Court filing
Amended disclosure statement — In re KServicing (Bankr. D. Del.)
Filed December 30, 2022 in Kservicing Bankruptcy; one of 140 filings from this case.
Record facts
| Court | U.S. Bankruptcy Court for the District of Delaware |
|---|---|
| Filed | 2022-12-30 |
U.S. Bankruptcy Court for the District of Delaware · No. 22-10951 · Doc. 396 · 2022-12-30 · Docket on CourtListener
Full text
RLF1 28410146V.1
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
-----------------------------------------------------------
x
In re
:
Chapter 11
:
KABBAGE, INC. d/b/a KSERVICING, et al.,
:
Case No. 22-10951 (CTG)
:
:
Debtors.1
:
(Jointly Administered)
-----------------------------------------------------------
x
AMENDED DISCLOSURE STATEMENT FOR THE
AMENDED JOINT CHAPTER 11 PLAN OF LIQUIDATION
OF KABBAGE, INC. (d/b/a KSERVICING) AND ITS AFFILIATED DEBTORS
WEIL, GOTSHAL & MANGES LLP
Ray C. Schrock, P.C.
Candace M. Arthur
Natasha S. Hwangpo
Chase A. Bentley
767 Fifth Avenue
New York, New York 10153
Telephone: (212) 310-8000
Facsimile: (212) 310-8007
RICHARDS, LAYTON & FINGER, P.A.
Daniel J. DeFranceschi (No. 2732)
Amanda R. Steele (No. 5530)
Zachary I. Shapiro (No. 5103)
Matthew P. Milana (No. 6681)
One Rodney Square
920 N. King Street
Wilmington, Delaware 19801
Telephone: (302) 651-7700
Facsimile: (302) 651-7701
Attorneys for Debtors
and Debtors in Possession
Dated: December 30, 2022
Wilmington, Delaware
THIS IS NOT A SOLICITATION OF VOTES OF ACCEPTANCE OR REJECTION OF THE
PLAN. ACCEPTANCE OR REJECTIONS MAY NOT BE SOLICITED UNTIL A DISCLOSURE
STATEMENT HAS BEEN APPROVED BY THE BANKRUPTCY COURT.
1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification
number, as applicable are: Kabbage, Inc. d/b/a KServicing (3937); Kabbage Canada Holdings, LLC (N/A); Kabbage
Asset Securitization LLC (N/A); Kabbage Asset Funding 2017-A LLC (4803); Kabbage Asset Funding 2019-A
LLC (8973); and Kabbage Diameter, LLC (N/A). Kabbage is a trademark of American Express used under license;
Kabbage, Inc. d/b/a KServicing is not affiliated with American Express. The Debtors’ mailing and service address
is 925B Peachtree Street NE, Suite 383, Atlanta, GA 30309.
Case 22-10951-CTG Doc 396 Filed 12/30/22 Page 1 of 99
RLF1 28410146v.1
A SOLICITATION OF VOTES IS BEING CONDUCTED TO OBTAIN SUFFICIENT
ACCEPTANCES OF THE JOINT CHAPTER 11 PLAN OF KABBAGE, INC. (d/b/a
KSERVICING) AND ITS AFFILIATED DEBTORS (AS MAY BE AMENDED, MODIFIED, OR
SUPPLEMENTED FROM TIME TO TIME).
THE VOTING DEADLINE TO ACCEPT OR REJECT THE PLAN IS 4:00 P.M., PREVAILING
EASTERN TIME, ON FEBRUARY 21, 2023, UNLESS EXTENDED BY THE DEBTORS.
THE RECORD DATE FOR DETERMINING WHICH HOLDERS OF CLAIMS MAY VOTE ON
THE PLAN IS JANUARY 19, 2023 (THE “VOTING RECORD DATE”).
RECOMMENDATION BY THE DEBTORS
The Board of Directors of Kabbage, Inc. (d/b/a KServicing) and the board of directors, managers
or members, as applicable, of each of its affiliated Debtors have unanimously approved the
transactions contemplated by the Plan (as defined herein). The Debtors believe the Plan is in the
best interest of all stakeholders and recommend that all creditors whose votes are being solicited
submit ballots to accept the Plan.
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DISCLAIMER
THE DEBTORS ARE PROVIDING THE INFORMATION IN THIS DISCLOSURE
STATEMENT (THE “DISCLOSURE STATEMENT”) TO CERTAIN HOLDERS OF CLAIMS OR
INTERESTS FOR PURPOSES OF SOLICITING VOTES TO ACCEPT OR REJECT THE JOINT
CHAPTER 11 PLAN OF KABBAGE, INC. (D/B/A KSERVICING) AND ITS AFFILIATED
DEBTORS (THE “PLAN”), WHICH PLAN THE DEBTORS ARE SEEKING TO HAVE
CONFIRMED BY THE BANKRUPTCY COURT. THE INFORMATION CONTAINED IN THIS
DISCLOSURE
STATEMENT
IS
INCLUDED
FOR
PURPOSES
OF
SOLICITING
ACCEPTANCES TO, AND CONFIRMATION OF, THE PLAN AND MAY NOT BE RELIED ON
FOR ANY OTHER PURPOSE. PRIOR TO DECIDING WHETHER AND HOW TO VOTE ON
THE PLAN, EACH HOLDER ENTITLED TO VOTE SHOULD CAREFULLY CONSIDER ALL
OF THE INFORMATION INCLUDED IN THIS DISCLOSURE STATEMENT, INCLUDING THE
RISK FACTORS DESCRIBED IN ARTICLE VIII HEREIN.
THE DEBTORS URGE EACH HOLDER OF A CLAIM OR INTEREST TO CONSULT
WITH ITS OWN ADVISORS WITH RESPECT TO ANY LEGAL, FINANCIAL, SECURITIES,
TAX, OR BUSINESS ADVICE IN REVIEWING THIS DISCLOSURE STATEMENT, THE PLAN,
AND ALL OF THE DOCUMENTS NECESSARY TO EFFECTUATE THE PLAN.
FURTHERMORE, THE BANKRUPTCY COURT’S APPROVAL OF THE ADEQUACY OF THE
INFORMATION
CONTAINED
IN
THIS
DISCLOSURE
STATEMENT
DOES
NOT
CONSTITUTE A DETERMINATION OR RECOMMENDATION BY THE BANKRUPTCY
COURT REGARDING THE FAIRNESS OR THE MERITS OF THE PLAN.
THIS
DISCLOSURE
STATEMENT
CONTAINS
SUMMARIES
OF
CERTAIN
PROVISIONS OF THE PLAN, CERTAIN STATUTORY PROVISIONS, AND CERTAIN
DOCUMENTS RELATING TO THE PLAN. IN THE EVENT OF ANY CONFLICT,
INCONSISTENCY, OR DISCREPANCY BETWEEN THE TERMS AND PROVISIONS IN THE
PLAN AND THIS DISCLOSURE STATEMENT, THE PLAN SHALL GOVERN FOR ALL
PURPOSES. ALL HOLDERS OF CLAIMS SHOULD READ THIS DISCLOSURE STATEMENT
AND THE PLAN IN THEIR ENTIRETY BEFORE VOTING ON THE PLAN.
THE STATEMENTS CONTAINED HEREIN HAVE BEEN MADE AS OF THE DATE
HEREOF UNLESS OTHERWISE SPECIFIED. HOLDERS OF CLAIMS AND INTERESTS
REVIEWING THIS DISCLOSURE STATEMENT SHOULD NOT INFER AT THE TIME OF
SUCH REVIEW THAT THERE HAVE BEEN NO CHANGES IN THE FACTS SET FORTH
HEREIN. ALTHOUGH THE DEBTORS HAVE MADE CONSIDERABLE EFFORTS TO
DISCLOSE WHERE CHANGES IN PRESENT CIRCUMSTANCES COULD REASONABLY BE
EXPECTED TO MATERIALLY AFFECT THE RECOVERIES UNDER THE PLAN, THIS
DISCLOSURE STATEMENT IS QUALIFIED TO THE EXTENT CERTAIN EVENTS DO OR DO
NOT OCCUR.
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH
SECTION 1125 OF TITLE 11 OF THE UNITED STATES CODE (THE “BANKRUPTCY CODE”)
AND RULE 3016(B) OF THE FEDERAL RULES OF BANKRUPTCY PROCEDURE
(THE “BANKRUPTCY RULES”) AND IS NOT NECESSARILY IN ACCORDANCE WITH
FEDERAL OR STATE SECURITIES LAWS OR OTHER SIMILAR LAWS. THIS DISCLOSURE
STATEMENT WAS NOT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
(THE “SEC”) OR ANY STATE AUTHORITY AND NEITHER THE SEC NOR ANY STATE
AUTHORITY HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS DISCLOSURE
STATEMENT OR UPON THE MERITS OF THE PLAN. ALL PERSONS OR ENTITIES
Case 22-10951-CTG Doc 396 Filed 12/30/22 Page 3 of 99
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RLF1 28410146v.1
SHOULD EVALUATE THIS DISCLOSURE STATEMENT AND THE PLAN IN LIGHT OF THE
SPECIFIC PURPOSE FOR WHICH THE DOCUMENTS WERE PREPARED.
THE DEBTORS MAKE STATEMENTS IN THIS DISCLOSURE STATEMENT THAT
MAY BE CONSIDERED FORWARD-LOOKING STATEMENTS UNDER SECTION 27A AND
SECTION 21E OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”). STATEMENTS CONCERNING THESE AND OTHER MATTERS ARE
NOT GUARANTEES AND REPRESENT THE DEBTORS’ ESTIMATES AND ASSUMPTIONS
ONLY AS OF THE DATE SUCH STATEMENTS WERE MADE AND INVOLVE KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES, AND OTHER UNKNOWN FACTORS THAT COULD
IMPACT THE DEBTORS’ PLAN OR DISTRIBUTIONS THEREUNDER. IN ADDITION TO
STATEMENTS THAT EXPLICITLY DESCRIBE SUCH RISKS AND UNCERTAINTIES,
READERS ARE URGED TO CONSIDER STATEMENTS LABELED WITH THE TERMS
“BELIEVES,” “BELIEF,” “EXPECTS,” “INTENDS,” “ANTICIPATES,” “PLANS,” OR SIMILAR
TERMS TO BE UNCERTAIN AND FORWARD-LOOKING. CREDITORS AND OTHER
INTERESTED PARTIES SHOULD ALSO REVIEW THE SECTION OF THIS DISCLOSURE
STATEMENT ENTITLED “RISK FACTORS” FOR A DISCUSSION OF CERTAIN FACTORS
THAT MAY AFFECT THE PLAN AND DISTRIBUTIONS THEREUNDER.
IN PREPARING THIS DISCLOSURE STATEMENT, THE DEBTORS RELIED ON
FINANCIAL DATA DERIVED FROM THEIR BOOKS AND RECORDS OR THAT WAS
OTHERWISE MADE AVAILABLE TO THEM AT THE TIME OF SUCH PREPARATION AND
ON VARIOUS ASSUMPTIONS REGARDING THE DEBTORS’ BUSINESS. ALTHOUGH THE
DEBTORS BELIEVE THAT SUCH FINANCIAL INFORMATION FAIRLY REFLECTS THE
FINANCIAL CONDITION OF THE DEBTORS AS OF THE DATE HEREOF AND THAT THE
ASSUMPTIONS REGARDING FUTURE EVENTS REFLECT REASONABLE BUSINESS
JUDGMENTS, NO REPRESENTATIONS OR WARRANTIES ARE MADE AS TO THE
ACCURACY
OF
THE
FINANCIAL
INFORMATION
CONTAINED
HEREIN
OR
ASSUMPTIONS REGARDING THE DEBTORS’ BUSINESS. THE DEBTORS EXPRESSLY
CAUTION READERS NOT TO PLACE UNDUE RELIANCE ON ANY FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN. FURTHER, THIS DISCLOSURE STATEMENT DOES
NOT CONSTITUTE, AND MAY NOT BE CONSTRUED AS, AN ADMISSION OF FACT,
LIABILITY, STIPULATION, OR WAIVER OF ANY CLAIM.
ALTHOUGH THE DEBTORS MAY SUBSEQUENTLY UPDATE THE INFORMATION
INCLUDED IN THIS DISCLOSURE STATEMENT, THE DEBTORS HAVE NO AFFIRMATIVE
DUTY TO DO SO, AND EXPRESSLY DISCLAIM ANY DUTY TO PUBLICLY UPDATE ANY
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION,
FUTURE EVENTS, OR OTHERWISE. HOLDERS OF CLAIMS AND INTERESTS REVIEWING
THIS DISCLOSURE STATEMENT SHOULD NOT INFER THAT, AT THE TIME OF THEIR
REVIEW, THE FACTS SET FORTH HEREIN HAVE NOT CHANGED SINCE THIS
DISCLOSURE STATEMENT WAS FILED. THE INFORMATION CONTAINED HEREIN IS
SUBJECT TO COMPLETION OR AMENDMENT AND THE DEBTORS RESERVE THE RIGHT
TO FILE AN AMENDED PLAN AND RELATED AMENDED DISCLOSURE STATEMENT IF
NECESSARY.
CONFIRMATION AND CONSUMMATION OF THE PLAN ARE SUBJECT TO
CERTAIN MATERIAL CONDITIONS PRECEDENT DESCRIBED IN ARTICLE VI OF THE
PLAN. THERE IS NO ASSURANCE THAT THE PLAN WILL BE CONFIRMED OR, IF
CONFIRMED, THAT SUCH MATERIAL CONDITIONS PRECEDENT WILL BE SATISFIED
OR WAIVED.
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THE DEBTORS HAVE NOT AUTHORIZED ANY ENTITY TO DISCLOSE ANY
INFORMATION ABOUT OR CONCERNING THE PLAN OTHER THAN THAT WHICH IS
CONTAINED IN THIS DISCLOSURE STATEMENT. THE DEBTORS HAVE NOT
AUTHORIZED ANY REPRESENTATIONS CONCERNING THE DEBTORS OR THE VALUE
OF THEIR PROPERTY OTHER THAN AS SET FORTH IN THIS DISCLOSURE STATEMENT.
IF THE PLAN IS CONFIRMED BY THE BANKRUPTCY COURT AND THE
EFFECTIVE DATE OCCURS, ALL HOLDERS OF CLAIMS AND INTERESTS (INCLUDING
THOSE HOLDERS OF CLAIMS OR INTERESTS WHO DO NOT SUBMIT BALLOTS TO
ACCEPT OR REJECT THE PLAN, OR WHO ARE NOT ENTITLED TO VOTE ON THE PLAN)
WILL BE BOUND BY THE TERMS OF THE PLAN AND ANY TRANSACTIONS
CONTEMPLATED THEREBY.
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TABLE OF CONTENTS
I. INTRODUCTION ................................................................................................................................... 3
A.
Overview of the Plan .......................................................................................................... 6
B.
Implementation ................................................................................................................... 7
C.
Overview of the Plan and Summary of Plan Treatment ..................................................... 8
D.
Inquiries ............................................................................................................................ 17
II. OVERVIEW OF COMPANY’S OPERATIONS.............................................................................. 17
A.
The Debtors’ Legacy Business ......................................................................................... 17
B.
The Debtors’ PPP Business .............................................................................................. 18
C.
The Debtors’ Ongoing Obligations for their PPP Business .............................................. 22
D.
Compliance with Regulatory Obligations and Ongoing Investigations ............................ 23
III. CORPORATE AND CAPITAL STRUCTURE .............................................................................. 24
A.
Corporate Structure ........................................................................................................... 24
B.
Management ...................................................................................................................... 24
C.
Board of Directors ............................................................................................................ 24
D.
Prepetition Capital Structure ............................................................................................. 25
IV. CIRCUMSTANCES LEADING TO THESE CHAPTER 11 CASES ........................................... 26
A.
Lack of Clarity in SBA Guidance ..................................................................................... 26
B.
The Disputes ..................................................................................................................... 26
C.
Liquidity Constraints ........................................................................................................ 31
D.
Debtors’ Prepetition Settlement Efforts ............................................................................ 33
V. OVERVIEW OF CHAPTER 11 CASES ........................................................................................... 33
A.
First Day Motions ............................................................................................................. 33
B.
Procedural Motions ........................................................................................................... 34
C.
Retention of Chapter 11 Professionals .............................................................................. 34
D.
Consensual Use of Cash Collateral ................................................................................... 34
E.
CB Settlement Agreement and Subsequent Litigation ..................................................... 35
F.
Extension of Time to Reject Commercial Leases and Exclusive Periods ........................ 36
G.
Statements and Schedules, and Claims Bar Dates ............................................................ 37
H.
Non-Executive KERP ....................................................................................................... 37
I.
Debtors’ Potential Causes of Action ................................................................................. 38
J.
PPP Loan Processing ........................................................................................................ 39
VI. SUMMARY OF PLAN ...................................................................................................................... 40
A.
Administrative Expenses and Priority Claims .................................................................. 40
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B.
Treatment of Claims and Interests .................................................................................... 43
C.
Means for Implementation ................................................................................................ 48
D.
Distributions ...................................................................................................................... 55
E.
Procedures for Disputed Claims ....................................................................................... 59
F.
Executory Contracts and Unexpired Leases ..................................................................... 61
G.
Conditions Precedent to the Effective Date ...................................................................... 65
H.
Effect of Confirmation ...................................................................................................... 66
I.
Retention of Jurisdiction ................................................................................................... 71
J.
Miscellaneous Provisions ................................................................................................. 72
VII. CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF PLAN .............................. 75
A.
Consequences to the Debtors ............................................................................................ 76
B.
Consequences to Holders of Allowed General Unsecured Claims ................................... 78
VIII. CERTAIN RISK FACTORS TO BE CONSIDERED ................................................................. 79
A.
Certain Bankruptcy Law Considerations .......................................................................... 80
B.
Additional Factors ............................................................................................................. 83
IX. VOTING PROCEDURES AND REQUIREMENTS ...................................................................... 84
A.
Voting Deadline ................................................................................................................ 84
B.
Voting Procedures ............................................................................................................. 85
C.
Parties Entitled to Vote ..................................................................................................... 85
X. CONFIRMATION OF PLAN ............................................................................................................. 87
A.
Confirmation Hearing ....................................................................................................... 87
B.
Objections to Confirmation .............................................................................................. 87
C.
Requirements for Confirmation of Plan ............................................................................ 89
XI. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF PLAN ....................... 92
A.
Alternative Plan ................................................................................................................ 93
B.
Liquidation Under Chapter 7 or Applicable Non-Bankruptcy Law .................................. 93
XII. CONCLUSION AND RECOMMENDATION .............................................................................. 94
EXHIBIT A: Plan
EXHIBIT B:
Organizational Structure Chart
EXHIBIT C:
Liquidation Analysis
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I. INTRODUCTION
Kabbage, Inc. (d/b/a KServicing) (“KServicing”) and its affiliated debtors (collectively, the “Debtors” and
together with their non-debtor affiliates, the “Company”) submit this Disclosure Statement (as amended,
modified, or supplemented) pursuant to Section 1125 of the Bankruptcy Code in connection with the
solicitation of votes with respect to the Amended Joint Chapter 11 Plan of Liquidation Kabbage, Inc. (d/b/a
KServicing) and its Affiliated Debtors, dated December 30, 2022 (as amended, modified, or supplemented,
the “Plan”) [Docket No. [•]].2 The 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 District of Delaware (the “Bankruptcy Court”) on October 3, 2022 (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 Plan to
make an informed decision on whether to vote to accept or reject the Plan. This Disclosure Statement
contains summaries of the Plan, certain statutory provisions, events contemplated in the Chapter 11 Cases,
and certain documents related to the Plan.
The Company, an online loan servicer founded in 2008, is in the process of winding down its business after
the sale of substantially all of its assets to affiliates of American Express (“AmEx”) in October 2020 (the
“AmEx Transaction”),3 and filed these Chapter 11 Cases to implement the wind down of these businesses
pursuant to a chapter 11 plan and the Bankruptcy Code. Following the AmEx Transaction, the Company’s
business solely consists of servicing its loan portfolio, which, as of the Commencement Date, contains (a)
loans issued to small businesses under the Paycheck Protection Program (the “PPP” and the loans provided
thereunder, the “PPP Loans”) during the height of this country’s public health and economic crisis caused
by COVID-19, with an aggregate outstanding principal amount of approximately $1.3 billion, and (b) a
relatively small portfolio of non-PPP small business loans (the “Legacy Loans” and, together with the PPP
Loans, the “Loan Portfolio”), with an aggregate outstanding principal amount of approximately
$17 million. The loans in the Loan Portfolio are scheduled to mature by 2026.
With over a decade of experience building and operating a sophisticated online platform to lend to, and
service loans for, small- and mid-sized businesses, the Company was uniquely positioned to fulfill the U.S.
government’s urgent need to quickly distribute billions of dollars of aid to small businesses during the
pandemic. Indeed, the Company was an established lender for small businesses for years before getting
involved in the PPP. The U.S. Small Business Administration (the “SBA”) launched the PPP in April 2020
shortly after the U.S. government’s initial directive under the Coronavirus Aid, Relief, and Economic
Security Act (the “CARES Act”) to distribute emergency funds to small businesses. The SBA needed
lending partners for the PPP, and the Company, with a proven track record and experience with the exact
target demographic, provided an optimal pairing. The Company became an authorized PPP lender pursuant
to an agreement with the SBA on April 9, 2020.
2 Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Plan and the
Declaration of Deborah Rieger-Paganis in Support of Debtors’ Chapter 11 Petitions and First-Day Pleadings
[Docket No. 13] (the “First Day Declaration”). To the extent any inconsistencies exist between this Disclosure
Statement and the Plan, the Plan shall govern.
3 The legacy entities remaining after the close of the AmEx Transaction are the Debtors in these Chapter 11 Cases.
Notably, no directors or executive officers remain today from the pre-sale entity, and an entirely new leadership
team and board, including independent directors, is in place today. As used herein, the “Company” shall refer to
either the pre-sale or post-sale entity, as applicable.
Case 22-10951-CTG Doc 396 Filed 12/30/22 Page 8 of 99
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Unequivocally, the Company provided a lifeline to small businesses, sole proprietors, and non-employer
firms that historically have had difficulty accessing capital, and for which such access was made even more
challenging during the COVID-19 pandemic. Unlike institutional lenders and other servicers that limited
PPP relief to existing borrowers (or marginally participated in the PPP because of the relatively nominal
fees associated with originating or servicing PPP loans and the low interest rate of PPP Loans, among other
reasons),4 approximately 98 percent of the Company’s PPP Loans consisted of borrowers without an
existing relationship with the Company. Despite constantly changing rules and guidance from the SBA in
the midst of a global pandemic, the Company met the SBA and U.S. government’s demands to distribute
the emergency relief as quickly and widely as possible to eligible borrowers. As the nation witnessed the
disastrous impact of COVID-19, the Company was instrumental in getting necessary funds to small
businesses as quickly as the SBA desired and as a result preserved hundreds of thousands of jobs.
Of the over $7 billion of PPP Loans the Company originated, as of the Commencement Date, the Company
has successfully serviced approximately 80 percent, by aggregate principal amount; meaning, borrowers
either repaid their respective PPP Loans, Loan Forgiveness applications were successfully processed, or
the PPP lenders were otherwise paid through Guaranty Purchase. As of December 22, 2022, the Company’s
Loan Portfolio contains approximately 41,000 PPP Loans with an aggregate outstanding principal amount
of approximately $1.2 billion. Although the Company was able to successfully process over 278,000 PPP
Loans with a new management team and a materially leaner workforce following the AmEx Transaction,
processing the remaining PPP Loans has presented a number of challenges for the Company, particularly
in light of the extreme administrative and cost burdens placed on the Company due to issues discussed
herein.
Initially heralded for staving off the potentially deleterious effects of COVID-19 health measures on small
businesses, the now-concluded PPP faces scrutiny due to lender confusion with deciphering unclear and
frequently-evolving SBA guidance, or lack thereof, limited information technology systems, and incidents
of borrower misrepresentations. In addition to the operational hurdles in processing the balance of its Loan
Portfolio, the Company is currently embroiled in a number of discussions and disputes related to its
participation in the PPP—nearly all of which are vigorously disputed by the Company.
Despite adherence to express SBA guidance, the Company is embroiled in government investigations,
litigations, and stakeholder disputes related to the PPP program. The hindsight investigations and
misdirected scrutiny severely hampered the Company’s ability to accomplish its mission of servicing the
balance of the PPP Loans in its Loan Portfolio and have caused significant additional costs to winding down
its business. The overall impact of the Disputes on the Company’s operations is compounded by the
Company’s limited go-forward cash flows, inability to originate any new loans due to non-compete
covenants contained in documentation associated with the AmEx Transaction, inability to obtain certain
accommodations needed to address the expiration of applicable Loan Forgiveness and Guaranty Purchase
application deadlines that can only be granted by the SBA,5 and a substantially new workforce in place
following the AmEx Transaction that has limited firsthand knowledge of the Company’s legacy operations.
Prior to commencing these Chapter 11 Cases, the Debtors, led by a new management team and board that
were put in place at various times following the AmEx Transaction, expended substantial time addressing
4 The SBA paid lenders the following fees for processing PPP Loans: five percent for PPP Loans of not more than
$350,000; three percent for PPP Loans of more than $350,000 and less than $2,000,000; and one percent for PPP
Loans of at least $2,000,000. The interest rate on PPP Loans is one percent. Lenders were not otherwise allowed
to collect any fees from borrowers.
5 The deadline to submit a Loan Forgiveness application is the maturity date of the loan. Further, the SBA is not
obligated to honor the Guaranty Purchase if a PPP lender does not apply within 180 days following maturity. Loan
maturities can be extended with cooperation from the SBA.
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information requests and subpoena demands, engaged with all stakeholders party to a Dispute in an attempt
to reach workable resolutions. Since the filing of the Chapter 11 Cases, the Debtors have fully resolved the
consensual use of cash collateral with the Reserve Bank in accordance with the Cash Collateral Order—the
Debtors’ secured creditor. And as of the date of this Disclosure Statement, the Debtors have also partially
resolved the CB Receivable dispute; section V.E provides additional information regarding the ongoing
litigation between the Debtors and CB in connection with the remaining $3 million due to the Debtors.
With the consensual use of cash collateral and the partially-resolved CB Receivable, the Debtors have
adequate liquidity to pursue a “funded transaction.” Given the influx of additional liquidity, (the Debtors
have approximately $25.5 million of unrestricted cash on-hand as of December 22, 2022) the Debtors
forecast that they will be able to service their remaining Loan Portfolio through the Plan Effective Date.
The Debtors have engaged in good faith negotiations with their constituents prior to and following the filing
of these Chapter 11 Cases and have filed an amended chapter 11 plan that removes the previous toggle
feature to reflect the additional liquidity received based on the agreement with the Reserve Bank regarding
the consensual use of cash collateral and the partially-resolved CB Receivable.
The proposed chapter 11 plan provides that KServicing shall continue to service all Pledged PPPLF
Loans, all CRB PPP Loans, and all CUBI PPP Loans in the ordinary course and in accordance with
the Program Agreements, CRB Agreements, and CUBI Agreements (including the Settlement and
Release Agreement, dated October 27, 2022, by and among KServicing and CUBI). KServicing
shall use commercially reasonably efforts to (i) assist the Federal Reserve Bank of San Francisco
(the “Reserve Bank”) and/or the Partner Banks to transfer servicing obligations to a third-party
loan servicer, or (ii) at the Debtors’ sole discretion, offer the Reserve Bank, CRB and/or CB,
continued servicing through a date certain.
The Debtors’ priority is to transfer the Debtors’ servicing obligations and believe that transfer of
the servicing obligations is the best path forward, but to protect the underlying borrowers, to the
extent necessary and possible, the Debtors may, in their sole discretion, offer continued post-
Effective Date servicing of PPP Loans at the cost of the Reserve Bank, CRB, and/or CB, as
applicable.
Any fees, costs, and expenses associated with the transfer of servicing obligations will not be borne
by the Debtors, and the Debtors, prior to the Effective Date of the Plan, will make commercially
reasonable efforts to assist the Partner Banks and the Reserve Bank, as applicable, with such
transfer of the Debtors’ servicing obligations to a third-party loan servicer to be selected with the
Partner Banks’ or the Reserve Banks’ consent and direction, respectively, by a date mutually agreed
but not later than the Effective Date of the Plan.
Any fees, costs, and expenses associated with the continued servicing of the PPP Loans following
the Plan Effective Date, as applicable, shall be funded by the Reserve Bank, CRB, or CB,
respectively, provided that, for the avoidance of doubt, to the extent the servicing costs are not
provided to the Debtors prior to the Effective Date, the Debtors shall not provide any Post-Effective
Date servicing for the applicable party.
Given the Debtors’ financial distress, they are utilizing the bankruptcy process to obtain a respite from
having to constantly defend against the Disputes, to provide a single forum to address the Disputes, to
further the orderly transferring of their servicing of the Pledged PPPLF Loans and other servicing, and to
hopefully emerge in a position to complete their wind down efforts for the benefit of tens of thousands of
remaining borrowers and the Debtors’ stakeholders that provided those loans to the borrowers.
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The Debtors believe that the Plan is fair and equitable, provides for a larger distribution to the Debtors’
creditors and Interest holders than would otherwise result from any other transaction or a liquidation under
chapter 7 of the Bankruptcy Code, and maximizes the value of the Debtors’ Estates. For the reasons
described herein, the Debtors recommend that each party entitled to vote on the Plan vote to accept the
Plan.
Section 1125 of the Bankruptcy Code requires a plan proponent to prepare a disclosure statement containing
information of a kind, and in sufficient detail, to enable a hypothetical reasonable investor to make an
informed judgment regarding acceptance of a chapter 11 plan. This Disclosure Statement is being
submitted in accordance with such requirements and includes, without limitation, information about:
the Debtors’ business, including their corporate history and organizational structure, business
operations, and prepetition capital structure and indebtedness (section III hereof);
key events leading to the Chapter 11 Cases, including the Debtors’ restructuring negotiations
(section IV hereof);
overview of the Chapter 11 Cases (section V hereof);
a summary of the Plan, including the classification and treatment of Claims and Interests under the
Plan, who is entitled to vote on the Plan, and how to vote thereon (section VI hereof);
certain tax consequences of the Plan (section VII hereof);
certain risk factors holders of Claims should consider before voting to accept or reject the Plan
(section VIII hereof);
voting procedures and requirements for the Plan (section IX hereof);
Plan confirmation procedures (section X hereof);
alternatives to the confirmation and consummation of the Plan (section XI hereof); and
the Debtors’ conclusion and recommendation (section XII hereof).
In light of the foregoing, the Debtors believe this Disclosure Statement contains “adequate information” to
enable a hypothetical reasonable investor to make an informed judgment about the Plan and complies with
all aspects of section 1125 of the Bankruptcy Code.
A.
Overview of the Plan
The Debtors originally filed a proposed chapter 11 plan on the Commencement Date [Docket No. 14] that
provided two options for implementation, depending on their ability to negotiate the consensual use of Cash
Collateral with the Reserve Bank and a successful settlement with CB. Given the Debtors’ ability to secure
liquidity through (a) successful negotiations with the Reserve Bank for the use of Cash Collateral (as
defined herein) for general corporate purposes, including to service loans and pay related fees and expenses
associated with the administration of the Chapter 11 Cases and (b) CB through the settlement agreement
and partial resolution of the CB Dispute as described in sections V.D and V.E respectively, the Debtors
filed a proposed amended chapter 11 Plan that removes the toggle mechanism for implementation and
provides that the Debtors will pursue a “funded transaction” and continue to operate its Loan Portfolio
Case 22-10951-CTG Doc 396 Filed 12/30/22 Page 11 of 99
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during these Chapter 11 Cases. The proposed Plan is the Debtors’ best option for mitigating potential
disruption to PPP borrowers and to maximize the value of its estates.
B.
Implementation
KServicing has been and will continue to service all Pledged PPPLF Loans, all CRB PPP Loans, and all
CB PPP Loans in the ordinary course and in accordance with the Program Agreements, CRB Agreements
and CB Agreements—including the Settlement and Release Agreement dated October 27, 2022 between
Kabbage, Inc. d/b/a/ KServicing and Customers Bank, respectively, until the Effective Date.
KServicing shall (i) use commercially reasonable efforts to assist the Reserve Bank, and/or Partner Banks
to transfer servicing obligations to a third-party loan servicer to be selected with the Reserve Bank’s CRB’s
and CB’s consent and direction, respectively, by a date to be mutually agreed but not later than the Effective
Date of the Plan, or (ii) at its sole discretion, offer the Reserve Bank, CRB, and/or CB, continued servicing
through a date to certain. Any fees, costs, or expenses associated with any transfer of servicing obligations
shall be borne by the Reserve Bank, CRB, or CB, respectively. For the avoidance of doubt, with respect to
the Reserve Bank, unless otherwise agreed by the Reserve Bank, such servicing transfer shall only pertain
to such Pledged PPPLF Loans that, as of the date of the transfer, shall not have been fully forgiven or
guarantee repurchased by the SBA or fully repaid by the borrower; provided, that with respect to any loan
files relating to non-transferred Pledged PPPLF Loans, the Reserve Bank shall at its option, transfer the
loan servicing files to an alternate servicer or otherwise maintain the loan servicing files.6
The Debtors’ priority is to transfer the Debtors’ servicing obligations and believe that transfer of the
servicing obligations is the best path forward, but to protect the underlying borrowers, to the extent
necessary and possible, the Debtors may, in their sole discretion, offer continued post-Effective Date
servicing PPP Loans at the cost of the Reserve Bank, CRB, and/or CB, as applicable.
Prior to the transfer of the PPP servicing obligations to third-party loan servicer(s), the Debtors intend to
work with AmEx to grant the third-party servicers access to the AmEx Platform, or will work with the
third-party servicer(s) such that requisite data is provided and an alternative platform is lined-up for use.
Further, the Debtors intend to inform any third-party servicer(s) of ongoing document retention obligations
for underlying loan records pursuant to the SBA guidelines as described in section II.D of this Disclosure
Statement. Given the nature of the Debtors’ business, a transfer of the loan servicing obligations may require
governmental or third party approvals. The Debtors intend to work with applicable governmental or third
parties to secured any necessary approvals.
Prior to the Effective Date, if in its sole discretion, the Debtors offer Post-Effective Date PPP Servicing,
the Reserve Bank, CRB, and/or CB shall provide the Wind Down Estate with amounts necessary to allow
for the continued servicing of the respective parties’ PPP loans; provided that, for the avoidance of doubt,
to the extent the servicing costs, fees, or expenses are not provided to the Debtors prior to the Effective
Date, the Debtors shall not provide any Post-Effective Date servicing for the respective party. In the event
the Debtors offer Post-Effective Date PPP servicing, the Debtors will require continued access to certain
contracts, including among other things, the AmEx TSA. The Debtors intend to work with counterparties
to applicable contracts, to secure any necessary approvals.
On or before the Effective Date:
6 To the extent the Reserve Bank requests the Wind Down Officer to maintain the loan servicing files for non-
transferred Pledged PPPLF Loans, any corresponding costs, fees, and expenses shall be borne by the Reserve Bank
and funded prior to the Effective Date.
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KServicing shall transfer its servicing obligations with respect to KS Direct PPP Loans to a third-
party servicer or effectuate a sale of the KS Direct PPP Loans whereby they may consummate all
transactions as are necessary to consummate a sale of the KS Direct PPP Loans, including engaging
in a marketing and sale process to identify a purchaser and begin negotiations and implementation
of such sale; provided, that, if the Debtors, in their sole discretion provide Post-Effective Date PPP
Servicing, KServicing may continue servicing its obligations with respect to KS Direct PPP Loans.
the GUC Pool shall be funded in the aggregate amount of no less than the GUC Pool Amount; for
the avoidance of doubt, the Wind Down Officer shall be responsible for making distributions to
holders of Allowed General Unsecured Claims;
the Wind Down Estate shall be funded in accordance with the Wind Down Budget for the (i) Wind
Down process and (ii) any Post-Effective Date PPP Servicing, as applicable, and be funded with
the Wind Down Amount; provided that any amounts on account of continued servicing of Pledged
PPPLF Loans, CRB PPP Loans, or CB PPP Loans, as applicable, shall be funded by the payment
of applicable Post-Effective Date Servicing Costs;
any remaining assets and any Causes of Action of the Debtors’ Estates shall transfer to the Wind
Down Estate automatically and without further action of the Bankruptcy Court; and
the Debtors or the Wind Down Estate, as applicable, may effectuate a Legacy Loan Sale, subject
to consultation with the Reserve Bank; provided, that, if the Wind Down Estate, in its sole
discretion provides Post-Effective Date PPP Servicing, KServicing may continue servicing its
obligations with respect to the Legacy Loans. The Debtors or the Wind Down Estate, as applicable,
shall consummate all other transactions as are necessary to consummate the Legacy Loan Sale. To
commence the Legacy Loan Sale, on or prior to the Effective Date, the Debtors or the Wind Down
Estate, as applicable, may engage in a marketing and sale process to identify a purchaser and begin
negotiation and implementation of the Legacy Loan Sale, subject to consultation with the Reserve
Bank.
At the conclusion of the Wind Down (i) any residual amounts remaining in the Wind Down Budget (other
than amounts on account of Post-Effective Date Servicing Costs) shall be transferred to the GUC Pool, and
for the avoidance of doubt, shall first be used to make distributions to holders of GUC Pool Class A
Interests, unless the Reserve Bank Claims have been indefeasibly paid in full as of such date and (ii) any
residual amounts remaining on account of Post-Effective Date Servicing Costs, shall be distributed pro rata
to the Reserve Bank, CRB, and CB, as applicable and proportionate to each party’s Post-Effective Date
Servicing Costs.
C.
Overview of the Plan and Summary of Plan Treatment
Under the Bankruptcy Code, only holders of claims or interests in “impaired” Classes are entitled to vote
on the Plan (unless, for reasons discussed in more detail below, such holders are deemed to reject the 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 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 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.
Holders of Claims in the following Classes are being solicited under, and are entitled to vote on, the Plan
(together, the “Voting Classes”):
Case 22-10951-CTG Doc 396 Filed 12/30/22 Page 13 of 99
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Class 3 – Reserve Bank Claims; and
Class 4 – General Unsecured Claims.
The following table provides a summary of the classification and treatment of Claims and Interests under
the Plan. The table summaries are qualified in their entirety by reference to the Plan, which is attached
hereto as Exhibit A.
Class
Claim or
Interest
Treatment
Impairment
Entitled to
Vote on the
Plan
Est. Allowed
Claims
Approx.
Recovery
1
Priority Non-
Tax Claims
On
or
as
soon
as
practicable
after
the
Effective Date, except to
the extent that a holder of
an Allowed Priority Non-
Tax Claim agrees to less
favorable treatment, each
holder thereof shall be
paid in full in Cash or
otherwise
receive
treatment consistent with
the provisions of section
1129(a)(9)
of
the
Bankruptcy Code.
Unimpaired
No (presumed
to accept)
$0
100%
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 thirty (30) 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
Wind
Down
Officer,
as
applicable: (i) Cash in an
amount
equal
to
the
Allowed amount of such
Claim; (ii) such other
treatment
sufficient
to
render
such
holder’s
Allowed Other Secured
Claim
Unimpaired;
or
(iii) return
of
the
applicable collateral in
satisfaction of the Allowed
Unimpaired
No (presumed
to accept)
$200,000 -
$2,100,000
100%
Case 22-10951-CTG Doc 396 Filed 12/30/22 Page 14 of 99
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Class
Claim or
Interest
Treatment
Impairment
Entitled to
Vote on the
Plan
Est. Allowed
Claims
Approx.
Recovery
amount of such Other
Secured Claim.
Except
as
otherwise
specifically
provided
herein, upon the payment
in full in Cash of an Other
Secured Claim, any Lien
securing an Other Secured
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 Wind
Down Officer, to evidence
the release of such Lien,
including the execution,
delivery and filing or
recording of such releases
as may be requested by the
Wind Down Officer.
3
Reserve Bank
Claims
Except to the extent that a
holder of an Allowed
Reserve
Bank
Claim
against the Debtors agrees
to
a
less
favorable
treatment of such Claim,
each holder of an Allowed
Reserve Bank Claim shall
receive in full and final
satisfaction
for
the
Allowed Reserve Bank
Claims:
Impaired
Yes
$536,450,9408
90.5% -
99%9
8 The estimated Allowed amount of Reserve Bank Claims represents the estimated principal amount of such Claims
as of the Commencement and does not reflect any amounts on account of unpaid interest, costs, fees, and expenses
which are currently undetermined. The aggregate amount of the Reserve Bank Claim shall be reduced by any
indefeasible payments made or PPPLF Collateral returned to the Reserve Bank on account of such Claims as of the
Commencement.
9 The estimated range of recovery percentages for Allowed Reserve Bank Claims does not reflect any proceeds that
may be recovered on account of any Causes of Action because the amount of any such proceeds is unknown at this
time and cannot be estimated with any degree of certainty.
Case 22-10951-CTG Doc 396 Filed 12/30/22 Page 15 of 99
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Class
Claim or
Interest
Treatment
Impairment
Entitled to
Vote on the
Plan
Est. Allowed
Claims
Approx.
Recovery
i.
The
Reserve
Bank
Secured
Claims
will
receive (x) the
PPPLF
Collateral;
provided that, to
the
extent
the
PPPLF Collateral
is transferred to
the Reserve Bank
or its designee,
(1) such transfer
shall only pertain
to such Pledged
PPPLF
Loans
that as of the date
of the transfer
shall not have
been
fully
forgiven
or
guarantee
repurchased
by
the SBA or fully
repaid
by
the
borrower and (2)
with respect to
any
loan
files
relating to non-
transferred
Pledged PPPLF
Loans,
the
Reserve
Bank
shall at its option,
transfer the loan
servicing files to
an
alternate
servicer
or
otherwise
maintain the loan
servicing
files7
and/or (y) the
cash proceeds of
the
PPPLF
Collateral, where
in
accordance
with section 5.3
of the Plan (1)
7 To the extent the Reserve Bank requests the Wind Down Officer to maintain the loan servicing files for non-
transferred Pledged PPPLF Loans, any corresponding costs, fees, and expenses shall be borne by the Reserve Bank
and funded prior to the Effective Date.
Case 22-10951-CTG Doc 396 Filed 12/30/22 Page 16 of 99
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Class
Claim or
Interest
Treatment
Impairment
Entitled to
Vote on the
Plan
Est. Allowed
Claims
Approx.
Recovery
servicing of the
loans
that
constitute PPPLF
Collateral
shall
be transferred to
a
different
servicer on or
prior
to
the
Effective Date, or
(2)
at
the
Debtors’
sole
discretion,
the
Debtors
offer
Post-Effective
Date
PPP
Servicing and the
Reserve
Bank
consents to such
post-Effective
Date
PPP
Servicing
and
pays the Reserve
Bank
Servicing
Costs.
ii.
Reserve
Bank
Priority
Claims
will receive GUC
Pool
Class
A
Interests.
iii.
For
the
avoidance
of
doubt, (x)
the
Reserve
Bank
shall not be paid
in excess of the
Reserve
Bank
Claims and any
amounts
in
excess
of
the
Reserve
Bank
Claims paid to
the Reserve Bank
on account of the
Allowed Reserve
Bank
Claims
shall revert to the
Wind
Down
Estate and (y)
any Liens on the
Pledged PPPLF
Loans and other
PPPLF Collateral
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Class
Claim or
Interest
Treatment
Impairment
Entitled to
Vote on the
Plan
Est. Allowed
Claims
Approx.
Recovery
granted to or held
in favor of the
Reserve
Bank
shall remain in
place
and
continue on and
after
the
Effective Date.
4
General
Unsecured
Claims
Except to the extent that a
holder of an Allowed
General Unsecured Claim
agrees to less favorable
treatment of such Claim,
each holder of an Allowed
General Unsecured Claim
will receive its pro rata
share of the GUC Pool
Class B Interests.
Impaired
Yes
$30,950,000 –
$102,981,000
10
TBD11
5
Intercompany
Claims
On or after the Effective
Date, all Intercompany
Claims will either be
reinstated or cancelled and
released at the option of
the Debtors; provided that
no such distributions shall
be made on account of
such Intercompany Claims
on the Effective Date.
Impaired
No (deemed to
reject)
$0
0%
6
Intercompany
Interests
On the Effective Date,
Intercompany
Interests
shall receive no recovery
or distribution and be
reinstated
solely
to
maintain
the
Debtors’
corporate
structure,
as
necessary.
Unimpaired/
Impaired
No (deemed to
accept/reject)
N/A
0%
10 The estimated range of the amount of Allowed General Unsecured Claims does not include any Allowed amounts
on account of Claims that may be filed by the DOJ, FTC and/or SBA, because, as of the date hereof, the deadline
for Governmental Units to file Proofs of Claims has not yet passed. The estimated range reflects, among other
things, that the ultimate Allowed amount, if any, of Disputed Claims cannot be estimated with any degree of
certainty.
11 At this time, it is anticipated that the primary source of recovery for Allowed General Unsecured Claims, following
the payment of the Reserve Bank Claims in full and final satisfaction, will be any proceeds that may be recovered
on account of any Causes of Action. As previously noted, the amount of any such proceeds is unknown at this time
and cannot be estimated with any degree of certainty. Therefore, the recovery percentage is listed as “To Be
Determined.”
Case 22-10951-CTG Doc 396 Filed 12/30/22 Page 18 of 99
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Class
Claim or
Interest
Treatment
Impairment
Entitled to
Vote on the
Plan
Est. Allowed
Claims
Approx.
Recovery
7
Subordinated
Securities
Claims
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.
Impaired
No (deemed to
reject)
$0
0%
8
KServicing
Equity
Interests
Except to the extent that a
holder
of
KServicing
Equity Interests agrees to
less favorable treatment,
in
full
and
final
satisfaction and release of,
and
in
exchange
for
KServicing
Equity
Interests, each such holder
thereof shall receive the
following treatment: (i) on
the Effective Date, all
KServicing
Equity
Interests shall be cancelled
and
one
share
of
KServicing common stock
(the “Single Share”) shall
be issued to the Wind
Down Officer to hold in
trust as custodian for the
benefit of the former
holders
of
KServicing
Equity Interests consistent
with their former relative
priority
and
economic
entitlements
and
the
Single Share shall be
recorded on the books and
records maintained by the
Wind Down Officer; (ii)
each former holder of
KServicing
Stock
(through their interest in
the
Single
Share,
as
applicable) shall neither
receive nor retain any
Impaired
No (deemed to
reject)
N/A
0%
Case 22-10951-CTG Doc 396 Filed 12/30/22 Page 19 of 99
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Class
Claim or
Interest
Treatment
Impairment
Entitled to
Vote on the
Plan
Est. Allowed
Claims
Approx.
Recovery
property of the Estate or
direct interest in property
of the Estate on account of
such KServicing Stock;
provided, that in the event
that all Allowed Claims
have been satisfied in full
in accordance with the
Bankruptcy Code and the
Plan, each former holder
of a KServicing Existing
Equity
Interests
may
receive its share of any
remaining
assets
of
KServicing
consistent
with such holder’s rights
of
payment
existing
immediately prior to the
Commencement
Date.
Unless
otherwise
determined by the Wind
Down Officer, on the date
that KServicing’s Chapter
11 Case is closed in
accordance with Section
5.14 of the Plan, the Single
Share
issued
on
the
Effective Date shall be
deemed cancelled and of
no further force and effect;
provided that (i) such
cancellation
does
not
adversely
impact
the
Debtors’ Estates; and (ii)
the continuing rights of
former
holders
of
KServicing
Stock
(including through their
interest in Single Share or
otherwise)
shall
be
nontransferable except (A)
by operation of law or
(B) for
administrative
transfers
where
the
ultimate beneficiary has
not changed, subject to the
Wind
Down
Officer’s
consent.
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WHO IS ENTITLED TO VOTE: Under the Bankruptcy Code, only holders of claims or interests in
“impaired” Classes are entitled to vote on the Plan (unless, for reasons discussed in more detail below, such
holders are deemed to reject the 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 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 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 Classes 3 and 4 (Reserve Bank and General Unsecured Claims) are the only Classes
being solicited under, and the only Classes entitled to vote on, the Plan.
PLEASE BE ADVISED THAT ARTICLE X OF THE PLAN CONTAINS CERTAIN RELEASE,
EXCULPATION, AND INJUNCTION PROVISIONS. YOU ARE ADVISED TO CAREFULLY
REVIEW AND CONSIDER THE PLAN, INCLUDING THE INJUNCTION, RELEASE, AND
EXCULPATION PROVISIONS, AS YOUR RIGHTS MAY BE AFFECTED.
IN PARTICULAR, PLEASE BE ADVISED THAT SECTION 10.6 OF THE PLAN PROVIDES
FOR THE RELEASE OF CLAIMS AGAINST THE RELEASED PARTIES, WHICH INCLUDES
CERTAIN NON-DEBTORS.
SPECIFICALLY, THE PLAN PROVIDES THAT THE FOLLOWING HOLDERS OF CLAIMS
AND INTERESTS WILL BE DEEMED TO RELEASE CLAIMS AGAINST THE RELEASED
PARTIES, INCLUDING CERTAIN NON-DEBTORS, AS SET FORTH IN SECTION 10.6 OF THE
PLAN: (I) RESERVE BANK; (II) ALL HOLDERS OF CLAIMS OR INTERESTS WHO VOTE TO
ACCEPT THE PLAN; (III) ALL HOLDERS OF CLAIMS OR INTERESTS THAT ARE
UNIMPAIRED OR DEEMED TO ACCEPT THE PLAN AND DO NOT OBJECT TO THE
RELEASES; (IV) ALL HOLDERS OF CLAIMS OR INTERESTS THAT ARE DEEMED TO
REJECT THE PLAN AND DO NOT OBJECT TO THE RELEASES; (V) ALL HOLDERS OF
CLAIMS OR INTERESTS THAT ARE ELIGIBLE TO VOTE TO ACCEPT OR REJECT THE
PLAN THAT EITHER VOTE TO REJECT THE PLAN OR ABSTAIN FROM VOTING ON THE
PLAN FOR ALL CLASSES IN WHICH THEY ARE ELIGIBLE TO VOTE AND WHO DO NOT
AFFIRMATIVELY OPT-OUT OF THE RELEASES IN ACCORDANCE WITH THE BALLOT
TO SOLICIT ACCEPTANCES OR REJECTIONS OF THE PLAN; AND (VI) ALL HOLDERS OF
CLAIMS OR INTERESTS WITH NOTICE AND AN OPPORTUNITY TO OBJECT TO THE
RELEASES AND DO NOT OBJECT TO THE RELEASES. IN ADDITION, WITH RESPECT TO
EACH OF THE FOREGOING ENTITIES AND PERSONS IN CLAUSES (I) – (VI) OF THIS
PARAGRAPH, ALL OF THEIR RESPECTIVE RELATED PARTIES SOLELY WITH RESPECT
TO CLAIMS THAT SUCH ENTITIES OR PERSONS COULD HAVE PROPERLY ASSERTED
ON BEHALF OF SUCH ENTITIES OR PERSON IN CLAUSES (I) – (VI) OF THIS PARAGRAPH.
IF YOU HOLD A CLAIM IN CLASS 3 OR CLASS 4, YOU WILL BE GIVEN AN OPPORTUNITY
TO OPT-OUT OF THE RELEASES IN SECTION 10.6 OF THE PLAN ON YOUR BALLOT.
PLEASE READ YOUR BALLOT CAREFULLY. IF YOU HOLD A CLAIM OR INTEREST IN
ANY OTHER CLASS OR IF YOU HOLD A CLAIM THAT IS UNCLASSIFIED UNDER THE
THE DEBTORS SUPPORT CONFIRMATION OF THE PLAN AND URGE ALL HOLDERS
OF CLAIMS ENTITLED TO VOTE ON THE PLAN TO VOTE TO ACCEPT THE PLAN.
THE DEBTORS BELIEVE THAT THE PLAN PROVIDES THE HIGHEST AND BEST
RECOVERY FOR ALL STAKEHOLDERS.
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PLAN, YOU MUST FILE AN OBJECTION TO THE RELEASES IN SECTION 10.6 OF THE
PLAN BY FEBRUARY 21, 2023 OR YOU WILL BE DEEMED TO GRANT SUCH RELEASES.
PLEASE TAKE NOTICE THAT ALL HOLDERS OF GENERAL UNSECURED CLAIMS,
INCLUDING BORROWERS OF LOANS SERVICED BY THE DEBTORS, THAT HOLD
PREPETITION CLAIMS AGAINST ONE OR MORE OF THE DEBTORS WILL BE SUBJECT
TO THE BAR DATE ORDER. IF YOU HOLD SUCH A CLAIM AND DO NOT FILE A PROOF
OF CLAIM BY THE GENERAL BAR DATE IN ACCORDANCE WITH THE BAR DATE
ORDER, YOUR CLAIM MAY BE DISCHARGED AND YOU MAY NOT BE ENTITLED TO A
RECOVERY, IF ANY, ON SUCH CLAIM PURSUANT TO THE PLAN.
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. Financial data included herein as of December 22, 2022 remains subject to the
customary review procedures associated with the completion of the Company’s public reporting
requirements.
D.
Inquiries
If you have any questions about the packet of materials you have received, please contact Omni Agent
Solutions, Inc. as its voting agent (the “Voting Agent”), at (866) 956-2138 (toll free) or (747) 226-5953.
Additional copies of this Disclosure Statement, the Plan, or the Plan Supplement (when filed) are available
upon written request made to the Voting Agent at the following address: 5955 De Soto Ave., Suite 100,
Woodland Hills, CA 91367.
Copies of this Disclosure Statement, which includes the Plan and the Plan Supplement (when filed) are also
available on the Voting Agent’s website: (https://omniagentsolutions.com/kservicing). PLEASE DO NOT
DIRECT INQUIRIES TO THE BANKRUPTCY COURT.
II. OVERVIEW OF COMPANY’S OPERATIONS
A.
The Debtors’ Legacy Business
The Company began as an online lending platform for small businesses in 2008, using machine-learning
algorithms, data from public profiles, and other factors to quickly and efficiently evaluate the financial
health of loan applicants, significantly shortening loan approval and disbursement processes as compared
to traditional banks. Over the years, the Company added several lines of business, providing, among other
things, access to flexible lines of credit, business checking accounts, online bill payment, cash flow
visualization tools, and e-gift certificates through its website and app. In October 2020, AmEx acquired a
substantial majority of the Company’s business for approximately $750 million. The AmEx Transaction
specifically excluded a small portfolio of Legacy Loans and the Company’s PPP business. Today, all
Legacy Loans the Company services are owned by Celtic Bank (“Celtic”) and governed by the Legacy
Case 22-10951-CTG Doc 396 Filed 12/30/22 Page 22 of 99
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Loan Agreement.12 As of December 22, 2022, there were approximately 2,600 Legacy Loans remaining in
the Loan Portfolio with approximately $13 million in aggregate outstanding principal amount.
As a non-Federal Deposit Insurance Corporation insured financial institution, the Company partnered with
Celtic in an arrangement whereby: the Company processed Legacy Loan borrower applications, funded
the
Legacy
Loans
through
the
purchase
of
participation
interests
in
loan
receivables
(the “Participation Interests”)—effectively acquiring the rights to retain borrower principal and interest
payments, with Celtic remaining as the lender of record—and subsequently serviced the Legacy Loans.13
The Company’s servicing obligations involved marketing the Legacy Loans and conducting diligence on
loan applicants to ensure compliance with Celtic’s screening procedures. On account of the services
rendered, the Company earned a fee calculated as a percentage of the principal amount of the underlying
Legacy Loan upon origination (the “KS Legacy Fee”). Instead of collecting the servicing fee upfront, the
fees were set off against the Participation Interest fees (the “Celtic Legacy Fee”) that the Company paid to
Celtic in connection with its purchase of Participation Interests. On a monthly basis, if the KS Legacy Fees
exceeded the Celtic Legacy Fees, Celtic would remit the net amount to the Company. If the Celtic Legacy
Fees exceeded the KS Legacy Fees, the Company would remit the net amount to Celtic.14
As of the Commencement Date, all such marketing fees, servicing fees, and monthly premiums have been
paid, loans are no longer being originated pursuant to the Legacy Loan Agreement, and the Company is no
longer purchasing Participation Interests from Celtic. Amounts collected from the Participation Interests
accounted for 70 percent of the Company’s year-to-date cash flow15 through December 22, 2022, but that
percentage is set to significantly decline as borrowers pay down their loans and the loans mature on a rolling
basis. The Company’s sole source of continuing cash flow from the Legacy Loan Portfolio is the Legacy
Loan receivables that the Company retains on account of its Participation Interests. As collateral security
for the Company’s remaining servicing obligations under the Legacy Loan Agreement, Celtic currently
holds approximately $2 million in an escrow account, the remaining amount of which Celtic is obligated to
remit to the Company within five business days of the termination of the Legacy Loan Agreement.
B.
The Debtors’ PPP Business
Responding to the country’s desperate need for private lenders to participate in the PPP, the Company
partnered with the SBA to originate and service PPP Loans. The Company’s participation in the PPP can
be separated into three distinct categories:
(a)
PPP Loans that the Company originated with the SBA and thereafter pledged to the
Reserve Bank under Reserve Banks’ Paycheck Protection Program Liquidity Facility
(the “PPPLF”), which loans the Company owns, services for its own account, and has
12 “Legacy Loan Agreement” means the Program Management Agreement, dated March 20, 2014, by and between
Kabbage and Celtic, as amended.
13 Following the purchase of Participation Interests under the Legacy Loan Agreement, the Company sold certain of
the Participation Interests to third parties. The Company continues to service these loans and receives servicing
fees on a monthly basis.
14 All KS Legacy Fees and Celtic Legacy Fees have been paid. Therefore, these monthly remittances no longer occur.
15 As used herein, “cash flow” does not include amounts that the Company collects and subsequently remits to third
parties.
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pledged as collateral to the Reserve Bank (the “PPPLF Portfolio” and the loans
thereunder, the “Pledged PPPLF Loans”), which are guaranteed by the SBA;
(b)
PPP Loans owned by the Partner Banks, which the Company services for the Partner Banks
(the “Partner Bank Portfolios” and the loans thereunder, the “Partner Bank Loans”);
and
(c)
PPP Loans originated, funded, and serviced by the Company for its own account (the “KS
PPP Portfolio” and the loans thereunder, the “KS PPP Loans”).
The following table, which is based upon the Company’s internal books and records, summarizes the
Company’s PPP participation for each of its PPP Loan portfolios and the approximate outstanding amounts
as of December 22, 2022. As of December 22, 2022, only 17 percent of the Company’s Round 1 PPP Loans
and 6 percent of the Company’s Round 2 PPP Loans, by aggregate outstanding principal amount, remain
outstanding.
PPP Loans at Origination
PPP Loans Outstanding
Round 1
Round 2
Total
Round 1
Round 2
Total
PPPLF
Principal
$1,519 M
$104 M
$1,623 M
$456 M
$6 M
$462 M
Loan Count
86,000
11,000
97,000
16,000
1,000
17,000
CB
Principal
$1,767 M
$818 M
$2,585 M
$78 M
$50 M
$128 M
Loan Count
58,000
41,000
99,000
2,000
3,000
5,000
CRB
Principal
$3,048 M
-
$3,048 M
$565 M
-
$565 M
Loan Count
122,000
-
122,000
19,000
-
19,000
KS PPP
Principal
$9 M
$ <1 M
$9 M
$1 M
$ <1 M
$2 M
Loan Count
< 1,000
< 1,000
< 1,000
< 1,000
< 1,000
< 1,000
Total
Principal
$6,343 M
$923 M
$7,266 M
$ 1,100 M
$57 M
$1,156 M
Loan Count
267,000
52,000
319,000
37,000
3,000
41,000
* Amounts outstanding is rounded to the nearest million
** Number of loans is rounded to the nearest thousand
The following table, which is based upon the Company’s internal books and records, summarizes Loan
Forgiveness and Guaranty Purchase statuses of the PPP Loans in the Company’s Loan Portfolio as of
December 22, 2022.
Completed Loan Processing to Date
Total Origination
Principal and Loan Count
Forgiven and Guaranty
Purchased Loans
Percentage Forgiven and
Guaranty Purchased
PPPLF
Principal
$1,623 M
$1,088 M
67.0%
Loan Count
97,000
78,000
80.7%
CB
Principal
$2,585 M
$2,386 M
92.3%
Loan Count
99,000
93,000
93.2%
CRB
Principal
$3,048 M
$2,361 M
77.5%
Loan Count
122,000
100,000
82.1%
KS PPP
Principal
$9 M
$ <1 M
5.2%
Loan Count
< 1,000
< 1,000
12.8%
Case 22-10951-CTG Doc 396 Filed 12/30/22 Page 24 of 99
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RLF1 28410146v.1
Total16
Principal
$7,266 M
$5,835 M
80.3%
Loan Count
319,000
271,000
85.1%
* Amounts outstanding is rounded to the nearest million
** Number of loans is rounded to the nearest thousand
On April 9, 2020, to support the effectiveness of the PPP, the Board of Governors of the Federal Reserve
System, with the concurrence of the U.S. Treasury, authorized the establishment of the PPPLF, pursuant to
which PPP-eligible lenders could enter into agreements with Federal Reserve Banks to obtain funding for
PPP Loans. To obtain PPPLF financing, the Company entered into the Paycheck Protection Program
Liquidity Facility Letters of Agreement (the “Letter of Agreement”), dated May 12, 2020 and amended as
of January 14, 2021, with the Reserve Bank. The Letter of Agreement incorporates the Federal Reserve
Banks Operating Circular No. 10, dated July 16, 2013 (the “Operating Circular,” and together with the
Letter of Agreement, the “Program Agreements”), which sets forth the universal terms and conditions for
any party who obtained advances from, incurred liabilities to, or pledged collateral to, the Reserve Bank,
and includes terms such as advance payment mechanics, requirements for collateral, and maintenance of
lending documents.
Under the Program Agreements, the Debtors were authorized to request advances (the “Advances”) from
the Reserve Bank that were secured by the Pledged PPPLF Loans and mature on the respective maturity
dates of such collateral. Proceeds of the Pledged PPPLF Loans include (a) borrower collections,
(b) payments received from the SBA for principal balances on account of loan forgiveness and guaranty
purchase, and (c) the interest paid by the SBA on the principal amount of the PPPLF loans (which accrued
at the rate of 1.00% per annum).17 Historically, the Company repaid the PPPLF Advances by making
weekly remittances to the Reserve Bank for all payments received on account of the PPPLF Collateral,
including borrower payments and payments received from the SBA on account of Loan Forgiveness and
Guaranty Purchase, including the 0.35 percent of interest per annum on the Pledged PPPLF Loans received
from the SBA, but not including the remaining 0.65 percent of interest per annum on the Pledged PPPLF
Loans received from the SBA. The Reserve Bank has asserted that various defaults have occurred under
the Program Agreements and memorialized its position in a correspondence sent to the Company on
October 1, 2022 (the “Default Notice”).
In September 2022, pursuant to its rights under the Program Agreements, the Reserve Bank initiated a
change in the remittance procedures whereby the SBA makes payments on the Pledged PPPLF Loans
directly to the Reserve Bank (the “SBA Direct Payment Processing”). Given, among other things, the
SBA’s inability to process payments to multiple locations related to one processing account, time sensitivity
on account of upcoming guaranty purchase deadlines on 24-month PPP Loans, and technological changes,
the Reserve Bank and Debtors agreed to direct all payments on account of the KS PPP Loans to the Reserve
Bank, which are promptly remitted to the Debtors pursuant to the Cash Collateral Order. On October 31,
2022, the Debtors delivered an instruction to the SBA to begin the SBA Direct Payment Processing. Once
the SBA Direct Payment Processing was in place, the Reserve Bank began receiving payments on account
of the Pledged PPPLF Loans directly from the SBA, but the Company still receives, segregates, and remits
16 Approximately $310 million of the principal from the “Total Origination Principal and Loan Count Column” has
been reduced on account of borrower payments of principal in the ordinary course.
17 Pursuant to the Cash Collateral Order, the Debtors have reserved their rights with respect to whether certain proceeds
of the Pledged PPPLF Loans constitute Cash Collateral; provided that any Challenge (as defined in the Cash
Collateral Order) must be commenced within the Challenge Period (as defined in the Cash Collateral Order), subject
to the limitations thereunder.
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borrower payments on account of the Pledged PPPLF Loans to the Reserve Bank. In connection with the
SBA Direct Payment Processing, the Company and the Reserve Bank have reached certain agreements
regarding the remittance of certain interest received from the SBA on account of Pledged PPPLF Loans to
the Company, as reflected in the Cash Collateral Order (as defined herein).
1.
The Partner Bank Portfolio
Between April 2020 and February 2021, the Company entered into various PPP Loan-related agreements
with its Partner Banks. While there are nuanced differences in, among other things, how the underlying
PPP Loans are originated—some were originated by the Company and sold to the Partner Banks, while
others were originated by the Partner Banks— and how servicing fees are calculated, as well as the
Company’s servicing obligations related to Loan Forgiveness and Guaranty Purchase, the ultimate
relationship established between the Company and each of its Partner Banks is fundamentally the same.
Under the CB Agreements18 and the CRB Agreements19 (together, the “Partner Bank Agreements”), the
Partner Banks funded the PPP Loans and the Company services the loans as described below. On account
of the services it provides, the Company was to receive all of its servicing fees at or near the time of
origination of the underlying PPP Loan. As of the Commencement Date, (a) CB had not paid approximately
$65 million (plus any applicable interest) of loan referral and servicing fees owed to the Company, despite
the fact that the Company had processed more than 90 percent of CB’s PPP Loan portfolio and (b) the
Company had set off approximately $34 million from amounts that would be payable to CB as reasonable
compensation for the Company performing services for which CB has not paid. On October 27, 2022, after
extensive, good faith, arm’s length negotiations, the Company and CB memorialized the terms of an agreed
upon settlement in the Settlement Agreement, and subsequently filed the 9019 Motion (as defined below)
requesting that the Court approve the Settlement Agreement between the Debtors and CB. On November
7, 2022, the Court approved the 9019 Motion over the objection of CRB. However, there are ongoing
postpetition disputes between the Debtors and CB regarding the settlement agreement, as further described
in section V.E of this Disclosure Statement.
Customers Bank. On April 24, 2020, the Company and CB entered into the CB SaaS, pursuant to which
the Company is obligated to provide SaaS Services to facilitate CB’s PPP Loan program. Three days later,
the Company and CB entered into the CB PSA, pursuant to which the Company is obligated to: (a) market
CB’s PPP Loan program; (b) provide funding reports to CB to facilitate CB’s origination of PPP Loans
(the “CB Originated Loans”); (c) subservice PPP Loans originated by CB; (d) process PPP Loans as CB’s
agent, including performing Borrower Diligence in accordance with the CARES Act and SBA guidelines,
assisting borrowers in their submissions for Loan Forgiveness, and assisting CB in its submissions for
Guaranty Purchase; and (e) submit reports regarding loan-level data and complaints, among other things.
On February 2, 2021, the Company and CB entered into the CB SAS, pursuant to which the Company sold
certain PPP Loans it originated (the “CB Sold Loans,” and together with the CB Originated Loans, the
“CB Loans”) to CB and is obligated to subservice those CB Sold Loans.
Cross River Bank. On April 13, 2020, the Company and CRB entered into the CRB LPA, pursuant to
which the Company is obligated to (a) market CRB’s PPP Loan program; (b) provide funding reports to
CRB to facilitate CRB’s origination of PPP Loans; (c) subservice PPP Loans originated by CRB (the “CRB
18 “CB Agreements” means (i) the CB Processing and Servicing Agreement, dated April 27, 2020, by and between
Kabbage and CB (together with its amendments, the “CB PSA”); (ii) the CB Sale and Servicing Agreement, dated
February 2, 2021, by and between Kabbage and CB (the “CB SAS”); and (iii) the CB SaaS Services Agreement,
dated April 24, 2020, by and between Kabbage and CB (together with its amendments, the “CB SaaS”).
19 “CRB Agreements” means (i) the CRB Loan Program Agreement, dated April 13, 2020, by and between Kabbage
and CRB (together with its amendments, the “CRB LPA”); and (ii) the CRB Sale and Servicing Agreement, dated
May 6, 2020, by and between Kabbage and CRB (the “CRB SAS”).
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Originated Loans”); (d) process PPP Loans as CRB’s agent, including performing Borrower Diligence in
accordance with the CARES Act and SBA guidelines, assisting borrowers in their submissions for Loan
Forgiveness, and assisting CRB in its submissions for Guaranty Purchase; (e) submit reports regarding
loan-level data and complaints, among other things; and (f) provide SaaS Services to facilitate CRB’s PPP
Loan program. On May 6, 2020, the Company and CRB entered into the Sale and Servicing Agreement
CRB SAS, pursuant to which the Company sold certain PPP Loans it originated (the “CRB Sold Loans,”
and together with the CRB originated Loans, the “CRB Loans”) to CRB and is obligated to subservice
those loans.
2.
The KS PPP Portfolio
In addition to the PPPLF Portfolio and Partner Bank Portfolio, the Company originated, funded, and
currently services approximately 70 KS PPP Loans with approximately $1.5 million in outstanding loan
amount. The KS PPP Loans makes up less than one percent of the Company’s PPP Loans by aggregate
outstanding principal amount.
C.
The Debtors’ Ongoing Obligations for their PPP Business20
As detailed more fully in the Loan Servicing Motion, the Debtors’ ongoing PPP loan servicing obligations
for the Partner Bank Loans in the ordinary course of business include, among other things: (i) performing
Collections, (ii) providing SaaS Services, (iii) performing Forgiveness Assistance, (iv) assisting the Partner
Banks in their submissions for Guaranty Purchase by (a) under the CRB LPA, establishing and maintain a
servicing file, which contains documentation necessary to be submitted to the SBA in order for the PPP
Loan to be eligible for Guaranty Purchase, and (b) under the CB PSA, filling in applicable fields on the
Guaranty Purchase application, and (iv) conducting loan reviews, reconciling collections and remittances,
responding to inquiries, and engaging in other activities in connection with the foregoing.
The Debtors’ ongoing PPP Loan servicing obligations for the KS PPP Portfolio in the ordinary course of
business include, among other things: (i) performing Collections, (ii) providing SaaS Services, (iii)
performing Forgiveness Assistance, (iv) submitting Guaranty Purchase applications to the SBA; and (v)
conducting loan reviews, responding to inquiries, and engaging in other activities in connection with the
foregoing.
The Debtors’ ongoing activities with respect to servicing the Pledged PPPLF Loans, include, among other
things (as well as obligations under the Cash Collateral Order): (i) collecting and accounting for payments
received from borrowers, including payments of principal and interest, (ii) maintaining a software platform
for borrowers, (iii) assisting borrowers in completing Loan Forgiveness applications, (iv) submitting
Guaranty Purchase applications to the SBA, (v) subject to the completion of SBA Direct Payment
Processing, depositing Loan Forgiveness and Guaranty Purchase amounts received from the SBA and
Pledged PPPLF Loan payments received from borrowers into the correspondent bank account, (vi)
conducting loan reviews, reconciling collections and remittances, responding to inquiries, and engaging in
other activities in connection with the foregoing, (vii) conducting ongoing 1502 reporting for loans that
have not been purchased, (viii) for loans that have been purchased, remittance of borrower loan payments
to SBA, (ix) filing proofs of claim in borrower bankruptcy proceedings, (x) providing loan documents and
other information requested by SBA in connection with PPP Loan Reviews, including partial forgiveness
reviews, (xi) providing loan documents and other information requested by SBA in connection with SBA
20 Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Motion of
Debtors For Interim and Final Orders Authorizing Debtors to (I) Continue Servicing and Subservicing Activities
and (II) Performing Related Obligations [Docket No. 11] (the “Loan Servicing Motion”).
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RLF1 28410146v.1
lender oversight reviews, and (xii) providing remittance reports and other periodic reporting as requested
by the Reserve Bank.
1.
Borrower Overpayments
At times, borrowers make payments to the Company in the following scenarios: (a) in excess of the required
minimum loan payments on account of both PPP Loans and Legacy Loans (“Regular Overpayments”),
(b) on account of PPP Loans that are ultimately forgiven by the SBA (“Forgiveness Overpayments”), and
(c) on account of PPP Loans that the SBA has already granted Guaranty Purchase (“Guaranty
Overpayments,” and together with Regular Overpayments and Forgiveness Overpayments, the “Borrower
Overpayments”).
In the case of Forgiveness Overpayments and Guaranty Overpayments, the Company may at times remit
the overpayment to the Reserve Bank or the Partner Banks, as applicable, as part of regularly scheduled
remittances while the SBA is still considering whether to forgive or purchase the applicable PPP Loan or,
in the case of a Guaranty Overpayment, the SBA has already purchased the applicable PPP Loan. As part
of its ordinary course servicing practices, the Company reconciles such remittances to the Reserve Bank
and the Partner Banks with the Forgiveness Overpayments and the Guaranty Overpayments that need to be
refunded to the applicable borrower or passed on to the SBA, and accounts for the appropriate discrepancy
by either (a) offsetting future remittances to the Reserve Bank and the Partner Banks, as applicable, or (b)
refunding to the applicable borrower or passing on to the SBA the amounts remitted by the Reserve Bank
or the Partner Banks, as applicable, in furtherance of such overpayments (“Overpayment Reconciliation”).
In the ordinary course of business, the Company (a) remits Regular Overpayments and Forgiveness
Overpayments to borrowers, (b) may adjust regular remittances to the Reserve Bank and the Partner Banks
or coordinate borrower refunds with the Reserve Bank and the Partner Banks according to Overpayment
Reconciliation, and (c) remits Guaranty Overpayments to the SBA (collectively, the “Overpayment
Procedures”). The Overpayment Reconciliations and Overpayment Procedures are subject to the terms of
the Program Agreements in respect of the Pledged PPPLF Loans.
D.
Compliance with Regulatory Obligations and Ongoing Investigations
The Debtors and certain of their affiliates are subject to various federal and state regulatory requirements
including certain lending, Bank Secrecy Act/Anti-Money Laundering, and Office of Foreign Assets Control
regulations and requirements incorporated into the PPP. These include, among others, the following
regulations:
Non-bank PPP lenders like the debtors are required under PPP rules to preserve all loan records for
6 years following the final disposition of the loan and if preserved electronically must be available
for retrieval within 15 working days (13 CFR 120.461).
PPP lenders must allow SBA's authorized representatives, including representatives authorized by
the SBA Inspector General, during normal business hours, access to its files to review, inspect, and
copy all records and documents, relating to PPP loans or as requested for SBA oversight (13 CFR
120.1010).
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The Debtors are also subject to various regulatory audits and reviews and are called to respond to duly-
issued government subpoenas investigating potential borrower loan fraud, all of which may carry certain
costs and expenses. Further, to the extent that the Debtors identify, whether through internal or external
audits, regulatory agencies, investors, client complaints, litigation, or other means, origination or servicing
errors or lack of compliance with state or federal laws or regulations, the Debtors are obligated to remediate
such errors or violations, as applicable.
The Debtors have, and to the extent the Debtors continue servicing intend to, continue to fulfill federal and
state regulatory requirements and pay related obligations, submit to, and comply with, any regulatory exams
and audits and to pay related obligations, costs, and expenses, remediate errors and/or lack of compliance
with laws or regulations, and comply with ongoing government investigations by responding to discovery
requests and being responsive to questions.
III. CORPORATE AND CAPITAL STRUCTURE
A.
Corporate Structure
KServicing owns 100% of the ownership interest in each of the other Debtors. KServicing owns 100% of
the ownership interest in Kabbage Financial Services Limited (“Kabbage UK”), which owns 99.9% of the
ownership interest in Kabbage India Private Limited (“Kabbage India”). Kabbage UK and Kabbage India
are the only non-Debtor affiliates of the Debtors. The corporate structure chart, attached hereto as
Exhibit B, illustrates the Debtors’ organizational structure as of the Commencement Date.
B.
Management
The following table sets forth the names of KServicing’s current executive officers:
Name
Position
Laquisha Milner
President and CEO
Donna Evans
Vice President of Operations
Holly Loiseau
General Counsel, Chief Compliance
Officer, Chief Privacy Officer,
Secretary
Salim Kafiti
Deputy General Counsel, Assistant
Secretary
Ian Cox
BSA/AML and OFAC Officer21
C.
Board of Directors
The following table sets forth the names of KServicing’s current board of directors, all of which were
appointed after the AmEx Transaction occurred.
Name
Date Appointed
Laquisha Milner
March 19, 2021
Robin Gregg
October 15, 2020
Eric Hartz
October 15, 2020
21 “BSA” means Bank Secrecy Act. “AML” means Anti-Money Laundering. “OFAC” means Bank’s office of
Foreign Assets Control.
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Lawrence X. Taylor
August 31, 2022
No director has any interest in or direct business dealings with any holder of more than 1.5% (or more
than 2% in the aggregate) of the equity interests in the Debtors.
D.
Prepetition Capital Structure
PPPLF Advances. The total amount of PPPLF Advances (as defined in the Program Agreements) borrowed
by KServicing pursuant to the Program Agreements is approximately $1.6 billion. As of the
Commencement Date, KServicing was justly and lawfully liable to the Reserve Bank for the Reserve Bank
Claims (x) in the aggregate principal amount of approximately $536,450,940 in respect of outstanding
PPPLF Advances under the Program Agreements, plus (y) accrued and unpaid interests and costs and
expenses including, without limitation, attorney’s fees, agent’s fees, other professional fees and
disbursements and other obligations owing under the Program Agreements, including all Obligations (as
defined in the Operating Circular). The Reserve Bank Claims constitute Secured Claims to the extent of the
PPPLF Collateral, and otherwise constitute priority claims under section 507(a)(2) of the Bankruptcy Code,
as allowed under the Cash Collateral Order. Absent a default, KServicing’s Obligations under the Program
Agreements mature on the maturity date of the underlying Pledged PPPLF Loan; provided that the Reserve
Bank delivered a Default Notice to the Company prior to the Commencement Date. The PPPLF Advances
are not guaranteed by any of KServicing’s Debtor or non-Debtor affiliates, although the Reserve Bank has
recourse against the Debtors under the Program Agreements subject to the terms thereof and as described
below.
The Reserve Bank Claims comprising KServicing’s Obligations (as defined in the Operating Circular)
under the Program Agreements are secured by the Reserve Bank’s valid perfected first priority lien upon
and in all of the PPPLF Collateral (as defined in the Program Agreements). In the event the Debtors fail to
repay a PPPLF Advance on the applicable maturity date, the Reserve Bank would have to first seek
repayment on a non-recourse basis, by realization on the PPPLF Collateral absent a default; provided that
the Reserve Bank may pursue payment directly from the Debtors—if: (a) in its sole discretion, the Reserve
Bank deems the Debtors to have engaged in any fraud or misrepresentation in connection with any PPPLF
Advance or any request to obtain a PPPLF Advance, or (b) the Debtors fail to meet any of the requirements
of the Program Agreements, including, but not limited to, breaches of any representations, warranties, or
covenants. The Reserve Bank has notified KServicing that it has determined such events have occurred
pursuant to the Default Notice.
Equity Ownership. As of the Commencement Date, the outstanding shares of common stock, par value
$0.001 per share of KServicing (the “KS Common Stock”) are held (either directly or through
subsidiaries or affiliates) as follows:
Holder
Outstanding KS Common Stock
Softbank Vision Fund (AIV M2) L.P.
14.62%
Blue Run Ventures IV, L.P.
13.60%
MDV IX, L.P.
12.08%
Thomvest Ventures Ltd.
11.47%
SoftBank PrinceVille Investments, L.P.
5.17%
Less than 5% holders
43.06%
Total
100%
KServicing does not have any other classes of stock outstanding.
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IV. CIRCUMSTANCES LEADING TO THESE CHAPTER 11 CASES
The Debtors filed these Chapter 11 Cases to implement and complete the wind down of their business,
which has been well underway since the October 2020 AmEx Transaction. The benefits and protections of
chapter 11 are critical to achieving the Debtors’ goals of maximizing creditor recoveries, providing for an
equitable distribution to their stakeholders, and, perhaps most importantly, insulating the good-faith PPP
Borrowers from any repercussions of the Disputes—primarily, interruptions to loan servicing—to the
greatest extent possible.
A.
Lack of Clarity in SBA Guidance22
Speed was the watchword of the PPP. Delays in processing and funding loans would undermine the efficacy
of the “stay at home” posture that public health authorities believed was the most effective means of slowing
the spread of a disease that threatened millions of lives. To induce lenders to make hundreds of billions of
dollars in unsecured loans to small and mid-size businesses (many of which had ceased operating due to
government mandates), the CARES Act provided that all PPP Loans would be backed by a 100% SBA
guaranty of repayment, and participating lenders were directed to forego the typical underwriting process,
in favor of “minimal review” of PPP Borrower calculations in which lenders (per published SBA guidance)
were permitted to rely on PPP Borrower representations, including specific representations as to “amounts
required to be excluded” from PPP Borrower calculations of qualifying payroll costs.
However, there was a distinct lack of clarity and guidance from the SBA during the PPP’s initial rollout.
New rules and guidance were issued on a near daily basis during the first few months of the PPP Loan
Program. In the first month of the PPP Loan Program, the government published six interim final rules and
42 FAQs. In the first two months of the program, those numbers increased to 14 interim final rules and
48 FAQs. Despite this lack of clarity, government officials publicly expressed to participating lenders that
time was of the essence with regards to administering loans, at times even asking lenders to process loans
to eligible PPP Borrowers on the same day that they applied. There was no other way to objectively view
those facts and circumstances—it was a national emergency. Under the most difficult of circumstances,
the Company processed loan applications in good faith, in accordance with the framework established by
the CARES Act, SBA’s PPP implementing regulations, and the SBA’s written guidance concerning lender
obligations under the PPP.
B.
The Disputes
Notwithstanding the Company’s compliance with SBA guidance, the Company remains the subject of
numerous Disputes, which requires the Company to expend a significant amount of time and resources
defending itself across multiple costly fronts. Such time and resources are finite—the Company already is
in wind down, is not originating or processing any new loans, and generates limited cash flow from a
dwindling Legacy Loan Portfolio and a subset of its PPP Loans. The Company is overburdened despite its
focus on servicing its remaining Loan Portfolios, ensuring the timeliness of submission of Loan Forgiveness
and Guaranty Purchase applications, and prioritizing uninterrupted processing. In the face of the Disputes,
the Company’s servicing operations have evolved into a significantly more time intensive and costly
enterprise. For example, submissions to the SBA for Loan Forgiveness or Guaranty Purchase for “excess
amounts” has required months of back and forth with the DOJ and the SBA, responding to extensive and
burdensome information requests, borrower fraud and suspicious activity analysis, engagement of
22 The SBA disputes many of the Debtors’ assertions regarding the SBA and the operation of the PPP program,
including but not limited to characterizations in this section IV.A and section IV.B of this Disclosure Statement.
The SBA also asserts that it is a secured creditor by virtue of its right of setoff. The Debtors disagree and reserve
all rights with respect to these assertions.
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professionals for review of the Loan Portfolios, and more. Even then, the issue of “excess amounts” as
processed by the SBA remains unresolved. Further, responding to and participating in the Disputes and
defending against false allegations has required expenditure of significant amounts. Balancing their limited
resources with ballooning costs from litigations and investigations—and unable to reach consensual out-
of-court resolutions—the Debtors commenced these Chapter 11 Cases to preserve their assets and utilize
the protections and tools of chapter 11 to optimize their ability to continue providing services to borrowers
and their remaining wind down efforts.
In connection with any Disputes and settlement negotiations between the Debtors and various government
agencies, the Debtors intend to continue to cooperate and work in good faith through any discovery requests.
The DOJ and the SBA. On December 28, 2020 and July 11, 2021, the MA DOJ and Texas DOJ,
respectively, initiated investigations into whether the Debtors’ performance of Borrower Diligence violated
the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act. It is the
Company’s position that the DOJ’s allegations are wholly without merit.
Under the PPP Loan program, a borrower’s maximum loan amount was 2.5 times the amount of the
Borrower’s average monthly payroll costs. Qualifying payroll costs consisted of employee compensation
and payments for certain benefits, among other things, but the CARES Act required exclusion of
compensation of an individual employee in excess of an annualized salary of $100,000 prorated for the
covered period. Further, in guidance issued on April 24, 2020, the SBA instructed Borrowers to compute
payroll costs by adding 2019 gross wages and tips paid to employees together with fringe benefits, which
are excluded from taxable Medicare wages and tips. Using the Internal Revenue Service Form 940, Box 4
(“Box 4”) as a guide to calculate these costs complied with such guidelines because virtually all fringe
benefits exempt under the Federal Unemployment Tax Act—and thus which an employer would list in Box
4—are also excluded from Medicare tax.23
At all times, the Company complied with PPP lending requirements. With respect to approving loan
applications in which the borrower failed to exclude employee compensation in excess of $100,000, the
Company was entitled to rely on borrower representations and certifications regarding amounts required to
be excluded from the calculation of payroll costs. Any loan amounts resulting from borrowers’ inclusion
of individual employee compensation in excess of $100,000 were attributable to the borrowers’ failure to
follow PPP requirements. Notably, the publicly-reported maximum amount of a PPP Loan for a small
business with one employee was $20,833, whereas the average loan amount for PPP Loans processed by
the Company was $23,546. Additionally, allowing borrowers to use Form 940, Box 4 in their payroll-cost
calculations was a reasonable effort to implement PPP requirements, and was consistent with SBA guidance
on calculating loan amounts. The proper and intended manner for the program to deal with excess loan
amounts was for lenders to seek identification of excess amounts when borrowers applied for forgiveness,
and then collect excess amounts from borrowers with SBA’s guaranteed purchase of the excess amount still
intact. Requiring more would de facto impose more than “minimal review” requirements on lenders, and
transfer risk to them that the PPP rules did not contemplate.
Despite the Company’s compliance with SBA guidance, the DOJ is alleging that the Debtors improperly
included individuals with compensation of more than $100,000 in its payroll calculations
(the “$100k Issue”), and failed to exclude ineligible expenses from applicants’ Box 4 submissions in
23 In addition, given the urgency of getting money in the hands of businesses in need and the deferred tax deadlines
passed by Congress in response to the pandemic, the SBA expressly permitted Round 1 PPP lenders to originate
PPP Loans based on draft tax documents.
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making PPP Loan eligibility determinations (the “Form 940 Issue”).24 The DOJ flagged approximately
6,200 loans totaling $120 million of principal amount in connection with the $100k Issue and Form 940
Issue (the “DOJ-Flagged Loans”) and instructed the Company not to process those loans for Loan
Forgiveness. Further, in response to the DOJ’s allegations, the SBA stopped processing Loan Forgiveness
for DOJ-Flagged Loans, with little indication of when or under what circumstances processing would
resume. The Company was not permitted to discuss these investigations with concerned borrowers, who
became increasingly frustrated and brought escalations and claims against the Company. Only recently—
after weeks of discussions with the Company, shared documentation, and analysis—did the SBA provide
the Company with the clarity needed to submit DOJ-Flagged Loans for Loan Forgiveness and Guaranty
Purchase. Importantly, the SBA has communicated to the Company, that, at this time, it will not guarantee
any excess loan amounts stemming from the $100k Issue or the Form 940 Issue; therefore, the fate of these
amounts, the Company, and the Partner Banks and the Reserve Bank remain in limbo until such a time as
the SBA makes clear its final position with respect to the excess loan amounts, and it appears the SBA is
deferring to the DOJ in many respects as the DOJ investigation continues.
Advisors for the Debtors, the DOJ, the FTC, and the SBA have been in discussions regarding a potential
resolution of issues, including with regards to the 100K Issue and the 940 Issue. As of the date hereof,
negotiations and discussions with the DOJ, the FTC, and SBA remain ongoing.
In 2020, failures with the SBA’s electronic application system, E-Tran, created issues associated with
tracking and assigning loan numbers to PPP Loans (the “E-Tran Issue”). The tracking issues resulted in,
among other things, duplicate loans and/or duplicate E-Tran numbers being assigned to the same PPP
borrower with multiple PPP lenders. The SBA has indicated that, notwithstanding the failures occurring
within the SBA system, they may not honor for forgiveness or guaranty purchase all of the loans with
missing or duplicate E-Tran numbers.
SALT Issue. In 2021, the Company was engaged in extensive discussions with the SBA regarding
approximately 53,000 PPP Loans processed by the Company on its behalf and on behalf of the Partner
Banks that may have been originated in amounts involving duplicate counting of state and local income
taxes. The duplicate calculation resulted in borrowers receiving PPP Loans in excess of the maximum
amount they were eligible to receive under the program rules. Any such error also potentially resulted in
the Company and/or the Partner Banks collecting processing fees from the SBA that were in excess of
amounts that should have been paid. On May 3, 2021, the SBA and the Company entered into an interim
voluntary agreement related to the SALT Issue. For approximately three months, while the SBA and the
Company discussed the SALT Issue, and the Company engaged an independent third-party to assess the
reasonableness of the Company’s methodology in identifying the potentially affected loans, the SBA took
unilateral action and paused Loan Forgiveness processing for the Company’s entire PPP Loan portfolio.
The SBA paused Loan Forgiveness processing on 53,000 PPP Loans for an additional five months. On
October 25, 2021, the Company and the SBA entered into a final settlement agreement in resolution of the
SALT Issue (the “SBA SALT Settlement Agreement”) and pursuant to which the Company paid the SBA
$30 million (the “SBA SALT Settlement Amount”) and, in exchange, the SBA resumed Loan Forgiveness
processing for all PPP Loans in the Company’s Loan Portfolio, which ensured that borrowers would not be
further impacted.25 Payment of the SBA SALT Settlement Amount significantly impacted the Company’s
24 The DOJ has also alleged that the Company improperly counted state and local taxes twice in calculating payroll
costs, resulting in additional excess loan amounts. As noted previously, the DOJ elected not to participate in the
SALT Settlement between the Company and the SBA on October 25, 2021.
25 The Partner Banks did not contribute settlement amounts. The Partner Banks did not incur any direct liability on
the SALT Issue once the PPP Loans were cleared for full processing.
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already dwindling liquidity.26 Further, despite a degree of involvement in discussions regarding the SALT
Issue and the ultimate resolution reached with the SBA – including payment of the SBA SALT Settlement
Amount, the DOJ has subsequently alleged claims against the Company under the False Claims Act on
account of the same SALT Issue.
Conflicting Agency Positions. As maturity dates for certain of the Company’s 24-month PPP Loans
approached, the Company found itself in the untenable position of addressing the deadline for Pledged
PPPLF Loan repayment obligations, which the Reserve Bank has not extended (although the Reserve Bank
also did not exercise remedies against the PPPLF Collateral based on the breaches by KServicing), for loans
where the Company had yet to receive funds from the borrower in satisfaction of the outstanding amount
due or payment from the SBA due to its Guaranty Purchase obligations. The implicated Pledged PPPLF
Loans were generally delayed in processing because either the DOJ/SBA directed that such loans not be
processed, or the Company needed additional time to address SBA issued “hold codes” placed on the
applicable forgiveness or guaranty purchasing applications to the extent the SBA’s automated screening
tool identified the borrower as potentially being ineligible for the loan (or the loan amount) it received.
Failure to pay the outstanding PPPLF obligations by the maturity date was a default under the PPPLF
Documents. The maturities of PPPLF obligations were not extended to reflect the delay in SBA processing
of Pledged PPPLF Loans, although the Reserve Bank offered the Company, and all other borrowers of
PPPLF Advances, an option to delay repayment to the Reserve Bank related to the PPP loans encountering
such delays with the SBA. In certain instances the Debtors advanced millions of dollars of their own funds
to satisfy amounts due on PPPLF obligations to avoid defaulting under the PPPLF Documents and to
provide borrowers with a bridge in time so that they may address their respective loan obligations through
self-payment, loan forgiveness or the SBA paying under its Guaranty Purchase obligation. The Company
found itself in the middle of conflicting agency positions which resulted in adverse consequences to its
already depleting liquidity and its ability to serve borrowers.
Congressional Subcommittee Investigation. On May 27, 2021, the Congressional Subcommittee notified
the Company that it was investigating potential waste, fraud, and abuse in connection with the PPP Loan
program. The Congressional Subcommittee requested extensive document production, including
documents and policies related to the Company’s PPP Loan program, training materials provided to
employees and contractors, and communications concerning potential fraud or other financial crime related
to PPP Loans, among other things. The Company produced these documents on a rolling basis and
communicated with the Congressional Subcommittee regularly. On December 1, 2022, the Congressional
Subcommittee published a house report titled “How Fintechs Facilitated Fraud in the Paycheck Protection
Program,” which includes and a recommendation for the SBA and DOJ. On December 7, 2022, the SBA
released a statement regarding the findings, which noted the immediate suspension of certain companies—
not including the Company and announced that it would be investigating certain lenders.27 The Company
believes the Congressional Subcommittee has chosen to cherry-pick information and publish that
information without proper and relevant context in order to draw its report’s conclusions. The Debtors
believe that they adhered to the PPP Loan rules and regulations in good faith.
26 To address Pledged PPPLF Loans affected by the SALT Issue, the Company paid the Reserve Bank the full amount
outstanding under such loans without regard for any excess amounts. Amounts actually paid by the SBA or the
respective PPP Borrower relating to the principal and interest payments for each PPP Loan shall constitute cash
collateral.
27 United States Small Business Administration, U.S. Small Business Administration Statement on House Select
Subcommittee on the Coronavirus Crisis Report Concerning Fraud in the Paycheck Protection Program,
GlobeNewswire News Room. https://www.globenewswire.com/news-release/2022/12/07/2569794/0/en/U-S-
Small-Business-Administration-Statement-on-the-House-Select-Subcommittee-on-the-Coronavirus-Crisis-Report-
Concerning-Fraud-in-the-Paycheck-Protection-Program.html (December 7, 2022).
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Federal Trade Commission Investigation. On February 8, 2021, the Company received a Civil Investigative
Demand (a “CID Letter”) from the FTC alleging that the Company engaged in deceptive and/or unfair acts
or practices under the Federal Trade Commission Act and the COVID-19 Consumer Protection Act in
connection with the Company’s advertising, marketing, underwriting, originating, and servicing of PPP
Loans. In the CID Letter, the FTC requested that the Company produce, among other things, PPP Loan
statistics and Borrower information, technical errors detected in the Company’s PPP Loan platform, and
descriptions of the Company’s PPP Loan policies, among other things. As of September 7, 2022, the
Company has produced approximately 32,000 documents to the FTC and is undertaking a privilege review
of approximately 17,000 additional documents. The Company is continuing to communicate with the FTC
and producing documents on a rolling basis.
Customers Bank. From April 2020 to May 2021, CB funded or originated over $2.6 billion in loans through
its arrangements with the Debtors, generating tens of millions of dollars in fees payable to the Debtors
under the CB Agreements, including approximately $65 million in loan referral and servicing fees
(the “CB Receivable”) in connection with Round 2 PPP Loans. CB’s withholding of the CB Receivable
for over 20 months caused a significant financial strain on the Company. In response, as of September 30,
2022 the Debtors withheld certain payments due to CB in the amount of approximately $34 million
(the “KServicing Withholding”) to offset the CB Receivable (all of the foregoing, the “CB Dispute”).
The Company has already expended a significant amount of its depleted resources in addressing the CB
Dispute, increasing the servicing costs associated with the CB Loans.
On May 25, 2022, the Company filed a complaint in the United States District Court for the Northern
District of Georgia, Atlanta Division (the “Georgia Action”), alleging breach of contract under the CB
Agreements for CB’s withholding of the CB Receivable. On August 16, 2022, the Debtors and CB held a
mediation in an effort to resolve the CB Dispute. On October 27, 2022, the Debtors and CB entered into a
settlement agreement intended to resolve the disputes between the parties. On November, 9, the Bankruptcy
Court entered an order approving the settlement agreement over CRB’s objection. However, in breach of
the settlement agreement, CB failed to provide the Debtors with the full amount owed (as further described
in section V.E of this Disclosure Statement.
Cross River Bank. In correspondence beginning August 12, 2022, CRB has asserted various contractual
claims under the CRB Agreements, including repurchase obligations and a right to indemnification under
the CRB SAS, and a right to indemnification and remediation and or/restitution under the CRB LPA. In
addition, CRB has requested that the Company provide sufficient data to identify 100k Loans and Form
940 Loans (as defined herein), and assurances that the Company will be able to meet its obligations to CRB.
In response, the Company has provided the requested information and explained its position that repurchase
obligations were not triggered and the Company does not owe any indemnification, remediation, or
restitution under the CRB Agreements. The Company has already expended a significant amount of its
depleted resources in responding to CRB’s allegations and document requests, increasing the servicing
costs associated with the CRB Loans. Nevertheless, the Company plans to continue discussions with CRB
in an effort to reach a consensual resolution of CRB’s demands.
Borrower Class Action Lawsuit. On March 20, 2022, named plaintiffs Jason Carr, Vicki LeMaster, Edward
Ford Services LLC, Carlton Morgan, 365 Sun LLC, and Candice Worthy (the “Class Action Plaintiffs”)
filed a class action complaint (the “Class Action Complaint”) against the Company in the Georgia District
Court, alleging that the Company failed to timely and competently process Loan Forgiveness applications
on behalf of Borrowers. The Class Action Complaint seeks injunctive relief directing the Company to
review and process Loan Forgiveness in accordance with SBA regulations, disgorgement of PPP Loan
origination fees on theories of unjust enrichment, and damages in accordance with state consumer
protection statutes. On May 31, 2022, the Company moved to dismiss the class action in its entirety on the
basis that the Class Action Plaintiffs did not allege facts sufficient to establish legal claims against the
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Company and also that private individuals do not have standing to pursue the alleged causes of action.28
Prior to the Chapter 11 Cases being filed and the automatic stay taking place, the motion was fully briefed
and the parties were awaiting decision from the Georgia District Court. The Company has cooperated with
all required initial disclosures.
American Express.
To further exacerbate the aforementioned difficulties, the Company has experienced significant operational
hurdles to even the simplest of corporate tasks by virtue of a lack of cooperation or delay from AmEx. In
connection with the AmEx Transaction, the parties entered into the AmEx TSA pursuant to which, among
other things, AmEx provides the Company with information and access to books and records necessary and
critical to run its PPP business and access to the Company’s legacy software, which provides PPP Loan and
Legacy Loan borrowers a platform to submit payments and supports PPP-related processes such as
Guaranty Purchase (with the key exception of Loan Forgiveness processes, as explained herein) (the
“AmEx Platform”).
With the incredibly voluminous information production requests from the DOJ and various other
stakeholders in connection with the Disputes, AmEx’s performance under the AmEx TSA is more important
than ever. Nevertheless, retrieving documents from AmEx has and continues to be difficult and requires
concerted effort as responses are often delayed and incomplete. Further, when the SBA issued a revised
Loan Forgiveness application form in early 2021, AmEx was required to revise the AmEx Platform to
accommodate the revisions pursuant to the terms of the AmEx TSA, and it refused to do so. AmEx’s refusal
forced the Company to engage a third-party vendor, Biz2Credit, to process Loan Forgiveness applications.
Since the Commencement Date, AmEx has provided the Debtors with information requested that was
necessary to file the schedules and statements. AmEx has also provided certain information related to the
AmEx Transaction, but additional requested information remains outstanding. To the extent necessary, the
Debtors are prepared to use the tools provided to debtors-in-possession and other Estate representatives to
seek out any required information necessary to conduct their operations as well as relating to the AmEx
Transaction, including through Bankruptcy Rule 2004 discovery.
C.
Liquidity Constraints
Given that it has been winding down its operations, the Company is not entering into any new business and
therefore is limited in its ability to independently source funds to support its remaining servicing and wind
down operations, which also makes the chances of securing third-party funding highly improbable. Further,
the Company’s remaining operations generate only immaterial revenue and cash flow, in the form of the
100 bps interest earned on KS PPP Loans. As described in detail herein, historically (a) the PPPLF Portfolio
and Legacy Loan Portfolio generate modest income and cash flow as the Company’s servicing fees earned
in connection with the Partner Bank Portfolio (as defined below) were paid up-front,29 and (b) this modest
income is declining as borrowers pay down their loans and the loans mature on a rolling basis.
In addition to the Company’s lack of go-forward cash flows under its servicing agreements, its liquidity is
being significantly impacted by two major items: (a) the Company’s fees payable to AmEx under the
AmEx TSA and to Biz2Credit for services that AmEx was obligated, but refused, to provide under the
AmEx TSA; and (b) the cost of defending against the Disputes, which includes increased servicing and
28 See Defendant Kabbage, Inc., d/b/a KServicing’s Motion to Dismiss and Request for Oral Argument, filed May 31,
2022 (Case 1:22-cv-01249-VMC, ECF No. 12).
29 With the exception of the CB Receivable.
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administration costs in connection thereto. The net result is that the Company is rapidly burning through
its remaining cash and has no ability to originate more loans or otherwise create new income streams.
Fees Payable to AmEx and Biz2Credit. As described above, in connection with the AmEx Transaction, the
Company and AmEx entered into the AmEx TSA whereby AmEx agreed to provide services pivotal to the
Company’s operations, which includes, among other things, access to and maintenance of the AmEx
Platform, certain cloud services, and documents and files transferred to AmEx that the Company needs to
process its PPP Loans and Legacy Loans and otherwise wind down the remaining loan portfolios (the
“AmEx Services”). The Company relies heavily on AmEx to access the services, documents, and files
necessary to service PPP Loans, wind down the business, and facilitate these Chapter 11 Cases. Further,
as described above, AmEx’s refusal to revamp the AmEx Platform to accommodate the SBA’s updated
loan forgiveness application, as required under the terms of the AmEx TSA, caused the Company to
scramble to find a third-party service provider, and subsequently engage Biz2Credit to provide a platform
for Loan Forgiveness activities (the “B2C Platform”).30
Put simply, the AmEx Services and B2C Platform are expensive. As of the Commencement Date, the
Company has spent a combined $7 million in 2022 on the AmEx Services and the B2C Platform. The
Company estimates that it will pay between $275,000 and $375,000 per month on the AmEx Services and
B2C Platform, collectively, during these Chapter 11 Cases.
Cost of Defending Against the Disputes. The Company has expended tremendous amounts of time and
resources to address the Disputes. In response to document requests from Dispute counterparties, the
Company has produced hundreds of thousands documents to date and voluminous amounts of electronic
data. The Company has participated in over 100 formal meetings, in person and virtual, and phone calls
with Dispute counterparties, which does not include countless emails and other forms of correspondence.
Additionally, to demonstrate that the Company’s Borrower Diligence processes complied with SBA
guidance, the Company hired forensic accountants to analyze the DOJ-Flagged Loans for potential excess
amounts.
As of the Commencement Date, the Company has spent approximately $19 million in 2022 on professional
fees in connection with the Disputes. This amount does not include the considerable amount of time and
attention the Company’s employees—including its directors and officers—have had to spend addressing
the Disputes, away from the Company’s regular operations and wind down.
Increased Servicing and Administration Costs. The Disputes—and more specifically the DOJ
investigations and the SBA’s refusal to process DOJ-Flagged Loans for Loan Forgiveness and Guaranty
Purchase—have significantly increased the time and resources required to process PPP Loans. To continue
its regular operations, implement internal processes and controls to account for the DOJ-Flagged Loans
(by, for example, flagging such loans internally for special processing, suspending Loan Forgiveness review
activity at the request of the SBA and the DOJ, performing special review activity and heightened
underwriting standards at the Loan Forgiveness stage that are not contemplated by SBA guidance, and
adjusting deadlines for Loan Forgiveness and Guaranty Purchase) and respond to document requests,
among other things, the Company has had to augment its staff with additional contractors. As of the
Commencement Date, the Company has spent approximately $11 million in 2022 on staffing firms, and a
majority of such amounts can be attributed to increased demand to process document requests, submit
reports, and respond to inquiries in connection with the Disputes.
30 Because the SBA would no longer accept the old Loan Forgiveness form, borrowers were unable to submit their
applications for Loan Forgiveness for nearly three months while the Company identified and prepared the B2C
Platform for the Company’s PPP program.
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Expending Resources on Subpoena Responses. The Company is the recipient of more than 100 subpoenas
per week in connection with borrower bankruptcies and other court proceedings related to the Company’s
PPP Loans. Responding to these subpoenas requires the production of loan files and certifications of
authenticity of business records, as well as the provision of witnesses at evidentiary hearings and trials to
testify as to the authenticity of business records and the loan origination process. The Company employs a
dedicated staff of approximately five employees to deal with such subpoenas and related matters.
D.
Debtors’ Prepetition Settlement Efforts
Prior to the filing of these Chapter 11 Cases, the Company sought to resolve the Disputes with its key
stakeholders and obtain a workable framework to wind down the Company’s operations. In the months
leading up to these Chapter 11 Cases, the Company engaged with key stakeholders with the goal of building
consensus around an efficient and effective wind down framework. Although the Debtors have resolved
certain Disputes postpetition, the Debtors are continuing their efforts to obtain consensus among the
remaining relevant parties. As previously stated herein, the Company is seeking to maximize the value of
a finite pool of resources, and seeking a path forward that insulates, where possible, the PPP and Legacy
Loan borrowers.
V. OVERVIEW OF CHAPTER 11 CASES
A.
First Day Motions
On the Commencement Date, the Debtors filed multiple motions seeking various relief from the Bankruptcy
Court to enable the Debtors to facilitate a smooth transition into chapter 11 and minimize any disruptions
to the Debtors’ operations (the “First Day Motions”). With the exception of the Cash Management Motion
final order, which will be heard by the Court at the omnibus hearing on January 19, 2023, the Bankruptcy
Court granted all of the relief requested in the First Day Motions and entered various orders related to such
First Day Motions. A detailed description of the First Day Motions is set forth in the First Day Declaration.
The entered orders authorizing the relief requested in the First Day Motions include:
Final Order (I) Authorizing Debtors to (A) Continue Insurance Policies, and (B) Pay All
Obligations With Respect Thereto and (II) Granting Related Relief [Docket No. 132];
Final Order (I) Authorizing Debtors (A) to Pay Certain Prepetition Taxes and Assessments and (B)
Granting Related Relief [Docket No. 133];
Final Order (I) Approving Debtors’ Proposed Form of Adequate Assurance of Payment to Utility
Providers, (II) Establishing Procedures for Resolving Objections by Utility Providers, (III)
Prohibiting Utility Providers From Altering, Refusing, or Discontinuing Service, and (IV) Granting
Related Relief [Docket No. 134].
Final Order Authorizing Debtors to (I) Continue Servicing and Subservicing Activities and (II)
Perform Related Obligations [Docket No. 140];
Final Order Establishing Notification Procedures and Approving Restrictions on Certain Transfers
of Interests in the Debtors ”) [Docket No. 193];
Final Order (I) Authorizing Debtors to (A) Pay Prepetition Wages, Salaries, Employee Benefits,
and Other Compensation and (B) Maintain Employee Benefit Programs and Pay Related
Obligations and (II) Granting Related Relief [Docket No. 194]; and
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Third Interim Order (I) Authorizing (A) Debtors to Continue Using Existing Cash Management
System, Bank Accounts, and Business Forms, (B) Implement Changes to Cash Management in the
Ordinary Course of Business; and (II) Granting Related Relief [Docket No. 262].
B.
Procedural Motions
The Debtors filed various motions regarding procedural issues that are common to Chapter 11 Cases of
similar size and complexity as these Chapter 11 Cases (the “Procedural Motions”), and the Bankruptcy
Court entered various orders relating to such Procedural Motions including:
Order Pursuant to Fed. R. Bankr. P. 1015(b) Directing Joint Administration of Related Chapter
11 Cases [Docket No. 42];
Order (I) Authorizing the Debtors to (A) File and Maintain Consolidated Creditor Lists, and (B)
Redact Certain Personal Identification Information for Individuals, (II) Approving Special
Electronic Noticing Procedures, and (III) Granting Related Relief [Docket No. 77];
Order Establishing Procedures for Interim Compensation and Reimbursement of Expenses of
Professionals [Docket No. 136]; and
Order Authorizing Debtors to Employ Professionals Used in the Ordinary Course of Business
[Docket No. 196].
C.
Retention of Chapter 11 Professionals
The Debtors have retained the following professionals pursuant to separate orders of the Bankruptcy Court
to assist the Debtors in carrying out their duties under the Bankruptcy Code during the Chapter 11 Cases,
which includes (i) Weil Gotshal & Manges, LLP (“Weil”), as counsel to the Debtors [Docket No. 137];
(ii) Richards, Layton & Finger, P.A., as co-counsel to the Debtors [Docket No. 175]; (iii) AlixPartners,
LLP, as financial advisor [Docket No. 135]; (iv) Omni Agent Solutions, LLC, as claims, noticing, and
administrative agent [Docket No. 69]; (v) Greenberg Traurig, LLP, as special counsel to the board of
directors of Kabbage Inc. d/b/a KServicing [Docket No. 197]; (vi) Jones Day, as special counsel to the
Debtors [Docket No. 198]; and (vii) Marc Sullivan, as Chief Financial Officer [Docket No. 316].
D.
Consensual Use of Cash Collateral31
The Debtors successfully negotiated the consensual use of Cash Collateral of up to $8.5 million for 6 months
with the Reserve Bank subject to the Cash Collateral Budget and regular reporting. On October 24, 2022,
the Debtors filed the Cash Collateral motion, and on November 7, 2022 the Bankruptcy Court entered the
related order to the Cash Collateral motion.32
The Cash Collateral Order authorized the Debtors’ consensual use of Cash Collateral, comprised of (i) cash
proceeds of PPP Loans comprising the PPPLF Collateral; (ii) cash held in the Synovus Servicing Account
other than cash proceeds on account of KS PPP Loans and any portion of Additional Cash; (iii) cash held
in the Primis Account other than any portion of Additional Cash; and (iv) cash held as of the
31 Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Cash Collateral
Order (as defined below).
32 See Order Under 11 U.S.C. §§ 105, 361, 362, and 363, And Bankruptcy Rules 2002, 4001, 6004, and 9014 (I)
Authorizing Debtors to Use Cash Collateral and (II) Granting Adequate Protection to Secured Lender (“Cash
Collateral Order”) [Docket. No. 225]. All capitalized terms in this section shall have the meanings ascribed to
them in the Cash Collateral Order.
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Commencement Date or received thereafter in the Debtors’ general operating accounts, disbursement-only
accounts, and custody accounts as it relates to the PPP Loans that comprise the PPPLF Collateral or
proceeds thereof.
In exchange for the consensual use of Cash Collateral, the Cash Collateral Order authorized the Debtors to
provide adequate assurance to the Reserve Bank in the form of, among other things, (i) granting valid
perfected first priority replacement liens on all of the Debtors’ unencumbered property and assets owned
or held as of the Commencement Date and property acquired after the Commencement Date, (ii) granting
junior liens on all of the Debtors’ property and assets encumbered as of the Commencement Date, subject
and limited to the extent of diminution in value, (iii) providing weekly reporting on all amounts in the
Synovus Servicing Account, (iv) delivering weekly PPPLF reduction reports and a list of KS PPP Loans
on which the SBA has made payments, (v) continuing to service the PPP Loans constituting PPPLF
Collateral in the ordinary course and remitting all payments received to the Reserve Bank, (vi) working
cooperatively with the Reserve Bank to identify potential third party loan servicers for the remaining PPP
Loans that constitute PPPLF Collateral, (vii) not granting any liens or security interests with respect to the
PPPLF Collateral, and (viii) paying the Reserve Bank’s professional fees in amounts not to exceed the
amounts set forth in the Cash Collateral Budget. The Cash Collateral Order also contemplates an agreed-to
budget, subject to update, testing, and reporting. The Cash Collateral Order also granted the Reserve Bank
an Allowed Claim in (x) the aggregate principal amount of approximately $536,450,940 as of the
Commencement Date in respect of outstanding PPPLF Advances under the Program Agreements, plus (y)
accrued and unpaid interests and costs and expenses including, without limitation, attorney’s fees, agent’s
fees, other professional fees and disbursements and other obligations owing under the Program Agreements,
including all Obligations (as defined in the Operating Circular).
Pursuant to the Cash Collateral Order, the Debtors and the Reserve Bank agreed to have good faith
discussions regarding the potential transfer of the servicing of the PPP Loans pledged as PPPLF Collateral
following the effective date of a plan of liquidation (to the extent such transfer of servicing or the
indefeasible payment in full of the Indebtedness has not occurred earlier) and with respect to a reasonable
budget for the orderly winddown of the Chapter 11 Cases.
E.
CB Settlement Agreement and Subsequent Litigation33
After extensive, good faith, arm’s length negotiations, on October 27, 2022, the Company and CB
memorialized the terms of an agreed upon settlement of the various disputes between the Company and CB
in the Settlement Agreement. On October 27, 2022, the Debtors filed (i) the 9019 motion34 requesting that
the Bankruptcy Court authorize and approve the Settlement Agreement between the Debtors and CB
because, among other things, the cash payment contemplated by the Settlement Agreement provided the
Debtors with much-needed liquidity for funding the Chapter 11 Cases and the continued servicing of the
PPP Loans past December 2022, and resolved a costly dispute and potentially significant contingent and
unliquidated claims against the Debtors, and (ii) a motion to shorten notice and objection periods for the
33 Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the 9019 Motion
(as defined below).
34 Debtors’ Motion for Entry of an Order (I) Authorizing and Approving the Settlement Agreement Between KServicing
and Customers Bank and (II) Granting Related Relief [Docket No. 172] (the “9019 Motion”).
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9019 Motion,35 which was necessary as timing was of the essence. The Bankruptcy Court entered the
order approving the Motion to Shorten on October 28, 2022.36
On November 4, 2022, CRB filed an objection—which was the only objection received—to the proposed
9019 Motion, arguing that the Settlement Agreement should not be approved because among other things,
CB’s claims were contingent and unliquidated and therefore CB lacked a credible basis for setting off
against the servicing fees owed to the Debtors. CRB argued that approving the Settlement Agreement
would unjustly reward CB by giving CB an approximately $8 million discount on their loan servicing or
otherwise granting CB full recovery on contingent and unliquidated claims. On November 6, 2022, the
Debtors filed their reply in support of the proposed settlement, which disputed CRB’s arguments and
assertions. After a hearing, evidence, and testimony, on November 7, 2022, the Bankruptcy Court approved
the Settlement Agreement on the proposed terms, over CRB’s objection. On November 9, 2022, the Court
entered an order approving the settlement between the Debtors and CB (the “9019 Order”).37
On November 25, 2022, the Debtors filed a letter on the docket and requested a status conference to apprise
the Bankruptcy Court of CB’s failure to comply with the Settlement Agreement. On November 28, 2022,
CB filed its own letter in response, and in it, also alleged that the Company was in breach of its servicing
obligations and stated CB would file a motion seeking relief for those alleged breaches.
On November 29, 2022, the Bankruptcy Court held a status conference. On December 6, 2022, the Debtors
filed a motion to enforce the 9019 Order and CB similarly filed its own motion to enforce the 9019 Order
and requesting adequate protection.38
On December 21, 2022 the Debtors and CB filed objections to CB’s Motion to Enforce and the Motion to
Enforce, respectively.39 The response deadline to the Motion to Enforce and CB’s Motion to Enforce is
January 3, 2023. A hearing on the disputes between the Debtors and CB is scheduled for January 6, 2023
at 10:00 a.m. ET.
F.
Extension of Time to Reject Commercial Leases and Exclusive Periods
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 chapter 11 plan (the
35 Debtors’ Motion for Entry of an Order Shortening Notice and Objection Periods for Debtors’ Motion for Entry of
an Order Authorizing and Approving the Settlement Agreement Between KServicing and Customers Bank [Docket
No. 173] (the “Motion to Shorten”).
36 Order Shortening Notice and Objection Periods for Debtors’ Motion for Entry of an Order Authorizing and
approving the Settlement Agreement Between KServicing and Customers Bank [Docket No. 174].
37 Order (I) Authorizing and Approving the Settlement Agreement Between KServicing and Customers Bank and (II)
Granting Related Relief [Docket No. 232].
38 See Motion of Debtors for Entry of an Order Enforcing the Settlement Order and the Settlement Agreement Between
KServicing and Customers Bank (the “Debtors’ Motion to Enforce”) [Docket No. 340]; see also Motion of
Customers Bank for Entry of an Order (I) Compelling Compliance with Court Approved Settlement Agreement and
Order; (II) Requiring Additional Adequate Protection in Favor of Customers Bank, and (III) Granting Related
Relief (“CB’s Motion to Enforce”) [Docket No. 336].
39 See Opposition of Customers Bank to Debtors’ Motion for Entry of an Order Enforcing the Settlement Order and
the Settlement Agreement Between KServicing and Customers Bank [Docket No. 356]; see also Debtors’ Objection
to Motion of Customers Bank for Entry of an Order (I) Compelling Compliance with Court Approved Settlement
Agreement and Order; (II) Requiring Additional Adequate Protection in Favor of Customers Bank, and (III)
Granting Related Relief [Docket No. 355].
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“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.
The Exclusive Periods currently expire on January 31, 2023, and April 3, 2023, respectively. The
Debtors intend to file a motion extending the Debtors’ Exclusive Periods, without prejudice for the Debtors
to seek additional extensions of the Exclusive Periods.
The Debtors also intend to file a motion to extend the time for the Debtors to reject commercial leases
pursuant to section 365(d)(4). The deadline currently expires on January 31, 2023, and the the Debtors
intend seek to extend the deadline by approximately 90 days.
G.
Statements and Schedules, and Claims Bar Dates
On October 26, 2022, the Bankruptcy Court entered an order approving (i) November 30, 2022 as the
deadline for all creditors or other parties in interest to file proofs of claim; and (ii) April 3, 2023 as the
deadline for all governmental units to file a proof of claim [Docket No. 161] (each, a “Bar Date”).40 The
Debtors provided notice of the Bar Dates, and published notice of the Bar Dates in the national editions of
the New York Times and USA Today [Docket No. 234].
On October 24, 2022, the Debtors filed their Schedules and Statements, detailing known claims against the
Debtors. As of the date hereof, approximately 260 proofs of claim have been filed against the Debtors
asserting in the aggregate approximately $939 million. The Debtors have begun to review and analyze the
filed Claims, and will reconcile objections to the filed Claims as appropriate.
The Debtors intend to file a Plan Supplement with contracts or unexpired leases to be assumed pursuant to
an assumption schedule. Any counterparty to an executory contract or unexpired lease that is not assumed,
and thereby rejected, must file and serve a Proof of Claim on the applicable Debtor that is party to the
applicable executory contract no later than 30 days following the date an applicable claimant is served an
order approving rejection of an executory contract or unexpired lease of the Debtors.
H.
Non-Executive KERP
On November 15, 2022, the Debtors filed a motion (the “Non-Executive KERP Motion”) [Docket No.
253] seeking court approval to continue their prepetition non-executive key employee retention plan (the
“Non-Executive KERP”) to pay awards to eleven (11) critical, non-insider, non-executive employees
(collectively, the “Non-Executive KERP Participants”). On December 2, 2022, the Bankruptcy Court
entered the Order (I) Approving Debtors’ Retention Program For Certain Non-Executive Employees and
(II) Granting Related Relief [Docket No. 315], approving the Non-Executive KERP Motion.
The Non-Executive KERP is broken down into three (3) tiers, divided by employment levels, with award
amounts based on a percentage of base salary. The maximum total cost of the Non-Executive KERP is
approximately $309,000 (including the Discretionary Pool), with individual amounts ranging from 8% to
40 Order (I) Establishing a General Bar Date to File Proofs of Claim, (II) Establishing a Bar Date to File Proofs of
Claim by Governmental Units, (III) Establishing an Amended Schedules Bar Date, (IV) Establishing a Rejection
Damages Bar Date, (V) Approving the Form and Manner for Filing Proofs of Claim, (VI) Approving the Proposed
Notice of Bar Dates, (VII) Approving Procedures with Respect to Service of the Proposed Notice of Bar Dates, and
(VIII) Granting Related Relief [Docket No. 96].
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30% of each Non-Executive KERP Participant’s annual salary. Of the approximate $309,000 total award
pool, approximately $61,500 was paid on a prepetition basis as the first quarterly payment. Quarterly
payments earned and paid are not subject to clawback; however, if any of the Non-Executive KERP
Participants are terminated for any reason they will not be entitled to any future, remaining payments. The
Non-Executive KERP provides for awards available in four quarterly payments (the first of which was paid
prepetition). The three remaining installments are to be paid on or as soon as administratively practicable
following each of: December 31, 2022, March 31, 2023, and June 30, 2023, subject to continue employment
with the Company. The remaining installments are subject to acceleration in the event of a change of control
(as defined in the Non-Executive KERP Motion). To receive a Non-Executive KERP award, each Non-
Executive KERP Participant has agreed that the award is in lieu of any bonus compensation or award
attributable to the 2022 calendar year or any severance pay or benefits at any time. A discretionary pool is
available for non-executive, non-insider employees who are critical but were not included in the original
Non-Executive KERP Participant list.
I.
Debtors’ Potential Causes of Action
The Debtors are aware of numerous potential Claims and Causes of Action, including but not limited to
potential Claims and Causes of Action that may be brought against AmEx and others arising out of or
relating to the AmEx Transaction (as described further below), avoidance actions against various
stakeholders, and claims filed against borrowers in bankruptcy in connection with unpaid loans. In the
ordinary course of business, the Debtors may have accrued, or may subsequently accrue, certain rights to
counterclaims, cross-claims, setoffs, and refunds with suppliers, among other claims. Additionally, certain
of the Debtors may be party to pending litigation in which the Debtors have asserted, or may assert, claims
as plaintiffs, or counter-claims and/or cross-claims as defendants. The Debtors reserve all rights with
respect to any Claims and Causes of Action they may have.
1.
AmEx Investigation
On August 16, 2020, the Company and AmEx entered into the Agreement and Plan of Merger, whereby
AmEx acquired the Company’s management team, its full suite of financial technology products, data
platform, and IP built for small businesses. The Company was left with the preexisting loan portfolio
consisting of Legacy Loans and PPP Loans, and to effectuate its wind down, roughly $17 million of retained
cash. AmEx paid approximately $750 million, of which it appears approximately $668 million was paid
directly to former shareholders instead of the Company. The remainder of the AmEx Transaction
consideration was distributed to cover transaction expenses, escrow amounts, and certain employee options.
Approximately $38 million of the purchase price is currently held in escrow (the “AmEx Escrow Fund”)
for the benefit of the selling shareholders and, to the Debtors’ knowledge, remains subject to certain
unresolved claims by AmEx under the documents related to the AmEx Transaction. Specifically, it is the
Debtors’ understanding that the dispute relating to the AmEx claims has prevented the escrow trustee from
distributing funds to shareholders on or about April 18, 2022, the expected distribution date, and that the
full $38 million will continue to be held in the escrow account unless and until the disputed AmEx claims
are resolved to the satisfaction of the escrow trustee and specific payment instructions co-signed by AmEx
and the shareholder agent are given to the escrow agent.
Prepetition, the Company’s Board tasked Weil to begin an investigation of the AmEx Transaction.
Specifically, an investigation as to any potential claims and Causes of Action the Company may have with
respect to the AmEx Transaction and against any related parties. In order to gain access to information that
the Company does not have in its possession because this information is solely in the possession of AmEx,
Weil commenced informal discovery with the parties involved in the AmEx Transaction. To date, Weil
has sent informal discovery requests related to the AmEx Transaction to Duff & Phelps (n/k/a Kroll), Ernst
& Young, Houlihan Lokey, AmEx, and FT Partners. The materials sought from entities other than AmEx
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has focused on reports and analysis they undertook either in relation to the AmEx Transaction or that were
provided in connection with the AmEx Transaction. Because a majority of the Company’s documents were
solely in AmEx’s possession following the AmEx Transaction, the AmEx requests were much broader and
sought materials that belonged to the Company relating to the AmEx Transaction, including email custodial
files for a number of former Company executives as well as requests for documents that belong to AmEx
relating to the AmEx Transaction. The Company is also considering additional requests to other parties.
Although all of the parties have agreed to produce documents subject to a protective order, and some have
provided certain information, discovery is still ongoing. To the extent any of the parties refuse to produce
documents or unreasonably limit their production, the Debtors intend to file formal motions with the
Bankruptcy Court to compel production pursuant to Rule 2004 of the Bankruptcy Rules.
The Debtors are cognizant of the importance of the AmEx Transaction to these Chapter 11 Cases and, as
described above, the AmEx Transaction and any Claims or Causes of Action related thereto are under
review by the Board.
J.
PPP Loan Processing
Since the Commencement Date, the Debtors have, among other ordinary course servicing obligations, been
focused on continuing to process Loan Forgiveness applications, submitting applications to the SBA for
Guaranty Purchase on account of Pledged PPPLF Loans, and KS PPP Loans, and assisting the Partner
Banks in completing their Guaranty Purchase applications. Importantly, postpetition, the Debtors and the
SBA continued discussions on loans with 100K and 940 issues and the Debtors have been authorized to
process: (a) Loan Forgiveness applications for the PPPLF Loans, KS PPP Loans, and the Partner Bank
Loans up to the non-excess amounts and (b) Guaranty Purchase Applications, for the PPPLF Loans, KS
PPP Loans, and the Partner Bank Loans, but has noted that at this time and with respect to excess amounts,
only excess amounts on account of the PPPLF Loans may be Guaranty Purchased.
As further described in the Loan Servicing Motion, following certain borrower delinquency events, and
within 180 days after maturity of the applicable loan, PPP lenders are entitled to submit a request to the
SBA for Guaranty Purchase (as defined in the Loan Servicing Motion). If the application is not submitted
to the SBA within 180 days of the loan maturity, the SBA is no longer obligated to honor the Guaranty
Purchase. Since October 2022, the Guaranty Purchase submission deadlines for a large number of two-year
loans have come due. The Debtors have been focused on meeting each Guaranty Purchase deadline, and to
date, believe that they have done so successfully.
In the ordinary course, and pursuant to this Court’s approval of the Loan Servicing Motion, when a borrower
makes a payment on a loan that has been forgiven or purchased by the SBA, the Company reconciles the
overpayment by deducting the overpayment from the remittance to the applicable lender and instead, in the
case of Guaranty Purchased loans, remits the overpayment to the SBA, who is now the true owner of the
loan in the case of a guaranteed purchase, or in the case of forgiven loans, returns the overpayment to the
borrower. This process is how KServicing has always handled overpayments by borrowers, with the
exception of CB,41 and will continue to do so going forward.
41 From January 2021 through the remainder of the prepetition period, KServicing stopped remitting any borrower
collections to CB given CB’s breach of the Processing and Servicing Agreement, and instead set off the amount of
such collections against the amount CB owed KServicing by its failure to pay the loan servicing and origination
fees. On October 27, 2022, KServicing and CB reached a settlement agreement whereby KServicing would begin
to remit borrower payments collected in October 2022. Thereafter, KServicing began remitting borrower payments
to CB in the same manner that it had always serviced its CRB portfolio, as described in the Loan Servicing Order.
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The Debtors believe they have complied, and do intend to continue to comply, with their servicing and
subservicing obligations, pursuant to the Loan Servicing Order and their servicing agreements, in the
ordinary course of business. Specifically, the Debtors plan to continue timely submitting applications to
the SBA for Guaranty Purchase and Loan Forgiveness, as and when permitted by the SBA.
Although the Debtors main objective is to reduce the number of PPP Loans outstanding by continuing to
submit applications to the SBA for Guaranty Purchase and Loan Forgiveness, the SBA has recently made
these processes even more rigorous. The volume of inquiries that the SBA submits to the KServicing
team—which inquiries must be addressed prior to application approval—has increased steadily over the
past several months. Specifically, the SBA has added more categories of review for PPP Loans, including
for PPP Loans that have already been approved for Loan Forgiveness by the SBA and certain PPP Loans
subject to reconsideration by the SBA that were previously submitted to the SBA as a full denial for Loan
Forgiveness or for Guaranty Purchase. These reviews have caused obstacles to KServicing’s ability to
process PPP loans and threaten its objective to continue servicing the PPP Loans in a timely manner by
requiring additional operational and financial resources.
VI. SUMMARY OF PLAN
This section of the Disclosure Statement summarizes the Plan, a copy of which is annexed hereto as
Exhibit A. YOU SHOULD READ THE PLAN IN ITS ENTIRETY BEFORE VOTING TO
ACCEPT OR REJECT THE PLAN.
In general, a chapter 11 plan (a) divides claims and equity interests into separate classes, (b) specifies the
consideration that each class is to receive under the plan and (c) contains other provisions necessary to
implement the plan. Under the Bankruptcy Code, “claims” and “equity interests,” rather than “creditors”
and “shareholders,” are classified because creditors and shareholders may hold claims and equity interests
in more than one class. Under section 1124 of the Bankruptcy Code, a class of claims is “impaired” under
a plan unless the plan (i) leaves unaltered the legal, equitable, and contractual rights of each holder of a
claim in such class or (ii) provides, among other things, for the cure of certain existing defaults and
reinstatement of the maturity of claims in such class. Only holders of Claims in Class 3 and Class 4 are
entitled to vote to accept or reject the Plan. Ballots are being furnished herewith to all holders of Claims in
Class 3 or Class 4 that are entitled to vote to facilitate their voting to accept or reject the Plan. Holders of
Claims in Classes 1, 2, and 6 (if so treated) are conclusively presumed to have accepted the Plan pursuant
to section 1126(f) of the Bankruptcy Code. Accordingly, such holders are not entitled to vote to accept or
reject the Plan. Holders of Claims and Interests in Classes 5, 6 (if so treated), 7, and 8 are deemed to have
rejected the Plan pursuant to section 1126(g) of the Bankruptcy Code. Accordingly, such holders are not
entitled to vote to accept or reject the Plan.
A.
Administrative Expenses and Priority Claims
1.
Treatment of Administrative Expense Claims
Except to the extent that a holder of an Allowed Administrative Expense Claim and the Debtors or the Wind
Down Officer agree to different treatment, the Debtors (or the Wind Down Officer, as the case may be)
shall pay to each holder of an Allowed Administrative Expense Claim Cash in an amount equal to such
Claim on (a) the later of (i) the Effective Date and (ii) 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, or as soon thereafter as is reasonably practicable, or (b) on such other date or terms as may
be mutually agreed upon between the holder of such an Allowed Administrative Expense Claim and the
Debtors or the Wind Down Officer, as applicable; 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 in the ordinary course of business, consistent with past practice and in
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accordance with the terms and subject to the conditions of any orders or agreements governing, instruments
evidencing, or other documents establishing, such liabilities.
2.
Treatment of Fee Claims
(a)
All entities seeking an award by the Bankruptcy Court of Fee Claims (i) shall file
their respective final applications for allowance of compensation for services rendered and reimbursement
of expenses incurred by the date that is thirty (30) days after the Effective Date, and (ii) shall be paid in
full, in Cash, in such amounts as are Allowed by the Bankruptcy Court or authorized to be paid in
accordance with the order(s) allowing any such postpetition, estate-retained professional fee and expense
claim (A) upon the later of the Effective Date and the date upon which the order relating to any such
Allowed Fee Claim is entered or (B) upon such other terms as may be mutually agreed upon between the
holder of such an Allowed Fee Claim and the Debtors or the Wind Down Officer, as applicable. The Wind
Down Officer is 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.
(b)
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 the Wind Down Officer, as applicable, shall separately escrow such estimated amounts in
the Fee Escrow Account (less any amounts already reserved for such professional in the Fee Escrow
Account) 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 Wind Down Officer, 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 Wind Down Estates and the Wind Down
Officer without any further action or order of the Bankruptcy Court.
(c)
Funds held in the Fee Escrow Account shall not be considered property of the
Debtors’ estates or property of the Wind Down Estate, but shall revert to the Wind Down Estate only after
all Fee Claims Allowed by the Bankruptcy Court have been irrevocably paid in full. The Fee Escrow
Account shall be held in trust for estate-retained professionals and for no other parties until all Fee Claims
Allowed by the Bankruptcy Court have been paid in full.
3.
Treatment of 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 Wind Down Officer, 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 forty-five (45) 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; 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; provided, that the Debtors reserve the right to prepay all or a portion of
any such amounts at any time under this option without penalty or premium.
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4.
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 Claim or Interest has not been satisfied, released, or otherwise settled prior to the Effective Date.
5.
Grouping of Debtors for Convenience Only
The Plan groups the Debtors together solely for the purpose of describing treatment under the Plan,
confirmation of the Plan, and Plan Distributions to be made in respect of Claims against and Interests in the
Debtors under the Plan. Each Class of Claims will be deemed to contain sub-classes for each of the Debtors,
to the extent applicable for voting and distribution purposes. To the extent there are no Allowed Claims or
Interests with respect to a particular Debtor, such Class is deemed to be omitted with respect to such Debtor.
Except as otherwise provided herein, to the extent a holder has a Claim that may be asserted against more
than one Debtor, the vote of such holder in connection with such Claims shall be counted as a vote of such
Claim against each Debtor against which such holder has a Claim. Except as provided in Section 5 of the
Plan, such groupings shall not affect each Debtor’s status as a separate legal entity, change the
organizational structure of the Debtors’ business enterprise, constitute a change of control of any Debtor
for any purpose, cause a merger of consolidation of any legal entities, or cause the transfer of any assets.
6.
Summary of Classification
The following table designates the Classes of Claims against, and Interests in, each of the Debtors 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 reject the
Plan. In accordance with section 1123(a)(1) of the Bankruptcy Code, Administrative Expense Claims, DIP
Claims and Priority Tax Claims have not been classified and, thus, are excluded from the Classes of Claims
and Interests set forth in this Section 3. All of the potential Classes for the Debtors are set forth herein.
Certain of the Debtors may not have holders of Claims or Interests in a particular Class or Classes, and such
Classes shall be treated as set forth in Section 3.5 of the Plan.
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
Reserve Bank Claims
Impaired
Yes
4
General Unsecured Claims
Impaired
Yes
5
Intercompany Claims
Impaired
No (Deemed to reject)
6
Intercompany Interests
Unimpaired /
Impaired
No (Deemed to
accept/reject)
7
Subordinated Securities Claims
Impaired
No (Deemed to reject)
8
KServicing Equity Interests
Impaired
No (Deemed to reject)
7.
Special Provision Governing Unimpaired Claims
Except as otherwise provided in the Plan, nothing under the Plan shall affect the rights of the Debtors or
the Wind Down Officer, 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.
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8.
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.
9.
Voting Class; Presumptions
(a)
Acceptance by Certain Impaired Classes. Only holders of Allowed Claims in
Classes 3 and 4 are entitled to vote to accept or reject the Plan. An Impaired Class of Claims shall have
accepted the Plan if (i) the holders of at least two-thirds (2/3) in amount of the Allowed Claims actually
voting in such Class have voted to accept the Plan and (ii) the holders of more than one-half (1/2) in number
of the Allowed Claims actually voting in such Class have voted to accept the Plan. Holders of Claims in
Classes 3 and 4 shall receive Ballots containing detailed voting instructions.
(b)
Presumed Acceptance by Unimpaired Classes. Holders of Claims and Interests
in Classes 1, 2, and 6 (if so treated) are conclusively deemed to have accepted the Plan pursuant to section
1126(f) of the Bankruptcy Code. Accordingly, such holders are not entitled to vote to accept or reject the
Plan.
(c)
Deemed Rejection by Certain Impaired Classes. Holders of Claims and
Interests in Classes 5, 6 (if so treated), 7, and 8 are deemed to have rejected the Plan pursuant to section
1126(g) of the Bankruptcy Code. Accordingly, such holders are not entitled to vote to accept or reject the
Plan.
If a Class contains Claims or Interests eligible to vote and no holders of Claims or Interests eligible to vote
in such Class vote to accept or reject the Plan, the Debtors shall request the Bankruptcy Court at the
Confirmation Hearing to deem the Plan accepted by the holders of such Claims or Interests in such Class.
10.
Confirmation Pursuant to Section 1129(a)(10) and 1129(b) of the
Bankruptcy Code
The Debtors shall seek Confirmation of the Plan pursuant to section 1129(b) of the Bankruptcy Code with
respect to any rejecting Class of Claims or Interests. The Debtors reserve the right to modify the Plan in
accordance with Section 12.4 of the Plan to the extent, if any, that Confirmation pursuant to section 1129(b)
of the Bankruptcy Code requires modification, including by modifying the treatment applicable to a Class
of Claims or Interests to render such Class of Claims or Interests Unimpaired to the extent permitted by the
Bankruptcy Code and the Bankruptcy Rules.
11.
No Waiver
Nothing contained in the Plan shall be construed to waive a Debtor’s, the Wind Down Officer’s, or other
Person’s right to object on any basis to any Claim, except as provided for in the Plan.
B.
Treatment of Claims and Interests
1.
Class 1: Priority Non-Tax Claims (Class 1)
(a)
Classification: Class 1 consists of Priority Non-Tax Claims against the Debtors.
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(b)
Treatment: On or as soon as practicable after the Effective Date, except to the
extent that a holder of an Allowed Priority Non-Tax Claim agrees to less favorable treatment, each holder
thereof shall be paid in full in Cash or otherwise receive treatment consistent with the provisions of section
1129(a)(9) of the Bankruptcy Code.
(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.
2.
Class 2: Other Secured Claims (Class 2)
(a)
Classification: Class 2 consists of the Other Secured Claims against the Debtors.
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.
(b)
Treatment:
(i)
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 thirty
(30) 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
Wind Down Officer, as applicable: (i) Cash in an amount equal to the Allowed amount of
such Claim; (ii) such other treatment sufficient to render such holder’s Allowed Other
Secured Claim Unimpaired; or (iii) return of the applicable collateral in satisfaction of the
Allowed amount of such Other Secured Claim.
(ii)
Except as otherwise specifically provided herein, upon the payment in full
in Cash of an Other Secured Claim, any Lien securing an Other Secured 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 Wind Down Officer, to evidence the release of such Lien, including the
execution, delivery and filing or recording of such releases as may be requested by the
Wind Down Officer.
(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.
3.
Class 3: Reserve Bank Claims (Class 3)
(a)
Classification: Class 3 consists of the Reserve Bank Claims.
(b)
Allowance:
(i)
The Reserve Bank Claims are Allowed, including pursuant to the Cash
Collateral Order, against the Debtors in the aggregate principal amount, as of the
Commencement Date, of $536,450,940 in respect of outstanding PPPLF Advances under
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the Program Agreements, plus all accrued and unpaid interest and costs and expenses
including, without limitation, attorney’s fees, agent’s fees, other professional fees and
disbursements and other obligations owing under the Program Agreements, which for the
avoidance of doubt, shall include any additional fees, costs and expenses borne by or on
behalf of the Reserve Bank related to any transfer of servicing and any servicing of the
Pledged PPPLF Loans by a third-party servicer other than the Debtors plus additional
mitigation costs, both to the extent accrued prior to and unpaid as of the Effective Date and
to the extent accruing on and after the Effective Date; provided, that the aggregate amount
of the Reserve Bank Claims shall be reduced by any indefeasible Cash payments made to
the Reserve Bank or returned PPPLF Collateral on account of such Claims. The Allowed
Reserve Bank Claims comprise the Reserve Bank Secured Claims and the Reserve Bank
Priority Claims.
(ii)
The portion of the Reserve Bank Claims paid from the proceeds of the
PPPLF Collateral and the Adequate Protection collateral shall constitute the Reserve Bank
Secured Clam.
(iii)
If the proceeds described in the preceding clause (ii) are insufficient to
fully satisfy the Reserve Bank Claims, the unsatisfied portion of the Reserve Bank Claims
shall constitute Reserve Bank Priority Claims.
(iv)
Without limitation, the allowance of the Reserve Bank Claims under
section 4.3(b)(i) above, including the portions constituting the Reserve Bank Secured
Claims, and the Reserve Bank Priority Claims shall be determined and Allowed as set forth
in the Plan and Program Agreements and following the Effective Date, and, subject to the
Win Down Officer’s fiduciary duties, shall not be subject to estimation for any purposes
effecting the Distributions on such Claims absent the consent of the Reserve Bank to be
granted or withheld in its sole and absolute discretion, notwithstanding anything herein to
the contrary.
(c)
Treatment: Except to the extent that a holder of an Allowed Reserve Bank Claim
against the Debtors agrees to a less favorable treatment of such Claim, each holder of an Allowed Reserve
Bank Claim shall receive for the Allowed Reserve Bank Claims:
(i)
The Reserve Bank Secured Claims will receive (x) the PPPLF Collateral;
provided that, to the extent the PPPLF Collateral is transferred to the Reserve Bank or its
designee, (1) such transfer shall only pertain to such Pledged PPPLF Loans that as of the
date of the transfer shall not have been fully forgiven or guarantee repurchased by the SBA
or fully repaid by the borrower and (2) with respect to any loan files relating to non-
transferred Pledged PPPLF Loans, the Reserve Bank shall at its option, transfer the loan
servicing files to an alternate servicer or otherwise maintain the loan servicing files42 and/or
(y) the cash proceeds of the PPPLF Collateral, where in accordance with section 5.3 of the
Plan (1) servicing of the loans that constitute PPPLF Collateral shall be transferred to a
different servicer on or prior to the Effective Date, or (2) at the Debtors’ sole discretion,
the Debtors offer Post-Effective Date PPP Servicing and the Reserve Bank consents to
such post-Effective Date PPP Servicing and pays the Reserve Bank Servicing Costs.
42 To the extent the Reserve Bank requests the Wind Down Officer to maintain the loan servicing files for non-
transferred Pledged PPPLF Loans, any corresponding costs, fees, and expenses shall be borne by the Reserve Bank
and funded prior to the Effective Date.
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(ii)
Reserve Bank Priority Claims will receive GUC Pool Class A Interests.
(iii)
For the avoidance of doubt, (x) the Reserve Bank shall not be paid in
excess of the Reserve Bank Claims and any amounts in excess of the Reserve Bank Claims
paid to the Reserve Bank on account of the Allowed Reserve Bank Claims shall revert to
the Wind Down Estate and (y) any Liens on the Pledged PPPLF Loans and other PPPLF
Collateral granted to or held in favor of the Reserve Bank shall remain in place and continue
on and after the Effective Date.
(d)
Voting: Class 3 is Impaired, and the holders of Reserve Bank Claims are entitled
to vote to accept or reject the Plan.
4.
Class 4: General Unsecured Claims (Class 4)
(a)
Classification: Class 4 consists of General Unsecured Claims against the Debtors.
(b)
Treatment: Except to the extent that a holder of an Allowed General Unsecured
Claim agrees to less favorable treatment of such Claim, each holder of an Allowed General Unsecured
Claim will receive its pro rata share of the GUC Pool Class B Interests.
(c)
Voting: Class 4 is Impaired, and the holders of General Unsecured Claims are
entitled to vote to accept or reject the Plan.
5.
Class 5: Intercompany Claims (Class 5)
(a)
Classification: Class 5 consists of Intercompany Claims against the Debtors.
(b)
Treatment: On or after the Effective Date, all Intercompany Claims will either be
reinstated or cancelled and released at the option of the Debtors; provided that no such distributions shall
be made on account of such Intercompany Claims on the Effective Date.
(c)
Voting: Class 5 is Impaired, and the holders of Intercompany Claims are
conclusively deemed to have rejected the Plan pursuant to section 1126(g) 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.
6.
Class 6: Intercompany Interests (Class 6)
(a)
Classification: Class 6 consists of Intercompany Interests in the Debtors.
(b)
Treatment: On the Effective Date, Intercompany Interests shall receive no
recovery or distribution and be reinstated solely to maintain the Debtors’ corporate structure, as necessary.
(c)
Voting: Allowed Intercompany Interests are either Unimpaired, in which case the
holders of such Intercompany Interests conclusively are presumed to have accepted the Plan pursuant to
section 1126(f) of the Bankruptcy Code, or Impaired, in which case the holders of such Intercompany
Interests conclusively are presumed to have rejected the Plan pursuant to section 1126(g) of the Bankruptcy
Code. Therefore, holders of Allowed 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 Allowed Intercompany
Interests.
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7.
Class 7: Subordinated Securities Claims (Class 7)
(a)
Classification: Class 7 consists of Subordinated Securities Claims against the
Debtors.
(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 7 is Impaired, and the holders of Subordinated Securities Claims are
conclusively deemed to have rejected the Plan pursuant to section 1126(g) of the Bankruptcy Code.
Therefore, holders of Subordinated Securities 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 Subordinated Securities Claims.
8.
KServicing Equity Interests (Class 8)
(a)
Classification: Class 8 consists of KServicing Equity Interests.
(b)
Treatment: Except to the extent that a holder of KServicing Equity Interests agrees
to less favorable treatment, in full and final satisfaction and release of, and in exchange for KServicing
Equity Interests, each such holder thereof shall receive the following treatment: (i) on the Effective Date,
all KServicing Equity Interests shall be cancelled and one share of KServicing common stock (the “Single
Share”) shall be issued to the Wind Down Officer to hold in trust as custodian for the benefit of the former
holders of KServicing Equity Interests consistent with their former relative priority and economic
entitlements and the Single Share shall be recorded on the books and records maintained by the Wind Down
Officer; (ii) each former holder of KServicing Stock (through their interest in the Single Share, as
applicable) shall neither receive nor retain any property of the Estate or direct interest in property of the
Estate on account of such KServicing Stock; provided, that in the event that all Allowed Claims have been
satisfied in full in accordance with the Bankruptcy Code and the Plan, each former holder of a KServicing
Existing Equity Interests may receive its share of any remaining assets of KServicing consistent with such
holder’s rights of payment existing immediately prior to the Commencement Date. Unless otherwise
determined by the Wind Down Officer, on the date that KServicing’s Chapter 11 Case is closed in
accordance with Section 5.14 of the Plan, the Single Share issued on the Effective Date shall be deemed
cancelled and of no further force and effect; provided that (i) such cancellation does not adversely impact
the Debtors’ Estates; and (ii) the continuing rights of former holders of KServicing Stock (including through
their interest in Single Share or otherwise) shall be nontransferable except (A) by operation of law or (B) for
administrative transfers where the ultimate beneficiary has not changed, subject to the Wind Down Officer’s
consent.
(c)
Voting: Class 8 is Impaired, and the holders of KServicing Equity Interests are
conclusively deemed to have rejected the Plan pursuant to section 1126(g) of the Bankruptcy Code.
Therefore, holders of KServicing 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 KServicing Equity Interests.
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C.
Means for Implementation
1.
No Substantive Consolidation
The Plan is being proposed as a joint chapter 11 plan of the Debtors for administrative purposes only and
constitutes a separate chapter 11 plan for each Debtor. The Plan is not premised upon the substantive
consolidation of the Debtors with respect to the Classes of Claims of Interests set forth in the Plan.
2.
Sources of Consideration for Plan Distribution
The Debtors and the Wind Down Officer, as applicable, shall fund Distributions under the Plan with the
Net Cash Proceeds, the proceeds from the sale of any or all Legacy Loans, proceeds from the sale of any
or all KS Direct PPP Loans, and any other non-Cash assets of the Debtors that may become Cash, including
proceeds from the Estate Causes of Action. In addition to the foregoing, the Allowed Reserve Bank Claims
shall also be paid from proceeds of the PPPLF Collateral.
3.
Implementation
(a)
KServicing shall continue to service all Pledged PPPLF Loans, all CRB PPP
Loans, and all CB PPP Loans in the ordinary course and in accordance with the Program Agreements, CRB
Agreements and CB Agreements (including the Settlement and Release Agreement, dated October 27, 2022,
by and among KServicing and CB), respectively, until the Effective Date.
(b)
KServicing shall (i) use commercially reasonable efforts to assist the Reserve Bank
and/or Partner Banks to transfer servicing obligations to a third-party loan servicer prior to the Effective
Date (the “PPP Transfer”), or (ii) at its sole discretion, offer the Reserve Bank, CRB, and/or CB, continued
servicing through a date to certain (“Post-Effective Date PPP Servicing”).
(c)
PPP Transfer. Prior to the Effective Date, KServicing shall use commercially
reasonable efforts to assist:
(i)
the Reserve Bank with transfer of the Debtors’ servicing obligations with
respect to the Pledged PPPLF Loans to a third-party loan servicer to be selected with the
Reserve Bank’s consent and direction by a date to be mutually agreed but no later than the
Effective Date of the Plan; provided that, for the avoidance of doubt, any fees, costs, and
expenses associated with any transfer of servicing obligations shall be borne upfront by the
Reserve Bank, provided that any such fees, as well as any additional fees, costs and
expenses borne by or on behalf of the Reserve Bank related to the servicing of the Pledged
PPPLF Loans by a third-party servicer other than the Debtors shall constitute a portion of
and be included in the Reserve Bank Claims. For the avoidance of doubt, with respect to
the Reserve Bank, unless otherwise agreed by the Reserve Bank, such servicing transfer
shall only pertain to such Pledged PPPLF Loans that, as of the date of the transfer, shall
not have been fully forgiven or guarantee repurchased by the SBA or fully repaid by the
borrower; provided, that with respect to any loan files relating to non-transferred Pledged
PPPLF Loans, the Reserve Bank shall at its option, transfer the loan servicing files to an
alternate servicer or otherwise maintain the loan servicing files;43
43 To the extent the Reserve Bank requests the Wind Down Officer to maintain the loan servicing files for non-
transferred Pledged PPPLF Loans, any corresponding costs, fees, and expenses shall be borne by the Reserve Bank
and funded prior to the Effective Date.
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(ii)
CRB with transfer of all the Debtors’ servicing obligations with respect to
the CRB PPP Loans to a third-party loan servicer to be selected with CRB’s consent and
direction by a date to be mutually agreed but no later than the Effective Date of the Plan;
provided that, for the avoidance of doubt, any fees, costs and expenses associated with any
transfer of servicing obligations shall be borne by CRB;
(iii)
CB with transfer of all the Debtors’ servicing obligations with respect to
the CB PPP Loans to a third-party loan servicer to be selected with CB’s consent and
direction by a date to be mutually agreed but no later than the Effective Date of the Plan;
provided that, for the avoidance of doubt, any fees, costs, and expenses associated with the
transfer of any servicing obligations shall be borne by CB;
(iv)
On and after the Effective Date, subject to 5.3(h) of the Plan, the Debtors
shall not retain any PPP Loan servicing-related obligations.
(d)
Post-Effective Date PPP Servicing. Prior to the Effective Date, if, in its sole
discretion, the Debtors offer Post-Effective Date PPP Servicing:
(i)
if the Reserve Bank consents to such continued servicing, the Reserve
Bank shall provide the Wind Down Estate with amounts necessary to allow for the
continued servicing of Pledged PPPLF Loans (“Reserve Bank Servicing Costs”), after
which the Reserve Bank shall have no further obligation to provide any amounts to the
Wind Down Estate; provided that, for the avoidance of doubt, to the extent the Reserve
Bank Servicing Costs are not provided to the Debtors prior to the Effective Date, the
Debtors shall not provide any post-Effective Date servicing for the Reserve Bank; provided
further that any Reserve Bank Servicing Costs shall constitute a portion of and be included
in the Reserve Bank Claims.
(ii)
CRB shall fund the Wind Down Estate with amounts necessary to allow
for the continued servicing of CRB PPP Loans (“CRB Servicing Costs”); provided that,
for the avoidance of doubt, to the extent the CRB Servicing Costs are not provided to the
Debtors prior to the Effective Date, the Debtors shall not provide any post-Effective Date
servicing for CRB;
(iii)
CB shall fund the Wind Down Estate with amounts necessary to allow for
the continued servicing of CB PPP Loans (“CB Servicing Costs”), after which CB shall
have no further obligation to fund the Wind Down Estate; provided that, for the avoidance
of doubt, to the extent the CB Servicing Costs are not provided to the Debtors prior to the
Effective Date, the Debtors shall not provide any post-Effective Date servicing for CB;
(e)
On the Effective Date, the GUC Pool shall be funded in the aggregate amount of
no less than the GUC Pool Amount; for the avoidance of doubt, the Wind Down Officer shall be responsible
for making Distributions to holders of Allowed General Unsecured Claims.
(f)
On the Effective Date, the Wind Down Estate shall be funded in accordance with
the Wind Down Budget for the (i) Wind Down process and (ii) any Post-Effective Date PPP Servicing, as
applicable, and be funded with the Wind Down Amount; provided that any amounts on account of continue
servicing of Pledged PPPLF Loans, CRB PPP Loans, or CB PPP Loans, as applicable, shall be funded by
the payment of applicable Post-Effective Date Servicing Costs.
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(g)
On the Effective Date, any remaining assets and any Causes of Action of the
Debtors’ Estates shall transfer to the Wind Down Estate automatically and without further action of the
Bankruptcy Court.
(h)
On or before the Effective Date, KServicing shall transfer its servicing obligations
with respect to KS Direct PPP Loans to a third-party servicer or effectuate a sale of the KS Direct PPP
Loans whereby they may consummate all transactions as are necessary to consummate a sale of the KS
Direct PPP Loans, including engaging in a marketing and sale process to identify a purchaser and begin
negotiations and implementation of such sale; provided, that, if the Debtors, in their sole discretion provide
Post-Effective Date PPP Servicing, KServicing may continue servicing its obligations with respect to KS
Direct PPP Loans.
(i)
On or after the Effective Date, the Debtors or the Wind Down Estate, as applicable,
may effectuate a Legacy Loan Sale, subject to consultation with the Reserve Bank; provided, that, if the
Wind Down Estate, in its sole discretion provides Post-Effective Date PPP Servicing, KServicing may
continue servicing its obligations with respect to the Legacy Loans. The Debtors or the Wind Down Estate,
as applicable, shall consummate all other transactions as are necessary to consummate the Legacy Loan
Sale. To commence the Legacy Loan Sale, on or prior to the Effective Date, the Debtors or the Wind Down
Estate, as applicable, may engage in a marketing and sale process to identify a purchaser and begin
negotiation and implementation of the Legacy Loan Sale, subject to consultation with the Reserve Bank.
(j)
At the conclusion of the Wind Down (i) any residual amounts remaining in the
Wind Down Budget (other than amounts on account of Post-Effective Date Servicing Costs) shall be
transferred to the GUC Pool, and for the avoidance of doubt, shall first be used to make distributions to
holders of GUC Pool Class A Interests, unless the Reserve Bank Claims have been indefeasibly paid in full
as of such date and (ii) any residual amounts remaining on account of Post-Effective Date Servicing Costs,
shall be distributed pro rata to the Reserve Bank, CRB, and CB, as applicable and proportionate to each
party’s Post-Effective Date Servicing Costs.
4.
Wind Down Officer44
(a)
Appointment. The Wind Down Officer’s retention shall commence on the
Effective Date and shall continue until: (i) the Bankruptcy Court enters an order closing the Chapter 11
Cases; (ii) the Bankruptcy Court enters an order removing the Wind Down Officer for cause (as defined
below); or (iii) the Wind Down Officer voluntarily resigns, upon notice filed with the Bankruptcy Court,
and a successor Wind Down Officer is appointed in accordance with the Plan.
(b)
Certain Consent Rights. The Reserve Bank shall have approval rights and the
United States Department of Justice, SBA, and CRB shall have consultation rights over certain material
decisions by the Wind Down Officer including, but not limited to, prosecution of Causes of Action on
behalf of the Wind Down Estates, proposed reserves and budgets for the Wind Down Estates, proposed
distributions by the Wind Down Officer and settlements above a certain threshold amount, all as set forth
in the Wind Down Agreement.
(c)
Authority. Subject to Section 5.4(c) of this Plan, the Wind Down Officer shall
have the authority and right on behalf of each of the Debtors, without the need for Bankruptcy Court
approval (unless otherwise indicated), subject to the Wind Down Officer’s fiduciary duties, and subject to
any consent or consultation rights of the Reserve Bank, United States Department of Justice, Small Business
44 Additional information regarding the go forward corporate governance process in connection with the identity of
the Wind Down Officer is set forth in the Plan Supplement.
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Administration, and CRB, as set forth in the Wind Down Agreement, to carry out and implement all
provisions of the Plan, including, without limitation, to:
(i)
subject to Section 7 of the Plan, except to the extent Claims have been
previously Allowed, control and effectuate the Claims reconciliation process in accordance
with the terms of the Plan, including to object to, seek to subordinate, compromise or settle
any and all Claims against the Debtors;
(ii)
make Distributions to holders of Allowed Claims in accordance with the
Plan;
(iii)
exercise its reasonable business judgment to direct and control the Wind
Down under the Plan and in accordance with applicable law as necessary to maximize
Distributions to holders of Allowed Claims;
(iv)
prepare, file, and prosecute any necessary filings or pleadings with the
Bankruptcy Court to carry out the duties of the Wind Down Officer as described herein;
(v)
other than any Causes of Action released by the Debtors pursuant to the
Plan or otherwise, 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, as the Wind Down
Officer may determine is in the best interests of the Debtors and their Estates;
(vi)
retain professionals to assist in performing its duties under the Plan;
(vii)
maintain the books and records and accounts of the Debtors;
(viii)
incur and pay reasonable and necessary expenses in connection with the
performance of duties under the Plan, including the reasonable fees and expenses of
professionals retained by the Wind Down Officer;
(ix)
administer each Debtor’s tax obligations, including (i) filing tax returns
and paying tax obligations, (ii) requesting, if necessary, an expedited determination of any
unpaid tax liability of each Debtor or its estate under Bankruptcy Code section 505(b) for
all taxable periods of such Debtor ending after the Commencement Date through the
liquidation of such Debtor as determined under applicable tax laws, and (iii) representing
the interest and account of each Debtor or its estate before any taxing authority in all
matters including, without limitation, any action, suit, proceeding or audit;
(x)
prepare and file any and all informational returns, reports, statements,
returns or disclosures relating to the Debtors that are required hereunder, by any
Governmental Unit or applicable law;
(xi)
pay statutory fees in accordance with Section Error! Reference source
not found. of the Plan;
(xii)
perform other duties and functions that are consistent with the
implementation of the Plan; and
(xiii)
close the Chapter 11 Cases.
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(d)
Boards of Directors and Officers. Upon the Effective Date, (i) the officers and
directors of the Debtors existing prior to the Effective Date shall be relieved of any and all duties with the
respect to the Debtors and shall be deemed to have resigned without the requirement of having to take any
further action and (ii) the Wind Down Officer shall be the sole officer, director or manager, as applicable,
of each of the Debtors without the requirement of having to take any further action.
(e)
Wind Down. After the Effective Date, pursuant to the Plan, the Wind Down
Officer shall effectuate the Wind Down according to the Wind Down Budget without any further approval
by the Bankruptcy Court and free of any restrictions of the Bankruptcy Code or Bankruptcy Rules, provided,
that, the Wind Down Officer shall not effectuate the Wind Down in a manner inconsistent with any express
requirements of the Wind Down Agreement, including with respect to any consent or consultation rights of
the Reserve Bank, the United States Department of Justice, Small Business Administration, and CRB. The
Wind Down (as determined for federal income tax purposes) shall occur in an expeditious but orderly
manner after the Effective Date.
(f)
Indemnification. Each of the Wind Down Estates shall indemnify and hold
harmless the Wind Down Officer solely in their capacities as such for any losses incurred in such capacity,
except to the extent such losses were the result of the Wind Down Officer’s bad faith, gross negligence,
willful misconduct or criminal conduct.
(g)
Dissolution. After the Effective Date, the Wind Down Officer shall, subject to
applicable non-bankruptcy law and consistent with the implementation of the Plan, merge, dissolve,
liquidate, or take such other similar action with respect to each Debtor (including the cancellation of all
Interests in a Wind Down Estate) and complete the winding up of such Wind Down Estate as expeditiously
as practicable without the necessity for any other or further actions to be taken by or on behalf of such Wind
Down Estate or its shareholders or members, as applicable, or any payments to be made in connection
therewith subject to the filing of a certificate of dissolution with the appropriate Governmental Unit;
provided, however, that the foregoing does not limit the Wind Down Officer’s ability to otherwise abandon
an Interest in a Wind Down Estate. The Wind Down Officer may, to the extent required by applicable non-
bankruptcy law, maintain a Wind Down Estate as a corporate entity in good standing until such time as
such Wind Down Estate is dissolved or merged out of existence in accordance with the Plan.
5.
Corporate Action
Upon the Effective Date, by virtue of entry of the Confirmation Order, all actions contemplated by the Plan
(including any action to be undertaken by the Wind Down Officer) shall be deemed authorized, approved,
and, to the extent taken prior to the Effective Date, ratified without any requirement for further action by
holders of Claims or Interests, the Debtors, or any other Entity or Person. All matters provided for in the
Plan involving the corporate structure of the Debtors, and any corporate action required by the Debtors in
connection therewith, shall be deemed to have occurred and shall be in effect as of the Effective Date,
without any requirement of further action by the Debtors or the Estates.
6.
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. 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 Person that receives a distribution pursuant to the Plan shall have
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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. Additionally, in the case of a non-Cash distribution that is subject to withholding, the
distributing party has the right, but not the obligation, to 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.
(b)
Forms. Any party entitled to receive any property as an issuance or distribution
under the Plan shall, upon request, deliver to the Wind Down Officer, Wind Down Estates, or such other
Person designated by the Wind Down Officer or Wind Down Estates (which entity shall subsequently
deliver to the Wind Down Officer any applicable IRS Form W-8 or Form W-9 received) an appropriate
Form W-9 or (if the payee is a foreign Person) Form W-8, unless such Person is exempt from information
reporting under the Tax Code and provides to the Wind Down Officer notice and evidence of such
exemption. If such request is made by the Wind Down Officer, Wind Down Estates, or such other Person
designated by the Wind Down Officer or Wind Down Estates and the holder fails to comply within ninety
(90) days after the request is made, the amount of such distribution shall irrevocably revert to the applicable
Wind Down Estate and any Claim in respect of such distribution shall be forever barred from assertion
against any Debtor, the applicable Wind Down Estate and their respective property.
7.
Exemption From Certain Transfer Taxes
To the maximum extent provided by section 1146(a) of the Bankruptcy Code: (i) the issuance, distribution,
transfer, or exchange of any debt, equity security, or other interest in the Debtors; or (ii) the making,
delivery, or recording of any deed or other instrument of transfer under, in furtherance of, or in connection
with, the Plan, including any deeds, bills of sale, assignments, or other instruments of transfer executed in
connection with any transaction arising out of, contemplated by, or in any way related to the Plan, shall not
be subject to any document recording tax, stamp tax, conveyance fee, intangibles or similar tax, mortgage
tax, real estate transfer tax, mortgage recording tax, Uniform Commercial Code filing or recording fee, or
other similar tax or governmental assessment, in each case to the extent permitted by applicable bankruptcy
law, and the appropriate state or local government officials or agents shall forego collection of any such tax
or governmental assessment and accept for filing and recordation any of the foregoing instruments or other
documents without the payment of any such tax or governmental assessment.
8.
Effectuating Documents; Further Transactions
(a)
On or as soon as practicable after the Effective Date, the Wind Down Officer shall
take such 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, subject to any consent or consultation
rights of the Reserve Bank, United States Department of Justice, Small Business Administration, and CRB,
as set forth in the Wind Down Agreement including (i) the execution and delivery of appropriate agreements
or other documents of merger, consolidation, restructuring, financing, conversion, disposition, transfer,
dissolution, transition services, 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 pursuant to applicable state law; (iv) the issuance of securities, all of which shall be authorized
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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 Plan 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.
(b)
Each officer, manager, or member of the board of directors of the Debtors is (and
each officer, manager, or member of the board of directors of the Wind Down Officer, if applicable, 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 Wind Down Estates, 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 or directors or managers of the Debtors, or
the Wind Down Estates) except for those expressly required pursuant to the Plan.
(c)
All matters provided for herein involving the corporate structure of the Debtors or
the Wind Down Estates, to the extent applicable, or any corporate or related action required by the Debtors
or the Wind Down Estates in connection herewith shall be deemed to have occurred and shall be in effect,
without any requirement of further action by the stockholders, members, or directors or managers of the
Debtors and with like effect as though such action had been taken unanimously by the stockholders,
members, directors, managers, or officers, as applicable, of the Debtors or the Wind Down Estates.
9.
Preservation of Rights of Action
Other than Causes of Action against an Entity that are waived, relinquished, exculpated, released,
compromised, transferred or settled pursuant to this Plan, the Confirmation Order, or by another Bankruptcy
Court order, the Debtors reserve any and all Causes of Action. On and after the Effective Date, the Wind
Down Officer may pursue such Causes of Action on behalf of the Wind Down Estate with the consent and
consultation of the Reserve Bank, United States Department of Justice, Small Business Administration, and
CRB, as set forth in the Wind Down Agreement. No Entity may rely on the absence of a specific reference
in this Plan or the Disclosure Statement to any Cause of Action against them as any indication that the
Debtor or the Wind Down Officer, as applicable will not pursue any and all available Causes of Action
against them. No preclusion doctrine, including the doctrines of res judicata, collateral estoppel, issue
preclusion, claim preclusion (judicial, equitable, or otherwise), or laches, shall apply to such Causes of
Action upon, after, or as a consequence of the Confirmation or the Effective Date. Prior to the Effective
Date, the Debtors, and on and after the Effective Date, the Wind Down Officer shall retain and shall have,
including through its authorized agents or representatives, the exclusive right, authority, and discretion,
subject to this Plan and to the consent and consultation rights of the Reserve Bank, United States
Department of Justice, Small Business Administration, and CRB, as set forth in the Wind Down Agreement,
to determine and to initiate, file, prosecute, enforce, abandon, settle, compromise, release, withdraw, or
litigate to judgment any such Causes of Action and to decline to do any of the foregoing, as the Wind Down
Officer may determine is in the best interest of the Estates, without the consent or approval of any third
party (aside from the Reserve Bank) or further notice to or action, order, or approval of the Bankruptcy
Court. Notwithstanding anything contained herein to the contrary, the settlement of any Claims and Causes
of Action which are expressly to be settled by Confirmation of the Plan itself shall be resolved only by
Confirmation of the Plan itself.
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10.
Certificate of Incorporation and By-Laws
As of the Effective Date, the certificate of incorporation and by-laws, or other organizational documents,
as applicable, of the Debtors shall be amended to the extent necessary to carry out the provisions of the
Plan.
11.
Cancellation of Existing Securities and Agreements
Except for the purpose of evidencing a right to a distribution under the Plan and except as otherwise set
forth in the Plan, all notes, instruments, other securities, and other evidence of debt issued, 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.
12.
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 reserve the right for the Wind Down Officer to seek to re-classify any Allowed Claim or Interest
in accordance with any contractual, legal, or equitable subordination relating thereto.
13.
Closing of Chapter 11 Cases
After an Estate has been fully administered, the applicable Wind Down Estate or Wind Down Officer shall
seek authority from the Bankruptcy Court to close the applicable Chapter 11 Case(s) in accordance with
the Bankruptcy Code and Bankruptcy Rules.
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.
Corporate Form
On the Effective Date, each of the Debtors shall maintain its current corporate form, which may be modified
or changed at any time after the Effective Date by the Wind Down Officer in accordance with the terms of
the Plan and applicable law.
16.
Separability
Notwithstanding the combination of the separate plans of liquidation 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.
D.
Distributions
1.
Distributions Generally
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Except as otherwise provided in the Plan, 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.
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, or the Wind Down Officer, 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
(a)
Except as otherwise provided in the Plan, any distributions and deliveries to be
made under the Plan shall be made on or about the Effective Date or as otherwise determined in accordance
with the Plan, including, without limitation, the treatment provisions of Section 4 of the Plan; provided,
that the Wind Down Officer shall from time to time determine subsequent distribution dates to the extent
they determine them to be appropriate.
(b)
Prior to any distributions to the Reserve Bank or holders of General Unsecured
Claims, the Wind Down Officer, shall reserve an amount sufficient to pay holders of Disputed
Administrative Expense Claims, Disputed Secured Claims, Disputed Priority Non-Tax Claims, and
Disputed Priority Tax Claims, and prior to any distributions by the Wind Down Officer to the holders of
General Unsecured Claims, the Wind Down Officer shall (x) make distributions to the Reserve Bank on
the Allowed Reserve Bank Priority Claim and, (y) reserve an amount sufficient to pay holders of any
Disputed General Unsecured Claims, in each case, the amount such holders would be entitled to receive
under the Plan if such Claims were to become Allowed Claims. After the resolution of a Disputed
Administrative Expense Claim, Disputed Secured Claim, Disputed Priority Non-Tax Claim, and Disputed
Priority Tax Claims, the Wind Down Officer shall treat any amounts that were reserved on account of such
Disputed Claim that is Disallowed or does not become an Allowed Claim as Net Cash Proceeds.
4.
Disbursing Agent
Other than as contemplated in Section 6.2 of the Plan, all distributions under the 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 Wind Down
Officer shall use all commercially reasonable efforts to provide the Disbursing Agent with the amounts of
Claims and the identities and addresses of holders of Claims, in each case, as set forth in the books and
records of the Debtors or the Wind Down Estates, as applicable. The Wind Down Officer shall cooperate
in good faith with the applicable Disbursing Agent to comply with the reporting and withholding
requirements outlined in Section 5.7 of the Plan.
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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.
(b)
The Disbursing Agent shall be empowered to (i) effect all 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 hereof.
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’ 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 Plan, the Confirmation Order, or another order of the Bankruptcy Court,
or required by the Program Agreements in the case of the Reserve Bank and only to the extent the Reserve
Bank Claims are oversecured, or 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
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 5.7 of the Plan.
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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 Wind
Down Estate, as applicable, until such time as a distribution becomes deliverable or the holder accepts the
distribution, or such distribution reverts back to the Debtors or Wind Down Estate, 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 ninety (90)
days from the date of distribution. After such date all unclaimed property or interest in property shall revert
to the Wind Down Estates 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 Wind Down Estates, 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
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 Plan, at the option of the Debtors or Wind Down Officer,
as applicable, any Cash payment to be made hereunder may be made by a check or wire transfer, or ACH
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 for in the Plan and to the extent permitted by law, any
distributions and deliveries to be made on account of Allowed Claims under the Plan shall be in complete
and final satisfaction of, and exchange for, such Allowed Claims.
14.
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
6.14 of the Plan, such distribution shall be added to any subsequent distribution to be made on behalf of the
holder’s Allowed Claim; provided further that, solely with respect to distributions on account of the Reserve
Bank Claims, the Disbursing Agent shall seek prior consent of the Reserve Bank.
15.
Setoffs and Recoupments
The Debtors or Wind Down Estates, 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
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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 Wind Down Estates, as applicable, 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 its successor of any claims, rights, or Causes of Action that a Debtor or its successor or assign may
possess against the holder of such Claim.
16.
Allocation of Distributions between Principal and Interest
Except with respect to the Reserve Bank, and except as otherwise required by law (as reasonably determined
by the Wind Down Estates), distributions with respect to an Allowed Claim shall be allocated first to the
principal portion of such Allowed Claim (as determined for U.S. federal income tax purposes) and,
thereafter, to the remaining portion of such Allowed Claim, if any.
17.
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.
E.
Procedures for Disputed Claims
1.
Objections to Claims
(a)
The Debtors or the Wind Down Officer on behalf of each of the Wind Down
Estates shall exclusively be entitled to object to Claims. After the Effective Date, the Wind Down Officer
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 eighty (180) days after the Effective Date, and
(b) on such later date as ordered by the Bankruptcy Court for cause.
2.
Resolution of Disputed Claims
(a)
The Wind Down Officer, on behalf of each of the Wind Down Estates and upon
consultation with the Reserve Bank and subject to the terms of the Wind Down Agreement, shall have the
authority to compromise, settle, otherwise resolve, or withdraw any objections to Administrative Expense
Claims, Priority Tax Claims, Priority Non-Tax Claims, Other Secured Claims, and General Unsecured
without approval of the Bankruptcy Court, other than with respect to Fee Claims.
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.
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 Plan, without
interest, as provided in Section 7.8 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.
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5.
Estimation of Claims
The Debtors or Wind Down Officer (on behalf of each of the Wind Down Estates), as applicable, shall
determine, resolve and otherwise adjudicate all contingent, unliquidated, and Disputed Administrative
Expense Claims, Priority Tax Claims, Priority Non-Tax Claims, Other Secured Claims, and General
Unsecured Claims. The Debtors or Wind Down Officer (on behalf of each of the Wind Down Estates), as
applicable, with respect to such Disputed Claims, may at any time request that the Bankruptcy Court
estimate any contingent, unliquidated, or Disputed Claim or Class of Claims pursuant to section 502(c) of
the Bankruptcy Code or otherwise, including to establish a reserve for distribution purposes, regardless of
whether such, or any, Person had 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 or Class
of Claims 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 or Class of Claims, the amount so estimated shall
constitute either the Allowed amount of such Claim or Class of Claims, or a maximum limitation on such
Claim or Class of Claims, as determined by the Bankruptcy Court. If the estimated amount constitutes a
maximum limitation on the amount of such Claim or Class of Claims, the Debtors or Wind Down Officer,
as applicable, may pursue supplementary proceedings to object to the allowance of such Claims; provided,
that such limitation shall not apply to Claims requested by the Debtors to be estimated for voting purposes
only.
For the avoidance of doubt and subject to the Wind Down Officer’s Fiduciary Duties, there shall be no
estimation of the Reserve Bank Claim, including the Reserve Bank Secured Claim and the Reserve Bank
Priority Claim, absent the express consent of the Reserve Bank.
6.
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.
7.
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.
8.
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.
9.
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 satisfaction, 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 Bankruptcy Court.
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F.
Executory Contracts and Unexpired Leases
1.
Rejection of 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 8.4 of the Plan; or (v) 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 Wind Down Estates, 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 Wind Down Estates, as applicable, in accordance with its terms, except as
modified by the provisions of the Plan, any order of the Bankruptcy Court authorizing and providing for its
assumption, or applicable law. For the avoidance of doubt, the Program Agreements are not executory
contracts or unexpired leases.
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.
At least fourteen (14) days before the Confirmation Hearing, 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 potentially assume or assume and assign the contract or lease in connection with the Plan and,
where applicable, setting forth the proposed Cure Amount (if any). 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, served, and actually received by the Debtors within ten (10)
days of the service of the assumption notice, or such shorter period as agreed to by the parties or
authorized by the Bankruptcy Court. 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
Wind Down Estate, under such executory contract or unexpired lease; or (iv) create or impose a Lien upon
any property or Asset of any Debtor, or Wind Down Estates, 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 Section 8.2(b) of the Plan, shall forever be barred and
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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 Wind Down
Estates, as applicable, may settle any Assumption Dispute 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 the Assumption Dispute; provided, that the Debtors or the Wind Down Estate, as
applicable, reserve Cash in an amount sufficient to pay the full amount reasonably asserted as the required
cure payment by the non-Debtor party to the extent 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 Debtor or the Wind Down Estate, as applicable). The Debtors or Wind
Down Estates, 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.
(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 leases.
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 contract or lease, any Claim for such damages shall be
classified and treated in Class 4 (General Unsecured Claims). A proof of such Claim must be filed
with the Bankruptcy Court by the later of (i) thirty (30) days after the filing and service of the notice
of occurrence of the Effective Date; (ii) the general bar date or governmental bar date, as applicable;
and (iii) thirty (30) days following service of an Order approving rejection of any executory contract
or unexpired lease of the Debtors if such contract or lease is the subject of a pending Assumption
Dispute.
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, and any other
order of the Bankruptcy Court, on the Effective Date: (a) all insurance policies issued or providing coverage
to the Debtors shall (subject to the applicable insurer’s right to object to such a designation) be assumed in
their entirety by the Debtors pursuant to sections 365 and 1123 of the Bankruptcy Code, and coverage for
defense costs and indemnification under the D&O Policies shall remain available to all individuals within
the definition of “Insured” in the D&O Policies, and Wind Down Estates, or Wind Down Officer, as
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applicable, 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, without the
need or requirement for an insurer to file a Proof of Claim, Administrative Expense Claim or objection to
any cure amount; (b) nothing shall alter or modify the terms and conditions of and/or any rights, obligations,
benefits, claims, rights to payments, or recoveries under the insurance policies without the express written
consent of the applicable insurer; 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 nonbankruptcy law to proceed with their claims; (ii) insurers to
administer, handle, defend, settle, and/or pay, in the ordinary course of business and without further order
of the Bankruptcy Court, (I) workers’ compensation claims, (II) 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 (III) all
costs in relation to each of the foregoing; (iii) the insurers to cancel any insurance policies, and take other
actions relating thereto, to the extent permissible under applicable non-bankruptcy law, and in accordance
with the terms of the insurance policies; and (iv) holders of Allowed Claims to pursue insurance recovery
to the extent allowed or required by Section 7.9 of the Plan.
5.
Indemnification Obligations
Any obligations of the Debtors pursuant to a contract, instrument, agreement, certificate of incorporation,
by-law, comparable organizational document or any other document or applicable law, including
amendments entered into any time prior to the Effective Date, to indemnify, reimburse, or limit the liability
of any director, officer, or employee of the Debtors, pursuant to the foregoing in respect of any claims,
demands, suits, causes of action, or proceedings against such director, officer, or employee based upon any
act or omission related to such director or officer’s service with, for, or on behalf of the Debtors prior to the
Effective Date with respect to all present and future actions, suits, and proceedings relating to the Debtors
shall survive Confirmation of the Plan and except as set forth herein, remain unaffected thereby, and shall
not be discharged, irrespective of whether such defense, indemnification, reimbursement, or limitation of
liability accrued or is owed in connection with an occurrence before or after the Commencement Date;
provided, however, that all monetary obligations under this provision shall be (a) limited solely to available
insurance coverage, (b) to the extent such Claims are not covered by any applicable insurance, including
deductibles, shall be treated as Allowed General Unsecured Claims, and (c) neither the Debtors, Wind
Down Estates, Wind Down Officer, the GUC Pool, nor any of their assets shall be liable for any such
obligations.
Any Claim based on the Debtors’ indemnification obligations shall not be a Disputed Claim or subject to
any objection under Bankruptcy Code section 502(e)(1)(B). For the avoidance of doubt, the scope of the
Debtors’ indemnification obligations in this Section 8.5 shall be coterminous with applicable non-
bankruptcy law and to the extent provided by such law.
Notwithstanding the above, this Section 8.5 shall not apply to any Former Officers and Directors and any
obligations of the Debtors pursuant to a contract, instrument, agreement, certificate of incorporation, by-
law, comparable organizational document or any other document or applicable law, including amendments
entered into any time prior to the Effective Date, to indemnify, reimburse, or limit the liability of any Former
Officer and Director shall be rejected as of the Effective Date.
6.
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
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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 assumed by the Debtors and
the Wind Down Estates 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 Wind Down Estates, and the Wind
Down Estates may take all actions as may be necessary or appropriate to ensure such vesting as
contemplated herein.
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.
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.
9.
Reservation of Rights
(a)
The Debtors may amend the Assumption Schedule and any cure notice until five
(5) Business Days 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 assumption or
assumption and 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 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, or Wind Down Estates, or their respective affiliates have
any liability thereunder.
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(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 Wind Down Estates, 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, Wind Down Estates, as applicable, under any executory or
non-executory contract or any unexpired or expired lease.
G.
Conditions Precedent to the Effective Date
1.
Conditions Precedent to the Effective Date
The occurrence of the Effective Date of the Plan is subject to the following conditions precedent:
(a)
the Bankruptcy Court shall have entered the Confirmation Order, the form and
substance of the Confirmation Order is acceptable to the Reserve Bank in its reasonable discretion, the
Confirmation Date shall have occurred, and no stay of the Confirmation Order shall be in effect;
(b)
all agreements necessary to implement the Plan, shall have (i) been tendered for
delivery and (ii) been effected or executed by all Entities party thereto, and all conditions precedent to the
effectiveness of such documents and agreements shall have been satisfied or waived pursuant to the terms
of such documents or agreements;
(c)
the documents contained in the Plan Supplement will contain terms and conditions
consistent in all material respects with the Plan;
(d)
the Wind Down Estate shall have been funded with the Wind Down Amount in
accordance with the Wind Down Budget;
(e)
the GUC Pool shall have been created and funded by the GUC Pool Amount;
(f)
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
completion 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;
(g)
The transfer of servicing of the PPPLF Collateral to an alternate third party servicer
contemplated pursuant to section 5.3 of the Plan has been completed to the satisfaction of the Reserve Bank,
unless the Reserve Bank consents in advance, in its sole discretion, to Post-Effective Date PPP Servicing
in accordance with section 5.3(d) of the Plan.
2.
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 of the Plan other than the conditions set forth in Sections 9.1(b) may be waived in
writing by the Debtors, subject to the reasonable consent of the Reserve Bank with respect to the conditions
set forth in Section 9.1(a), (c), and (e) of the Plan and without leave of or order of the Bankruptcy Court.
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(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.
3.
Effect of Failure of Conditions to Effective Date
Unless otherwise extended by the Debtors, if the Effective Date does not occur on or before the date that is
one hundred and eighty (180) days after the date on which the Confirmation Order is entered or if the
Confirmation Order is vacated, (a) no distributions under the Plan shall be made, (b) the Debtors and all
holders of Claims and Interests shall be restored to the status quo ante as of the day immediately preceding
the Confirmation Date as though the Confirmation Date never occurred, and (c) all the Debtors’ obligations
with respect to the Claims and the Interests shall remain unchanged and nothing contained herein shall be
deemed to constitute a waiver or release of any Claims by or against the Debtors or any other entity or to
prejudice in any manner the rights of the Debtors or any other entity in any further proceedings involving
the Debtors or otherwise.
H.
Effect of Confirmation
1.
Vesting of Assets
(a)
On the Effective Date, pursuant to sections 1141(b) and (c) of the Bankruptcy
Code, all remaining property of the Debtors’ Estates and any Estate Causes of Action shall vest in the Wind
Down Estates free and clear of all Claims, Liens, encumbrances, charges, and other interests (other than the
Liens securing the Reserve Bank Claims), subject to treatment of Other Secured Claims and Reserve Bank
Claims under the Plan. On and after the Effective Date, the Wind Down Estates may take any action,
including, without limitation, the operation of their 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 was no pending case under any chapter or provision of the Bankruptcy Code, except as expressly
provided herein. Without limiting the foregoing, the Wind Down Estates 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. Notwithstanding the foregoing, vesting of property
in which any governmental unit holds an interest, and for which title vests in the Debtors subject to
regulatory requirements under a governmental grant or award, including but not limited to, the requirements
of 10 C.F.R. 600.321, shall be limited to the extent of the Debtors’ interest in such property; and the Wind
Down Estates may only take action, including but not limited to the use, acquisition, sale, lease, and
disposition of such property, in accordance with applicable non-bankruptcy law.
2.
Term of Injunction of Stays
Unless otherwise provided herein, 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.
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3.
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 extinguished, discharged, or
released pursuant to the Plan.
(b)
Except as expressly provided in the Plan, the Definitive Documents, 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 treated by 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 Wind Down Estates, or the Wind
Down Officer, as applicable, or the property of any of the Debtors, the Wind Down Estates, or the
Wind Down Officer, as applicable; (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 Wind Down
Estates, or the Wind Down Officer; or the property of any of the Debtors, or the Wind Down Estates,
as applicable; (iii) creating, perfecting, or otherwise enforcing in any manner, directly or indirectly,
any encumbrance of any kind against the Debtors, the Wind Down Estates, or the property of any of
the Debtors, the Wind Down Estates, or the Wind Down Officer, as applicable; (iv) asserting any
right of setoff, directly or indirectly, against any obligation due from the Debtors, or the Wind Down
Estates, as applicable, or against property or interests in property of any of the Debtors, or the Wind
Down Estates, 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)
By accepting distributions pursuant to the Plan, 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 Section 10.3 of the Plan.
(d)
The injunctions in Section 10.3 of the Plan shall extend to any successors of
the Debtors, or the Wind Down Estates, as applicable, and their respective property and interests in
property.
(e)
Notwithstanding the foregoing, nothing in Section 10.3 of the Plan shall enjoin
the assertion of a defensive right of recoupment.
(f)
Nothing in the Plan or Confirmation Order shall (1) enjoin, release, impair or
otherwise preclude the United States (i) from pursuing any criminal action or any police or regulatory
action, (ii) from pursuing any liability to the United States that is not a Claim, (iii) from exercising
any rights of setoff or recoupment subsequent to confirmation of the Plan or any order granting
substantive consolidation, and such rights are preserved, and (iv) from pursuing any claim of the
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United States arising on or after the Confirmation Date; and (2) grant the Debtors a discharge
pursuant to section 1141(d) of the Bankruptcy Code as to the United States.
(g)
[Notwithstanding anything to the contrary in the foregoing or in any release
provided for under the Plan, the Reserve Bank shall not release, waive or discharge and shall retain
the right to pursue any and all claims, rights and Causes of Action it may have pursuant to 12 U.S.C.
§ 1818 against any Institution-affiliated party (as defined in 12 U.S.C. § 1813(u)) of the Debtors.]
4.
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 were (a) Impaired or
Unimpaired under the Plan; (b) 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.
5.
Releases by the Debtors
As of the Effective Date, the Debtors, and each of their respective Affiliates, on behalf of themselves
and their respective Estates, including any successor to the Debtors or any Estate representative
appointed or selected pursuant to section 1123(b)(3) of the Bankruptcy Code, including the Wind
Down Estate, shall be deemed to have conclusively, absolutely, unconditionally, irrevocably, and
forever released, and waived each Released Party from any and all claims, interests, obligations,
rights, suits, damages, Causes of Action, remedies, and liabilities whatsoever (including any
derivative claims asserted or that may be asserted on behalf of any of the Debtors or their Estates),
whether known or unknown, foreseen or unforeseen, existing or hereinafter arising, in law, equity,
or otherwise, based on or relating to, or in any manner arising from, in whole or in part, the Debtors,
the Chapter 11 Cases, the Plan (including the Plan Supplement), the Disclosure Statement, the
restructuring of Claims or Interests prior to or in the Chapter 11 Cases, the formulation, preparation,
dissemination, negotiation of any of the foregoing or any contract, instrument, release, or other
agreement or document created or entered into in connection with any of the foregoing, the pursuit
of confirmation of the Plan, the solicitation of votes on the Plan, the pursuit of consummation of the
Effective Date, the administration and implementation of the Plan, including the issuance or
distribution of securities pursuant to the Plan, the subject matter of or the transactions or events
giving rise to any Claim or Interest that is treated in the Plan, or the distribution of property under
the Plan or any other related agreement, or upon any other act or omission, transaction, agreement,
event, or other occurrence taking place on or before the Effective Date related or relating to the
foregoing, except for Causes of Action arising from an act or omission of a Released Party that is
judicially determined in a Final Order to have constituted actual fraud, gross negligence, criminal
misconduct or willful misconduct. Notwithstanding anything to the contrary in the foregoing, the
releases set forth above shall not be construed as releasing any post-Effective Date obligations of any
party or entity under the Plan, or any document, instrument, or agreement (including those set forth
in the Plan Supplement) executed to implement the Plan.
6.
Releases by Holders of Claims and Interests
As of the Effective Date, except (a) for the right to enforce the Plan or (b) as otherwise expressly
provided in the Plan or in the Confirmation Order, to the fullest extent permissible under applicable
law, as such law may be extended or integrated after the date upon which the Bankruptcy Court
enters the Confirmation Order, on or after the Effective Date, each Released Party shall be deemed
expressly, conclusively, absolutely, unconditionally, irrevocably and forever, released, and waived by
each of the Releasing Parties from any and all claims, interests, obligations, rights, suits, damages,
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Causes of Action, remedies, and liabilities whatsoever (including any derivative claims asserted or
that may be asserted on behalf of any of the Debtors or their Estates), whether known or unknown,
foreseen or unforeseen, existing or hereinafter arising, in law, equity, or otherwise, based on or
relating to, or in any manner arising from, in whole or in part, the Debtors, the Chapter 11 Cases,
the Plan (including the Plan Supplement), the Disclosure Statement, the restructuring of Claims or
Interests prior to or in the Chapter 11 Cases, the formulation, preparation, dissemination,
negotiation of any of the foregoing or any contract, instrument, release, or other agreement or
document created or entered into in connection with any of the foregoing, the pursuit of confirmation
of the Plan, the solicitation of votes on the Plan, the pursuit of consummation of the Effective Date,
the administration and implementation of the Plan, including the issuance or distribution of securities
pursuant to the Plan, the subject matter of, or the transactions or events giving rise to, any Claim or
Interest that is treated in the Plan, or the distribution of property under the Plan or any other related
agreement, or upon any other act or omission, transaction, agreement, event, or other occurrence
taking place on or before the Effective Date related or relating to the foregoing, except for Causes of
Action arising from an act or omission of a Released Party that is judicially determined in a Final
Order to have constituted actual fraud, gross negligence, criminal misconduct or willful misconduct.
Notwithstanding anything to the contrary in the foregoing, the releases set forth above shall not be
construed as releasing any post-Effective Date obligations of any party or entity under the Plan, or
any document, instrument, or agreement (including those set forth in the Plan Supplement) executed
to implement the Plan.
7.
Exculpation
To the maximum extent permitted by applicable law, no Exculpated Party shall have or incur liability
for, and each Exculpated Party is hereby released and exculpated from any and all Claims, Interests,
obligations, rights, suits, damages, Causes of Action, remedies, and liabilities whatsoever, arising
between the Commencement and the Effective Date, whether known or unknown, foreseen or
unforeseen, existing or hereinafter arising, in law, equity, or otherwise, based on or relating to, or in
any manner arising from, in whole or in part, the Debtors, the Chapter 11 Cases, the Plan (including
the Plan Supplement), the Disclosure Statement, the restructuring of Claims or Interests in the
Chapter 11 Cases, the formulation, preparation, dissemination, negotiation of any of the foregoing
or any contract, instrument, release, or other agreement or document created or entered into in
connection with any of the foregoing, the pursuit of confirmation of the Plan, the solicitation of votes
on the Plan, the pursuit of consummation of the Effective Date, the administration and
implementation of the Plan, including the issuance or distribution of securities pursuant to the Plan,
the subject matter of, or the transactions or events giving rise to, any Claim or Interest that is treated
in the Plan, or the distribution of property under the Plan or any other related agreement, except for
Claims or Causes of Action arising from an act or omission that is judicially determined in a Final
Order to have constituted actual fraud, willful misconduct, or gross negligence, but in all respects,
such Exculpated Parties shall be entitled to reasonably rely upon the advice of counsel with respect
to their duties and responsibilities.
To the extent section 1125(e) of the Bankruptcy Code applies, the Exculpated Parties have, and upon
completion of the Plan, shall be deemed to have, participated in good faith and in compliance with
the applicable laws with regard to the solicitation of, and distribution of consideration pursuant to,
the Plan and, therefore, are not, and on account of such distributions shall not be, liable at any time
for the violation of any applicable law, rule, or regulation governing the solicitation of acceptances
or rejections of the Plan or such distributions made pursuant to the Plan. This exculpation shall be
in addition to, and not in limitation of, all other releases, indemnities, exculpations, and any other
applicable laws, rules, or regulations protecting such Exculpated Parties from liability.
Notwithstanding anything to the contrary in the foregoing, the exculpation set forth above shall not
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be construed as exculpating any party or entity from its post-Effective Date obligations under the
Plan, or any document, instrument, or agreement (including those set forth in the Plan Supplement)
executed to implement the Plan.
8.
Waiver of Statutory Limitation on Releases
EACH RELEASING PARTY IN EACH OF THE RELEASES CONTAINED IN THE PLAN
(INCLUDING UNDER SECTION 10 OF THE PLAN) EXPRESSLY ACKNOWLEDGES THAT
ALTHOUGH ORDINARILY A GENERAL RELEASE MAY NOT EXTEND TO CLAIMS WHICH THE
RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR, WHICH IF
KNOWN BY IT MAY HAVE MATERIALLY AFFECTED ITS SETTLEMENT WITH THE PARTY
RELEASED, IT HAS CAREFULLY CONSIDERED AND TAKEN INTO ACCOUNT IN
DETERMINING TO ENTER INTO THE ABOVE RELEASES THE POSSIBLE EXISTENCE OF SUCH
UNKNOWN LOSSES OR CLAIMS. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, EACH RELEASING PARTY EXPRESSLY WAIVES ANY AND ALL RIGHTS
CONFERRED UPON IT BY ANY STATUTE OR RULE OF LAW WHICH PROVIDES THAT A
RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CLAIMANT DOES NOT KNOW OR
SUSPECT TO EXIST IN ITS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY IT MAY HAVE MATERIALLY AFFECTED ITS SETTLEMENT WITH THE RELEASED
PARTY, INCLUDING THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542. THE
RELEASES CONTAINED IN SECTION 10 OF THE PLAN ARE EFFECTIVE REGARDLESS OF
WHETHER THOSE RELEASED MATTERS ARE PRESENTLY KNOWN, UNKNOWN, SUSPECTED
OR UNSUSPECTED, FORESEEN OR UNFORESEEN.
9.
Solicitation of the Plan
As of and subject to the occurrence of the Confirmation Date: (a) the Debtors shall be deemed to have
previously 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 will 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.
Corporate Action
Upon the Effective Date, by virtue of the solicitation of votes in favor of the Plan and entry of the
Confirmation Order, all actions contemplated by the Plan (including any action to be undertaken by the
Wind Down Officer) shall be deemed authorized, approved, and, to the extent taken prior to the Effective
Date, ratified without any requirement for further action by holders of Claims or Interests, the Debtors, or
any other Entity or Person. All matters provided for in the Plan involving the corporate structure of the
Debtors, and any corporate action required by the Debtors in connection therewith, shall be deemed to have
occurred on the Effective Date and shall be in effect, without any requirement of further action by the
Debtors or the Estates.
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I.
Retention of Jurisdiction
1.
Retention of Jurisdiction
On and after the Effective Date, the Bankruptcy Court shall retain 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, including to ensure that an Allowed Claim does not
receive consideration in excess of the Allowed amount of such Claim, 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 or Class of Claims;
(e)
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;
(f)
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;
(g)
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;
(h)
to hear and determine all proceedings, if any, to approve Fee Claims;
(i)
to hear and determine disputes arising in connection with the interpretation,
implementation, or enforcement of the Plan, the Plan Supplement, or the Confirmation Order, or any
agreement, instrument, or other document governing or relating to any of the foregoing;
(j)
to take any action and issue such orders as may be necessary to construe, interpret,
enforce, implement, execute, and consummate the Plan;
(k)
to determine such other matters and for such other purposes as may be provided in
the Confirmation Order;
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(l)
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);
(m)
to hear, adjudicate, decide, or resolve any and all matters related to Error!
Reference source not found. of the Plan, including, without limitation, the releases, discharge,
exculpations, and injunctions issued thereunder;
(n)
to resolve disputes concerning Disputed Claims or the administration thereof;
(o)
to hear and determine any other matters related hereto and not inconsistent with
the Bankruptcy Code and title 28 of the United States Code;
(p)
to enter one or more final decrees closing the Chapter 11 Cases;
(q)
to recover all Assets of the Debtors and property of the Debtors’ Estates, wherever
located and adjudicate any disputes with respect thereto;
(r)
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; and
(s)
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.
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.
J.
Miscellaneous Provisions
1.
Payment of Statutory Fees
(a)
On the Effective Date and thereafter as may be required, the Debtors or the Wind
Down Officer, as applicable, shall pay all Statutory Fees that are due and payable, together with interest, if
any, pursuant to § 3717 of title 31 of the United States Code for each Debtor’s case (“Quarterly Fees”).
After the Effective Date, the Wind Down Estates and the Wind Down Officer, as applicable, shall pay any
and all Quarterly Fees when due and payable. The Debtors shall file all monthly operating reports due prior
to the Effective Date when they become due, using UST Form 11-MOR. After the Effective Date, the
Wind Down Estates and the Wind Down Officer, as applicable shall file with the Bankruptcy Court separate
UST Form 11-PCR reports when they become due. Notwithstanding anything called for in the Plan to the
contrary, the Wind Down Estates and the Wind Down Officer, as applicable, shall remain obligated to pay
Quarterly Fees to the Office of the U.S. Trustee and make such reports until the earliest of that particular
Debtor's case being closed, dismissed, or converted to a case under Chapter 7 of the Bankruptcy Code. The
U.S. Trustee shall not be required to file any Administrative Claim in the case and shall not be treated as
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providing any release under the Plan.” The obligations under Section Error! Reference source not found.
of the Plan shall remain for each Debtor until such time as a final decree is entered closing the Chapter 11
Case for such Debtor, a Final Order converting such Debtor’s Chapter 11 Case to a case under chapter 7 of
the Bankruptcy Code is entered, or a Final Order dismissing such Debtor’s Chapter 11 Case is entered.
2.
Substantial Consummation
On the Effective Date, the Plan shall be deemed to be substantially consummated under sections 1101 and
1127(b) of the Bankruptcy Code.
3.
Dissolution of Creditors’ Committee
On the Effective Date, the Creditors’ Committee, if any, shall dissolve, and the members thereof shall be
released and discharged from all rights and duties arising from, or related to, the Chapter 11 Cases;
provided, however, that after the Effective Date, the Creditors’ Committee shall exist and its professionals
shall continue to be retained and shall continue to be entitled to reasonable compensation by the Debtors
without the need for further application to the Bankruptcy Court with respect to all applications filed
pursuant to sections 330 and 331 of the Bankruptcy Code and any related hearings.
4.
Amendments
(a)
Plan Modifications. The Debtors reserve the right, in accordance with the
Bankruptcy Code and the Bankruptcy Rules and subject to the consent of the Reserve Bank in its reasonable
discretion with respect to matters that adversely affect its rights, to amend or modify the Plan (i) 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 the Plan,
the Debtors may remedy any defect or omission or reconcile any inconsistencies in the Plan or the
Confirmation Order with respect to such matters as may be necessary to carry out the purposes or effects
of the Plan, and any holder of a Claim or Interest that has accepted the Plan shall be deemed to have accepted
the Plan as amended, modified, or supplemented.
(b)
Other Amendments. 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.
5.
Revocation or Withdrawal of the Plan
The Debtors reserve the right to revoke or withdraw the Plan, including the right to revoke or withdraw the
Plan for any Debtor or all Debtors, prior to the Confirmation Date. If the Debtors revoke or withdraw the
Plan, or if Confirmation or the Effective Date does not occur, in each case with respect to a Debtor, then,
with respect to such Debtor: (a) the Plan shall be null and void in all respects; (b) any assumption or rejection
of executory contracts or unexpired leases effected 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 Claims or Interests; (ii) prejudice in any manner the rights of the Debtors, the
Estates, or any other Entity; or (iii) constitute an admission, acknowledgement, offer, or undertaking of any
sort by the Debtors, the Estates, or any other Entity.
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6.
Severability of Plan Provisions upon Confirmation
If, prior to 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 Wind Down Estates (as the case
may be); and (3) nonseverable and mutually dependent.
7.
Governing Law
Unless a rule of law or procedure is supplied by federal law (including the Bankruptcy Code and Bankruptcy
Rules) or unless otherwise specifically stated herein, the laws of the State of Delaware, without giving
effect to the principles of conflict of laws, shall govern the rights, obligations, construction, and
implementation of the Plan, any agreements, documents, instruments, or contracts executed or entered into
in connection with the Plan (except as otherwise set forth in those agreements, in which case the governing
law of such agreement shall control); provided, that corporate or limited liability company governance
matters relating to the Debtors shall be governed by the laws of the state of incorporation or formation (as
applicable) of the applicable Debtor.
8.
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.
9.
Additional Documents
On or before the Effective Date, the Debtors may file with the Bankruptcy Court such agreements and other
documents as may be necessary or appropriate to effectuate and further evidence the terms and conditions
of the Plan. The Debtors and all holders of Claims or Interests receiving distributions pursuant to the Plan
and all other parties in interest are authorized to prepare, execute, and deliver any agreements or documents
and take any other actions as may be necessary or advisable to effectuate the provisions and intent of the
Plan.
10.
Immediate Binding Effect
Notwithstanding Bankruptcy Rules 3020(e), 6004(h), or 7062 or otherwise, upon the occurrence of the
Effective Date, the terms of the Plan and the Plan Supplement shall be immediately effective and
enforceable and deemed binding upon and inure to the benefit of the Debtors, the Wind Down Estates, the
holders of Claims and Interests, the Released Parties, the Exculpated Parties, and each of their respective
successors and assigns, including, without limitation, the Wind Down Officer.
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11.
Successors and Assigns
The rights, benefits, and obligations of any Person 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.
12.
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.
After the Effective Date, the Debtors have authority to send a notice to Entities 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 are authorized to limit the list of
Entities receiving documents pursuant to Bankruptcy Rule 2002 to those Entities who have filed such
renewed requests.
VII. CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF PLAN
The following discussion summarizes certain material U.S. federal income tax consequences of the
implementation of the Plan to the Debtors and to holders of certain Claims. This discussion does not address
the U.S. federal income tax consequences to holders of Claims or Interests who are unimpaired or deemed
to reject the Plan. This discussion also does not address the U.S. federal income tax consequences to the
holders of the Reserve Bank Claims because the Reserve Bank, as the sole holder of such claims, is a U.S.
governmental agency or authority.
The discussion of U.S. federal income tax consequences below is based on the Internal Revenue Code of
1986, as amended (the “Tax Code”), current and proposed U.S. Treasury regulations promulgated
thereunder (the “Treasury regulations”), judicial authorities, published positions of the Internal Revenue
Service (“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 uncertainty. 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 the courts. No assurance can be given that the IRS would
not assert, or that a court would not sustain, a different position than any position discussed herein.
This summary does not address foreign, state, local, gift, or estate tax consequences of the Plan, nor does it
purport to address all aspects of U.S. federal income taxation that may be relevant to a holder in light of
such holder’s individual circumstances, or to a holder that may be subject to special tax rules (such as
persons who are related to the Debtors within the meaning of the Tax Code; foreign taxpayers; broker-
dealers; banks; mutual funds; insurance companies; financial institutions; small business investment
companies; real estate investment trusts; regulated investment companies; tax-exempt organizations; trusts;
governmental authorities or agencies; dealers and traders in securities, retirement plans, individual
retirement and other tax-deferred accounts; holders that are, or hold 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 foreign currency; persons who hold Claims as part of a straddle,
hedge, conversion transaction or other integrated investment; persons using a mark-to-market method of
accounting; holders of Claims who are themselves in bankruptcy; persons subject to the alternative
minimum tax or the “Medicare” tax on net investment income and accrual method taxpayers that report
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income on an “applicable financial statement”). In addition, this discussion does not address the
consequences of U.S. federal taxes other than income taxes, nor does it address the Foreign Account Tax
Compliance Act.
The following discussion generally assumes that the Plan will be treated as a plan of liquidation of the
Debtors for U.S. federal income tax purposes such that the Debtors themselves will be the Wind Down
Estates (and not any successor, by merger, consolidation or otherwise, to the Debtors) and that all
distributions to holders of Claims will be taxed accordingly. Debtors will remain in existence after the
Effective Date solely for the purpose of winding up its affairs, including, to the extent necessary and in
Debtors’ sole discretion, providing Post-Effective Date PPP Servicing. Thus, all references in this Article
VII to the Debtors as relates to periods after the Effective Date should be considered references to the Wind
Down Estates as a continuation of the Debtors for U.S. federal income tax purposes.
Additionally, this discussion assumes that: (i) 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 and
(ii) except where otherwise indicated, the Claims are held as “capital assets” (generally, property held for
investment) within the meaning of section 1221 of the Tax Code.
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 YOUR INDIVIDUAL
CIRCUMSTANCES. ALL HOLDERS OF CLAIMS AND KSERVICING EQUITY INTERSTS
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 PLAN.
A.
Consequences to the Debtors
For U.S. federal income tax purposes, KServicing is a standalone corporation, and each of its U.S.
subsidiaries are disregarded as separate from KServicing. The Debtors estimate that, as of the
Commencement, KServicing had net operating loss (“NOL”) carryforwards of approximately $53 million
in addition to other tax attributes (including tax basis in assets) for U.S. federal income tax purposes. The
amount of any such NOL carryforwards and other tax attributes remain subject to audit and adjustment by
the IRS.
As indicated above, the Debtors intend to treat the Plan as a plan of liquidation for U.S. federal income tax
purposes, meaning the Debtors will remain in existence following the Effective Date solely for the purpose
of winding up their affairs (including, to the extent necessary and in Debtors’ sole discretion, providing
Post-Effective Date PPP Servicing). The U.S. federal income tax impact of the Plan on the Debtors is
discussed further below.
1.
Recognition of Income, Gain, or Loss
The Debtors expect to service all existing Pledged PPPLF Loans, CRB PPP Loans, and CB Loans through
the Effective Date, and, thereafter, will either transfer such servicing obligations to a third-party loan
servicer(s) and/or, in Debtors’ sole discretion, provide Post-Effective Date PPP Servicing. The Debtors are
expected to generate income and incur expenses related to such servicing activity, which may result in
future taxable income. In addition, if the Debtors transfer their servicing obligation under all or some of
the existing loans, the Debtors may recognize gain or loss pursuant to such transfers.
Notwithstanding the above, the Debtors expect to have sufficient available NOL carryforwards and/or other
tax attributes to avoid any meaningful U.S. federal income tax liability.
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2.
Cancellation of Debt and Availability of Tax Attributes
In general, a debtor recognizes income, generally referred to as cancellation of debt (“COD”) income, upon
the cancellation or reduction of debt for insufficient consideration. The Tax Code provides an exception to
such income recognition for any COD arising pursuant to a bankruptcy court order or confirmed Chapter
11 plan or to the extent the debtor is insolvent immediately prior to the cancellation or reduction of the debt,
but requires the debtor to reduce certain of its tax attributes – such as current year NOLs, NOL
carryforwards, tax credits, capital losses and tax basis in assets – by the amount of such COD. COD is the
amount by which the adjusted issue price of indebtedness discharged exceeds the sum of the amount of
cash, the issue price of any debt instrument and the fair market value of any other property given in
exchange therefor, subject to certain statutory or judicial exceptions that can apply to limit the amount of
COD (including where the payment of the cancelled debt would have given rise to a tax deduction). Any
reduction in tax attributes under the COD rules does not occur until the end of the tax year after such
attributes have been applied to determine the tax in the year of discharge or, in the case of asset basis
reduction, the first day of the taxable year following the tax year in which the COD occurs.
The Debtors expect, consistent with the intended treatment of the Plan as a plan of liquidation for U.S.
federal income tax purposes, that no COD should be incurred as a result of the implementation of the Plan
prior to the disposition by the Debtors of all or substantially all of their assets (other than to the extent any
Allowed Claim’s distribution is subject to a maximum amount, or has been or is separately settled). So
treated, the reduction of tax attributes resulting from any COD pursuant to the Plan (which, as indicated
above, only occurs as of the end of the tax year in which the COD occurs) generally should not have a
material impact on the Debtors. However, there can be no assurance that all or a substantial amount of the
COD will not be incurred earlier due to, among other things, a lack of direct authoritative guidance as to
when COD occurs in the context of a liquidating Chapter 11 plan.
KServicing’s ability to utilize its NOL carryforwards and certain other tax attributes could be subject to
limitation if it underwent or were to undergo an ownership change within the meaning of section 382 of the
Tax Code by reason of the implementation of the Plan or otherwise. The Debtors believe that no ownership
change under section 382 of the Tax Code has occurred to date. In an attempt to minimize the likelihood
of such an ownership change occurring, the Debtors requested on the Commencement entry of interim and
final orders from the Bankruptcy Court authorizing a protective equity trading order. Moreover, pursuant
to the Plan, the holders of KServicing Equity Interests will maintain their economic interests in any residual
assets of the Debtors after the satisfaction of all Allowed Claims, which economic interests will be
nontransferable (except by operation of law). Accordingly, consistent with the intended treatment of the
Plan as a plan of liquidation for federal income tax purposes, the Debtors believe that no ownership change
should occur as a result of the implementation of the Plan. Nevertheless, there can be no assurance that the
IRS will not successfully take a contrary position (including with respect to the treatment for federal income
tax purposes of the holders of Claims as continuing creditors and not as effective equity holders of
KServicing throughout the liquidation process).
If, notwithstanding the Debtors’ positions, COD were incurred prior to the Debtors’ complete liquidation
or an ownership change were considered to occur, the Debtors could incur a material amount of U.S. federal
income tax in respect of the continuance of its servicing obligations, transfer of such servicing obligations,
or sale or other disposition of their assets depending, in part, on the amount of servicing income and related
expenses and amount realized upon the disposition of such assets and the then-tax basis of the assets.
3.
Potential Alternative Minimum Tax
On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which, among
other thing, generally imposes a 15% corporate alternative minimum tax on corporations with book net
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income (subject to certain adjustments) exceeding on average $1 billion over any three-year testing period
(taking into account any predecessor), effective for taxable years beginning after December 31, 2022 (the
“New AMT”). Whether and how the New AMT applies to a particular corporation remains, in significant
respects, uncertain. However, the Debtors do not expect to be subject to the New AMT
B.
Consequences to Holders of Allowed General Unsecured Claims
This summary discusses the U.S. federal income tax consequences to holders of 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 of Allowed General Unsecured
Claims that is for U.S. federal income tax purposes:
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 Allowed General Unsecured Claims, the tax treatment of a partner in such partnership generally will
depend upon the status of the partner and the activities of the partnership. If you are a partner in such a
partnership holding any of such instruments, you should consult your own tax advisor.
Each holder of an Allowed General Unsecured Claim will receive, in full and final satisfaction of such
Claim, its pro rata share of the GUC Pool Class B Interests.
1.
Recognition of Gain or Loss
The federal income tax consequences of the implementation of the Plan to a holder of an Allowed General
Unsecured Claim will depend, among other things, upon the origin of the holder’s Claim, when the holder
receives payment in respect of such Claim, whether the holder reports income using the accrual or cash
method of tax accounting, whether the holder acquired its Claim at a discount, whether the holder has taken
a bad debt deduction or worthless security deduction with respect to such Claim, and whether (as intended
and herein assumed) the Plan is treated as a plan of liquidation for federal income tax purposes.
Generally, a U.S. Holder of an Allowed General Unsecured Claim will recognize gain or loss with respect
to its Allowed General Unsecured Claim in an amount equal to the difference between (i) the sum of the
amount of any Cash and the fair market value of any other property received by the U.S. Holder (other than
any consideration attributable to accrued but unpaid interest) and (ii) the adjusted tax basis of the Allowed
General Unsecured Claim exchanged therefor (other than basis attributable to accrued but unpaid interest
previously included in the U.S. Holder’s taxable income). As discussed below, the amount of Cash or other
property received in respect of accrued but unpaid interest will be taxed as ordinary income, except to the
extent previously included in income by a U.S. Holder under its method of accounting. See Section B.2.—
“Allocation of Consideration to Interest.” Consistent with the intended treatment of the Plan as a plan of
liquidation for federal income tax purposes, any loss realized by a U.S. Holder of an Allowed General
Unsecured Claim may not be recognizable until all of the distributions to such U.S. Holder are received.
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When gain or loss is recognized, such gain or loss may be long-term capital gain or loss if the Allowed
General Unsecured Claim disposed of is a capital asset in the hands of the U.S. Holder and has been held
for more than one year. Each holder of an Allowed General Unsecured Claim should consult its tax advisor
to determine whether gain or loss recognized by such holder will be long-term capital gain or loss and the
specific tax effect thereof on such holder.
2.
Allocation of Consideration to Interest
Pursuant to section 6.16 of the Plan, all distributions in respect of Allowed General Unsecured Claims will
be allocated first to the principal amount of the Allowed General Unsecured Claim (as determined for U.S.
federal income tax purposes), with any excess allocated to accrued but unpaid interest. However, there is
no assurance that such allocation would be respected by the IRS for U.S. federal income tax purposes. In
general, to the extent any amount received (whether stock, cash, or other property) by a holder of a debt
instrument is received in satisfaction of accrued interest during its holding period, such amount will be
taxable to the holder as ordinary interest income (if not previously included in the holder’s gross income
under the holder’s normal method of accounting). Conversely, a holder generally recognizes a deductible
loss to the extent any accrued interest claimed was previously included in its gross income and is not paid
in full. Each holder of an Allowed General Unsecured Claim is urged to consult its own tax advisors
regarding the allocation of consideration and the taxation or deductibility of unpaid interest for tax purposes.
3.
Information Reporting and Backup Withholding
Payments of interest or dividends and any other reportable payments, possibly including amounts received
pursuant to the 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. You should consult your own tax advisor regarding your qualification for exemption
from backup withholding and information reporting and the procedures for obtaining such an exemption.
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. All holders of Claims
and KServicing Equity Interests are urged to consult their tax advisors concerning the federal, state,
local, non U.S., and other tax consequences applicable under the Plan.
VIII. CERTAIN RISK FACTORS TO BE CONSIDERED
Prior to voting to accept or reject the 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 PLAN. THE FACTORS BELOW SHOULD NOT BE REGARDED AS THE ONLY RISKS
ASSOCIATED WITH THE PLAN OR ITS IMPLEMENTATION. NEW FACTORS, RISKS AND
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UNCERTAINTIES EMERGE FROM TIME TO TIME AND IT IS NOT POSSIBLE TO PREDICT ALL
SUCH FACTORS, RISKS AND UNCERTAINTIES.
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 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 Plan
will be confirmed. Even if confirmed on a timely basis, bankruptcy proceedings to confirm the 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 customers, borrowers, 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 Plan
Although the Debtors believe that the 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 Plan will not be required for confirmation or that such modifications would not
necessitate re-solicitation of votes. Moreover, the Debtors can make no assurances that they will receive
the requisite acceptances to confirm the Plan, including on account of Class 3 Claims, which includes the
Reserve Bank Priority Claims which, absent agreement by the holder to a different treatment, is entitled to
payment on the Effective Date of the allowed amount of the claim pursuant to Bankruptcy Code section
1129(a)(9), and even if the Voting Classes (defined below) voted in favor of the Plan or the requirements
for “cramdown” are met with respect to any Class that rejected the Plan, the Bankruptcy Court, which may
exercise substantial discretion as a court of equity, may choose not to confirm the Plan. If the 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.
3.
Risk of Failing to Satisfy Vote Requirement
In the event that the Debtors are unable to get 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 Reserve Bank Claims and General
Unsecured Claims as those proposed in the Plan.
4.
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
Plan, the Bankruptcy Court may nevertheless confirm such Plan at the request of the Debtors if at least one
impaired class has accepted the 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 plan, the Bankruptcy
Court determines that the plan “does not discriminate unfairly” and is “fair and equitable” with respect to
the dissenting impaired classes. Should any Class vote to reject the Plan, then these requirements must be
satisfied with respect to such rejecting Classes. The Debtors believe that the Plan satisfies these
requirements.
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5.
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 Plan have not occurred or have not been waived as set forth in Section 9 of the Plan,
then the Confirmation Order may be vacated, in which event no distributions would be made under the
Plan, the Debtors and all holders of Claims or Interests would 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.
6.
Risk Related to Parties in Interest Objecting to Debtors’ Classification of
Claims and Equity 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 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.
7.
Risk Related to Possible Objections to Plan
There is a risk that certain parties could oppose and object to the Plan in the Bankruptcy Court either in its
entirety or to specific provisions of the Plan. While the Debtors believe that the proposed 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 Plan or that the Bankruptcy Court will not sustain such an objection.
8.
Conversion to Chapter 7 Case
If no plan can be 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 chapter 7 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 X hereof, as well as the liquidation analysis, which will be filed no later than the date on which the
Plan Supplement is filed and served on holders of Claims in the Voting Class as promptly as practicable
upon filing (the “Liquidation Analysis”), for a discussion of the effects that a chapter 7 liquidation would
have on the recoveries of holders of Claims and Interests on a Debtor-by-Debtor basis.
9.
Releases, Injunctions, and Exculpations Provisions May Not Be Approved
Article X of the Plan provides for certain releases, injunctions, and exculpations, for Claims and Causes of
Action that may otherwise be asserted against the Debtors, the Wind Down Estate, the Exculpated Parties,
or the Released Parties, as applicable. The releases, injunctions, and exculpations provided in the 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 Releasing Parties, Released Parties, or Exculpated Parties,
and certain Released Parties or Exculpated Parties may withdraw their support for the Plan.
10.
Risks Associated with the Debtors’ Business and Industry
The Debtors’ business is subject to regulation by governmental and regulatory authorities. Further, recently,
such policies, guidance, and regulations, as applicable to the Debtors’ business continue to change. Such
changes and any actual alleged failure to comply or implement and adhere to adequate remedial measures
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may have adverse consequences on the Company or its business. The risks associated with the Debtors’
businesses and industry include, but are not limited to, the following:
risk and uncertainties relating to the effects of disruption from the Chapter 11 Cases making it more
difficult to maintain business and operational relationships, to retain key employees and to maintain
various licenses and approvals necessary for the Debtors to conduct the Debtors’ business;
the ability to maintain loan servicing or other licenses necessary to operate the business, including
but not limited to the AmEx TSA;
increases in costs that could adversely affect the Debtors’ operating results;
the Debtors’ dependence and relationship with their employees, independent contractors, and
vendors;
negative publicity about the Debtors’ business;
the Debtors’ ability to generate sufficient cash flow to meet their commitments;
the uncertainties associated with governmental regulation, including with respect to a transfer of
loan servicing.
11.
Cash and Cash Collateral
The use of cash on hand (including cash collateral) is intended to provide liquidity to the Debtors during
the pendency of the Chapter 11 Cases. If, among other things, the Chapter 11 Cases take longer than
expected to conclude, the Debtors may exhaust their cash on hand (including cash collateral). There is no
assurance that the Debtors will be able to obtain additional financing from other sources. In either such
case, the liquidity necessary for the orderly functioning of the Debtors’ business may be materially
impaired.
12.
The Debtors May Be Adversely Affected by Potential Litigation, Including
Litigation Arising Out of the Chapter 11 Cases
In addition to the various litigations described herein, in the future, the Wind Down Estates may become
party to litigation. In general, litigation can be expensive and time consuming to bring or defend against. It
is also possible that certain parties will commence litigation with respect to the treatment of their Claims
under the Plan. It is not possible to predict the potential litigation that the Debtors or Wind Down Estates
may become party to, nor the final resolution of such litigation. The impact of any such litigation on the
Debtors’ businesses and financial stability, however, could be material.
13.
Risk that Debtors May Lose in Any of their Prepetition Litigation
As discussed in Article IV, Section B herein, the Debtors are currently engaged in ongoing litigation.
Although the Debtors believe that they will succeed in the litigation, there is a risk that the Debtors may
lose some or all of the issues, which, depending on the priority of the ultimate claims, could have substantial
impact on the Debtors’ administrative solvency.
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B.
Additional Factors
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. The Governmental Bar Date has not yet passed, and the Debtors may incur additional
significant claims. 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’ feasibility analysis, and that 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 which 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.
3.
Debtors Could Withdraw Plan
The Plan may be revoked or withdrawn prior to the Commencement by the Debtors.
4.
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.
5.
No Representations Outside Disclosure Statement are Authorized
No representations concerning or related to the Debtors, the Chapter 11 Cases, or the 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 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 Plan.
6.
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 to you. This Disclosure Statement may not be relied upon for
any purpose other than to determine how to vote on the Plan or object to confirmation of the Plan.
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7.
No Admission Made
Nothing contained herein or in the Plan will constitute an admission of, or will be deemed evidence of, the
tax or other legal effects of the Plan on the Debtors or on holders of Claims or Interests.
8.
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 Plan, see Article VII hereof.
IX. VOTING PROCEDURES AND REQUIREMENTS
A.
Voting Deadline
Before voting to accept or reject the Plan, each Eligible Holder (defined below) as of the Voting Record
Date should carefully review the Plan attached hereto as Exhibit A. All descriptions of the Plan set forth
in this Disclosure Statement are subject to the terms and conditions of the Plan.
Ballots will be provided for holders of Voting Claims as of the Voting Record Date (January 19, 2023) to
vote to accept or reject the Plan (a “Ballot”). Holders of Classes 3 and 4 (the “Eligible Holders”) are
entitled to vote to accept or reject the Plan. Because Classes 1, 2, and 6 (if so treated) are unimpaired and
deemed to accept, and Classes 5, 6 (if so treated), 7, and 8 are impaired but deemed to reject, only Classes
3 and 4 are entitled to vote.
The Debtors have engaged Omni Agent Solutions, Inc. as Voting Agent to assist in the transmission of
voting materials and in the tabulation of votes with respect to the Plan.
EACH BALLOT CONTAINS DETAILED VOTING INSTRUCTIONS AND SETS FORTH IN DETAIL,
AMONG OTHER THINGS, THE DEADLINES, PROCEDURES, AND INSTRUCTIONS FOR VOTING
TO ACCEPT OR REJECT THE PLAN, THE VOTING RECORD DATE FOR VOTING PURPOSES,
AND THE APPLICABLE STANDARDS FOR TABULATING BALLOTS.
THE VOTING DEADLINE IS 4:00 P.M., PREVAILING EASTERN TIME, ON FEBRUARY 21, 2023,
UNLESS EXTENDED BY THE DEBTORS (THE “VOTING DEADLINE”).
CLASSES 3 AND 4: IN ORDER 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 AT THE ADDRESS SET FORTH BELOW ON OR BEFORE
THE VOTING DEADLINE.
Delivery of a Ballot must conform to the instructions on the Ballot. Mailed Ballots must be returned by the
Voting Deadline with an original signed copy to:
KSERVICING BALLOT PROCESSING
C/O OMNI AGENT SOLUTIONS, INC.
5955 De Soto Ave., Suite 100
Woodland Hills, CA 91367
FOR YOUR VOTE TO BE COUNTED, YOUR BALLOT MUST BE EXECUTED IN ACCORDANCE
WITH THE INSTRUCTIONS INCLUDED IN THE APPLICABLE BALLOT AND MUST BE
ACTUALLY RECEIVED BY THE VOTING AGENT NO LATER THAN THE VOTING DEADLINE.
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ANY BALLOT THAT IS EXECUTED AND RETURNED BUT WHICH DOES NOT INDICATE
EITHER AN ACCEPTANCE OR REJECTION OF THE PLAN OR INDICATES BOTH AN
ACCEPTANCE AND A REJECTION OF THE PLAN 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 DEFECTS IN THE BALLOTS. THE FAILURE
TO VOTE DOES NOT CONSTITUTE A VOTE TO ACCEPT OR REJECT THE PLAN. AN
OBJECTION TO THE CONFIRMATION OF THE PLAN, EVEN IF TIMELY SERVED, DOES NOT
CONSTITUTE A VOTE TO ACCEPT OR REJECT THE PLAN.
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 record holders of the Reserve
Bank Claims and the General Unsecured Claims. In order to vote, holders of Reserve Bank Claims and
General Unsecured Claims should provide all of the information requested by the Ballot and, as applicable,
should complete and deliver their completed Ballots 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 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 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
plan on account of such claim or interest, the Bankruptcy Code deems such holder to have rejected the plan,
and, accordingly, holders of such claims and interests do not actually vote on the plan. If a claim or interest
is not impaired by the plan, the Bankruptcy Code deems the holder of such claim or interest to have accepted
the plan and, accordingly, holders of such claims and interests are not entitled to vote on the 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.
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 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 plan.
Classes 3 (Reserve Bank Claims) and 4 (General Unsecured Claims) are impaired under the Plan and the
only Classes of Claims or Interests entitled to vote to accept or reject the Plan (the “Voting Classes” or the
“Voting Claims”).
Claims and Interests in all other Classes are either unimpaired and deemed to accept or impaired and
deemed to reject the Plan and are not entitled to vote. For a detailed description of the treatment of Claims
and Interests under the Plan, see Article VI of this Disclosure Statement.
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The Debtors will request confirmation of the Plan pursuant to section 1129(b) of the Bankruptcy Code over
the deemed rejection of the Plan by all classes deemed to reject, 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 VI 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 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 defects in the Ballots. Any Ballot
marked to both accept and reject the Plan will not be counted. If you cast 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 your intent, and thus, will supersede any prior Ballot. If you cast Ballots received
by the Voting Agent on the same day, but which are voted inconsistently, such Ballots will not be counted.
An otherwise properly executed Ballot that attempts to partially accept and partially reject the Plan will
likewise 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 by
multiplying that amount by a factor that reflects all amounts accrued between the Voting Record Date and
the Commencement 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 Reserve Bank 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 Plan and such abstentions will not be counted as votes for or
against the Plan.
Except as provided below, unless the Ballot is timely submitted to the Voting Agent before the Voting
Deadline together with any other documents required by such Ballot, 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 Plan.
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 PLAN; PROVIDED, HOWEVER, THAT THE
DEBTORs RESERVE THE RIGHT, IN THEIR SOLE DISCRETION, TO REQUEST THE
BANKRUPTCY COURT TO ALLOW SUCH BALLOT TO BE COUNTED.
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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 Plan including the injunction, releases, and exculpations set forth in
Sections 10.3, 10.5, 10.6, and 10.7 of the Plan. All parties in interest retain their right to object to
confirmation of the Plan pursuant to section 1128 of the Bankruptcy Code.
4.
Change of Vote
Any party who has previously submitted to the Voting Agent prior to the Voting Deadline a properly
completed Ballot may revoke such Ballot and change its vote by submitting to the Voting Agent prior to
the Voting Deadline a subsequent, properly completed Ballot voting for acceptance or rejection of the Plan.
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 by any of their respective
creditors 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 of their creditors. 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.
X. CONFIRMATION OF 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 Confirmation Hearing will be held on March 13, 2023.
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 Plan must (a) be in writing; (b) state the name and address
of the objecting party and the amount and nature of the Claim or Interest of such party; (c) state with
particularity the basis and nature of any objection, and provide proposed language that, if accepted and
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incorporated by the Debtors, would obviate such objection; (d) conform to the Bankruptcy Rules and the
Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the District
of Delaware; (e) 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; and (f) be
served upon the following parties, including such other parties as the Bankruptcy Court may order:
(a)
The Debtor at:
Kabbage Inc. d/b/a KServicing
925B Peachtree Street NE, Suite 383
Atlanta, GA 30309
Attn: Holly Loiseau, General Counsel
Email: hloiseau@kservicecorp.com
(b)
Office of the U.S. Trustee at:
The Office of the United States Trustee
844 King Street, Suite 2207
Wilmington, DE 19801
Attn: Richard Schepacarter
Email: richard.schepacarter@usdoj.gov
(c)
Counsel to the Debtors at:
Richards, Layton & Finger, P.A.
One Rodney Square
920 North King Street
Wilmington, Delaware 19801
Attn:
Daniel J. DeFranceschi
Amanda R. Steele
Zachary I. Shapiro
Matthew P. Milana
Email: defranceschi@rlf.com
steele@rlf.com
shapiro@rlf.com
milano@rlf.com
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attn: Ray C. Schrock, P.C.
Candace M. Arthur
Natasha S. Hwangpo
Chase A. Bentley
Email: ray.schrock@weil.com
candace.arthur@weil.com
natasha.hwangpo@weil.com
chase.bentley@weil.com
UNLESS AN OBJECTION TO CONFIRMATION IS TIMELY SERVED AND FILED, IT MAY
NOT BE CONSIDERED BY THE BANKRUPTCY COURT.
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C.
Requirements for Confirmation of 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 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 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 Plan, for services or for costs and expenses in or in connection
with the Chapter 11 Cases, or in connection with the Plan and incident to the Chapter 11 Cases, has been
disclosed to the Bankruptcy Court, and any such payment made before confirmation of the Plan is
reasonable, or if such payment is to be fixed after confirmation of the 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 Plan, as a director or officer of the Wind Down Estates, an
affiliate of the Debtors participating in a Plan with the Debtors, or a successor to the Debtors under the
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 Wind Down Estates, 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 Plan or will receive or retain under the Plan, on
account of such holder’s Claim or Interest, property of a value, as of the Effective Date of the 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 Plan under chapter 7 of the Bankruptcy Code;
(vii)
except to the extent the Plan meets the requirements of section 1129(b) of
the Bankruptcy Code (as discussed further below), each Class of Claims either accepted the Plan or is not
impaired under the Plan;
(viii)
except to the extent that the holder of a particular Claim has agreed to a
different treatment of such Claim, the 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, of a value, as of the Effective Date of the Plan, equal to the Allowed amount
of such Claims;
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(ix)
at least one Class of impaired Claims has accepted the Plan, determined
without including any acceptance of the Plan by any insider holding a Claim in such Class;
(x)
confirmation of the 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 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 Plan provides
for the payment of all such fees on the Effective Date of the 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 plan or (ii) receive or retain under the plan property of a
value, as of the effective date of the 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 Plan.
The Debtors believe that under the 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 (which will be filed no later than the date the Plan
Supplement is filed and served on holders of Claims in the Voting Classes as promptly practicable upon
filing).
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 will be provided 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 and will be on a Debtor-by-Debtor basis with a
summary on a consolidated basis. 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.
(c)
Feasibility
Section 1129(a)(11) of the Bankruptcy Code requires that confirmation of a plan is not likely to be followed
by the liquidation, or the need for further financial reorganization, of the Debtor or any successor of the
Debtor (unless such liquidation or reorganization is proposed in the plan). Because the Plan proposes a
liquidation of all of the Debtor, for purposes of this test, the Bankruptcy Court will find that the Plan is
feasible if it determines that the Debtors will be able to satisfy the conditions precedent to the Effective
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Date and otherwise have sufficient funds to meet their post-confirmation date obligations to pay for the
costs of administering and fully consummating the Plan, including sufficient funds to liquidate the Debtors’
remaining estates. Accordingly, the Debtors believe that the liquidation pursuant to the Plan will meet the
feasibility requirements of the Bankruptcy Code.
(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.
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 Plan,
the Bankruptcy Court may still confirm the Plan at the request of the Debtors if, as to each impaired Class
of Claims or Interests that has not accepted the Plan, the 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 Plan, holders of Claims in Class 5 (Intercompany Claims), Interests in Class 6
(Intercompany Interests), Class 7 (Subordinated Securities Claims) and Class 8 (KServicing Equity
Interests) will not receive a distribution and are thereby deemed to reject the 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 the 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 Plan satisfies the “unfair discrimination” test. The Plan provides that Claims and
Interests of equal priority will receive comparable treatment and the Debtors believe such treatment is fair
under the circumstances. Accordingly, the Debtors believe the Plan does not discriminate unfairly as to
any impaired class of Claims or Interests.
(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 Plan satisfies the “fair and
equitable” test as further explained below.
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(i)
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.
(ii)
Unsecured Creditors
The Bankruptcy Code provides that either (i) each holder of an impaired unsecured claim receives or retains
under the plan, 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
plan of liquidation. The Plan provides that the holders of General Unsecured Claims in Class 4 will receive
the treatment summarized above in Article VI of this Disclosure Statement.
(iii)
Equity Interests
The Bankruptcy Code requires that either (a) each holder of an equity interest receive or retain under the
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 plan. Pursuant to the Plan, all
Intercompany Interests will receive no recovery or distribution and be reinstated solely to maintain the
Debtors’ corporate structure, as necessary. Pursuant to the Plan, all KServicing Equity Interests shall
receive the following treatment: (i) on the Effective Date, all KServicing Equity Interests shall be cancelled
and a Single Share shall be issued to the Wind Down Officer to hold in trust as custodian for the benefit of
the former holders of KServicing Equity Interests consistent with their former relative priority and
economic entitlements and the Single Share shall be recorded on the books and records maintained by the
Wind Down Officer; (ii) each former holder of KServicing Stock (through their interest in the Single Share,
as applicable) shall neither receive nor retain any property of the Estate or direct interest in property of the
Estate on account of such KServicing Stock; provided, that in the event that all Allowed Claims have been
satisfied in full in accordance with the Bankruptcy Code and the Plan, each former holder of a KServicing
Existing Equity Interests may receive its share of any remaining assets of KServicing consistent with such
holder’s rights of payment existing immediately prior to the Commencement. Unless otherwise determined
by the Wind Down Officer, on the date that KServicing’s Chapter 11 Case is closed in accordance with
Section 5.14 of the Plan, the Single Share issued on the Effective Date shall be deemed cancelled and of no
further force and effect; provided that (i) such cancellation does not adversely impact the Debtors’ Estates;
and (ii) the continuing rights of former holders of KServicing Stock (including through their interest in
Single Share or otherwise) shall be nontransferable except (A) by operation of law or (B) for administrative
transfers where the ultimate beneficiary has not changed, subject to the Wind Down Officer’s consent.
The Debtors believe the Plan satisfies the “fair and equitable” requirement with respect to any rejecting
Class.
XI. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF PLAN
The Debtors have evaluated several alternatives to the Plan. After studying these alternatives, the Debtors
have concluded that the Plan is the best alternative and will maximize recoveries to parties in interest,
assuming confirmation and consummation of the Plan. If the Plan is not confirmed and consummated, the
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alternatives to the Plan are (i) the preparation and presentation of an alternative plan, or (ii) a liquidation
under chapter 7 of the Bankruptcy Code.
A.
Alternative Plan
If the Plan is not confirmed, the Debtors (or if the Debtors’ exclusive period in which to file a plan of
liquidation has expired, any other party in interest) could attempt to formulate a different plan of liquidation.
The Debtors, however, do not believe that there are any practical alternative plans for the liquidation. The
Debtors believe that the Plan, as described herein, enables holders of Claims and Interests to realize the
greatest possible value under the circumstances and that, compared to any alternative plan, the Plan has the
greatest chance to be confirmed and consummated.
B.
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 chapter 7 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 effect a chapter 7 liquidation would have on the recovery of holders of Allowed
Claims and Interests will be set forth in the Liquidation Analysis that the Debtors will file no later than the
date that the Plan Supplement is filed.
As noted in Article X of this Disclosure Statement, the Debtors believe that liquidation under chapter 7
would result in smaller distributions to creditors than those provided for in the 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.
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XII.
CONCLUSION AND RECOMMENDATION
The Debtors believe the Plan is in the best interests of all stakeholders and urge the holders of Claims in
Class 3 and Class 4 to vote in favor thereof.
Dated: December 30, 2022
DEBTORS
KABBAGE, INC. (D/B/A KSERVICING)
KABBAGE CANADA HOLDINGS, LLC
KABBAGE ASSET SECURITIZATION LLC
KABBAGE ASSET FUNDING 2017-A LLC
KABBAGE ASSET FUNDING 2019-A LLC
KABBAGE DIAMETER, LLC
By: /s/ Laquisha Milner
Name: Laquisha Milner
Title: Chief Executive Officer
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