loans and the DIP Facility. Had the
Estate Releases not been provided, the Debtors’ chances of
avoiding detrimental business disruption during the Chapter 11
Cases and securing the valuable consideration provided by the
Second Amended Plan would have been next to impossible. The
releases exchanged are also appropriate with regard to the
Creditors’ Committee, and the Debtors intend to
present ample evidence to support that the Estate Releases are a
valid exercise of the business judgment rule.
With respect to the Consensual Releases, the Debtors believe that
such releases are appropriate and may become binding in accordance
with section 1141(a) of the Bankruptcy Code and applicable law. In
addition, each of the Exculpated Parties has made a substantial
contribution to the Debtors’ reorganization efforts and
played an integral role in working towards an expeditious
resolution of these Chapter 11 Cases. The Debtors believe that the
exculpation provisions are appropriately limited to the Exculpated
Parties’ participation in these Chapter 11 Cases and have
appropriate carve outs for liability resulting from gross
negligence, willful misconduct, or intentional fraud. Accordingly,
each of the Released Parties and the Exculpated Parties warrant the
benefit of the release and exculpation provisions.
8
The Debtors also believe that the release and exculpation
provisions in the Second Amended Plan are necessary and appropriate
and meet the requisite legal standard promulgated by the United
States Court of Appeals for the Second Circuit (the
“Second
Circuit”). In
the Second Circuit, exculpation provisions that cover non-estate
fiduciaries are permitted. See,
e.g., In re
Oneida, 351 B.R. 79,
94, n.22 (Bankr. S.D.N.Y. 2006) (approving an exculpation provision
covering a number of prepetition actors with respect to certain
prepetition actions, as well as postpetition activity);
In re
Granite Broad. Corp., 369 B.R. 120, 139 (Bankr. S.D.N.Y.
2007) (providing exculpation of controlling shareholder as well as
estate fiduciaries); In re Eastman Kodak
Co., No. 12-10202
(Bankr. S.D.N.Y. Aug. 23, 2013) (overruling U.S. Trustee objection
to exculpation of both estate fiduciaries and nonfiduciaries from
liability for “any prepetition or postpetition act taken or
omitted to be taken in connection with, or arising from or relating
in any way to, the chapter 11 cases”); In re Charter
Commc’ns, Inc., No. 09-11435 (Bankr. S.D.N.Y. Nov.
17, 2009) (approving exculpation of estate fiduciaries and
non-fiduciaries for “any pre-petition or postpetition act
taken or omitted to be taken in connection with, or related to . .
.. the restructuring of the Company”); In re Cengage
Learning, Inc., No.
13-44106 (Bankr. E.D.N.Y. Mar. 14, 2014) (approving exculpation
provision for estate fiduciaries and non-fiduciaries for “any
prepetition or postpetition act taken or omitted to be taken in
connection with, or related to formulating, negotiating,
soliciting, preparing, disseminating, confirming, implementing, or
consummating the Second Amended Plan”).
Courts have recognized the appropriateness of extending exculpation
to parties who make a substantial contribution to a debtor’s
reorganization and, specifically, who play an integral role in
building consensus in support of a debtor’s
restructuring. See,
e.g., In re Residential
Capital, No.
12-12020, Findings of Fact, ¶ 291 (ECF No. 6066) (Bankr.
S.D.N.Y. Dec. 11, 2013) (approving exculpation of certain
prepetition lenders who “played a meaningful role. . . in the
mediation process, and through the negotiation and implementation
of the Global Settlement and Plan”); In re Worldcom,
Inc., No. 02-13533,
2003 WL 23861928, at *52 (approving exculpation provisions where
“[t]he inclusion of the Exculpation Provision … in the
Second Amended Plan [was] vital to the successful negotiation of
the terms of the Second Amended Plan in that without such
provisions, the Covered Parties would have been less likely to
negotiate the terms of the settlements and the Second Amended
Plan.”). The Exculpated Parties provided a substantial
contribution to the estates, and the protections afforded by the
Exculpation are, therefore, reasonable and
appropriate.
The “Released
Parties” are,
collectively, the: (a) Reorganized Debtors;
(b) Consenting First Lien Lenders; (c) Prepetition First
Lien Administrative Agent; (d) Consenting Second Lien Lenders; (e)
Prepetition Second Lien Administrative Agent; (f) DIP Agent;
(g) DIP Lenders; (h) Prepetition Super
Senior Administrative
Agent; (i) Prepetition Super Senior Lenders;
(j) Creditors’ Committee and each of its members in such
capacity; (k) the Specified Officers and Directors (four (4)
individuals); (l) Non-Debtor Related Parties; and
(m) Debtor Related Parties. The “Debtor Related
Parties” is a
narrow class including certain of the Debtor’s postpetition
advisors, each Debtor’s successors, and all of the Debtors
current non-officer employees. The “Non-Debtor Related
Parties”
encompasses affiliates and employees of Non-Debtor Released or
Exculpated Parties.
The Second Amended Plan specifically identifies the following
“Non-Released
Parties”: (a)
any current or former director, officer, member, shareholder, or
employee of the Debtors or predecessor of the Debtors, other than
the Specified Officers and Directors and the Debtor Employees; (b)
any Affiliate of the Debtors or predecessors of the Debtors, and
any directors, officers, shareholders, or employees thereof; (c)
any predecessor of a Debtor; (d) Lingo Communications LLC, any
Affiliates thereof, and their directors, officers, shareholders,
and employees; (e) any subsequent transferee of any of the
foregoing; (f) any counsel, accountant or other professional
advisor to (x) any of the foregoing and (y) the Debtors or
predecessor of any Debtor prior to March 1, 2019;
provided,
that vendors and contract counterparties of Reorganized FCI, other
than Lingo Communications LLC and any Affiliates thereof, shall not
be Non-Released Parties solely with respect to any Preference
Action against them; provided
further, that no
Reorganized Debtor, Reorganized Debtor’s successor or
Consenting First Lien Lender shall be a Non-Released
Party.
The “Exculpated
Parties” are,
collectively, each solely in their capacities as such, the
(a) Debtors; (b) Reorganized Debtors; (c) Consenting
First Lien Lenders; (d) Prepetition First Lien Administrative
Agent; (e) Prepetition Super Senior Administrative Agent;
(f) DIP Agent, (g) DIP Lenders; (h) New First Lien
Lenders; (i) New First Lien Agent; (j) New Exit Facility
Lenders; (k) New Exit Facility Agent; (l) Litigation
Trust Oversight Committee; (m) Creditors’ Committee and
each of its members in such capacity; (n) Non-Debtor Related
Parties; and (o) Debtor Exculpated
Parties.
9
WHERE TO FIND ADDITIONAL INFORMATION: Fusion Connect files annual reports and
quarterly reports with, and furnishes other information to the SEC.
Copies of any document filed with the SEC may be obtained by
visiting the SEC website at http://www.sec.gov and performing a
search under the “Company Filings”
link.
As previously disclosed in the Current Report on Form 8-K filed
with the SEC on April 2, 2019, the Company’s audit committee,
after consultation with management and discussion with our
independent registered public accounting firm, concluded that the
Company’s previously issued financial statements for the
fiscal year ended December 31, 2017 and for the periods ended June
30, 2018 and September 30, 2018 (collectively, the “Restated
Periods”) and other financial communications for the Restated
Periods should no longer be relied upon and should be restated for
certain accounting errors. The Debtors believe that these
accounting errors resulted in a discrepancy of approximately $3
million.
Any Current Reports on Form 8-K (other than information furnished
pursuant to Items 2.02 or 7.01 and any related exhibits of any Form
8-K, unless expressly stated otherwise therein), Quarterly Reports
on Form 10-Q or Annual Reports on Form 10-K filed by Fusion Connect
with the SEC after the date of this Disclosure Statement will be
considered a part of this Disclosure Statement from the date of the
filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference or contained in this Disclosure
Statement shall be deemed to be modified or superseded for purposes
of this Disclosure Statement to the extent that a statement
contained herein or in any other subsequently dated or filed
document which also is or is deemed to be incorporated by reference
herein modifies or supersedes such statement.
You should carefully read the entire Disclosure Statement and the
documents incorporated by reference herein. Any financial data
included herein remains subject to the customary review procedures
associated with the completion of the Company’s public
reporting requirements.
II.
OVERVIEW OF
COMPANY’S OPERATIONS
A. Debtors’
Business
1. History and Formation
Fusion
Connect was initially founded in Delaware by Marvin S. Rosen and
Philip D. Turits in September 1997. Since then, the Company has
expanded through a combination of organic growth and strategic
acquisitions and is now a provider of integrated cloud solutions
for small, medium, and large businesses in the United States and
residential and business customers in Canada. On February 25,
2005, the Company commenced its initial public offering, becoming a
publicly listed company on the NASDAQ Stock Market
(“NASDAQ”). The
Company was delisted from the NASDAQ Global Market effective May
13, 2019.
10
2. Current Business Operations
The
Company’s broad operational goal is to provide companies with
a unified platform to leverage cloud and other communications
technology and to serve as the single point of contact for related
troubleshooting. To fill this role, the Company offers a variety of
products, including Unified Communications-as-a-Service
(“UCaaS”),
dedicated internet access and private networks, and cloud storage
and security, all on a single platform that is supported by
dedicated “Contact Customer” services. The Company also
offers Infrastructure-as-a-Service (“IaaS”) solutions that allow
businesses to layer additional cloud services onto its
platform.
The
Company categorizes its suite of services into three broad
categories: (i) Cloud Communications, (ii) Cloud
Connectivity, and (iii) Cloud Computing. Depending on the
needs and sizes of individual customers, the Company offers
different product bundles and service packages. In each case, the
Company’s goal is to provide companies with reduced secure
data storage costs, as well as an advanced and consistent
communications network, all on a unified platform. The Company is
able to achieve this goal, in part, through its extensive North
American network.
(a) Cloud
Communications
The
Company’s Cloud Communications service consists primarily of
its “Cloud Voice,” UCaaS, and SIP trunking offerings.
The Company’s Cloud Voice service allows customers to replace
land-based office telephone systems with a cloud-based digital
telephone system, reducing upfront capital costs and simplifying
operations for office telephone systems. Cloud Voice provides
efficiencies for companies with multiple offices or a highly mobile
workforce, and for companies that are opening a new office or need
to expand or replace existing legacy telephone systems. The Company
supports its Cloud Voice service through its UCaaS solutions, which
integrate audio, video, messaging, and web services together,
enhancing customers’ ability to convey information and
communicate effectively. The Company’s SIP trunking service
allows customers to retain their existing business telephone
systems while operating those systems using an internet
connection.
(b) Cloud
Connectivity
The
Company’s Cloud Connectivity service provides businesses with
dedicated circuits to high-speed broadband internet access, private
networks, and other network-related services such as Multiprotocol
Label Switching (“MPLS”)5 services, and SD-WAN (Software-Defined
Wide-Area Networks). The goal of the Cloud Connectivity service is
to facilitate optimized access to cloud services, private data
centers, and enterprise applications over the internet or by
private links.
(c) Cloud
Computing
The
Company’s Cloud Computing service provides customers with
private and hybrid cloud computing (IaaS) to centralize information
management, hardware, network, and infrastructure in an off-premise
hosted location. In connection with its Cloud Computing services,
the Company also supports secure file sharing, backup and recovery
services, and a unified threat management system to help detect,
deter, and defeat cyber-attacks to mitigate against business
disruptions.
MPLS
is a routing technique in telecommunications networks that directs
data from one node to the next based on short path labels rather
than long network addresses, thus avoiding complex lookups in a
routing table and speeding traffic flows.
11
3. Employees
As of
the Commencement Date, the Debtors employed 810 full-time employees
and 3 part-time employees who perform a variety of critical
functions, including sales, marketing, engineering and development,
operations, customer service, human resources, general
administration, legal, finance, and management. In addition, the
Debtors rely on services from a supplemental workforce comprised of
approximately 45 independent contractors and consultants that
provide services related to the Debtors’ operations.
Specifically, the supplemental workforce provides services with
respect to accounting, information technology, facilities
maintenance, claims management, and other shared
services.
B. Debtors’ Organizational
Structure
Fusion
Connect is currently a public company with the majority of its
shares held by BCHI Holdings, LLC (“BCHI”). Fusion Connect owns,
directly or indirectly, 100% of the ownership interest in each of
the other Debtors and Fusion Connect’s non-debtor Canadian
Subsidiaries (as defined below). The chart below illustrates the
Company’s current organizational structure:
The
Company’s current corporate structure is the product of its
2018 acquisition of MegaPath and the reverse merger with Birch.
Specifically, Fusion MPHC Holding Corporation and its two (2)
subsidiaries reflect the MegaPath portion of the Company’s
business. Fusion BCHI Acquisition LLC (“Fusion BCHI”) and its subsidiaries
represent the Company’s business that Fusion Connect acquired
as part of the Birch Merger. Fusion NBS Acquisition Corp. and
Fusion LLC operate the remainder of the Company’s
business.
12
The two
(2) non-Debtor entities included in the organizational structure
chart — Primus Management ULC (“Primus Management”) and Bircan
Management ULC (collectively, the “Canadian Subsidiaries”) —
operate the Company’s Canadian Business, which provides
telecommunications services to residential and business customers
in Canada. As described below, the Debtors provide certain direct
and indirect financial support to the Canadian Business in the
ordinary course.
C. Directors
and Officers
The
following table sets forth the names of the members of Fusion
Connect’s current Board of Directors:
|
Name
|
Position
|
|
Matthew
D. Rosen
|
Director
(Chairman)
|
|
Holcombe
T. Green, Jr.
|
Director
(Vice Chairman)
|
|
Michael
J. Del Giudice
|
Director
|
|
Lewis
W. Dickey, Jr.
|
Director
|
|
Neal P.
Goldman
|
Director
|
|
Holcombe
T. Green, III
|
Director
|
|
Rafe de
la Gueronniere
|
Director
|
|
Marvin
S. Rosen
|
Director
|
The
following table sets forth the names of the members of the
Restructuring Committee:
|
Michael
J. Del Giudice
|
|
Lewis
W. Dickey, Jr.
|
|
Neal P.
Goldman
|
|
Rafe de
la Gueronniere
|
The
following table sets forth the name of the member of the Special
Committee (as defined below):
|
Neal P.
Goldman
|
The
following table sets forth the names of Fusion Connect’s
current executive officers:
|
Name
|
Position
|
|
Matthew
D. Rosen
|
Chief
Executive Officer
|
|
Russell
P. Markman
|
President
and Chief Operating Officer
|
|
Keith
Soldan
|
Chief
Financial Officer
|
|
Brian
George
|
Chief
Technology Officer
|
|
James
P. Prenetta Jr.
|
Executive
Vice President and General Counsel
|
13
The
composition of the board of directors of Reorganized FCI will be
disclosed in accordance with section 1129(a)(5) of the Bankruptcy
Code.
1. Leadership
Changes
The
Debtors intend to file a motion seeking entry of an order
authorizing the Debtors to (i) appoint Kevin Brand as the
Debtors’ President, Chief Operating Officer, and interim
Chief Executive Officer pursuant to and in accordance with the
terms and conditions set forth in that certain Employment Agreement
between FCI and Mr. Brand (the “Employment Agreement”),
(ii) payment of certain fees to Matthew D. Rosen in connection
with his role as Chairman of the Board, and (iii) enter into
that certain Consulting Agreement between FCI and Russell P.
Markman (the “Markman
Consulting Agreement”). The motion will also request
authority to waive certain retention payments that were made to Mr.
Rosen and Mr. Markman prior to the Commencement Date. Mr. Rosen and
Mr. Markman will resign as Chief Executive Officer and Chief
Operating Officer of FCI, respectively, and from any and all
officer and director positions at any of FCI’s subsidiaries,
effective October 7, 2019. Kevin Brand, FCI’s current Vice
President of Customer Support, will be named interim Chief
Executive Officer of the Company upon the effective date of Mr.
Rosen’s resignation and until such time as a successor Chief
Executive Officer is appointed. Mr. Brand will also accept a
permanent position as the Company’s Chief Operating
Officer.
The
Restructuring Committee believes that Mr. Brand’s deep
industry and company knowledge, combined with his past operational
experience, make him an ideal candidate for these positions. Mr.
Brand has been in the technology and communications industry for
more than thirty years. His background includes senior leadership
roles at AT&T, CAIS Internet, and EarthLink in a wide range of
functional areas, including product management, product marketing,
network engineering and operations, customer support, provisioning,
and partner sales. Mr. Brand holds a B.S. in Systems Science and
Mathematics from Washington University in St. Louis and an M.S. in
Operations Research from the University of California at Berkeley.
Mr. Brand joined FCI as Vice President – Customer Support, as
part of the company’s acquisition of the Cloud and Business
Services business of Birch in May 2018, where he served in the same
positon after joining Birch in 2017. Prior to joining Birch, Mr.
Brand served as Head of Products at Promethean from 2015 to
2016.
Mr.
Brand will enter into the Employment Agreement with the Company,
which includes an initial annual base salary of $550,000 which will
remain in effect until a permanent CEO is appointed by the Board of
Directors, at which time Mr. Brand’s base salary will be
reduced to $450,000.
Mr.
Rosen will continue to serve as Chairman of the Board until the
Effective Date and receive his current base salary and remain
eligible to participate in the Company’s retirement and
health and welfare benefit plans. In addition, pursuant to the
Second Amended Plan, on the Effective Date, Mr. Rosen and the
Reorganized Debtors will enter into a consulting agreement (the
“Rosen Consulting
Agreement”), subject to Court approval of the Second
Amended Plan, pursuant to which Mr. Rosen will provide ongoing
consulting services to the Company. The Rosen Consulting Agreement
provides that, among other things, Mr. Rosen will begin a six-month
consulting term on the Effective Date and will continue to receive
his current base salary during such term. Mr. Rosen will be subject
to a number of covenants in favor of FCI, including confidentiality
during, and for 18 months after, the term of the Rosen Consulting
Agreement and non-solicitation of employees during the term of the
Rosen Consulting Agreement, as well as other restrictive covenants.
As Chairman of the Board until the Effective Date and consultant
thereafter, Mr. Rosen will be available to assist Mr. Brand and the
Company to stabilize the business and put the Company on the right
track to profitability. Mr. Rosen has extensive experience in the
industry and strong relationships with the Company’s
employees, customers, and vendors that need to be carefully managed
and attended to.
14
Mr.
Markman will remain employed with the Company until his employment
is formally terminated by the Company. He will continue to receive
bi-weekly pay at a level equivalent to Mr. Markman’s current
base salary. On the date upon which Mr. Markman is formally
terminated by the Company, FCI will enter into the Markman
Consulting Agreement, pursuant to which Mr. Markman will provide
ongoing consulting services. The Markman Consulting Agreement
provides that, among other things, Mr. Markman will provide
consulting services for a three-month term with FCI and receive a
fixed monthly fee of $33,334. Mr. Markman will be subject to a
number of covenants in favor of FCI, including confidentiality
during, and for 18 months after, the term of the Markman Consulting
Agreement and non-solicitation of employees during the term of the
Markman Consulting Agreement. Pursuant to the Consulting Agreement,
Mr. Markman’s scope of work includes, but is not limited to,
being available, during normal business hours, to respond to
questions from Mr. Brand and/or his designee regarding strategic
questions relating to sale and marketing activities of the Company.
As is the case with Mr. Rosen, Mr. Markman has deep relationships
with key stakeholders at the Company, in particular, the channel
partners. A smooth transition of Mr. Markman is essential for
preservation of value.
Prior
to the Commencement Date, Mr. Rosen and Mr. Markman were each paid
a retention bonus pursuant to the Company’s key employee
retention program (“KERP”) of $200,000 and $250,000,
respectively. Following consultation with, and with the support of,
the First Lien Lender Group and the Creditors’ Committee, the
Company has elected not to pursue the return of these payments
because Mr. Rosen and Mr. Markman will continue to provide valuable
contributions to the Company. The First Lien Lender Group and the
Creditors’ Committee consent to this treatment and it is a
critical component of the Global Settlement.
The
Rosen Consulting Agreement has been incorporated into the Plan and
will be entered into with the Reorganized Debtors upon the
Effective Date of the Plan. In addition, the Plan has been modified
to provide that any recovery by the Litigation Trust against Mr.
Rosen and Mr. Markman will be limited to D&O Insurance amounts.
Modifications were made to the Global Settlement to account for
this negotiated change.
D. Regulation
of Company’s Business
In the
United States, Fusion Connect, Inc., Fusion LLC, Fusion Cloud
Services, LLC (“FCS”), Fusion Communications, LLC,
Fusion Telecom of Kansas, LLC, Fusion Telecom of Oklahoma, LLC,
Fusion Telecom of Missouri, LLC, and Fusion Telecom of Texas Ltd.,
L.L.P.’s (collectively the “Fusion Licensees”) services
are generally subject to varying degrees of federal, state and
local regulation, including regulation by the FCC and the State
PUCs. While these regulatory agencies grant the Fusion Licensees
the authority to operate those aspects of their services that are
subject to regulation, they typically exercise minimal control over
the Fusion Licensees’ services and pricing.
1. Telecommunications Services
As
carriers, the Fusion Licensees are subject to FCC regulation under
the Communications Act of 1934 (as amended, the “Communications Act”). The Fusion
Licensees have the necessary authority under Section 214 of the
Communications Act to operate in the United States as providers of
domestic interstate telecommunications services and to provide
international telecommunications services pursuant to FCI’s
international Section 214 authority. Fusion Cloud Services, LLC
also holds FCC-issued common carrier radio station licenses and a
private radio station license. The Fusion Licensees also hold
various intrastate telecommunications authorizations issued by the
State PUCs.
15
These
agencies impose regulatory obligations upon the Fusion Licensees,
including but not limited to licensing/registration and tariffing
requirements; annual FCC and State PUC regulatory assessments; 911
emergency service requirements; Communications Assistance for Law
Enforcement requirements; obligations to support federal and state
universal service funds; compliance with and contributions to
Telecommunications Relay Services (“TRS”); compliance with public
safety and consumer protection standards; compliance with the
protocols of the North American Numbering Plan Administration
(“NAMPA”), and
the Local Number Portability Administration as well as with
Customer Proprietary Network Information (“CPNI”) requirements and disability
access obligations, Local Number Portability (“LNP”) requirements, service
discontinuance notification obligations, outage reporting
requirements, and rural call completion reporting and rules related
to ring signal integrity. Should such Fusion Licensee fail at any
time to hold the licenses required to provide intrastate,
interstate or international services, fail to meet any of the FCC
and State PUC requirements discussed above applicable to these
licenses, including the payment of required regulatory fees and
fund contributions, the Fusion Licensee could be subject to fines
and/or other penalties, including revocation of operating
authorizations.
2. VoIP Services
The
Company’s U.S. VoIP services are lightly regulated, although
certain traditional telecommunications regulations have been
applied to VoIP services. The FCC does not require companies to
hold an authorization to provide VoIP services; however, the FCC
does require providers of interconnected VoIP services to comply
with: 911 emergency service requirements; registration
requirements; Communications Assistance for Law Enforcement
requirements; obligations to support Universal Service including
the Universal Service Fund (“USF”), TRS, FCC regulatory fees;
NAMPA, and the Local Number Portability Administration; CPNI
requirements; disability access obligations; LNP requirements;
service discontinuance notification obligations; outage reporting
requirements; and rural call completion reporting and rules related
to ring signal integrity. The FCC defines interconnected VoIP
service as service that (i) enables real-time, two-way voice
communications, (ii) requires a broadband connection from the
user’s location, (iii) requires internet protocol compatible
customer premises equipment, and (iv) permits users generally to
receive calls that originate on and terminate calls to the public
switched telephone network. Under this definition, the Fusion
Licensees are providers of interconnected VoIP service. Should a
Fusion Licensee fail to meet any of the FCC requirements discussed
above or fail to make required contributions in the future, it
could be subject to fines and/or penalties.
As a
result of the FCC’s preemption of states’ ability to
regulate certain aspects of VoIP service, and a trend in state
legislatures to affirmatively deregulate VoIP services for most
purposes, the Company’s VoIP services in the U.S. are subject
to relatively few state regulatory requirements aside from a small
number of registrations, collection of state and local E911 fees
and state Universal Service support obligations. The state
regulatory framework for Fusion Connect’s U.S. VoIP services
continues to evolve, so the Company, in conjunction with its
professional advisors, monitors the actions of the various state
regulatory agencies and endeavors to ensure that it is in
compliance with applicable state law, including any new statutes or
regulations that may be passed. However, there can be no assurance
that the Company will become aware of all applicable requirements
on a timely basis, or that the Company will always be fully
compliant with applicable rules and regulations. Should the Company
fail to be compliant with applicable state regulations, or to file
required reports with state regulatory agencies, the relevant
Fusion Licensee could be subject to fines and/or penalties. The
Company expects to incur ongoing operational, legal, and system
costs in order to comply with these rules and
regulations.
16
E. Debtors’ Existing Capital
Structure
1.
Prepetition Indebtedness
The
following description is for informational purposes only and is
qualified in its entirety by reference to the documents setting
forth the specific terms of such obligations and their respective
related agreements.
(a) Super
Senior Loan Agreement
To
obtain additional working capital during the weeks leading to the
Commencement Date, the Debtors entered into that certain Super
Senior Secured Credit Agreement, dated as of May 9, 2019 (as
amended, supplemented, amended and restated or otherwise modified
from time to time, the “Super Senior Loan Agreement” and
such obligations thereunder, the “Super Senior Loan Claims”) among
Fusion Connect, as borrower, the other Debtors, as guarantor
subsidiaries, Wilmington Trust, National Association
(“Wilmington
Trust”), as administrative agent and collateral agent,
and the lenders party thereto (the “Super Senior
Lenders”).6
As of the Commencement Date, the aggregate principal amount
outstanding under the Super Senior Loan Agreement was
$20.0 million. Obligations under the Super Senior Loan
Agreement are secured by a lien on substantially all of the
Debtors’ assets, including 100% of the equity of non-Debtor
Primus Management.
(b) First
Lien Credit Agreement
As of
the Commencement Date, the Debtors had outstanding first lien
secured debt obligations under that certain First Lien Credit and
Guaranty Agreement, dated as of May 4, 2018 (as amended,
supplemented, amended and restated or otherwise modified from time
to time, the “First Lien
Credit Agreement” and such obligations thereunder,
the “First Lien
Claims”) among Fusion Connect, as borrower, the other
Debtors, as guarantor subsidiaries, Wilmington Trust, as
administrative agent and collateral agent, and the lenders party
thereto (the “First Lien
Lenders”). As of the Commencement Date, the aggregate
principal amount outstanding under the First Lien Credit Agreement
was approximately $585.5 million, which amount consisted of
the following tranches of debt, each secured by the same collateral
with pari passu lien
priority: (i) approximately $44.2 million in
“Tranche A” term loans (the “Tranche A Term Loans”),
(ii) approximately $499.0 million in “Tranche
B” term loans (the “Tranche B Term Loans”), and
(iii) $39.8 million in loans under a revolving facility
(the “Revolving
Loans”), as well as approximately $512,000 in
aggregate face amount of issued and outstanding letters of credit.
Obligations under the First Lien Credit Agreement are secured by a
lien on substantially all of the Debtors’ assets, with a
junior priority to the Super Senior Loan Claims (other than, in
respect of the Vector Subordinated Note Collateral, the Prepetition
First Lien Revolving Lenders and the Prepetition Issuing
Bank).
In
connection with the closing of the First Lien Credit Agreement,
Vector Fusion Holdings (Cayman), Ltd. issued a subordinated note to
Fusion Connect, dated as of May 4, 2018, in the aggregate principal
amount of $25.0 million (the “Vector Subordinated Note”). The
Vector Subordinated Note and the proceeds thereof are pledged to
the collateral agent under the First Lien Credit Agreement for the
benefit of the secured parties thereunder. Under the first lien
credit documents, the super senior loan documents, and the DIP
Order, any value received by the first lien collateral agent, the
super senior collateral agent, the DIP agent, or any secured party
under any of the foregoing facilities in respect of the Vector
Subordinated Note Collateral must be applied first toward the
payment in full of all obligations owing to holders of the
Revolving Loans and the Prepetition Issuing Bank prior to any
application on any other secured obligations in respect of the DIP
Facility, the Super Senior Loan Agreement, or the First Lien Credit
Agreement.
All
rights, title and interest in the Vector Subordinated Note held by
Fusion Connect shall vest in Reorganized FCI upon the Effective
Date. For the avoidance of doubt, nothing in the Second Amended
Plan shall impair the Revolving Lenders’ and Issuing
Bank’s rights or priority with respect to the Vector
Subordinated Note Collateral under the Prepetition First Lien
Credit Documents. Nothing herein shall be deemed to be a finding
that any rights set forth under the Prepetition First Lien Credit
Documents are valid and enforceable after the Effective Date, and
nothing herein shall prejudice or constitute a waiver of any right,
remedy, claim, defense or counterclaim of any First Lien Lender
pursuant to the First Lien Credit Documents or otherwise,
including, without limitation, any defenses it may raise in any
action commenced by any Revolving Lender or other party. Subject to
applicable law, any value received on account of the Vector
Subordinated Note Collateral may be applied at the discretion of
the Reorganized Debtors.
The
Super Senior Lenders are a subset of lenders under the First Lien
Credit Agreement.
17
(c) Second
Lien Credit Agreement
The
Debtors have outstanding second lien term loan obligations under
that certain Second Lien Credit and Guaranty Agreement, dated as of
May 4, 2018 (as amended, supplemented, amended and restated or
otherwise modified from time to time, the “Second Lien Credit Agreement” and
such obligations thereunder, the “Second Lien Claims”) among Fusion
Connect, as borrower, the other Debtors, as guarantor subsidiaries,
GLAS Americas LLC (as successor to Wilmington Trust), as
administrative agent and collateral agent, and the lenders party
thereto (the “Second Lien
Lenders”). As of the Commencement Date, the aggregate
principal amount outstanding under the Second Lien Credit Agreement
was $85.0 million. Obligations under the Second Lien Credit
Agreement are secured by a lien on substantially all of the
Debtors’ assets, with a junior priority to the Super Senior
Loan Claims and the First Lien Claims.
(d) Intercreditor
Agreements
The
secured parties under the Super Senior Loan Agreement and the First
Lien Credit Agreement are subject to that certain Super Senior
Intercreditor Agreement, dated as of May 9, 2019 (as amended,
supplemented, amended and restated or otherwise modified from time
to time, the “Super Senior
Intercreditor Agreement”) among Wilmington Trust, in
its capacities as super senior representative and first lien
obligations representative. The secured parties under the Super
Senior Loan Agreement, the First Lien Credit Agreement, and the
Second Lien Credit Agreement are subject to that certain
Intercreditor Agreement, dated as of May 4, 2018 (as amended,
supplemented, amended and restated or otherwise modified from time
to time, the “1L / 2L
Intercreditor Agreement”, and, together with the Super
Senior Intercreditor Agreement, the “Intercreditor Agreements”) among
Wilmington Trust, in its capacities as additional first lien
obligations representative and first lien obligations
representative, and GLAS Americas LLC (as successor to Wilmington
Trust) as second lien obligations representative.
(e) Green
Note
Fusion
Connect has an outstanding note obligation under that certain
Subordinated Promissory Note, dated as of May 4, 2018
(the “Green
Note”) between Fusion Connect and Holcombe T. Green,
Jr. As of the Commencement Date, the aggregate principal amount
outstanding under the Green Note was $10.0 million.
Obligations under the Green Note are unsecured.
(f) Bircan
Notes
Fusion
BCHI is party to three (3) outstanding notes (collectively,
the “Bircan
Notes”): (i) that certain Amended and Restated
Subordinated Promissory Note, dated as of May 4, 2018, with a
principal outstanding amount of approximately $1.5 million;
(ii) that certain Amended and Restated Subordinated Promissory
Note, dated as of May 4, 2018, with a principal outstanding amount
of $1.3 million; and (iii) that certain Amended and
Restated Subordinated Promissory Note, dated as of May 4, 2018,
with a principal outstanding amount of $0.5 million. As of the
Commencement Date, the aggregate principal amount outstanding under
the Bircan Notes was approximately $3.3 million. Obligations
under each of the Bircan Notes are unsecured.
18
(g) Intercompany
Note
Each of
the Debtors, as well as the Canadian Subsidiaries, are party to
that certain Global Intercompany Note, dated as of
May 9, 2019 (the “Intercompany Note”). All parties
to the Intercompany Note are both “payors” and
“payees,” and the Intercompany Note does not
contemplate any static principal amount owing. The Intercompany
Note governs the fluctuating balance of intercompany receivables
and payables between each of FCI’s subsidiaries. All
obligations under the Intercompany Note are unsecured as between
payors and payees, other than an intercompany loan in the principal
amount of $2.0 million made by Fusion Connect to Primus Management,
which is secured by a lien on certain assets of Primus Management.
Obligations under the Intercompany Note are pledged as security for
all tranches of the Company’s secured debt.
2.
Equity Ownership
As of
the Commencement Date, 150,000,000 shares of Fusion Connect common
stock, $0.01 par value per share, were authorized and 81,967,263
shares of Fusion Connect common stock were issued and outstanding.
As of June 21, 2019, there were 646 record holders of the
common stock, with approximately 60.7% held by BCHI.7 As of the Commencement Date, 10,000,000
shares of Fusion Connect preferred stock were authorized and 15,000
shares of Series D preferred stock were issued and outstanding, all
of which are held by BCHI. The Company was delisted from the NASDAQ
Global Market effective May 13, 2019.
III.
A. Birch
Merger
The
Company has historically driven its growth in substantial part
through strategic acquisitions. On August 26, 2017, in furtherance
of that strategy, Fusion Connect and Fusion BCHI entered into a
merger agreement with Birch, which underlying transaction closed on
May 4, 2018. Due to a number of factors, including the
fact that Birch was the larger entity and the previous Birch
shareholders would acquire 65.2% of the outstanding shares of
Fusion Common Stock, the transaction constituted a reverse merger
with FCI being the acquirer for legal purposes and Birch being the
acquirer of FCI for accounting purposes. In connection with the
Birch Merger, the Company also spun-off Lingo Management, LLC
(“Lingo”),8 along with certain related subsidiaries,
to the previous Birch shareholders.
To
finance the Birch Merger, the Company entered into the First Lien
Credit Agreement and the Second Lien Credit Agreement.9 The Company used proceeds from the
foregoing to: (i) refinance the Company’s and its
subsidiaries’ existing indebtedness, (ii) pay expenses
related to the Birch Merger and associated transactions, and
(iii) pay down certain subordinated notes owed by Birch to
Holcombe T. Green, Jr., R. Kirby Godsey, and Holcombe T. Green,
III. The Company also applied a portion of the proceeds from the
First Lien Credit Agreement to pay a portion of the purchase price
for MegaPath.
FCI
pursued the Birch Merger with a vision of leveraging its existing
processes and structures to create synergies between Fusion
Connect’s and Birch’s joined customer bases, combine
network infrastructure assets to improve operational efficiencies,
and ultimately drive material growth in Fusion Connect’s and
Birch’s combined annual revenue. While the Company was able
to improve operations and use the Birch Merger as a platform for
expansion, the Birch business plan proved to be overly aggressive
in terms of sustained customer bookings and price increases. A
number of factors, including missed revenue projections left the
Company with significantly less liquidity than originally
anticipated.
Holcombe
T. Green, Jr. is the managing member of BCHI and has voting and
dispositive power over BCHI’s shares of Fusion Connect common
stock.
Lingo
operated Birch’s business relating to its U.S.-based consumer
customers, wireless customers, and small business customer
base.
On
the same date, Fusion Connect entered into the Green Note and
Fusion BCHI entered into the Bircan Notes.
19
B. Amortization and Interest
Payments
The
Company’s liquidity position exposed it to default risk under
both the First Lien Credit Agreement and Second Lien Credit
Agreement. By the end of March 2019, the Company faced a pending
$6.7 million amortization payment under the First Lien Credit
Agreement and a $300,000 interest payment on the Green Note due on
March 31, 2019 (together, the “Amortization and Interest
Payments”). In light of the Company’s limited
working capital, it determined that it was unlikely to be able to
make the Amortization and Interest Payments, and such non-payment
would likely trigger a cross-default under the Second Lien Credit
Agreement.
Thus,
the Company began liaising with its key constituencies to obtain a
waiver of existing defaults, and to engage in negotiations
regarding potential restructuring of the Company’s
indebtedness. Meanwhile, due to the Company’s failure to
timely file its 2018 Form 10-K with the SEC and to pay certain
NASDAQ listing fees, NASDAQ delisted Fusion Connect’s common
stock from its exchange, effective May 13, 2019.
C. Vendor
Relationships and Lingo Dispute
The
Company’s precarious liquidity position forced it to stretch
trade terms with its vendors. As a result, the Company’s
relationships with many of its vendors became increasingly
strained.
The
Company also is involved in disputes with Lingo regarding the value
of the assets transferred to Lingo in connection with the Birch
Merger and also stemming from Lingo’s failure to remit
payments owed to the Company for certain services the Company has
provided to Lingo since the Birch Merger pursuant to a transition
services agreement and a carrier services agreement. As of the
Commencement Date, outstanding amounts remain due and owing to the
Company.
D. Pursuit of
New Equity Investment
Weil,
Gotshal & Manges LLP and FTI Consulting, Inc. were each
retained in March 2019 to assist the Company in exploring and
evaluating potential transactions to improve its financial
position. The Company and its advisors began by engaging in
discussions with the Company’s majority shareholder and
certain lenders regarding the possibility of a new capital infusion
and amendments to the First Lien Credit Agreement and the Second
Lien Credit Agreement. By early April 2019, negotiations had
progressed to a point where the Company, the majority shareholder,
and certain lenders were close to finalizing an agreement in
principle. Ultimately, however, the parties were unable to agree on
final terms.
E. Forbearance
Agreement
In
light of the outstanding defaults under the First Lien Credit
Agreement and Second Lien Credit Agreement, the Company remained
engaged in extensive discussions with the First Lien Lender Group,
certain lenders holding Tranche A Term Loans and Revolving Loans,
the Second Lien Lenders, and each of their respective advisors.
Such discussions culminated in a forbearance agreement, dated
April 15, 2019 (the “Forbearance Agreement”) among
Fusion Connect and substantially all of its lenders under the First
Lien Credit Agreement (collectively, the “Forbearing Lenders”). Pursuant to
the Forbearance Agreement, the Forbearing Lenders agreed not to
exercise any remedies under the First Lien Credit Agreement with
respect to the Company’s then existing defaults until
April 29, 2019. Certain Forbearing Lenders subsequently
extended the term of the Forbearance Agreement to June 3,
2019.
20
Although
the Company was unable to reach an agreement with the Second
Lien Lenders as to a similar forbearance, the Second Lien Lenders
were nonetheless barred from exercising remedies under the Second
Lien Credit Agreement due to a 150-day standstill provision set
forth in the 1L / 2L Intercreditor Agreement.
F. Super
Senior Financing
As
described above, during the forbearance period, the Company and the
First Lien Lender Group continued discussions to build a path
toward a consensual sale or reorganization transaction. On May 9,
2019, the Company closed the Super Senior Loan Agreement, securing
an additional $15.0 million in liquidity, and on May 28, 2019
obtained an incremental $5.0 million thereunder.
G. Formation
of Restructuring Committee
On May
10, 2019, in connection with the Company’s evaluation of
strategic alternatives and as contemplated by the Super Senior Loan
Agreement, Fusion Connect’s board of directors
(the “Board”) increased the size of the
Board from seven (7) to eight (8) members and appointed Neal P.
Goldman to the Board. Given his experience and familiarity with the
restructuring situations, Mr. Goldman understood that he would take
on a leading role with respect to the Company’s potential
restructuring.
The
Board selected Mr. Goldman from a slate of candidates proposed to
the Board by the Company’s advisors after interviewing
several such candidates and determining that Mr. Goldman possesses
the relevant and appropriate qualifications, experience, and skills
to serve as a director. More details about Mr. Goldman’s
qualifications and experience are set forth in the Company’s
Current Report on Form 8-K filed with the SEC on May 14, 2019. Mr.
Goldman’s representative board experience, which the Board
determined makes Mr. Goldman an ideal candidate to serve as a
Director and as a member of the Special Committee, includes his
current positions as Chairman of the Board of Talos Energy Inc.,
and member of the Boards of Ultra Petroleum Corporation and Ditech
Holding Corporation.
As
explained in the Form 8-K, there are “no arrangements or
understandings between Mr. Goldman and any other persons pursuant
to which Mr. Goldman was selected as director. There are no family
relationships between Mr. Goldman and the Company’s existing
directors and officers. There has been no transaction, nor is there
any currently proposed transaction, between Mr. Goldman and the
Company that would require disclosure” under Item 404 of
Regulation S-K. Based on information submitted to and known by the
Board, the Board assessed Mr. Goldman’s independence and
determined that Mr. Goldman is independent in accordance with the
rules of Nasdaq Stock Market.
Mr.
Goldman also has no relationship or connections to the
Company’s Lenders whatsoever, including Vector Capital. To
his best knowledge and belief, Mr. Goldman does not know and has
never met any member of the Ziff family or any affiliate of Vector.
Mr. Goldman served as a Managing Director at Och Ziff Capital
Management, L.P. (“Och
Ziff”) from 2014-2016. Och Ziff is one of the largest
institutional alternative asset managers in the world. Och Ziff was
founded in 1994 by Daniel Och with financial support (an initial
investment into Mr. Och’s enterprise known as “seed
money”) from the Ziff family. When Mr. Goldman was employed
by Och Ziff, to his knowledge and belief, there was no remaining
affiliation between the Ziff family and Och Ziff.
On May
28, 2019, the Board established and appointed Mr. Goldman, along
with Michael J. Del Giudice, Lewis W. Dickey, Jr., and Rafe de la
Gueronniere (collectively, the “Independent Directors”) to serve
on the Restructuring Committee of the Board to, among other things,
evaluate and negotiate potential sale and restructuring
transactions for the Company.
21
The
Restructuring Committee has complete and exclusive authority over
the Debtors’ restructuring, including all matters related to
the Chapter 11 Cases other than the matters within the purview of
the Special Committee (as defined below).
H. Formation
and Function of Special Committee
Separately,
the Board established a special committee
(the “Special
Committee”) to review, investigate, and determine
whether to pursue any remedies or other appropriate actions with
respect to potential claims belonging to the Company against
affiliates. In line with the mandate of the Special Committee, Mr.
Goldman was appointed as the sole member of the Special Committee
principally because Mr. Goldman (and only Mr. Goldman) was not
involved in any of the prior transactions involving the Company
that were the subjects of the investigation.
In
connection with its investigation, Mr. Goldman has been advised by
Weil, Gotshal & Manges LLP, as legal counsel. The Special
Committee has reviewed internal documents and communications,
including, among other documents, (i) all board of director meeting
minutes and associated materials dating from June 2017 through May
2018, (ii) all material documents pertaining to the Fusion and
Birch Merger, (iii) presentations by the Company’s financial
advisor in connection with the merger, and (iv) a schedule
evidencing all Birch shareholder distributions and director
payments from 2014-2016, along with correspondence between Fusion
and outside parties (including Lingo). The Special Committee also
interviewed four (4) Fusion current and former directors and
officers, and interviewed the Company’s outside auditor,
Eisner Amper.
The
Special Committee also conducted an analysis of potential claims
the Debtors may have, including against any current or former
directors, officers, or affiliates of the Company. Among other
things, the Special Committee investigated claims for breaches of
fiduciary duty, constructive fraudulent transfer, and professional
malpractice. Disclosure of the conclusions reached by the Special
Committee, if any, could prejudice these potential
claims.
The
Special Committee and the Company have also responded to document
requests received from the Creditors’ Committee (as defined
below) and the Special Committee is coordinating with the
Creditors’ Committee and the parties to the Restructuring
Support Agreement regarding its investigation. Notably, under the
Second Amended Plan, the Special Committee has identified
individuals and entities that will not be released pursuant to the
Second Amended Plan, including former directors and officers of the
Debtors as well as certain current directors of the Board and
officers, to allow the Special Committee to complete its work. The
Special Committee is satisfied that none of the releases or
exculpatory provisions in the Second Amended Plan will impede the
ability of the Litigation Trust Oversight Committee to complete its
investigation and, if appropriate, pursue claims. The
Creditors’ Committee and the First Lien Lender Group each
agreed to the proposed releases and exculpations contemplated in
the Second Amended Plan.
22
I. Marketing
Process
In May 2019, the Company and its advisors conducted the Prepetition
Marketing Process. PJT Partners LP (“PJT”),
on behalf of the Company, contacted over forty (40) potential
investors, with the aim of attracting multiple proposals to either
(i) provide a preferred or common equity investment or (ii) acquire
the Company’s business on a cash-free, debt-free basis. In
connection with this solicitation, the Company and its advisors
prepared, among other things, a confidential information memorandum
(“CIM”)
and an electronic data room to provide potential investors and
bidders with adequate information upon which to make a proposal.
During this process, sixteen (16) interested investors executed
confidentiality agreements and were granted access to the CIM,
which contains significant diligence and other confidential
information about the Company’s business. The deadline for
interested investors to submit initial bids was May 21, 2019.
Although no formal IOIs were received, several of these parties
indicated ongoing interest, and the Company and its advisors
continue to engage in discussions with these parties and provide
due diligence information (including access to an electronic data
room). In support of the Company’s Marketing Process, the
Company obtained approval of bidding and auction procedures for the
orderly and value-maximizing marketing and sale of the
Company’s business.
Following the Commencement Date, PJT contacted approximately one
hundred and twenty-five (125) additional potential investors,
twenty-two (22) of which entered into non-disclosure agreements and
received access to the CIM. Pursuant to the Bidding Procedures
Order, the deadline to submit non-binding indications of interest
was July 16, 2019. The Debtors received five (5) IOIs indications
of interest for the U.S. Business and six (6) IOIs for the Canadian
Business. The Debtors, with the assistance of their financial
advisors, engaged in numerous discussions with the parties that
submitted IOIs in an attempt to increase the value of the bids
contained therein.
Following
extensive analysis of the IOIs received, and with the support of
each of the Consultation Parties (as defined in the Bidding
Procedures Order), on August 27, 2019, the Debtors filed a
Notice of Election to Pursue
Reorganization Transaction and Termination of U.S. Sale
Process with the Bankruptcy Court (the “Notice of Election”). Notably,
none of the IOIs would have resulted in any recovery to the Second
Lien Lenders or other junior creditors. The Debtors considered this
as a significant factor in their valuation of the Reorganization
Transaction. Pursuant to the Restructuring Support Agreement, New
Equity Interests and/or Special Warrants will be distributed to the
holders of Allowed First Lien Claims. Pursuant to the Restructuring
Support Agreement, the Requisite First Lien Lenders have consented
to the termination of the Marketing Process for the U.S. Business
and instead have elected to pursue the Reorganization Transaction.
Fusion Connect is continuing to pursue the Marketing Process with
respect to the Canadian Business.
J. Alternative
Restructuring Proposals
Simultaneously
with its negotiations with the First Lien Lender Group, the Company
remained in discussions with other key stakeholders. The Company
and the First Lien Lender Group have continued discussions with all
key stakeholders during the Chapter 11 Cases.
IV.
OVERVIEW OF THE
CHAPTER 11 CASES
A. Commencement of Chapter 11 Cases and
First Day Motions
On June
3, 2019, the Debtors commenced the Chapter 11 Cases. The Debtors
continue to manage their estates as debtors-in-possession pursuant
to sections 1107(a) and 1108 of the Bankruptcy Code. To that end,
the Debtors filed various motions seeking relief from the
Bankruptcy Court to promote a seamless transition between the
Debtors’ prepetition and postpetition business operations,
facilitate a smooth restructuring through the Chapter 11 Cases, and
minimize any disruptions to the Debtors’ operations (the
“First Day
Motions”). At the first day hearing held on June 4,
2019 and continued on June 10, 2019, the Bankruptcy Court granted
substantially all of the relief requested in the First Day Motions
and entered various orders authorizing the Debtors to, among other
things:
23
■
continue paying
employee wages and benefits;
■
continue to use the
Debtors’ cash management system, bank accounts, and business
forms;
■
pay certain
critical vendors and obligations with respect to prepetition orders
of goods and services to be delivered postpetition;
■
pay prepetition
claims of shippers, warehousemen, and other lien
claimants;
■
continue insurance
and workers’ compensation programs, the processing of
workers’ compensation claims, and continue the Debtors’
surety bond program;
■
continue to pay all
taxes, fees, and similar charges and assessments, whether arising
prepetition or postpetition, to the appropriate taxing, regulatory,
or other governmental authority in the ordinary
course;
■
continue customer
programs;
■
establish
procedures for utility companies to request adequate assurance of
payment and to prohibit utility companies from altering or
discontinuing services; and
■
obtain
debtor-in-possession financing and use cash collateral, as
discussed in more detail herein.
B. DIP
Facility and Cash Collateral
1. DIP Facility
To pay
their ordinary course operating expenses, finance the Chapter 11
Cases, and, ultimately, provide the Debtors with the flexibility to
consummate the transactions contemplated by the Restructuring
Support Agreement, the Debtors filed a motion (ECF No. 17) (the
“DIP Motion”) to
enter into the DIP Facility, which consists of (i) up to $39.5
million in new money term loans and (ii) up to $20.0 million
in roll-up term loans. The DIP Facility ensures that the
Debtors’ financing needs can be met during the Chapter 11
Cases. The term of the DIP Facility is four (4) months from the
closing date of the DIP Facility, with an option for up to three
(3) extensions, each for a term of one (1) month, if approved by
the Requisite Lenders. The interim order granting the relief
requested in the DIP Motion, including an interim draw of up to
$20.0 million under the DIP Facility, can be found at ECF No. 57
(the “Interim DIP
Order”) and the final order granting the relief
requested in the DIP Motion, including a draw of up to $19.5
million under the DIP Facility, can be found at ECF No. 160 (the
“Final DIP
Order”, and, together with the Interim DIP Order, the
“DIP
Orders”).10
On
October 4, 2019, the Debtors and the DIP Lenders executed an
amendment to the Superpriority Secured Debtor-in-Possession Credit
and Guaranty Agreement which, among other things, moved the Stated
Maturity Date (as defined in the DIP Credit Agreement) from October
7, 2019 to November 7, 2019.
2. Cash Collateral
In
addition, the Debtors are authorized, on an interim basis, to
consensually use the cash collateral of the Prepetition Secured
Parties. In exchange, the Debtors are providing the Prepetition
Secured Parties with the following:
Capitalized
terms used but not otherwise defined in this Section IV.B shall
have the respective meanings ascribed to such terms in the DIP
Orders.
24
(a) Adequate
Protection Liens
The Prepetition Super Senior Agent, for itself and for the
benefit of the Prepetition Super Senior Lenders, has, in the amount
of the Prepetition Super Senior Secured Parties’ Adequate
Protection Claims, a valid, perfected replacement security
interest in and lien upon all of the DIP Collateral, in each case
subject and subordinate only to (i) the Carve Out and (ii) the DIP
Liens and any liens to which the DIP Liens are junior (including
the Prepetition Permitted Prior Liens and Senior Permitted Liens
and, solely with respect to the Vector Subordinated Note
Collateral, the liens securing the claims of the Prepetition First
Lien Revolving Lenders and the Prepetition Issuing Bank arising
under the Prepetition First Lien Credit Agreement).
The
Prepetition First Lien Agent, for itself and for the benefit of the
Prepetition First Lien Lenders, has, in the amount of the
Prepetition First Lien Lenders’ Adequate Protection Claims, a
valid, perfected replacement security interest in and lien upon all
of the DIP Collateral, in each case subject and subordinate only to
(i) the Carve Out, (ii) the DIP Liens and any liens to which the
DIP Liens are junior (including the Prepetition Permitted Prior
Liens and Senior Permitted Liens and, solely with respect to the
Vector Subordinated Note Collateral, the liens securing the claims
of the Prepetition First Lien Revolving Lenders and the Prepetition
Issuing Bank arising under the Prepetition First Lien Credit
Agreement), (iii) the Super Senior Adequate Protection Liens, and
(iv) Prepetition Super Senior Credit Facility Liens.
The
Prepetition Second Lien Agent, for itself and for the benefit of
the Prepetition Second Lie Lenders, has, in the amount of the
Prepetition Second Lien Lenders’ Adequate Protection Claims,
a valid, perfected replacement security interest in and lien upon
all of the DIP Collateral, in each case subject and subordinate
only to (i) the Carve Out, (ii) the DIP Liens and any liens to
which the DIP Liens are junior (including the Prepetition Permitted
Prior Liens and Senior Permitted Liens), (iii) the Super Senior
Adequate Protection Liens, (iv) the Prepetition Super Senior Credit
Facility Liens, (v) the First Lien Adequate Protection Liens, and
(vi) the Prepetition First Lien Credit Facility Liens.
(b) 507(b)
Claims
The
Prepetition Super Senior Agent, the Prepetition First Lien Agent,
and the Prepetition Second Lien Agent, for itself and for the
benefit of each of the Prepetition Super Senior Lenders, the
Prepetition First Lien Lenders and the Prepetition Second Lien
Lenders, respectively, are entitled to receive an administrative
expense claim pursuant to section 507(b) of the Bankruptcy Code,
for and equal in amount to the aggregate diminution in value of
their collateral, if any, subject to the Carve-Out and the
priorities set forth in the DIP Facility.
25
(c) Adequate
Protection Payment and Interest Accrual
Only
after the DIP Obligations are fully discharged, the Prepetition
Super Senior Agent, on behalf of the Prepetition Super Senior
Lenders, until the Prepetition Debt Refinancing occurs, and the
Prepetition First Lien Agent, on behalf of the Prepetition First
Lien Lenders, will receive cash payments in an amount equal to the
amount of the net cash proceeds received by the Debtors of the sale
of any Prepetition Collateral (including, for the avoidance of
doubt, net cash proceeds from the sale of Prepetition Collateral in
connection with an Asset Sale (as such term is defined in the DIP
Credit Agreement)), payable not later than the fifth business day
following the date of receipt of such proceeds; provided, that, in
the event that payment of such cash payments would result in the
Debtors’ having less cash on hand than the amount of the
Carve-Out, the costs associated with administering the
Debtors’ estates payable under the Budget prior to any
wind-down of the Debtors’ estates, and the reasonable
expected costs associated with the wind-down of the Debtors’
estates (the “Reserve
Amount”), such cash payments shall be reduced to the
extent that, following the payment of such cash payments, the
Debtors’ cash on hand is equal to the Reserve Amount. Until
the Prepetition Debt Refinancing occurs, the Prepetition Super
Senior Agent, on behalf of the Prepetition Super Senior Lenders,
received or will receive, as applicable, (x) on the date of entry
of the Interim DIP Order, all interest that accrued on the
Prepetition Super Senior Loans and that was due and payable on June
3, 2019, (y) on the last business day of each month, all interest
that accrued on the Prepetition Super Senior Loans during the
monthly period (or portion thereof) ending on such last business
day and (z) on the date that the Prepetition Debt Refinancing
occurs, all accrued and unpaid interest on the Prepetition Super
Senior Loans (with interest on the Prepetition Super Senior Loans,
for purposes of clauses (y) and (z) of this sentence, being
calculated based upon the non-default “Base Rate” plus
the “Applicable Rate” applicable to “Base Rate
Loans” as set forth in the Prepetition Super Senior Credit
Agreement). The Prepetition First Lien Agent, on behalf of the
Prepetition First Lien Lenders, received or will receive (i) on the
date of entry of the Interim DIP Order, payment in-kind of all
accrued and unpaid interest on the Prepetition First Lien Loans
(which interest shall be capitalized and added to the principal
amount of the applicable Prepetition First Lien Loans on the date
hereof) and (ii) on the last business day of each month, payment
in-kind of all interest that accrued on the Prepetition First Lien
Loans during the monthly period (or portion thereof) ending on such
last business day (which interest shall be capitalized and added to
the principal amount of the applicable Prepetition First Lien Loans
on such last business day), with interest on the Prepetition First
Lien Loans, for purposes of this clauses (ii), being calculated
based upon the non-default “Base Rate” plus the
“Applicable Rate” applicable to such “Base Rate
Loans” as set forth in the Prepetition First Lien Credit
Agreement. In the event that it is determined by a final order,
which order shall not be subject to any appeal, stay, reversal or
vacatur, that (i) no Diminution in Collateral Value of any
Prepetition First Lien Secured Party’s respective interests
has occurred or (ii) such Prepetition First Lien Secured Party is
determined to be undersecured, then a party in interest shall have
the right to assert that such payments of adequate protection shall
be applied toward repayment of the principal amount due on such
Prepetition First Lien Debt as is owing to such Prepetition First
Lien Secured Party.
(d) Adequate
Protection Fees and Expenses
The
Prepetition Super Senior Agent shall receive, for the benefit of
the Prepetition Super Senior Lenders, current cash payments of the
reasonable and documented prepetition and postpetition fees and
expenses of the Prepetition Super Senior Agent under the
Prepetition Super Senior Credit Documents and the First Lien Lender
Group, including, but not limited to, the reasonable and documented
fees and out-of-pocket expenses of Arnold & Porter Kaye Scholer
LLP (solely in its capacity as counsel to the Prepetition Super
Senior Agent), Davis Polk & Wardwell LLP, Wiley Rein LLP, local
counsel to the First Lien Lender Group, if any, Greenhill &
Co., Inc., Altman Vilandrie & Company and its sub-agents, and
any other advisors retained by the First Lien Lender Group, subject
to the review procedures set forth in the DIP Orders. The
Prepetition First Lien Agent shall receive, for the benefit of the
Prepetition First Lien Lenders, current cash payments of the
reasonable and documented prepetition and postpetition fees and
expenses of (1) the Prepetition First Lien Agent under the
Prepetition First Lien Credit Documents and the First Lien Lender
Group, including, but not limited to, the reasonable and documented
fees and out-of-pocket expenses of Arnold & Porter Kaye Scholer
LLP (solely in its capacity as counsel to the Prepetition First
Lien Agent), Davis Polk & Wardwell LLP, Wiley Rein LLP, local
counsel to the First Lien Lender Group, if any, Greenhill &
Co., Inc., Altman Vilandrie & Company and its sub-agents, and
any other advisors retained by the First Lien Lender Group, to the
extent not duplicative to the fees and expenses paid as Super
Senior Adequate Protection Fees and Expenses, and (2) certain of
the Prepetition First Lien Revolving Lenders constituting only
those reasonable and documented fees and out-of-pocket
disbursements of Simpson Thacher & Bartlett LLP, incurred
directly in connection with matters specific to the Prepetition
First Lien Revolving Lenders, each subject to the review procedures
set forth in the DIP Orders.
26
(e) Adequate
Protection Milestones
The
Prepetition Super Senior Secured Parties and Prepetition First Lien
Secured Parties are entitled to performance of certain Adequate
Protection Milestones, which cannot be waived, amended, modified or
extended from time to time, in each case (i) as to the Prepetition
Super Senior Secured Parties absent (a) order of the Court or (b)
prior written consent of the Super Senior Requisite Lenders and
(ii) as to the Prepetition First Lien Secured Parties, absent (a)
order of the Court or (b) prior written consent of the First Lien
Requisite Lenders, in certain instances as amended and reflected in
the Final DIP Order.
(f) Financial
Covenant Compliance
The
Prepetition Super Senior Secured Parties and the Prepetition First
Lien Secured Parties are entitled to compliance by the Debtors of
those certain financial covenants set forth in section 6.7 of the
DIP Credit Agreement.
(g) Information
Rights
The
Debtors will promptly provide the Prepetition Super Senior Agent,
on behalf of itself and on behalf of the Prepetition Super Senior
Lenders, the Prepetition First Lien Agent, on behalf of itself and
on behalf of the Prepetition First Lien Lenders, and the
Prepetition Second Lien Agent, on behalf of itself and on behalf of
the Prepetition Second Lien Lenders, with all required written
financial reporting and other periodic reporting that is required
to be provided to the DIP Agent or the DIP Lenders under the
DIP Documents.
(h) Additional
Adequate Protection
In the
event the Debtors file, support, make a proposal or counterproposal
to any party relating to, or take any other similar action in
furtherance of (any of the foregoing, a “Non-Permitted Action”) a plan of
reorganization that does not propose to pay all claims on account
of the Prepetition First Lien Debt in cash or with such other
consideration acceptable to the First Lien Requisite Lenders (such
plan, a “Non-Permitted
Plan”), the Debtors shall provide notice to counsel to
the First Lien Lender Group not less than seven (7) business days
before taking such Non-Permitted Action (the “Non-Permitted Plan Notice”). Upon
delivery of a Non-Permitted Plan Notice, the Prepetition First Lien
Secured Parties shall have the right to immediately terminate
Debtors’ right to use Cash Collateral pursuant to the DIP
Orders.
(i) Vector
Subordinated Note Collateral
Notwithstanding
anything to the contrary in the DIP Orders or in any DIP Document,
with respect to the Vector Subordinated Note Collateral, (i) each
of the DIP Liens, the DIP Priming Liens, the DIP Superpriority
Claims, the other Adequate Protection Liens, the other Adequate
Protection Obligations, and the other Adequate Protection 507(b)
Claims shall not prime, but are junior and subordinate to, the
claims and Liens, including the First Lien 507(b) Claims, the First
Lien Adequate Protection Liens and the other Adequate Protection
Obligations, of the Prepetition First Lien Revolving Lenders and
the Prepetition Issuing Bank in respect of the Vector Subordinated
Note Collateral, and nothing therein shall be deemed to release the
obligations of Vector SPV arising out of or related to the Vector
Subordinated Note Collateral; and (ii) nothing in the DIP Orders or
the DIP Documents shall impair the Prepetition First Lien Revolving
Lenders’ and the Prepetition Issuing Bank’s rights or
priority with respect to the Vector Subordinated Note
Collateral.
27
C. Procedural
Motions and Retention of Professionals
The
Debtors have also filed several other motions that are common in
chapter 11 proceedings of similar size and complexity as the
Chapter 11 Cases, including applications to retain various
professionals to assist the Debtors in the Chapter 11
Cases.
D. Appointment
of the Creditors’ Committee
On June
18, 2019, the Creditors’ Committee was appointed by the
Office of the United States Trustee for Region 2 (the
“U.S. Trustee”)
pursuant to section 1102 of the Bankruptcy Code to represent the
interests of unsecured creditors in the Chapter 11 Cases (ECF No.
98). The members of the Creditors’ Committee are Abante
Rooter and Plumbing, Inc., AT&T Services, Inc., and Equinix,
Inc. The Creditors’ Committee retained Cooley LLP as its
counsel and AlixPartners as its financial advisor. The Debtors
intend to continue to consult with the Creditors’ Committee
throughout the Chapter 11 Cases and have participated in numerous
teleconferences and an in-person meeting with advisors to the
Creditors’ Committee to discuss and consult with respect to
the administration of the Chapter 11 Cases, the Marketing Process,
and the Second Amended Plan. These discussions have resulted in,
among other positive outcomes, the Global Settlement.
E. Schedules
and Statements; Rule 2015.3 Financial Reports
On July
16, 2019, the Debtors each filed their schedules of assets and
liabilities and statements of financial affairs (collectively, the
“Schedules and
Statements”) (ECF Nos. 6-8 and 191-228). The Schedules
and Statements, as may be amended from time to time, and are
incorporated into this Disclosure Statement by reference. On July
12, 2019, the Debtors filed a Rule 2015.3 financial report (the
“Rule 2015.3
Report”) (ECF No. 179). The Rule 2015.3 Report is
incorporated into the Disclosure Statement by
reference.
F. Bar
Date
On July
16, 2019, the Bankruptcy Court entered an order establishing (i)
August 27, 2019 at 5:00 p.m. (prevailing Eastern Time), as the
deadline for all non-governmental units (as defined in section
101(27) of the Bankruptcy Code) to file proofs of claim in the
Chapter 11 Cases (the “General Bar Date”); (ii)
December 2, 2019 at 5:00 p.m. (prevailing Eastern Time) as the
deadline for all governmental units (as defined in section 101(27)
of the Bankruptcy Code) to file proofs of claim in the Chapter 11
Cases (the “Governmental Bar
Date”); (iii) the later of (a) the General Bar Date or
the Governmental Bar Date, as applicable, and (b) 5:00 p.m.
(prevailing Eastern Time) on the date that is thirty (30) days
after entry of an order approving rejection of any executory
contract or unexpired lease of the Debtors as the deadline by which
persons or entities asserting claims resulting from such rejection
must file proofs of claim in the Chapter 11 Cases (the
“Rejection Damages Bar
Date”); and (iv) the later of the (a) General Bar Date
or the Governmental Bar Date, as applicable, and (b) 5:00 p.m.
(prevailing Eastern Time) on the date that is thirty (30) days from
the date on which the Debtors provide notice of a previously
unfiled Schedule or an amendment or supplement to a Schedule as the
deadline by which persons or entities affected by such filing,
amendment, or supplement must file proofs of claim in the Chapter
11 Cases (the “Amended
Schedules Bar Date”).
G. Lease
Rejection Motions
Before
and during the Chapter 11 Cases, the Debtors and their advisors
have conducted and are continuing to review their lease portfolio
to identify leases that are no longer required and/or are
burdensome to the Debtors. In conjunction with this review and to
preserve value to the Estate, the Debtors have filed two (2)
motions to reject certain unexpired leases of non-residential real
property and to abandon certain property in connection therewith
(ECF Nos. 236, 365), and orders were entered granting both motions
on August 1, 2019 (ECF No. 281) and September 16, 2019 (ECF No.
400), respectively. The Debtors may elect, in their sole
discretion, to file additional motions to reject non-residential
real property on or after the Date of the Disclosure
Statement.
28
H. Exclusivity
Section 1121(b) of the Bankruptcy Code provides for a period of 120
days after the commencement of a chapter 11 case during which time
a debtor has the exclusive right to file a plan of reorganization
(the “Exclusive Plan
Period”). In
addition, section 1121(c)(3) of the Bankruptcy Code provides that
if a debtor files a plan within the Exclusive Plan Period, it has a
period of 180 days after commencement of the chapter 11 case to
obtain acceptances of such plan (the “Exclusive
Solicitation Period,” and together with the
Exclusive Plan Period, the “Exclusive
Periods”).
Pursuant to section 1121(d) of the Bankruptcy Code, the Bankruptcy
Court may, upon a showing of cause, extend the Exclusive
Periods.
On September 16, 2019, the Bankruptcy Court entered an order
extending the Exclusive Plan Period to December 30, 2019 and the
Exclusive Solicitation Period to February 28, 2020 (ECF No. 399).
The Exclusive Periods may be further extended by the Bankruptcy
Court subject to section 1121(d) of the Bankruptcy
Code.
I. Litigation
Matters
In the
ordinary course of business, the Debtors are involved in disputes
with a variety of different parties. The Company is also subject to
regulatory and governmental examinations, information requests and
subpoenas, inquiries, investigations, and threatened legal actions
and proceedings. In connection with formal and informal inquiries,
the Company receives occasional requests in connection with various
aspects of the Company’s activities.
1. GrandSlam Capital Master Fund, Ltd. v. Rosen et
al.
On June
7, 2019, a U.S. federal securities class action was filed in the
Southern District of New York against the following current and
former officers of the Company, Matthew D. Rosen, Kevin M. Dotts,
and Keith Soldan. This case, captioned GrandSlam Capital Master Fund, Ltd. v. Rosen
et al., No. 1:19-cv-05362-PGG, asserts claims for monetary
relief under Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934, during a class period alleged to range from May 11,
2018 to April 2, 2019. On July 23, 2019, the court appointed a lead
plaintiff and lead counsel in this action. A class has not yet been
certified in this action.
2. Lingo Dispute
Lingo
and the Company are involved in a dispute regarding (i) the value
of assets transferred to Lingo in connection with the
Company’s closing of the Birch Merger and (ii) Lingo’s
failure to remit payments owed to the Company in connection with
certain services the Company has provided to Lingo since the Birch
Merger pursuant to a transition services agreement and a carrier
services agreement. As of the Commencement Date, outstanding
amounts remain due and owing to the Company. The Company has sent a
litigation hold notice, demands for payment, and advised Lingo it
will end service to Lingo absent payment. No litigation has
commenced and the parties are still attempting to informally
resolve the dispute.
29
3. Other Litigation
As
mentioned above, in the ordinary course of business, the Company is
involved in occasional disputes, including pending class action
cases with the potential to result in high amounts of damages
assessed against the Company. All actions and claims asserted
against the Debtors in such actions are stayed pursuant to section
362 of the Bankruptcy Code during the pendency of the Chapter 11
Cases. On August 16, 2019, the Debtors filed a motion with the
Court seeking an order approving a stipulation between the Debtors
and 75 Broad, LLC that will lift the automatic stay solely with
respect to a certain enumerated lawsuit between Fusion
Telecommunications International, Inc. and 75 Broad LLC (ECF No.
336).
J. Marketing
Process and Bidding Procedures
In
support of the Marketing Process, the Debtors and their advisors
developed bidding and auction procedures for the marketing and sale
of their business in the Chapter 11 Cases in an orderly and value
maximizing manner (the “Bidding Procedures”). Pursuant to
the Bidding Procedures, parties had the opportunity to submit bids
for the purchase of the U.S. Business, the Canadian Business, or
the U.S. Business and the Canadian Business on a consolidated basis
in accordance with the terms of the Bidding Procedures. The Bidding
Procedures are filed at ECF No. 36.
K. Creditors’ Committee’s
Investigation
Since its formation and through the date hereof, the
Creditors’ Committee has sought, and continues to seek,
informal discovery from the Debtors and other parties regarding the
Litigation Trust Causes of Action. The advisors to the
Creditors’ Committee are continuing to analyze the documents
produced by the Debtors to date, and anticipate that the Debtors
(and other parties) will be producing additional documents and
materials in response to the Creditors’ Committee’s
requests.
While the Creditors’ Committee’s investigation is
ongoing, the Creditors’ Committee believes that the proceeds
of any claims and causes of action may provide a meaningful source
of potential value for distribution to holders of General Unsecured
Claims. The Creditors’ Committee has also determined that the
contribution of the Litigation Trust Initial Funding and Litigation
Trust Loan Proceeds in exchange for the support by the
Creditors’ Committee of the Second Amended Plan’s
limited release and exculpatory provisions is reasonable under the
circumstances and will provide the Litigation Trust with the
necessary initial funding to pursue any claims that it identifies
for the benefit of holders of Allowed General Unsecured
Claims.
For the avoidance of doubt, the Second Amended Plan does
not release
any officers other than three officers who will continue serving
the Company and Mr. Goldman. The Second Amended Plan further does
not release: (a) the Released Parties from any claims arising out
of a finding of gross negligence willful misconduct, or fraud (as
determined by a Final Order); (b) the obligations of Vector SPV
arising under the Vector Subordinated Note; (c) any post-Effective
Date obligations of any Entity under the Second Amended Plan, the
Confirmation Order, the Litigation Trust Agreement, or any other
document executed to implement the Second Amended Plan; and (d) the
Non-Released Parties. The Second Amended Plan does release (a)
current non-Officer employees, (b) the First Lien Lenders who have
provided significant consideration to the Debtors and their Estates
as well as funding for the Litigation Trust, and (c) preference
claims against vendors.
L. Plan
Settlement Negotiations and the Global
Settlement
The Debtors filed the Initial Plan on July 1, 2019 with the support
of the First Lien Lender Group. The Creditors’ Committee,
however, raised a number of informal concerns and potential
objections with respect thereto. Since filing the Initial Plan, the
Debtors and the First Lien Lender Group engaged the
Creditors’ Committee regarding Plan-related issues to work
towards a chapter 11 plan supported by the Creditors’
Committee. The Debtors, the Creditors’ Committee, and the
First Lien Lender Group have reached a Global Settlement, the terms
of which are incorporated in the Second Amended Plan filed
contemporaneously herewith. Pursuant to the Global Settlement, the
Debtors, the Creditors’ Committee, and the First Lien Lender
Group have agreed to the following:
30
i.
the establishment of the Litigation Trust in accordance with
Section 5.16 of the Second Amended Plan, and the governance and
administration of the Litigation Trust with the Litigation Trust
Agreement;
ii.
on the Effective Date, the Reorganized Debtors will transfer the
Litigation Trust Causes of Action and the Litigation Trust Debtor
Causes of Action and the Litigation Trust Initial Funding to the
Litigation Trust, the proceeds of which (if any) will benefit
holders of Allowed General Unsecured Claims, and holders of Allowed
First Lien Claims shall be deemed to transfer to the Litigation
Trust any direct Causes of Action they may assert solely in their
capacities as Lenders under the Prepetition First Lien Credit
Agreement relating to the Debtors, which, for the avoidance of
doubt, shall not include any Cause of Action against any
Prepetition First Lien Lender or the Prepetition First Lien
Administrative Agent, to the extent such Causes of Action are not
released or subject to the exculpation provisions under the Second
Amended Plan, each free and clear of all Liens, charges, Claims,
encumbrances, and interests, in accordance with Section 1141 of the
Bankruptcy Code;
iii.
on the Effective Date, the Reorganized Debtors will issue an
interest-bearing loan in the amount of $3,500,000 to the Litigation
Trust and will invest cash in the amount of $1,500,000 in the
Litigation Trust, and the Litigation Trust Loan shall accrue
payment-in-kind interest at the same rate as the New First Lien
Credit Facility;
iv.
on the Effective Date, all Preference Action against any Entity
other than a Non-Released Party that the Debtors or the Estates
would have been legally entitled to assert in their own right
(whether individually or collectively) or on behalf of the holder
of any Claim or Interest or other Person shall be deemed
conclusively, absolutely, unconditionally, irrevocably and forever
released;
v.
the Litigation Trust will be overseen and controlled by the
Litigation Trust Oversight Committee in accordance with the
Litigation Trust Agreement, and shall (a) have the authority to
determine whether to enforce, settle, release, or compromise the
Litigation Trust Causes of Action, and (b) be solely responsible
for selecting and retaining advisors to the Litigation
Trust;
vi.
payment of Litigation Trust Expenses shall be deemed to be made
first from the Litigation Trust Initial Funding and then from the
Litigation Trust Loan Proceeds. The Litigation Trust shall be
prohibited from using any Litigation Trust Loan Proceeds until no
payment of the Litigation Trust Initial Funding is
remaining;
31
vii.
the Litigation Trust Assets will be distributed to the Reorganized
Debtors and the holders of the Litigation Trust Interests in
accordance with the waterfall provisions set forth in Section
5.2(b)(vii) of the Second Amended Plan;
viii.
after payment of Litigation Trust Expenses pursuant to the
Litigation Trust Agreement, any Litigation Trust Assets that are
proceeds of the Litigation Trust First Lien Lender Causes of Action
shall be distributed in accordance with Section 5.2(b)(viii) of the
Second Amended Plan;
ix.
holders of Allowed First Lien Claims shall not be entitled to
receive a distribution from the Litigation Trust on account of the
Term Loan Deficiency Claim;
x.
holders of Allowed
Second Lien Claims shall not be entitled to receive a distribution
from the Litigation Trust on account of the Second Lien Deficiency
Claim;
xi.
Upon entry of the Confirmation Order, the Challenge Period (as
defined in the Final DIP Order) will be deemed
expired;
xii.
The Litigation Trust may be terminated in accordance with Section
5.16 of the Second Amended Plan and the Litigation Trust
Agreement;
xiii.
The Litigation Trust shall have the authority and right on behalf
of each of the Debtors, without the need for Bankruptcy Court
approval (unless otherwise indicated), to, except to the extent
Claims have been Allowed, control and effectuate the Claims
reconciliation process of General Unsecured Claims, including to
object to, seek to subordinate, compromise, or settle any and all
General Unsecured Claims against the Debtors;
xiv.
the Litigation Trust shall have authority under Bankruptcy Rule
2004 to issue subpoenas for documents and testimony in connection
with the Litigation Trust Causes of Action;
xv.
on the Effective
Date, Reorganized FCI shall enter into the Consulting
Agreement;
xvi.
on the Effective
Date, proofs of Claim nos. 724, 777 and 840 filed by Greenberg
Traurig, LLP against the Debtors on account of services performed
prior to the Commencement Date shall be deemed withdrawn and
expunged with prejudice;
32
xvii.
the Other Officers
and Directors shall be included in Section 10.8 of the Second
Amended Plan;
xviii.
on the Effective
Date, the Debtors shall pay the Settlement Restructuring
Expenses;
xix.
on the Effective
Date, the Debtors shall pay the Second Lien Lender Restructuring
Expenses; and
xx.
as a condition precedent to consummation of the Global Settlement,
the Creditors’ Committee, the First Lien Lender Group, the
Second Lien Lender Group, and the Other Officers and Directors
shall not object to the Disclosure Statement or the Second Amended
Plan, or take any other action that is inconsistent with or that
would reasonably be expected to prevent, interfere with, delay, or
impede the confirmation and consummation of the Second Amended Plan
or approval of the Global Settlement.
The Debtors, the First Lien Lender Group, the Second Lien Lender
Group, and the Creditors’ Committee believe the Global
Settlement is fair and reasonable. The terms of the Global
Settlement were negotiated by sophisticated parties and their
advisors at arm’s-length, and the agreement therein preserves
and funds potentially valuable causes of action for the benefit of
the Reorganized Debtors and holders of allowed General Unsecured
Claims. The terms of the Global Settlement allow the Debtors to
achieve their goal of completing a speedy and efficient
restructuring process that will allow the Debtors to emerge from
chapter 11 with a de-levered balance sheet, enhanced liquidity, and
the financing and support necessary to operate a successful
business.
SUMMARY OF AMENDED
PLAN
This
section of the Disclosure Statement summarizes the Second Amended
Plan, a copy of which is annexed hereto as Exhibit A.
A. Administrative Expense and Priority
Claims.
1. Administrative Expense Claims.
Except as otherwise set forth in the Second Amended Plan, and
except to the extent that a holder of an Allowed Administrative
Expense Claim agrees to less favorable treatment, each holder of an
Allowed Administrative Expense Claim (other than a Fee Claim, a DIP
Claim, or a Restructuring Expense) shall receive, in full and final
satisfaction of such Claim, Cash in an amount equal to such Allowed
Administrative Expense Claim on, or as soon thereafter as is
reasonably practicable, the later of (a) the Effective Date
and (b) the first Business Day after the date that is thirty
(30) calendar days after the date such Administrative Expense Claim
becomes an Allowed Administrative Expense Claim; provided, that
Allowed Administrative Expense Claims representing liabilities
incurred in the ordinary course of business by the Debtors, as
Debtors in Possession, shall be paid by the Debtors or the
Reorganized Debtors, as applicable, in the ordinary course of
business, consistent with past practice and in accordance with the
terms and subject to the conditions of any course of dealing or
agreements governing, instruments evidencing, or other documents
relating to such transactions.
33
2. Fee Claims.
(a) All
Entities seeking an award by the Bankruptcy Court of Fee Claims
shall file and serve on counsel to the Debtors or the
Creditors’ Committee, as applicable, the U.S. Trustee, and
counsel to the First Lien Lender Group, on or before the date that
is forty-five (45) days after the Effective Date, their respective
final applications for allowance of compensation for services
rendered and reimbursement of expenses incurred from the
Commencement Date through the Effective Date. Objections to any Fee
Claims must be filed and served on counsel to the Debtors, counsel
to the First Lien Lender Group, and the requesting party no later
than twenty-one (21) calendar days after the filing of the final
applications for compensation or reimbursement (unless otherwise
agreed by the Debtors or the Reorganized Debtors, as applicable,
and the party requesting compensation of a Fee Claim).
(b) Allowed
Fee Claims shall be paid in full, in Cash, in such amounts as are
Allowed by the Bankruptcy Court (i) on the date upon which an order
relating to any such Allowed Fee Claim is entered or as soon as
reasonably practicable thereafter; or (ii) upon such other terms as
may be mutually agreed upon between the holder of such an Allowed
Fee Claim and the Debtors or the Reorganized Debtors, as
applicable. Notwithstanding the foregoing, any Fee Claims that are
authorized to be paid pursuant to any administrative orders entered
by the Bankruptcy Court may be paid at the times and in the amounts
authorized pursuant to such orders.
(c) On
or about the Effective Date, holders of Fee Claims shall provide a
reasonable estimate of unpaid Fee Claims incurred in rendering
services before the Effective Date to the Debtors, and the Debtors
or Reorganized Debtors, as applicable, shall escrow such estimated
amounts for the benefit of the holders of the Fee Claims until the
fee applications related thereto are resolved by Final Order or
agreement of the parties. If a holder of a Fee Claim does not
provide an estimate, the Debtors or the Reorganized Debtors, as
applicable, may estimate the unpaid and unbilled reasonable and
necessary fees and out-of-pocket expenses of such holder of a Fee
Claim. When all such Allowed Fee Claims have been paid in full, any
remaining amount in such escrow shall promptly be released from
such escrow and revert to, and ownership thereof shall vest in, the
Reorganized Debtors without any further action or order of the
Bankruptcy Court.
(d) The
Reorganized Debtors are authorized to pay compensation for services
rendered or reimbursement of expenses incurred after the Effective
Date in the ordinary course and without the need for Bankruptcy
Court approval.
3. Priority Tax Claims.
Except to the extent that a holder of an Allowed Priority Tax Claim
agrees to less favorable treatment, each holder of an Allowed
Priority Tax Claim shall receive, in full and final satisfaction of
such Allowed Priority Tax Claim, at the sole option of the Debtors
or the Reorganized Debtors, as applicable, (a) Cash in an amount
equal to such Allowed Priority Tax Claim on, or as soon thereafter
as is reasonably practicable, the later of (i) the Effective
Date, to the extent such Claim is an Allowed Priority Tax Claim on
the Effective Date; (ii) the first Business Day after the date
that is thirty (30) calendar days after the date such Priority Tax
Claim becomes an Allowed Priority Tax Claim; and (iii) the
date such Allowed Priority Tax Claim is due and payable in the
ordinary course as such obligation becomes due; provided, that the
Debtor reserves the right to prepay all or a portion of any such
amounts at any time under this option without penalty or premium;
or (b) equal annual Cash payments in an aggregate amount equal to
the amount of such Allowed Priority Tax Claim, together with
interest at the applicable rate under section 511 of the Bankruptcy
Code, over a period not exceeding five (5) years from and after the
Commencement Date.
34
4. DIP Claims.
As of the Effective Date, the DIP Claims shall be Allowed in the
full amount outstanding under the DIP Credit Agreement, including
principal, interest, fees, and expenses. On the Effective Date, in
full and final satisfaction of the DIP Claims, such claims shall be
paid in full in Cash from the proceeds of the New Exit Facility.
Notwithstanding anything to the contrary in the Second Amended Plan
or the Confirmation Order, (i) the Contingent DIP Obligations
shall survive the Effective Date and shall not be discharged or
released pursuant to the Second Amended Plan or the Confirmation
Order, and (ii) the DIP Documents shall continue in full force and
effect after the Effective Date with respect to any obligations
thereunder governing (1) the Contingent DIP Obligations and
(2) the relationships among the DIP Agent and the DIP
Lenders.
On the later of (1) the Effective Date and (2) the date on which
such fees, expenses, or disbursements would be required to be paid
under the terms of the DIP Order, the Debtors or Reorganized
Debtors (as applicable) shall pay all fees, expenses, and
disbursements of the DIP Agent and DIP Lenders, in each case that
have accrued and are unpaid as of the Effective Date and are
required to be paid under or pursuant to the DIP Order. After the
Effective Date, the Reorganized Debtors shall continue to reimburse
the DIP Agent and the DIP Lenders for the reasonable fees and
expenses (including reasonable and documented legal fees and
expenses) incurred by the DIP Agent and the DIP Lenders after the
Effective Date in accordance with the terms thereof and/or the DIP
Order. The Reorganized Debtors shall pay all of the amounts that
may become payable to the DIP Agent or any of the DIP Lenders on
account of any Contingent DIP Obligations in accordance with the
terms of the DIP Documents and the DIP Order.
5. Restructuring Expenses.
During the period commencing on the Commencement Date through the
Effective Date, the Debtors will promptly pay in full in Cash any
Restructuring Expenses in accordance with the terms of the RSA.
Without limiting the foregoing, to the extent that any
Restructuring Expenses remain unpaid as of the Business Day prior
to the Effective Date, on the Effective Date, the Reorganized
Debtors shall pay in full in Cash any outstanding Restructuring
Expenses that are invoiced without the requirement for the filing
of retention applications, fee applications, or any other
applications in the Chapter 11 Cases, and without any requirement
for further notice or Bankruptcy Court review or approval. For the
avoidance of doubt, any Restructuring Expenses invoiced after the
Effective Date shall be paid promptly, but no later than ten (10)
business days of receiving an invoice.
B. Classification of Claims and
Interests.
1. Classification in General.
A Claim or Interest is placed in a particular Class for all
purposes, including voting, confirmation, and distribution under
the Second Amended Plan and under sections 1122 and 1123(a)(1) of
the Bankruptcy Code; provided, that a Claim or Interest is placed
in a particular Class for the purpose of receiving distributions
pursuant to the Second Amended Plan only to the extent that such
Claim or Interest is an Allowed Claim or Allowed Interest in that
Class and such Allowed Claim or Allowed Interest has not been
satisfied, released, or otherwise settled prior to the Effective
Date.
2. Summary of Classification.
The following table designates the Classes of Claims against and
Interests in the Debtor and specifies which of those Classes are
(a) Impaired or Unimpaired by the Second Amended Plan;
(b) entitled to vote to accept or reject the Second Amended
Plan in accordance with section 1126 of the Bankruptcy Code; and
(c) deemed to accept or reject the Second Amended Plan. In
accordance with section 1123(a)(1) of the Bankruptcy Code,
Administrative Expense Claims and Priority Tax Claims have not been
classified.
35
|
Class
|
Designation
|
Treatment
|
Entitled to
Vote
|
|
1
|
Priority Non-Tax
Claims
|
Unimpaired
|
No
(Presumed to accept)
|
|
2
|
Other
Secured Claims
|
Unimpaired
|
No
(Presumed to accept)
|
|
3
|
First
Lien Claims
|
Impaired
|
Yes
|
|
4
|
Second
Lien Claims
|
Impaired
|
Yes
|
|
5
|
General
Unsecured Claims
|
Impaired
|
Yes
|
|
6
|
Intercompany
Claims
|
Unimpaired
|
No
(Presumed to accept)
|
|
7
|
Intercompany
Interests
|
Unimpaired
|
No
(Presumed to accept)
|
|
8
|
Parent
Equity Interests
|
Impaired
|
No
(Deemed to reject)
|
|
9
|
Subordinated
Securities Claims
|
Impaired
|
No
(Deemed to reject)
|
3. Special Provision Governing Unimpaired
Claims.
Nothing under the Second Amended Plan shall affect the rights of
the Debtors or the Reorganized Debtors, as applicable, in respect
of any Unimpaired Claims, including all rights in respect of legal
and equitable defenses to, or setoffs or recoupments against, any
such Unimpaired Claims.
4. Elimination of Vacant Classes.
Any Class of Claims against or Interests in the Debtors that, as of
the commencement of the Confirmation Hearing, does not have at
least one holder of a Claim or Interest that is Allowed in an
amount greater than zero for voting purposes shall be considered
vacant, deemed eliminated from the Second Amended Plan for purposes
of voting to accept or reject the Second Amended Plan, and
disregarded for purposes of determining whether the Second Amended
Plan satisfies section 1129(a)(8) of the Bankruptcy Code with
respect to that Class.
1. Priority Non-Tax Claims (Class 1).
(a) Classification:
Class 1 consists of Priority Non-Tax Claims.
(b) Treatment:
Except to the extent that a holder of an Allowed Priority Non-Tax
Claim against the Debtors agrees to a less favorable treatment of
such Claim, in full and final satisfaction of such Allowed Priority
Non-Tax Claim, at the sole option of the Debtors or the Reorganized
Debtors, as applicable: (i) each such holder shall receive
payment in Cash in an amount equal to such Claim, payable on the
later of the Effective Date and the date that is ten (10) Business
Days after the date on which such Priority Non-Tax Claim becomes an
Allowed Priority Non-Tax Claim, or as soon thereafter as is
reasonably practicable; (ii) such holder’s Allowed
Priority Non-Tax Claim shall be Reinstated; or (iii) such
holder shall receive such other treatment so as to render such
holder’s Allowed Priority Non-Tax Claim
Unimpaired.
(c) Voting:
Class 1 is Unimpaired, and holders of Priority Non-Tax Claims are
conclusively presumed to have accepted the Second Amended Plan
pursuant to section 1126(f) of the Bankruptcy Code. Therefore,
holders of Priority Non-Tax Claims are not entitled to vote to
accept or reject the Second Amended Plan, and the votes of such
holders will not be solicited with respect to Priority Non-Tax
Claims.
36
2. Other Secured Claims (Class 2).
(a) Classification:
Class 2 consists of the Other Secured Claims. To the extent that
Other Secured Claims are secured by different collateral or
different interests in the same collateral, such Claims shall be
treated as separate subclasses of Class 2 for purposes of voting to
accept or reject the Second Amended Plan and receiving
distributions under the Second Amended Plan.
(b) Treatment:
Except to the extent that a holder of an Allowed Other Secured
Claim agrees to different treatment, on the later of the Effective
Date and the date that is ten (10) Business Days after the date
such Other Secured Claim becomes an Allowed Claim, or as soon
thereafter as is reasonably practicable, each holder of an Allowed
Other Secured Claim will receive, on account of such Allowed Claim,
at the sole option of the Debtors or the Reorganized Debtors, as
applicable: (i) Cash in an amount equal to the Allowed amount
of such Claim; (ii) Reinstatement of such holder’s
Allowed Other Secured Claim; or (iii) such other treatment
sufficient to render such holder’s Allowed Other Secured
Claim Unimpaired.
(c) Voting:
Class 2 is Unimpaired, and holders of Other Secured Claims are
conclusively presumed to have accepted the Second Amended Plan
pursuant to section 1126(f) of the Bankruptcy Code. Therefore,
holders of Other Secured Claims are not entitled to vote to accept
or reject the Second Amended Plan, and the votes of such holders
will not be solicited with respect to such Other Secured
Claims.
3. First Lien Claims (Class 3).
(a) Classification:
Class 3 consists of First Lien Claims.
(b) Allowance:
The First Lien Claims are Allowed pursuant to section 506(a) of the
Bankruptcy Code against the Debtors in the aggregate principal
amount of $585,481,310.80 consisting of (i) $545,150,569.11 in
aggregate outstanding principal amount of term loans,
(ii) $39,818,694.44 in aggregate outstanding principal amount
of revolving loans, and (iii) $512,047.25 in aggregate
outstanding face amount of letters of credit issued, in each case,
under the Prepetition First Lien Credit Agreement, plus accrued and
unpaid prepetition interest, accrued and unpaid post-petition
interest, fees, expenses and other amounts arising under the
Prepetition First Lien Credit Agreement.
(c) Treatment:
Except to the extent that a holder of a First Lien Claim agrees to
less favorable treatment, in full and final satisfaction,
settlement, release, and discharge of, and in exchange for such
First Lien Claim, each such holder thereof (or, with respect to any
New Equity Interests to be issued pursuant to the First Lien Lender
Equity Distribution, such holder’s permitted designee) shall
receive on the Effective Date such holder’s Pro Rata share of
(a) the First Lien Lender Equity Distribution; provided, that
notwithstanding anything in the Second Amended Plan to the
contrary, the distribution of the First Lien Lender Equity
Distribution shall be made pursuant to, and subject to the terms
and conditions of, the Equity Allocation Mechanism; (b) the
loans under the New First Lien Credit Facility; and (c) cash
or other proceeds, if any, from the sale of the Debtors’
Canadian business unless otherwise agreed to by the Requisite First
Lien Lenders.
For the
avoidance of doubt, on the Effective Date, the Prepetition First
Lien Credit Agreement shall be deemed cancelled (except as set
forth in Section 5.09 of the Second Amended Plan) without further
action by or order of the Bankruptcy Court.
37
(d)
Voting: Class 3 is Impaired, and
holders of First Lien Claims in Class 3 are entitled to vote to
accept or reject the Second Amended Plan.
4. Second Lien Claims (Class 4).
(a) Classification:
Class 4 consists of Second Lien Claims in the aggregate principal
amount of $85,000,000 of term loans issued under the Prepetition
Second Lien Credit Agreement, plus interest, fees, expenses and
other amounts arising under the Prepetition Second Lien Credit
Agreement.
Treatment: Except to the extent that a
holder of an Allowed Second Lien Claim agrees to less favorable
treatment, in full and final satisfaction, settlement, release, and
discharge of, and in exchange for such Allowed Second Lien Claim,
each such holder thereof shall receive on the Effective Date such
holder’s Pro Rata share of the Second Lien Lender Special
Warrant Distribution.
For the avoidance of doubt, on the
Effective Date, the Prepetition Second Lien Credit Agreement shall
be deemed cancelled (except as set forth in Section 5.09 of the
Second Amended Plan) without further action by or order of the
Bankruptcy Court.
(b) Voting:
Class 4 is Impaired, and holders of Second Lien Claims are entitled
to vote to accept or reject the Second Amended Plan.
5. General Unsecured Claims (Class 5).
(a) Classification:
Class 5 consists of General Unsecured Claims.
(b) Treatment:
Except to the extent that a holder of an Allowed General Unsecured
Claim agrees to less favorable treatment, in full and final
satisfaction, settlement, release, and discharge of, and in
exchange for an Allowed General Unsecured Claim, each such holder
thereof shall receive such holder’s Pro Rata share of the
Litigation Trust Interests on the Effective Date.
(c) Voting:
Class 5 is Impaired, and holders of General Unsecured Claims are
entitled to vote to accept or reject the Second Amended
Plan.
6. Intercompany Claims (Class 6).
(a) Classification:
Class 6 consists of Intercompany Claims.
(b) Treatment:
On or after the Effective Date, all Intercompany Claims will be
adjusted, continued, settled, reinstated, discharged, or eliminated
as determined by the Debtors or the Reorganized Debtors, as
applicable, and the Requisite First Lien Lenders, in their
respective reasonable discretion, but not paid in
Cash.
(c) Voting:
Class 6 is Unimpaired, and holders of Intercompany Claims are
conclusively presumed to have accepted the Second Amended Plan
pursuant to section 1126(f) of the Bankruptcy Code. Therefore,
holders of Intercompany Claims are not entitled to vote to accept
or reject the Second Amended Plan, and the votes of such holders
will not be solicited with respect to such Intercompany
Claims.
7. Intercompany Interests (Class 7).
(a) Classification:
Class 7 consists of Intercompany Interests.
38
(b) Treatment:
On or after the Effective Date, all Intercompany Interests shall be
cancelled, reinstated, or receive such other treatment as
determined by the Debtors or the Reorganized Debtors, as
applicable, and the Requisite First Lien Lenders, in their
respective reasonable discretion.
(c) Voting:
Class 7 is Unimpaired, and holders of Intercompany Interests are
conclusively presumed to have accepted the Second Amended Plan
pursuant to section 1126(f) of the Bankruptcy Code. Therefore,
holders of Intercompany Interests are not entitled to vote to
accept or reject the Second Amended Plan, and the votes of such
holders will not be solicited with respect to such Intercompany
Interests.
8. Parent Equity Interests (Class 8).
(a) Classification:
Class 8 consists of Parent Equity Interests.
(b) Treatment:
on the Effective Date, all Parent Equity Interests shall be deemed
cancelled without further action by or order of the Bankruptcy
Court, and shall be of no further force and effect, whether
surrendered for cancellation or otherwise. To the extent permitted
by applicable law, on or promptly after the Effective Date, the
Reorganized Debtors shall file with the SEC a Form 15 for the
purpose of terminating the registration of any of FCI’s
publicly traded securities.
(c) Voting:
Class 8 is Impaired, and holders of Parent Equity Interests are
conclusively deemed to have rejected the Second Amended Plan
pursuant to section 1126(g) of the Bankruptcy Code. Therefore,
holders of Parent Equity Interests are not entitled to vote to
accept or reject the Second Amended Plan, and the votes of such
holders will not be solicited with respect to such Parent Equity
Interests.
9. Subordinated Securities Claims (Class
9).
(a) Classification:
Class 9 consists of Subordinated Securities Claims.
(b) Treatment:
Holders of Subordinated Securities Claims shall not receive or
retain any property under the Second Amended Plan on account of
such Subordinated Securities Claims. On the Effective Date, all
Subordinated Securities Claims shall be deemed cancelled without
further action by or order of the Bankruptcy Court, and shall be of
no further force and effect, whether surrendered for cancellation
or otherwise.
(c) Voting:
Class 9 is Impaired, and the holders of Subordinated Securities
Claims are conclusively deemed to have rejected the Second Amended
Plan. Therefore, holders of Subordinated Securities Claims are not
entitled to vote to accept or reject the Second Amended Plan, and
the votes of such holders of Subordinated Securities Claims will
not be solicited.
D. Means for
Implementation
1. No Substantive Consolidation
The Second Amended Plan is being proposed as a joint plan of
reorganization of the Debtors for administrative purposes only and
constitutes a separate chapter 11 plan of reorganization for each
Debtor. However, this Plan contemplates and is predicated upon the
deemed substantive consolidation of the Estate and Chapter 11 Case
of each Debtor with the Estate and Chapter 11 Case of each other
Debtor for purposes of distributions made by the Litigation Trust
only. On the Effective Date, each Claim filed or to be filed
against any Debtor shall be deemed filed only against Fusion
Connect, Inc. and shall be deemed a single Claim against and a
single obligation of Fusion Connect, Inc. for purposes of
distributions made by the Litigation Trust only and the claims
register shall be updated accordingly. This limited substantive
consolidation effected pursuant to this Section 5.1 of the Second
Amended Plan shall not affect the vesting of any Litigation Trust
Cause of Action in the Litigation Trust, nor shall it affect the
prosecution of any Litigation Trust Cause of Action by the
Litigation Trust.
39
2. Compromise and Settlement of Claims, Interests, and
Controversies
(a) Pursuant
to sections 363 and 1123(b)(3) of the Bankruptcy Code and
Bankruptcy Rule 9019 and in consideration for the distributions and
other benefits provided pursuant to the Second Amended Plan, the
provisions of the Second Amended Plan and the Global Settlement
shall constitute a good faith compromise of Claims, Interests, and
controversies relating to the contractual, legal, and subordination
rights that a creditor or an Interest holder may have with respect
to any Claim or Interest or any distribution to be made on account
of an Allowed Claim or Interest. The entry of the Confirmation
Order shall constitute the Bankruptcy Court’s approval of the
compromise or settlement of all such Claims, Interests, and
controversies, as well as a finding by the Bankruptcy Court that
such compromise or settlement is in the best interests of the
Debtors, their Estates, and holders of such Claims and Interests,
and is fair, equitable, and reasonable.
(b) The
Second Amended Plan incorporates and reflects the following
compromise and settlement by and among the Debtors, the
Creditors’ Committee, the Consenting First Lien Lenders, and
the Consenting Second Lien Lenders (the “Global Settlement”).
(i) On
the Effective Date, the Litigation Trust shall be established in
accordance with Section 5.16 of the Second Amended Plan and shall
be governed and administered in accordance with the Litigation
Trust Agreement.
(ii) On
the Effective Date, or as soon as reasonably practicable
thereafter, (1) the Debtors shall be deemed to transfer to the
Litigation Trust the Litigation Trust Debtor Causes of Action,
(2) the Reorganized Debtors shall transfer to the Litigation
Trust the Litigation Trust Initial Funding and (3) holders of
Allowed First Lien Claims shall be deemed to transfer to the
Litigation Trust any direct Cause of Action they may assert solely
in their capacities as lenders under the Prepetition First Lien
Credit Agreement relating to the Debtors, which, for the avoidance
of doubt, shall not include any Cause of Action against any
Prepetition First Lien Lender or the Prepetition First Lien
Administrative Agent, to the extent such Causes of Action are not
released or subject to the exculpation provisions under the Second
Amended Plan (the “Litigation
Trust First Lien Lender Causes of Action”), each free
and clear of all Liens, charges, Claims, encumbrances, and
interests, in accordance with Section 1141 of the Bankruptcy Code.
All of the Litigation Trust Assets, as well as the rights and
powers of the Debtors’ Estates applicable to the Litigation
Trust Assets, shall vest in the Litigation Trust, for the benefit
of the holders of Litigation Trust Interests and Reorganized
FCI.
(iii) On
the Effective Date, or as soon as reasonably practicable
thereafter, the Reorganized Debtors and Litigation Trust shall
enter into the Litigation Trust Loan Agreement pursuant to which
the Reorganized Debtors shall agree to lend the Litigation Trust
Loan Proceeds to the Litigation Trust. The Litigation Trust Loan
Proceeds shall be available to be drawn in $1,000,000 installments
six (6) and twelve (12) months after the Effective Date, and
$500,000 installments eighteen (18), twenty-four (24), and thirty
(30) months after the Effective Date. The Litigation Trust Loan
shall accrue payment-in-kind interest at same rate as the New First
Lien Credit Facility. The amount of the Litigation Trust Loan may
be increased post-Effective Date upon the agreement of the
Reorganized Debtors and the Litigation Trust. In the event the
Reorganized Debtors fail to honor a Litigation Trust Loan draw
installment when due, such failure shall be deemed to be an
automatic exercise of the Termination Right (as defined below)
without the consent of the member the Creditors’ Committee
appointed to the Litigation Trust Oversight Committee.
40
(iv) On
the Effective Date, all Preference Actions against any Entity other
than a Non-Released Party that the Debtors or the Estates would
have been legally entitled to assert in their own right (whether
individually or collectively) or on behalf of the holder of any
Claim or Interest or other Person shall be deemed conclusively,
absolutely, unconditionally, irrevocably and forever,
released.
(v) The
Litigation Trust shall be overseen and controlled by the Litigation
Trust Oversight Committee in accordance with the Litigation Trust
Agreement. The Litigation Trust Oversight Committee shall have the
authority to determine whether to enforce, settle, release, or
compromise the Litigation Trust Causes of Action (or decline to do
any of the foregoing). The Litigation Trust Oversight Committee
shall be solely responsible for selecting and retaining advisors to
the Litigation Trust.
(vi) In
accordance with the Litigation Trust Agreement, payment of
Litigation Trust Expenses shall be deemed to be made first from the
Litigation Trust Initial Funding and then from the Litigation Trust
Loan Proceeds. The Litigation Trust shall be deemed to be
prohibited from using any Litigation Trust Loan Proceeds until no
portion of the Litigation Trust Initial Funding is
remaining.
(vii) After
payment of Litigation Trust Expenses pursuant to the Litigation
Trust Agreement, the Litigation Trust Assets (other than any
proceeds of the Litigation Trust First Lien Lender Causes of
Action) shall be shared and distributed as follows: first, payment in full in Cash of all
amounts due to Reorganized FCI under the Litigation Trust Loan;
second, distribution of up
to $180,000 to Reorganized FCI; third, distribution to the Litigation Trust for the
benefit of the holders of Litigation Trust Interests in accordance
with the Second Amended Plan of up to $1,500,000 (the
“GUC Payment”);
fourth, to the extent the
remaining Litigation Trust Assets are equal to or less than
$20,000,000, sixty percent (60%) of such Litigation Trust Assets
shall be distributed to Reorganized FCI and forty percent (40%) of
such Litigation Trust Assets shall be distributed to the Litigation
Trust for the benefit of the holders of Litigation Trust Interests
in accordance with the Second Amended Plan; and fifth, to the extent there are any
remaining Litigation Trust Assets greater than $20,000,000, fifty
percent (50%) of such Litigation Trust Assets shall be distributed
to Reorganized FCI and fifty percent (50%) of such Litigation Trust
Assets shall be distributed to the Litigation Trust for the benefit
of the holders of Litigation Trust Interests in accordance with the
Second Amended Plan.
(viii)
After payment of Litigation Trust Expenses pursuant to the
Litigation Trust Agreement, any Litigation Trust Assets that are
proceeds of the Litigation Trust First Lien Lender Causes of Action
shall be shared and distributed as follows: first, payment in full
in Cash of all amounts due to the Reorganized Debtors under the
Litigation Trust Loan; second, eighty-five percent (85%) of such
Litigation Trust Assets shall be distributed to the Reorganized FCI
and fifteen percent (15%) of such Litigation Trust Assets shall be
distributed to the Litigation Trust for the benefit of the holders
of Litigation Trust Interests in accordance with the Second Amended
Plan.
(ix) Holders
of Allowed First Lien Claims shall not be entitled to receive a
distribution from the Litigation Trust on account of the Term Loan
Deficiency Claim.
(x) Holders
of Allowed Second Lien Claims shall not be entitled to receive a
distribution from the Litigation Trust on account of the Second
Lien Deficiency Claim.
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(xi) Upon
entry of the Confirmation Order, the Challenge Period (as defined
in the DIP Order) shall be deemed expired.
(xii) The
Litigation Trust may be terminated in accordance with Section 5.16
of the Second Amended Plan and the Litigation Trust
Agreement.
(xiii) The
Litigation Trust shall have the authority and right on behalf of
each of the Debtors, without the need for Bankruptcy Court approval
(unless otherwise indicated), to, except to the extent Claims have
been Allowed, control and effectuate the Claims reconciliation
process of General Unsecured Claims, including to object to, seek
to subordinate, compromise or settle any and all General Unsecured
Claims against the Debtors.
(xiv) The
Litigation Trust shall have authority under Bankruptcy Rule 2004 to
issue subpoenas for documents and testimony in connection with the
Litigation Trust Causes of Action.
(xv)
On the Effective
Date, Reorganized FCI shall enter into the Consulting
Agreement.
(xvi) On
the Effective Date, proofs of Claim nos. 724, 777, and 840 filed by
Greenberg Traurig, LLP against the Debtors on account of services
performed prior to the Commencement Date shall be deemed withdrawn
and expunged with prejudice.
(xvii)
The Other Officers and Directors shall be included in
Section 10.8 of the Second Amended Plan.
(xviii)
On the Effective Date, the Debtors shall pay the Settlement
Restructuring Expenses.
(xix) On
the Effective Date, the Debtors shall pay the Second Lien Lender
Restructuring Expenses.
(xx)
As a condition
precedent to consummation of the Global Settlement, the
Creditors’ Committee, the First Lien Lender Group, the Second
Lien Lender Group, and the Other Officers and Directors shall not
object to the Disclosure Statement or the Second Amended Plan, or
take any other action that is inconsistent with or that would
reasonably be expected to prevent, interfere with, delay, or impede
the confirmation and consummation of the Second Amended Plan or
approval of the Global Settlement.
3. Sources of Consideration for Plan Distributions
Implementing the Reorganization Transaction
The
Debtors shall fund distributions and satisfy applicable Allowed
Claims and Allowed Interests under the Second Amended Plan with
Cash on hand, the proceeds of the New Exit Facility, loans under
the New First Lien Credit Facility, the New Equity Interests, and
the Special Warrants, and through the issuance and distribution of
the Litigation Trust Interests.
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The
Litigation Trust Causes of Action exclude all Preference Actions
against any Entity other than a Non-Released Party, and on the
Effective Date, all such Preference Actions will be released.
Providing vendors with assurance that they will not be subject to
Preference Actions was necessary for the Debtors’
preservation of go-forward trade relationships and, absent such a
provision, would have dampened the Debtors’ business
prospects and threatened the Debtors’ successful emergence
from chapter 11. The Debtors also believe that the value of any
Preference Action claims would be very low, as the majority of
transfers or payments made to creditors within the ninety (90) days
preceding commencement of the Cases were made to vendors,
suppliers, or services providers, many of whom are paid regularly
under contracts with the Debtors. The Debtors have disclosed all
known transfers or payments made within the ninety (90) days
preceding the Commencement Date on their Schedules and Statements.
The Debtors will be assuming most of their vendor contracts upon
Confirmation. The Debtors believe all of the Releases in the Second
Amended Plan are appropriate and note that both the
Creditors’ Committee and the First Lien Lender Group agreed
to exclude these certain Preference Actions from the Litigation
Trust Causes of Action through arm’s-length negotiations, and
as part of the Global Settlement.
4. Reorganization Transaction
(a) The
Debtors shall implement the Reorganization Transaction as set forth
in the Second Amended Plan.
(b) New
First Lien Credit Facility
(i) On
the Effective Date, the New First Lien Credit Agreement shall be
executed and delivered, and the Reorganized Debtors shall be
authorized to execute, deliver and enter into, the New First Lien
Credit Documents, without the need for any further corporate,
limited liability partnership or limited liability company action
and without further action by the holders of Claims or
Interests.
(ii) The
obligations arising under the New First Lien Credit Agreement shall
be secured by a senior priority perfected security interest (junior
to the liens securing the New Exit Facility Credit Agreement) in
substantially all present and after acquired property (whether
tangible, intangible, real, personal or mixed) of the Reorganized
Debtors, wherever located, including, without limitation, all
accounts, inventory, equipment, capital stock in subsidiaries of
the Reorganized Debtors, investment property, instruments, chattel
paper, real estate, leasehold interests, contracts, patents,
copyrights, trademarks and other general intangibles, and all
products and proceeds thereof, subject to any exceptions and
materiality thresholds reasonably acceptable to the Requisite New
First Lien Lenders (as defined in the New First Lien Term
Sheet).
(iii) The
Reorganized Debtors shall be authorized to execute, deliver, and
enter into and perform under the New First Lien Credit Agreement
without the need for any further corporate, limited liability
partnership or limited liability company action and without further
action by the holders of Claims or Interests.
(c) New
Exit Facility.
On the
Effective Date, the Reorganized Debtors shall be authorized to
execute, deliver, enter into and perform under the New Exit
Facility Credit Agreement without the need for any further
corporate, limited liability partnership or limited liability
company action and without further action by the holders of Claims
or Interests.
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(d)
Authorization and Issuance of New Equity Interests and Special
Warrants.
(i) On
the Effective Date, the Debtors or the Reorganized Debtors, as
applicable, are authorized to issue or cause to be issued and shall
issue the New Equity Interests and Special Warrants in accordance
with the terms of the Second Amended Plan, the Amended
Organizational Documents, the Special Warrant Agreement, and the
Equity Allocation Mechanism without the need for any further
corporate or stockholder action. All of the New Equity Interests
issuable under the Second Amended Plan, when so issued, shall be
duly authorized, validly issued, fully paid, and non-assessable,
and the Special Warrants issued pursuant to the Second Amended Plan
shall be duly authorized and validly issued. For the avoidance of
doubt, the acceptance of New Equity Interests and/or Special
Warrants by a holder of an Allowed First Lien Claim or Second Lien
Claim shall be deemed as such holder’s agreement to the
Amended Organizational Documents and/or the Special Warrant
Agreement, as applicable, as each may be amended or modified from
time to time following the Effective Date in accordance with the
terms of such documents.
(ii) The
distribution of the New Equity Interests and Special Warrants
pursuant to the Second Amended Plan may be made by means of
book-entry registration on the books of a transfer agent for shares
of New Equity Interests and Special Warrants or by means of
book-entry exchange through the facilities of a transfer agent
reasonably satisfactory to the Debtors, in accordance with the
customary practices of such agent, as and to the extent
practicable.
(e) Continued
Corporate Existence.
(i) The
Debtors shall continue to exist after the Effective Date as
Reorganized Debtors as a private company in accordance with the
applicable laws of the respective jurisdictions in which they are
incorporated or organized and pursuant to the Amended
Organizational Documents unless otherwise determined in accordance
with Section 5.09 of the Second Amended Plan.
(ii) On
or after the Effective Date, the Reorganized Debtors may take such
reasonable action that may be necessary or appropriate as permitted
by applicable law and the Amended Organizational Documents, as the
Reorganized Debtors may reasonably determine is reasonable and
appropriate to effect any transaction described in, approved by, or
necessary or appropriate to effectuate the Second Amended Plan,
including, without limitation, taking necessary steps to dissolve
or merge out of existence any of the Reorganized Debtors that are
reasonably determined to be unnecessary for the continued
successful performance of the Reorganized Debtors.
(f) Officers
and Board of Directors.
(i) Upon
the Effective Date, the New Board shall consist of seven (7)
directors. If known, the identities of the directors and officers
of the Reorganized Debtors shall be disclosed prior to the
Confirmation Hearing in accordance with section 1129(a)(5) of the
Bankruptcy Code.
(ii) Except
to the extent that a member of the board of directors, managers, or
limited partners, as applicable, of a Debtor continues to serve as
a director, manager, or limited partner of such Debtor on and after
the Effective Date, the members of the board of directors,
managers, or limited partners of each Debtor prior to the Effective
Date, in their capacities as such, shall have no continuing
obligations to the Reorganized Debtors on or after the Effective
Date and each such director, manager or limited partner will be
deemed to have resigned or shall otherwise cease to be a director,
manager or limited partner of the applicable Debtor on the
Effective Date.
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(g) Reorganized
Debtors’ Authority.
(i) The
Reorganized Debtors shall have the authority and right on behalf of
each of the Debtors, without the need for Bankruptcy Court approval
(unless otherwise indicated), to carry out and implement all
provisions of the Second Amended Plan, including, without
limitation, to: (a) except to the extent Claims have been
previously Allowed, control and effectuate the Claims
reconciliation process, including to object to, seek to
subordinate, compromise or settle any and all Claims against the
Debtors, other than with respect to General Unsecured Claims; (b)
make distributions to holders of Allowed Claims in accordance with
the Second Amended Plan, other than with respect to General
Unsecured Claims; (c) prosecute all Causes of Action on behalf
of the Debtors, elect not to pursue any Causes of Action, and
determine whether and when to compromise, settle, abandon, dismiss,
or otherwise dispose of any such Causes of Action, other than with
respect to the Litigation Trust Causes of Action; (d) retain
professionals to assist in performing their duties under the Second
Amended Plan; (e) maintain the books, records, and accounts of
the Debtors; (f) complete and file, as necessary, all final or
otherwise required federal, state, and local tax returns for the
Debtors; and (g) perform other duties and functions that are
consistent with the implementation of the Second Amended
Plan.
(ii) After
the Effective Date, the Reorganized Debtors may operate the
Debtors’ business and may use, acquire, or dispose of
property and compromise or settle any Claims, Interests, or Causes
of Action without approval by the Bankruptcy Court and free of any
restrictions of the Bankruptcy Code or Bankruptcy
Rules.
5. FCC Licenses and State PUC
Authorizations
The required FCC Applications were filed prior to the date of the
Second Amended Plan, as were applications seeking the consent of
State PUCs with jurisdiction over the Reorganized Debtors to the
transactions contemplated by the Reorganization Transaction (which,
for the avoidance of doubt, excludes any transactions which may
occur on or after the Exercise Date, as defined in the Equity
Allocation Mechanism). As a result, any Entity that acquires a
First Lien Claim may be issued Special Warrants in lieu of any New
Equity Interests that would otherwise be issued to such Entity
under the Second Amended Plan. In addition, the Debtors may request
that the Bankruptcy Court implement restrictions on trading of
Claims and Interests that might adversely affect the FCC approval
or State PUC approval processes that will be sought on or prior to
the Effective Date.
The Petition for Declaratory Ruling and the FCC and/or state
transfer of control applications necessary to enable the exercise
of the Special Warrants (the “Post-Effective Date
Transfer Applications”) shall be filed as promptly as
practicable following the Effective Date. The Debtors or the
Reorganized Debtors, as applicable, shall diligently prosecute all
FCC Applications and the State PUC Applications associated with the
Reorganization Transaction and, after the Effective Date, the
Post-Effective Date Transfer Applications and the Petition for
Declaratory Ruling. The Debtors or Reorganized Debtors, as
applicable, shall promptly provide such additional documents or
information requested by the FCC or any State PUC in connection
with the respective agencies’ review of the foregoing
applications.
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6. Employee Matters
(a) Subject
to Section 5.6(c) of the Second Amended Plan, on the Effective
Date, the Reorganized Debtors shall be deemed (i) to have assumed
all Benefit Plans and (ii) to have rejected any employment
agreements, offer letters, or award letters to which the Debtors
are a party (collectively, the “Employee Arrangements”), unless
set forth on the Assumption Schedule. With respect to any Benefit
Plan and Employee Arrangement that is set forth on the Assumption
Schedule, upon the Effective Date such Benefit Plan and Employee
Arrangement shall be deemed to be amended where applicable to
provide and clarify that the consummation of the Reorganization
Transaction and any associated organizational changes shall not
constitute a “Change in Control,” be considered a
“Good Reason” event, or serve as a basis to trigger any
rights or benefits under such Benefit Plan or Employee
Arrangement. To the extent that the Benefit Plans or any
Employee Arrangements set forth on the Assumption Schedule are
executory contracts, pursuant to sections 365 and 1123 of the
Bankruptcy Code, unless an Assumption Dispute is timely filed and
properly served, each of them will be deemed assumed (as modified
or terminated) as of the Effective Date with a Cure Amount of zero
dollars. However, notwithstanding anything else in the Second
Amended Plan, the assumed Benefit Plans and Employee Arrangements,
if any, shall be subject to modification in accordance with the
terms thereof at the discretion of the Reorganized
Debtors.
(b) Following
the Effective Date, the applicable Reorganized Debtors shall enter
into the Management Incentive Plan. All awards issued under the
Management Incentive Plan will be dilutive of all other New Equity
Interests issued pursuant to the Second Amended Plan (including
those issued upon the exercise of any Special
Warrants).
(c) For
the avoidance of doubt, if an Employee Arrangement or a Benefit
Plan provides for an award or potential award of Interests or
consideration based on the value of Interests prior to the
Effective Date, such Interest shall be treated in accordance with
Section 4.8 of the Second Amended Plan and cancelled
notwithstanding assumption of the applicable Employee Arrangement
or Benefit Plan.
(d) On
the Effective Date, the Reorganized Debtors shall be deemed to have
assumed all prepetition Key Employee Retention Agreements.
Notwithstanding anything to the contrary in Section 5.6(a), the
consummation of the Restructuring Transactions and any associated
organizational changes shall constitute a “Change of
Control” under all prepetition Key Employee Retention
Agreements.
7. Effectuating Documents; Further
Transactions
(a) On
or as soon as practicable after the Effective Date, the Reorganized
Debtors shall take such reasonable actions as may be or become
necessary or appropriate to effect any transaction described in,
approved by, contemplated by, or necessary to effectuate the Second
Amended Plan and the Global Settlement, including (i) the
execution and delivery of appropriate agreements or other documents
of merger, consolidation, restructuring, financing, conversion,
disposition, transfer, dissolution, or liquidation containing terms
that are consistent with the terms of the Second Amended Plan and
that satisfy the applicable requirements of applicable law and any
other terms to which the applicable Entities may determine;
(ii) the execution and delivery of appropriate instruments of
transfer, assignment, assumption, or delegation of any Asset,
property, right, liability, debt, or obligation on terms consistent
with the terms of the Second Amended Plan and having other terms to
which the applicable parties agree; (iii) the filing of
appropriate certificates or articles of incorporation,
reincorporation, merger, consolidation, conversion, or dissolution
and the Amended Organizational Documents pursuant to applicable
state law; (iv) the issuance of securities, all of which shall
be authorized and approved in all respects, in each case, without
further action being required under applicable law, regulation,
order, or rule; (v) the execution, delivery, or filing of
contracts, instruments, releases, and other agreements to
effectuate and implement the distribution of the Litigation Trust
Interests to be issued pursuant hereto without the need for any
approvals, authorizations, actions, or consents; and (vi) all
other actions that the applicable Entities determine to be
necessary or appropriate, including making filings or recordings
that may be required by applicable law or to reincorporate in
another jurisdiction, subject, in each case, to the Amended
Organizational Documents.
46
(b) Each
officer, manager, limited partner or member of the board of
directors of the Debtors is (and each officer, manager, limited
partner or member of the board of directors of the Reorganized
Debtors shall be) authorized and directed to issue, execute,
deliver, file, or record such contracts, securities, instruments,
releases, indentures, and other agreements or documents and take
such actions as may be necessary or appropriate to effectuate,
implement, and further evidence the terms and conditions of the
Second Amended Plan and the securities issued pursuant to the
Second Amended Plan in the name of and on behalf of the Reorganized
Debtors, all of which shall be authorized and approved in all
respects, in each case, without the need for any approvals,
authorization, consents, or any further action required under
applicable law, regulation, order, or rule (including, without
limitation, any action by the stockholders, limited partners,
directors or managers of the Debtors, the Reorganized Debtors)
except for those expressly required pursuant to the Second Amended
Plan.
(c) In
order to preserve the Reorganized Debtors’ ability to utilize
certain tax attributes that exist as of the Effective Date, the
charter, bylaws, and other organizational documents may restrict
certain transfers of the New Equity Interests.
(d) The
Reorganization Transaction and the Global Settlement, including the
creation of the Litigation Trust, shall be conducted in a manner
that, in the business judgment of the Debtors, with the consent of
the Requisite First Lien Lenders (which consent shall not be
unreasonably withheld), ensures that the Reorganized Debtors
receive favorable and efficient tax treatment, given the totality
of the circumstances.
(e) All
matters provided for in the Second Amended Plan involving the
corporate structure of the Debtors, Reorganized Debtors, to the
extent applicable, or any corporate or related action required by
the Debtors, or the Reorganized Debtors in connection herewith
shall be deemed to have occurred and shall be in effect, without
any requirement of further action by the stockholders, members,
limited partners, directors or managers of the Debtors or
Reorganized Debtors, and with like effect as though such action had
been taken unanimously by the stockholders, members, limited
partners, directors, managers, or officers, as applicable, of the
Debtors, or the Reorganized Debtors.
8. Section 1145 Exemption
(a) The
offer, issuance, and distribution of (i) the New Equity
Interests and the Special Warrants to holders of the First Lien
Claims; (ii) the Special Warrants hereunder to holders of the
Second Lien Claims; and (iii) the Litigation Trust Interests
(to the extent they are deemed to be securities) to holders of
General Unsecured Claims shall be exempt, pursuant to section 1145
of the Bankruptcy Code, without further act or action by any
Entity, from registration under (a) the Securities Act of
1933, as amended, and all rules and regulations promulgated
thereunder and (b) any state or local law requiring
registration for the offer, issuance, or distribution of
Securities.
(b) The
New Equity Interests shall be freely tradable by the recipients
thereof, subject to (i) the provisions of section 1145(b)(1) of the
Bankruptcy Code relating to the definition of an underwriter in
section 2(a)(11) of the Securities Act of 1933;
(ii) compliance with any rules and regulations of the
Securities and Exchange Commission, if any, applicable at the time
of any future transfer of such securities or instruments; (iii) any
reasonable restrictions, to the extent necessary for the Debtors to
preserve their ability to utilize certain tax attributes that exist
as of the Effective Date, on the transferability and ownership of
New Equity Interests; (iv) applicable regulatory approval;
(v) the Stockholders Agreement; (vi) the Amended
Organizational Documents and (vii) any other applicable
law.
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9. Cancellation of Existing Securities and
Agreements
(a) Except
for the purpose of evidencing a right to a distribution under the
Second Amended Plan and except as otherwise set forth in the Second
Amended Plan, including with respect to executory contracts or
unexpired leases that shall be assumed by the Reorganized Debtors,
and subject in all respects to the Prepetition Intercreditor
Agreement (as applicable), on the Effective Date, all agreements,
instruments, and other documents evidencing or issued pursuant to
the DIP Documents, the Prepetition First Lien Credit Documents, the
Prepetition Second Lien Credit Agreement and any other
“Credit Document” as defined in the Second Amended
Plan, the Prepetition Subordinated Notes, or any indebtedness or
other obligations thereunder, and any Interest in any of the
Debtors (other than Intercompany Interests), or any other
certificate, share, note, bond, indenture, purchase right, option,
warrant, call, put, award, commitment, registration rights,
preemptive right, right of first refusal, right of first offer,
co-sale right, investor rights, or other instrument or document of
any character directly or indirectly evidencing or creating any
indebtedness or obligation of or ownership interest in the Debtors
giving rise to any Claim or Interest, and any rights of any holder
in respect thereof, shall be deemed cancelled, discharged, and of
no force or effect, and the obligations of the Debtors thereunder
shall be deemed fully satisfied, released, and
discharged.
(b) Notwithstanding
such cancellation and discharge, the DIP Documents, the Prepetition
First Lien Credit Documents and the Prepetition Second Lien Credit
Agreement, the Prepetition Subordinated Notes and any other
indenture or agreement that governs the rights of a holder of an
Allowed Claim shall continue in effect to the extent necessary (i)
to allow the holders of such Claims to receive distributions under
the Second Amended Plan; (ii) to allow the Debtors, the Reorganized
Debtors, the DIP Agent, the Prepetition First Lien Administrative
Agent, and the Prepetition Second Lien Administrative Agent to make
post-Effective Date distributions or take such other action
pursuant to the Second Amended Plan on account of such Claims and
to otherwise exercise their rights and discharge their obligations
relating to the interests of the holders of such Claims; (iii) to
allow holders of Claims to retain their respective rights and
obligations vis-à-vis other holders of Claims pursuant to any
applicable loan document or other agreement; (iv) to allow the DIP
Agent, the Prepetition First Lien Administrative Agent and the
Prepetition Second Lien Administrative Agent to enforce their
rights, claims, and interests vis-à-vis any party other than
the Debtors, including any rights with respect to priority of
payment and/or to exercise charging liens; (v) to preserve any
rights of the DIP Agent, the Prepetition First Lien Administrative
Agent and the Prepetition Second Lien Administrative Agent to
payment of fees, expenses, and indemnification obligations as
against any money or property distributable to lenders under the
DIP Documents, the Prepetition First Lien Credit Agreement and the
Prepetition Second Lien Credit Agreement, as applicable, including
any rights to priority of payment and/or to exercise charging
liens; (vi) to allow the DIP Agent, the Prepetition First Lien
Administrative Agent and the Prepetition Second Lien Administrative
Agent to enforce any obligations owed to it under the Second
Amended Plan; (vii) to allow the DIP Agent, the Prepetition First
Lien Administrative Agent and the Prepetition Second Lien
Administrative Agent to exercise rights and obligations relating to
the interests of lenders under the DIP Documents, the Prepetition
First Lien Credit Agreement and the Prepetition Second Lien Credit
Agreement, as applicable; (viii) to permit the DIP Agent, the
Prepetition First Lien Administrative Agent and the Prepetition
Second Lien Administrative Agent to perform any function necessary
to effectuate the foregoing; (ix) to allow the DIP Agent, the
Prepetition First Lien Administrative Agent and the Prepetition
Second Lien Administrative Agent to appear in the Chapter 11 Cases
or in any proceeding in the Bankruptcy Court or any other court
relating to the DIP Documents, the Prepetition First Lien Credit
Agreement or the Prepetition Second Lien Credit Agreement; provided
that, nothing in Section 5.9 of the Second Amended Plan shall
affect the discharge of Claims pursuant to the Bankruptcy Code, the
Confirmation Order, or the Second Amended Plan; and (x) to preserve
all rights of the Prepetition First Lien Lenders to the extent
necessary for the Litigation Trust to pursue the Litigation Trust
First Lien Lender Causes of Action.
(c) Except
for the foregoing, subsequent to the performance by the DIP Agent
of its obligations pursuant to the Second Amended Plan, the DIP
Agent and its agents shall be relieved of all further duties and
responsibilities related to the DIP Documents. Nothing in Section
5.9 of the Second Amended Plan shall in any way affect or diminish
the rights of the DIP Agent to exercise any charging lien against
distributions to holders of DIP Claims with respect to any unpaid
fees.
48
(d) Except
for the foregoing, subsequent to the performance by the Prepetition
First Lien Administrative Agent of its obligations pursuant to the
Second Amended Plan, the Prepetition First Lien Administrative
Agent and its agents shall be relieved of all further duties and
responsibilities related to the Prepetition First Lien Credit
Agreement.
Nothing in Section 5.9 of the Second Amended Plan shall in any way
affect or diminish the rights of the Prepetition First Lien
Administrative Agent to exercise any charging lien against
distributions to holders of First Lien Claims with respect to any
unpaid fees.
(e) Except
for the foregoing, subsequent to the performance by the Prepetition
Second Lien Administrative Agent of its obligations pursuant to the
Second Amended Plan, the Prepetition Second Lien Administrative
Agent and its agents shall be relieved of all further duties and
responsibilities related to the Prepetition Second Lien Credit
Agreement. Nothing in Section 5.9 of the Second Amended Plan shall
in any way affect or diminish the rights of the Prepetition Second
Lien Administrative Agent to exercise any charging lien against
distributions to holders of Second Lien Claims with respect to any
unpaid fees.
(f) Notwithstanding
anything to the contrary in the Second Amended Plan, all rights
under the Prepetition First Lien Credit Agreement and the
Prepetition Second Lien Credit Agreement shall remain subject to
the Prepetition Intercreditor Agreement.
(g) Notwithstanding
the foregoing, any provision in any document, instrument, lease, or
other agreement that causes or effectuates, or purports to cause or
effectuate, a default, termination, waiver, or other forfeiture of,
or by, the Debtors as a result of the cancellations, terminations,
satisfaction, releases, or discharges provided for in the Second
Amended Plan shall be deemed null and void and shall be of no force
and effect. Nothing contained in the Second Amended Plan shall be
deemed to cancel, terminate, release, or discharge the obligation
of the Debtors or any of their counterparties under any executory
contract or unexpired lease to the extent such executory contract
or unexpired lease has been assumed by the Debtors pursuant to a
Final Order of the Bankruptcy Court or hereunder.
10. Cancellation of Liens
Except as otherwise specifically provided in the Second Amended
Plan, on the Effective Date, any Lien securing an Allowed Claim
that is paid in full, in Cash, shall be deemed released, and the
holder of such Other Secured Claim shall be authorized and directed
to release any collateral or other property of the Debtors
(including any Cash collateral) held by such holder and to take
such actions as may be requested by the Reorganized Debtors, to
evidence the release of such Lien, including the execution,
delivery and filing or recording of such releases as may be
requested by the Reorganized Debtors.
11. Subordination Agreements
Pursuant to section 510(a) of the Bankruptcy Code, all
subordination agreements, including but not limited to, the
Prepetition Intercreditor Agreement, governing Claims or Interests
shall be enforced in accordance with such agreement’s
terms.
12. Nonconsensual Confirmation
The Debtors intend to undertake to have the Bankruptcy Court
confirm the Second Amended Plan under section 1129(b) of the
Bankruptcy Code as to any Classes that reject or are deemed to
reject the Second Amended Plan.
13. Closing of Chapter 11 Cases
After an Estate has been fully administered, the Reorganized
Debtors shall seek authority from the Bankruptcy Court to close the
applicable Chapter 11 Case(s) in accordance with the Bankruptcy
Code and Bankruptcy Rules.
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14. Notice of Effective Date
As soon as practicable, but not later than three (3) Business Days
following the Effective Date, the Debtors shall file a notice of
the occurrence of the Effective Date with the Bankruptcy
Court.
15. Separability
Notwithstanding the combination of the separate plans of
reorganization for the Debtors set forth in the Second Amended Plan
for purposes of economy and efficiency, the Second Amended Plan
constitutes a separate chapter 11 plan for each Debtor.
Accordingly, if the Bankruptcy Court does not confirm the Second
Amended Plan with respect to one or more Debtors, it may still,
subject to the consent of the applicable Debtors, confirm the
Second Amended Plan with respect to any other Debtor that satisfies
the confirmation requirements of section 1129 of the Bankruptcy
Code.
16. Litigation Trust
(a) Interest
in the Litigation Trust
Any and
all interests in the Litigation Trust will not constitute
“securities” and will not be registered pursuant to the
Securities Act, as amended, or any state securities law. However,
if it should be determined that interests in the Litigation Trust
constitute “securities,” the exemption provisions of
Section 1145 of the Bankruptcy Code will apply to the interests in
the Litigation Trust. Any and all interests in the Litigation Trust
shall not be certificated, shall be subject to certain
restrictions, and all interests shall be non-transferable other
than if transferred by will, intestate succession, or otherwise by
operation of law.
(b) Creation
and Governance of the Litigation Trust
On the
Effective Date, the Debtors shall be deemed to transfer the
Litigation Trust Debtor Causes of Action to the Litigation Trust,
the Reorganized Debtors shall transfer the Litigation Trust Initial
Funding to the Litigation Trust, the holders of Allowed First Lien
Claims shall be deemed to transfer the Litigation Trust First Lien
Lender Causes of Action to the Litigation Trust and the Reorganized
Debtors (solely in their capacity as successors to the Debtors),
the Litigation Trust Oversight Committee and the Creditors’
Committee shall execute the Litigation Trust Agreement and shall
take all steps necessary to establish the Litigation Trust in
accordance with the Second Amended Plan and the beneficial
interests tin the Second Amended Plan, which shall be for the
benefit of the holders of Litigation Trust Interest and Reorganized
FCI. In the event of any conflict between the terms of the Second
Amended Plan and the terms of the Litigation Trust Agreement, the
terms of the Second Amended Plan shall govern. Additionally, on the
Effective Date, (1) the Debtors shall be deemed to transfer to the
Litigation Trust all of their rights, title and interest in and to
all of the Litigation Trust Debtor Causes of Action (2) the
Reorganized Debtors shall transfer to the Litigation Trust all of
their rights, title and interest in and to all of the Litigation
Trust Initial Funding and (3) the holders of Allowed First Lien
Claims shall be deemed to transfer to the Litigation Trust all of
their rights, title and interest in and to all of the Litigation
Trust First Lien Lender Causes of Action, and in accordance with
section 1141 of the Bankruptcy Code, the Litigation Trust Debtor
Causes of Action, the Litigation Trust Initial Funding and the
Litigation Trust First Lien Lender Causes of Action shall
automatically vest in the Litigation Trust free and clear of all
Claims and Liens and such transfer shall be exempt from any stamp,
real estate transfer, mortgage reporting, sales, use or other
similar tax. The Litigation Trust Oversight Committee shall be the
exclusive administrator of the assets of the Litigation Trust for
purposes of 31 U.S.C. § 3713(b) and 26 U.S.C. §
6012(b)(3), as well as the representatives of the Estate of each of
the Debtors appointed pursuant to section 1123(b)(3)(B) of the
Bankruptcy Code, solely for purposes of carrying out the Litigation
Trust Oversight Committee’s duties under the Litigation Trust
Agreement. Notwithstanding the foregoing, all net proceeds of such
Litigation Trust Debtor Cause of Action shall be transferred to the
Litigation Trust to be distributed in accordance with the Second
Amended Plan. The Litigation Trust shall be governed by the
Litigation Trust Agreement and administered by the Litigation Trust
Oversight Committee. The powers, rights, and responsibilities of
the Litigation Trust Oversight Committee shall be specified in the
Litigation Trust Agreement and shall include the authority and
responsibility to, among other things, take the actions set forth
in Section 5.16 of the Second Amended Plan. The Litigation Trust
Oversight Committee shall hold and distribute the Litigation Trust
Assets in accordance with the provisions of the Second Amended Plan
and the Litigation Trust Agreement. Other rights and duties of the
Litigation Trust Oversight Committee shall be as set forth in the
Litigation Trust Agreement. After the Effective Date, the Debtors
and the Reorganized Debtors shall have no interest in the
Litigation Trust Assets except as set forth in the Litigation Trust
Agreement.
(c) Litigation
Trust Oversight Committee and Litigation Trust
Agreement
The
Litigation Trust Agreement generally will provide for, among other
things: (i) the transfer of the Litigation Trust Assets to the
Litigation Trust; (ii) the payment of Litigation Trust
Expenses; (iii) the retention of counsel, accountants,
financial advisors, or other professionals; (iv) litigation of
any Litigation Trust Causes of Action, which may include the
prosecution, settlement, abandonment or dismissal of any such
Causes of Action; and (v) making distributions to holders of
Litigation Trust Interests and to Reorganized FCI, as provided in
the Second Amended Plan and in the Litigation Trust Agreement. The
Litigation Trust Oversight Committee, on behalf of the Litigation
Trust, may employ, without further order of the Bankruptcy Court,
professionals to assist in carrying out its duties hereunder and
may compensate and reimburse the reasonable expenses of those
professionals without further order of the Bankruptcy Court from
the Litigation Trust Assets in accordance with the Second Amended
Plan and the Litigation Trust Agreement. The Litigation Trust
Agreement shall include reasonable and customary provisions that
allow for indemnification of the Litigation Trust Oversight
Committee by the
Litigation Trust. Any such indemnification shall be the sole
responsibility of the Litigation Trust and payable solely from the
Litigation Trust Assets. The Litigation Trust Oversight
Committee shall be
responsible for all decisions and duties with respect to the
Litigation Trust and the Litigation Trust Assets, except as
otherwise provided in the Litigation Trust Agreement.
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(d) Cooperation
of Reorganized Debtors
The
Reorganized Debtors shall reasonably cooperate with the Litigation
Trust and its agents and representatives in the administration of
the Litigation Trust, including, providing reasonable access to
books and records and current employees and officers, including for
interviews, deposition, or testimony, with respect to (i) the
investigation, prosecution, compromise, and/or settlement of the
Litigation Trust Causes of Action, (ii) contesting, settling,
compromising, reconciling, and objecting to General Unsecured
Claims, and (iii) administering the Litigation Trust
(collectively, “Trust
Responsibilities”) and in each case, the Litigation
Trust agrees to reimburse reasonable out-of-pocket expenses
incurred in connection with such cooperation. The Reorganized
Debtors shall take all reasonable efforts to assist the Litigation
Trust with the Trust Responsibilities and the Litigation Trust may
enter into agreements with the Reorganized Debtors and/or the
Creditors’ Committee in order to obtain information from the
Reorganized Debtors and/or the Creditors’ Committee on a
confidential basis, without being restricted by or waiving any
applicable work product, attorney-client, or other privilege. The
Litigation Trust’s receipt of documents, information or
communications from the Reorganized Debtors shall not constitute a
waiver of any privilege. For the avoidance of doubt, the Litigation
Trust shall not be responsible for legal fees, if any, incurred by
the Reorganized Debtors in fulfilling its obligations under this
Section.
(e) Cooperation
Agreements
To the
extent requested by the Committee, with the consent of the First
Lien Lender Group (not to be unreasonably withheld), any of the
Specified Officers and Directors shall enter into an agreement
prior to the Effective Date pursuant to which he will agree to
cooperate with the Litigation Trust and provide reasonable
assistance to the Litigation Trust until the Litigation Trust is
terminated, regardless of whether he remains an officer of the
Reorganized Debtors.
(f) Litigation
Trust Assets
The
Litigation Trust Oversight Committee shall have the exclusive right in
respect of all Litigation Trust Causes of Action to institute,
file, prosecute, enforce, settle, compromise, release, abandon, or
withdraw any and all Litigation Trust Causes of Action without any
further order of the Bankruptcy Court or consent of any other
party, except as otherwise provided in the Second Amended Plan or
in the Litigation Trust Agreement. From and after the Effective
Date, the Litigation Trust Oversight Committee, in accordance with
section 1123(b)(3) of the Bankruptcy Code, and on behalf of the
Litigation Trust, shall serve as a representative of the Estates,
solely for purposes of carrying out the Litigation Trust Oversight
Committee’s duties under the Litigation Trust
Agreement. In connection with the investigation, prosecution and/or
compromise of the Litigation Trust Causes of Action, the Litigation
Trust Oversight Committee may expend such portion of the
Litigation Trust Assets as the Litigation Trust Oversight
Committee deems
necessary.
(g) Litigation
Trust Fees and Expenses
From
and after the Effective Date, the Litigation Trust, shall, in the
ordinary course of business and without the necessity of any
approval by the Bankruptcy Court, pay the Litigation Trust
Expenses, including but not limited to reasonable fees and expenses
of the Litigation Trust Oversight Committee and the fees and
expenses of any professionals retained by the Litigation Trust from
the Litigation Trust Assets, except as otherwise provided in the
Litigation Trust Agreement. The Reorganized Debtors shall not be
responsible for any costs, fees, or expenses of the Litigation
Trust.
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(h) Tax
Treatment
In
furtherance of Section 5.16 of the Second Amended Plan,
(i) the Litigation Trust shall be structured to qualify as a
“liquidating trust” within the meaning of Treasury
Regulation section 301.7701-4(d) and in compliance with Revenue
Procedure 94-45, 1994-2 C.B. 684, and, thus, as a “grantor
trust” within the meaning of sections 671 through 679 of the
Tax Code to the holders of Litigation Trust Interests, consistent
with the terms of the Second Amended Plan; (ii) the sole
purpose of the Litigation Trust shall be the liquidation and
distribution of the Litigation Trust Assets in accordance with
Treasury Regulation section 301.7701-4(d), including the resolution
of General Unsecured Claims in accordance with the Second Amended
Plan, with no objective to continue or engage in the conduct of a
trade or business; (iii) all parties (including the Debtors
and the Estates, holders of Litigation Trust Interests and the
Litigation Trust Oversight Committee) shall report consistently
with such treatment (including the deemed receipt of the underlying
assets, subject to applicable liabilities and obligations, by the
holders of Litigation Trust Interests, followed by the deemed
transfer of such assets to the Litigation Trust); (iv) all
parties shall report consistently with the valuation of the
Litigation Trust Assets transferred to the Litigation Trust as
determined by the Litigation Trust Oversight Committee (or its designee); (v) the
Litigation Trust Oversight Committee shall be responsible for filing
returns for the Litigation Trust as a grantor trust pursuant to
Treasury Regulation section 1.671-4(a); and (vi) the
Litigation Trust Oversight Committee shall annually send to each
holder of Litigation Trust Interests a separate statement regarding
the receipts and expenditures of the trust as relevant for U.S.
federal income tax purposes. Subject to definitive guidance from
the Internal Revenue Service or a court of competent jurisdiction
to the contrary (including the receipt by the Litigation Trust
Oversight Committee of
a private letter ruling if the Litigation Trust Oversight
Committee so requests
one, or the receipt of an adverse determination by the Internal
Revenue Service upon audit if not contested by the Litigation Trust
Oversight Committee), the Litigation Trust Oversight Committee,
with the consent of the Requisite First Lien Lenders (which consent
shall not be unreasonably withheld or delayed), may timely elect to
(i) treat any portion of the Litigation Trust allocable to
Disputed General Unsecured Claims as a “disputed ownership
fund” governed by Treasury Regulation section 1.468B-9 (and
make any appropriate elections) and (ii) to the extent
permitted by applicable law, report consistently with the foregoing
for state and local income tax purposes. If a “disputed
ownership fund” election is made, all parties (including the
Debtors and the Estates, holders of Litigation Trust Interests and
the Litigation Trust Oversight Committee) shall report for United
States federal, state, and local income tax purposes consistently
with the foregoing. As to any assets allocable to, or retained on
account of, Disputed General Unsecured Claims, all distributions
shall be net of any expenses, including taxes, relating to the
retention or disposition of such assets, and the Litigation Trust
Oversight Committee shall be responsible for payment, out of
the assets of such retained assets, of any taxes imposed on or in
respect of such assets. All parties (including, without
limitation, the Debtors, the Reorganized Debtors, the Litigation
Trust and the holders of Litigation Trust Interests) will be
required to report for tax purposes consistently with the
foregoing.
(i) Termination
and Dissolution of the Litigation Trust
The
Litigation Trust Oversight Committee shall have the right to
terminate the Litigation Trust, when it determines, in its sole
discretion, that the pursuit of additional Litigation Trust Causes
of Action is not likely to yield sufficient additional proceeds to
justify further pursuit of such claims (the “Termination Right”). The
Litigation Trust Oversight Committee and the Litigation Trust shall be
discharged or dissolved, as the case may be, at such time as
(i) the Litigation Trust Oversight Committee exercises its Termination Right
and (ii) all distributions required to be made by the
Litigation Trust Oversight Committee under the Second Amended Plan and
the Litigation Trust Agreement have been made. Upon termination and
dissolution of the Litigation Trust, any remaining Litigation Trust
Proceeds shall be distributed to holders of Litigation Trust
Interests and Reorganized FCI in accordance with Section 5.2(b) of
the Second Amended Plan and the Litigation Trust Agreement;
provided, that in the event the Litigation Trust Oversight
Committee exercises its Termination Right without the consent
(which may not be unreasonably withheld, conditioned or delayed) of
the member appointed by the Creditors’ Committee to the
Litigation Trust Oversight Committee, the Litigation Trust shall
distribute the GUC Payment before making any other distributions
pursuant to Section 5.2 of the Second Amended Plan (with the GUC
Payment deemed to have been made for purposes of the waterfall set
forth in Section 5.2(b)(vi)); provided that the member appointed by
the Creditors’ Committee to the Litigation Trust Oversight
Committee may choose to use the GUC Payment to either (a) make a
distribution to holders of Litigation Trust Interests that are
holders of Allowed General Unsecured Claims or (b) continue the
Litigation Trust and prosecute Litigation Trust Causes of Action
for the sole benefit of holders of Litigation Trust Interests that
are holders of Allowed General Unsecured Claims.
(j) Single
Satisfaction of Allowed Claims From Litigation
Trust
Notwithstanding
anything to the contrary in the Second Amended Plan, in no event
shall holders of Litigation Trust Interests recover more than the
full amount of their Allowed Claims from the Litigation
Trust.
52
E. Distributions
1. Distributions Generally
Except as otherwise provided in the Second Amended Plan and the
Litigation Trust Agreement, one or more Disbursing Agents shall
make all distributions under the Second Amended Plan to the
appropriate holders of Allowed Claims in accordance with the terms
of the Second Amended Plan.
2. Distribution Record Date
As of the close of business on the Distribution Record Date, the
various transfer registers for each of the Classes of Claims or
Interests as maintained by the Debtors or their respective agents
shall be deemed closed for purposes of determining whether a holder
of such a Claim or Interest is a record holder entitled to
distributions under the Second Amended Plan, and there shall be no
further changes in the record holders or the permitted designees of
any such Claims or Interests. The Debtors, the Reorganized Debtors,
or the Litigation Trust Oversight Committee, as applicable, shall
have no obligation to recognize any transfer or designation of such
Claims or Interests occurring after the close of business on the
Distribution Record Date. In addition, with respect to payment of
any Cure Amounts or assumption disputes, neither the Debtors nor
the Disbursing Agent shall have any obligation to recognize or deal
with any party other than the non-Debtor party to the applicable
executory contract or unexpired lease as of the close of business
on the Distribution Record Date, even if such non-Debtor party has
sold, assigned, or otherwise transferred its Claim for a Cure
Amount.
3. Date of Distributions
Except
as otherwise provided in the Second Amended Plan and in the
Litigation Trust Agreement, any distributions and deliveries to be
made under the Second Amended Plan shall be made on the Effective
Date or as otherwise determined in accordance with the Second
Amended Plan, including, without limitation, the treatment
provisions of V.C of the Second
Amended Plan, or as soon as practicable thereafter; provided, that
the Litigation Trust Oversight Committee shall from time to time
determine distribution dates of Litigation Trust Assets as and when
they determine to be appropriate.
4. Disbursing Agent
All distributions under the Second Amended Plan shall be made by
the Disbursing Agent on and after the Effective Date as provided in
the Second Amended Plan. The Disbursing Agent shall not be required
to give any bond or surety or other security for the performance of
its duties. The Reorganized Debtors shall use all commercially
reasonable efforts to provide the Disbursing Agent (if other than
the Reorganized Debtors) with the amounts of Claims and the
identities and addresses of holders of Claims, in each case, as set
forth in the Debtors’ or the Reorganized Debtors’ books
and records. The Reorganized Debtors shall cooperate in good faith
with the applicable Disbursing Agent (if other than the Reorganized
Debtors) to comply with the reporting and withholding requirements
outlined in Section 6.19 of the Second Amended Plan.
5. Rights and Powers of Disbursing Agent
(a) From
and after the Effective Date, the Disbursing Agent, solely in its
capacity as Disbursing Agent, shall be exculpated by all Entities,
including, without limitation, holders of Claims against and
Interests in the Debtors and other parties in interest, from any
and all Claims, Causes of Action, and other assertions of liability
arising out of the discharge of the powers and duties conferred
upon such Disbursing Agent by the Second Amended Plan or any order
of the Bankruptcy Court entered pursuant to or in furtherance of
the Second Amended Plan, or applicable law, except for actions or
omissions to act arising out of the gross negligence or willful
misconduct, fraud, malpractice, criminal conduct, or ultra vires acts of such Disbursing
Agent. No holder of a Claim or Interest or other party in interest
shall have or pursue any claim or Cause of Action against the
Disbursing Agent, solely in its capacity as Disbursing Agent, for
making distributions in accordance with the Second Amended Plan or
for implementing provisions of the Second Amended Plan, except for
actions or omissions to act arising out of the gross negligence or
willful misconduct, fraud, malpractice, criminal conduct, or
ultra vires acts of such
Disbursing Agent.
53
(b) A
Disbursing Agent shall be empowered to (i) effect all
reasonable actions and execute all agreements, instruments, and
other documents necessary to perform its duties hereunder;
(ii) make all distributions contemplated hereby; and
(iii) exercise such other powers as may be vested in the
Disbursing Agent by order of the Bankruptcy Court, pursuant to the
Second Amended Plan, or as deemed by the Disbursing Agent to be
necessary and proper to implement the provisions of the Second
Amended Plan.
6. Expenses of Disbursing Agent
Except as otherwise ordered by the Bankruptcy Court, any reasonable
and documented fees and expenses incurred by the Disbursing Agent
acting in such capacity (including reasonable documented
attorneys’ and other professional fees and expenses) on or
after the Effective Date shall be paid in Cash.
7. No Postpetition Interest on Claims
Except as otherwise provided in the Second Amended Plan, the
Confirmation Order, the DIP Order, or another order of the
Bankruptcy Court or required by the Bankruptcy Code (including
postpetition interest in accordance with sections 506(b) and
726(a)(5) of the Bankruptcy Code), interest shall not accrue or be
paid on any Claims on or after the Commencement Date; provided,
that if interest is payable pursuant to the preceding sentence,
interest shall accrue at the federal judgment rate pursuant to 28
U.S.C. § 1961 on a non-compounded basis from the date the
obligation underlying the Claim becomes due and is not timely paid
through the date of payment.
8. Delivery of Distributions
(a) Subject
to Bankruptcy Rule 9010, all distributions to any holder or
permitted designee, as applicable, of an Allowed Claim or Interest
shall be made to a Disbursing Agent, who shall transmit such
distribution to the applicable holders or permitted designees of
Allowed Claims or Interests on behalf of the Debtors. In the event
that any distribution to any holder or permitted designee is
returned as undeliverable, no further distributions shall be made
to such holder or such permitted designee unless and until such
Disbursing Agent is notified in writing of such holder’s or
permitted designee’s, as applicable, then-current address, at
which time all currently-due, missed distributions shall be made to
such holder as soon as reasonably practicable thereafter without
interest. Nothing in the Second Amended Plan shall require the
Disbursing Agent to attempt to locate holders or permitted
designees, as applicable, of undeliverable distributions and, if
located, assist such holders or permitted designees, as applicable,
in complying with Section 6.19 of the Second Amended
Plan.
(b) Notwithstanding
the foregoing, all distributions of Cash on account of First Lien
Claims or Second Lien Claims, if any, shall be deposited with the
Prepetition First Lien Administrative Agent and the Prepetition
Second Lien Administrative Agent, as applicable, for distribution
to holders of First Lien Claims or Second Lien Claims in accordance
with the terms of the Prepetition Credit Agreement, the Prepetition
Second Lien Credit Agreement and the Prepetition Intercreditor
Agreement. All distributions other than of Cash on account of First
Lien Claims or Second Lien Claims, if any, may, with the consent of
the Prepetition First Lien Administrative Agent and the Prepetition
Second Lien Administrative Agent, be made by the Disbursing Agent
directly to holders of First Lien Claims and Second Lien Claims in
accordance with the terms of the Second Amended Plan, the
Prepetition First Lien Credit Agreement, the Prepetition Second
Lien Credit Agreement and the Prepetition Intercreditor Agreement.
To the extent the Prepetition First Lien Administrative Agent or
the Prepetition Second Lien Administrative Agent effectuates, or is
requested to effectuate, any distributions hereunder, the
Prepetition First Lien Administrative Agent and the Prepetition
Second Lien Administrative Agent shall be deemed a
“Disbursing Agent” for purposes of the Second Amended
Plan.
54
9. Distributions after Effective Date
Distributions made after the Effective Date to holders of Disputed
Claims that are not Allowed Claims as of the Effective Date but
which later become Allowed Claims shall be deemed to have been made
on the Effective Date.
10. Unclaimed Property
Undeliverable distributions or unclaimed distributions shall remain
in the possession of the Debtors or the Litigation Trust, as
applicable, until such time as a distribution becomes deliverable
or holder accepts distribution, or such distribution reverts back
to the Debtors, Reorganized Debtors, or Litigation Trust, as
applicable, and shall not be supplemented with any interest,
dividends, or other accruals of any kind. Such distributions shall
be deemed unclaimed property under section 347(b) of the Bankruptcy
Code at the expiration of three hundred and sixty-five (365) days
from the date of distribution. After such date all unclaimed
property or interest in property shall revert to the Reorganized
Debtors or Litigation Trust, as applicable, and the Claim of any
other holder to such property or interest in property shall be
discharged and forever barred.
11. Time Bar to Cash Payments
Checks issued by the Disbursing Agent in respect of Allowed Claims
shall be null and void if not negotiated within one hundred and
twenty (120) days after the date of issuance thereof. Thereafter,
the amount represented by such voided check shall irrevocably
revert to the Reorganized Debtors or the Litigation Trust, as
applicable, and any Claim in respect of such voided check shall be
discharged and forever barred, notwithstanding any federal or state
escheat laws to the contrary. Requests for re-issuance of any check
shall be made to the Disbursing Agent or Litigation Trust Oversight
Committee, as applicable, by the holder of the Allowed Claim to
whom such check was originally issued.
12. Manner of Payment under Plan
Except as otherwise specifically provided in the Second Amended
Plan, at the option of the Debtors, the Reorganized Debtors, or
Litigation Trust Oversight Committee, as applicable, any Cash
payment to be made hereunder may be made by a check or wire
transfer or as otherwise required or provided in applicable
agreements or customary practices of the Debtors.
13. Satisfaction of Claims
Except as otherwise specifically provided in the Second Amended
Plan, any distributions and deliveries to be made on account of
Allowed Claims under the Second Amended Plan shall be in complete
and final satisfaction, settlement, and discharge of and exchange
for such Allowed Claims.
55
14. Fractional Stock and Notes
If any distributions of New Equity Interests pursuant to the Second
Amended Plan would result in the issuance of a fractional share of
New Equity Interests, then the number of shares of New Equity
Interests to be issued in respect of such distribution will be
calculated to one decimal place and rounded up or down to the
closest whole share (with a half share or greater rounded up and
less than a half share rounded down). The total number of shares of
New Equity Interests to be distributed in connection with the
Second Amended Plan shall be adjusted as necessary to account for
the rounding provided for in Section 6.14 of the Second Amended
Plan. No consideration shall be provided in lieu of fractional
shares that are rounded down. Neither the Reorganized Debtors, nor
the Disbursing Agent shall have any obligation to make a
distribution that is less than one (1) share of New Equity
Interests.
15. Minimum Cash Distributions
The Disbursing Agent shall not be required to make any distribution
of Cash less than One Hundred Dollars ($100) to any holder of an
Allowed Claim; provided, that if any distribution is not made
pursuant to Section 6.15 of the Second Amended Plan, such
distribution shall be added to any subsequent distribution to be
made on behalf of the holder’s Allowed Claim.
16. Setoffs and Recoupments
The Debtors or the Reorganized Debtors, as applicable, or such
entity’s designee (including, without limitation, the
Disbursing Agent) may, but shall not be required to, set off or
recoup against any Claim, and any distribution to be made on
account of such Claim, any and all claims, rights, and Causes of
Action of any nature whatsoever that the Debtors or the Reorganized
Debtors may have against the holder of such Claim pursuant to the
Bankruptcy Code or applicable non-bankruptcy law; provided, that
neither the failure to do so nor the allowance of any Claim
hereunder shall constitute a waiver or release by a Debtor or
Reorganized Debtor or its successor of any claims, rights, or
Causes of Action that a Debtor or Reorganized Debtor or its
successor or assign may possess against the holder of such
Claim.
17. Allocation of Distributions between Principal and
Interest
Except as otherwise required by law (as reasonably determined by
the Reorganized Debtors), distributions with respect to an Allowed
Claim shall be allocated first to the principal portion of such
Allowed Claim (as determined for United States federal income tax
purposes) and, thereafter, to the remaining portion of such Allowed
Claim, if any.
18. No Distribution in Excess of Amount of Allowed
Claim
Except as provided in Section 6.7 of the Second Amended Plan, no
holder of an Allowed Claim shall receive, on account of such
Allowed Claim, distributions in excess of the Allowed amount of
such Claim.
19. Withholding and Reporting Requirements
(a) Withholding
Rights
In
connection with the Second Amended Plan, any party issuing any
instrument or making any distribution described in the Second
Amended Plan shall comply with all applicable withholding and
reporting requirements imposed by any federal, state, or local
taxing authority, and all distributions pursuant to the Second
Amended Plan and all related agreements shall be subject to any
such withholding or reporting requirements. In the case of a
non-Cash distribution that is subject to withholding, the
distributing party may withhold an appropriate portion of such
distributed property and either (i) sell such withheld
property to generate Cash necessary to pay over the withholding tax
(or reimburse the distributing party for any advance payment of the
withholding tax), or (ii) pay the withholding tax using its
own funds and retain such withheld property. Any amounts withheld
pursuant to the preceding sentence shall be deemed to have been
distributed to and received by the applicable recipient for all
purposes of the Second Amended Plan. Notwithstanding the foregoing,
each holder of an Allowed Claim or any other Entity that receives a
distribution pursuant to the Second Amended Plan shall have
responsibility for any taxes imposed by any governmental unit,
including, without limitation, income, withholding, and other
taxes, on account of such distribution. Any party issuing any
instrument or making any distribution pursuant to the Second
Amended Plan has the right, but not the obligation, to not make a
distribution until such holder has made arrangements satisfactory
to such issuing or disbursing party for payment of any such tax
obligations.
56
(b) Forms
Any
party entitled to receive any property as an issuance or
distribution under the Second Amended Plan shall, upon request,
deliver to the Disbursing Agent or such other Entity designated by
the Reorganized Debtors or Litigation Trust, as applicable (which
Entity shall subsequently deliver to the Disbursing Agent any
applicable IRS Form W-8 or Form W-9 received) an appropriate Form
W-9 or (if the payee is a foreign Entity) Form W-8. If such request
is made by the Reorganized Debtors, the Disbursing Agent, or such
other Entity designated by the Reorganized Debtors or Disbursing
Agent and the holder fails to comply before the earlier of (i) the
date that is one hundred and eighty (180) days after the request is
made and (ii) the date that is one hundred and eighty (180) days
after the date of distribution, the amount of such distribution
shall irrevocably revert to the applicable Reorganized Debtor and
any Claim in respect of such distribution shall be discharged and
forever barred from assertion against such Reorganized Debtor or
its respective property.
F. Procedures
for Disputed Claims
1. Objections to Claims
The Debtors, the Reorganized Debtors, or the Litigation Trust, as
applicable, shall exclusively be entitled to object to Claims.
After the Effective Date, the Reorganized Debtors or the Litigation
Trust Oversight Committee, as applicable, shall have and retain any
and all rights and defenses that the Debtors had with regard to any
Claim to which they may object, except with respect to any Claim
that is Allowed. Any objections to proofs of Claim shall be served
and filed on or before the later of (a) one-hundred and eighty
(180) days after the Effective Date, and (b) on such later
date as may be fixed by the Bankruptcy Court, after notice and a
hearing, upon a motion by the Reorganized Debtors that is filed
before the date that is one-hundred and eighty (180) days after the
Effective Date. The expiration of such period shall not limit or
affect the Debtors’ or the Reorganized Debtors’ rights
to dispute Claims asserted in the ordinary course of business other
than through a proof of Claim.
2. Resolution of Disputed Claims
On and after the Effective Date, (a) the Debtors or the
Reorganized Debtors, as applicable, shall have the authority to
compromise, settle, otherwise resolve, or withdraw any objections
to Claims (other than General Unsecured Claims) without approval of
the Bankruptcy Court, other than with respect to Fee Claims; and
(b) upon the creation of the Litigation Trust, the Litigation
Trust Oversight Committee shall have the exclusive authority to
compromise, settle, otherwise resolve, or withdraw any objections
to General Unsecured Claims without approval of the Bankruptcy
Court. The Debtors or the Reorganized Debtors, as applicable, and
the Litigation Trust Oversight Committee shall cooperate with
respect to any objections to Claims that seek to convert Claims
into General Unsecured Claims or General Unsecured Claims into
other Claims. The rights and defenses of the Debtors, the
Reorganized Debtors or the Litigation Trust, as applicable, to any
such objections are fully preserved.
57
3. Payments and Distributions with Respect to Disputed
Claims
Notwithstanding anything in the Second Amended Plan to the
contrary, if any portion of a Claim is a Disputed Claim, no payment
or distribution provided hereunder shall be made on account of such
Claim unless and until such Disputed Claim becomes an Allowed
Claim.
4. Distributions after Allowance
After such time as a Disputed Claim becomes, in whole or in part,
an Allowed Claim, the holder thereof shall be entitled to
distributions, if any, to which such holder is then entitled as
provided in the Second Amended Plan, without interest, as provided
in Section 7.9 of the Second Amended Plan. Such distributions shall
be made as soon as practicable after the date that the order or
judgment of the Bankruptcy Court allowing such Disputed Claim (or
portion thereof) becomes a Final Order.
5. Disallowance of Claims
Except to the extent otherwise agreed to by the Debtors, the
Reorganized Debtors, or the Litigation Trust Oversight Committee,
as applicable, or as provided in Section .2(b) of the Second
Amended Plan, any Claims held by Entities from which property is
recoverable under sections 542, 543, 550, or 553 of the Bankruptcy
Code or that is a transferee of a transfer avoidable under section
522(f), 522(h), 544, 545, 547, 548, 549, or 724(a) of the
Bankruptcy Code, as determined by a Final Order, shall be deemed
disallowed pursuant to section 502(d) of the Bankruptcy Code, and
holders of such Claims may not receive any distributions on account
of such Claims until such time as such Causes of Action against
that Entity have been settled or a Final Order with respect thereto
has been entered and all sums due, if any, to the Debtors by that
Entity have been turned over or paid to the Debtors, the
Reorganized Debtors, or the Litigation Trust Oversight Committee,
as applicable.
6. Estimation of Claims
The Debtors, the Reorganized Debtors, or the Litigation Trust
Oversight Committee, as applicable, may (a) determine, resolve
and otherwise adjudicate all contingent, unliquidated, and Disputed
Claims in the Bankruptcy Court and (b) at any time request that the
Bankruptcy Court estimate any contingent, unliquidated, or Disputed
Claim pursuant to section 502(c) of the Bankruptcy Code regardless
of whether the Debtors previously objected to such Claim or whether
the Bankruptcy Court has ruled on any such objection. The
Bankruptcy Court will retain jurisdiction to estimate any Claim at
any time during litigation concerning any objection to any Claim,
including, without limitation, during the pendency of any appeal
relating to any such objection. In the event that the Bankruptcy
Court estimates any contingent, unliquidated, or Disputed Claim,
the amount so estimated shall constitute either the Allowed amount
of such Claim or a maximum limitation on such Claim, as determined
by the Bankruptcy Court. If the estimated amount constitutes a
maximum limitation on the amount of such Claim, the Debtors, the
Reorganized Debtors, or the Litigation Trust Oversight Committee,
as applicable, may pursue supplementary proceedings to object to
the allowance of such Claim; provided, that such limitation shall
not apply to Claims requested by the Debtors to be estimated for
voting purposes only.
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7. No Distributions Pending Allowance
If an objection, motion to estimate, or other challenge to a Claim
is filed, no payment or distribution provided under the Second
Amended Plan shall be made on account of such Claim unless and
until (and only to the extent that) such Claim becomes an Allowed
Claim.
8. Claim Resolution Procedures Cumulative
All of the objection, estimation, and resolution procedures in the
Second Amended Plan are intended to be cumulative and not exclusive
of one another. Claims may be estimated and subsequently settled,
compromised, withdrawn, or resolved in accordance with the Second
Amended Plan without further notice or Bankruptcy Court
approval.
9. Interest
To the extent that a Disputed Claim becomes an Allowed Claim after
the Effective Date, the holder of such Claim shall not be entitled
to any interest that accrued thereon from and after the Effective
Date, except as provided in Section 6.7 of the Second Amended
Plan.
10. Insured Claims
If any portion of an Allowed Claim is an Insured Claim, no
distributions under the Second Amended Plan shall be made on
account of such Allowed Claim until the holder of such Allowed
Claim has exhausted all remedies with respect to any applicable
insurance policies. To the extent that the Debtors’ insurers
agree to satisfy a Claim in whole or in part, then immediately upon
such agreement, the portion of such Claim so satisfied may be
expunged without an objection to such Claim having to be filed and
without any further notice to or action, order or approval of the
Court.
G. Executory
Contracts and Unexpired Leases
1. General Treatment
(a) As
of and subject to the occurrence of the Effective Date, all
executory contracts and unexpired leases to which any of the
Debtors are parties shall be deemed rejected, unless such contract
or lease (i) was previously assumed or rejected by the Debtors
pursuant to an order of the Bankruptcy Court; (ii) previously
expired or terminated pursuant to its own terms or by agreement of
the parties thereto; (iii) is the subject of a motion to
assume filed by the Debtors on or before the Confirmation Date;
(iv) is identified in section 5.7(a) of the Second Amended
Plan; (v) is identified in section 8.4 of the Second Amended
Plan; or (vi) is identified for assumption on the Assumption
Schedule included in the Plan Supplement.
(b) Subject
to the occurrence of the Effective Date, entry of the Confirmation
Order by the Bankruptcy Court shall constitute approval of the
assumptions, assumptions and assignments, or rejections provided
for in the Second Amended Plan pursuant to sections 365(a) and 1123
of the Bankruptcy Code and a determination by the Bankruptcy Court
that the Reorganized Debtors or the Successful Bidder, as
applicable, have provided adequate assurance of future performance
under such assumed executory contracts and unexpired leases. Each
executory contract and unexpired lease assumed or assumed and
assigned pursuant to the Second Amended Plan shall vest in and be
fully enforceable by the Reorganized Debtors or the Successful
Bidder, as applicable, in accordance with its terms, except as
modified by the provision of the Second Amended Plan, any order of
the Bankruptcy Court authorizing and providing for its assumption,
or applicable law.
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2. Determination of Assumption Disputes and Deemed
Consent
(a) Any
Cure Amount shall be satisfied, pursuant to section 365(b)(1) of
the Bankruptcy Code, by payment of the Cure Amount, as reflected in
the applicable cure notice, in Cash on the Effective Date, subject
to the limitations described below, or on such other terms as the
parties to such executory contracts or unexpired leases and the
Debtors may otherwise agree.
(b) The
Debtors shall file, as part of the Plan Supplement, the Assumption
Schedule. The Debtors shall serve a notice on parties to executory
contracts or unexpired leases to be assumed or assumed and assigned
reflecting the Debtors’ intention to assume or assume and
assign the contract or lease in connection with the Second Amended
Plan and, where applicable, setting forth the proposed Cure Amount
(if any), in accordance with the Disclosure Statement Order.
Any objection by a
counterparty to an executory contract or unexpired lease to the
proposed assumption, assumption and assignment, or related Cure
Amount must be filed and served in accordance with the Disclosure
Statement Order. Any counterparty to an executory contract
or unexpired lease that does not timely object to the notice of the
proposed assumption of such executory contract or unexpired lease
shall be deemed to have assented to assumption of the applicable
executory contract or unexpired lease notwithstanding any provision
thereof that purports to (i) prohibit, restrict, or condition
the transfer or assignment of such contract or lease;
(ii) terminate or modify, or permit the termination or
modification of, a contract or lease as a result of any direct or
indirect transfer or assignment of the rights of any Debtor under
such contract or lease or a change, if any, in the ownership or
control to the extent contemplated by the Second Amended Plan;
(iii) increase, accelerate, or otherwise alter any obligations
or liabilities of any Debtor or any Reorganized Debtor under such
executory contract or unexpired lease; or (iv) create or impose a
Lien upon any property or Asset of any Debtor or any Reorganized
Debtor, as applicable. Each such provision shall be deemed to not
apply to the assumption of such executory contract or unexpired
lease pursuant to the Second Amended Plan and counterparties to
assumed executory contracts or unexpired leases that fail to object
to the proposed assumption in accordance with the terms set forth
in Section 8.2(b) of the Second Amended Plan, shall forever be
barred and enjoined from objecting to the proposed assumption or to
the validity of such assumption (including with respect to any Cure
Amounts or the provision of adequate assurance of future
performance), or taking actions prohibited by the foregoing or the
Bankruptcy Code on account of transactions contemplated by the
Second Amended Plan.
(c) If
there is an Assumption Dispute pertaining to assumption of an
executory contract or unexpired lease (other than a dispute
pertaining to a Cure Amount), such dispute shall be heard by the
Bankruptcy Court prior to such assumption being effective,
provided, that the Debtors or the Reorganized Debtors, as
applicable, may settle any dispute regarding the Cure Amount or the
nature thereof without any further notice to any party or any
action, order, or approval of the Bankruptcy Court.
(d) To
the extent an Assumption Dispute relates solely to the Cure Amount,
the Debtors may assume and/or assume and assign the applicable
executory contract or unexpired lease prior to the resolution of
such Assumption Dispute; provided, that the Debtors or the
Reorganized Debtors reserve Cash in an amount sufficient to pay the
full amount reasonably asserted as the required cure payment by the
non-Debtor party to such executory contract or unexpired lease (or
such smaller amount as may be fixed or estimated by the Bankruptcy
Court or otherwise agreed to by such non-Debtor party and the
applicable Reorganized Debtor).
(e) Assumption
or assumption and assignment of any executory contract or unexpired
lease pursuant to the Second Amended Plan or otherwise shall result
in the full release and satisfaction of any Claims against any
Debtor or defaults by any Debtor, whether monetary or nonmonetary,
including defaults of provisions restricting the change in control
or ownership interest composition or other bankruptcy-related
defaults, arising under any assumed executory contract or unexpired
lease at any time before the date that the Debtors assume or assume
and assign such executory contract or unexpired lease. Any proofs
of Claim filed with respect to an executory contract or unexpired
lease that has been assumed or assumed and assigned shall be deemed
disallowed and expunged, without further notice to or action,
order, or approval of the Bankruptcy Court or any other Entity,
upon the assumption of such executory contract or unexpired
lease.
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3. Rejection Damages Claims
In the event that the rejection of an executory contract or
unexpired lease hereunder results in damages to the other party or
parties to such executory contract or unexpired lease, any Claim
for such damages shall be classified and treated in Class 5
(General Unsecured Claims). Such Claim shall be forever barred and
shall not be enforceable against the Debtors, the Reorganized
Debtors, or the Litigation Trust, as applicable, or their
respective Estates, properties or interests in property as agents,
successors, or assigns, unless a proof of Claim is filed with the
Bankruptcy Court and served upon counsel for the Debtors or the
Reorganized Debtors, as applicable, no later than forty-five (45)
days after the filing and service of the notice of the occurrence
of the Effective Date.
4. Insurance Policies
Notwithstanding anything to the contrary in the Definitive
Documents, the Second Amended Plan, the Plan Supplement, any bar
date notice or claim objection, and any other document related to
any of the foregoing,: on the Effective Date, (a) all insurance
policies issued or providing coverage to the Debtors and all
related agreements shall be assumed in their entirety by the
Debtors or the Reorganized Debtors, as applicable pursuant to
sections 105 and 365(a) of the Bankruptcy Code, shall continue in
full force and effect thereafter in accordance with their
respective terms, and upon such assumption, the Reorganized Debtors
shall remain liable in full for any and all now existing or
hereinafter arising obligations, liabilities, terms, provisions,
and covenants of any of the Debtors under such insurance policies
and agreements, without the need or requirement for an insurer to
file a proof of Claim, Administrative Claim, or objection to any
cure amount; (b) the Debtors or the Reorganized Debtors, as
applicable, shall not sell, assign or otherwise transfer any
insurance policies or related agreements except in accordance with
the terms of thereof and applicable non-bankruptcy law; and (c) the
automatic stay of Bankruptcy Code section 362(a) and the
injunctions set forth in the Second Amended Plan, if and to the
extent applicable, shall be deemed lifted without further order of
this Court, solely to permit: (i) claimants with valid
workers’ compensation claims or direct action claims against
an insurer under applicable non-bankruptcy law to proceed with
their claims; and (ii) the insurers to administer, handle, defend,
settle, and/or pay, in the ordinary course of business and without
further order of the Bankruptcy Court, (A) workers’
compensation claims, (B) claims where a claimant asserts a direct
claim against any insurer under applicable non-bankruptcy law, or
an order has been entered by the Bankruptcy Court granting a
claimant relief from the automatic stay to proceed with its claim,
and (C) all costs in relation to each of the
foregoing.
5. Intellectual Property Licenses and
Agreements
Notwithstanding anything to the contrary in the Definitive
Documents, the Second Amended Plan, the Plan Supplement, any bar
date notice or claim objection, and any other document related to
any of the foregoing, all intellectual property contracts,
licenses, royalties, or other similar agreements to which the
Debtors have any rights or obligations in effect as of the date of
the Confirmation Order shall be deemed and treated as executory
contracts pursuant to the Second Amended Plan and shall, with the
consent of the Requisite First Lien Lenders (which consent shall
not be unreasonably withheld), be assumed by the Debtors and
Reorganized Debtors and shall continue in full force and effect
unless any such intellectual property contract, license, royalty,
or other similar agreement otherwise is specifically rejected
pursuant to a separate order of the Bankruptcy Court or is the
subject of a separate rejection motion filed by the Debtors in
accordance with Section 8.1 of the Second Amended Plan. Unless
otherwise noted hereunder, all other intellectual property
contracts, licenses, royalties, or other similar agreements shall
vest in the Reorganized Debtors and the Reorganized Debtors may
take all actions as may be necessary or appropriate to ensure such
vesting as contemplated in the Second Amended Plan.
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6. Tax Agreements
Notwithstanding anything to the contrary in the Definitive
Documents, the Second Amended Plan, the Plan Supplement, any bar
date notice or claim objection, and any other document related to
any of the foregoing, any tax sharing agreements to which the
Debtors are a party (of which the principal purpose is the
allocation of taxes) in effect as of the date of the Confirmation
Order shall be deemed and treated as executory contracts pursuant
to the Second Amended Plan and, to the extent the Debtors
determine, with the consent of the Requisite First Lien Lenders
(which consent shall not be unreasonably withheld), that such
agreements are beneficial to the Debtors, shall be assumed by the
Debtors and Reorganized Debtors and shall continue in full force
and effect thereafter in accordance with their respective terms,
unless any such tax sharing agreement (of which the principal
purpose is the allocation of taxes) otherwise is specifically
rejected pursuant to a separate order of the Bankruptcy Court or is
the subject of a separate rejection motion filed by the Debtors in
accordance with Section 8.1 of the Second Amended Plan. Unless
otherwise noted hereunder, all other tax sharing agreements to
which the Debtors are a party (of which the principal purpose is
the allocation of taxes) shall vest in the Reorganized Debtors and
the Reorganized Debtors may take all actions as may be necessary or
appropriate to ensure such vesting as contemplated in the Second
Amended Plan.
7. Assignment
To the extent provided under the Bankruptcy Code or other
applicable law, any executory contract or unexpired lease
transferred and assigned hereunder shall remain in full force and
effect for the benefit of the transferee or assignee in accordance
with its terms, notwithstanding any provision in such executory
contract or unexpired lease (including those of the type set forth
in section 365(b)(2) of the Bankruptcy Code) that prohibits,
restricts, or conditions such transfer or assignment. To the extent
provided under the Bankruptcy Code or other applicable law, any
provision that prohibits, restricts, or conditions the assignment
or transfer of any such executory contract or unexpired lease or
that terminates or modifies such executory contract or unexpired
lease or allows the counterparty to such executory contract or
unexpired lease to terminate, modify, recapture, impose any
penalty, condition renewal or extension, or modify any term or
condition upon any such transfer and assignment, constitutes an
unenforceable anti-assignment provision and is void and of no force
or effect with respect to any assignment pursuant to the Second
Amended Plan.
8. Modifications, Amendments, Supplements,
Restatements, or Other Agreements
Unless otherwise provided in the Second Amended Plan or by separate
order of the Bankruptcy Court, each executory contract and
unexpired lease that is assumed shall include any and all
modifications, amendments, supplements, restatements, or other
agreements made directly or indirectly by any agreement,
instrument, or other document that in any manner affects such
executory contract or unexpired lease, without regard to whether
such agreement, instrument, or other document is listed in the
notice of assumed contracts.
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9. Reservation of Rights
(a) The
Debtors, with the consent of the Requisite First Lien Lenders,
which consent may not be unreasonably withheld, may amend the
Assumption Schedule and any cure notice until the Business Day
immediately prior to the commencement of the Confirmation Hearing
in order to (i) add, delete, or reclassify any executory contract
or unexpired lease or amend a proposed assignment and/or
(ii) amend the proposed Cure Amount; provided,
that if the
Confirmation Hearing is adjourned for a period of more than two (2)
consecutive calendar days, the Debtors’ right to amend such
schedules and notices shall be extended to the Business Day
immediately prior to the adjourned date of the Confirmation
Hearing, with such extension applying in the case of any and all
subsequent adjournments of the Confirmation Hearing. The Debtors
shall provide notice of such amendment to any affected counterparty
as soon as reasonably practicable.
(b) Neither
the exclusion nor inclusion of any contract or lease by the Debtors
on any exhibit, schedule, or other annex to the Second Amended Plan
or in the Plan Supplement, nor anything contained in the Second
Amended Plan, will constitute an admission by the Debtors that any
such contract or lease is or is not in fact an executory contract
or unexpired lease or that the Debtors, the Reorganized Debtors or
their respective Affiliates have any liability
thereunder.
(c) Except
as otherwise provided in the Second Amended Plan, nothing in the
Second Amended Plan shall waive, excuse, limit, diminish, or
otherwise alter any of the defenses, Claims, Causes of Action, or
other rights of the Debtors and the Reorganized Debtors under any
executory or non-executory contract or any unexpired or expired
lease.
(d) Nothing
in the Second Amended Plan will increase, augment, or add to any of
the duties, obligations, responsibilities, or liabilities of the
Debtors or the Reorganized Debtors, as applicable, under any
executory or non-executory contract or any unexpired or expired
lease.
H. Conditions
Precedent to Confirmation of Plan and Effective
Date
(a) Conditions
Precedent to Confirmation of Plan
The following are conditions precedent to entry of the Confirmation
Order:
i.
the Disclosure
Statement Order shall have been entered and shall be in full force
and effect and no stay thereof shall be in effect;
ii.
the Plan Supplement
and all of the schedules, documents, and exhibits contained tin the
Second Amended Plan shall have been filed;
iii.
the RSA shall not
have been terminated and shall be in full force and effect;
and
iv.
the DIP Order and
the DIP Documents shall be in full force and effect in accordance
with the terms thereof, and no event of default shall have occurred
and be continuing thereunder.
(b) Conditions
Precedent to Effective Date
i.
The following are
conditions precedent to the Effective Date of the Second Amended
Plan:
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1.
the Confirmation
Order shall have been entered and shall be in full force and effect
and no stay thereof shall be in effect;
2.
no event of default
under the DIP Documents shall have occurred or be continuing and an
acceleration of the obligations or termination of the DIP
Lenders’ commitments under the DIP Documents shall not have
occurred;
3.
all actions,
documents, and agreements necessary to implement and consummate the
Second Amended Plan shall have been effected or executed and
binding on all parties thereto and, to the extent required, filed
with the applicable governmental units in accordance with
applicable laws;
4.
all applicable
governmental, regulatory and/or third-party approvals and consents,
including FCC Approval, approval of State PUCs, and Bankruptcy
Court approval, necessary in connection with the transactions
contemplated by the Second Amended Plan shall have been obtained
(including approval of the FCC Applications), not be subject to
unfulfilled conditions, and be in full force and effect, and all
applicable waiting periods shall have expired without any action
being taken or threatened by any competent authority that would
restrain, prevent, or otherwise impose materially adverse
conditions on such transactions;
5.
the RSA shall not
have been terminated and shall be in full force and effect, and no
notice shall have been delivered in accordance with the RSA that,
upon expiration of a cure period, would give rise to a Lender
Termination Event (as defined in the RSA);
6.
the Global
Settlement shall have been approved by the Bankruptcy Court without
material modification (unless the modification is consented to by
the Debtors, the Requisite First Lien Lenders, and the
Creditors’ Committee);
7.
all accrued and
unpaid Restructuring Expenses, Second Lien Lender Restructuring
Expenses, and Settlement Restructuring Expenses shall have been
paid in Cash to the extent invoiced at least two (2) business days
prior to the Effective Date (or such shorter period as the Debtors
may agree); provided that, any modification to the Second Amended
Plan that adversely affects the treatment of Second Lien Claims or
the rights of the Second Lien Lender Group to receive the Second
Lien Lender Restructuring Expenses shall be in form and substance
reasonably acceptable to the Second Lien Lender Group;
8.
the Amended
Organizational Documents shall have been filed with the appropriate
governmental authority, as applicable;
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9.
the Special Warrant
Agreement shall have been executed and delivered, and any
conditions precedent to effectiveness contained therein have been
satisfied or waived in accordance therewith;
10.
the New First Lien
Credit Documents and the New Exit Facility Credit Documents, shall
(i) have been (or deemed) executed and delivered, and any
conditions precedent to effectiveness contained therein have been
satisfied or waived in accordance therewith, (ii) be in full force
and effect and binding upon the relevant parties; and (iii) contain
terms and conditions consistent in all material respects with the
RSA; and
11.
the Consulting
Agreement shall have been executed and delivered, and any
conditions precedent therein shall have been satisfied or waived in
accordance therewith and be in full force and effect and binding on
the relevant parties.
ii.
Notwithstanding
when a condition precedent to the Effective Date occurs, for
purposes of the Second Amended Plan, such condition precedent shall
be deemed to have occurred simultaneously upon the occurrence of
the applicable conditions precedent to the Effective Date;
provided, that to the extent a condition precedent (a
“Prerequisite
Condition”) may be required to occur prior to another
condition precedent (a “Subsequent Condition”) then, for
purposes of the Second Amended Plan, the Prerequisite Condition
shall be deemed to have occurred immediately prior to a Subsequent
Condition regardless of when such Prerequisite Condition or
Subsequent Condition shall have occurred.
(c) Waiver
of Conditions Precedent
i.
Except as otherwise
provided in the Second Amended Plan, all actions required to be
taken on the Effective Date shall take place and shall be deemed to
have occurred simultaneously and no such action shall be deemed to
have occurred prior to the taking of any other such action. Each of
the conditions precedent in Section 9.1 and Section 9.2 of the
Second Amended Plan may be waived in writing by the Debtors with
the prior written consent of (i) the Requisite First Lien
Lenders, which consent shall not be unreasonably withheld (and (a)
solely with respect to the condition set forth in Section 9.1(d)
and 9.2(a)(ii) of the Second Amended Plan, with the consent of the
DIP Agent, such consent not to be unreasonably withheld, and (b)
solely with respect to the condition set forth in Section
9.2(a)(xi) of the Second Amended Plan, with the consent of Matthew
D. Rosen, such consent not to be unreasonably withheld) without
leave of or order of the Bankruptcy Court, and (ii) the
Creditors’ Committee, with respect to Section 9.2(a)(vii) of
the Second Amended Plan, which consent shall not be unreasonably
withheld. If the Second Amended Plan is confirmed for fewer than
all of the Debtors as provided for in Section 5.16 of the Second
Amended Plan, only the conditions applicable to the Debtor or
Debtors for which the Second Amended Plan is confirmed must be
satisfied or waived for the Effective Date to occur as to such
Debtors.
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ii.
The stay of the
Confirmation Order pursuant to Bankruptcy Rule 3020(e) shall be
deemed waived by and upon the entry of the Confirmation Order, and
the Confirmation Order shall take effect immediately upon its
entry.
(d) Effect
of Failure of a Condition
If the conditions listed in Section 9.2 of the Second Amended Plan
are not satisfied or waived in accordance with Section 9.2(c)(i) of
the Second Amended Plan on or before the first Business Day that is
more than sixty (60) days after the date on which the Confirmation
Order is entered or by such later date as set forth by the Debtors
in a notice filed with the Bankruptcy Court prior to the expiration
of such period, the Second Amended Plan shall be null and void in
all respects and nothing contained in the Second Amended Plan or
the Disclosure Statement shall (a) constitute a waiver or
release of any Claims by or against or any Interests in the
Debtors, (b) prejudice in any manner the rights of any Entity,
or (c) constitute an admission, acknowledgement, offer, or
undertaking by the Debtors, the Requisite First Lien Lenders, or
any other Entity.
I. Effect of
Confirmation of Plan
(a) Vesting
of Assets
On the Effective Date, pursuant to sections 1141(b) and (c) of the
Bankruptcy Code, all remaining property of the Debtors’
Estates shall vest in the Reorganized Debtors free and clear of all
Claims, Liens, encumbrances, charges, and other interests, except
as provided pursuant to the Second Amended Plan, the Confirmation
Order, the Litigation Trust Agreement, the New First Lien Credit
Documents, or the New Exit Facility Credit Documents. On and after
the Effective Date, the Reorganized Debtors may take any action,
including, without limitation, the operation of its businesses; the
use, acquisition, sale, lease and disposition of property; and the
entry into transactions, agreements, understandings, or
arrangements, whether in or other than in the ordinary course of
business, and execute, deliver, implement, and fully perform any
and all obligations, instruments, documents, and papers or
otherwise in connection with any of the foregoing, free of any
restrictions of the Bankruptcy Code or Bankruptcy Rules and in all
respects as if there were no pending cases under any chapter or
provision of the Bankruptcy Code, except as expressly provided in
the Second Amended Plan. Without limiting the foregoing, the
Reorganized Debtors may pay the charges that they incur on or after
the Effective Date for professional fees, disbursements, expenses,
or related support services without application to the Bankruptcy
Court.
(b) Binding
Effect
As of the Effective Date, the Second Amended Plan shall bind all
holders of Claims against and Interests in the Debtors and their
respective successors and assigns, notwithstanding whether any such
holders (a) were Impaired or Unimpaired under the Second
Amended Plan; (b) were deemed to accept or reject the Second
Amended Plan; (c) failed to vote to accept or reject the
Second Amended Plan; (d) voted to reject the Second Amended
Plan; or (e) received any distribution under the Second Amended
Plan.
(c) Discharge
of Claims and Termination of Interests
Upon the Effective Date, and in consideration of the distributions
to be made hereunder, except as otherwise expressly provided under
the Second Amended Plan, each holder (as well as any
representatives, trustees, or agents on behalf of each holder) of a
Claim or Interest and any Affiliate of such holder shall be deemed
to have forever waived, released, and discharged the Debtors, to
the fullest extent permitted by section 1141 of the Bankruptcy
Code, of and from any and all Claims, Interest, rights, and
liabilities that arose prior to the Effective Date. Upon the
Effective Date, all such Entities shall be forever precluded and
enjoined, pursuant to section 524 of the Bankruptcy Code, from
prosecuting or asserting any such discharged Claim against or
terminated Interest in the Debtors against the Debtors, the
Reorganized Debtors, or any of their Assets or property, whether or
not such holder has filed a proof of Claim and whether or not the
facts or legal bases therefor were known or existed prior to the
Effective Date.
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(d) Term
of Injunctions or Stays
Unless otherwise provided under the Second Amended Plan, the
Confirmation Order, or in a Final Order of the Bankruptcy Court,
all injunctions or stays arising under or entered during the
Chapter 11 Cases under section 105 or 362 of the Bankruptcy Code,
or otherwise, and in existence on the Confirmation Date, shall
remain in full force and effect until the later of the Effective
Date and the date indicated in the order providing for such
injunction or stay.
(e) Injunction
i.
Upon entry of the
Confirmation Order, all holders of Claims and Interests and other
parties in interest, along with their respective present or former
employees, agents, officers, directors, principals, and Affiliates,
shall be enjoined from taking any actions to interfere with the
implementation or consummation of the Second Amended Plan in
relation to any Claim or Interest extinguished, discharged, or
released pursuant to the Second Amended Plan.
ii.
Except as expressly
provided in the Second Amended Plan, the Confirmation Order, or a
separate order of the Bankruptcy Court or as agreed to by the
Debtors and a holder of a Claim against or Interest in the Debtors,
all Entities who have held, hold, or may hold Claims against or
Interests in the Debtors (whether proof of such Claims or Interests
has been filed or not and whether or not such Entities vote in
favor of, against or abstain from voting on the Second Amended Plan
or are presumed to have accepted or deemed to have rejected the
Second Amended Plan) and other parties in interest, along with
their respective present or former employees, agents, officers,
directors, principals, and Affiliates are permanently enjoined, on
and after the Effective Date, solely with respect to any Claims,
Interests, and Causes of Action that will be or are extinguished,
discharged, or released pursuant to the Second Amended Plan from
(i) commencing, conducting, or continuing in any manner,
directly or indirectly, any suit, action, or other proceeding of
any kind (including, without limitation, any proceeding in a
judicial, arbitral, administrative or other forum) against or
affecting the Debtors, the Reorganized Debtors, or the Litigation
Trust, or the property of any of the Debtors, the Reorganized
Debtors, or the Litigation Trust; (ii) enforcing, levying,
attaching (including, without limitation, any prejudgment
attachment), collecting, or otherwise recovering by any manner or
means, whether directly or indirectly, any judgment, award, decree,
or order against the Debtors, the Reorganized Debtors, or the
Litigation Trust, or the property of any of the Debtors, the
Reorganized Debtors, or the Litigation Trust; (iii) creating,
perfecting, or otherwise enforcing in any manner, directly or
indirectly, any encumbrance of any kind against the Debtors, the
Reorganized Debtors, or the Litigation Trust, or the property of
any of the Debtors, the Reorganized Debtors, or the Litigation
Trust; (iv) asserting any right of setoff, directly or
indirectly, against any obligation due from the Debtors, the
Reorganized Debtors, or the Litigation Trust, or against property
or interests in property of any of the Debtors, the Reorganized
Debtors, or the Litigation Trust, except as contemplated or Allowed
by the Second Amended Plan; and (v) acting or proceeding in any
manner, in any place whatsoever, that does not conform to or comply
with the provisions of the Second Amended Plan.
iii.
Each holder of an
Allowed Claim or Interest extinguished, discharged, or released
pursuant to the Second Amended Plan will be deemed to have
affirmatively and specifically consented to be bound by the Second
Amended Plan, including, without limitation, the injunctions set
forth in section 10.5 of the Second Amended Plan.
iv.
The injunctions in
section 10.5 of the Second Amended Plan shall extend to any
successors of the Debtors, the Reorganized Debtors, and the
Litigation Trust, and their respective property and interests in
property.
67
(f) Releases
i.
Estate Releases
As of the Confirmation Date, pursuant to section 1123(b) of the
Bankruptcy Code, except for the rights that remain in effect from
and after the Confirmation Date to enforce the Second Amended Plan
and the Definitive Documents, for good and valuable consideration,
the adequacy of which is hereby confirmed, including, without
limitation, the service of the Released Parties to facilitate the
reorganization of the Debtors and the implementation of the
restructuring, and except as otherwise provided in the Second
Amended Plan or in the Confirmation Order, the Released Parties
will be deemed expressly, conclusively, absolutely,
unconditionally, irrevocably and forever released and discharged,
to the maximum extent permitted by law, by the Debtors and their
Estates, the Reorganized Debtors, and the Litigation Trust, from
any and all Claims, obligations, suits, judgments, damages,
demands, debts, rights, Causes of Action, remedies, losses, and
liabilities whatsoever, including any derivative claims, asserted
or assertable on behalf of the Debtors, or the Reorganized Debtors,
as applicable, the Litigation Trust, or the Estates, or their
respective successors, predecessors, assigns, and representatives
and any and all other Persons or Entities that may purport to
assert any Cause of Action derivatively, by or through the
foregoing, whether liquidated or unliquidated, fixed or contingent,
matured or unmatured, known or unknown, foreseen or unforeseen,
existing or hereafter arising, in law, equity, contract, tort, by
statute, violations of federal or state securities law, or
otherwise, that the Debtors or the Reorganized Debtors (as
applicable), the Litigation Trust, or the Estates would have been
legally entitled to assert in their own right (whether individually
or collectively) or on behalf of the holder of any Claim or
Interest or other Person, based on or relating to, or in any manner
arising prior to the Confirmation Date from, in whole or in part,
the Debtors, the Chapter 11 Cases, the pre- and postpetition
marketing and sale process, the purchase, sale, or rescission of
the purchase or sale of any Security of the Debtors, the subject
matter of, or the transactions or events giving rise to, any Claim
or Interest that is treated in the Second Amended Plan, the
Prepetition First Lien Credit Documents, the Prepetition Second
Lien Credit Documents, the Prepetition Super Senior Credit
Documents, the Forbearance Agreement (as defined in the RSA), the
DIP Documents, the business or contractual arrangements between any
of the Debtors and any Released Party, the restructuring, the
restructuring of any Claim or Interest before or during the Chapter
11 Cases, the Disclosure Statement, the RSA, and the Second Amended
Plan (including, for the avoidance of doubt, the Plan Supplement)
and related agreements, instruments, and other documents (including
the Definitive Documents), and the negotiation, formulation, or
preparation of any documents or transactions in connection with any
of the foregoing, the solicitation of votes with respect to the
Second Amended Plan, the pursuit of the confirmation and
consummation of the Second Amended Plan, or any other act or
omission, in all cases based upon any act or omission, transaction,
agreement, event or other occurrence taking place on or before the
Confirmation Date; provided, that nothing in Section 10.6(a) of the
Second Amended Plan shall be construed to release the Released
Parties from gross negligence, willful misconduct, or fraud as
determined by a Final Order; provided, further, that nothing in
Section 10.6(a) of the Second Amended Plan shall be construed to
release the obligations of Vector SPV (as defined in the
Prepetition First Lien Credit Agreement) arising under the Vector
Subordinated Note (as defined in the Prepetition First Lien Credit
Agreement). The Debtors, the Reorganized Debtors and their Estates,
and the Litigation Trust, or their respective successors,
predecessors, assigns, and representatives and any and all other
Persons or Entities that may purport to assert any Cause of Action
derivatively, by or through the foregoing, shall be permanently
enjoined from prosecuting any of the foregoing Claims or Causes of
Action released under Section 10.6(a) of the Second Amended Plan
against each of the Released Parties. Notwithstanding anything to
the contrary in the foregoing or in the Second Amended Plan, the
releases set forth above do not release any post-Confirmation Date
obligations of any Entity under the Second Amended Plan, the
Confirmation Order, the Litigation Trust Agreement, or any
document, instrument, or agreement (including those set forth in
the Plan Supplement) executed to implement the Second Amended
Plan.
ii.
Consensual Releases by Holders of Impaired Claims
As of the Confirmation Date, except (i) for the right to
enforce the Second Amended Plan or any right or obligation arising
under the Definitive Documents that remains in effect or becomes
effective after the Confirmation Date or (ii) as otherwise
expressly provided in the Second Amended Plan or in the
Confirmation Order, in exchange for good and valuable
consideration, the adequacy of which is hereby confirmed, including
the obligations of the Debtors under the Second Amended Plan and
the contributions of the Released Parties to facilitate and
implement the Second Amended Plan, to the fullest extent
permissible under applicable law, as such law may be extended or
integrated after the Confirmation Date, the Released Parties shall
be deemed expressly, conclusively, absolutely, unconditionally,
irrevocably and forever, released, and discharged by:
a.
the
holders of Impaired Claims who voted to accept the Second Amended
Plan;
b.
the
Consenting First Lien Lenders;
c.
the
Consenting Second Lien Lenders;
d.
the
Creditors’ Committee and each of its members in their
capacity as such; and
e.
with
respect to any Entity in the foregoing clauses (a) through (c),
such Entity’s (x) predecessors, successors and assigns, (y)
subsidiaries, Affiliates, managed accounts or funds, managed or
controlled by such Entity and (z) all Persons entitled to assert
Claims through or on behalf of such Entities with respect to the
matters for which the releasing entities are providing
releases.
68
in each case, from any and all Claims, Interests, or Causes of
Action whatsoever, including any derivative Claims asserted on
behalf of a Debtor, whether known or unknown, foreseen or
unforeseen, existing or hereafter arising, in law, equity,
contract, tort, by statute, violation of federal or state
securities law, or otherwise, that such Entity would have been
legally entitled to assert (whether individually or collectively),
based on, relating to, or arising prior to the Confirmation Date
from, in whole or in part, the Debtors, the restructuring, the
Chapter 11 Cases, the pre- and postpetition marketing and sale
process, the purchase, sale or rescission of the purchase or sale
of any security of the Debtors or Reorganized Debtors, the subject
matter of, or the transactions or events giving rise to, any Claim
or Interest that is treated in the Second Amended Plan, the
Prepetition First Lien Credit Documents, the Prepetition Second
Lien Credit Documents, the Prepetition Super Senior Credit
Documents, the Forbearance Agreement (as defined in the RSA), the
DIP Documents, the business or contractual arrangements between any
Debtor and any Released Party, the restructuring of Claims and
Interests before or during the Chapter 11 Cases, the negotiation,
formulation, preparation, or consummation of the Second Amended
Plan (including the Plan Supplement), the RSA, the Definitive
Documents, or any related agreements, instruments, or other
documents, the solicitation of votes with respect to the Second
Amended Plan, the pursuit of the confirmation and consummation of
the Second Amended Plan, in all cases based upon any act or
omission, transaction, agreement, event or other occurrence taking
place on or before the Confirmation Date; provided, that nothing in
Section 10.6(b) of the Second Amended Plan shall be construed to
release the Released Parties from gross negligence, willful
misconduct, or fraud as determined by a Final Order. The Persons
and Entities in (a) through (d) of Section 10.6(b) of the Second
Amended Plan shall be permanently enjoined from prosecuting any of
the foregoing Claims or Causes of Action released under Section
10.6(b) of the Second Amended Plan against each of the Released
Parties. Notwithstanding anything to the contrary in the foregoing
or in the Second Amended Plan, the releases set forth above do not
release any post-Confirmation Date obligations of any Entity under
the Second Amended Plan, the Confirmation Order, the Litigation
Trust Agreement, or any document, instrument, or agreement
(including those set forth in the Plan Supplement) executed to
implement the Second Amended Plan.
(g) Exculpation
To the maximum extent permitted by Section 1125(e) of the
Bankruptcy Code and without affecting or limiting either the estate
release set forth in Section 10.6(a) of the Second Amended Plan or
the consensual releases by holders of Impaired Claims set forth in
Section 10.6(b) of the Second Amended Plan, and notwithstanding
anything in the Second Amended Plan to the contrary, no Exculpated
Party will have or incur, and each Exculpated Party is hereby
released and exculpated from, any claim, obligation, suit,
judgment, damage, demand, debt, right, cause of action, remedy,
loss, and liability for any claim in connection with or arising out
of the administration of the Chapter 11 Cases, the postpetition
marketing and sale process, the postpetition purchase, sale, or
rescission of the purchase or sale of any security of the Debtors;
the postpetition negotiation and pursuit of the Disclosure
Statement, the RSA, the Reorganization Transaction, the Second
Amended Plan, the solicitation of votes for, or confirmation of,
the Second Amended Plan or the Litigation Trust Agreement; the
funding or consummation of the Second Amended Plan; the occurrence
of the Effective Date; the administration of the Second Amended
Plan or the property to be distributed under the Second Amended
Plan, including but not limited to the issuance and distribution of
the Litigation Trust Interests; the issuance of Securities under or
in connection with the Second Amended Plan; or the transactions in
furtherance of any of the foregoing; provided, that nothing in
Section 10.7 of the Second Amended Plan shall be construed to
release or exculpate an Exculpated Party from gross negligence,
willful misconduct, or fraud as determined by a Final Order;
provided, further, that nothing in Section 10.7 of the Second
Amended Plan shall be construed to release the obligations of
Vector SPV (as defined in the Prepetition First Lien Credit
Agreement) arising under the Vector Subordinated Note (as defined
in the Prepetition First Lien Credit Agreement).
69
(h) Limitations
on Executable Assets with Respect to Certain Causes of
Action
The Independent Directors and Other Officers and Directors shall
remain legally obligated to pay for any wrongful acts to the extent
of the Debtors’ available D&O Policies’ combined
limits, subject to the following: any recovery by or on behalf of
the Litigation Trust (and the beneficiaries thereof) on account of
any Litigation Trust Causes of Action (other than with respect to
claims for gross negligence, willful misconduct, or fraud) or the
Reorganized Debtors on account of any Causes of Action (other than
with respect to claims for gross negligence, willful misconduct, or
fraud) against any Independent Directors or Other officers and
Directors, each solely in his capacity as a director or officer of
the Debtors prior to the Effective Date, including in each case by
way of settlement or judgment, shall be limited to the
Debtors’ available D&O Policies’ combined limits,
after payment from such D&O Policies of any and all covered
costs and expenses incurred by the covered parties in connection
with the defense of any Litigation Trust Causes of Action or Causes
of Action.
(i) SEC
Rights and Powers
Notwithstanding any language to the contrary contained in the
Second Amended Plan, Disclosure Statement or the Confirmation
Order, no provision of the Second Amended Plan or the Confirmation
Order shall (i) preclude the SEC from enforcing its police or
regulatory powers; or (ii) enjoin, limit, impair or delay the SEC
from commencing or continuing any claims, causes of action,
proceedings or investigations against any non-Debtor person or
non-Debtor entity in any forum.
(j) FCC
Rights and Powers
No
provision in the Second Amended Plan or the Confirmation Order
relieves the Debtors or the Reorganized Debtors from their
obligations to comply with the Communications Act and the rules,
regulations and orders promulgated thereunder by the FCC. No
transfer of any FCC license or authorization held by Debtors or
transfer of control of any Debtor, or transfer of control of a FCC
licensee controlled by Debtors shall take place prior to the
issuance of FCC regulatory approval for such transfer pursuant to
applicable FCC regulations. The FCC’s rights and powers to
take any action pursuant to its regulatory authority including, but
not limited to, imposing any regulatory conditions on any of the
above described transfers, are fully preserved, and nothing in the
Second Amended Plan shall proscribe or constrain the FCC’s
exercise of such power or authority.
(k) Subordinated
Claims
The allowance, classification, and treatment of all Allowed Claims
and Interests and the respective distributions and treatments under
the Second Amended Plan take into account and conform to the
relative priority and rights of the Claims and Interests in each
Class in connection with any contractual, legal, and equitable
subordination rights relating thereto, whether arising under
general principles of equitable subordination, section 510(b) of
the Bankruptcy Code, or otherwise. Pursuant to section 510 of the
Bankruptcy Code, the Debtors (or the Litigation Trust, solely with
respect to General Unsecured Claims) reserve the right, with the
consent of the Required First Lien Lenders, which consent shall not
be unreasonably withheld, to reclassify any Allowed Claim or
Interest in accordance with any contractual, legal, or equitable
subordination relating thereto.
70
(l) Retention
of Causes of Action/Reservation of Rights
Except as otherwise provided in Sections 10.5, 10.6, and 10.7 of
the Second Amended Plan, nothing contained in the Second Amended
Plan or the Confirmation Order shall be deemed to be a waiver or
relinquishment of any rights, Claims, Causes of Action (including,
for the avoidance of doubt, Litigation Trust Causes of Action),
rights of setoff or recoupment, or other legal or equitable
defenses that the Debtors had immediately prior to the Effective
Date on behalf of their Estates or itself in accordance with any
provision of the Bankruptcy Code or any applicable non-bankruptcy
law, including, without limitation, any affirmative Causes of
Action against parties with a relationship with the Debtors
including actions arising under chapter 5 of the Bankruptcy Code.
Except as provided in any order entered by the Bankruptcy Court,
the Reorganized Debtors or the Litigation Trust Oversight
Committee, in connection with the pursuit of Litigation Trust
Causes of Action or objection to General Unsecured Claims, shall
have, retain, reserve, and be entitled to assert all such Claims,
Causes of Action, rights of setoff or recoupment, and other legal
or equitable defenses as fully as if the Chapter 11 Cases had not
been commenced, and all of the Debtors’ legal and equitable
rights in respect of any Unimpaired Claim may be asserted after the
Confirmation Date and Effective Date to the same extent as if the
Chapter 11 Cases had not been commenced. Notwithstanding the
foregoing, the Debtors and the Reorganized Debtors shall not retain
any Claims or Causes of Action released or barred pursuant to the
Second Amended Plan against the Released Parties.
(m) Solicitation
of Plan
As of and subject to the occurrence of the Confirmation Date: (a)
the Debtors shall be deemed to have solicited acceptances of the
Second Amended Plan in good faith and in compliance with the
applicable provisions of the Bankruptcy Code, including without
limitation, sections 1125(a) and (e) of the Bankruptcy Code, and
any applicable non-bankruptcy law, rule, or regulation governing
the adequacy of disclosure in connection with such solicitation;
and (b) the Debtors and each of their respective directors,
officers, employees, Affiliates, agents, financial advisors,
investment bankers, professionals, accountants, and attorneys shall
be deemed to have participated in good faith and in compliance with
the applicable provisions of the Bankruptcy Code in the offer and
issuance of any securities under the Second Amended Plan, and
therefore are not, and on account of such offer, issuance, and
solicitation shall not be, liable at any time for any violation of
any applicable law, rule, or regulation governing the solicitation
of acceptances or rejections of the Second Amended Plan or the
offer and issuance of any securities under the Second Amended
Plan.
(n) Corporate
and Limited Liability Company Action
Upon the Effective Date, all actions contemplated by the Second
Amended Plan shall be deemed authorized and approved in all
respects, including (a) those set forth in Sections 5.5 and 5.6 of
the Second Amended Plan; (b) the performance of the RSA; and
(c) all other actions contemplated by the Second Amended Plan
(whether to occur before, on, or after the Effective Date), in each
case, in accordance with and subject to the terms hereof. All
matters provided for in the Second Amended Plan involving the
corporate, limited liability company or partnership structure of
the Debtors or the Reorganized Debtors, and any corporate, limited
liability company or partnership action required by the Debtors or
the Reorganized Debtors in connection with the Second Amended Plan
shall be deemed to have occurred and shall be in effect, without
any requirement of further action by the Security holders,
directors, managers, limited partners or officers of the Debtors or
the Reorganized Debtors. On or (as applicable) before the Effective
Date, the authorized officers of the Debtors or the Reorganized
Debtors, as applicable, shall be authorized and directed to issue,
execute, and deliver the agreements, documents, Securities, and
instruments contemplated by the Second Amended Plan (or necessary
or desirable to effect the transactions contemplated by the Second
Amended Plan) in the name and on behalf of the Reorganized Debtors,
including, but not limited to: (i) the Amended Organizational
Documents; (ii) the New First Lien Credit Agreement;
(iii) the New Exit Facility Credit Agreement; (iv) the
Litigation Trust Agreement; and (v) any and all other
agreements, documents, securities, and instruments relating to the
foregoing. The authorizations and approvals contemplated by Section
10.11 of the Second Amended Plan shall be effective notwithstanding
any requirements under non-bankruptcy law.
71
J. Retention
of Jurisdiction
(a) Retention
of Jurisdiction
On and after the Effective Date, the Bankruptcy Court shall retain
non-exclusive jurisdiction over all matters arising in, arising
under, and related to the Chapter 11 Cases for, among other things,
the following purposes:
i.
to hear and
determine motions and/or applications for the assumption or
rejection of executory contracts or unexpired leases, including
Assumption Disputes, and the allowance, classification, priority,
compromise, estimation, or payment of Claims resulting
therefrom;
ii.
to determine any
motion, adversary proceeding, application, contested matter, and
other litigated matter pending on or commenced after the
Confirmation Date;
iii.
to ensure that
distributions to holders of Allowed Claims are accomplished as
provided for in the Second Amended Plan and Confirmation Order and
to adjudicate any and all disputes arising from or relating to
distributions under the Second Amended Plan, including, cases,
controversies, suits, disputes, or Causes of Action with respect to
the repayment or return of distributions and the recovery of
additional amounts owed by the holder of a Claim or Interest for
amounts not timely paid;
iv.
to consider the
allowance, classification, priority, compromise, estimation, or
payment of any Claim;
v.
to resolve disputes
concerning Disputed Claims or the administration
thereof;
vi.
to hear and
determine all Fee Claims and Restructuring Expenses;
vii.
to hear and resolve
any dispute over the application to any Claim of any limit on the
allowance of such Claim set forth in sections 502 or 503 of the
Bankruptcy Code, other than defenses or limits that are asserted
under non-bankruptcy law pursuant to section 502(b)(1) of the
Bankruptcy Code;
viii.
to enter,
implement, or enforce such orders as may be appropriate in the
event the Confirmation Order is for any reason stayed, reversed,
revoked, modified, or vacated;
ix.
to issue
injunctions, enter and implement other orders, and take such other
actions as may be necessary or appropriate to restrain interference
by any Entity with the consummation, implementation, or enforcement
of the Second Amended Plan, the Confirmation Order, or any other
order of the Bankruptcy Court;
72
x.
to hear and
determine any application to modify the Second Amended Plan in
accordance with section 1127 of the Bankruptcy Code, to remedy any
defect or omission or reconcile any inconsistency in the Second
Amended Plan, or any order of the Bankruptcy Court, including the
Confirmation Order, in such a manner as may be necessary to carry
out the purposes and effects thereof;
xi.
to hear and
determine disputes arising in connection with the interpretation,
implementation, or enforcement of the Second Amended Plan, the Plan
Supplement, the Global Settlement, the Litigation Trust Agreement,
the Confirmation Order, or any agreement, instrument, or other
document governing or relating to any of the
foregoing;
xii.
to take any action
and issue such orders as may be necessary to construe, interpret,
enforce, implement, execute, and consummate the Second Amended
Plan;
xiii.
to determine such
other matters and for such other purposes as may be provided in the
Confirmation Order;
xiv.
to hear and
determine matters concerning state, local, and federal taxes in
accordance with sections 346, 505, and 1146 of the Bankruptcy Code
(including any requests for expedited determinations under section
505(b) of the Bankruptcy Code);
xv.
to hear,
adjudicate, decide, or resolve any and all matters related to
Article X of the Second Amended Plan, including, without
limitation, the releases, discharge, exculpations, and injunctions
issued thereunder;
xvi.
to recover all
Assets of the Debtors and property of the Debtors’ Estates,
wherever located;
xvii.
to resolve any
disputes concerning whether an Entity had sufficient notice of the
Chapter 11 Cases, the Disclosure Statement, any solicitation
conducted in connection with the Chapter 11 Cases, any bar date
established in the Chapter 11 Cases, or any deadline for responding
or objecting to a Cure Amount, in each case, for the purpose of
determining whether a Claim or Interest is discharged hereunder or
for any other purpose;
xviii.
to hear and
determine any rights, Claims, or Causes of Action held by or
accruing to the Reorganized Debtors or the Litigation Trust
pursuant to the Bankruptcy Code or pursuant to any federal statute
or legal theory;
xix.
to enter one or
more final decrees closing the Chapter 11 Cases;
xx.
to consider any
motion brought under or in connection with Bankruptcy Rule 2004;
and
73
xxi.
to hear and
determine any other matters related hereto and not inconsistent
with the Bankruptcy Code and title 28 of the United States
Code.
(b) Courts
of Competent Jurisdiction
If the Bankruptcy Court abstains from exercising, or declines to
exercise, jurisdiction or is otherwise without jurisdiction over
any matter arising out of the Second Amended Plan, such abstention,
refusal, or failure of jurisdiction shall have no effect upon and
shall not control, prohibit, or limit the exercise of jurisdiction
by any other court having competent jurisdiction with respect to
such matter.
K. Miscellaneous Second Amended Plan
Provisions
(a) Payment
of Statutory Fees
On the Effective Date and thereafter as may be required, the
Reorganized Debtors shall pay all fees incurred pursuant to
sections 1911 through 1930 of chapter 123 of title 28 of the United
States Code, together with interest, if any, pursuant to section
3717 of title 31 of the United States Code with the Chapter 11
Cases, or until such time as a final decree is entered closing the
Chapter 11 Cases, a Final Order converting the Chapter 11 Cases to
cases under chapter 7 of the Bankruptcy Code is entered, or a Final
Order dismissing the Chapter 11 Cases is entered.
(b) Substantial
Consummation of the Second Amended Plan
On the Effective Date, the Second Amended Plan shall be deemed to
be substantially consummated under sections 1101 and 1127(b) of the
Bankruptcy Code.
(c) Plan
Supplement
The Plan Supplement shall be filed with the Clerk of the Bankruptcy
Court. Upon its filing with the Bankruptcy Court, the Plan
Supplement may be inspected in the office of the Clerk of the
Bankruptcy Court during normal court hours. Documents included in
the Plan Supplement will be posted at the website of the
Debtors’ notice, claims, and solicitation agent.
(d) Request
for Expedited Determination of Taxes
The Debtors shall have the right to request an expedited
determination under section 505(b) of the Bankruptcy Code with
respect to tax returns filed, or to be filed, for any and all
taxable periods ending after the Commencement Date through the
dissolution of the Debtors.
(e) Exemption
from Certain Transfer Taxes
Pursuant to section 1146 of the Bankruptcy Code, (a) the issuance,
transfer or exchange of any securities, instruments or documents,
(b) the creation of any Lien, mortgage, deed of trust, or other
security interest, (c) the making or assignment of any lease or
sublease or the making or delivery of any deed or other instrument
of transfer under, pursuant to, in furtherance of, or in connection
with the Second Amended Plan, including, without limitation, any
deeds, bills of sale, or assignments executed in connection with
any of the transactions contemplated under the Second Amended Plan
or the reinvesting, transfer, or sale of any real or personal
property of the Debtors pursuant to, in implementation of or as
contemplated in the Second Amended Plan (whether to one or more of
the Reorganized Debtors or otherwise), (d) the grant of collateral
under the New Exit Facility and the New First Lien Credit Facility,
and (e) the issuance, renewal, modification, or securing of
indebtedness by such means, and the making, delivery or recording
of any deed or other instrument of transfer under, in furtherance
of, or in connection with, the Second Amended Plan, including,
without limitation, the Confirmation Order, shall not be subject to
any document recording tax, stamp tax, conveyance fee, or other
similar tax, mortgage tax, real estate transfer tax, mortgage
recording tax, Uniform Commercial Code filing or recording fee,
regulatory filing or recording fee, sales tax, use tax, or other
similar tax or governmental assessment. Consistent with the
foregoing, each recorder of deeds or similar official for any
county, city, or governmental unit in which any instrument
hereunder is to be recorded shall, pursuant to the Confirmation
Order, be ordered and directed to accept such instrument without
requiring the payment of any filing fees, documentary stamp tax,
deed stamps, stamp tax, transfer tax, intangible tax, or similar
tax.
74
(f) Amendments
i.
Plan Modifications. Subject to the
terms of the RSA, (i) the Debtors reserve the right, in
accordance with the Bankruptcy Code and the Bankruptcy Rules, to
amend or modify the Second Amended Plan prior to the entry of the
Confirmation Order, including amendments or modifications to
satisfy section 1129(b) of the Bankruptcy Code, and (ii) after
entry of the Confirmation Order, the Debtors may, upon order of the
Court, amend, modify or supplement the Second Amended Plan in the
manner provided for by section 1127 of the Bankruptcy Code or as
otherwise permitted by law, in each case without additional
disclosure pursuant to section 1125 of the Bankruptcy Code. In
addition, after the Confirmation Date, so long as such action does
not materially and adversely affect the treatment of holders of
Allowed Claims or Allowed Interests pursuant to the Second Amended
Plan and subject to the reasonable consent of the Requisite First
Lien Lenders (and the Creditors’ Committee, solely as it
pertains to the Global Settlement or treatment of General Unsecured
Claims), the Debtors may remedy any defect or omission or reconcile
any inconsistencies in the Second Amended Plan or the Confirmation
Order with respect to such matters as may be necessary to carry out
the purposes or effects of the Second Amended Plan, and any holder
of a Claim or Interest that has accepted the Second Amended Plan
shall be deemed to have accepted the Second Amended Plan as
amended, modified, or supplemented.
ii.
Other Amendments. Subject to the terms
of the RSA, before the Effective Date, the Debtors may make
appropriate technical adjustments and modifications to the Second
Amended Plan and the documents contained in the Plan Supplement
without further order or approval of the Bankruptcy
Court.
(g) Effectuating
Documents and Further Transactions
Each of the officers, managers, limited partners or members of the
Reorganized Debtors is authorized to execute, deliver, file, or
record such contracts, instruments, releases, indentures, and other
agreements or documents and take such reasonable actions as may be
necessary or appropriate to effectuate and further evidence the
terms and conditions of the Second Amended Plan.
75
(h) Revocation
or Withdrawal of Plan
Subject to the terms of the RSA, the Debtors reserve the right to
revoke or withdraw the Second Amended Plan prior to the Effective
Date. If the Second Amended Plan has been revoked or withdrawn
prior to the Effective Date, or if confirmation or the occurrence
of the Effective Date does not occur, then: (a) the Second
Amended Plan shall be null and void in all respects; (b) any
settlement or compromise embodied in the Second Amended Plan
(including the fixing or limiting to an amount any Claim or
Interest or Class of Claims or Interests), assumption of executory
contracts or unexpired leases affected by the Second Amended Plan,
and any document or agreement executed pursuant to the Second
Amended Plan shall be deemed null and void; and (c) nothing
contained in the Second Amended Plan shall (i) constitute a
waiver or release of any Claim by or against, or any Interest in,
the Debtors or any other Entity; (ii) prejudice in any manner
the rights of the Debtors or any other Entity; or
(iii) constitute an admission of any sort by the Debtors, any
Consenting First Lien Lenders, or any other Entity. This provision
shall have no impact on the rights of the Consenting First Lien
Lenders or the Debtors, as set forth in the RSA, in respect of any
such revocation or withdrawal.
(i) Dissolution
of Statutory Committees
On the Effective Date, any statutory committee (a
“Committee”)
formed in these Chapter 11 Cases shall dissolve and, on the
Effective Date, each member (including each officer, director,
employee, or agent thereof) of such Committee and each professional
retained by such Committee shall be released and discharged from
all rights, duties, responsibilities, and obligations arising from,
or related to, the Debtors, their membership on such Committee, the
Second Amended Plan, or the Chapter 11 Cases, except with respect
to any matters concerning any Fee Claims held or asserted by any
professional retained by such Committee.
(j) Severability
of Plan Provisions
If, before the entry of the Confirmation Order, any term or
provision of the Second Amended Plan is held by the Bankruptcy
Court to be invalid, void, or unenforceable, the Bankruptcy Court,
at the request of the Debtors, shall have the power to alter and
interpret such term or provision to make it valid or enforceable to
the maximum extent practicable, consistent with the original
purpose of the term or provision held to be invalid, void, or
unenforceable, and such term or provision shall then be applicable
as altered or interpreted. Notwithstanding any such holding,
alteration, or interpretation, the remainder of the terms and
provisions of the Second Amended Plan will remain in full force and
effect and will in no way be affected, impaired or invalidated by
such holding, alteration, or interpretation. The Confirmation Order
shall constitute a judicial determination and shall provide that
each term and provision of the Second Amended Plan, as it may have
been altered or interpreted in accordance with the foregoing, is
(a) valid and enforceable pursuant to its terms,
(b) integral to the Second Amended Plan and may not be deleted
or modified without the consent of the Debtors or the Reorganized
Debtors (as the case may be), and (c) nonseverable and
mutually dependent.
(k) Governing
Law
Except to the extent that the Bankruptcy Code or other federal law
is applicable, or to the extent an exhibit hereto or a schedule in
the Plan Supplement or a Definitive Document provides otherwise,
the rights, duties, and obligations arising under the Second
Amended Plan shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York, without giving
effect to the principles of conflict of laws thereof; provided,
however, that corporate or entity governance matters relating to
any Debtors or Reorganized Debtors shall be governed by the laws of
the state of incorporation or organization of the applicable
Debtors or Reorganized Debtors.
(l) Time
In computing any period of time prescribed or allowed by the Second
Amended Plan, unless otherwise set forth in the Second Amended Plan
or determined by the Bankruptcy Court, the provisions of Bankruptcy
Rule 9006 shall apply.
76
(m) Dates
of Actions to Implement the Second Amended Plan
In the event that any payment or act under the Second Amended Plan
is required to be made or performed on a date that is not a
Business Day, then the making of such payment or the performance of
such act may be completed on or as soon as reasonably practicable
after the next succeeding Business Day, but shall be deemed to have
been completed as of the required date.
(n) Immediate
Binding Effect
Notwithstanding Bankruptcy Rules 3020(e), 6004(h), 7062, or
otherwise, upon the occurrence of the Effective Date, the terms of
the Second Amended Plan and Plan Supplement shall be immediately
effective and enforceable and deemed binding upon and inure to the
benefit of the Debtors, the holders of Claims and Interests, the
Released Parties, and each of their respective successors and
assigns, including, without limitation, the Reorganized
Debtors.
(o) Deemed
Acts
Subject to and conditioned on the occurrence of the Effective Date,
whenever an act or event is expressed under the Second Amended Plan
to have been deemed done or to have occurred, it shall be deemed to
have been done or to have occurred without any further act by any
party, by virtue of the Second Amended Plan and the Confirmation
Order.
(p) Successor
and Assigns
The rights, benefits, and obligations of any Entity named or
referred to in the Second Amended Plan shall be binding on, and
shall inure to the benefit of any heir, executor, administrator,
successor, or permitted assign, if any, of each
Entity.
(q) Entire
Agreement
On the Effective Date, the Second Amended Plan, the Plan
Supplement, and the Confirmation Order shall supersede all previous
and contemporaneous negotiations, promises, covenants, agreements,
understandings, and representations on such subjects, all of which
have become merged and integrated into the Second Amended
Plan.
(r) Exhibits
to Plan
All exhibits, schedules, supplements, and appendices to the Second
Amended Plan (including the Plan Supplement) are incorporated into
and are a part of the Second Amended Plan as if set forth in full
in the Second Amended Plan.
(s) Notices
All notices, requests, and demands hereunder to be effective shall
be in writing (including by electronic transmission) and, unless
otherwise expressly provided in the Second Amended Plan, shall be
deemed to have been duly given or made when actually delivered as
follows:
77
i.
If to the Debtors or the Reorganized
Debtors:
|
Fusion Connect,
Inc.,
|
|
|
210 Interstate
North Parkway, Suite 300,
|
|
|
Atlanta, Georgia
30339
|
|
|
Attn:
|
James P. Prenetta,
Jr., Executive Vice President and General Counsel
|
|
Email:
|
|
-and-
|
Weil, Gotshal &
Manges LLP
|
|
|
767 Fifth
Avenue
|
|
|
New York, New York
10153
|
|
|
Attn:
|
Gary T.
Holtzer
|
|
|
Sunny
Singh
|
|
|
Gaby
Smith
|
|
Telephone:
|
(212)
310-8000
|
|
Email:
|
|
|
|
|
|
|
|
ii.
If to the Consenting First Lien
Lenders:
|
Davis Polk &
Wardwell LLP
|
|
|
450 Lexington
Avenue
|
|
|
New York, NY
10017
|
|
|
Attn:
|
Damian S.
Schaible
|
|
|
Adam L.
Shpeen
|
|
Email:
|
|
|
|
|
i.
If to the Debtors or the Reorganized
Debtors:
Fusion
Connect, Inc.,
210
Interstate North Parkway, Suite 300,
Atlanta, Georgia
30339
Attn:
James P. Prenetta, Jr., Executive Vice President and General
Counsel
Email:
[email protected]
-and-
Weil,
Gotshal & Manges LLP
767
Fifth Avenue
New
York, New York 10153
Attn:
Gary T. Holtzer
Sunny
Singh
Gaby
Smith
Telephone:
(212) 310-8000
Email:
[email protected]
ii.
If to the Consenting First Lien
Lenders:
Davis
Polk & Wardwell LLP
450
Lexington Avenue
New
York, NY 10017
Attn:
Damian S. Schaible
Adam L.
Shpeen
Email:
[email protected]
iii.
If to members of the Ad Hoc Group
of Tranche A Term Loans / Revolving Lenders:
Simpson
Thacher & Bartlett LLP
425
Lexington Avenue
New
York, NY 10017
Attn:
Sandeep Qusba
Hyang
Sook Lee
Edward
R. Linden
Email:
[email protected]
After the Effective Date, the Debtors have authority to send a
notice to Entities providing that, to continue to receive documents
pursuant to Bankruptcy Rule 2002, they must file a renewed request
to receive documents pursuant to Bankruptcy Rule 2002. After the
Effective Date, the Debtors and the Reorganized Debtors, as
applicable, are authorized to limit the list of Entities receiving
documents pursuant to Bankruptcy Rule 2002 to those Entities who
have filed such renewed requests.
78
VI.
TRANSFER
RESTRICTIONS AND
CONSEQUENCES UNDER
FEDERAL SECURITIES LAWS
The
offer, issuance, and distribution of the Special Warrants and the
New Equity Interests shall be exempt, pursuant to section 1145 of
the Bankruptcy Code, from registration under the Securities Act and
all rules and regulations promulgated thereunder, and any state or
local law requiring registration for the offer, issuance, and
distribution of Securities.
Section
1145 of the Bankruptcy Code generally exempts from registration
under the Securities Act the offer, issuance, or sale under a
chapter 11 plan of a security of the debtor, of an affiliate
participating in a joint plan with the debtor, or of a successor to
the debtor under a plan, if such securities are offered or sold in
exchange for a claim against, or an interest in, the debtor or such
affiliate, or principally in such exchange and partly for cash. In
reliance upon this exemption, the New Equity Interests and the
Special Warrants will be exempt from the registration requirements
of the Securities Act, and state and local securities laws. These
securities may be resold without registration under the Securities
Act or other federal or state securities laws pursuant to the
exemption provided by Section 4(a)(1) of the Securities Act, unless
the holder is an “underwriter” with respect to such
securities, as that term is defined in section 1145(b) of the
Bankruptcy Code. In addition, such section 1145 exempt securities
generally may be resold without registration under state securities
laws pursuant to various exemptions provided by the respective laws
of the several states.
Section
1145(b) of the Bankruptcy Code defines “underwriter”
for purposes of the Securities Act as one who, except with respect
to ordinary trading transactions, (a) purchases a claim with a view
to distribution of any security to be received in exchange for the
claim, (b) offers to sell securities issued under a plan for the
holders of such securities, (c) offers to buy securities issued
under a plan from persons receiving such securities, if the offer
to buy is made with a view to distribution or (d) is an issuer, as
used in Section 2(a)(11) of the Securities Act, with respect to
such securities, which includes control persons of the issuer.
Further, based on the legislative history of Section 1145 of the
Bankruptcy Code, a creditor who owns 10% or more of the voting
securities of a reorganized debtor and/or has the right to appoint
a director to the board of directors of a reorganized debtor may be
presumed to be a control person, and therefore, an
underwriter.
Notwithstanding
the foregoing, control person underwriters may be able to sell
securities without registration pursuant to the resale limitations
of Rule 144 of the Securities Act which, in effect, permit the
resale of securities received by such underwriters pursuant to a
chapter 11 plan, subject to applicable volume limitations, notice
and manner of sale requirements, and certain other conditions.
Parties who believe they may be statutory underwriters as defined
in section 1145 of the Bankruptcy Code are advised to consult with
their own legal advisers as to the availability of the exemption
provided by Rule 144.
In any
case, recipients of New Equity Interests and/or Special Warrants
issued under the Second Amended Plan are advised to consult with
their own legal advisers as to the availability of any such
exemption from registration under state law in any given instance
and as to any applicable requirements or conditions to such
availability. In order to preserve the ability to utilize tax
attributes following the Effective Date, the charter, bylaws, and
other organizational documents, as applicable, of the Reorganized
Debtors may restrict certain transfers of the New Equity Interests
and/or Special Warrants.
Legends. To the extent certificated, certificates evidencing
New Equity Interests and Special Warrants held by holders of 10% or
more of the outstanding New Equity Interests and Special Warrants
or who are otherwise underwriters as defined in Section 1145(b) of
the Bankruptcy Code, will bear a legend substantially in the form
below:
79
THE NEW
EQUITY INTERESTS AND SPECIAL WARRANTS HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION AND MAY NOT BE
SOLD, OFFERED FOR SALE OR OTHERWISE TRANSFERRED UNLESS REGISTERED
OR QUALIFIED UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR
UNLESS FUSION CONNECT RECEIVES AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO IT THAT SUCH REGISTRATION OR QUALIFICATION IS NOT
REQUIRED.
VII.
REGULATORY
MATTERS
The
Debtors’ operations are subject to varying degrees of
regulation by the FCC under the Communications Act and the FCC
rules and regulations promulgated thereunder, as well as by the
State PUCs and their respective authorizing statutes and
regulations. Obtaining approval from the FCC and a number of State
PUCs is generally required for the issuance, renewal, transfer of
control, assignment, or modification of operating
licenses.
The
Fusion Licensees were required to submit applications notifying the
FCC upon entry into chapter 11. Following the Commencement Date,
the Fusion Licensees filed the requisite applications informing the
FCC of the pro forma transfer of the FCC licenses to the Fusion
Licensees as “debtors in possession” under chapter 11.
The FCC provided notice of those filings in a Public Notice dated
June 13, 2019 and labeled as Report No. TEL-01964, DA No.
19-552.11
On the
Effective Date, Telecom Holdings, LLC (“Telecom Holdings”) will
acquire over fifty percent (50%) of the New Equity Interests,
resulting in de jure
control of Reorganized FCI. Consequently, the emergence transaction
will effect a transfer of control of the Fusion Licensees. The New
Equity Interests that are not issued to Telecom Holdings will be
held by certain other holders of First Lien Claims, none of whom
will hold New Equity Interests that represent voting or equity
interests of ten percent (10%) or more of Reorganized FCI. On July
24, 2019 and August 2, 2019, 2019, the Fusion Licensees and Telecom
Holdings submitted applications to the FCC to obtain its consent
for the proposed transfer of control of the Fusion Licensees and
separately filed applications to the requisite State PUCs on or
prior to August 9, 2019.
Following
its review of the FCC Applications submitted by the Fusion
Licensees, the FCC will issue a public notice (or notices)
announcing the acceptance of the FCC Applications for filing (each,
a “Public
Notice”). For purposes of the wireless licenses,
pursuant to Section 309(d) of the Communications Act and related
FCC rules, any party that qualifies as a “party in
interest” may file a “petition to deny” the FCC
Applications within thirty (30) days of the date of a Public
Notice. If such petitions to deny are filed, the Fusion Licensees
will have the opportunity to file oppositions and the petitioners
will have the opportunity to reply, with the formal pleading cycle
closing approximately fifteen (15) days following the deadline for
petitions to deny (unless a different schedule is set by the
FCC).
Pursuant
to Section 214 of the Communications Act and related FCC rules, a
party may file comments or file a petition to deny the
international and domestic Section 214 applications within fourteen
(14) days of the Public Notice. For domestic Section 214
applications, parties are also permitted to file reply comments
within twenty-one (21) days of the Public Notice. The Fusion
Licensees will have the opportunity to respond to any such
comments. Thereafter, unless the FCC notifies the Fusion Licensees
otherwise, the Fusion Licensees may consummate the transfer of
control on the thirty-first day (31st) after the Public Notice with
respect to the domestic Section 214 authority and on the fourteenth
day (14th) after the Public Notice with respect to the
international Section 214 authority.
As
a consequence of entry into chapter 11, the wireless licenses held
by FCS were assigned to FCS, as debtor in possession, in File Nos.
000868350 and 0008686355, effective as of July 9,
2019.
80
As a
practical matter, however, the FCC is not expected to grant any of
the applications until after all required periods for the FCC
Applications have passed. In any event, the Reorganization
Transaction cannot be consummated until, among other things, all
required FCC Approvals have been obtained.
Following
the Debtors’ emergence from Chapter 11 on the Effective Date,
the proposed exercise of Special Warrants or any other conditional
interests issued pursuant to the Second Amended Plan will result in
(i) a second transfer of control of the Fusion Licensees because
Telecom Holdings’ interests in Reorganized FCI will drop
below fifty (50) percent, constituting a “negative transfer
of control” for FCC purposes. Moreover, the exercise of the
Special Warrants on the Exercise Date will result in the aggregate
foreign ownership of the Fusion Licensees exceeding twenty-five
percent (25%), which is prohibited by federal law unless the FCC
issues a declaratory ruling as discussed below. Therefore, as soon
as practicable following the Effective Date, the Fusion Licensees
and Telecom Holdings will file an additional set of applications
with the FCC and State PUCs (as required), as well as a Petition
for Declaratory Ruling seeking FCC approval for the proposed
foreign ownership of the Fusion Licensees that will take place on
the Exercise Date. Consistent with the Second Amended Plan, no
Special Warrants or other conditional interests in Reorganized FCI
that are issued on the Effective Date may be exercised until all of
the conditions for the Exercise Date have been met.
A.
State Public Service Commissions
The
Fusion Licensees were required to notify certain State PUCs upon
entry into chapter 11. Following the Commencement Date, therefore,
the Fusion Licensees filed notices informing the State PUCs in all
states where the Fusion Licensees operate of the Fusion
Licensees’ status as debtors in possession under chapter
11.
The
Fusion Licensees and Telecom Holdings were also required to submit
applications to certain State PUCs to request approval of the
transfer of control of the Fusion Licensees to Telecom Holdings.
The Fusion Licensees and Telecom Holdings filed the requisite State
PUC Applications in California, Colorado, the District of Columbia
Georgia, Hawaii, Indiana, Louisiana, Maryland, Minnesota,
Mississippi, Nebraska, New Jersey, New York, Ohio, Pennsylvania,
Texas, Virginia and West Virginia on behalf of each entity that
holds intrastate telecommunications authority in these states. The
level of review undertaken by the State PUCs, and the length of
time until an approval of a State PUC Application will be granted,
will vary by state. One or more State PUCs may issue its grant of
approval contingent upon issuance of approvals by the FCC and/or
the Bankruptcy Court.
In
order to comply with any applicable regulatory requirements in
states where approval of a transfer of control is not required and
where a Fusion Licensee holds authority to provide
telecommunications services, the Fusion Licensees (together with
Telecom Holdings) are filing the State PUC Notices with the
respective State PUCs regarding the transfer of control that will
occur as a result of the Reorganization Transaction.
In
connection with the exercise of Special Warrants on the Exercise
Date, and the resulting material change to the ownership of the
Fusion Licensees, advance approvals will have to be obtained from
certain State PUCs. Prior to the Exercise Date but after the
Effective Date, the Fusion Licensees and Telecom Holdings will file
additional State PUC applications for such approvals as required
and will file additional State PUC notices in the states where
notice (but not approval) is required for the change to ownership.
Consistent with the Second Amended Plan, no Special Warrants or
other conditional interests in Reorganized FCI that may be
exercised until all of the conditions for the Exercise Date have
been met.
81
The following is important information concerning the FCC approval
process and the ownership requirements and restrictions that must
be met in order for parties to hold equity interests in Reorganized
FCI. The following summary of certain FCC rules and policies is for
informational purposes only and is not a substitute for careful
planning and advice based upon the individual circumstances
pertaining to a Holder of an Allowed First Lien Claim or an Allowed
Second Lien Claim. Holders of Allowed First Lien Claims or Allowed
Second Lien Claims are urged to consult their own advisors as to
FCC ownership issues and other consequences of the Second Amended
Plan.
B.
Information Required from Prospective Stockholders of Reorganized
FCI
In
processing applications for consent to a transfer of control or
assignment of FCC licenses, the FCC considers, among other things,
whether the prospective owners or new licensee, as applicable,
possess the legal, character, and other qualifications to hold FCC
licenses in a manner consistent with the public
interest.
As
described in the Equity Allocation Mechanism, Holders of Allowed
First Lien Claims will receive New Equity Interests and/or Special
Warrants on account of such Claims. Holders of Allowed Second Lien
Claims will receive Special Warrants on account of such Claims. In
accordance with the terms of the Special Warrant Agreement, the
Special Warrants will automatically be exercised for New Equity
Interests, to the extent legally permissible, upon the Exercise
Date, which will not occur until all prerequisites are met,
including upon obtaining a declaratory ruling from the FCC and
grants of approvals of the transfer of control of Reorganized FCI
from the FCC and applicable State PUC approvals.
Each holder of an Allowed First Lien Claim must submit an Ownership
Certification providing information regarding the prospective
stockholder to establish that issuance of the New Equity Interests
and/or Special Warrants to such holder would not result in a
violation of law, impair the qualifications of the Reorganized
Debtors to hold FCC Licenses, or impede the grant of any FCC
Applications on behalf of the Reorganized Debtors.
Each holder of an Allowed First Lien Claim will be required to
provide information regarding the extent of their direct and
indirect ownership and control by non-U.S. persons sufficient to
establish whether any non-U.S. persons will hold a direct or
indirect ownership interest in Reorganized FCI. Based on the
Results of the Ownership Certifications, holders will receive a mix
of New Equity Interests and Special Warrants as set forth in the
Warrant Agreement and the Equity Allocation Mechanism.
Consistent
with the Special Warrant Agreement, holders of Allowed First Lien
Claims or Allowed Second Lien Claims that are directly or
indirectly owned or controlled by a non-U.S. individual or entity
will only be permitted to exercise Special Warrants upon the
Exercise Date, at which time, such holder may only exercise Special
Warrants and/or other conditional interest insofar as permitted by
the FCC’s Declaratory Ruling. For the avoidance of doubt,
holders of Allowed First Lien Claims or Allowed Second Lien Claims
shall not be permitted to exercise Special Warrants if the non-U.S.
ownership or voting percentage of such prospective holders, as
calculated in accordance with FCC rules, would result in an amount
in excess of the foreign ownership amount permitted by the
Declaratory Ruling.
82
On
September 23, 2019, The Court entered an order (ECF No. 425)
approving the Motion of Debtors
for Authority to Establish Procedures for Compliance with Federal
Communications Law (the “Ownership Procedures Motion”) for
entry of an order (i) approving procedures to comply with
foreign ownership restrictions and other ownership disclosure
requirement of the federal communications law and the
FCC12, including the forms of Ownership
Certification and Notice of Ownership Certification Procedures and
deadlines by which holders of Allowed First Lien Claims must submit
an Ownership Certification to Prime Clerk as the Certification
Agent to facilitate the allocation of New Equity Interests and
Special Warrants under the Second Amended Plan; and
(ii) authorizing Prime Clerk to serve as the Certification
Agent and to perform the relevant services related to the
certification process (each as defined in the Ownership Procedures
Motion).
Any
holder that fails to timely provide an Ownership Certification by
October 25, 2019 (the “Ownership Certification Deadline”)
or that fails to deliver an Ownership Certification that allows the
Debtors to clearly determine such holder’s foreign ownership
in compliance with the limitations set forth in the Equity
Allocation Mechanism will be treated as a one hundred percent
(100%) foreign-owned, non-U.S. holder, unless the Debtors, in their
sole discretion, elect to treat an Ownership Certification
delivered after the Ownership Certification Deadline (but prior to
the Effective Date) as if such Ownership Certification had been
delivered prior to the Ownership Certification
Deadline.
C.
FCC Foreign Ownership Restrictions and Ownership Disclosure
Requirements
On the Effective Date, Telecom Holdings will hold over fifty
percent (50%) of the New Equity Interests. The membership interests
in Telecom Holdings on the Effective Date will be held by twelve
(12) U.S. Holders (as defined herein), none of whom will hold a
direct or indirect economic interest in Reorganized FCI of ten
percent (10%) or more.
Section 310 of the Communications Act prohibits foreign individuals and foreign entities from
having direct or indirect ownership or voting rights totaling in
the aggregate more than twenty-five percent (25%) in a U.S.
corporation that controls a U.S. broadcast, common carrier, or
aeronautical fixed or en route radio station licensee
(“Licensee”). The FCC, which has adopted rules to
implement Section 310(b), may authorize aggregate foreign equity
ownership or voting interests to exceed the twenty-five percent
(25%) limitation by granting a declaratory ruling in response to
the filing of a Petition for
Declaratory Ruling by the applicable Licensee. In addition, if the
parent company of a Licensee already has, or proposes to have,
foreign ownership that exceeds the twenty-five percent (25%)
Ownership Limitations, any entity (including entities subject to
aggregation under applicable FCC rules) that has or would receive
in excess of either five percent (5%) or, in certain cases, ten
percent (10%) of the equity ownership or voting rights in the
Licensee’s parent company must receive specific approval from
the FCC (a “Specific
Approval”). The
determination of whether the five percent (5%) or ten percent (10%)
Specific Approval threshold applies to an entity is determined
pursuant to the FCC’s foreign ownership
rules.
To ensure compliance with the twenty-five percent (25%) limitation,
the distribution of New Equity
Interests to holders of Allowed
First Lien Claims is being structured in a manner that will prevent
the aggregate foreign equity ownership or aggregate foreign voting
percentage in Reorganized FCI from exceeding twenty-two and
one-half percent (22.5%) (the
“22.5
Percent Limitation”). Any
distribution of New Equity Interests on the Effective Date in
contravention of the preceding sentence will be deemed
automatically adjusted to the minimum extent necessary to comply
with this limitation. Historically, warrants and other
future or conditional interests have not been taken into account in
determining foreign ownership compliance.
See, e.g., 47 C.F.R. §
1.5000 et seq. (implementing the Ownership Limitations of
Section 310 of the Communications Act for broadcast, common
carrier, aeronautical en route, and aeronautical fixed radio
station licensees and common carrier spectrum lessees); 47 C.F.R.
§ 63.04, 18) (requiring disclosure of certain equity ownership
and voting interest in Section 214 transfer of control
applications).
83
Ownership
Limitations also apply to partnerships and limited liability
companies. The FCC historically has treated partnerships with
foreign partners as foreign-controlled if there are any foreign
general partners. The interests of any foreign limited partners or
foreign members of limited liability companies are considered in
determining the equity ownership and voting rights held by such
entities. The interests of limited partners or limited liability
company members that are not properly insulated from active
involvement in the management or operation of the company are
considered to have the same voting interest in the licensee as the
entity itself. Limited partners and members of limited liability
companies that are properly insulated are deemed to have a voting
interest that is the same as their own equity
interest.
The
FCC’s rules implementing Section 214 of the Communications Act require
a U.S. company that holds
domestic and international Section 214 telecommunications service
authority to disclose the identity of all direct or indirect
holders of ten percent (10%) or more of the voting or equity
ownership in such company when applying for authority or consent to
a transfer of control or assignment. To ensure that the FCC Applications have disclosed
all such holders, with the exception of distributions to Telecom
Holdings, the distribution of
New Equity Interests to any holders of Allowed First Lien Claims is being
limited to nine and three-quarters percent (9.75%) of the equity or
voting percentage of Reorganized FCI (the
“9.75 Percent
Limitation”). Holders that are subject to restriction
pursuant to the 9.75 Percent Limitation will receive a mix of New
Equity Interests and Special Warrants. Any distribution of New Equity Interests on the
Effective Date that would contravene the 9.75 Percent Limitation
will be deemed automatically adjusted to the minimum extent
necessary to comply with this limitation.
In
order to ensure Reorganized FCI’s compliance with the
FCC’s foreign ownership rules, the Equity Allocation
Mechanism provides for the distribution of New Equity Interests and
Special Warrants on the Effective Date to Holders of Allowed First
Lien Claims. Holders that receive Special Warrants will be
permitted to exercise their Special Warrants only in accordance
with the terms of the Special Warrant Agreement on the Exercise
Date, which is a date occurring within five (5) business days of
the satisfaction of the following conditions: (i) the FCC has
issued all requisite approvals for the transfer of control of
Reorganized FCI that will result from the exercise of the Special
Warrants; (ii) for any common carrier radio station licenses held
by FCS on the Exercise Date, the FCC has granted the requisite
approvals under Section 310 of the Communications Act for the
transfer of control of a wireless license that will arise from the
exercise of the Special Warrants; (iii) the FCC has granted the
Declaratory Ruling allowing Reorganized FCI or its affiliates, as
applicable, to exceed twenty-five percent (25%) foreign ownership;
and (iii) the State PUCs grant any requisite approvals for the
change of ownership that will arise from the exercise of the
Special Warrants.
As set
forth in the Special Warrant Agreement, if the FCC adopts a
Declaratory Ruling allowing one hundred percent (100%) foreign
ownership of Reorganized FCI (the “100% Declaratory Ruling”), then,
subject to having received any needed Specific Approval, all
Non-U.S. Holders that complete and deliver an Ownership
Certification that is satisfactory to Reorganized FCI will be
deemed to have exercised their Special Warrants on the Exercise
Date and will receive the corresponding number of New Equity
Interests; provided, however, that a Non-U.S. Holder of Special
Warrants may not hold more than five percent (5%) of the New Equity
Interests until the requisite Specific Approval has been obtained
from the FCC.
84
If the
FCC adopts a Declaratory Ruling allowing foreign ownership of
Reorganized FCI between twenty-five percent (25%) and ninety-nine
and nine-tenths percent (99.9%) (the “Partial Declaratory Ruling
Percentage” and the “Partial Declaratory Ruling”),
then, subject to having received any needed Specific Approval, each
Non-U.S. Holder of Special Warrants that completes and delivers an
Ownership Certification that is satisfactory to Reorganized FCI
will have all or a portion of its Special Warrants exercised and
converted into New Equity Interests on the Exercise Date, according
to the following principles: (i) each such Non-U.S. Holder’s
ownership of New Equity Interests will be maximized to the extent
possible taking into account such Non-U.S. Holder’s foreign
equity and voting percentage and Reorganized FCI’s aggregate
foreign equity percentage upon completion of all such exercises;
provided, however, that Non-U.S. Holders of Special Warrants may
not hold more than five percent (5%) of the New Equity Interests
until the requisite Specific Approval has been obtained from the
FCC; (ii) each such Non-U.S. Holder shall be entitled to receive
New Equity Interests corresponding to its domestic equity
percentage and/or its domestic voting percentage, as determined by
Reorganized FCI; and (iii) after taking into account the exercise
of the Special Warrants described above, the remaining Special
Warrants held by each such Non-U.S. Holder will be exercised on a
pro rata basis based upon
the aggregate number of Special Warrants held by all such Non-U.S.
Holders.
If the
FCC does not issue a Declaratory Ruling, then Non-U.S. Holders may
not elect to exercise their Special Warrants and must either hold
such Special Warrants or transfer them, except to the extent that
Reorganized FCI reasonably determines that such exercise will not
cause a violation of the 22.5 Percent Limitation, 9.75 Percent
Limitation, or any other limitations on equity ownership set forth
in the Special Warrants.
Because
the proposed exercise of Special Warrants will cause Telecom
Holdings to hold less than fifty percent (50%) of the ownership of
Reorganized FCI, Reorganized FCI and Telecom Holdings shall file
the requisite applications under Sections 214 and 310 of the
Communications Act and any requisite State PUC applications for
consent to the transfer of control. If the exercise of the Special
Warrants would result in any holder, besides Telecom Holdings,
holding ten percent (10%) or more of the New Equity Interests,
Reorganized FCI, and Telecom Holdings shall also disclose the
identity or identities of such holder(s) in the requisite
applications. The FCC and applicable State PUCs must grant such
applications as a condition to such holders of a Special Warrant(s)
to exercise its rights to exchange its Special Warrant(s) for New
Equity Interests.
D.
Commitment to Obtain Approvals
The Debtors have agreed to use reasonable best efforts to file all
notices and obtain all consents and approvals of any governmental
entity or third party required in connection with the
Reorganization Transaction. Regulators may object to the
Reorganization Transaction and/or impose conditions or restrictions
on approvals that are materially adverse to the Debtors,
Reorganized Debtors, and/or Telecom Holdings. In no event will the
Debtors, Reorganized Debtors, Telecom Holdings, or any of their
affiliates be required (i) to divest or hold separate
assets, including any assets acquired by the Debtors, Reorganized
Debtors, Telecom Holdings, or any of their respective affiliates in
connection with the Reorganization Transaction, or agree to limit
their future activities, method or place of doing business, (ii) to
commence any litigation against any person in order to facilitate
the consummation of the Reorganization Transaction, or (iii) to
defend against any litigation filed with or brought by any
governmental entity seeking to prevent the consummation of, or
impose limitations on, any of the transactions contemplated by the
Reorganization Transaction.
E.
Receipt of Regulatory Approvals
The Debtors estimate that the requisite regulatory approvals to
effectuate the Reorganization Transaction pursuant to the Second
Amended Plan will be obtained no later than December 30, 2019,
although the receipt of such approvals cannot be assured or
guaranteed.
85
VIII.
CERTAIN U.S.
FEDERAL INCOME TAX CONSEQUENCES OF SECOND AMENDED
PLAN
The
following discussion summarizes certain material U.S. federal
income tax consequences of the implementation of the Second Amended
Plan to the Debtors (which, as used herein, includes the
Reorganized Debtors) and to holders of certain Claims. This
discussion does not address the U.S. federal income tax
consequences to holders of Claims or equity interests who are
unimpaired or deemed to reject the Second Amended Plan
(e.g., the holders of
Parent Equity Interests).
The
discussion of U.S. federal income tax consequences below is based
on the Internal Revenue Code of 1986, as amended (the
“Tax Code”), the
Treasury regulations promulgated thereunder (the
“Treasury
Regulations”), judicial authorities, published
positions of the IRS, and other applicable authorities, all as in
effect on the date of this Disclosure Statement and all of which
are subject to change or differing interpretations (possibly with
retroactive effect). The U.S. federal income tax consequences of
the contemplated transactions are complex and subject to
significant uncertainties. The Debtors have not requested an
opinion of counsel or a ruling from the IRS or any other taxing
authority with respect to any of the tax aspects of the
contemplated transactions, and the discussion below is not binding
upon the IRS or any court. No assurance can be given that the IRS
will not assert, or that a court will not sustain, a different
position than any position discussed herein.
This
summary does not address non-U.S., state, or local tax consequences
of the contemplated transactions, nor does it purport to address
the U.S. federal income tax consequences of the transactions to
special classes of taxpayers (e.g., non-U.S. taxpayers, small
business investment companies, regulated investment companies, real
estate investment trusts, banks and certain other financial
institutions, insurance companies, tax-exempt organizations,
retirement plans, individual retirement and other tax-deferred
accounts, holders that are, or hold their Claims through, S
corporations, partnerships or other pass-through entities for U.S.
federal income tax purposes, persons whose functional currency is
not the U.S. dollar, dealers in securities or foreign currency,
traders that mark-to-market their securities, persons subject to
the “Medicare” tax on net investment income, persons
subject to special accounting rules under Section 451(b) of the Tax
Code, and persons whose Claims are part of a straddle, hedging,
constructive sale, or conversion transaction). In addition, this
discussion does not address U.S. federal taxes other than income
taxes, nor does it apply to any person that acquires any of the New
Equity Interests or New First Lien Term Loans in the secondary
market, unless otherwise provided herein.
For
purposes of the discussion below, all references to New Equity
Interests are intended to apply equally to the Special Warrants,
which are economically equivalent to, and thus generally should be
treated the same as, the New Equity Interests for U.S. federal
income tax purposes (unless otherwise indicated).
This
discussion also assumes that the New Equity Interests and the New
First Lien Term Loans will be held as “capital assets”
(generally, property held for investment) within the meaning of
section 1221 of the Tax Code, and that the various debt and other
arrangements to which any of the Debtors is a party will be
respected for U.S. federal income tax purposes in accordance with
their form.
The following summary of certain U.S. federal income tax
consequences is for informational purposes only and is not a
substitute for careful tax planning and advice based upon the
individual circumstances of Claim holders. Holders are urged to
consult their own tax advisor for the U.S. federal, state, local,
non-U.S., and other tax consequences applicable under the Second
Amended Plan.
86
A. Consequences to the
Debtors.
For
U.S. federal income tax purposes, Fusion Connect is a common parent
of an affiliated group of companies that files a single
consolidated U.S. federal income tax return (the
“Fusion Tax
Group”), of which the other Debtors are members or are
disregarded entities directly or indirectly wholly-owned by a
member of the group. The Debtors estimate that, as of the
Commencement Date, the Fusion Tax Group had available net operating
loss (“NOL”)
carryforwards of at least approximately $150 million (which is
subject to certain existing annual and other limitations) and
disallowed business interest carryforwards of at least
approximately $29 million, that may be used to offset current or
future taxable income. Technically, the Fusion Tax Group also has
estimated additional NOL carryforwards of at least $500 million;
however, due to existing limitations, such NOLs are effectively
unusable against future taxable income but are an available tax
attribute for purposes of reduction under the cancellation of debt
(“COD”) rules,
which are discussed below.
The
amount of any NOL carryforwards and other tax attributes, as well
as the application of any limitations, remain subject to review and
adjustment by the IRS. In addition, equity trading activity and
certain other actions prior to the Effective Date could result in
an ownership change of Fusion Connect independent of the Second
Amended Plan which could adversely affect the ability to utilize
the Fusion Tax Group’s NOL carryforwards. In an attempt to
minimize the likelihood of such an ownership change occurring, at
the inception of the Chapter 11 Cases the Debtors obtained an
interim order from the Bankruptcy Court authorizing certain
protective equity trading and worthless stock deduction claim
procedures (ECF No. 52).
As
discussed below, in connection with the implementation of the
Reorganization Transaction, the Debtors expect that the amount of
the Fusion Tax Group’s NOLs, and possibly certain other tax
attributes, will be reduced. In addition, the subsequent
utilization of any remaining NOLs and other tax attributes
remaining following the Effective Date may be severely
restricted.
1. Cancellation of Debt
In
general, the Tax Code provides that a debtor in a bankruptcy case
must reduce certain of its tax attributes — such as NOL
carryforwards (whether or not such NOLs can otherwise be used to
offset future taxable income) and current year NOLs, capital loss
carryforwards, certain tax credits, and tax basis in assets —
by the amount of any COD incurred pursuant to a confirmed chapter
11 plan. Although not free from doubt, it is expected that
carryover of disallowed business interest expense would not be a
tax attribute subject to such reduction. In applying the attribute
reduction rule to the tax basis in assets, the tax law limits the
reduction in tax basis to the amount by which the tax basis
immediately following the discharge exceeds the debtor’s
post-emergence liabilities. The amount of COD incurred is generally
the amount by which the indebtedness discharged exceeds the value
of any consideration given in exchange therefor. Certain statutory
or judicial exceptions may apply to limit the amount of COD
incurred for U.S. federal income tax purposes. If advantageous, the
debtor can elect to reduce the basis of depreciable property prior
to any reduction in its NOL carryforwards or other tax attributes.
Where the debtor joins in the filing of a consolidated U.S. federal
income tax return, applicable Treasury Regulations require, in
certain circumstances, that the tax attributes of the consolidated
subsidiaries of the debtor and other members of the group must also
be reduced. Any reduction in tax attributes in respect of COD
generally does not occur until after the determination of the
debtor’s net income or loss for the taxable year in which the
COD is incurred.
The
Debtors expect to incur a substantial amount of COD as a result of
the implementation of the Second Amended Plan. The amount of such
COD and resulting tax attribute reduction will depend primarily on
the fair market value of the New Equity Interests, the issue price
(as defined below) of the New First Lien Term Loan and the amount
of any Net Cash Proceeds. Aside from any current year NOLs, the
Debtors expect that a significant portion of the required attribute
reduction will reduce NOL carryforwards that would otherwise be
unusable. Accordingly, the Debtors expect that a substantial
portion of the NOL carryforwards and other tax attributes of the
Fusion Tax Group currently available to offset future taxable
income will be unaffected by the required attribute
reduction.
87
2. Limitation of NOL Carryforwards and Other Tax
Attributes
Following
the Effective Date, any NOL carryforwards and certain other tax
attributes (collectively, “Pre-Change Losses”) may be subject
to additional limitations under section 382 and 383 of the Tax
Code. Any such limitation applies in addition to, and not in lieu
of, the reduction of tax attributes that results from COD income
arising in connection with the Second Amended Plan.
Under
section 382 of the Tax Code, if a corporation (or consolidated
group) undergoes an “ownership change” and the
corporation does not qualify for (or elects out of) the special
bankruptcy exception in section 382(l)(5) of the Tax Code discussed
below, the amount of its Pre-Change Losses that may be utilized to
offset future taxable income or tax liability is subject to an
annual limitation. The Debtors anticipate that the distribution of
the New Equity Interests pursuant to the Second Amended Plan will
result in an “ownership change” of the Fusion Tax
Group.
In
general, the amount of the annual limitation to which a corporation
that undergoes an “ownership change” will be subject is
equal to the product of (a) the fair market value of the stock of
the corporation immediately before the “ownership
change” (with certain adjustments) multiplied by (b) the
“long-term tax-exempt rate” in effect for the month in
which the ownership change occurs (e.g., 1.77% for ownership changes in
October 2019). As discussed below, this annual limitation
potentially may be increased in the event the corporation (or
consolidated group) has an overall “built-in” gain in
its assets at the time of the ownership change. For a corporation
(or consolidated group) in bankruptcy that undergoes an ownership
change pursuant to a confirmed bankruptcy plan, the fair market
value of the stock of the corporation (or the parent of the
consolidated group) is generally determined immediately after
(rather than before) the ownership change, but subject to certain
adjustments; in no event, however, can the stock value for this
purpose exceed the pre-change gross value of the
corporation’s assets.
If the
loss corporation (or consolidated group) has a net unrealized
“built-in” gain at the time of an ownership change
(taking into account most assets and items of
“built-in” income and deductions), any built-in gains
recognized (or, according to an IRS notice, treated as recognized)
during the sixty (60) month period following the ownership change
(up to the amount of the original net unrealized built-in gain)
generally will increase the annual limitation in the year
recognized, such that the loss corporation (or consolidated group)
would be permitted to use its Pre-Change Losses against such
built-in gain income in addition to its regular annual allowance.
Alternatively, if a corporation (or consolidated group) has a net
unrealized built-in loss at the time of an ownership change (taking
into account most assets and items of “built-in” income
and deductions), then built-in losses (including, but not limited
to, amortization or depreciation deductions attributable to such
built-in losses) recognized during the sixty (60) month period
following the “ownership change” (up to the amount of
the original net unrealized built-in loss) generally will be
treated as Pre-Change Losses, the deductibility of which will be
subject to the annual limitation. Although the rule applicable to
net unrealized built-in losses generally applies to consolidated
groups on a consolidated basis, certain corporations that joined
the consolidated group within the preceding five (5) years may not
be able to be taken into account in the group computation of net
unrealized built-in loss. Such corporations would nevertheless
still be taken into account in determining whether the consolidated
group has a net unrealized built-in gain. In general, a
corporation’s (or consolidated group’s) net unrealized
built-in loss will be deemed to be zero unless it is greater than
the lesser of (a) $10,000,000 or (b) fifteen percent (15%) of the
fair market value of its assets (with certain adjustments) before
the ownership change. It is currently uncertain whether the Fusion
Tax Group will have a net unrealized built-in loss or a net
unrealized built-in gain as of the Effective Date.
88
Any
unused annual limitation may be carried forward and therefore
available to be utilized in a subsequent taxable year. However, if
the corporation (or consolidated group) does not continue its
historic business or use a significant portion of its historic
assets in a new business for at least two (2) years after the
ownership change, the regular annual limitation resulting from the
ownership change is reduced to zero, thereby precluding any
utilization of the corporation’s Pre-Change Losses, absent
any increases due to recognized built-in gains. Where a corporation
(or consolidated group) is subject to one or more prior annual
limitations, each annual limitation applies, effectively subjecting
any Pre-Change Losses which pre-date the prior ownership change to
the more restrictive of the limitations.
Under
section 382(l)(5) of the Tax Code, an exception to the foregoing
annual limitation rules generally applies where qualified creditors
of a debtor corporation receive, in respect of their claims, at
least fifty percent (50%) of the vote and value of the stock of the
reorganized debtor (or a controlling corporation if also in
bankruptcy) pursuant to a confirmed chapter 11 plan. The Debtors do
not anticipate that such exception will apply in the present
case.
3. Transfer of Assets to, and Continuing Interest in,
the Litigation Trust
Pursuant
to the Second Amended Plan, on the Effective Date, the Debtors will
transfer the Litigation Trust Assets (including all of the
Debtors’ right, title and interest in the Litigation Causes
of Action) to the Litigation Trust, on behalf of the holders of
Allowed General Unsecured Claims. In addition, the Debtors will
retain an interest in the Litigation Trust Assets. As structured,
the Litigation Trust is intended to be treated as a
“liquidating trust” for federal income tax purposes,
and the transfer of the Litigation Trust Assets by the Debtors to
the Litigation Trust (other than the Litigation Trust First Lien
Lender Causes of Action) is intended to be treated as an exchange
of an undivided interest in such assets to holders of Allowed
General Unsecured Claims in full or partial satisfaction of their
Claims. See Section C,
“Tax Treatment of Litigation Trust and Holders of Litigation
Trust Interests,” below. Accordingly, the transfer of assets
by the Debtors may result in the recognition of gain or income by
the Debtors, depending in part on the value of such assets on the
Effective Date and the Debtors’ tax basis in such assets, and
thus a current tax liability to the Debtors, in the event or to the
extent available NOL carryforwards are insufficient (due to
existing limitations) to offset such income or gain. In addition,
the Debtors may have additional income or gain over time in respect
of its continued interest in the Litigation Trust
Assets.
There
is no assurance, however, that the IRS will not take a contrary
position as to the ownership of the Litigation Trust Assets for
U.S. federal income tax purposes, due to the retained interest. For
example, it is possible that the Debtors could continue to be
viewed for U.S. federal income tax purposes as owners of the
Litigation Trust Assets (other than possibly the Litigation Trust
First Lien Lender Causes of Action), with an obligation to make
contingent payments to the holders of Claims that received
Litigation Trust Interests. In such event, the U.S. federal income
tax treatment to the Debtors would differ from those described, in
that the Debtors could have increased income or gain over time as
the underlying causes of action are resolved (rather than
recognizing any income or gain on the exchange date), potentially
with partially offsetting deductions in respect of any contingent
amounts actually payable to holders of Allowed General Unsecured
Claims. All holders of Claims are
urged to consult their tax advisors regarding the U.S. federal
income tax treatment of the Litigation Trust.
B. Consequences to Holders of Certain
Claims
This
summary discusses the U.S. federal income tax consequences to
holders of Allowed First Lien Claims, Allowed Second Lien Claims,
and Allowed General Unsecured Claims who are U.S. Holders and does
not discuss tax consequences for those who are not U.S. Holders. As
used herein, the term “U.S. Holder” means a beneficial
owner that is, for U.S. federal income tax purposes:
89
●
an individual who
is a citizen or resident of the United States;
●
a corporation, or
other entity taxable as a corporation for U.S. federal income tax
purposes, created or organized in or under the laws of the United
States, any state thereof or the District of Columbia;
●
an estate the
income of which is subject to U.S. federal income taxation
regardless of its source; or
●
a trust, if a court
within the United States is able to exercise primary jurisdiction
over its administration and one or more U.S. persons have authority
to control all of its substantial decisions, or if the trust has a
valid election in effect under applicable Treasury regulations to
be treated as a U.S. person.
If a
partnership or other entity or arrangement taxable as a partnership
for U.S. federal income tax purposes holds First Lien Claims,
Second Lien Claims, General Unsecured Claims, New First Lien Term
Loans, or New Equity Interests, the tax treatment of a partner in
such partnership generally will depend upon the status of the
partner and the activities of the partnership. Any partner in such a partnership holding any
of such instruments should consult its own tax
advisor.
The
U.S. federal income tax consequences of the Second Amended Plan to
a U.S. Holder of Allowed First Lien Claims depends, in part, on
whether such Claim constitutes a “security” of Fusion
Connect for U.S. federal income tax purposes – which can
differ for the Revolving Loans, the Tranche A Term Loans and the
Tranche B Term Loans – and whether the New First Lien Term
Loan constitutes a “security” of Fusion Connect.
Similarly, the U.S. federal income tax consequences to a U.S.
Holder of an Allowed Second Lien Claim depends, in part, on whether
such Claim constitutes a “security” of Fusion Connect
for U.S. federal income tax purposes. See “—1. Consequences to
Holders of First Lien Claims” and “—2.
Consequences to Holders of Second Lien Claims,”
below.
The
term “security” is not defined in the Tax Code or in
the Treasury regulations and has not been clearly defined by
judicial decisions. The determination of whether a particular debt
obligation constitutes a “security” depends on an
overall evaluation of the nature of the debt, including whether the
holder of such debt obligation is subject to a material level of
entrepreneurial risk and whether a continuing proprietary interest
is intended or not. One of the most significant factors considered
in determining whether a particular debt obligation is a security
is its original term. In general, debt obligations issued with a
weighted average maturity at issuance of less than five (5) years
do not constitute securities, whereas debt obligations with a
weighted average maturity at issuance of ten (10) years or more
constitute securities. Additionally, the IRS has ruled that new
debt obligations with a term of less than five (5) years issued in
exchange for and bearing the same terms (other than interest rate)
as securities should also be classified as securities for this
purpose, since the new debt represents a continuation of the
holder’s investment in the corporation in substantially the
same form. The Tranche A Term Loans and the Revolving Loans had a
four (4) year maturity at original issuance and the Tranche B Term
Loans had a five (5) year maturity at the time of original
issuance. Such loans, however, underwent a deemed reissuance for
U.S. federal income tax purposes in mid-April 2019 as a result of
certain modifications.
Although
the determination of whether a new instrument issued in exchange
for an original instrument constitutes a security is generally made
by looking to the terms of the new instrument, based on the IRS
ruling mentioned above, that determination may be governed by
whether the original instrument constituted a security. The Second
Lien Term Loans had a five and a half (5 1/2) year maturity at
original issuance. The discussion herein takes no position as to
whether any of the First Lien Claims or Second Lien Claims
constitutes a security, but does assume that the New First Lien
Term Loans (which will have a four (4) year maturity) do
not constitute a security.
Each holder of a First Lien Claim
or / and a Second Lien Claim is urged to consult its own tax
advisor regarding the appropriate status for U.S. federal income
tax purposes of its Claim and, if applicable, the New First Lien
Term Loan.
90
As
indicated above, the Special Warrants are economically equivalent
to, and generally should be treated the same, as New Equity
Interests for U.S. federal income tax purposes; thus, for purposes
of the tax discussion herein, all references to New Equity
Interests are intended to apply equally to the Special Warrants
(unless otherwise indicated).
1. Consequences to Holders of First Lien
Claims
Pursuant
to the Second Amended Plan, holders of Allowed First Lien Claims
generally will receive New Equity Interests (and/or Special
Warrants) and New First Lien Term Loans in complete and final
satisfaction of their First Lien Claims. A holder of an Allowed
First Lien Claim that would otherwise receive Special Warrants may,
in lieu thereof, receive an alternative distribution; the following
discussion assumes that each holder receives New Equity Interests
and/or Special Warrants.
As
mentioned above, the U.S. federal income tax consequences of the
Second Amended Plan to a U.S. Holder of Allowed First Lien Claims
depends, in part, on whether such Claim constitutes a
“security” of Fusion Connect for U.S. federal income
tax purposes – which can differ for the Revolving Loans, the
Tranche A Term Loans and the Tranche B Term Loans – and
whether the New First Lien Term Loan constitutes a
“security” of Fusion Connect. If an Allowed First Lien
Claim does not constitute a
security, the receipt of consideration in satisfaction of such
Claim will be a fully taxable transaction. Alternatively, if the
Claim is a security of Fusion Connect, the transaction will qualify
for “recapitalization” treatment for U.S. federal
income tax purposes. Each of these alternatives is discussed
below.
(a) Fully Taxable Transaction—First Lien
Claim that does not constitute a Security. If an Allowed
First Lien Claim does not
constitute a security, the distribution to such U.S. Holder will be
a fully taxable transaction. In such event, a U.S. Holder of an
Allowed First Lien Claim should generally recognize gain or loss in
an amount equal to the difference, if any, between (i) the sum
of the fair market value of the New Equity Interests received, the
amount of cash received and either (a) the issue price (as defined
below) of the New First Lien Term Loan received or (b) in the event
the New First Lien Term Loan is considered a contingent payment
debt obligation (as discussed below in B.7.b. —
“Ownership and Disposition of the New First Lien Term Loan
– Treatment as a Contingent Payment Debt Instrument”),
the issue price of the New First Lien Term Loan increased by the
fair market value of any contingent payments on the New First Lien
Term Loan (other than any consideration received in respect of a
First Lien Claim for accrued but unpaid interest and possibly
accrued original issue discount, “OID”), and
(ii) the holder’s adjusted tax basis in the Allowed First
Lien Claim exchanged (other than any tax basis attributable to
accrued but unpaid interest and possibly accrued OID). See B.5 — “Character of
Gain or Loss,” below. In addition, a U.S. Holder of an
Allowed First Lien Claim will have ordinary interest income to the
extent of any exchange consideration allocable to accrued but
unpaid interest (or accrued OID) not previously included in income.
See B.4 —
“Distributions in Discharge of Accrued Interest,”
below.
91
The
“issue price” of the New First Lien Term Loan for U.S.
federal income tax purposes depends on whether, at any time during
the 31-day period ending 15 days after the Effective Date, the New
First Lien Term Loan or the Tranche B Term Loan (regardless whether
the holder’s Claim is a Tranche B Term Loan) is considered
traded on an “established market.” Pursuant to
applicable Treasury regulations, an “established
market” need not be a formal market. It is sufficient if
there is a readily available sales price for an executed purchase
or sale of the New First Lien Term Loan or the Tranche B Term Loan,
or if there are one or more “firm quotes” or
“indicative quotes” with respect to the New First Lien
Term Loan or for the Tranche B Term Loan, in each case as such
terms are defined in applicable Treasury regulations. If the New
First Lien Term Loan received is considered traded on an
established market, the issue price of the New First Lien Term Loan
for U.S. federal income tax purposes will equal its fair market
value as of the Effective Date. If the New First Lien Term Loan is
not considered traded on an established market but the Tranche B
Term Loan is so treated, the issue price of the New First Lien Term
Loan will be based on the fair market value of the Tranche B Term
Loan (with appropriate adjustments, such as for the fair market
value of the New Equity Interests and any cash received).
Alternatively, if neither the New First Lien Term Loan nor the
Tranche B Term Loan is considered traded on an established market,
the issue price of the New First Lien Term Loan generally will be
its stated principal amount. If the Debtors determine that the New
First Lien Term Loan or the Tranche B Term Loan is traded on an
established market, such determination and the determination of
issue price will be binding on a U.S. Holder unless such holder
discloses, on a timely-filed U.S. federal income tax return for the
taxable year that includes the Effective Date that such
holder’s determination is different from Debtors’
determination, the reasons for such holder’s different
determination and, if applicable, how such holder determined the
fair market value.
In the
case of a taxable exchange, a U.S. Holder of an Allowed First Lien
Claim will have a tax basis in the New First Lien Term Loan
received equal to its issue price and a tax basis in the New Equity
Interests received equal to their fair market value. The U.S.
Holder’s holding period in such New First Lien Term Loan and
New Equity Interests received should begin on the day following the
exchange date.
(b)
Recapitalization Treatment—First Lien
Claim that Constitutes a Security. If an Allowed First Lien
Claim constitutes a security for U.S. federal income tax purposes,
the distribution to such U.S. Holder will qualify for
recapitalization treatment for U.S. federal income tax purposes. In
such event, a U.S. Holder of an Allowed First Lien Claim generally
will not recognize loss, but will recognize gain (computed as
described above in the case of a fully taxable exchange) to the
extent of any “boot” received, i.e., any consideration other than
stock or “securities” of Fusion Connect. In the present
case, the boot received would equal the sum of the amount of any
cash received and the amount taken into account with respect to the
New First Lien Term Loan in determining the amount of gain or loss
in a fully taxable exchange (assuming, for purposes of the
discussion herein as indicated above, that the New First Lien Term
Loan does not constitute a “security”). See B.1.a. — “Consequences
to Holders of First Lien Claims – Fully Taxable
Transaction”. In addition, even within an otherwise tax-free
exchange, a U.S. Holder will have interest income to the extent of
any exchange consideration allocable to accrued but unpaid interest
(or OID) not previously included in income. See B.4 — “Distributions in
Discharge of Accrued Interest,” below.
In a
recapitalization exchange, a U.S. Holder’s aggregate tax
basis in the New Equity Interests will equal such holder’s
aggregate adjusted tax basis in its Allowed First Lien Claim
exchanged therefor, increased by any gain or interest income
recognized in the exchange and decreased by the amount of boot
received in the exchange and any deductions claimed in respect of
any previously accrued but unpaid interest or OID. The U.S.
Holder’s holding period in the New Equity Interests will
include its holding period in the Allowed First Lien Claim
exchanged therefor, except to the extent of any exchange
consideration received in respect of accrued but unpaid interest
(and possibly OID, depending on whether the increase in a
holder’s adjusted basis for recently accrued OID retains its
short-term character for holding period purposes).
The
U.S. Holder will have a tax basis in the New First Lien Term Loan
received equal to the amount taken into account as boot with
respect to the New First Lien Term Loan. The holding period in the
New First Lien Term Loan received generally will begin on the day
following the Effective Date.
2. Consequences to Holders of Second Lien
Claims
Pursuant
to the Second Amended Plan, holders of Allowed Second Lien Claims
generally will receive Special Warrants (which, as indicated above,
are generally treated like New Equity Interests for U.S. federal
income tax purposes and are thus referred to as New Equity
Interests in this section B) in complete and final satisfaction of
their Second Lien Claims. A holder of an Allowed Second Lien Claim
that would otherwise receive Special Warrants may, in lieu thereof,
receive an alternative distribution; the following discussion
assumes that each holder of Allowed Second Lien Claims receives
Special Warrants.
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As
mentioned above, the U.S. federal income tax consequences to a U.S.
Holder of an Allowed Second Lien Claim depends, in part, on whether
such Claim constitutes a “security” of Fusion Connect
for U.S. federal income tax purposes. If an Allowed Second Lien
Claim does not constitute a
security, the receipt of consideration in satisfaction of such
Claim will be a fully taxable transaction. Alternatively, if the
Claim is a security of Fusion Connect, the transaction will qualify
for “recapitalization” treatment for U.S. federal
income tax purposes. Each of these alternatives is discussed
below.
(a) Fully Taxable Transaction—Second
Lien Claim that Does Not Constitute a Security. A U.S. Holder of
an Allowed Second Lien Claim that does not constitute a security for U.S.
federal income tax purposes should recognize gain or loss in an
amount equal to the difference, if any, between (i) the fair market
value of any New Equity Interests received (other than any
consideration received in respect of a Claim for accrued but unpaid
interest and possibly accrued OID) and (ii) the holder’s
adjusted tax basis in the Claim exchanged (other than any tax basis
attributable to accrued but unpaid interest and possibly accrued
OID). See B.5 —
“Character of Gain or Loss,” below. In addition, a U.S.
Holder of an Allowed Second Lien Claim will have ordinary interest
income to the extent of any exchange consideration allocable to
accrued but unpaid interest (or accrued OID) not previously
included in income. See B.4
— “Distributions in Discharge of Accrued
Interest,” below.
In the
case of a taxable exchange, a U.S. Holder of Allowed Second Lien
Claims will have a tax basis in the New Equity Interests received
equal to their fair market value. A U.S. Holder’s holding
period in any such New Equity Interests generally will begin the
day following the exchange date.
(b)
Recapitalization Treatment—Second Lien
Claim Constitutes a Security. If an Allowed Second Lien
Claim constitutes a security for U.S. federal income tax purposes,
the distribution to such U.S. Holder will qualify for
recapitalization treatment for U.S. federal income tax purposes. In
such event, a U.S. Holder of an Allowed Second Lien Claim generally
will not recognize loss, and generally will not recognize gain.
Even within an otherwise tax-free exchange, a U.S. Holder will have
interest income to the extent of any exchange consideration
allocable to accrued but unpaid interest (or OID) not previously
included in income. See B.4
— “Distributions in Discharge of Accrued
Interest,” below.
In a
recapitalization exchange, a U.S. Holder’s aggregate tax
basis in the New Equity Interests generally will equal such
holder’s aggregate adjusted tax basis in its Allowed Second
Lien Claim exchanged therefor, increased by any gain or interest
income recognized in the exchange and decreased by any deductions
claimed in respect of any previously accrued but unpaid interest or
OID. The U.S. Holder’s holding period in the New Equity
Interests will include its holding period in the Allowed Second
Lien Claim exchanged therefor, except to the extent of any exchange
consideration received in respect of accrued but unpaid interest
(and possibly OID, depending on whether the increase in a
holder’s adjusted basis for recently accrued OID retains its
short-term character for holding period purposes).
3. Consequences to Holders of General Unsecured
Claims
Pursuant
to the Second Amended Plan, holders of Allowed General Unsecured
Claims will receive Litigation Trust Interests in complete and
final satisfaction of their General Unsecured Claims.
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As
discussed below (see Section C, “Tax Treatment of Litigation
Trust and Holders of Litigation Trust Interests”), the
Litigation Trust has been structured to qualify as a “grantor
trust” for U.S. federal income tax purposes. Accordingly,
each holder of an Allowed General Unsecured Claim receiving a
Litigation Trust Interest is intended to be treated for U.S.
federal income tax purposes as directly receiving, and as a direct
owner of, an undivided interest in the Litigation Trust Assets
(consistent with its economic rights in the trust). Accordingly,
the following discussion assumes such treatment. However, due to
the Debtors’ retained interest in the Litigation Trust Assets
(other than the Litigation Trust First Lien Lender Causes of
Action), it is possible that the Debtors could continue to be
viewed for U.S. federal income tax purposes as the owners of such
assets, with an obligation to make contingent payments to the
Litigation Trust. Each holder of a General Unsecured Claim is urged
to consult its tax advisor regarding the U.S. federal income tax
treatment of the Litigation Trust. Pursuant to the Second Amended
Plan, the Litigation Trust Oversight Committee will determine the
fair market value of the non-cash assets transferred to the
Liquidating Trust, and all parties to the Liquidating Trust
(including holders of Allowed General Unsecured Claims receiving
Liquidating Trust Interests) must consistently use such valuation
for all U.S. federal income tax purposes.
It is
possible that the fair market value of the undivided interest
received in the Litigation Trust First Lien Lender Causes of Action
may be treated as ordinary income to U.S. Holders of Allowed
General Unsecured Claims as some form of payment to accept or not
to object to the Second Amended Plan, rather than as additional
consideration in respect of their Claim for purposes of determining
gain or loss. The following discussion assumes such amounts are
treated as additional consideration in respect of their Claims, but
each holder should consult its own tax advisor.
Accordingly,
a U.S. Holder of an Allowed General Unsecured Claim generally
should recognize gain or loss in an amount equal to the difference,
if any, between (i) the amount of any cash and the fair market
value of the undivided interest in the Litigation Trust Causes of
Action deemed received by the holder for U.S. federal income tax
purposes (other than any consideration received in respect of a
Claim for accrued but unpaid interest and possibly accrued OID),
and (ii) the holder’s adjusted tax basis in the Claim
exchanged (other than any tax basis attributable to accrued but
unpaid interest and possibly accrued OID). See B.5 —
“Character of Gain or Loss,” below. In addition, a U.S.
Holder of an Allowed General Unsecured Claim will have ordinary
interest income to the extent of any exchange consideration
allocable to accrued but unpaid interest (or accrued OID) not
previously included in income. See B.4 — “Distributions
in Discharge of Accrued Interest,” below.
After
the Effective Date, a holder’s share of any recoveries
received on the assets of the Litigation Trust (other than as a
result of the subsequent disallowance of Disputed Claims) should
not be included, for federal income tax purposes, in the
holder’s amount realized in respect of its Allowed General
Unsecured Claim but should be separately treated as amounts
realized in respect of such holder's ownership interest in the
underlying assets of the Liquidating Trust.
In the
event of the subsequent disallowance of any Disputed General
Unsecured Claim, it is possible that a holder of a previously
Allowed General Unsecured Claim may receive additional
distributions in respect of its Claim. Accordingly, it is possible
that the recognition of any loss realized by a holder with respect
to an Allowed General Unsecured Claim may be deferred until all
General Unsecured Claims are Allowed or Disallowed. Alternatively,
it is possible that a holder will have additional gain in respect
of any additional distributions received due to the disallowance of
a Disputed General Unsecured Claim. See also Section C, “Tax
Treatment of Litigation Trust and Holders of Litigation Trust
Interests,” below.
A U.S.
Holder of General Unsecured Claims will have an aggregate tax basis
in its undivided interest in the Litigation Trust Assets equal to
the fair market value of such interest increased by its share of
the Debtors’ liabilities to which such assets remain subject
upon transfer to the Litigation Trust. A U.S. Holder’s
holding period in any such Litigation Trust Assets generally will
begin the day following the exchange date.
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4. Distributions in Discharge of Accrued
Interest
In
general, to the extent that any exchange consideration received
pursuant to the Second Amended Plan by a U.S. Holder of an Allowed
First Lien Claim, Second Lien Claim or General Unsecured Claim
(whether stock, notes or cash) is received in satisfaction of
interest accrued during its holding period, such amount will be
taxable to the holder as interest income (if not previously
included in the holder’s gross income). Conversely, a U.S.
Holder may be entitled to recognize a deductible loss to the extent
any accrued interest or amortized OID was previously included in
its gross income and is not paid in full. However, the IRS has
privately ruled that a holder of a “security” of a
corporate issuer, in an otherwise tax-free exchange, could not
claim a current deduction with respect to any unpaid OID.
Accordingly, it is also unclear whether, by analogy, a U.S. Holder
of an Allowed First Lien Claim or an Allowed Second Lien Claim that
does not constitute a “security” would be required to
recognize a capital loss, rather than an ordinary loss, with
respect to previously included OID that is not paid in
full.
The
Second Amended Plan provides that, except as otherwise required by
law (as reasonably determined by the Debtors), consideration
received in respect of an Allowed Claim is allocable first to the
principal amount of the Allowed Claim (as determined for U.S.
federal income tax purposes) and then, to the extent of any excess,
to the remaining portion of the Allowed Claim. See Section 6.17 of
the Second Amended Plan. There is no assurance that the IRS will
respect such allocation for U.S. federal income tax purposes.
Holders of Allowed Claims are
urged to consult their own tax advisor regarding the allocation of
consideration received under the Second Amended Plan, as well as
the deductibility of accrued but unpaid interest (including OID)
and the character of any loss claimed with respect to accrued but
unpaid interest (including OID) previously included in gross income
for U.S. federal income tax purposes.
5. Character of Gain or Loss
Where
gain or loss is recognized by a U.S. Holder, the character of such
gain or loss as long-term or short-term capital gain or loss or as
ordinary income or loss will be determined by a number of factors,
including the tax status of the holder, whether the Claim
constitutes a capital asset in the hands of the holder and how long
it has been held, whether the Claim was acquired at a market
discount, and whether and to what extent the holder previously
claimed a bad debt deduction.
A U.S.
Holder that purchased its Claims from a prior holder at a
“market discount” (relative to the principal amount of
the Claims at the time of acquisition) may be subject to the market
discount rules of the Tax Code. In general, a debt instrument is
considered to have been acquired with “market discount”
if the U.S. Holder’s adjusted tax basis in the debt
instrument is less than (i) its stated principal amount or (ii) in
the case of a debt instrument issued with OID, its adjusted issue
price, in each case, by at least a de minimis amount. Under these
rules, any gain recognized on the exchange of Claims (other than in
respect of a Claim for accrued but unpaid interest) generally will
be treated as ordinary income to the extent of the market discount
accrued (on a straight line basis or, at the election of the
holder, on a constant yield basis) during the U.S. Holder’s
period of ownership, unless the holder elected to include the
market discount in income as it accrued. If a U.S. Holder of a
Claim did not elect to include market discount in income as it
accrued and, thus, under the market discount rules, was required to
defer all or a portion of any deductions for interest on debt
incurred or maintained to purchase or carry its Claim, such
deferred amounts would become deductible at the time of the
exchange but, if the exchange qualifies for recapitalization
treatment, only up to the amount of gain that the holder recognizes
in the exchange.
In the
case of an exchange of an Allowed First Lien Claim or Allowed
Second Lien Claim that qualifies for recapitalization treatment,
the Tax Code indicates that any accrued market discount in respect
of the Claim should not be currently includible in income under
Treasury Regulations to be issued. Any accrued market discount that
is not included in income should carry over to any nonrecognition
property received in exchange therefor, i.e., to the New Equity Interests
received. Any gain recognized by a U.S. Holder upon a subsequent
disposition of such New Equity Interests should then be treated as
ordinary income to the extent of any accrued market discount not
previously included in income. To date, specific Treasury
Regulations implementing this rule have not been
issued.
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6. Disposition of New Equity Interests
Unless
a nonrecognition provision applies and subject to the discussion in
the preceding section with respect to market discount and the
discussion below, U.S. Holders generally will recognize capital
gain or loss upon the sale or exchange of the New Equity Interests
in an amount equal to the difference between (i) the holder’s
adjusted tax basis in the New Equity Interests held and (ii) the
sum of the cash and the fair market value of any property received
from such disposition. Any such gain or loss generally should be
long-term capital gain or loss if the U.S. Holder’s holding
period for its New Equity Interests is more than one year at that
time. A reduced tax rate on long-term capital gain may apply to
non-corporate U.S. Holders. The deductibility of capital loss is
subject to significant limitations.
In
general, any gain recognized by a U.S. Holder upon a disposition of
the New Equity Interests (or any stock or property received for
such interests in a later tax-free exchange) received in exchange
for an Allowed First Lien Claim or an Allowed Second Lien Claim
will be treated as ordinary income for U.S. federal income tax
purposes to the extent of (i) any ordinary loss deductions
previously claimed as a result of the write-down of the Claim,
decreased by any income (other than interest income) recognized by
the holder upon exchange of the Claim, and (ii) with respect to a
cash-basis holder and in addition to clause (i) above, any amounts
which would have been included in its gross income if the
holder’s Claim had been satisfied in full but which was not
included by reason of the cash method of accounting.
7. Ownership and Disposition of the New First Lien Term
Loan
Based
on the preliminary terms of the New First Lien Term Loan that
mandate its repayment, in whole or in part, upon the occurrence of
certain contingencies (including excess cash flow), it is possible
that, the New First Lien Term Loan may be treated as a
“contingent payment debt instrument” under the
applicable Treasury Regulations (unless such contingencies would be
treated as “remote” thereunder). The terms of the New
First Lien Term Loan remain under negotiation and thus are subject
to change. Ultimately, the Debtors’ determination of whether
the New First Lien Term Loan is a contingent payment debt
instrument will be made based on the facts and circumstances as of
the Effective Date. However, the Debtors’ treatment of the
New First Lien Term Loan is not binding on the IRS. Accordingly, holders are urged to consult their tax
advisors regarding the application of the contingent payment debt
regulations to the New First Lien Term Loan.
The
taxation of contingent payment debt instruments is complex. In
general, the rules applicable to such instruments could require a
U.S. Holder to accrue ordinary income at a higher rate than the
stated interest rate and the rate that would otherwise be imputed
under the OID rules, and to treat as ordinary income (rather than
capital gain) any gain recognized on the taxable disposition of the
New First Lien Term Loan.
(a) Not
Treated as a Contingent Payment Debt Instrument. If the New First Lien Term Loan is
not treated as a contingent payment debt instrument, it will be
subject to the OID provisions of the Tax Code. The amount of OID
will be equal to the excess of the “stated redemption price
at maturity” of such loan over its “issue price”
(as defined above, see
B.1.a. — Consequences to Holders of First Lien Claims –
Fully Taxable Transaction”). For this purpose, the general
rule is that the stated redemption price at maturity of a debt
instrument is the sum of all payments provided by the debt
instrument other than payments of “qualified stated
interest”. Stated interest is “qualified stated
interest” if it is payable in cash at least annually. All of
the stated interest on the New First Lien Term Loan is payable in
cash at a constant rate, and so all the interest is expected to be
treated as qualified stated interest. Such portion will be
includible in the U.S. Holder’s income in accordance with the
holder’s regular method of accounting for U.S. federal income
tax purposes. Accordingly, the New First Lien Term Loan will be
considered to be issued with OID for U.S. federal income tax
purposes only if the principal amount of the New First Lien Term
Loan exceeds the issue price by at least a de minimis
amount.
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A U.S.
Holder will be required to include any OID in income for U.S.
federal income tax purposes as it accrues, regardless of its
regular method of accounting, in accordance with a constant-yield
method, before the receipt of cash payments attributable to this
income. Under this method, a U.S. Holder generally will be required
to include in income increasingly greater amounts of OID in
successive accrual periods.
Upon
the sale or other taxable disposition of a New First Lien Term
Loan, a U.S. Holder will recognize taxable gain or loss equal to
the difference between the amount realized on the sale or other
taxable disposition and its adjusted tax basis in the New First
Lien Term Loan. A U.S. Holder’s adjusted tax basis in a New
First Lien Term Loan generally will equal its initial tax basis in
the New First Lien Term Loan, increased by any OID previously
included in income with respect to the New First Lien Term Loan and
decreased by payments on the New First Lien Term Loan other than
payments of qualified stated interest. For these purposes, the
amount realized does not include any amount attributable to accrued
interest, which will be taxable as interest if not previously
included in income. Gain or loss recognized on the sale or other
taxable disposition of a New First Lien Term Loan will generally be
capital gain or loss and will be long-term capital gain or loss if,
at the time of sale or other taxable disposition, the New First
Lien Term Loan is treated as held for more than one (1)
year.
(b) Treatment
as a Contingent Payment Debt Instrument. If the New First Lien Term Loan is
treated as a contingent payment debt instrument, the Debtors must
construct a “projected payment schedule.” U.S. Holders
of contingent payment debt instruments generally must recognize all
interest income with respect to such loans (including stated
interest) on a constant yield basis (regardless of their method of
accounting) at a rate determined based on the “issue
price” and the projected payment schedule for such loans,
subject to certain adjustments if actual contingent payments differ
from those projected. In the present case, the projected payment
schedule generally will be determined by including each
noncontingent payment and the “expected value” as of
the issue date of each projected contingent payment of principal
and interest on the contingent payment debt instrument, adjusted as
necessary so that the projected payments discounted at the
“comparable yield” (which is the greater of the yield
at which the Debtors would issue a fixed-rate debt instrument with
terms and conditions similar to those of the contingent payment
debt instrument, as applicable, or the applicable federal rate)
equals the issue price for such debt.
The
amount of interest that is treated as accruing during an accrual
period on a contingent payment debt instrument is the product of
the “comparable yield” and debt’s adjusted issue
price at the beginning of such accrual period. The “adjusted
issue price” of a contingent payment debt instrument is the
issue price of such debt increased by interest previously accrued
on such instrument (determined without adjustments for differences
between the projected payments and the actual payments on such
debt), and decreased by the amount of any noncontingent payments
and the projected amount of any contingent payments previously made
on such debt.
97
Except
for adjustments made for differences between actual and projected
payments, the amount of interest included in income by a U.S.
Holder of a contingent payment debt instrument is the portion that
accrues while such holder holds such instrument (with the amount
attributable to each accrual period allocated ratably to each day
in such period). If actual payments differ from projected payments,
then the U.S. Holder generally would be required in any given
taxable year either to include additional interest in gross income
(i.e., where the actual
payments exceed projected payments in such taxable year) or to
reduce the amount of interest income otherwise accounted for on the
contingent payment debt instrument (i.e., where the actual payments are
less than the projected payments in such taxable year), as
applicable. If the negative adjustment exceeds the interest for the
taxable year that otherwise would have been accounted for on the
contingent payment debt instrument, the excess would be treated as
ordinary loss. However, the amount treated as an ordinary loss in
any taxable year is limited to the amount by which the U.S.
Holder’s total interest inclusions on such contingent payment
debt instrument exceed the total amount of the net negative
adjustments the U.S. Holder treated as ordinary loss on such
contingent payment debt instrument in prior taxable years. Any
remaining excess would be a negative adjustment carryforward and
may be used to offset interest income in succeeding years. If a
contingent term loan is sold, exchanged or retired, any negative
adjustment carryforward from the prior year would reduce the U.S.
Holder’s amount realized on the sale, exchange or
retirement.
The
yield, timing and amounts set forth on the projected payment
schedules are for U.S. federal income tax purposes only and are not
assurances by the Debtors with respect to any aspect of the
contingent payment debt instrument. After issuance, any holder of a
contingent payment debt instrument may obtain the comparable yield,
the projected payment schedule, the issue price, the amount of OID,
and the issue date for the contingent payment debt instrument by
writing to the Debtors. For U.S. federal income tax purposes, a
U.S. Holder generally must use the Debtors’ comparable yield
and projected payment schedule for a contingent payment debt
instrument in determining the amount and accrual of OID on such
loan unless such schedule is unreasonable and the U.S. Holder
explicitly discloses in accordance with the contingent payment debt
regulations its differing position and why the Debtors’
schedule is unreasonable. The IRS generally is bound by the
Debtors’ comparable yield and projected payment schedule
unless either is unreasonable.
Upon a
disposition of the New First Lien Term Loans and unless a
non-recognition provision applies, a U.S. Holder generally will
recognize gain or loss upon the sale, redemption (including at
maturity) or other taxable disposition of a contingent payment debt
instrument equal to the difference, if any, between such
holder’s adjusted tax basis in such debt and the amount
realized on the sale, redemption or other disposition (with any
negative adjustment carryforward from the prior year reducing such
holder’s amount realized). Any gain recognized on the sale,
redemption or other taxable disposition of a contingent payment
debt instrument generally will be ordinary interest income, and any
loss will be an ordinary loss to the extent a U.S. Holder’s
total interest inclusions on such debt exceed the total amount of
ordinary loss such holder took into account through the date of the
disposition with respect to differences between actual payments and
projected payments (and any additional loss generally will be a
capital loss).
For
purposes of computing gain or loss, a U.S. Holder’s adjusted
tax basis in a contingent payment debt instrument generally will
equal the holder’s initial tax basis in such debt, increased
by the amount of any interest previously accrued on such debt
(determined without adjustments for differences between the
projected payment schedule and the actual payments on such debt) up
through the date of the sale, redemption or taxable disposition,
and decreased by the amount of any noncontingent payments and the
projected amount of any contingent payments previously made on such
debt.
Each holder of a New First Lien Term Loan is urged to consult its
tax advisor regarding the application of the OID rules, including
the contingent payment debt rules, to the New First Lien Term
Loan.
8. Recent legislation
Pursuant
to recent legislation, for taxable years beginning after December
31, 2017 (and for taxable years beginning after 2018 in the case of
OID), an accrual method taxpayer that reports revenues on an
applicable financial statement generally must recognize income for
U.S. federal income tax purposes no later than the taxable year in
which such income is taken into account as revenue in the
applicable financial statement. It is unclear how this rule applies
to U.S. Holders of debt instruments issued with OID or contingent
payment debt instruments. Accordingly, this rule could potentially
require such a taxpayer to recognize income for U.S. federal income
tax purposes with respect to the New First Lien Term Loan prior to
the time such income would otherwise have been recognized.
Each holder is urged to consult
its tax advisor regarding the possible application of the recent
legislation to the New First Lien Term Loan.
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C. Tax
Treatment of Litigation Trust and Holders of Litigation Trust
Interests
1. Classification of a Liquidating Trust
The
Litigation Trust is intended to qualify as a “liquidating
trust” for U.S. federal income tax purposes. In general, a
liquidating trust is not a separate taxable entity but rather is
treated for U.S. federal income tax purposes as a
“grantor” trust (i.e., a pass-through entity). The IRS,
in Revenue Procedure 94-45, 1994-2 C.B. 684, set forth the general
criteria for obtaining an IRS ruling as to the grantor trust status
of a liquidating trust under a chapter 11 plan. The Litigation
Trust will be structured with the intention of complying with such
general criteria. In conformity with Revenue Procedure 94-45, all
parties (including, without limitation, the Debtors, the trustee of
the Litigation Trust and holders of Allowed Claims that receive a
beneficial interest in the Litigation Trust) are required pursuant
to the Second Amended Plan to treat the transfer of assets to the
Litigation Trust, except to the extent the Debtors retain an
interest in the Litigation Trust, as (1) a transfer of the assets
(subject to any obligations relating to those assets) directly to
the holders of Allowed Claims that receive Litigation Trust
Interests (other than to the extent any assets are allocable to
Disputed Claims), followed by (2) the transfer of the assets by
such holders to the Litigation Trust in exchange for Litigation
Trust Interests. Accordingly, except in the event of contrary
definitive guidance, holders of Litigation Trust Interests will be
treated, and required to report, for U.S. federal income tax
purposes as the grantors and direct owners of an undivided interest
in their respective share of the underlying assets of the
Litigation Trust (other than such assets as are allocable to
Disputed Claims).
Although
the following discussion assumes that the Litigation Trust will be
respected as a liquidating trust for U.S. federal income tax
purposes, no ruling is currently contemplated from the IRS
concerning the tax status of the Litigation Trust as a grantor
trust. If the IRS were to successfully challenge such
classification, the U.S. federal income tax consequences to the
trust and to U.S. Holders of Allowed Claims receiving Litigation
Trust Interests could vary from those discussed herein.
Each holder of a General Unsecured
Claim is urged to consult its own tax advisor regarding the receipt
and ownership of a Litigation Trust Interest.
2. General Tax Reporting of a Liquidating Trust and
Holders of Liquidating Trust Interests
All
parties will be required to treat the Litigation Trust as a grantor
trust for all applicable U.S. federal income tax purposes of which
holders of Allowed Claims who receive Litigation Trust Interests
are the owners and grantors. The trustee of the Litigation Trust
will file tax returns treating the Litigation Trust as a grantor
trust pursuant to section 1.671-4(a) of the Treasury Regulations.
The trustee also will annually provide to each holder a separate
statement regarding the receipts and expenditures of the Litigation
Trust as relevant for U.S. federal income tax
purposes.
Accordingly,
each holder of a Litigation Trust Interest will be treated for U.S.
federal income tax purposes as the direct owner of an undivided
interest in the underlying assets of the Litigation Trust (other
than any assets allocable to Disputed Claims), consistent with its
economic interests therein. As discussed above, however, there is a
risk that the Litigation Trust may be treated as owning a right to
contingent payments from the Debtors, rather than having actual
ownership of the Litigation Trust Assets (other than the Litigation
Trust First Lien Lender Causes of Action). See Section B.3, “Consequences to
Holders of Certain Claims – Consequences to Holders of
General Unsecured Claims,” above.
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All
taxable income and loss of the Litigation Trust will be allocated
among, and treated as directly earned and incurred by, the holders
of Litigation Trust Interests with respect to such holder’s
interest in the assets of the Litigation Trust (and not as income
or loss with respect to its prior Claims), with the possible
exception of any taxable income and loss allocable to any assets
allocable to, or retained on account of, Disputed Claims. The
character of any income and the character and ability to use any
loss would depend on the particular situation of the
holder.
All
parties will be required to report for U.S. federal income tax
purposes consistent with the valuation of the assets (and the
amount of cash assets) transferred to the Litigation Trust as
determined by the Litigation Trust Oversight Committee (or its
designee). The valuation will be made available, from time to time,
as relevant for tax reporting purposes.
The
U.S. federal income tax obligations of a holder of Litigation Trust
Interests will not be dependent on the Litigation Trust
distributing any cash or other proceeds. Thus, a holder may incur a
U.S. federal income tax liability with respect to its allocable
share of Litigation Trust income even if the Litigation Trust does
not make a concurrent distribution to the holder. In general, other
than in respect of cash retained on account of Disputed Claims, a
distribution of cash by the Litigation Trust will not be separately
taxable to a holder of Litigation Trust Interests since the holder
will already be regarded for U.S. federal income tax purposes as
owning the underlying assets (and will have been taxed at the time
the cash was earned or received by the Litigation Trust).
Holders of Allowed Claims are
urged to consult their tax advisors regarding the appropriate U.S.
federal income tax treatment of any subsequent distributions of
cash originally retained by the Litigation Trust on account of
Disputed Claims. See
also “—3. Tax Reporting for Assets Allocable to
Disputed General Unsecured Claims,” below.
The
trustee of the Litigation Trust will comply with all applicable
governmental withholding requirements (see section 6.19 of the
Second Amended Plan).
3. Tax Reporting for Assets Allocable to Disputed
General Unsecured Claims
Subject
to definitive guidance from the IRS or a court of competent
jurisdiction to the contrary (including the receipt by the
Litigation Trust Oversight Committee of an IRS private letter
ruling if the Litigation Trust Oversight Committee so requests, or
the receipt of an adverse determination by the IRS upon audit if
not contested by the Litigation Trust Oversight Committee), the
Litigation Trust Oversight Committee, with the consent of the
Requisite First Lien Lenders, which consent shall not be
unreasonably withheld, (A) may elect to treat any Litigation
Trust Assets allocable to, or retained on account of, Disputed
General Unsecured Claims (herein referred to loosely as a reserve)
as a “disputed ownership fund” governed by section
1.468B-9 of the Treasury Regulations, if applicable, and
(B) to the extent permitted by applicable law, will report
consistently for state and local income tax purposes.
Accordingly,
if a “disputed ownership fund” election is made with
respect to a Litigation Trust Assets allocable to, or retained on
account of, Disputed General Unsecured Claims, such reserve will be
subject to tax annually on a separate entity basis on any net
income earned with respect to the Litigation Trust Assets
(including any gain recognized upon the disposition of such
assets). All distributions from such reserve (which distributions
may be net of any expenses, including taxes, relating to the
retention or disposition of such assets) will be treated as
received by holders in respect of their Claims as if distributed by
the Debtors. All parties (including, without limitation, the
Debtors, the Litigation Trust and the holders of Litigation Trust
Interests) will be required to report for tax purposes consistently
with the foregoing.
100
The
reserve will be responsible for payment, out of the assets of the
reserve, of any taxes imposed on the reserve or its assets. In the
event, and to the extent, any cash of the reserve is insufficient
to pay the portion of any such taxes attributable to the taxable
income arising from the assets of the reserve (including any income
that may arise upon the distribution of the assets in such
reserve), assets of the reserve may be sold to pay such
taxes.
D. Information
Reporting and Withholding
Payments
of interest (including accruals of OID) or dividends and any other
reportable payments, possibly including amounts received pursuant
to the Second Amended Plan and payments of proceeds from the sale,
retirement or other disposition of the exchange consideration, may
be subject to “backup withholding” (currently at a rate
of 24%) if a recipient of those payments fails to furnish to the
payor certain identifying information and, in some cases, a
certification that the recipient is not subject to backup
withholding. Backup withholding is not an additional tax. Any
amounts deducted and withheld generally should be allowed as a
credit against that recipient’s U.S. federal income tax,
provided that appropriate proof is timely provided under rules
established by the IRS. Furthermore, certain penalties may be
imposed by the IRS on a recipient of payments who is required to
supply information but who does not do so in the proper manner.
Backup withholding generally should not apply with respect to
payments made to certain exempt recipients, such as corporations
and financial institutions. Information may also be required to be
provided to the IRS concerning payments, unless an exemption
applies. A holder of a Claim is
urged to consult its own tax advisor regarding its qualification
for exemption from backup withholding and information reporting and
the procedures for obtaining such an exemption.
As indicated above, the foregoing discussion of the U.S. federal
income tax consequences of the Second Amended Plan does not
generally address the consequences to non-U.S. holders;
accordingly, such holders should consult their tax advisors with
respect to the U.S. federal income tax consequences of the Second
Amended Plan, including owning Litigation Trust
Interests.
The foregoing summary has been provided for informational purposes
only and does not discuss all aspects of U.S. federal income
taxation that may be relevant to a particular holder of a Claim.
All holders of Claims are urged to consult their tax advisors
concerning the federal, state, local, non-U.S., and other tax
consequences applicable under the Second Amended Plan.
IX.
CERTAIN RISK
FACTORS TO BE CONSIDERED
Prior
to voting to accept or reject the Second Amended Plan, holders of
Claims and Interests should read and carefully consider the risk
factors set forth below, in addition to the other information set
forth in this Disclosure Statement including any attachments,
exhibits, or documents incorporated by reference.
THIS
SECTION PROVIDES INFORMATION REGARDING POTENTIAL RISKS IN
CONNECTION WITH THE SECOND AMENDED PLAN. THE FACTORS BELOW SHOULD
NOT BE REGARDED AS THE ONLY RISKS ASSOCIATED WITH THE SECOND
AMENDED PLAN OR ITS IMPLEMENTATION. ADDITIONAL RISK FACTORS
IDENTIFIED IN THE COMPANY’S PUBLIC FILINGS WITH THE SEC MAY
ALSO BE APPLICABLE TO THE MATTERS SET OUT HEREIN AND SHOULD BE
REVIEWED AND CONSIDERED IN CONJUNCTION WITH THIS DISCLOSURE
STATEMENT, TO THE EXTENT APPLICABLE. THE RISK FACTORS SET FORTH IN
FUSION CONNECT’S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 2017 FILED WITH THE SEC ON MARCH 22, 2018,
AS UPDATED BY THE QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER
ENDED MARCH 31, 2018 FILED WITH THE SEC ON MAY 6, 2018, THE
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2018
FILED WITH THE SEC ON AUGUST 14, 2018, AND THE QUARTERLY REPORT ON
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2018 FILED WITH THE
SEC ON NOVEMBER 3, 2018 ARE HEREBY INCORPORATED BY REFERENCE. ANY
CURRENT REPORTS ON FORM 8-K (OTHER THAN INFORMATION FURNISHED
PURSUANT TO ITEMS 2.02 OR 7.01 AND ANY RELATED EXHIBITS OF ANY FORM
8-K, UNLESS EXPRESSLY STATED OTHERWISE THEREIN), QUARTERLY REPORTS
ON FORM 10-Q OR ANNUAL REPORTS ON FORM 10-K FILED BY FUSION CONNECT
WITH THE SEC AFTER THE DATE OF THIS DISCLOSURE STATEMENT MAY ALSO
INCLUDE RISK FACTORS AND WILL BE CONSIDERED A PART OF THIS
DISCLOSURE STATEMENT FROM THE DATE OF THE FILING OF SUCH DOCUMENTS.
NEW FACTORS, RISKS AND UNCERTAINTIES EMERGE FROM TIME TO TIME AND
IT IS NOT POSSIBLE TO PREDICT ALL SUCH FACTORS, RISKS AND
UNCERTAINTIES.
101
A. Certain
Bankruptcy Law Considerations
1. General
While
the Debtors believe that the Chapter 11 Cases will be of short
duration and will not be materially disruptive to the
Company’s business, the Debtors cannot be certain that this
will be the case. Although the Second Amended Plan is designed to
minimize the length of the Chapter 11 Cases, it is impossible to
predict with certainty the amount of time that the Debtors may
spend in bankruptcy or to assure parties in interest that the
Second Amended Plan will be confirmed. Even if confirmed on a
timely basis, bankruptcy proceedings to confirm the Second Amended
Plan could have an adverse effect on the Company’s business.
Among other things, it is possible that bankruptcy proceedings
could adversely affect the Company’s relationships with its
key vendors, suppliers, customers and employees. In addition, the
bankruptcy proceedings may divert some of the attention of the
Debtors’ management away from business operations and the
Company will incur additional expenses.
2. Risk of Non-Confirmation of Second Amended
Plan
Although
the Debtors believe that the Second Amended Plan will satisfy all
requirements necessary for confirmation by the Bankruptcy Court,
there can be no assurance that the Bankruptcy Court will reach the
same conclusion or that modifications to the Second Amended Plan
will not be required for confirmation or that such modifications
will not necessitate re-solicitation of votes. Moreover, the
Debtors can make no assurances that they will receive the requisite
acceptances to confirm the Second Amended Plan, and even if the
Voting Classes voted in favor of the Second Amended Plan or the
requirements for “cramdown” are met with respect to any
Class that rejected the Second Amended Plan, the Bankruptcy Court,
which may exercise substantial discretion as a court of equity, may
choose not to confirm the Second Amended Plan. If the Second
Amended Plan is not confirmed, it is unclear what distributions (if
any) holders of Claims or Interests ultimately would receive with
respect to their Claims or Interests in a subsequent plan of
reorganization.
3. Risk of Failing to Satisfy Vote
Requirement
In the
event that the Debtors are unable to obtain sufficient votes from
the Voting Classes, the Debtors may seek to accomplish an
alternative chapter 11 plan. There can be no assurance that the
terms of any such alternative chapter 11 plan would be similar or
as favorable to holders of Allowed Claims as those proposed in the
Second Amended Plan.
102
4. Releases, Injunctions, and Exculpations Provisions
May Not Be Approved
Section 10 of the Second Amended Plan provides for certain
releases, injunctions, and exculpations, for claims and Causes of
Action that may otherwise be asserted against the Debtors, the
Reorganized Debtors, the Exculpated Parties, or the Released
Parties, as applicable. The releases, injunctions, and exculpations
provided in the Second Amended Plan are subject to objection by
parties in interest and may not be approved. If the releases and
exculpations are not approved, certain parties may not be
considered Released Parties or Exculpated Parties, and certain
Released Parties or Exculpated Parties may withdraw their support
for the Second Amended Plan.
5. Risk of Non-Consensual Confirmation
In the
event that any impaired class of Claims or Interests does not
accept or is deemed not to accept the Second Amended Plan, the
Bankruptcy Court may nevertheless confirm such Second Amended Plan
at the request of the Debtors if at least one impaired class has
accepted the Second Amended Plan (with such acceptance being
determined without including the vote of any “insider”
in such class), and as to each impaired class that has not accepted
the Second Amended Plan, the Bankruptcy Court determines that the
Second Amended Plan “does not discriminate unfairly”
and is “fair and equitable” with respect to the
dissenting impaired classes. Should any Class vote to reject the
Second Amended Plan, then these requirements must be satisfied with
respect to such rejecting Classes. The Debtors believe that the
Second Amended Plan satisfies these requirements.
6. Risk of Non-Occurrence of Effective
Date
There
can be no assurance as to the timing of the Effective Date. If the
conditions precedent to the Effective Date set forth in the Second
Amended Plan have not occurred or have not been waived as set forth
in Section 9.3 of the Second Amended Plan, then the Confirmation
Order may be vacated, in which event no distributions will be made
under the Second Amended Plan, the Debtors and all holders of
Claims or Interests will be restored to the status quo as of the
day immediately preceding the Confirmation Date, and the
Debtors’ obligations with respect to Claims and Interests
would remain unchanged.
7. Risk of Termination of Restructuring Support
Agreement
The
Restructuring Support Agreement contains certain provisions that
give the parties the ability to terminate the Restructuring Support
Agreement if various conditions are not satisfied. As noted above,
termination of the Restructuring Support Agreement could result in
protracted Chapter 11 Cases, which could significantly and
detrimentally impact the Company’s relationships with
regulators, government agencies, vendors, suppliers, employees, and
customers. If the Restructuring Support Agreement is terminated,
each vote or any consent given by any Consenting First Lien Lender
(as defined in the Restructuring Support Agreement) prior to such
termination will be deemed null and void ab initio. If the termination of the
Restructuring Support Agreement takes place when Bankruptcy Court
approval is required for a Consenting First Lien Lender to change
or withdraw its vote to accept the Second Amended Plan, the Company
has agreed to support and not oppose any such attempt to change or
withdraw a vote. Future termination of the Restructuring Support
Agreement is an “Event of Default” under the DIP
Facility. If the Debtors lose access to the DIP Facility, the
Debtors may be forced to liquidate.
103
8. Risk Related to Parties in Interest Objecting to
Debtors’ Classification of Claims and Interests
Bankruptcy
Code Section 1122 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 Debtors believe that the classification of Claims and
Interests under the Second Amended Plan complies with the
requirements set forth in the Bankruptcy Code. However, there can
be no assurance that a party in interest will not object or that
the Bankruptcy Court will approve the classifications.
9. Risk Related to Possible Objections to Second
Amended Plan
There
is a risk that certain parties could oppose and object to the
Second Amended Plan in the Bankruptcy Court either in its entirety
or to specific provisions thereof. While the Debtors believe that
the Second Amended Plan complies with all relevant Bankruptcy Code
provisions, there can be no guarantee that a party in interest will
not file an objection to the Second Amended Plan or that the
Bankruptcy Court will not sustain such an objection.
10. Conversion to Chapter 7 Case
If no
plan of reorganization is confirmed, or if the Bankruptcy Court
otherwise finds that it would be in the best interest of holders of
Claims and Interests, the Chapter 11 Cases may be converted to
cases under chapter 7 of the Bankruptcy Code, pursuant to which a
trustee would be appointed or elected to liquidate the
Debtors’ assets for distribution in accordance with the
priorities established by the Bankruptcy Code. See Article XIII.C
hereof, as well as the Liquidation Analysis attached hereto as
Exhibit
D, for a discussion of the effects that a chapter 7
liquidation would have on the recoveries of holders of Claims and
Interests.
B. Additional
Factors Affecting Value of Reorganized Debtors
1. Claims Could Be More than Projected
There
can be no assurance that the estimated Allowed amount of Claims in
certain Classes will not be significantly more than projected,
which, in turn, could cause the value of distributions to be
reduced substantially. Inevitably, some assumptions will not
materialize, and unanticipated events and circumstances may affect
the ultimate results. Therefore, the actual amount of Allowed
Claims may vary from the Debtors’ projections and feasibility
analysis, and the variation may be material.
2. Projections and Other Forward-Looking Statements Are
Not Assured, and Actual Results May Vary
Certain
of the information contained in this Disclosure Statement is, by
nature, forward-looking, and contains (i) estimates and assumptions
that might ultimately prove to be incorrect and (ii)
projections which may be materially different from actual future
experiences. There are uncertainties associated with any
projections and estimates, and they should not be considered
assurances or guarantees of the amount of funds or the amount of
Claims in the various Classes that might be allowed. The future
results of the Reorganized Debtors are dependent upon various
factors, many of which are beyond the control or knowledge of the
Debtors, and consequently are inherently difficult to project. The
Reorganized Debtors’ actual future results may differ
materially (positively or negatively) from the financial
projections and as a result, the actual total enterprise value of
the Reorganized Debtors may be significantly higher or lower than
the estimated range herein.
104
C. Risks
Relating to Debtors’ Business and Financial
Condition
1. Risks Associated with Debtors’ Business and
Industry
The
Debtors’ business is subject to extensive regulation by
federal, state and local governmental and regulatory authorities.
Further, in recent years the policies, laws, rules and regulations
applicable to the Debtors’ business have been rapidly
evolving. Such changes, as well as the actual or alleged failure to
comply with applicable federal, state, and local laws and
regulations may have an adverse consequence on the Company or its
business, in addition to the following factors, risks or
uncertainties that may affect the Company or its
business:
■
Limitations,
restrictions or complete bans on the Debtors’ business or
various segments of the business;
■
Damage to the
Debtors’ reputation;
■
Scrutiny of the
industry by, and potential enforcement actions by, federal and
state authorities;
■
The substantial
resources (including senior management time and attention) the
Company devotes to, and the significant compliance costs the
Company incurs in connection with, regulatory compliance and
regulatory examinations and inquiries, and any redress, fines,
penalties or similar payments made in connection with resolving
such matters;
■
Potential costs
and uncertainties, including the effect on future revenues,
associated with and arising from litigation, regulatory
investigations, enforcements and other legal proceedings, and
uncertainties relating to the reaction of key counterparties to the
announcement of any such matters;
■
Risks related to a
significant amount of senior management turnover and employee
reductions;
■
Risks related to
the substantial level of indebtedness, including ability to comply
with covenants contained in debt agreements or obtain any necessary
waivers or amendments, generate sufficient cash to service such
indebtedness and refinance such indebtedness on favorable terms, if
at all, as well as the ability to incur substantially more
debt;
■
The success of the
business strategy in returning to sustained
profitability;
■
Risks and
potential costs associated with technology and cybersecurity,
including: the risks of technology failures and of cyber-attacks
against the Company or its vendors; the Company’s ability to
adequately respond to actual or attempted cyber-attacks; and the
Company’s ability to implement adequate internal security
measures and protect confidential customer
information;
■
Risks and
potential costs associated with the implementation of new or more
current technology, the use of vendors, or the transfer of the
Company’s servers or other infrastructure to new data center
facilities;
■
Risks related to
the Company’s reliance upon proprietary rights in the
Company’s technology, systems, and business processes,
including the potential risk that the compromise of such rights
could impact the Company’s ability to compete or to achieve
its projected business and financial results;
105
■
Risks related to
the Company’s deferred tax asset, risk of an “ownership
change,” including uncertainties as to the Company’s
ability to preserve the tax assets through and after a bankruptcy
filing;
■
The effects of
competition on existing and potential future business, including
the impact of competitors with greater financial resources and
broader scopes of operation;
■
The ability to
comply with evolving and complex accounting rules, many of which
involve significant judgment and assumptions;
■
The ability to
implement and maintain effective internal controls over financial
reporting and disclosure controls and procedures;
■
Increased taxation
and / or government regulations of the cloud communications
industry;
■
Administrative
fines and financial penalties;
■
The adoption of
new regulations, in addition to the potential that existing laws
and regulations may be applied to telecommunications, cloud, VoIP,
and/or internet service providers, which could hinder the
Company’s growth
■
Litigation,
including class action lawsuits; and
■
Civil and criminal
liability.
2. Downgrade in the Company’s Credit
Ratings
Standard
& Poor’s and Moody’s rate Fusion Connect’s
debt securities. Certain of these ratings have been downgraded in
the past, and any of these ratings may be downgraded in the future.
Any such downgrade could adversely affect the Company, its
financial condition, or results of operations.
3. DIP Facility
The DIP
Facility is intended to provide liquidity to the Debtors during the
pendency of the Chapter 11 Cases. If the Chapter 11 Cases take
longer than expected to conclude, the Debtors may exhaust or lose
access to their financing. There is no assurance that the Debtors
will be able to obtain additional financing from the Debtors’
existing lenders or otherwise. In either such case, the liquidity
necessary for the orderly functioning of the Debtors’
business may be materially impaired.
4. Post-Effective Date Indebtedness
Following
the Effective Date, in the Reorganization Transaction only, the
Reorganized Debtors expect to have outstanding funded debt of up to
approximately $400 million. The Reorganized Debtors’ ability
to service their debt obligations will depend on, among other
things, the Debtors’ compliance with affirmative and negative
covenants, the Debtors’ future operating performance, which
depends partly on economic, financial, competitive, and other
factors beyond the Reorganized Debtors’ control. The
Reorganized Debtors may not be able to generate sufficient cash
from operations to meet their debt service obligations as well as
fund necessary capital expenditures. In addition, if the
Reorganized Debtors need to refinance their debt, obtain additional
financing, or sell assets or equity, they may not be able to do so
on commercially reasonable terms, if at all.
106
D. Factors
Relating to Securities to be Issued Under Second Amended Plan,
Generally
1. Market for Securities
There
is currently no market for the New Equity Interests or the Special
Warrants, and there can be no assurance as to the development or
liquidity of any market for any such securities. The Reorganized
Debtors are under no obligation to list any securities on any
national securities exchange. Therefore, there can be no assurance
that any of the foregoing securities will be tradable or liquid at
any time after the Effective Date. If a trading market does not
develop or is not maintained, holders of the foregoing securities
may experience difficulty in reselling such securities or may be
unable to sell them at all. Even if such a market were to exist,
such securities could trade at prices higher or lower than the
estimated value set forth in this Disclosure Statement depending
upon many factors including, without limitation, prevailing
interest rates, markets for similar securities, industry
conditions, and the performance of, and investor expectations for,
the Reorganized Debtors.
2. Potential Dilution
The
ownership percentage represented by the New Equity Interests
distributed on the Effective Date under the Second Amended Plan
will be subject to dilution from the conversion of any options,
warrants, convertible securities, exercisable securities, or other
securities that may be issued post-emergence, including the Special
Warrants or any securities issued under the Management Incentive
Plan.
In the
future, similar to all companies, additional equity financings or
other share issuances by any of the Reorganized Debtors could
adversely affect the value of the New Equity Interests and/or the
Special Warrants. The amount and dilutive effect of any of the
foregoing could be material.
3. Risks Related to the Litigation Trust
There is no guarantee that the Litigation Trust Oversight Committee
will choose to prosecute any of the Litigation Trust Causes of
Action. Furthermore, to the extent the Litigation Trust Oversight
Committee determines to prosecute a potential Litigation Trust
Cause of Action, there is no guarantee as to the success of the
Litigation Trust Oversight Board in pursuing the Litigation Trust
Causes of Action. The success of the Litigation Trust Oversight
Board in pursuing any Litigation Trust Cause of Action, as well as
the expenses incurred in investigating and prosecuting the
Litigation Trust Causes of Action, may materially affect the
recoveries for the beneficiaries of the Litigation Trust Causes of
Action.
E. Risk
Related to Obtaining Exit Financing
During
the course of these Chapter 11 Cases, the Debtors will solicit
commitments to provide exit financing to refinance the DIP
Facility. However, there is no assurance that such commitments will
be obtained, which will hinder the Debtors’ ability to
consummate the Reorganization Transaction.
107
F. Risks
Related to Investment in New Equity Interests
1. Significant Holders
Pursuant
to the Second Amended Plan, certain holders of First Lien Claims
may acquire a significant ownership interest in the New Equity
Interests. If such holders of New Equity Interests were to act as a
group, such holders would be in a position to control all actions
requiring stockholder approval, including the election of
directors, without the approval of other stockholders. This
concentration of ownership could also facilitate or hinder a
negotiated change of control of the Reorganized Debtors and,
consequently, have an impact upon the value of the New Equity
Interests. In addition, the SEC has special considerations in
connection with its foreign ownership rules with respect to
“groups.”
2. New Equity Interests Subordinated to Reorganized
Debtors’ Indebtedness
In any
subsequent liquidation, dissolution, or winding up of the
Reorganized Debtors, the New Equity Interests will rank below all
debt claims against the Reorganized Debtors. As a result, holders
of the New Equity Interests will not be entitled to receive any
payment or other distribution of assets upon the liquidation,
dissolution, or winding up of the Reorganized Debtors until after
all the Reorganized Debtors’ obligations to its debt holders
have been satisfied.
3. Implied Valuation of New Equity Interests Not
Intended to Represent Trading Value of New Equity
Interests
The
valuation of the Reorganized Debtors may not represent the trading
value of the New Equity Interests in public or private markets and
is subject to additional uncertainties and contingencies, all of
which are difficult to predict. Actual market prices of such
securities at issuance will depend upon, among other things: (i)
conditions in the financial markets; (ii) the anticipated initial
securities holdings of prepetition creditors, some of whom may
prefer to liquidate their investment rather than hold it on a
long-term basis; and (iii) other factors that generally influence
the prices of securities. The actual market price of the New Equity
Interests is likely to be volatile. Many factors including factors
unrelated to the Reorganized Debtors’ actual operating
performance and other factors not possible to predict, could cause
the market price of the New Equity Interests to rise and fall.
Accordingly, the implied value, stated herein and in the Second
Amended Plan, of the New Equity Interests, does not necessarily
reflect, and should not be construed as reflecting, values that
will be attained for the New Equity Interests in the public or
private markets.
4. No Intention to Pay Dividends
The
Reorganized Debtors do not anticipate paying any dividends on the
New Equity Interests as they expect to retain any future cash flows
for debt reduction and to support operations. As a result, the
success of an investment in the New Equity Interests will depend
entirely upon any future appreciation in the value of the New
Equity Interests. There is, however, no guarantee that the New
Equity Interests will appreciate in value or even maintain its
initial value. In addition, holders of Special Warrants would
likely not be able to participate in the distribution of any
dividends.
G. Additional
Factors
1. Debtors Have No Duty to Update
The
statements contained in this Disclosure Statement are made by the
Debtors as of the date hereof, unless otherwise specified herein,
and the delivery of this Disclosure Statement after that date does
not imply that there has been no change in the information set
forth herein since that date. The Debtors have no duty to update
this Disclosure Statement unless otherwise ordered to do so by the
Bankruptcy Court.
108
2. No Representations Outside Disclosure Statement are
Authorized
No
representations concerning or related to the Debtors, the Chapter
11 Cases, or the Second Amended Plan are authorized by the
Bankruptcy Court or the Bankruptcy Code, other than as set forth in
this Disclosure Statement. Any representations or inducements made
to secure your acceptance or rejection of the Second Amended Plan
that are other than those contained in, or included with, this
Disclosure Statement should not be relied upon in making the
decision to accept or reject the Second Amended Plan.
3. No Legal or Tax Advice is Provided by Disclosure
Statement
The
contents of this Disclosure Statement should not be construed as
legal, business, or tax advice. Each Claim or Interest holder
should consult their own legal counsel and accountant as to legal,
tax, and other matters concerning their Claim or Interest. This
Disclosure Statement is not legal advice. This Disclosure Statement
may not be relied upon for any purpose other than to determine how
to vote on the Second Amended Plan.
4. No Admission Made
Nothing
contained herein or in the Second Amended Plan constitutes an
admission of, or will be deemed evidence of, the tax or other legal
effects of the Second Amended Plan on the Debtors or on holders of
Claims or Interests.
5. Certain Tax Consequences
For a
discussion of certain tax considerations to the Debtors and certain
holders of Claims in connection with the implementation of the
Second Amended Plan, see Article VIII thereof.
X.
VOTING PROCEDURES
AND REQUIREMENTS
Before
voting to accept or reject the Second Amended Plan, each holder of
a Claim in Class 3 (First Lien Claims), Class 4 (Second Lien
Claims), and Class 5 (General Unsecured Claims) (each, an
“Eligible
Holder” and, collectively, the “Eligible Holders”) should carefully review the Second
Amended Plan attached hereto as Exhibit A. All
descriptions of the Second Amended Plan set forth in this
Disclosure Statement are subject to the terms and conditions of the
Second Amended Plan.
A. Voting
Deadline
All
Eligible Holders as of the Voting Record Date (September 24, 2019)
will be provided with a Ballot together with this Disclosure
Statement. Such holders should read the Ballot carefully and follow
the instructions therein. Only Eligible Holders are entitled to
vote to accept or reject the Second Amended Plan. Because Classes
1, 2, 6 and 7 are unimpaired and deemed to accept, and Classes 8
and 9 are conclusively deemed to reject, only Classes 3, 4, and 5
are entitled to vote on the Second Amended Plan.
The
Debtors have engaged Prime Clerk LLC as its voting agent (the
“Voting Agent”)
to assist in the transmission of voting materials and in the
tabulation of votes with respect to the Second Amended Plan. FOR
YOUR VOTE TO BE COUNTED, YOUR BALLOT MUST BE EXECUTED IN ACCORDANCE
WITH THE INSTRUCTIONS INCLUDED IN THE BALLOT AND RECEIVED BY THE
VOTING AGENT ON OR BEFORE THE VOTING DEADLINE OF 4:00 P.M.,
PREVAILING EASTERN TIME, ON NOVEMBER 4, 2019, UNLESS EXTENDED BY
THE DEBTORS WITH THE CONSENT OF THE FIRST LIEN LENDER GROUP UPON
RECEIPT OF AN ORDER FROM THE COURT (THE “VOTING DEADLINE”).
109
IF A
BALLOT IS DAMAGED OR LOST, YOU MAY CONTACT THE VOTING AGENT AT THE
NUMBER SET FORTH BELOW TO RECEIVE A REPLACEMENT BALLOT. ANY BALLOT
THAT IS EXECUTED AND RETURNED BUT WHICH DOES NOT INDICATE AN
ACCEPTANCE OR REJECTION OF THE SECOND AMENDED PLAN WILL NOT BE
COUNTED.
IF YOU
HAVE ANY QUESTIONS CONCERNING VOTING PROCEDURES, YOU MAY CONTACT
THE VOTING AGENT AT:
Prime Clerk LLC
Telephone: (844) 230-7218 (toll free) or +1 (347) 859-8784
(international)
E-mail: [email protected] with “Fusion
Connect, Inc.” in the subject line
Additional
copies of this Disclosure Statement are available upon a request
made to the Voting Agent, at the telephone numbers or e-mail
address set forth immediately above.
B. Voting
Procedures
The
Debtors are providing copies of this Disclosure Statement
(including all exhibits and appendices) and related materials and a
Ballot (collectively, a “Solicitation Package”) to Eligible
Holders. In order to vote, Eligible Holders must provide all of the
information requested by the Ballot and, as applicable, should
complete and deliver their completed Ballots pursuant to the
instructions set forth on the Ballot so that they are actually
received by the Voting Agent no later than the Voting
Deadline.
C. Parties
Entitled to Vote
Under
the Bankruptcy Code, only holders of claims or interests in
“impaired” classes are entitled to vote on a plan.
Under section 1124 of the Bankruptcy Code, a class of claims or
interests is deemed to be “impaired” under a plan
unless (i) the Second Amended Plan leaves unaltered the legal,
equitable, and contractual rights to which such claim or interest
entitles the holder thereof or (ii) notwithstanding any legal
right to an accelerated payment of such claim or interest, the
Second Amended Plan cures all existing defaults (other than
defaults resulting from the occurrence of events of bankruptcy) and
reinstates the maturity of such claim or interest as it existed
before the default.
If,
however, the holder of an impaired claim or interest will not
receive or retain any distribution under the Second Amended Plan on
account of such claim or interest, the Bankruptcy Code deems such
holder to have rejected the Second Amended Plan, and, accordingly,
holders of such claims and interests do not actually vote on the
Second Amended Plan. If a claim or interest is not impaired by the
Second Amended Plan, the Bankruptcy Code deems the holder of such
claim or interest to have accepted the Second Amended Plan and,
accordingly, holders of such claims and interests are not entitled
to vote on the Second Amended Plan.
A vote
may be disregarded if the Bankruptcy Court determines, pursuant to
section 1126(e) of the Bankruptcy Code, that it was not solicited
or procured in good faith or in accordance with the provisions of
the Bankruptcy Code.
110
The
Bankruptcy Code defines “acceptance” of a plan by a
class of: (i) claims as acceptance by creditors in that class that
hold at least two-thirds (2/3) in dollar amount and more than
one-half (1/2) in number of the claims that cast ballots for
acceptance or rejection of the Second Amended Plan; and (ii)
interests as acceptance by interest holders in that class that hold
at least two-thirds (2/3) in dollar amount of the interests that
cast ballots for acceptance or rejection of the Second Amended
Plan.
Class 3
(First Lien Claims), Class 4 (Second Lien Claims), and Class 5
(General Unsecured Claims) are impaired under the Second Amended
Plan and the only Classes of Claims entitled to vote to accept or
reject the Second Amended Plan (the “Voting Classes” or the
“Voting
Claims”).
Claims
in all other Classes are either unimpaired and deemed to accept or
impaired and deemed to reject the Second Amended Plan and are not
entitled to vote. For a detailed description of the treatment of
Claims and Interests under the Second Amended Plan, see Article I of this Disclosure Statement.
The
Debtors will request confirmation of the Second Amended Plan
pursuant to section 1129(b) of the Bankruptcy Code over the deemed
rejection of the Second Amended Plan by all Parent Equity Interests
and Subordinated Securities Claims. Section 1129(b) of the
Bankruptcy Code permits the confirmation of a chapter 11 plan
notwithstanding the rejection of such plan by one or more impaired
classes of claims or interests. Under section 1129(b), a plan may
be confirmed by a bankruptcy court if it does not
“discriminate unfairly” and is “fair and
equitable” with respect to each rejecting class. For a more
detailed description of the requirements for confirmation of a
nonconsensual plan, see
Article XII.C of this Disclosure Statement.
1. Miscellaneous
All
Ballots must be signed by the Eligible Holder, or any person who
has obtained a properly completed Ballot proxy from the Eligible
Holder by the Voting Record Date. Unless otherwise ordered by the
Bankruptcy Court, Ballots that are signed, dated, and timely
received, but on which a vote to accept or reject the Second
Amended Plan has not been indicated, will not be counted. The
Debtors, in their sole discretion, may request that the Voting
Agent attempt to contact such voters to cure any such Ballot
defects. Any Ballot marked to both accept and reject the Second
Amended Plan will not be counted. If an Eligible Holder casts more
than one Ballot voting the same Claim(s) before the Voting
Deadline, the last valid Ballot received on or before the Voting
Deadline will be deemed to reflect such Holder’s intent, and
thus, will supersede any prior Ballot. If an Eligible Holder casts
Ballots received by the Voting Agent on the same day, but which are
voted inconsistently, such Ballots will not be
counted.
The
Ballots provided to Eligible Holders will reflect the amount of
such Eligible Holder’s Claim; however, when tabulating votes,
the Voting Agent may adjust the amount of such Eligible
Holder’s Claim (as directed by the Debtors) by multiplying
that amount by a factor that reflects all amounts accrued between
the Voting Record Date and the Commencement Date including, without
limitation, interest.
Under
the Bankruptcy Code, for purposes of determining whether the
requisite votes for acceptance have been received, only holders of
the First Lien Claims who actually vote will be counted. The
failure of a holder to deliver a duly executed Ballot to the Voting
Agent will be deemed to constitute an abstention by such holder
with respect to voting on the Second Amended Plan and such
abstentions will not be counted as votes for or against the Second
Amended Plan.
Except
as provided below, unless the Ballot, together with any other
documents required by such Ballot, is timely submitted to the
Voting Agent before the Voting Deadline the Debtors may, in their
sole discretion, reject such Ballot as invalid, and therefore
decline to utilize it in connection with seeking confirmation of
the Second Amended Plan.
111
2. Fiduciaries and Other Representatives
If a
Ballot is signed by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation, or another, acting in a
fiduciary or representative capacity, such person should indicate
such capacity when signing and, if requested, must submit proper
evidence satisfactory to the Debtor of authority to so act.
Authorized signatories should submit a separate Ballot of each
Eligible Holder for whom they are voting.
UNLESS
THE BALLOT IS SUBMITTED TO THE VOTING AGENT ON OR PRIOR TO THE
VOTING DEADLINE, SUCH BALLOT WILL BE REJECTED AS INVALID AND WILL
NOT BE COUNTED AS AN ACCEPTANCE OR REJECTION OF THE SECOND AMENDED
PLAN; PROVIDED,
THAT THE DEBTORS
RESERVE THE RIGHT, IN THEIR SOLE DISCRETION, TO REQUEST THE
BANKRUPTCY COURT TO ALLOW SUCH BALLOT TO BE COUNTED.
3. Agreements Upon Furnishing Ballots
The
delivery of an accepting Ballot pursuant to one of the procedures
set forth above will constitute the agreement of the creditor with
respect to such Ballot to accept: (i) all of the terms of, and
conditions to, the solicitation; and (ii) the terms of the
Second Amended Plan including the injunction, releases, and
exculpations set forth in Sections 10.5, 10.6, and 10.7 of the
Second Amended Plan. All parties in interest retain their right to
object to confirmation of the Second Amended Plan pursuant to
section 1128 of the Bankruptcy Code, subject to any applicable
terms of the Restructuring Support Agreement.
4. Change of Vote
Subject
to the terms of the Restructuring Support Agreement, any party that
has previously submitted a properly completed Ballot to the Voting
Agent prior to the Voting Deadline may revoke such Ballot and
change its vote, subject to Local Bankruptcy Rule 3018, by
submitting to the Voting Agent prior to the Voting Deadline a
subsequent, properly completed Ballot voting for acceptance or
rejection of the Second Amended Plan, upon Court
approval.
5. Waivers of Defects, Irregularities,
etc.
Unless
otherwise directed by the Bankruptcy Court, all questions as to the
validity, form, eligibility (including time of receipt),
acceptance, and revocation or withdrawals of Ballots will be
determined by the Voting Agent and/or the Debtors, as applicable,
in their sole discretion, which determination will be final and
binding. The Debtors reserve the right to reject any and all
Ballots submitted that are not in proper form, the acceptance of
which would, in the opinion of the Debtors or their counsel, as
applicable, be unlawful. The Debtors further reserve their
respective rights to waive any defects or irregularities or
conditions of delivery as to any particular Ballot by any Eligible
Holder. The interpretation (including the Ballot and the respective
instructions thereto) by the applicable Debtor, unless otherwise
directed by the Bankruptcy Court, will be final and binding on all
parties. Unless waived, any defects or irregularities in connection
with deliveries of Ballots must be cured within such time as the
Debtors (or the Bankruptcy Court) determines. Neither the Debtors
nor any other person will be under any duty to provide notification
of defects or irregularities with respect to deliveries of Ballots
nor will any of them incur any liabilities for failure to provide
such notification. Unless otherwise directed by the Bankruptcy
Court, delivery of such Ballots will not be deemed to have been
made until such irregularities have been cured or waived. Ballots
previously furnished (and as to which any irregularities have not
theretofore been cured or waived) will be invalidated.
112
6. Further Information, Additional Copies
Should an Eligible Holder have any questions or require further
information about the voting procedures, or about the packet of
material received, or if an Eligible Holder wishes to obtain an
additional copy of the Second Amended Plan, this Disclosure
Statement, or any exhibits to such documents, please contact the
Voting Agent at the telephone number or email address set forth
above.
XI.
CONFIRMATION
OF AMENDED PLAN
A. Confirmation
Hearing
Section
1128(a) of the Bankruptcy Code requires the Bankruptcy Court to
hold a confirmation hearing upon appropriate notice to all required
parties. The Debtors will request that the Bankruptcy Court
schedule the Confirmation Hearing. Subject to the Court’s
availability, the Confirmation Hearing will be held on November 14,
2019 at 10:00 am, prevailing Eastern Time. Notice of the
Confirmation Hearing will be provided to all known creditors and
equity holders or their representatives. The Confirmation Hearing
may be adjourned from time to time by the Bankruptcy Court without
further notice except for the announcement of the adjourned date
made at the Confirmation Hearing, at any subsequent adjourned
Confirmation Hearing, or pursuant to a notice filed on the docket
of the Chapter 11 Cases.
B. Objections
to Confirmation
Section
1128(b) of the Bankruptcy Code provides that any party in interest
may object to the confirmation of a plan. Any objection to
confirmation of the Second Amended Plan must (i) be in writing;
(ii) state the name and address of the objecting party and the
amount and nature of the Claim or Interest of such party; (iii)
state with particularity the basis and nature of any objection, and
provide proposed language that, if accepted and incorporated by the
Debtors, would obviate such objection; (iv) conform to the
Bankruptcy Rules and the Local Rules of Bankruptcy Practice and
Procedure of the United States Bankruptcy Court for the Southern
District of New York; (v) be filed with the Bankruptcy Court, with
a copy to the chambers of the United States Bankruptcy Judge
appointed to the Chapter 11 Cases, together with proof of service
thereof by the plan confirmation objection deadline of 4:00 p.m.,
prevailing eastern time, on November 4, 2019; and (vi) be
served upon the following parties, including such other parties as
the Bankruptcy Court may order:
(a)
The Debtor at:
Fusion
Connect, Inc.
210
Interstate North Parkway
Suite
300
Atlanta, Georgia
30339
Attn:
James P. Prenetta, Jr., Executive Vice President and General
Counsel
(b)
Office of the U.S. Trustee
at:
Office
of the U.S. Trustee for Region 2
U.S.
Federal Office Building
201
Varick Street, Suite 1006
New
York, New York 10014
Attn:
Richard C.
Morrissey
Susan A.
Arbeit
113
(c)
Counsel to the Debtors at:
Weil,
Gotshal & Manges LLP
767
Fifth Avenue
New
York, New York 10153
Attn:
Gary T.
Holtzer
Sunny
Singh
Gaby
Smith
(d)
Counsel to the First Lien Lender Group
at:
Davis
Polk & Wardwell LLP
450
Lexington Avenue
New
York, New York, 10017
Attn:
Damian S.
Schaible
Adam L.
Shpeen
(e)
Counsel
to the Ad Hoc Group of Tranche A Term Loans / Revolving
Lenders:
Simpson
Thacher & Bartlett LLP
425
Lexington Avenue
New
York, NY 10017
Attn:
Sandeep
Qusba
Hyang Sook
Lee
Edward R.
Linden
(f)
Counsel to the DIP Agent, Prepetition Super
Senior Agent, and Prepetition First Lien Agent
at:
Arnold
& Porter Kaye Scholer LLP
70 West
Madison Street, Suite 4200
Chicago, Illinois
60602
Attn:
Michael D.
Messersmith
Sarah
Gryll
(g)
Counsel to the Creditors’ Committee
at:
Cooley
LLP
55
Hudson Yards
New
York, New York 10001
Attn:
Cathy
Hershcopf
Seth Van
Aalten
Robert
Winning
Sarah
Carnes
UNLESS AN OBJECTION TO CONFIRMATION IS TIMELY SERVED AND FILED, IT
MAY NOT BE CONSIDERED BY THE BANKRUPTCY COURT.
C. Requirements for Confirmation of
Second Amended Plan
1.
Requirements
of Section 1129(a) of Bankruptcy Code
(a) General
Requirements
At the
Confirmation Hearing, the Bankruptcy Court will determine whether
the confirmation requirements specified in section 1129(a) of the
Bankruptcy Code have been satisfied including, without limitation,
whether:
(i)
the Second Amended
Plan complies with the applicable provisions of the Bankruptcy
Code;
(ii)
the Debtors have
complied with the applicable provisions of the Bankruptcy
Code;
(iii)
the Second Amended
Plan has been proposed in good faith and not by any means forbidden
by law;
(iv)
any payment made or
promised by the Debtors or by a person issuing securities or
acquiring property under the Second Amended Plan, for services or
for costs and expenses in or in connection with the Chapter 11
Cases, or in connection with the Second Amended Plan and incident
to the Chapter 11 Cases, has been disclosed to the Bankruptcy
Court, and any such payment made before confirmation of the Second
Amended Plan is reasonable, or if such payment is to be fixed after
confirmation of the Second Amended Plan, such payment is subject to
the approval of the Bankruptcy Court as reasonable;
(v)
the Debtors have
disclosed the identity and affiliations of any individual proposed
to serve, after confirmation of the Second Amended Plan, as a
director or officer of the Reorganized Debtors, an affiliate of the
Debtors participating in the Second Amended Plan with the Debtors,
or a successor to the Debtors under the Second Amended Plan, and
the appointment to, or continuance in, such office of such
individual is consistent with the interests of the holders of
Claims and Interests and with public policy, and the Debtors have
disclosed the identity of any insider who will be employed or
retained by the Reorganized Debtors, and the nature of any
compensation for such insider;
(vi)
with respect to
each Class of Claims or Interests, each holder of an impaired Claim
or impaired Interest has either accepted the Second Amended Plan or
will receive or retain under the Second Amended Plan, on account of
such holder’s Claim or Interest, property of a value, as of
the Effective Date of the Second Amended Plan, that is not less
than the amount such holder would receive or retain if the Debtors
were liquidated on the Effective Date of the Second Amended Plan
under chapter 7 of the Bankruptcy Code;
(vii)
except to the
extent the Second Amended Plan meets the requirements of section
1129(b) of the Bankruptcy Code (as discussed further below), each
Class of Claims either accepted the Second Amended Plan or is not
impaired under the Second Amended Plan;
114
(viii)
except to the
extent that the holder of a particular Claim has agreed to a
different treatment of such Claim, the Second Amended Plan provides
that administrative expenses and priority Claims, other than
Priority Tax Claims, will be paid in full on the Effective Date,
and that Priority Tax Claims will receive either payment in full on
the Effective Date or deferred cash payments over a period not
exceeding five years after the Commencement Date, of a value, as of
the Effective Date of the Second Amended Plan, equal to the Allowed
amount of such Claims;
(ix)
at least one (1)
Class of impaired Claims has accepted the Second Amended Plan,
determined without including any acceptance of the Second Amended
Plan by any insider holding a Claim in such Class;
(x)
confirmation of the
Second Amended Plan is not likely to be followed by the
liquidation, or the need for further financial reorganization, of
the Debtors or any successor to the Debtors under the Second
Amended Plan; and
(xi)
all fees payable
under section 1930 of title 28 of the United States Code, as
determined by the Bankruptcy Court at the Confirmation Hearing,
have been paid or the Second Amended Plan provides for the payment
of all such fees on the Effective Date of the Second Amended
Plan.
(b) Best
Interests Test
As
noted above, with respect to each impaired class of claims and
equity interests, confirmation of a plan requires that each such
holder either (i) accept the Second Amended Plan or
(ii) receive or retain under the Second Amended Plan property
of a value, as of the effective date of the Second Amended Plan,
that is not less than the value such holder would receive or retain
if the debtor was liquidated under chapter 7 of the Bankruptcy
Code. This requirement is referred to as the “best interests
test.”
This
test requires a bankruptcy court to determine what the holders of
allowed claims and allowed equity interests in each impaired class
would receive from a liquidation of the debtor’s assets and
properties in the context of a liquidation under chapter 7 of the
Bankruptcy Code. To determine if a plan is in the best interests of
each impaired class, the value of the distributions from the
proceeds of the liquidation of the debtor’s assets and
properties (after subtracting the amounts attributable to the
aforesaid claims) is then compared with the value offered to such
classes of claims and equity interests under the Second Amended
Plan.
The
Debtors believe that under the Second Amended Plan all holders of
impaired Claims and Interests will receive property with a value
not less than the value such holder would receive in a liquidation
under chapter 7 of the Bankruptcy Code. The Debtors’ belief
is based primarily on (i) consideration of the effects that a
chapter 7 liquidation would have on the ultimate proceeds available
for distribution to holders of impaired Claims and Interests and
(ii) the liquidation analysis analyzing the effects that a
chapter 7 liquidation would have on the recoveries of holders of
Claims and Interests (the “Liquidation
Analysis”).
The
Debtors believe that any liquidation analysis is speculative, as it
is necessarily premised on assumptions and estimates which are
inherently subject to significant uncertainties and contingencies,
many of which would be beyond the control of the Debtors. The
Liquidation Analysis, which is attached hereto as Exhibit D, is solely for the
purpose of disclosing to holders of Claims and Interests the
effects of a hypothetical chapter 7 liquidation of the Debtors,
subject to the assumptions set forth therein. There can be no
assurance as to values that would actually be realized in a chapter
7 liquidation nor can there be any assurance that a bankruptcy
court will accept the Debtors’ conclusions or concur with
such assumptions in making its determinations under
section 1129(a)(7) of the Bankruptcy Code.
115
(c) Feasibility
Also as
noted above, section 1129(a)(11) of the Bankruptcy Code requires
that a debtor demonstrate that confirmation of a plan is not likely
to be followed by liquidation or the need for further financial
reorganization. For purposes of determining whether the Second
Amended Plan meets this requirement, the Debtors have analyzed
their ability to meet their obligations under the Second Amended
Plan and intends to prepare the projections upon conclusion of the
Marketing Process. Moreover, Article IX hereof sets forth certain
risk factors that could impact the feasibility of the Second
Amended Plan.
(d) Equitable
Distribution of Voting Power
On or
before the Effective Date, pursuant to and only to the extent
required by section 1123(a)(6) of the Bankruptcy Code, the
organizational documents for the Debtors will be amended as
necessary to satisfy the provisions of the Bankruptcy Code and will
include, among other things, pursuant to section 1123(a)(6) of the
Bankruptcy Code, (i) a provision prohibiting the issuance of
non-voting equity securities and (ii) a provision setting forth an
appropriate distribution of voting power among classes of equity
securities possessing voting power.
2. The Estate Releases, Consensual Releases, and
Exculpation Provisions
(a) Estate
Releases
Section 10.6(a) of the Second Amended Plan provides a release of
certain claims and Causes of Action of the Debtors, the Reorganized
Debtors, and the Estates against the Released Parties in exchange
for good and valuable consideration and valuable compromises made
by the Released Parties. The Debtors’ Releases do not release
any claims or Causes of Action arising after the Effective Date
against any party or affect the rights of the Debtors or
Reorganized Debtors to enforce the terms of the Second Amended Plan
or any right or obligation arising under the Definitive Documents
that remain in effect after the Effective Date.
The Second Amended Plan will be deemed to constitute a motion
pursuant to sections 363 and 1123(b)(3) of the Bankruptcy Code and
Bankruptcy Rule 9019, seeking approval of the Global Settlement,
including the Estate Releases in connection therewith, and the
entry of the Confirmation Order will constitute the Bankruptcy
Court’s approval of such motion and each of the compromises
and settlements that comprise the Global Settlement. The Estate
Releases are fair and reasonable and in the best interests of the
Debtors and their creditors and fair consideration is being
received in exchange for such releases.
The Debtors believe that the Estate Releases constitute a sound
exercise of the Debtors’ business judgment and are an
essential component of the Second Amended Plan. It is well-settled
that debtors are authorized to settle or release their claims in a
chapter 11 plan. See
11 U.S.C.
§ 1123(b)(3)(A) (permitting a plan to provide for the
“settlement or adjustment of any claim or interest belonging
to the debtor or to the estate”); see also In re
Adelphia Commc’ns Corp., 368 B.R. 140, 263 n.289 (Bankr.
S.D.N.Y. 2007) (debtor has “considerable leeway” in
releasing its own claims); In re Spiegel,
Inc., Case No.
03-11540 (BRL), 2005 WL 1278094, at *11 (Bankr. S.D.N.Y. May 25,
2005) (approving debtor releases pursuant to section 1123(b)(3) of
the Bankruptcy Code and Bankruptcy Rule 9019(a));
In re
Bally Total Fitness of Greater New York, Inc., Case No. 07-12395 (BRL), 2007 WL
2779438, at *12 (Bankr. S.D.N.Y. Sept. 17, 2007) (“To the
extent that a release or other provision in the Second Amended Plan
constitutes a compromise of a controversy, this Confirmation Order
shall constitute an order under Bankruptcy Rule 9019 approving such
compromise.”). Debtor releases are granted by courts in the
Second Circuit where the Debtors establish that such releases are a
valid exercise of the Debtors’ business judgment and in the
best interests of the estate. See JP Morgan Chase
Bank, N.A. v. Charter Commc’ns Operating, LLC (In re Charter
Commc’ns), 419
B.R. 221, 257-61 (Bankr. S.D.N.Y. 2009) (“When reviewing
releases in a debtor’s plan, courts consider whether such
releases are in the best interest of the estate.”);
In
re DBSD N. Am., Inc., 419 B.R. 179, 217 (Bankr. S.D.N.Y.
2009), aff’d,
Case No. 09 CIV. 10156 (LAK), 2010 WL 1223109 (S.D.N.Y. Mar. 24
2010), aff’d in
part, rev’d in part, 627 F.3d 496 (2d Cir. 2010) (finding
debtor releases appropriate where they represented a valid exercise
of the debtors’ business judgment and were in the best
interests of the estate).
116
The Estate Releases satisfy the business judgment standard because,
in exchange for the Estate Releases, the Debtors received valuable
consideration from the Released Parties in the form of (i)
financing of the Prepetition Super Senior Credit Agreement, (ii)
financing of the DIP Facility, (iii) granting the Debtors’
use of cash collateral to support their restructuring in addition
to numerous other tangible and intangible benefits key to
effectuating the Debtors’ consensual
restructuring.
(b) Consensual
Releases
The Consensual Releases in Section 10.6(b) of the Second Amended
Plan provide for the release of claims and Causes of Action by
those parties voting in favor of the Second Amended Plan against
the Released Parties in exchange for good and valuable
consideration and the valuable compromises made by the Released
Parties.
The Second Amended Plan provides that all holders of Claims who are
entitled to vote on the Second Amended Plan who vote to accept
the Second Amended Plan will be granting a release of any claims or
rights they have or may have as against the Released Parties. The
Consensual Releases include any and all claims that such holders
may have against the Released Parties which in any way relate to
the restructuring.
In the Second Circuit, third-party releases are
permissible where “unusual circumstances” render the
release terms integral to the success of the Second Amended
Plan. In re
Metromedia Fiber Network, Inc.,
416 F.3d 136, 141 (2d Cir. 2005). “Unusual
circumstances” include instances in which: (a) the estate
received a substantial contribution; (b) the enjoined claims were
“channeled” to a settlement fund rather than
extinguished; (c) the enjoined claims would indirectly impact
the debtors’ reorganization by way of indemnity or
contribution; (d) the Second Amended Plan otherwise provided for
the full payment of the enjoined claims; and (e)
the
affected creditors consent. Id. (emphasis added).
Pursuant
to Section 10.6(b), only consenting creditors will be subject to
the Second Amended Plan’s release and exculpation
provisions.
(c) Exculpations
Section
10.7 of the Second Amended Plan provides for the exculpation of
each Exculpated Party for acts and omissions taken in connection
with the Chapter 11 Cases after the Commencement Date. The Debtors
believe that the exculpation provision in Section 10.7 of the
Second Amended Plan is an integral part of the Second Amended Plan
and otherwise satisfies the governing standards in the Second
Circuit. This provision provides customary protections to those
parties in interest (whether estate fiduciaries or otherwise) whose
efforts were instrumental in achieving the confirmation of the
Second Amended Plan and the conclusion of these Chapter 11 Cases.
In light of the record of these Chapter 11 Cases, the protections
afforded by the exculpation provisions are reasonable and
appropriate.
At confirmation, the Debtors will demonstrate that in the Second
Circuit, exculpation provisions that include non-estate fiduciaries
are frequently approved, including exculpatory provisions far
broader than those provided for in the Second Amended Plan.
See,
e.g.,
In re
Cenveo, Inc., Case
No. 17-22178 (RDD) (Bankr. S.D.N.Y. Aug. 21, 2018) (ECF No. 685)
(confirming plan containing exculpation for non-estate
fiduciaries); In re Cengage
Learning, Inc., Case
No. 13-44106 (ESS) (Bankr. E.D.N.Y. Mar. 14, 2014) (ECF No. 1225)
(same); In re Eastman Kodak
Co., Case No.
12-10202 (ALG) (Bankr. S.D.N.Y. Aug. 23, 2013) (ECF No. 4996)
(same).
117
3. Additional Requirements for Non-Consensual
Confirmation
In the
event that any impaired Class of Claims or Interests does not
accept or is deemed to reject the Second Amended Plan, the
Bankruptcy Court may still confirm the Second Amended Plan at the
request of the Debtors if, as to each impaired Class of Claims or
Interests that has not accepted the Second Amended Plan, the Second
Amended Plan “does not discriminate unfairly” and is
“fair and equitable” with respect to such Classes of
Claims or Interests, pursuant to section 1129(b) of the Bankruptcy
Code. Both of these requirements are in addition to other
requirements established by case law interpreting the statutory
requirements.
Pursuant
to the Second Amended Plan, holders of Claims and Interests in
Class 4 (Second Lien Claims), Class 5 (General Unsecured Claims),
Class 8 (Parent Equity Interests), and Class 9 (Subordinated
Securities Claims) will not receive a distribution and are thereby
deemed to reject the Second Amended Plan. However, the Debtors
submit that they satisfy the “unfair discrimination”
and “fair and equitable” tests, as discussed in further
detail below.
(a) Unfair
Discrimination Test
The
“unfair discrimination” test applies to classes of
claims or interests that are of equal priority and are receiving
different treatment under a plan. A chapter 11 plan does not
discriminate unfairly, within the meaning of the Bankruptcy Code,
if the legal rights of a dissenting class are treated in a manner
consistent with the treatment of other classes whose legal rights
are substantially similar to those of the dissenting class and if
no class of claims or interests receives more than it legally is
entitled to receive for its Claims or Interests. This test does not
require that the treatment be the same or equivalent, but that such
treatment is “fair.”
The
Debtors believe the Second Amended Plan satisfies the “unfair
discrimination” test. Claims of equal priority are receiving
comparable treatment and such treatment is fair under the
circumstances.
(b) Fair
and Equitable Test
The
“fair and equitable” test applies to classes of
different priority and status (e.g., secured versus unsecured) and
includes the general requirement that no class of claims receive
more than 100% of the allowed amount of the claims in such class.
As to dissenting classes, the test sets different standards
depending on the type of claims in such class. The Debtors believe
that the Second Amended Plan satisfies the “fair and
equitable” test as further explained below.
(i) Other
Secured Creditors
The
Bankruptcy Code provides that each holder of an impaired secured
claim either (i) retains its liens on the property to the
extent of the allowed amount of its secured claim and receives
deferred cash payments having a value, as of the effective date, of
at least the allowed amount of such claim, (ii) has the right
to credit bid the amount of its claim if its property is sold and
retains its liens on the proceeds of the sale or
(iii) receives the “indubitable equivalent” of its
allowed secured claim.
118
(ii) Unsecured
Creditors
The
Bankruptcy Code provides that either (i) each holder of an
impaired unsecured claim receives or retains under the Second
Amended Plan of reorganization, property of a value equal to the
amount of its allowed claim or (ii) the holders of claims and
equity interests that are junior to the claims of the dissenting
class will not receive any property under the Second Amended Plan
of reorganization. The Second Amended Plan provides that the
holders of General Unsecured Claims in Class 5 will receive the
treatment summarized above in Article V of this Disclosure Statement.
(iii) Parent
Equity Interests
The
Bankruptcy Code requires that either (a) each holder of an equity
interest receive or retain under the Second Amended Plan property
of a value equal to the greater of (i) the fixed liquidation
preference or redemption price, if any, of such stock and (ii) the
value of the stock; or (b) the holders of equity interests that are
junior to any dissenting class of equity interests not receive any
property under the Second Amended Plan. Pursuant to the Second
Amended Plan, all Parent Equity Interests will be cancelled and the
holders of Parent Equity Interests will neither receive nor retain
any property on account of such interests.
XII.
ALTERNATIVES TO CONFIRMATION AND
CONSUMMATION OF SECOND AMENDED
PLAN
The
Debtors have evaluated several alternatives to the Second Amended
Plan. After studying these alternatives, the Debtors have concluded
that the Second Amended Plan is the best alternative and will
maximize recoveries to parties in interest, assuming confirmation
and consummation of the Second Amended Plan. If the Second Amended
Plan is not confirmed and consummated, the alternatives to the
Second Amended Plan are (i) the preparation and presentation
of an alternative plan of reorganization, (ii) a sale of some
or all of the Debtors’ assets pursuant to section 363 of the
Bankruptcy Code, or (iii) a liquidation under chapter 7 of the
Bankruptcy Code.
A. Alternative
Plan of Reorganization
If the
Second Amended Plan is not confirmed, the Debtors (or if the
Debtors’ exclusive period in which to file a plan of
reorganization has expired, any other party in interest) could
attempt to formulate a different plan. Such a plan might involve
either: (i) a reorganization and continuation of the
Debtors’ business or (ii) an orderly liquidation of the
Debtors’ assets. The Debtors, however, submit that the Second
Amended Plan, enables their creditors to realize the most value
under the circumstances.
B. Sale Under
Section 363 of Bankruptcy Code
If the
Second Amended Plan is not confirmed, the Debtors could seek from
the Bankruptcy Court, after notice and a hearing, authorization to
sell their assets through a stand-alone alternative transaction
under section 363 of the Bankruptcy Code. Upon analysis and
consideration of this alternative, the Debtors do not believe that
a stand-alone alternative sale of their assets under section 363 of
the Bankruptcy Code would yield a higher recovery for holders of
Claims and Interests than the Second Amended Plan.
119
C. Liquidation
Under Chapter 7 or Applicable Non-Bankruptcy
Law
If no
plan can be confirmed, the Chapter 11 Cases may be converted to a
case under chapter 7 of the Bankruptcy Code in which a trustee
would be elected or appointed to liquidate the assets of the
Debtors for distribution to the Debtors’ creditors in
accordance with the priorities established by the Bankruptcy
Code.
The
Debtors believe that liquidation under chapter 7 would result in
smaller distributions to creditors than those provided for in the
Second Amended Plan because of the delay resulting from the
conversion of the cases and the additional administrative expenses
associated with the appointment of a trustee and the
trustee’s retention of professionals who would be required to
become familiar with the many legal and factual issues in the
Chapter 11 Cases.
120
XIII.
CONCLUSION AND
RECOMMENDATION
The
Debtors believe the Second Amended Plan is in the best interests of
all stakeholders and urge the holders of Claims in Classes 3, 4,
and 5 to vote in favor thereof.
Dated:
October 7,
2019
DEBTORS
FUSION
CONNECT, INC.
FUSION
BCHI ACQUISITION LLC
FUSION
NBS ACQUISITION CORP.
FUSION
LLC
FUSION
MPHC HOLDING CORPORATION
FUSION
MPHC GROUP, INC.
FUSION
CLOUD COMPANY LLC
FUSION
CLOUD SERVICES, LLC
FUSION
CB HOLDINGS, INC.
FUSION
COMMUNICATIONS, LLC
FUSION
TELECOM, LLC
FUSION
TEXAS HOLDINGS, INC.
FUSION
TELECOM OF KANSAS, LLC
FUSION
TELECOM OF OKLAHOMA, LLC
FUSION
TELECOM OF MISSOURI, LLC
BIRCAN
HOLDINGS, LLC
FUSION
MANAGEMENT SERVICES LLC
FUSION
PM HOLDINGS, INC.
By: /s/ James P.
Prenetta,
Name:
James P. Prenetta, Jr.
Title:
Executive Vice President and
General
Counsel
FUSION
TELECOM OF TEXAS LTD., L.L.P.
BY:
FUSION TEXAS HOLDINGS, INC., AS LIMITED PARTNER
By: /s/ James P.
Prenetta, Jr.
Name:
James P. Prenetta, Jr.
Title:
Executive Vice President and
General
Counsel
Signature Page to Disclosure Statement
Exhibit A
Second Amended Joint Chapter 11 Plan
Exhibit B
Restructuring Support Agreement
RESTRUCTURING SUPPORT AGREEMENT
This
RESTRUCTURING SUPPORT AGREEMENT (this “Agreement”),
dated as of June 3, 2019, is entered into by and
among:
(i)
Fusion Connect,
Inc. (“Fusion”) and
its direct and indirect U.S. subsidiaries (each, a
“Company
Party” and collectively, including Fusion,
the “Company
Parties”); and
(ii)
each undersigned
First Lien Lender (as defined herein, and, together with their
respective successors and permitted assigns and any subsequent
First Lien Lender that becomes a party hereto in accordance with
the terms hereof, the “Consenting First Lien
Lenders”).
Each
Company Party, each Consenting First Lien Lender, and any
subsequent Person that becomes a party hereto in accordance with
the terms hereof are referred to herein as the “Parties” and
individually as a “Party.”
WHEREAS, the Parties have agreed to the
Restructuring Transactions (as defined herein) consistent with the
terms and subject to the conditions set forth herein, including in
the Term Sheet (as defined herein), which are the product of
arms’-length, good faith discussions between the Parties and
their respective professionals;
WHEREAS, as of the date hereof, the
Consenting First Lien Lenders in the aggregate hold, or act as the
nominee, investment adviser, sub-adviser, or investment manager to
entities that (x) hold, as of the date hereof, in excess of
66 2/3% of the aggregate
outstanding principal amount of the First Lien Loans (as defined
herein) and (y) constitute the Requisite Lenders (as defined in the
Credit Agreement);
WHEREAS, the Parties desire to express
to each other their mutual support and commitment in respect of the
matters discussed in this Agreement and in the Term
Sheet.
NOW, THEREFORE, in consideration of the
premises and the mutual covenants and agreements set forth herein,
and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties,
intending to be legally bound, agree as follows:
1. Certain Definitions.
Capitalized terms
used but not defined in this Agreement shall have the meaning
ascribed to them in the restructuring term sheet attached hereto as
Exhibit A
(together with all schedules, exhibits, and annexes attached
thereto, and as may be modified in accordance with Section 9 hereof,
the “Term
Sheet”).
As used
in this Agreement, the following terms have the following
meanings:
(a) “Administrative
Agent” means Wilmington Trust, National Association,
in its capacity as administrative agent under the Credit Agreement,
and its successors and assigns.
(b) “Alternative
Transaction” means any plan, dissolution, winding up,
liquidation, sale or disposition, reorganization, merger or
restructuring of the Company Parties or their assets other than the
Restructuring Transactions, as set forth in the Term
Sheet.
(c) “Bankruptcy
Code” means title 11 of the United States Code, 11
U.S.C. §§ 101, et
seq., as amended from time to time.
(d) “Bankruptcy
Court” means the United States Bankruptcy Court for
the Southern District of New York having jurisdiction over the
Chapter 11 Cases.
(e) “Bidding
Procedures” means the procedures governing the auction
and Sale Process in the form attached to the Term Sheet as
Schedule
3.
(f) “Bidding
Procedures Motion” means a motion filed by the Debtors
with the Bankruptcy Court for entry of the Bidding Procedures
Order.
(g) “Bidding
Procedures Order” means an order (i) approving
the Bidding Procedures, (ii) setting dates for the submission
of bids and the auction (if any) in accordance with the Bidding
Procedures, and (iii) granting related relief.
(h) “Claim”
has the meaning set forth in the Bankruptcy Code.
(i) “Commencement
Date” means the date that the Debtors commence the
Chapter 11 Cases.
(j) “Confirmation
Order” means an order of the Bankruptcy Court
confirming the Plan.
(k)
“Credit
Agreement” means that certain First Lien Credit and
Guaranty Agreement, dated as of May 4, 2018 (as amended, restated,
amended and restated, supplemented, or otherwise modified from time
to time in accordance with the terms thereof), by and among Fusion,
as the borrower, certain subsidiaries of Fusion, as guarantors, the
Administrative Agent, and the lenders party thereto.
(l) “Definitive
Documents” means the documents (including any related
orders, agreements, instruments, schedules or exhibits) that are
contemplated by the Term Sheet and that are otherwise necessary or
desirable to implement, or otherwise relate to the Restructuring
Transactions, including, without limitation: (i) the Plan;
(ii) the Bidding Procedures; (iii) the Bidding Procedures
Motion; (iv) the Bidding Procedures Order; (v) the
Disclosure Statement; (vi) the Disclosure Statement Motion;
(vii) the Disclosure Statement Order; (viii) the Plan Solicitation
Materials; (ix) the Confirmation Order; (x) the motion seeking
approval by the Bankruptcy Court of the DIP Facility and the DIP
Orders (including any declarations or affidavits submitted in
support thereof) (the “DIP Motion”);
(xi) the interim and final orders of the Bankruptcy Court
approving the DIP Motion (the “Interim DIP
Order” and the “Final DIP
Order,” respectively), (xii) those motions and
proposed orders that the Company Parties file on or after the
Commencement Date and seek to have heard on an expedited basis at
the “First Day Hearing”, including for the avoidance of
doubt, the first day declaration (the “First Day
Pleadings”); (xiii) those motions and proposed court
orders that the Company Parties file and seek to have heard at the
“Second
Day Hearing”, including final orders in respect of
those First Day Pleadings where only interim relief is provided at
the “First Day Hearing” (the “Second Day
Pleadings”); (xiv) all documents or agreements
relating to the Sale Transaction,; (xv) the New Exit Credit
Agreement and material documents related thereto; (xvi) the New
First Lien Term Loan Credit Agreement and material documents
related thereto; (xvii) the Plan Supplement; (xviii) the
organizational documents and all other governing documents and
agreements of the reorganized Company Parties, as applicable,
including any stockholders’ agreement and/or a registration
rights agreement, in each case, with respect to the equity
interests in Reorganized FCI; and (xix) any other material (with
materiality determined in the reasonable discretion of the
Requisite First Lien Lenders’ advisors, in consultation with
the Debtors’ advisors) agreements, motions, pleadings,
briefs, applications, orders, and other filings with the Bankruptcy
Court related to the Restructuring Transactions. Each of the
Definitive Documents shall contain terms and conditions consistent
with this Agreement and the Term Sheet, and shall otherwise be
reasonably acceptable to the Required Parties, including with
respect to any modifications, amendments, or supplements to such
Definitive Documents at any time during the RSA Support
Period;provided,
that the terms of the Plan, the Plan Supplement, the Plan
Solicitation Materials, the Disclosure Statement, the Disclosure
Statement Motion, the Disclosure Statement Order, the Confirmation
Order, the Bidding Procedures, the Bidding Procedures Order, the
DIP Credit Agreement, the DIP Motion, and the DIP Orders shall be
acceptable to the Requisite First Lien Lenders.
(m) “DIP
Backstop Commitment” has the meaning set forth in
Section 4(e) of
this Agreement.
(n) “DIP
Backstop Party” has the meaning set forth in
Section 4(e) of
this Agreement.
(o) “DIP
Commitment” has the meaning set forth in Section 4(e) of this
Agreement.
(p) “DIP
Commitment Party” has the meaning set forth in
Section 4(e) of
this Agreement.
(q) “DIP
Credit Agreement” means the credit agreement
evidencing the DIP Facility.
(r) “DIP
Facility” means the debtor-in-possession term loan
facility to be provided to the Company Parties consistent with the
terms set forth in the DIP Term Sheet and in accordance with the
terms, and subject in all respects to the conditions, as set forth
in the DIP Credit Agreement and pursuant to the terms and
conditions of the DIP Orders.
(s) “DIP
Orders” means, collectively, the Interim DIP Order and
the Final DIP Order.
(t) “DIP
Term Sheet” means the term sheet setting forth the
material terms of the DIP Facility attached to the Term Sheet as
Schedule
1.
(u) “Disclosure
Statement”
means the disclosure statement in respect of the Plan, including
all exhibits and schedules thereto.
(v) “Disclosure
Statement Motion” means the motion seeking approval of
the Disclosure Statement.
(w) “Disclosure
Statement Order” means an order of the
Bankruptcy Court approving the Disclosure Statement, the Plan
Solicitation Materials, and the solicitation of the
Plan.
(x)
“FCC” means the
Federal Communications Commission, including any official bureau or
division thereof acting on delegated authority, and any successor
governmental agency performing functions similar to those performed
by the Federal Communications Commission.
(y) “FCC
Applications” means collectively, each application,
petition, or other request filed with the FCC in connection with
the Restructuring Transactions.
(z) “FCC
Approval” means the FCC’s grant of the FCC
Applications, which grant shall have become a FCC Final Order,
subject to the right of the Requisite First Lien Lenders to waive
the requirement that such grant shall have become a FCC Final
Order.
(aa)
“FCC
Final Order” means an FCC action or decision as soon
as (i) the time has passed within which any related petition for
reconsideration or application for review (including any related
requests for stay) must be filed and no such petition or
application has been filed, (ii) if any related initial petition
for reconsideration or application for review has been filed
(including any related requests for stay), the FCC (including
through delegated authority) has made a disposition of such
filing(s) that does not overturn or nullify the original action or
decision, and (iii) the deadline for filing any appeal that may be
designated by statute or rule has passed, and no appeal is pending
or in effect.
(bb) “FCC
Pro Forma Applications” means, collectively, each
application, petition or other request required to be filed with
the FCC as a result of the Company Parties’ commencement of
the Chapter 11 Cases.
(cc) “First
Lien Lender” means any Lender under the Credit
Agreement, each in its capacity as such.
(dd) “First
Lien Loan” means any outstanding loan issued and other
credit extended under the Credit Agreement.
(ee) “Forbearance
Agreement” means that certain forbearance agreement,
dated as of April 15, 2019 (as amended, modified, or otherwise
supplemented from time to time) among Fusion, as borrower, the
other Company Parties as guarantors, and the Forbearing Lenders (as
defined in the Forbearance Agreement).
(ff) “Governmental
Authority” means any federal, state, local or other
governmental regulatory authority having jurisdiction over the
Company Parties, including, without limitation, state public
service and public utility commissions.
(gg) “Governmental
Approval” means the approval of any Governmental
Authority having jurisdiction over the Company Parties required in
connection with the Restructuring Transactions.
(hh)
“Individual Support
Period” means, as to a Consenting First Lien Lender,
the period commencing on the later of (x) Support Effective Date
and (y) the date upon which such Consenting First Lien Lender
became a Party to this Agreement, and ending on the earlier of (i)
the date on which this Agreement is terminated in accordance with
Section 5, (ii) the
date on which this Agreement is terminated with respect to such
Consenting First Lien Lender in accordance with Section 5, (iii) the date on
which such Consenting First Lien Lender becomes a Non-Consenting
First Lien Lender (as defined herein) in accordance with Section 9,
and (iv) the Plan Effective Date.
(ii)
“New First Lien Term Loan
Term Sheet” means the term sheet setting forth the
material terms of the New First Lien Term Loan attached to the Term
Sheet as Schedule
2.
(jj) “Outside
Commencement Date” means June 3,
2019.
(kk)
“Person” means
any “person” as defined in section 101(41) of the
Bankruptcy Code, including, without limitation, any individual,
corporation, limited liability company, partnership, joint venture,
association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision
thereof or other entity.
(ll)
“Plan” means a
chapter 11 plan of reorganization implementing the Restructuring
Transactions.
(mm)
“Plan
Effective Date” means the date upon which all
conditions precedent to the effectiveness of the Plan have been
satisfied or are expressly waived in accordance with the terms
thereof, as the case may be.
(nn) “Plan
Solicitation Materials” means the ballots and other
related materials to be distributed in connection with the
solicitation of acceptances of the Plan.
(oo) “Plan
Supplement” means the supplement to the Plan comprised
of documents, forms of documents, schedules, and/or exhibits to be
filed by the Company Parties with the Bankruptcy
Court.
(pp) “Required
Parties” means each of (i) Fusion and
(ii) the Requisite First Lien Lenders.
(qq) “Requisite
DIP Commitment Parties” means, as of the date of
determination, DIP Commitment Parties holding at least a majority
in aggregate principal amount of the DIP Commitments held by the
DIP Commitment Parties as of such date.
(rr) “Requisite
First Lien Lenders” means, as of the date of
determination, Consenting First Lien Lenders holding at least a
majority in aggregate principal amount outstanding of the First
Lien Loans held by the Consenting First Lien Lenders as of such
date.
(ss) “Restructuring
Transactions” means all acts, events, and transactions
contemplated by, required for, and taken to implement the
Restructuring pursuant to the Definitive Documents, and this
Agreement, each in the singular and collectively, as
applicable.
(tt) “RSA
Support Period” means the period commencing on the
Support Effective Date and ending on the earlier of (i) the date on
which this Agreement is terminated in accordance with Section 5 and (ii) the Plan
Effective Date.
(uu)
“SEC” means the
Securities and Exchange Commission.
(vv)
“Securities
Act” means the Securities Act of 1933, as
amended.
(ww)
“Support
Effective Date” means the date on which the
counterpart signature pages to this Agreement have been executed
and delivered by the Company Parties and Consenting First Lien
Lenders (i) holding at least 66 2/3% in aggregate
principal amount outstanding of the First Lien Loans and
(ii) representing the Requisite First Lien
Lenders.
2. Term Sheet.
The
Term Sheet is expressly incorporated herein by reference and made
part of this Agreement as if fully set forth herein. The Term
Sheet, including the schedules, annexes and exhibits thereto, sets
forth certain material terms and conditions of the Restructuring
Transactions. Notwithstanding anything else in this Agreement to
the contrary, in the event of any inconsistency between this
Agreement and the Term Sheet (including the attachments thereto, as
applicable), the Term Sheet (including the attachments thereto, as
applicable) shall control.
3. Agreements of the Consenting First Lien
Lenders.
(a) Agreement
to Support. During the Individual Support Period with
respect to such Consenting First Lien Lender, subject to the terms
and conditions hereof, each of the Consenting First Lien Lenders
agrees, severally and not jointly, that it shall:
(i)
use its commercially reasonable efforts
to support the Restructuring and the Restructuring Transactions, to
act in good faith and to take any and all reasonable actions
necessary to consummate the Restructuring and the Restructuring
Transactions, in a manner consistent with this
Agreement;
(ii) not
direct the Administrative Agent to take any action inconsistent
with the Consenting First Lien Lenders’ obligations under
this Agreement, and, if the Administrative Agent takes any action
inconsistent with the Consenting First Lien Lenders’
obligations under this Agreement, the Consenting First Lien Lenders
shall direct and use their commercially reasonable efforts to cause
the Administrative Agent to cease, withdraw, and refrain from
taking any such action;
(iii)
timely vote (pursuant to the Plan) or cause to be voted all
of its Claims (including on account of any claims other than those
relating to the Credit Agreement, owned or controlled by such
Consenting First Lien Lender) to accept the Plan by delivering its
duly executed and completed ballot or ballots, as applicable,
accepting the Plan on a timely basis following commencement of the
solicitation of acceptances of the Plan in accordance with sections
1125 and 1126 of the Bankruptcy Code;
(iv) negotiate
in good faith with the Company Parties the forms of the Definitive
Documents and, subject to the consent thresholds specified herein,
execute the Definitive Documents (to the extent such Consenting
First Lien Lender is a party thereto);
(v) not
change or withdraw its votes to accept the Plan (or cause or direct
such vote to be changed or withdrawn);provided, however, that such vote shall,
without any further action by the applicable Consenting First Lien
Lender, be deemed automatically revoked (and, upon such revocation,
deemed void ab initio) by
the applicable Consenting First Lien Lender at any time following
the expiration of the Individual Support Period with respect to
such Consenting First Lien Lender;
(vi) other
than in respect of any such rights preserved under Section 3(d) below, not
directly or indirectly, through any Person, take any action,
including initiating (or encouraging any other Person to initiate)
any legal proceeding, that is inconsistent with or that would
reasonably be expected to prevent, interfere with, delay, or impede
the consummation of the Restructuring or Restructuring
Transactions, including the approval of the DIP Motion, the entry
of the DIP Orders, the approval of the Bidding Procedures Motion,
the entry of the Bidding Procedures Order, the approval of the
Disclosure Statement, or the solicitation of votes on, and
confirmation of, the Plan;
(vii) to
the extent any legal or structural impediment arises that would
prevent, hinder, or delay the consummation of the Restructuring
Transactions, negotiate in good faith appropriate additional or
alternative provisions to address any such impediment;
(viii)
use its commercially reasonable efforts to obtain any and all
required regulatory and third-party approvals for such Consenting
First Lien Lender to consummate the Restructuring Transactions and
to support the Company Parties in connection with the
same;
(ix) support
and take all reasonable actions necessary or reasonably requested
by the Company Parties to confirm such Consenting First Lien
Lender’s support for the Bankruptcy Court’s approval of
the Plan and Disclosure Statement, the solicitation of votes on the
Plan by the Company Parties, and the confirmation and consummation
of the Plan and the Restructuring Transactions; and
(x)
prior to the Commencement Date, (A) agree
not, and not request or direct the Administrative Agent to, (x)
accelerate all of the First Lien Loans and the Obligations (as
defined in the Credit Agreement) related thereto or (y) exercise
any other rights or remedies available to the Administrative Agent
or to such Consenting First Lien Lender pursuant to Section 8.1 of
the Credit Agreement or Section 5.01 of the Pledge and Security
Agreement (as defined in the Credit Agreement) forbear and (B)
direct the Administrative Agent to abstain from taking any of the
actions described in clause (A) above.
(b) Transfers.
(i) Each
Consenting First Lien Lender agrees that, for the duration of the
Individual Support Period, with respect to such Consenting First
Lien Lender, it shall not sell, transfer, loan, issue, participate,
pledge, hypothecate, assign or otherwise dispose of (other than
ordinary course pledges or swaps) (each, a “Transfer”),
directly or indirectly, in whole or in part, any of its Claims,
including any beneficial ownership in any such Claims,1 or any option
thereon or any right or interest therein, unless the transferee
thereof either (A) is a Consenting First Lien Lender (with
respect to a Transfer by a Consenting First Lien Lender) or
(B) prior to such Transfer, agrees in writing for the benefit
of the Parties to become a Consenting First Lien Lender and to be
bound by all of the terms of this Agreement applicable to
Consenting First Lien Lenders (including with respect to any and
all Claims it already may hold against or in the Company Parties
prior to such Transfer) by executing a joinder agreement, a form of
which is attached hereto as Exhibit B
(a “Joinder
Agreement”), which shall include making the
representations and warranties of the Consenting First Lien Lenders
set forth in Section
7 of this Agreement to each other Party to this Agreement,
and delivering an executed copy thereof within two (2) business
days of such execution, to (1) Weil, Gotshal and Manges LLP
(“Weil”), as
counsel to the Company Parties and (2) Davis Polk &
Wardwell LLP (“Davis Polk”),
as counsel to the Ad Hoc First Lien Lender Group, in which event
(x) the transferee shall be deemed to be a Consenting First
Lien Lender hereunder to the extent of such Transferred Claims and
(y) the transferor shall be deemed to relinquish its rights
(and be released from its obligations) under this Agreement to the
extent of and solely with respect to such transferred Claims (but
not with respect to any other Claims or equity interests acquired
or held by such transferor) (such Transfer,
a “Permitted
Transfer” and such party to such Permitted Transfer,
a “Permitted
Transferee”). Each Consenting First Lien Lender agrees
that any Transfer of any Claim that does not comply with the terms
and procedures set forth herein shall be deemed void ab initio, and the Company Parties and
each other Consenting First Lien Lender shall have the right to
enforce the voiding of such Transfer.
(ii) Notwithstanding
anything to the contrary herein, (A) a Qualified
Marketmaker2 that acquires any Claims subject to this
Agreement held by a Consenting First Lien Lender with the purpose
and intent of acting as a Qualified Marketmaker for such Claims,
shall not be required to become a party to this Agreement as a
Consenting First Lien Lender, ifsuch Qualified Marketmaker
Transfers such Claims (by purchase, sale, assignment, or other
similar means) within the earlier of ten (10) business days of its
acquisition and the plan voting deadline to a Permitted Transferee
and the Transfer otherwise is a Permitted Transfer;provided, that a Qualified
Marketmaker’s failure to comply with this Section 3(b) shall result in
the Transfer of such Claims to such Qualified Marketmaker being
deemed void ab initio, and (B) to the extent any Party is
acting solely in its capacity as a Qualified Marketmaker, it may
Transfer any ownership interests in the Claims that it acquires
from a holder of Claims that is not a Consenting First Lien Lender
to a transferee that is not a Consenting First Lien Lender at the
time of such Transfer without the requirement that the transferee
be or become a signatory to this Agreement or execute a Joinder
Agreement.
(iii) This
Section 3(b) shall
not impose any obligation on the Company Parties to issue any
“cleansing letter” or otherwise publicly disclose
information for the purpose of enabling a Consenting First Lien
Lender to Transfer any Claims. Notwithstanding anything to the
contrary herein, to the extent the Company Parties and another
Party have entered into a separate agreement with respect to the
issuance of a “cleansing letter” or other public
disclosure of information, the terms of such confidentiality
agreement shall continue to apply and remain in full force and
effect according to its terms.
(c) Additional
Claims. This Agreement shall in no way be construed to
preclude a Consenting First Lien Lenders from acquiring additional
Claims;provided
that, to the extent any Consenting First Lien Lender
(i) acquires additional Claims, (ii) holds or acquires
any other claims against the Company Parties entitled to vote on
the Plan or (iii) holds or acquires any equity interests in
the Company Parties entitled to vote on the Plan, then, in each
case, each such Consenting First Lien Lender shall promptly notify
Weil and Davis Polk, and each such Consenting First Lien Lender
agrees that all such Claims and/or equity interests shall be
subject to this Agreement, and agrees that, for the duration of the
Individual Support Period with respect to such Consenting First
Lien Lender and subject to the terms of this Agreement, it shall
vote in favor of the Plan (or cause to be voted) any such
additional Claims and/or equity interests entitled to vote on the
Plan (to the extent still held by it on or on its behalf at the
time of such vote), in a manner consistent with Section 3(a) hereof. For
the avoidance of doubt, any obligation to vote for the Plan or any
other plan of reorganization shall be subject to sections 1125
and 1126 of the Bankruptcy Code.
1
As used herein, the
term “beneficial
ownership” means the direct or indirect economic
ownership of, and/or the power, whether by contract or otherwise,
to direct the exercise of the voting rights and the disposition of,
any Claims subject to this Agreement or the right to acquire such
Claims.
2
As used herein, the
term “Qualified
Marketmaker” means an entity that (a) holds
itself out to the public, the syndicated loan market, or the
applicable private markets as standing ready in the ordinary course
of business to purchase from customers and sell to customers claims
against, or equity interests in, the Company (including First Lien
Loans), or enter with customers into long and short positions in
claims against the Company, in its capacity as a dealer or market
maker in such claims and (b) is, in fact, regularly in the
business of making a market in claims against issuers or borrowers
(including term, loans, or debt or equity securities).
(d) Preservation
of Rights. Notwithstanding the foregoing, nothing in this
Agreement, and neither a vote to accept the Plan by any Consenting
First Lien Lender, nor the acceptance of the Plan by any Consenting
First Lien Lender, shall: (i) be construed to limit consent
and approval rights provided in this Agreement, the Term Sheet, and
the Definitive Documents; (ii) be construed to prohibit any
Consenting First Lien Lender from contesting whether any matter,
fact, or thing is a breach of, or is inconsistent with, this
Agreement; (iii) limit the rights of any Consenting First Lien
Lender under any applicable bankruptcy, insolvency, foreclosure or
similar proceeding, or be construed to prohibit any Consenting
First Lien Lender from appearing as a party-in-interest in any
matter to be adjudicated in or arising in connection with the
Chapter 11 Cases, so long as such appearance and the positions
advocated in connection therewith are not inconsistent with this
Agreement or such Consenting First Lien Lenders’ obligations
hereunder; (iv) limit the ability of any Consenting First Lien
Lender to purchase, sell, or enter into any transaction in
connection with its Claims, in compliance with the terms hereof and
applicable law; (v) constitute a waiver or amendment of any
provision of the Credit Agreement, the Collateral Documents (as
defined in the Credit Agreement) or any related documents or any
other documents or agreements that give rise to a Consenting First
Lien Lender’s Claims; (vi) bar any Consenting First Lien
Lender or the Administrative Agent on behalf of the Consenting
First Lien Lenders from filing a proof of claim with the Bankruptcy
Court, or taking action to establish the amount of such claim; or
(vii) limit the ability of any Consenting First Lien Lender to
assert any rights, claims, or defenses under the Credit Agreement,
the Collateral Documents (as defined in the Credit Agreement), and
any related documents or any other documents or agreements that
give rise to a Consenting First Lien Lender’s Claims, to the
extent the assertion of such rights, claims, or defenses are not
inconsistent with this Agreement or such Consenting First Lien
Lenders’ obligations hereunder.
(e) Subject
to Section 5 of
this Agreement, each Consenting First Lien Lender party hereto as
of the date of this Agreement that is set forth on Schedule 1 hereto (such
Consenting First Lien Lender, a “DIP Backstop
Party”) commits, severally and not jointly, to provide
its share of the DIP Facility as set forth on Schedule 1 hereto on the
terms and conditions substantially as set forth in the DIP Term
Sheet and otherwise subject to relevant Definitive Documents (such
commitment, the “DIP Backstop
Commitment”), provided, that any Consenting
First Lien Lender that executes a Joinder to this Agreement by June
10, 2019 (the “DIP Election
Date”) may, by making the appropriate election on such
Joinder, commit, severally and not jointly, to provide a share of
the DIP Facility in an amount not greater than the pro rata
percentage of First Lien Loans held by such Consenting First Lien
Lender as of June 3, 2019 (such date, the “DIP Commitment Record
Date” and such commitment, a “DIP
Commitment”), and otherwise on the terms and
conditions agreed to by the DIP Backstop Parties in the DIP Term
Sheet and the DIP Credit Agreement, as applicable (any Consenting
First Lien Lender that elects to make such commitment, together
with any DIP Backstop Party, a “DIP Commitment
Party”). Not less than one (1) calendar day after the
DIP Election Date, each DIP Backstop Party’s DIP Backstop
Commitment shall be automatically reduced, pro rata, by the amount
of such additional commitments of the Consenting First Lien
Lenders, to reflect the share of the DIP Facility to be provided by
all DIP Commitment Parties and this Agreement and Schedule 1 hereto shall
automatically be deemed amended to reflect such
reduction;provided, further, that upon a termination
of this Agreement in accordance with the provisions hereof prior to
the funding of the DIP Facility, all DIP Backstop Commitments and
DIP Commitments shall terminate. The amount of a DIP Commitment
Party Party’s share of the DIP Facility shall be reduced, on
a dollar-for-dollar basis, by the amount of Super Senior Loans held
by such DIP Commitment Party on the DIP Commitment Record
Date.
4. Agreements of the Company Parties.
(a) Covenants.
Each Company Party agrees that, for the duration of the RSA Support
Period, such Company Party shall:
(i) (A) support
and use commercially reasonable efforts to consummate and complete
the Restructuring Transactions, and all transactions contemplated
under this Agreement (including, without limitation, those
described in the Term Sheet, and, once filed, the Plan) including,
without limitation, (1) take any and all reasonably necessary
actions in furtherance of the Restructuring Transactions, and the
transactions contemplated under this Agreement, including, without
limitation, as set forth in the Term Sheet (including with respect
to an exit facility), and, once filed, the Plan, (2) commence
the Chapter 11 Cases on or before the Outside Commencement Date and
complete and file, within the timeframes contemplated herein, the
Plan, the Disclosure Statement, and the other Definitive Documents,
(3) use commercially reasonable efforts to obtain orders of
the Bankruptcy Court approving the DIP Credit Agreement, the
Bidding Procedures Motion, and the Disclosure Statement and
confirming the Plan within the timeframes contemplated by this
Agreement; and (4) prosecute and defend any objections or
appeals relating to the DIP Orders, the Disclosure Statement Order,
the Confirmation Order, and/or the Restructuring Transactions; and
(B) not take any action that is inconsistent with, or to
alter, delay, impede, or interfere with, approval of the DIP
Orders, the Bidding Procedures Order, or the Disclosure Statement,
confirmation of the Plan, or consummation of the Plan and the
Restructuring Transactions, in the case of each of clauses (A) and
(B) to the extent consistent with, upon the advice of counsel, the
fiduciary duties of the boards of directors of the
Company;
(ii) if
the Company Parties receive an unsolicited bona fide proposal or
expression of interest in undertaking an Alternative Transaction
that the boards of directors, members, or managers (as applicable)
of the Company Parties, determine in their good-faith judgment
provides a higher or better economic recovery to the Company
Parties’ stakeholders than that set forth in this Agreement
and such Alternative Transaction is from a proponent that the
boards of directors, members, or managers (as applicable) of the
Company Parties have reasonably determined is capable of timely
consummating such Alternative Transaction, the Company Parties
will, within 24 hours of the receipt of such proposal or expression
of interest, notify Davis Polk and Greenhill (as defined herein) of
the receipt thereof, with such notice to include the material terms
thereof, including the identity of the Person or group of Persons
involved;
(iii) provide
draft copies of all material motions or applications and other
documents (including the Plan, the Disclosure Statement, the
ballots and other solicitation materials in respect of the Plan,
and the Confirmation Order) the Debtors intend to file with the
Bankruptcy Court to Davis Polk, if reasonably practical, at least
three (3) business days prior to the date when the Company Parties
intend to file any such pleading or other document (provided that
if delivery of such motions, orders or materials (other than the
Plan, the Disclosure Statement, the Confirmation Order or the DIP
Orders) at least three (3) business days in advance is not
reasonably practicable, such motion, order or material shall be
delivered as soon as reasonably practicable prior to filing) and
shall consult in good faith with such counsel regarding the form
and substance of any such proposed filing with the Bankruptcy
Court;
(iv) file
the First Day Pleadings reasonably determined by the Debtors, in
form and substance reasonably acceptable to the Requisite First
Lien Lenders, to be necessary, and to seek interim and final (to
the extent necessary) orders, in form and substance reasonably
acceptable to the Debtors and the Requisite First Lien Lenders,
from the Bankruptcy Court approving the relief requested in the
First Day Pleadings;
(v) not
seek to amend or modify, or file a pleading seeking authority to
amend or modify, the Definitive Documents in a manner that is
inconsistent with this Agreement;
(vi) not
file or seek authority to file any pleading inconsistent with the
Restructuring Transactions or the terms of this
Agreement;provided,
that if a Company Party receives written notice from any Consenting
First Lender regarding a breach of this Section 4(a)(vi), the Company
Parties shall have two (2) business days after the receipt of such
written notice to cure such breach;
(vii) not,
nor encourage any other person or entity to, take any action which
would, or would reasonably be expected to, breach or be
inconsistent with this Agreement or delay, impede, appeal, or take
any other negative action, directly or indirectly, to interfere
with the acceptance, confirmation, or consummation of the Plan or
implementation of the Restructuring Transactions;
(viii)
(x) not file or support any motion, application, or adversary
proceeding and (y) timely object to any motion, application, or
adversary proceeding filed with the Bankruptcy Court or any other
court of competent jurisdiction by any Person seeking the entry of
an order (i) directing the appointment of a trustee with authority
to operate the Company’s business in the Chapter 11 Cases,
(ii) converting the Chapter 11 Cases to cases under chapter 7 of
the Bankruptcy Code, (iii) dismissing the Chapter 11 Cases or (iv)
for relief that (x) is inconsistent with this Agreement in any
material respect or (y) would, or would reasonably be expected to,
frustrate the purposes of this Agreement, including by preventing
the consummation of the Restructuring Transactions.
(ix) seek
entry of the DIP Orders and, if necessary, timely file a formal
written response in opposition to any objection filed with the
Bankruptcy Court by any person or entity with respect to entry of
the DIP Orders or with respect to any adequate protection proposed
to be granted or granted to the Consenting First Lien Lenders
pursuant to the DIP Orders;
(x)
timely (A) file a motion to extend the period
for the Debtors’ exclusive right to file and/or solicit
acceptances of a plan of reorganization, and (B) file a formal
written objection to any motion filed with the Bankruptcy Court by
any Person seeking the entry of an order modifying or terminating
the Debtors’ exclusive right to file and/or solicit
acceptances of a plan of reorganization;
(xi) subject
to appropriate confidentiality arrangements, provide to the
Consenting First Lien Lenders’ professionals, upon reasonable
advance notice to the Company Parties: (A) reasonable access
(without any material disruption to the conduct of the Company
Parties; business) during normal business hours to the Company
Parties’ books, records, and facilities;(B) reasonable
access to the respective management and advisors of the Company
Parties for the purposes of evaluating the Company Parties’
finances and operations and participating in the planning process
with respect to the Restructuring Transactions;(C) prompt
access to any information provided to any existing or prospective
financing sources (including lenders under any debtor-in-possession
and/or exit financing); and (D) prompt and reasonable
responses to all reasonable diligence requests;
(xii) promptly
payall prepetition and postpetition reasonable and documented fees
and expenses of (A) Davis Polk, (B) Greenhill & Co., LLC
(“Greenhill”),
(C) Altman Vilandrie & Company and its sub-agents
(“Altman
Vilandrie”), (D) one firm acting as local counsel for
the Ad Hoc First Lien Lender Group, if any, (E) Wiley Rein LLP, and
(F) any other advisors retained by the Ad Hoc First Lien Lender
Group, in each case of clauses (A)-(F), in accordance with the
terms of their respective engagement letters with the Company, if
any (collectively, the “Restructuring
Expenses”); and unless otherwise agreed by the Company
Parties and the applicable firm, the Company Parties shall (i) on
the date that is at least one (1) business day prior to the
Commencement Date, pay (x) all Restructuring Expenses accrued but
unpaid as of such date (to the extent invoiced), whether or not
such Restructuring Expenses are then due, outstanding, or otherwise
payable in connection with this matter and (y) fund or
replenish, as the case may be, any retainers reasonably requested
by any of the foregoing professionals, in each case in accordance
with the terms of their respective engagement letters with the
Company Parties; (ii) after the Commencement Date, pay all accrued
but unpaid Restructuring Expenses on a regular and continuing basis
and (iii) on the Plan Effective Date, so long as this Agreement has
not been terminated as to all Parties, pay all accrued and unpaid
Restructuring Expenses incurred up to (and including) the Plan
Effective Date by Parties still subject to this Agreement
(provided, for the avoidance of doubt, that such Restructuring
Expenses have not been satisfied during the Chapter 11 Cases
pursuant to the DIP Orders), without any requirement for Bankruptcy
Court review or further Bankruptcy Court order;provided that, notwithstanding
the foregoing, nothing herein shall affect or limit any obligations
of the Company Parties to pay the Restructuring Expenses as
provided in the DIP Orders;
(xiii)
to the extent any legal or structural impediment arises that would
prevent, hinder, or delay the consummation of the Restructuring
Transactions, negotiate in good faith appropriate additional or
alternative provisions to address any such impediment;
(xiv)
subject to applicable laws, use commercially reasonable efforts to,
consistent with the pursuit and consummation of the Restructuring
Transactions, preserve intact in all material respects the current
business operations of the Company Parties (other than as
consistent with applicable fiduciary duties), keep available the
services of its current officers and material employees (in each
case, other than as contemplated by the Company Parties’
current business plan provided to the Consenting First Lien
Lenders, voluntary resignations, terminations for cause, or
terminations consistent with applicable fiduciary duties) and
preserve in all material respects its relationships with customers,
sales representatives, suppliers, distributors, and others, in each
case, having material business dealings with the Company Parties
(other than terminations for cause or consistent with applicable
fiduciary duties); and
(xv) provide
prompt written notice (in accordance with Section 19 hereof) to the
Consenting First Lien Lenders and Davis Polk between the date
hereof and the Plan Effective Date of (A) the occurrence, or
failure to occur, of any event of which any of the Company Parties
has actual knowledge which occurrence or failure would be likely to
cause any covenant of the Company Parties contained in this
Agreement not to be satisfied in any material respect; (B) receipt
of any written notice from any third party alleging that the
consent of such party is or may be required in connection with the
Restructuring Transactions; (C) receipt of any notice or
correspondence (whether written or oral) from any counterparty to a
contract or license that is material to the operation of the
business of the Company Parties; (D) receipt of any written notice
from any governmental body in connection with this Agreement or the
Restructuring Transactions;(E) receipt of any written notice
of any proceeding commenced, or, to the actual knowledge of the
Company Parties, threatened against the Company Parties, relating
to or involving or otherwise affecting in any material respect the
Restructuring Transactions;and (F) any failure of any Company Party
to comply, in any material respect, with or satisfy any covenant,
condition, or agreement to be complied with or satisfied by it
hereunder; and
(xvi)
use its commercially reasonable efforts to promptly obtain the FCC
Approval, any and all required Governmental Approvals, any and all
approvals of any foreign regulatory bodies, and any and all
third-party approvals for the Restructuring Transactions embodied
in the Definitive Documents, including the Plan, within the
timeframes contemplated by this Agreement, as
applicable.
(b) Automatic
Stay. Each Company Party acknowledges, agrees, and shall not
dispute that after the commencement of the Chapter 11 Cases, the
giving of notice of termination by any Party pursuant to this
Agreement shall not be a violation of the automatic stay of section
362 of the Bankruptcy Code (and the Company hereby waives, to the
extent legally possible, the applicability of the automatic stay to
the giving of such notice);provided that nothing herein
shall prejudice any Party’s rights to argue that the giving
of notice of default or termination was not proper under the terms
of this Agreement.
5. Termination of Agreement.
(a) This
Agreement shall terminate upon the receipt of written notice to the
other Parties, delivered in accordance with Section 19 hereof, from, as
applicable, (x) the Requisite First Lien Lenders at any time after
and during the continuance of any Lender Termination Event or (y)
Company Parties at any time after and during the continuance of any
Company Termination Event, as applicable. Notwithstanding any
provision to the contrary in this Section 5, no Party may
exercise any of its respective termination rights as set forth
herein if such Party has failed to perform or comply in all
material respects with the terms and conditions of this Agreement
(unless such failure to perform or comply arises as a result of
another Party’s actions or inactions), with such failure to
perform or comply causing, or resulting in, the occurrence of a
Lender Termination Event (as defined below) or Company Termination
Event specified herein. This Agreement shall terminate on the Plan
Effective Date without any further required action or
notice.
(b) A
“Lender
Termination Event” shall mean any of the
following:
(i) the
breach by any Company Party of (a) any covenant contained in
this Agreement or (b) any other obligations of the Company Parties
set forth in this Agreement, and, in each case, such breach remains
uncured for a period of five (5) business days after receipt of
written notice thereof pursuant to Section 19 hereof (as
applicable);
(ii)
any representation or warranty in this Agreement made
by a Company Party shall have been untrue in any material respect
when made or shall have become untrue in any material
respect;
(iii) the
Definitive Documents and any amendments, modifications, or
supplements thereto filed by the Company include terms that are
inconsistent with the Term Sheet and are not otherwise reasonably
acceptable to the Requisite First Lien Lenders, and such event
remains unremedied for a period of three (3) business days
following the Company Parties’ receipt of notice pursuant to
Section 19
hereto (as applicable);
(iv)
a Definitive Document alters the treatment of
the First Lien Lenders specified in the Term Sheet without
complying with Section
9 hereof and the Requisite First Lien Lenders have not
otherwise consented to such Definitive Document;
(v)
the issuance by any governmental authority,
including any regulatory authority or court of competent
jurisdiction, of any ruling, judgment or order declaring this
Agreement to be unenforceable, enjoining the consummation of a
material portion of the Restructuring Transactions or rendering
illegal this Agreement, the Plan or the Restructuring Transactions,
and either (A) such ruling, judgment or order has been issued
at the request of or with the acquiescence of a Company Party, or
(B) in all other circumstances, such ruling, judgment or order
has not been not stayed, reversed or vacated within fifteen (15)
calendar days after such issuance;
(vi) the
Support Effective Date shall not have occurred on or before the
Commencement Date;
(vii)
the Commencement Date shall not have occurred on or before the
Outside Commencement Date;
(viii)
if the Debtors fail to meet any milestone or deadline set forth in
the Bidding Procedures;
(ix) if,
as of 11:59 p.m. prevailing Eastern Time on the date that is one
(1) calendar day from the Commencement Date, the Debtors have not
filed the Bidding Procedures Motion;
(x)
if, as of 11:59 p.m. prevailing Eastern Time on the
date that is five (5) calendar days from the Commencement Date, the
Interim DIP Order has not been entered by the Bankruptcy
Court;
(xi) if,
as of 11:59 p.m. prevailing Eastern Time on the date that is five
(5) business days after the Commencement Date, the Company Parties
have not completed the filing of the FCC Pro Forma Applications,
and any material applications, petitions or other requests to be
filed with any other Governmental Authority as a result of the
commencement of the Chapter 11 Cases;
(xii)
if, as of 11:59 p.m. prevailing Eastern Time on the date that is
fourteen (14) calendar days from the Commencement Date, the Company
Parties have not completed the filing of (x) the FCC Applications,
(y) any material applications, petitions or other requests to be
filed with any other Governmental Authority that are required to
obtain the Governmental Approvals and (z) any other material
applications, petitions or other requests to be filed with any
foreign regulatory agencies in order to obtain their approvals or
otherwise that are necessary to effectuate the Restructuring
Transactions;
(xiii)
if, as of 11:59 p.m. prevailing Eastern Time on the date that is
twenty-one (21) calendar days from the Commencement Date, the
Debtors have not filed the Disclosure Statement Motion, the
Disclosure Statement, and the Plan;
(xiv)
if, as of 11:59 p.m. prevailing Eastern Time on the date that is
twenty-one (21) calendar days following the filing of the Bidding
Procedures Motion, the Bidding Procedures Order has not been
entered by the Bankruptcy Court;
(xv) if,
as of 11:59 p.m. prevailing Eastern Time on the date that is thirty
(30) calendar days from the Commencement Date, the Debtors have not
commenced solicitation of non-binding indications of interest
(“Exit
Financing IOIs”) to provide the New Exit Loans in a
manner reasonably satisfactory to Greenhill;
(xvi)
if, as of 11:59 p.m. prevailing
Eastern Time on the date that is thirty-five (35) calendar days
from the Commencement Date, the Final DIP Order has not been
entered by the Bankruptcy Court;
(xvii)
if, as of 11:59 p.m. prevailing Eastern Time on the date that is
sixty (60) calendar days from the Commencement Date, the Bankruptcy
Court has not entered the Disclosure Statement Order;
(xviii)
if, as of 11:59 p.m. prevailing Eastern Time on the date that is
fifty (50) calendar days from the Commencement Date, the deadline
set by the Debtors to receive Exit Financing IOIs shall not have
passed;
(xix)
if, as of 11:59 p.m. prevailing Eastern Time on the date that is
ninety five (95) calendar days from the Commencement Date, the
Debtors have not received at least one, irrevocable and binding
commitment letter for the New Exit Credit Agreement acceptable to
the Requisite First Lien Lenders;
(xx) if,
as of 11:59 p.m. prevailing Eastern Time on the date that is
one-hundred and twenty (120) calendar days from the Commencement
Date, the Bankruptcy Court has not entered the Confirmation
Order;
(xxi) if,
as of the earlier of 11:59 p.m. prevailing Eastern Time on the date
that is twenty (20) calendar days following entry of the
Confirmation Order, the Plan Effective Date has not
occurred;provided,
that this date shall be extended to thirty-five (35) calendar days
following entry of the Confirmation Order if all other conditions
to the Plan have been satisfied or waived in accordance with the
terms thereof other than a condition that the Debtors shall have
obtained FCC Approval, any and all other required Governmental
Approvals, any and all approvals of any foreign regulatory
bodies;
(xxii)
the Bankruptcy Court enters an order that is not stayed
(A) directing the appointment of a trustee with authority to
operate the Company’s business in the Chapter 11 Cases,
(B) converting the Chapter 11 Cases to cases under
chapter 7 of the Bankruptcy Code, (C) dismissing the
Chapter 11 Cases, (D) denying confirmation of the Plan, the
effect of which would render the Plan incapable of consummation on
the terms set forth herein or (E) granting relief that is
inconsistent with, or denies relief sought that is contemplated by
this Agreement or the Plan in any materially adverse respect to the
Consenting First Lien Lenders, in each case;
(xxiii)
the Confirmation Order is reversed or vacated;
(xxiv)
if either (A) any Company Party (or any person or entity on
behalf of any Company Party or its bankruptcy estate with proper
standing) files a motion, application or adversary proceeding (or
supports or fails to timely object to such a filing) (1)
challenging the validity, enforceability, perfection or priority
of, or seeking invalidation, avoidance, disallowance,
recharacterization or subordination of any of the obligations or
Claims under the Credit Agreement or (2) asserting any other cause
of action against and/or with respect or relating to all or any
portion of the First Lien Loans or the liens securing the First
Lien Loans or (B) the Bankruptcy Court (or any court with
jurisdiction over the Chapter 11 Cases) enters an order providing
relief against the interests of the First Lien Lenders with respect
to any of the foregoing causes of action or proceedings, including,
but not limited to, invalidating, avoiding, disallowing,
recharacterizing, subordinating, or limiting the enforceability of
any of the obligations or Claims arising under or related to the
Credit Agreement;
(xxv)
any Company Party files or seeks approval of, or supports (or fails
to timely object to) another party in filing or seeking approval of
an Alternative Transaction;
(xxvi)
the commencement of an involuntary bankruptcy case against any
Company Party under the Bankruptcy Code, if such involuntary case
is not dismissed within forty-five (45) calendar days after the
filing thereof, or if a court order grants the relief sought in
such involuntary case;
(xxvii)
if any Company Party (A) withdraws the Plan, (B) publicly
announces its intention not to support the Restructuring
Transactions or the Plan, (C) files a motion with the
Bankruptcy Court seeking the approval of an Alternative Transaction
or (D) agrees to pursue (including, for the avoidance of
doubt, as may be evidenced by a term sheet, letter of intent, or
similar document) or publicly announces its intent to pursue an
Alternative Transaction;
(xxviii)
the Bankruptcy Court enters an
order modifying or terminating the Company Parties’ exclusive
right to file and solicit acceptances of a plan of reorganization
(including the Plan);
(xxix)
a Default or Event of Default (as each us defined in the DIP Credit
Agreement) under the DIP Credit Agreement has occurred and is
continuing; or
(xxx)
the occurrence of a Company Termination Event described in
Section 5(c)(ii) of
this Agreement.
(c) A
“Company
Termination Event” shall mean any of the
following:
(i) the
breach in any material respect by one or more of the Consenting
First Lien Lenders, of any of the undertakings, representations,
warranties, or covenants of the Consenting First Lien Lenders set
forth herein in any material respect that remains uncured for a
period of five (5) business days after the receipt of written
notice of such breach pursuant to Section 19 hereof (as
applicable); but only if the non-breaching Consenting First Lien
Lenders hold less than 66⅔% of the aggregate principal amount
of all First Lien Loans;
(ii) the
board of directors, members, or managers (as applicable) of any
Company Party reasonably determines in good faith based upon the
advice of outside counsel that continued performance under this
Agreement or pursuit of the Restructuring Transactions would be
inconsistent with the exercise of its fiduciary duties under
applicable law;provided, that the Company
Parties shall provide notice of such determination to Davis Polk
via email within one (1) business day after the date
thereof;or
(iii) the
issuance by any governmental authority, including any regulatory
authority or court of competent jurisdiction, of any ruling,
judgment or order declaring this Agreement unenforceable, enjoining
the consummation of a material portion of the Restructuring
Transactions or rendering illegal this Agreement, the Plan or the
Restructuring Transactions, and such ruling, judgment or order has
not been not stayed, reversed or vacated within fifteen (15)
calendar days after such issuance.
(d) Mutual
Termination. This Agreement may be terminated by mutual
agreement of the Company and the Requisite First Lien Lenders upon
the receipt of written notice delivered in accordance with
Section 19
hereof.
(e) Automatic
Termination. This Agreement shall terminate automatically,
without any further action required by any Party, upon the
occurrence of the Plan Effective Date.
(f) Effect
of Termination. Upon the termination of this Agreement in
accordance with this Section 5 (other than
pursuant to Section
5(e)) if the Restructuring Transactions have not been
consummated, and except as provided in Section 13 hereof, this
Agreement shall forthwith become void and of no further force or
effect and each Party shall, except as provided otherwise in this
Agreement, be immediately released from its liabilities,
obligations, commitments, undertakings and agreements under or
related to this Agreement and shall have all the rights and
remedies that it would have had and shall be entitled to take all
actions, whether with respect to the Restructuring Transactions or
otherwise, that it would have been entitled to take had it not
entered into this Agreement, including all rights and remedies
available to it under applicable law, the Credit Agreement and any
ancillary documents or agreements thereto;provided, however, that in no event shall
any such termination relieve a Party from liability for its breach
or non-performance of its obligations hereunder prior to the date
of such termination;provided, further, however, that in no
event shall any such termination affect the obligation of any
Company Party to pay within five (5) business days of such
termination date all fees and expenses contemplated by Section 4(a)(xii) of this
Agreement actually incurred prior to such termination. Upon any
such termination of this Agreement as to a Consenting First Lien
Lender, each vote or any consents given by such Consenting First
Lien Lender prior to such termination shall be deemed, for all
purposes, to be null and void ab
initio and shall not be considered or otherwise used in any
manner by the Parties in connection with the Restructuring
Transactions and this Agreement, in each case, without further
confirmation or other action by such Consenting First Lien Lender.
If this Agreement has been terminated as to any Consenting First
Lien Lender in accordance with this Section 5 (other than
pursuant to Section
5(e) at a time when permission of the Bankruptcy Court shall
be required for a Consenting First Lien Lender to change or
withdraw (or cause to change or withdraw) its vote to accept the
Plan, the Company Parties shall support and not oppose any attempt
by such Consenting First Lien Lender to change or withdraw (or
cause to change or withdraw) such vote at such time. Such
Consenting First Lien Lender shall have no liability to the Company
Parties or to any other Consenting First Lien Lender in respect of
any termination of this Agreement in accordance with the terms of
this Section 5
and Section 19
hereof.
(g) If
the Restructuring Transactions has not been consummated prior to
the date of termination of this Agreement, nothing herein shall be
construed as a waiver by any Party of any or all of such
Party’s rights and the Parties expressly reserve any and all
of their respective rights. Pursuant to Federal Rule of Evidence
408 and any other applicable rules of evidence, this Agreement and
all negotiations relating hereto shall not be admissible into
evidence in any proceeding other than a proceeding to enforce its
terms.
6. Definitive Documents; Good Faith Cooperation;
Further Assurances
Subject
to the terms and conditions described herein, during the Individual
Support Period as to each Consenting First Lien Lender and during
the RSA Support Period as to the Company Parties, each Consenting
First Lien Lender, severally and not jointly, and each Company
Party, severally and jointly, hereby covenant and agree to
reasonably cooperate with each other in good faith in connection
with, and shall exercise commercially reasonable efforts with
respect to the pursuit, approval, implementation, and consummation
of the Plan and the Restructuring Transactions, as well as the
negotiation, drafting, execution (to the extent such Party is a
party thereto), and delivery of the Definitive Documents.
Furthermore, subject to the terms and conditions hereof, each
Consenting First Lien Lender, severally and not jointly, and each
Company Party, severally and jointly, shall take such action as may
be reasonably necessary or reasonably requested by the other
Parties to carry out the purposes and intent of this Agreement,
including making and filing of any required regulatory filings and
voting any claims against or securities of the Company Parties in
favor of the Restructuring Transactions, and shall refrain from
taking any action that would frustrate the purposes and intent of
this Agreement;provided that no Consenting
First Lien Lender shall be required to incur any material cost,
expense, or liability in connection therewith.
7. Representations and Warranties.
(a) Each
Consenting First Lien Lender, severally and not jointly and each
Company Party, severally and jointly, represent and warrant to the
other Parties that the following statements are true, correct and
complete as of the date hereof (or, with respect to a Consenting
First Lien Lender that becomes a party hereto after the date
hereof, as of the date such Consenting First Lien Lender becomes a
party hereto):
(i) such
Party is validly existing and in good standing under the laws of
its jurisdiction of incorporation or organization, and has all
requisite corporate, partnership, limited liability company or
similar authority to enter into this Agreement and carry out the
transactions contemplated hereby and perform its obligations
contemplated hereunder, and the execution and delivery of this
Agreement and the performance of such Party’s obligations
hereunder have been duly authorized by all necessary corporate,
limited liability company, partnership or other similar action on
its part;
(ii) the
execution, delivery and performance by such Party of this Agreement
does not and will not (A) violate any material provision of
law, rule or regulation applicable to it or any of its subsidiaries
or its charter or bylaws (or other similar governing documents) or
those of any of its subsidiaries or (B) conflict with, result
in a breach of or constitute (with due notice or lapse of time or
both) a default under any material contractual obligation to which
it or any of its subsidiaries is a party other than any default
caused by the commencement of the Chapter 11 Cases or as
contemplated by the Restructuring Transactions;
(iii)
the execution, delivery and performance by such Party of this
Agreement does not and will not require any registration or filing
with, consent or approval of, or notice to, or other action, with
or by, any federal, state or governmental authority or regulatory
body, except such filings as may be necessary or required by the
SEC, FCC, and/or state public utility commissions; and
(iv) this
Agreement is the legally valid and binding obligation of such
Party, enforceable against it in accordance with its terms, except
as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
limiting creditors’ rights generally or by equitable
principles relating to enforceability or a ruling of the Bankruptcy
Court.
(b) Each
Consenting First Lien Lender severally (and not jointly),
represents and warrants to the Company Parties that, as of the date
hereof (or as of the date such Consenting First Lien Lender becomes
a party hereto), such Consenting First Lien Lender (i) is the
beneficial owner of, or investment advisor or manager of funds that
are beneficial owners of, the aggregate principal amount of First
Lien Loans set forth below its name on the signature page hereof
(or below its name on the signature page of a Joinder Agreement for
any Consenting First Lien Lender that becomes a party hereto after
the date hereof) and does not beneficially own, or manager or
advisor funds that own, any other First Lien Loans and
(ii) has, with respect to the beneficial owners of such First
Lien Loans, (A) sole investment or voting discretion with
respect to such First Lien Loans, (B) full power and authority
to vote on and consent to matters concerning such First Lien Loans
or to exchange, assign and transfer such First Lien Loans, and
(C) full power and authority to bind or act on the behalf of,
such beneficial owners.
(c) Each
Consenting First Lien Lender severally and not jointly makes the
representations and warranties set forth in this Section 7, in each case,
to the other Parties.
8. Disclosure; Publicity.
(a) Subject
to the provisions set forth in Section 8(b), Fusion shall
disseminate publication on Form 8-K or a press release disclosing
the existence of this Agreement and the terms hereof with such
redactions as may be reasonably requested by Davis Polk to maintain
the confidentiality of the items identified in Section 8(b). In the event
that Fusion fails to make the foregoing disclosures in compliance
with the terms specified herein, any such Consenting First Lien
Lender may publicly disclose the foregoing, including, without
limitation, this Agreement and all of its exhibits and schedules
(subject to the redactions called for by Section 8 hereof), and
each of the Company Parties hereby waives any claims against the
Consenting First Lien Lenders arising as a result of such
disclosure by a Consenting First Lien Lender in compliance with
this Agreement.
(b) The
Company Parties shall submit drafts to Davis Polk of any press
releases, public documents and any and all filings with the SEC
that constitute disclosure of the existence or terms of this
Agreement or any amendment to the terms of this Agreement, or any
other matter relating to the First Lien Loans, at least one (1)
business day prior to making any such disclosure, and any such
press releases, public documents, and other SEC filings shall be
reasonably acceptable in all material respects to Davis Polk.
Except as required by applicable law or otherwise permitted under
the terms of any other agreement between the Company Parties and
any Consenting First Lien Lender, no Party or its advisors shall
disclose to any person (including, for the avoidance of doubt, any
other Consenting First Lien Lender), other than advisors to the
Company Parties, the principal amount of the First Lien Loans held
by the Consenting First Lien Lender or the Consenting First Lien
Lender’s DIP Backstop Commitment or DIP Commitment, without
such Consenting First Lien Lender’s prior written
consent;provided,
however, that
(i) if such disclosure is required by law, subpoena, or other
legal process or regulation, the disclosing Party shall, to the
extent permitted by law, afford the relevant Consenting First Lien
Lender a reasonable opportunity to review and comment in advance of
such disclosure and shall take all reasonable measures to limit
such disclosure (the expense of which, if any, shall be borne by
the relevant Consenting First Lien Lender) and (ii) the
foregoing shall not prohibit the disclosure of the aggregate
percentage or aggregate outstanding principal amount of the First
Lien Loans held by all the Consenting First Lien Lenders
collectively.
9. Amendments and Waivers.
This
Agreement, including any exhibits or schedules hereto, may not be
waived, modified, amended or supplemented except with the written
consent of the Company Parties and the Requisite First Lien
Lenders;provided,
however, that any
waiver, modification, amendment or supplement to this Section 9 shall require
the written consent of all of the Parties;provided, further, that any modification,
amendment or change to the definition of Requisite First Lien
Lenders shall require the written consent of each Consenting First
Lien Lender;provided, further, that any change,
waiver, modification or amendment to this Agreement or the Term
Sheet that treats or affects any Consenting First Lien Lender in a
manner that is disproportionately and materially adverse, on an
economic or non-economic basis, to the manner in which any of the
other Consenting First Lien Lenders are treated (after taking into
account each of the Consenting First Lien Lender’s respective
Claims and the recoveries contemplated by the Term Sheet (as in
effect on the date hereof)) shall require the written consent of
such Consenting First Lien Lender. In the event that an adversely
affected Consenting First Lien Lender does not consent to a waiver,
change, modification or amendment to this Agreement requiring the
consent of each Consenting First Lien Lender (such lender, a
“Non-Consenting First Lien
Lender”), but such waiver, change, modification or
amendment receives the consent of Consenting First Lien Lenders
owning at least 66 2/3% of the aggregate
outstanding principal amount of the First Lien Loans, this
Agreement shall be deemed to have been terminated only as to such
Non-Consenting First Lien Lender, but this Agreement shall continue
in full force and effect in respect to all other Consenting First
Lien Lenders who have so consented, in a way consistent with this
Agreement and the Term Sheet as waived, changed, modified, or
amended, as applicable. Any waiver, change, modification or
amendment to this Agreement and the Term Sheet that adversely
affects the right of the DIP Backstop Parties or the DIP Commitment
Parties as a class in their capacity as such shall require the
consent of the Requisite DIP Commitment Parties, as
applicable.
10. Effectiveness.
This
Agreement shall become effective and binding upon each Party upon
the execution and delivery by such Party of an executed signature
page hereto and shall become effective and binding on all Parties
on the Support Effective Date;provided that signature pages
executed by Consenting First Lien Lenders shall be delivered to
(a) the other Consenting First Lien Lenders in a redacted form
that removes such Consenting First Lien Lenders’ holdings of
the First Lien Loans or any other Claims against or interests in
the Company Parties and any schedules to such Consenting First Lien
Lenders’ holdings (if applicable) and (b) the Company
Parties, Weil, and Davis Polk in an unredacted form (and to be kept
confidential by the Company, Weil, and Davis Polk).
11. Governing Law; Jurisdiction; Waiver of Jury
Trial.
(a) This
Agreement shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the law of the
State of New York, without giving effect to the conflict of laws
principles thereof.
(b) Each
of the Parties irrevocably agrees that any legal action, suit or
proceeding arising out of or relating to this Agreement brought by
any Party or its successors or assigns shall be brought and
determined in any federal or state court in the Borough of
Manhattan in the State of New York, and each of the Parties hereby
irrevocably submits to the exclusive jurisdiction of the aforesaid
courts for itself and with respect to its property, generally and
unconditionally, with regard to any such proceeding arising out of
or relating to this Agreement or the Restructuring Transactions.
Each of the Parties agrees not to commence any proceeding relating
hereto or thereto except in the courts described above in the
Borough of Manhattan in the State of New York, other than
proceedings in any court of competent jurisdiction to enforce any
judgment, decree or award rendered by any such court in New York as
described herein. Each of the Parties further agrees that notice as
provided herein shall constitute sufficient service of process and
the Parties further waive any argument that such service is
insufficient. Each of the Parties hereby irrevocably and
unconditionally waives, and agrees not to assert, by way of motion
or as a defense, counterclaim or otherwise, in any proceeding
arising out of or relating to this Agreement or the Restructuring
Transactions, (i) any claim that it is not personally subject
to the jurisdiction of the courts in New York as described herein
for any reason, (ii) that it or its property is exempt or
immune from jurisdiction of any such court or from any legal
process commenced in such courts (whether through service of
notice, attachment prior to judgment, attachment in aid of
execution of judgment, execution of judgment or otherwise) and
(iii) that (A) the proceeding in any such court is
brought in an inconvenient forum, (B) the venue of such
proceeding is improper or (C) this Agreement, or the subject
matter hereof, may not be enforced in or by such courts.
Notwithstanding the foregoing, during the pendency of the Chapter
11 Cases, all proceedings contemplated by this Section 11(b) shall be
brought in the Bankruptcy Court to the extent the Bankruptcy Court
has jurisdiction over such proceedings.
(c) EACH
PARTY HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL
PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY
(I) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE
THE FOREGOING WAIVER AND (II) ACKNOWLEDGES THAT IT AND THE
OTHER PARTIES HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION.
12. Specific Performance/Remedies.
It is
understood and agreed by the Parties that money damages would not
be a sufficient remedy for any breach of this Agreement by any
Party and each non-breaching Party shall be entitled to specific
performance and injunctive or other equitable relief (including
attorneys’ fees and costs) as a remedy of any such breach,
without the necessity of proving the inadequacy of money damages as
a remedy, including an order of the Bankruptcy Court requiring any
Party to comply promptly with any of its obligations hereunder.
Each Party also agrees that it will not seek, and will waive any
requirement for, the securing or posting of a bond in connection
with any Party seeking or obtaining such relief.
13. Survival.
Notwithstanding the
termination of this Agreement pursuant to Section 5 hereof, the
agreements and obligations of the Parties in this Section 13, and
Sections 4(b),
5(f), 7, 8, 10 (with respect to the
redacted information), 11, 12, 13, 14, 15, 16, 17, 18, 19, and 20 (and any defined terms used
in any such Sections) shall survive such termination and shall
continue in full force and effect in accordance with the terms
hereof;provided,
however, that any
liability of a Party for failure to comply with the terms of this
Agreement shall survive such termination.
14. Headings.
The
headings of the sections, paragraphs and subsections of this
Agreement are inserted for convenience only and shall not affect
the interpretation hereof or, for any purpose, be deemed a part of
this Agreement.
15. Successors and Assigns; Severability; Several
Obligations.
This
Agreement is intended to bind and inure to the benefit of the
Parties and their respective successors, permitted assigns, heirs,
executors, administrators and representatives;provided, however, that nothing contained
in this Section 15 shall be deemed
to permit Transfers of the First Lien Loans or claims arising under
the First Lien Loans other than in accordance with the express
terms of this Agreement. If any provision of this Agreement, or the
application of any such provision to any Person or circumstance,
shall be held invalid or unenforceable in whole or in part, such
invalidity or unenforceability shall attach only to such provision
or part thereof and the remaining part of such provision hereof and
this Agreement shall continue in full force and effect so long as
the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any
Party. Upon any such determination of invalidity, the Parties shall
negotiate in good faith to modify this Agreement so as to effect
the original intent of the Parties as closely as possible in a
reasonably acceptable manner in order that the transactions
contemplated hereby are consummated as originally contemplated to
the greatest extent possible. The agreements, representations and
obligations of the Parties are, in all respects, ratable and
several and neither joint nor joint and several.
16. No Third-Party Beneficiaries.
Unless
expressly stated herein, this Agreement shall be solely for the
benefit of the Parties (and their respective successors, permitted
assigns, heirs, executors, administrators and representatives) and
no other Person shall be a third-party beneficiary
hereof.
17. Prior Negotiations; Entire Agreement.
This
Agreement, including the exhibits and schedules hereto (including
the Term Sheet) constitutes the entire agreement of the Parties,
and supersedes all other prior negotiations, with respect to the
subject matter hereof and thereof, except that the Parties
acknowledge that any confidentiality agreements (if any) heretofore
executed between the Company Parties and each Consenting First Lien
Lender shall continue in full force and effect.
18. Counterparts.
This
Agreement may be executed in counterparts, each of which shall be
deemed to be an original, and all of which together shall be deemed
to be one and the same agreement. Execution copies of this
Agreement may be delivered by electronic mail in portable document
format (pdf), which shall be deemed to be an original for the
purposes of this paragraph.
All
notices hereunder shall be deemed given if in writing and
delivered, if contemporaneously sent by electronic mail, by
overnight courier or by registered or certified mail (return
receipt requested) to the following addresses:
(1)
If to the Company
Parties or Debtors, to:
Fusion
Connect, Inc.
420
Lexington Avenue, Suite 1718
New
York, NY 10170
Attn:
James Prenetta, Jr., Executive Vice President and General
Counsel
Email: [email protected]
With a
copy to (which shall not constitute notice):
Weil,
Gotshal & Manges LLP
767
Fifth Avenue
New
York, NY 10153
Attn:
Gary T. Holtzer, Esq.
Email:
[email protected]
Attn:
Sunny Singh, Esq.
Email:
[email protected]
Attn:
Gaby Smith, Esq.
Email:
[email protected]
(2)
If to a Consenting
First Lien Lender, or a transferee thereof, to the addresses set
forth below following the Consenting First Lien Lender’s
signature (or as directed by any transferee thereof), as the case
may be, with copies to:
Davis
Polk & Wardwell LLP
450
Lexington Avenue
New
York, NY 10017
Attn:
Damian S. Schaible
Email:
[email protected]
Attn:
Adam L. Shpeen
Email:
[email protected]
Any
notice given by delivery, mail or courier shall be effective when
received. Any notice given by electronic mail shall be effective
upon transmission.
20. Reservation of Rights; No Admission.
(a) Nothing
contained herein shall: limit (A) the ability of any Party to
consult with other Parties or (B) the rights of any Party under any
applicable bankruptcy, insolvency, foreclosure, or similar
proceeding, including the right to appear as a party in interest in
any matter to be adjudicated in order to be heard concerning any
matter arising in the Chapter 11 Cases, in each case, so long as
such consultation or appearance is consistent with such
Party’s obligations hereunder, or under the terms of the
Plan.
(b) Except
as expressly provided in this Agreement, nothing herein is intended
to, or does, in any manner waive, limit, impair, or restrict the
ability of each of the Parties to protect and preserve its rights,
remedies, and interests, including its claims against any of the
other Parties (or their respective affiliates or subsidiaries) or
its full participation in any bankruptcy case filed by the Company
or any of its affiliates and subsidiaries. This Agreement and the
Term Sheet are part of a proposed settlement of matters that could
otherwise be the subject of litigation among the Parties. Pursuant
to Rule 408 of the Federal Rules of Evidence and any other
applicable rules of evidence, and any other applicable law, foreign
or domestic, this Agreement and all negotiations relating hereto
shall not be admissible into evidence in any proceeding other than
a proceeding to enforce its terms. This Agreement shall in no event
be construed as or be deemed to be evidence of an admission or
concession on the part of any Party of any claim or fault or
liability or damages whatsoever. Each of the Parties denies any and
all wrongdoing or liability of any kind and does not concede any
infirmity in the claims or defenses which it has asserted or could
assert.
21. Relationship Among Consenting First Lien
Lenders.
It is
understood and agreed that no Consenting First Lien Lender has any
duty of trust or confidence of any kind or form with any other
Consenting First Lien Lender, and, except as expressly provided in
this Agreement, there are no commitments among or between them. No
prior history, pattern, or practice of sharing confidences among or
between the Consenting First Lien Lender shall in any way affect or
negate this understanding and agreement.
22. No Solicitation; Representation by Counsel;
Adequate Information.
(a) This
Agreement is not and shall not be deemed to be a solicitation for
votes in favor of the Plan in the Chapter 11 Cases by the
Consenting First Lien Lenders or a solicitation to tender or
exchange any of the First Lien Loans. The acceptances of the
Consenting First Lien Lenders with respect to the Plan will not be
solicited until such Consenting First Lien Lender has received the
Disclosure Statement and related ballots and solicitation
materials, each as approved or ratified by the Bankruptcy
Court.
(b) Each
Party acknowledges that it has had an opportunity to receive
information from the Company Parties and that it has been, or is
part of a group that has been, represented by counsel in connection
with this Agreement and the transactions contemplated hereby.
Accordingly, any rule of law or any legal decision that would
provide any Party with a defense to the enforcement of the terms of
this Agreement against such Party based upon lack of legal counsel
shall have no application and is expressly waived.
(c) Although
none of the Parties intends that this Agreement should constitute,
and they each believe it does not constitute, a solicitation or
acceptance of a chapter 11 plan of reorganization or an offering of
securities, each Consenting First Lien Lender acknowledges, agrees
and represents to the other Parties that it (i) is an accredited
investor (as such term is defined in Rule 501(a) of Regulation D
promulgated under the Securities Act), (ii) understands that
the securities to be acquired by it (if any) pursuant to the
Restructuring have not been registered under the Securities Act and
that such securities are, to the extent not acquired pursuant to
section 1145 of the Bankruptcy Code, being offered and sold
pursuant to an exemption from registration contained in the
Securities Act, based in part upon such Consenting First Lien
Lender’s representations contained in this Agreement and
cannot be sold unless subsequently registered under the Securities
Act or an exemption from registration is available, and
(iii) has such knowledge and experience in financial and
business matters that such Consenting First Lien Lender is capable
of evaluating the merits and risks of the securities to be acquired
by it (if any) pursuant to Restructuring and understands and is
able to bear any economic risks with such investment.
[Remainder of Page Intentionally Left Blank]
IN
WITNESS WHEREOF, the Parties have caused this Agreement to be
executed and delivered by their respective duly authorized
officers, solely in their respective capacity as officers of the
undersigned and not in any other capacity, as of the date first set
forth above.
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FUSION CONNECT, INC.
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On its own behalf and on behalf of its direct and indirect U.S.
subsidiaries
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Fusion
Connect, Inc.
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By:
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/s/
James P. Prenetta, Jr.
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Name:
James P. Prenetta, Jr.
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Title:
Executive Vice President and General Counsel
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Exhibit C
FINANCIAL PROJECTIONS1
THE
DEBTORS DO NOT, AS A MATTER OF COURSE, PUBLISH THEIR BUSINESS
PLANS, BUDGETS OR STRATEGIES OR MAKE EXTERNAL PROJECTIONS OR
FORECASTS OF THEIR ANTICIPATED FINANCIAL POSITIONS OR RESULTS OF
OPERATIONS. ACCORDINGLY, THE DEBTORS DO NOT ANTICIPATE THAT THEY
WILL, AND DISCLAIM ANY OBLIGATION TO, FURNISH UPDATED BUSINESS
PLANS, BUDGETS OR PROJECTIONS TO STOCKHOLDERS PRIOR TO THE
EFFECTIVE DATE OR TO INCLUDE SUCH INFORMATION IN DOCUMENTS REQUIRED
TO BE FILED WITH THE SEC OR OTHERWISE MAKE SUCH INFORMATION
PUBLICLY AVAILABLE.
The
Debtors prepared the financial projections set forth herein (the
“Financial
Projections”) based on, among other things, the
anticipated future financial condition and results of operations of
the Debtors in the Reorganization Transaction. The following
forecast was not prepared with a view toward compliance with
published guidelines of the SEC of the American Institute of
Certified Public Accountants regarding forecasts. EisnerAmper LLP,
the independent auditor of the Debtors, has not audited, reviewed,
compiled or otherwise applied procedures to the forecast and
consequently, does not express an opinion or any other form of
assurance with respect to the forecast. The forecast data is not
measured on a basis consistent with generally accepted accounting
principles (“GAAP”) as applied to the
Debtors’ historical financial statements and should not be
relied upon as such.
THE
FINANCIAL PROJECTIONS HEREIN HAVE BEEN PREPARED BY THE
DEBTORS’ MANAGEMENT, IN CONJUNCTION WITH THE DEBTORS’
ADVISORS. THESE PROJECTIONS, WHILE PRESENTED WITH NUMERICAL
SPECIFICITY, ARE NECESSARILY BASED ON A VARIETY OF ESTIMATES AND
ASSUMPTIONS WHICH, THOUGH CONSIDERED REASONABLE BY MANAGEMENT, MAY
NOT BE REALIZED, AND ARE INHERENTLY SUBJECT TO SIGNIFICANT
BUSINESS, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES,
MANY OF WHICH ARE BEYOND THE DEBTORS’ CONTROL. THE DEBTORS
CAUTION THAT NO REPRESENTATIONS CAN BE MADE AS TO THE ACCURACY OF
THESE FINANCIAL PROJECTIONS OR TO THE REORGANIZED DEBTORS’
ABILITY TO ACHIEVE THE PROJECTED RESULTS. SOME ASSUMPTIONS
INEVITABLY WILL NOT MATERIALIZE. FURTHER, EVENTS AND CIRCUMSTANCES
OCCURRING SUBSEQUENT TO THE DATE ON WHICH THESE PROJECTIONS WERE
PREPARED MAY BE DIFFERENT FROM THOSE ASSUMED OR, ALTERNATIVELY, MAY
HAVE BEEN UNANTICIPATED, AND THUS THE OCCURRENCE OF THESE EVENTS
MAY AFFECT FINANCIAL RESULTS IN A MATERIAL AND POSSIBLY ADVERSE
MANNER. THE PROJECTIONS, THEREFORE, MAY NOT BE RELIED UPON AS A
GUARANTY OR OTHER ASSURANCE OF THE ACTUAL RESULTS THAT WILL
OCCUR.
Risks Associated with Forward-Looking Statements
The
Financial Projections are, by their nature, forward-looking and are
necessarily based on certain assumptions and estimates. Should any
or all of these assumptions or estimates ultimately prove to be
incorrect, the actual future results of the Reorganized Debtors may
differ from those set forth from the Financial
Projections.
1
Capitalized terms
used but not otherwise defined herein shall have the meanings
ascribed to such terms in the Disclosure Statement (ECF No. 369) or
the Plan (ECF No. 368), as applicable.
The
Financial Projections reflect numerous assumptions concerning the
anticipated future performance of the Reorganized Debtors, some of
which may not materialize, including, without limitation,
assumptions concerning: (a) the timing of confirmation and
consummation of the Plan in accordance with its terms; (b) the
anticipated future performance of the Reorganized Debtors,
including, without limitation, the Debtors’ ability to
maintain or increase revenue and gross margins, control future
operating expenses or make necessary capital expenditures; (c)
general business and economic conditions; (d) overall industry
performance and trends;and (e) the Debtors’ ability to
maintain market strength and receive vendor support.
GENERAL ASSUMPTIONS
A.
Emergence
Date
The
Financial Projections were finalized as of September 11, 2019 and
assume that the Effective Date of the Plan will occur on December
31, 2019.
B.
Methodology
The
Financial Projections are presented on a consolidated basis,
including estimates of operating results for the Debtor entities.
The Financial Projections were prepared by Debtors’
management, in conjunction with the Debtors’ advisors. During
the forecasting process, the Debtors reviewed current business
performance and established reasonable assumptions relating to
industry trends and demand and pricing of the Debtors’
products and services, while also considering direct and indirect
costs associated with the Debtors’ business.
C.
Net
Revenue
The
Debtors’ revenue forecast is primarily based upon assumptions
for bookings, monthly recurring revenue, usage revenue, and other
revenue. Monthly recurring revenue comprises most of the total
revenue.
Monthly Recurring Revenue. Monthly Recurring Revenue
(“MRR”)
represents revenue received by the Debtors from business and their
customers. Customers pay a fixed monthly charge for a specific set
of telecommunication services and most customers hold multi-year or
annual contracts with the Debtors. Customers pay a defined amount
to the Debtors every calendar month.
Usage Revenue. Usage Revenue represents amounts
paid to the Debtors by customers in exchange for exceeding the
quantity of prepaid voice minutes or internet bandwidth contained
as part of the MRR charge. Usage revenue is variable based on the
quantity of voice minutes or internet bandwidth that a customer
uses. The per unit rate paid is contained within the customer
contract.
Other Revenue. Other Revenue represents
non-recurring installation revenue, pass-through regulatory taxes,
and other miscellaneous revenue.
D.
Cost
of Revenue Expense
Cost of
Revenue Expense represents the Debtors’ directs costs of
providing telecommunications services to their customers. These
costs include the costs of operating the Debtor-owned portion of
its telecommunications network as well as circuit costs and
third-party services costs with other telecommunications
carriers.
E.
Operating
Expenses
Operating
Expenses include costs associated with sales and marketing,
compensation and other expense for executive, operations, service
delivery, engineering, finance, product development, human
resources and administrative personnel, professional fees and other
general corporate costs. 2019 operating expenses reflect cost
savings and rationalization actions undertaken by the Debtors
beginning Q2 2019. Operating expenses reflect an annual inflation
adjustment where appropriate.
F.
Depreciation
and Amortization (“D&A”)
D&A
reflects the anticipated depreciation and amortization of the
Debtors’ net property, plant &
equipment,
and intangible assets based on book values. D&A reflects the
Debtors’ estimated adjustment
to the
carrying values of intangible assets and goodwill based on limited
information available to them.
G.
Interest
Expense
The
forecast period reflects interest expense associated with the
reorganized capital structure. The reorganized capital structure
includes the New Exit Facility with a principal balance of $100.0
million at 7.75% annual interest paid quarterly and the New Second
Lien Credit Facility with a principal balance of $225.0 million at
10.00% annual interest paid quarterly, but with an annual maximum
of $13.75 million of interest paid in cash and the remaining amount
paid in kind interest.
H.
Restructuring
Expenditures
Restructuring
Expenditures reflect estimated one-time costs and transaction fees
related to the Reorganization Transaction. No adjustment has been
made to reflect potential “fresh start” reporting as
required by Topic 852, Reorganizations, of the Financial Accounting
Standards Board Accounting Standards Codification.
I.
Income
Taxes
The
projections assume that $29.4 million of Net Operating Losses
offset taxable income during the forecast period and that the
Debtors pay taxes on earned income at a rate of 26%. Income tax
payments of $10.9 million are incurred and $5.1 million are paid in
cash during the forecast period due to the payment of income taxes
following the year in which they are incurred.
J.
Impairment
Charge to Goodwill and Intangible Assets
The
Debtors have estimated a potential adjustment to the carrying
values of intangible assets and goodwill based on limited
information. The Debtors’ 2018 audit is not complete as of
the time that the Financial Projections were prepared and the
annual asset impairment analysis has not yet been undertaken. Asset
values will be further readjusted based upon the application of
“fresh start” reporting as required by Topic 852,
Reorganizations, of the Financial Accounting Standards Board
Accounting Standards Codification as a result of the occurrence of
the Effective Date. The actual impairment adjustments could differ
materially from the estimates shown herein. The adjustments
resulting from “fresh start” reporting may increase or
decrease these carrying values materially.
K.
Capital
Expenditures
Capital
Expenditures primarily relate to maintenance-oriented capital
necessary to maintain the operating capability of the
Debtors’ existing assets in the ordinary course and
success-based capital required to provision and install new
customer services.
|
BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED BALANCE SHEET
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
||||
|
Unaudited
|
Pre-Reorganization
Debtor
|
|
Pro-Forma
Reorganized Debtor
|
|
|
|
|
(Unaudited)
|
|
(Unaudited,
Pro-Forma for Estimated Anticipated Adjustments)
|
|
|
|
|
2019E
|
Adjustments
|
2019E
|
2020P
|
2021P
|
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
$5.0
|
$20.0
|
$25.0
|
$67.0
|
$99.5
|
|
Accounts
Receivable
|
50.7
|
-
|
50.7
|
47.0
|
44.5
|
|
Other
Current Assets
|
22.1
|
-
|
22.1
|
22.1
|
22.0
|
|
Total Current Assets
|
77.9
|
20.0
|
97.9
|
136.1
|
166.0
|
|
|
|
|
|
|
|
|
Long-term assets:
|
|
|
|
|
|
|
Net
PP&E
|
115.5
|
(26.1)
|
89.4
|
73.3
|
63.2
|
|
Other
non-Current Assets
|
405.3
|
-
|
405.3
|
378.0
|
353.6
|
|
TOTAL ASSETS
|
598.7
|
(6.1)
|
592.5
|
587.4
|
582.8
|
|
|
|
|
|
|
|
|
LIABILITIES & EQUITY
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
173.5
|
(79.6)
|
94.0
|
17.4
|
16.4
|
|
Other
Current Liabilities
|
9.4
|
-
|
9.4
|
9.4
|
9.4
|
|
Total Current Liabilities
|
182.9
|
(79.6)
|
103.3
|
26.8
|
25.7
|
|
|
|
|
|
|
|
|
Short
Term/Long Term Debt
|
736.0
|
(411.0)
|
325.0
|
324.5
|
324.9
|
|
Other
non-current liabilities
|
30.0
|
(26.1)
|
3.9
|
3.9
|
3.9
|
|
TOTAL LIABILITIES
|
948.9
|
(516.7)
|
432.2
|
355.1
|
354.5
|
|
|
|
|
|
|
|
|
Shareholders' Equity
|
(350.3)
|
510.6
|
160.3
|
232.3
|
228.3
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES & EQUITY
|
598.7
|
(6.1)
|
592.5
|
587.4
|
582.8
|
|
|
|
|
|
|
|
|
Memo:
Net Debt
|
|
|
300.0
|
257.5
|
225.4
|
|
Income Statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED INCOME STATEMENT
|
|
|
|
||
|
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited
|
Fiscal Year Ending December 31,
|
||
|
|
2019E
|
2020P
|
2021P
|
|
Revenue
|
$526.7
|
$476.1
|
$432.9
|
|
Cost
of Revenue
|
281.5
|
246.2
|
218.9
|
|
Gross Profit
|
245.2
|
229.9
|
213.9
|
|
|
|
|
|
|
SG&A
Expense
|
143.8
|
130.4
|
117.4
|
|
Depreciation
and Amortization
|
47.1
|
71.0
|
63.7
|
|
Other
non-Current Assets
|
-
|
-
|
-
|
|
Total Operating Expenses
|
190.9
|
201.4
|
181.1
|
|
|
|
|
|
|
Operating Income
|
54.2
|
28.5
|
32.8
|
|
|
|
|
|
|
Net
Interest Income (Expense)
|
-
|
(30.8)
|
(30.9)
|
|
Other
Expense/Income
|
-
|
-
|
-
|
|
Taxes
|
-
|
(5.1)
|
(5.8)
|
|
|
|
|
|
|
Net Income (Loss)
|
54.2
|
(7.4)
|
(3.9)
|
|
|
|
|
|
|
Memo:
EBITDA
|
101.4
|
99.5
|
96.5
|
|
Cash Flow Statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED CASH FLOW STATEMENT
|
|
||||
|
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited
|
Fiscal Year Ending December 31,
|
|
|
|
2020P
|
2021P
|
|
Operating Activites
|
|
|
|
Net
Income
|
$(7.4)
|
$(3.9)
|
|
Depreciation
and Amortization
|
71.0
|
63.7
|
|
Changes
in Working Capital
|
1.4
|
(4.3)
|
|
Other
|
14.6
|
16.3
|
|
Operating Cash Flow
|
79.6
|
71.7
|
|
|
|
|
|
Investing Activities
|
|
|
|
Capital
Expenditures
|
(27.6)
|
(29.3)
|
|
Investments
|
-
|
-
|
|
Sale
of Assets
|
-
|
-
|
|
Investing Cash Flow
|
(27.6)
|
(29.3)
|
|
|
|
|
|
Financing Activities
|
|
|
|
Payments
on Long Term Debt
|
(10.0)
|
(10.0)
|
|
Other
Expense/Income
|
-
|
-
|
|
Financing Cash Flow
|
(10.0)
|
(10.0)
|
|
|
|
|
|
Net Change in Cash
|
42.0
|
32.4
|
Exhibit
D
LIQUIDATION
ANALYSIS1
|
NOTHING
CONTAINED IN THE FOLLOWING LIQUIDATION ANALYSIS IS INTENDED TO BE
OR CONSTITUTES A CONCESSION OR ADMISSION OF THE
DEBTORS. THE ESTIMATED
AMOUNT OF ALLOWED CLAIMS SET FORTH HEREIN SHOULD NOT BE RELIED UPON
FOR ANY OTHER PURPOSE, INCLUDING ANY DETERMINATION OF THE VALUE OF
ANY DISTRIBUTION TO BE MADE ON ACCOUNT OF ALLOWED CLAIMS UNDER THE
PLAN. THE ACTUAL AMOUNT OF ALLOWED CLAIMS IN THESE CHAPTER 11 CASES
COULD DIFFER MATERIALLY FROM THE ESTIMATED AMOUNTS SET FORTH IN THE
LIQUIDATION ANALYSIS.
|
A.
Introduction
A
chapter 11 plan cannot be confirmed unless a bankruptcy court
determines that the plan is in the “best interests” of
all holders of claims and interests that are impaired by the plan
and that have not accepted the plan. The “best
interests” test, as set forth in section 1129(a)(7) of the
Bankruptcy Code, requires that a bankruptcy court find either that:
(i) all members of an impaired class of claims or interests have
accepted the plan or (ii) the plan will provide a member of an
impaired class of claims or interests who has not accepted the plan
with a recovery of property of a value, as of the effective date of
the plan, that is not less than the amount that such holder would
recover if the debtor were liquidated under chapter 7 of the
Bankruptcy Code on such date, prior to confirming the plan. To
determine the Debtors’ compliance with section 1129(a)(7),
the Bankruptcy Court must evaluate the Debtors’ estimate of:
(a) the cash proceeds that a chapter 7 trustee would generate if
each Debtor’s chapter 11 case were converted to a chapter 7
case on the Effective Date and the assets of such Debtor’s
estate were liquidated; (b) the distribution that each
non-accepting Holder of a Claim or Interest would receive from the
net estimated liquidation proceeds under the priority scheme set
forth in chapter 7; and (c) comparison of each Holder’s
estimated recovery under liquidation to the distribution under the
Plan that such Holder would receive if the Plan were confirmed and
consummated.
Based
on the following hypothetical liquidation analysis set forth herein
(the “Liquidation
Analysis”), the Debtors believe that the Plan
satisfies the best interests test and that each Holder of an
Impaired Claim or Interest will receive value under the Plan on the
Effective Date that is not less than the value such Holder would
receive if the Debtors liquidated under chapter 7 of the Bankruptcy
Code. The Debtors believe that this Liquidation Analysis and the
conclusions set forth herein are fair and represent
management’s best judgment regarding the results of a
hypothetical liquidation of the Debtors under chapter 7 of the
Bankruptcy Code, taking into account various factors, including the
negative impact on values arising from a liquidation of the
Debtors’ assets under current market conditions. This
Liquidation Analysis was prepared for the sole purpose of assisting
the Bankruptcy Court and Holders of Impaired Claims or Interests in
making this determination, and should not be used for any other
purpose. Nothing contained in this Liquidation Analysis is intended
as or constitutes a concession or admission for any purpose other
than the presentation of a hypothetical liquidation for purposes of
the best interests test. Accordingly, asset values discussed herein
may be different than amounts referred to in the Plan. This
Liquidation Analysis is based upon certain assumptions discussed
herein and in the Disclosure Statement.
Capitalized terms
used but not otherwise defined herein shall have the meanings
ascribed to such terms in the Disclosure Statement (ECF No.369) or
the Plan (ECF No. 368), as applicable.
This
Liquidation Analysis was prepared by FTI Consulting, Inc.
(“FTI”) in
connection with FTI’s representation of the Debtors in these
chapter 11 cases. This Liquidation Analysis assumes that the
Debtors’ liquidation would commence on or about November 6, 2019 (the
“Conversion
Date”) under the direction of a chapter 7 trustee,
during which time the Debtors’ assets would be administered
and the cash proceeds (net of liquidation-related costs), together
with cash on hand, would then be distributed to creditors in
accordance with the priority scheme established under the
Bankruptcy Code. It is assumed that the Debtors would (i)
immediately cease all operations following the Conversion Date;
(ii) lose access to cash collateral and the financing provided
under the DIP Facility; (iii) lose access to critical employees as
a result of immediate departures, including employees involved in
accounting, treasury, IT support, and management; and (iv) not
receive relief from the regulations of the Federal Communications
Commission or state regulators that provide for restrictions on and
notice requirements for the transfer of customer accounts and
services to other providers. All other operations, management, and
corporate functions are assumed to immediately cease in order to
minimize costs associated with the chapter 7 liquidation. The
Debtors would expect the chapter 7 trustee to retain professionals
to assist in the liquidation of the Debtors’
estates.
For
purposes of this Liquidation Analysis, FTI has attempted to ascribe
value to the assets based on general classes by estimating the
percentage recoveries that a chapter 7 trustee might achieve under
these conditions. Where applicable, asset recoveries below are
shown net of the costs to achieve those recoveries.
B.
Statements
of Limitation
The
preparation of a liquidation analysis is an uncertain process
involving the use of estimates and assumptions that, although
considered reasonable by the Debtors based upon their business
judgment and input from their advisors, are inherently subject to
significant business, economic, and competitive risks,
uncertainties and contingencies, most of which are difficult to
predict and many of which are beyond the control of the Debtors,
their management, and their advisors. Inevitably, some assumptions
in the Liquidation Analysis would not materialize in an actual
chapter 7 liquidation and unanticipated events and circumstances
could materially affect the ultimate results in an actual chapter 7
liquidation. The Liquidation Analysis was prepared for the sole
purpose of generating a reasonable good faith estimate of the
proceeds that would be generated if the Debtors’ assets were
liquidated in accordance with chapter 7 of the Bankruptcy Code; it
is not intended, and should not be used, for any other purpose. The
underlying financial information in the Liquidation Analysis, and
the values stated herein, have not been subject to review,
compilation, or audit by any independent accounting firm. In
addition, various liquidation decisions, upon which certain of the
assumptions are based, are subject to change. As a result, the
actual amount of the Claims against the Debtors’ Estates
could vary significantly from the estimates stated herein,
depending on the nature and amount of Claims asserted during the
pendency of the chapter 7 cases. Similarly, the value of the
Debtors’ assets in a liquidation scenario is uncertain and
could vary significantly from the values set forth in the
Liquidation Analysis.
As
further detailed below, in preparing the Liquidation Analysis, the
Debtors estimated Allowed Claims based on the Debtors’
financial statements. The Debtors have not estimated, and the
Liquidation Analysis does not take into account: (i) the tax
consequences that may result from the liquidation and sale of the
Debtors’ assets; (ii) recoveries resulting from any potential
preference, fraudulent transfer, or other litigation or avoidance
actions; or (iii) certain of the Claims that may be entitled to
priority under the Bankruptcy Code, including certain
administrative priority Claims under sections 503(b) and 507(b) of
the Bankruptcy Code.
2
In
addition, the Liquidation Analysis includes estimates for Claims
not currently asserted in these Chapter 11 Cases, but which could
be asserted and allowed in a chapter 7 liquidation, including
chapter 7 administrative claims such as wind down costs and chapter
7 trustee fees. To date, the Bankruptcy Court has not estimated or
otherwise fixed the total amount of Allowed Claims used for
purposes of preparing the Liquidation Analysis. Therefore, the
Debtors’ estimate of Allowed Claims set forth in the
Liquidation Analysis should not be relied on for any other purpose,
including determining the value of any distribution to be made on
account of Allowed Claims and Interests under the
Plan.
THE DEBTORS BELIEVE THAT ANY ANALYSIS OF A HYPOTHETICAL LIQUIDATION
IS NECESSARILY SPECULATIVE. THERE ARE A NUMBER OF ESTIMATES AND
ASSUMPTIONS UNDERLYING THE LIQUIDATION ANALYSIS THAT ARE INHERENTLY
SUBJECT TO SIGNIFICANT UNCERTAINTIES AND CONTINGENCIES BEYOND THE
CONTROL OF THE DEBTORS OR A CHAPTER 7 TRUSTEE. NEITHER THE
LIQUIDATION ANALYSIS NOR THE FINANCIAL INFORMATION ON WHICH IT IS
BASED HAS BEEN EXAMINED OR REVIEWED BY INDEPENDENT ACCOUNTANTS IN
ACCORDANCE WITH STANDARDS PROMULGATED BY THE AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS. THERE CAN BE NO ASSURANCE THAT ACTUAL
RESULTS WILL NOT VARY MATERIALLY FROM THE HYPOTHETICAL RESULTS
PRESENTED IN THE LIQUIDATION ANALYSIS.
C.
Summary
Notes to Liquidation Analysis
1.
Dependence on
Assumptions. The Liquidation Analysis is based on a number
of estimates and assumptions that are inherently subject to
significant economic, business, regulatory and competitive
uncertainties and contingencies beyond the control of the Debtors.
Accordingly, there can be no assurance that the values reflected in
the Liquidation Analysis would be realized if the Debtors were, in
fact, to undergo such liquidation and actual results could vary
materially and adversely from those contained herein.
2.
Additional Claims in a
Liquidation. The liquidation itself may trigger certain
obligations and priority payments that otherwise would not be due
in the ordinary course of business or would otherwise not exist
under a chapter 11 plan. These priority payments must be paid in
full before any distribution of proceeds to Holders of General
Unsecured Claims or Parent Equity Interests. The liquidation would
likely prompt certain other events to occur, including the
immediate rejection of executory contracts and unexpired leases,
defaults under agreements with vendors and customers, the exercise
of set-off rights by creditors, and acceleration of severance
obligations. Such events, if triggered, would subject the chapter 7
estates to additional claims.
3.
Litigation Claims.
The Liquidation Analysis does not attribute any value to potential
litigation claims that may belong to the Debtors’ estates,
including any claims to recover potentially avoidable preferential
and/or fraudulent transfers.
3
4.
Chapter 7 Liquidation
Costs. It is assumed that a period of six to nine months
would be required to complete the liquidation of the Debtors’
estates. The fees and operating expenses incurred during the
chapter 7 process are included in the estimate of Chapter 7
Administrative Claims and Trustee Expenses. In addition, there are
liquidation costs associated with most of the Debtors’
assets. Costs of liquidation are displayed as a reduction to gross
liquidation proceeds.
5.
Claim Estimates.
Claims are estimated at the Conversion Date based on
management’s current projections. In instances where claims
could not be projected, liabilities as of July 31, 2019 were
used.
D.
Detailed Assumptions. Asset recovery
estimates presented in the Liquidation Analysis are based on the
Debtors’ unaudited balance sheets as of July 31,
2019.
1.
[a] Cash and Cash
Equivalents. The Debtors estimate 100% realization on Cash
and Cash Equivalents as of July 31, 2019.
2.
[b] Accounts
Receivable. The Debtors estimate an overall 10% to 20%
realization rate on accounts receivable, which is based on
collecting 15% to 30% of accounts receivable balances less than
sixty (60) days past their due dates.
3.
[c] Prepaid
Expenses. Prepaid expenses include a variety of asset
balances, the major part of which are assumed not to have any
realizable value. The Debtors estimate an overall 0% to 1.3%
realization rate on prepaid expenses, which is based on realizing
0% to 50% of the carrying value of prepaid insurance.
4.
[d] Inventory. The
Debtors estimate an overall realization rate of 10% to 20% on
inventory, which consists of finished goods such as network
components, customer premises equipment, and ancillary network
supplies.
5.
[e] PP&E (Net).
Property, plant, and equipment includes a variety of asset types,
some of which are assumed not to have any realizable value. Leased
assets and assets securing financings (excluding assets that secure
the loans under the Prepetition First Lien Credit Agreement and the
Prepetition Second Lien Credit Agreement) are assumed to have been
immediately returned to the lessors or secured parties upon the
Conversion Date. The Debtors estimate an overall 2% to 4%
realization on total net book value as of July 31, 2019, which is
based on realizing 20% to 30% of the gross book value of vehicles
and 10% to 20% of the net book value of network
hardware.
6.
[f] Land & Buildings
(Net). Fusion Management Services, LLC owns a parcel of land
and an office building in Emporia, Kansas. The Debtors estimate
realizing 57% to 76%, after commissions, of the value set forth in
a third-party appraisal report dated March 23, 2018.
4
7.
[g] Intangibles
(Net). Intangible assets include a variety of asset types,
the major part of which are assumed not to have any realizable
value. The Debtors estimate an overall 6% to 13% realization rate
on total net book value as of July 31, 2019, which is based on
realizing proceeds from sale of Internet Protocol v4 addresses held
by certain Debtors at an estimated range of market
values.
8.
[h] Global Intercompany
Note (Secured). Fusion Connect, Inc. is owed $2.0 million
from Primus Management ULC on account of the Global Intercompany
Note that is secured by the assets of Primus Management ULC, the
Debtors’ principal Canadian non-debtor subsidiary. The
Debtors estimate 100% realization on this note
receivable.
9.
[i] Intercompany Note
(Unsecured). Certain Debtors are owed $29.8 million in
aggregate from Primus Management ULC on account of an unsecured
intercompany note. The estimated realization rate on this note
receivable is 0% to 35%.
10.
[j] Asset Sale
Commissions. The Debtors estimate a 10% commission cost on
the proceeds realized from sale of inventory and net property,
plant, and equipment.
11.
[k] Chapter 7
Administrative Claims and Expenses. These claims represent
the estimated chapter 7 operating and administrative expenses,
costs of the chapter 7 trustee’s professionals, and other
associated costs.
a.
Operating Expenses.
Operating expenses incurred following the Conversion Date consist
primarily of liquidation expenses, including payroll, office and
administration costs.
b.
Chapter 7 Trustee
Professional Fees. Legal and financial professionals
assisting the chapter 7 trustee are estimated to cost $200,000 to
$300,000 for the entirety of the liquidation period.
c.
Chapter 7 Trustee
Fees. The Liquidation Analysis assumes that the chapter 7
trustee would be compensated in accordance with the guidelines of
section 326 of the Bankruptcy Code.
12.
[l] Accrued & Unpaid
Estate Professional Fees. As provided in the DIP Credit
Agreement, an amount equal to the aggregate of (i) all unpaid U.S.
Trustee fees; (ii) professional fees incurred through the
Conversion Date by advisors to the Debtors and Unsecured
Creditors’ Committee;and (iii) a further amount of up to $2.5
million of post-Conversion Date professional fees incurred by
advisors to the Debtors and Unsecured Creditors’ Committee
otherwise allocable to the First Lien Lenders and Second Lien
lenders is carved out for chapter 7 administrative claims and
chapter 7 trustee expenses.
5
13.
[m] Collection
Costs. It is assumed that a chapter 7 trustee would retain
or hire personnel to conduct a collection effort for outstanding
accounts receivable. The Debtors estimate that the costs associated
with collecting accounts receivable, including salaries for the
collections team, office rent, subscription costs for billing
systems, and professional fees would range from $1.2 million to
$1.6 million. The chapter 7 trustee is assumed to be reimbursed for
such costs from the proceeds of collection of accounts receivable
otherwise allocable to the First Lien Lenders and Second Lien
lenders.
F.
Conclusion
Based
on the assumptions outlined herein, the Debtors project they would
realize $84.6 million to $111.3 million in net liquidation proceeds
from their encumbered assets in a chapter 7 liquidation,
representing 13% to 17% of aggregate net book value. After
estimated asset sale commissions, chapter 7 administrative claims
and operating expenses, the carve-out for accrued and unpaid estate
professional fees, costs for collection of receivables, and
repayment of the loans under the DIP Credit Agreement, recovery to
holders of First Lien Claims is estimated to range from $10.8
million to $36.4 million, or a recovery rate of 2% to
6%.
Holders
of Second Lien Claims are not projected to realize any recoveries
in a chapter 7 liquidation from the encumbered assets. Holders of
General Unsecured Claims, including the Term Loan Deficiency Claim
and the Second Lien Deficiency Claim, against the estates of all
Debtors are not expected to realize any recoveries in a chapter 7
liquidation. Holders of Parent Equity Interests and Subordinated
Securities Claims are not expected to realize any recoveries in a
chapter 7 liquidation.
G.
Estimated
Recovery by Creditor Class
Creditor
recoveries under the Plan and under a hypothetical chapter 7
liquidation are summarized below.
6
[a]
Class 1:
Priority Non-Tax Claims. Holders of Priority Non-Tax Claims
are expected to receive full recovery both under the Plan and a
hypothetical chapter 7 liquidation.
[b]
Class 2: Other
Secured Claims. Holders of Other Secured Claims are expected
to receive full recovery both under the Plan and a hypothetical
chapter 7 liquidation.
[c]
Class 3: First
Lien Claims. The estimated recovery for Holders of First
Lien Claims under the Plan is based on the valuation conclusions of
the Debtors’ investment banker, PJT Partners, which estimated
an enterprise value of $450 million to $550 million and a value of
plan consideration to the First Lien lenders aggregating from $364
million to $462 million. The Debtors estimate that, using
this valuation, Holders of First Lien Claims will receive a
recovery ranging from 60% to 76% under the Plan. Under a
chapter 7 liquidation it is estimated that Holders of First Lien
Claims will receive a recovery ranging from 2% to 6%.
[d]
Class 4: Second
Lien Claims. The estimated recovery for Holders of Second
Lien Claims under the Plan is based on the valuation conclusions of
the Debtors’ investment banker, PJT Partners, which estimated
an enterprise value of $450 million to $550 million and a value of
plan consideration to the Second Lien lenders aggregating from $3.6
million to $6.1 million. The Debtors estimate that, using this
valuation, Holders of Second Lien Claims will receive a recovery
ranging from 4% to 7% under the Plan. Under a chapter 7
liquidation, Holders of Second Lien Claims are expected to receive
no recovery.
[e]
Class 5:
General Unsecured Claims. Holders of General Unsecured
Claims will realize a recovery through interests in the Litigation
Trust received under the Plan. The amount and percentage recovery
of the interests in the Litigation Trust cannot be estimated
because the outcome and the amount and allocation of net proceeds
cannot be predicted at this time. The estimated recovery for
Holders of General Unsecured Claims under a hypothetical chapter 7
liquidation is 0%.
7
Exhibit E
VALUATION ANALYSIS1
THE
INFORMATION CONTAINED HEREIN IS NOT A PREDICTION OR GUARANTEE OF
THE ACTUAL MARKET VALUE THAT MAY BE REALIZED THROUGH THE SALE OF
ANY SECURITIES TO BE ISSUED PURSUANT TO THE PLAN. THIS INFORMATION
IS PRESENTED SOLELY FOR THE PURPOSE OF PROVIDING ADEQUATE
INFORMATION UNDER SECTION 1125 OF THE BANKRUPTCY CODE TO ENABLE THE
HOLDERS OF CLAIMS ENTITLED TO VOTE TO ACCEPT OR REJECT THE PLAN TO
MAKE AN INFORMED JUDGMENT ABOUT THE PLAN AND SHOULD NOT BE USED OR
RELIED UPON FOR ANY OTHER PURPOSE, INCLUDING THE PURCHASE OR SALE
OF CLAIMS AGAINST THE DEBTORS OR ANY OF THEIR
AFFILIATES.
Solely
for the purposes of the Plan and the Disclosure Statement, PJT
Partners LP (“PJT”), as investment banker to the
Debtors, has estimated a range of total enterprise value
(“Enterprise
Value”) and implied equity value (“Equity Value”) for the Reorganized
Debtors pro forma for the transactions contemplated by the Plan
(the “Valuation
Analysis”). The Valuation Analysis is based on
financial and other information provided by the Debtors’
management, as well as the financial projections attached to the
Disclosure Statement (the “Financial Projections”), and
information provided by other sources. The valuation estimates set
forth herein represent valuation analyses of the Reorganized
Debtors generally based on the application of customary valuation
techniques to the extent deemed appropriate by PJT. The Valuation
Analysis is dated as of September 12, 2019 and is based on data and
information as of that date. PJT makes no representations as to
changes to such data and information that may have occurred since
September 12, 2019.
The
preparation of the Valuation Analysis is a complex analytical
process involving subjective determinations about which
methodologies of financial analysis are most appropriate and
relevant and the application of those methodologies to particular
facts and circumstances in a manner that is not readily susceptible
to summary description. In preparing its valuation, PJT evaluated:
(a) discounted cash flow analysis, (b) comparable companies
analysis, and (c) non-binding bids received as part of the sale
process.
The Valuation Analysis considered the non-binding
indications of interest received from prospective purchasers as
part of the sale process that PJT conducted prior to and during the
Debtors’ chapter 11 cases (the “Sale Process”). Certain prospective purchasers submitted
their indications of interest after signing non-disclosure
agreements with the Debtors and receiving extensive information
through an electronic data room. In total, PJT contacted 75
potential purchasers, more than 25 of whom signed a non-disclosure
agreement with the Company and received a confidential information
memorandum and access to an electronic dataroom. PJT received three
non-binding indications of interest for the Company’s entire
business, including its U.S. and Canadian operations, and continued
to facilitate due diligence and purchase price discussions with
these parties until the termination of the U.S. sale process on
August 27, 2019.
Capitalized
terms used but not otherwise defined herein shall have the meanings
ascribed to such terms in the Disclosure Statement (ECF No.
369) or the Plan (ECF No. 368), as applicable.
THE
VALUATION ANALYSIS REFLECTS WORK PERFORMED BY PJT ON THE BASIS OF
INFORMATION IN RESPECT OF THE BUSINESSES AND ASSETS OF THE DEBTORS
AVAILABLE TO PJT AS OF SEPTEMBER 12, 2019. IT SHOULD BE UNDERSTOOD
THAT, ALTHOUGH SUBSEQUENT DEVELOPMENTS MAY HAVE AFFECTED OR MAY
AFFECT PJT’S CONCLUSIONS, PJT DOES NOT HAVE ANY OBLIGATION TO
UPDATE, REVISE, OR REAFFIRM THE VALUATION ANALYSIS AND DOES NOT
INTEND TO DO SO.
PJT DID
NOT INDEPENDENTLY VERIFY THE FINANCIAL PROJECTIONS OR OTHER
INFORMATION THAT PJT USED IN THE VALUATION ANALYSIS, AND NO
INDEPENDENT VALUATIONS OR APPRAISALS OF THE DEBTORS OR THEIR ASSETS
WERE SOUGHT OR OBTAINED IN CONNECTION THEREWITH. THE VALUATION
ANALYSIS WAS DEVELOPED SOLELY FOR PURPOSES OF THE PLAN AND THE
ANALYSIS OF POTENTIAL RELATIVE RECOVERIES TO CREDITORS THEREUNDER.
THE VALUATION ANALYSIS REFLECTS THE APPLICATION OF VARIOUS
VALUATION TECHNIQUES, DOES NOT PURPORT TO BE AN OPINION AND DOES
NOT PURPORT TO REFLECT OR CONSTITUTE AN APPRAISAL, LIQUIDATION
VALUE, OR ESTIMATE OF THE ACTUAL MARKET VALUE THAT MAY BE REALIZED
THROUGH THE SALE OF ANY SECURITIES TO BE ISSUED OR ASSETS TO BE
SOLD PURSUANT TO THE PLAN, WHICH MAY BE SIGNIFICANTLY DIFFERENT
THAN THE AMOUNTS SET FORTH IN THE VALUATION ANALYSIS.
THE
VALUE OF AN OPERATING BUSINESS IS SUBJECT TO NUMEROUS UNCERTAINTIES
AND CONTINGENCIES THAT ARE DIFFICULT TO PREDICT AND WILL FLUCTUATE
WITH CHANGES IN FACTORS AFFECTING THE FINANCIAL CONDITION AND
PROSPECTS OF SUCH A BUSINESS. AS A RESULT, THE VALUATION ANALYSIS
IS NOT NECESSARILY INDICATIVE OF ACTUAL OUTCOMES, WHICH MAY BE
SIGNIFICANTLY MORE OR LESS FAVORABLE THAN THOSE SET FORTH HEREIN.
BECAUSE SUCH ESTIMATES ARE INHERENTLY SUBJECT TO UNCERTAINTIES,
NEITHER THE DEBTORS, PJT, NOR ANY OTHER PERSON ASSUMES
RESPONSIBILITY FOR THEIR ACCURACY. IN ADDITION, THE POTENTIAL
VALUATION OF NEWLY ISSUED FUNDED DEBT AND SECURITIES IS SUBJECT TO
ADDITIONAL UNCERTAINTIES AND CONTINGENCIES, ALL OF WHICH ARE
DIFFICULT TO PREDICT. ACTUAL MARKET PRICES OF SUCH FUNDED DEBT AND
SECURITIES AT ISSUANCE WILL DEPEND UPON, AMONG OTHER THINGS,
PREVAILING INTEREST RATES, CONDITIONS IN THE FINANCIAL MARKETS, THE
ANTICIPATED INITIAL FUNDED DEBT AND SECURITIES HOLDINGS OF
PREPETITION CREDITORS, SOME OF WHICH MAY PREFER TO LIQUIDATE THEIR
INVESTMENT RATHER THAN HOLD IT ON A LONG-TERM BASIS, THE
POTENTIALLY DILUTIVE IMPACT OF CERTAIN EVENTS, INCLUDING THE
ISSUANCE OF EQUITY SECURITIES PURSUANT TO A MANAGEMENT INCENTIVE
PLAN, AND OTHER FACTORS THAT GENERALLY INFLUENCE THE PRICES OF
FUNDED DEBT.
Management of the
Debtors advised PJT that the Financial Projections were reasonably
prepared in good faith and on a basis reflecting the Debtors’
best estimates and judgments as to the future operating and
financial performance of the Reorganized Debtors. If the business
performs at levels below or above those set forth in the Financial
Projections such performance may have a materially negative or
positive impact, respectively, on the valuation of the Reorganized
Debtors and the Enterprise Value thereof.
In
preparing the Valuation Analysis, PJT has, among other things: (1)
reviewed certain historical financial results of the Debtors; (2)
reviewed certain financial and
operating data of the Debtors, including the Financial Projections;
(3) discussed with certain of the Debtors’ senior executives
and third-party advisors the current operations and prospects of
the Debtors; (4) discussed with certain of the Debtors’
senior executives key assumptions related to the Financial
Projections; (5) prepared discounted cash flow analyses based on
the Financial Projections; (6) considered the market value of
certain publicly-traded companies in businesses reasonably
comparable to the operating business of the Debtors; (7) considered
the results of the Sale Process, including the non-binding
indications of interest received; (8) considered certain economic
and industry information that PJT deemed generally relevant to the
Debtors; (9) conducted such other analyses as PJT deemed necessary
and/or appropriate under the circumstances; and (10) considered a
range of potential risk factors.
PJT
assumed, without independent verification, the accuracy,
completeness, and fairness of all of the financial and other
information available to it from public sources or as provided to
PJT by the Debtors or their representatives. PJT also assumed that
the Financial Projections have been reasonably prepared on a basis
reflecting the Debtors’ best estimates and good faith
judgment as to future operating and financial performance. To the
extent the valuation is dependent upon the Reorganized
Debtors’ achievement of the Financial Projections, the
Valuation Analysis must be considered speculative. PJT does not
make any representation or warranty as to the fairness of the terms
of the Plan.
In
addition to the foregoing, PJT relied upon the following
assumptions in preparing the Valuation Analysis:
1.
the
Reorganized Debtors will be able to maintain adequate liquidity to
operate in accordance with the Financial Projections;
2.
the
Reorganized Debtors will operate consistently within the levels
specified in the Financial Projections;
3.
the Plan will become effective on December 31,
2019 (the “Assumed Effective
Date”);
4.
future
values were appropriately discounted to December 31, 2019;
and
5.
general
financial and market conditions as of the Assumed Effective Date
will not differ materially from those conditions prevailing as of
the date of the Valuation Analysis of September 12,
2019.
As
a result of such analyses, review, discussions, considerations, and
assumptions, PJT estimated the Enterprise Value and implied Equity
Value of the Reorganized Debtors as of the Assumed Effective Date
as shown in the table below. The Equity Value shown below is
subject to dilution as a result of the issuance of any equity under
the Management Incentive Plan and any conversion of the Warrants,
to the extent applicable.
|
($ in
millions)
|
Low
|
Mid
|
High
|
|
Enterprise Value
(at 12/31/19)
|
$450
|
$500
|
$550
|
|
Less: Total Debt
and Capital Leases
|
(332)
|
(332)
|
(332)
|
|
Plus:
Cash
|
25
|
25
|
25
|
|
Equity Value (at
12/31/19)
|
$143
|
$193
|
$243
|
The
Valuation Analysis does not constitute a recommendation to any
Holder of Allowed Claims or any other person as to how such person
should vote or otherwise act with respect to the Plan. PJT has not
been requested to, and does not, express any view as to the
potential trading value of the Reorganized Debtors’ funded
debt and securities on issuance or at any other time.
THE
SUMMARY SET FORTH ABOVE DOES NOT PURPORT TO BE A COMPLETE
DESCRIPTION OF THE VALUATION ANALYSES PERFORMED BY PJT. THE
PREPARATION OF AN ESTIMATE OF VALUE INVOLVES VARIOUS DETERMINATIONS
AS TO THE MOST APPROPRIATE AND RELEVANT METHODS OF FINANCIAL
ANALYSIS AND THE APPLICATION OF THESE METHODS IN THE PARTICULAR
CIRCUMSTANCES AND, THEREFORE, SUCH AN ESTIMATE IS NOT READILY
SUSCEPTIBLE TO SUMMARY DESCRIPTION.
PJT
IS ACTING AS RESTRUCTURING ADVISOR TO THE DEBTORS, AND HAS NOT AND,
WILL NOT BE RESPONSIBLE FOR, AND HAS NOT AND WILL NOT PROVIDE ANY
TAX, ACCOUNTING, ACTUARIAL, LEGAL, OR OTHER SPECIALIST ADVICE TO
THE DEBTORS OR ANY OTHER PARTY IN CONNECTION WITH THE
DEBTORS’ CHAPTER 11 CASES, THE PLAN OR
OTHERWISE.
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