Full text
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
)
In re:
)
Chapter 11
)
VYAIRE MEDICAL, INC., et al.,1
)
Case No. 24-11217 (BLS)
)
Debtors.
)
(Jointly Administered)
)
)
Re: Docket No. 519 & 582
NOTICE OF FILING REDLINE VERSION OF AMENDED
DISCLOSURE STATEMENT FOR THE JOINT CHAPTER 11
PLAN OF VYAIRE MEDICAL, INC. AND ITS DEBTOR AFFILIATES
PLEASE TAKE NOTICE that, on September 11, 2024, Vyaire Medical, Inc. and certain
of its affiliates, the debtors and debtors in possession in the above-captioned cases (collectively,
the “Debtors”) filed the Disclosure Statement for the Joint Chapter 11 Plan of Vyaire Medical,
Inc. and its Debtor Affiliates [Docket No. 519] (the “Disclosure Statement”) with the United States
Bankruptcy Court for the District of Delaware.
PLEASE TAKE FURTHER NOTICE that, on the date hereof, the Debtors filed an
amended version of the Disclosure Statement [Docket No. 582] (as amended, the “Amended
Disclosure Statement”).
PLEASE TAKE FURTHER NOTICE that a redline comparing the Amended Disclosure
Statement against the Disclosure Statement is attached hereto as Exhibit A.
PLEASE TAKE FURTHER NOTICE that the Debtors reserve the right to alter, amend,
modify, or supplement the Amended Disclosure Statement.
1
The last four digits of Debtor Vyaire Medical, Inc.’s federal tax identification number are 6495. A complete list
of each of the Debtors in these chapter 11 cases and each such Debtor’s federal tax identification number may be
obtained on the website of the Debtors’ claims and noticing agent at https://omniagentsolutions.com/Vyaire. The
location of Debtor Vyaire Medical, Inc.’s principal place of business and the Debtors’ service address in these
chapter 11 cases is 26125 North Riverwoods Boulevard, Mettawa, Illinois, USA 60045.
Case 24-11217-BLS Doc 584 Filed 09/30/24 Page 1 of 91
2
Dated: September 30, 2024
Wilmington, Delaware
/s/ Patrick J. Reilley
COLE SCHOTZ P.C.
KIRKLAND & ELLIS LLP
Patrick J. Reilley, Esq. (No. 4451)
KIRKLAND & ELLIS INTERNATIONAL LLP
500 Delaware Avenue, Suite 1410
Joshua A. Sussberg, P.C. (admitted pro hac vice)
Wilmington, Delaware 19801
601 Lexington Ave
Telephone:
(302) 652-3131
New York, New York 10022
Facsimile:
(302) 652-3117
Telephone:
(212) 446-4800
Email:
preilley@coleschotz.com
Facsimile:
(212) 446-4900
Email:
joshua.sussberg@kirkland.com
- and -
- and -
Michael D. Sirota, Esq. (admitted pro hac vice)
Warren A. Usatine, Esq (admitted pro hac vice)
Spencer A. Winters, P.C. (admitted pro hac vice)
Court Plaza North, 25 Main Street
Yusuf U. Salloum (admitted pro hac vice)
Hackensack, New Jersey 07601
333 West Wolf Point Plaza
Telephone:
(201) 489-3000
Chicago, Illinois 60654
Facsimile:
(201) 489-1536
Telephone:
(312) 862-2000
Email:
msirota@coleschotz.com
Facsimile:
(312) 862-2200
wusatine@coleschotz.com
Email:
spencer.winters@kirkland.com
yusuf.salloum@kirkland.com
Co-Counsel to the Debtors
Co-Counsel to the Debtors
and Debtors in Possession
and Debtors in Possession
Case 24-11217-BLS Doc 584 Filed 09/30/24 Page 2 of 91
Exhibit A
Redline Version of Amended Disclosure Statement
Case 24-11217-BLS Doc 584 Filed 09/30/24 Page 3 of 91
Debtors.
Facsimile: (212) 446-4900
)
Email:
preilley@coleschotz.com
)
Email:
joshua.sussberg@kirkland.com
(Jointly Administered)
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
)
- and -
- and -
)
Michael D. Sirota, Esq. (admitted pro hac vice)
DISCLOSURE STATEMENT FOR THE JOINT CHAPTER 11
PLAN OF VYAIRE MEDICAL, INC. AND ITS DEBTOR AFFILIATES
THIS IS NOT A SOLICITATION OF AN ACCEPTANCE OR REJECTION OF THE PLAN.
ACCEPTANCES OR REJECTIONS MAY NOT BE SOLICITED UNTIL THIS DISCLOSURE
STATEMENT HAS BEEN APPROVED BY THE COURT. THIS DISCLOSURE STATEMENT IS BEING
SUBMITTED FOR APPROVAL BUT HAS NOT BEEN APPROVED BY THE COURT. THE
INFORMATION IN THIS DISCLOSURE STATEMENT IS SUBJECT TO CHANGE. THIS DISCLOSURE
STATEMENT IS NOT AN OFFER TO SELL ANY SECURITIES AND IS NOT SOLICITING AN OFFER
TO BUY ANY SECURITIES.
Spencer A. Winters, P.C. (admitted pro hac vice)
Warren A. Usatine, Esq (admitted pro hac vice)
KIRKLAND & ELLIS LLP
Yusuf U. Salloum (admitted pro hac vice)
COLE SCHOTZ P.C.
Court Plaza North, 25 Main Street
VYAIRE MEDICAL, INC., et al.,1
333 West Wolf Point Plaza
Hackensack, New Jersey 07601
KIRKLAND & ELLIS INTERNATIONAL LLP
)
Chicago, Illinois 60654
Patrick J. Reilley, Esq. (DE Bar No. 4451)
Telephone:
(201) 489-3000
In re:
Telephone:
(312) 862-2000
Case No. 24-11217 (BLS)
Facsimile: (201) 489-1536
Joshua A. Sussberg, P.C. (admitted pro hac vice)
Facsimile: (312) 862-2200
500 Delaware Avenue, Suite 1410
Email:
msirota@coleschotz.com
Email:
spencer.winters@kirkland.com
)
wusatine@coleschotz.com
601 Lexington Ave
yusuf.salloum@kirkland.com
Wilmington, Delaware 19801
)
New York, New York 10022
Chapter 11
Co-Counsel for the Debtors
Telephone:
(302) 652-3131
Co-Counsel for the Debtors
and Debtors in Possession
and Debtors in Possession
Telephone:
(212) 446-4800
Dated: September 1130, 2024
Facsimile:
(302) 652-3117
1
The last four digits of Debtor Vyaire Medical, Inc.’s federal tax identification number are 6495. A complete list
of each of the Debtors in these chapter 11 cases and each such Debtor’s federal tax identification number may
be obtained on the website of the Debtors’ claims and noticing agent at https://omniagentsolutions.com/Vyaire.
The location of Debtor Vyaire Medical, Inc.’s principal place of business and the Debtors’ service address in
these chapter 11 cases is 26125 North Riverwoods Boulevard, Mettawa, Illinois, USA 60045.
Case 24-11217-BLS Doc 584 Filed 09/30/24 Page 4 of 91
IMPORTANT INFORMATION ABOUT THIS DISCLOSURE STATEMENT
THE
DEBTORS
ARE
PROVIDING
THE
INFORMATION
IN
THIS
DISCLOSURE STATEMENT TO HOLDERS OF CLAIMS OR INTERESTS FOR
PURPOSES OF SOLICITING VOTES TO ACCEPT OR REJECT THE JOINT
CHAPTER 11 PLAN OF VYAIRE MEDICAL, INC. AND ITS DEBTOR AFFILIATES.
NOTHING IN THIS DISCLOSURE STATEMENT MAY BE RELIED UPON OR USED
BY ANY ENTITY FOR ANY OTHER PURPOSE. PRIOR TO DECIDING WHETHER
TO VOTE FOR OR AGAINST THE PLAN, EACH HOLDER ENTITLED TO VOTE
SHOULD CAREFULLY CONSIDER ALL OF THE INFORMATION IN THIS
DISCLOSURE STATEMENT, INCLUDING THE RISK FACTORS DESCRIBED IN
ARTICLE IX HEREIN.
THE PLAN IS SUPPORTED BY THE DEBTORS AND CERTAIN CREDITORS
OF THE DEBTORS. HOWEVER, AS OF THE DATE HEREOF, IT IS NOT
SUPPORTED BY THE COMMITTEE.
THE DEBTORS URGE HOLDERS OF CLAIMS WHOSE VOTES ARE BEING
SOLICITED TO ACCEPT THE PLAN.
THE DEBTORS URGE EACH HOLDER OF A CLAIM 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 THE PROPOSED TRANSACTIONS CONTEMPLATED THEREBY.
FURTHER, THE BANKRUPTCY COURT’S APPROVAL OF THE ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT DOES NOT
CONSTITUTE THE BANKRUPTCY COURT’S APPROVAL OF THE PLAN.
THIS DISCLOSURE STATEMENT CONTAINS, AMONG OTHER THINGS,
SUMMARIES OF THE PLAN, CERTAIN STATUTORY PROVISIONS, CERTAIN
ANTICIPATED EVENTS IN THE CHAPTER 11 CASES, AND CERTAIN
DOCUMENTS RELATED TO THE PLAN THAT ARE INCORPORATED BY
REFERENCE HEREIN. ALTHOUGH THE DEBTORS BELIEVE THAT THESE
SUMMARIES ARE FAIR AND ACCURATE, THESE SUMMARIES ARE QUALIFIED
IN THEIR ENTIRETY TO THE EXTENT THAT THEY DO NOT SET FORTH THE
ENTIRE TEXT OF SUCH DOCUMENTS OR STATUTORY PROVISIONS OR EVERY
DETAIL OF SUCH ANTICIPATED EVENTS.
IN THE EVENT OF ANY
INCONSISTENCY OR DISCREPANCY BETWEEN A DESCRIPTION IN THIS
DISCLOSURE STATEMENT AND THE TERMS AND PROVISIONS OF THE PLAN
OR ANY OTHER DOCUMENTS INCORPORATED HEREIN BY REFERENCE, THE
PLAN OR SUCH OTHER DOCUMENTS WILL GOVERN FOR ALL PURPOSES.
FACTUAL INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT HAS
BEEN PROVIDED BY THE DEBTORS’ MANAGEMENT EXCEPT WHERE
OTHERWISE SPECIFICALLY NOTED. THE DEBTORS DO NOT REPRESENT OR
Case 24-11217-BLS Doc 584 Filed 09/30/24 Page 5 of 91
WARRANT THAT THE INFORMATION CONTAINED HEREIN OR ATTACHED
HERETO IS WITHOUT ANY MATERIAL INACCURACY OR OMISSION.
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.
WHILE 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.
THIS DISCLOSURE STATEMENT CONTAINS “FORWARD LOOKING
STATEMENTS” WITHIN THE MEANING OF UNITED STATES SECURITIES LAWS.
SUCH STATEMENTS CONSIST OF ANY STATEMENT OTHER THAN A
RECITATION OF HISTORICAL FACT AND CAN BE IDENTIFIED BY THE USE OF
FORWARD
LOOKING
TERMINOLOGY
SUCH
AS
“MAY,”
“EXPECT,”
“ANTICIPATE,” “ESTIMATE,” OR “CONTINUE,” OR THE NEGATIVE THEREOF,
OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. YOU
ARE CAUTIONED THAT ALL FORWARD-LOOKING STATEMENTS ARE
NECESSARILY SPECULATIVE, AND THERE ARE CERTAIN RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL EVENTS OR RESULTS TO
DIFFER MATERIALLY FROM THOSE REFERRED TO IN SUCH FORWARD
LOOKING STATEMENTS.
MAKING INVESTMENT DECISIONS BASED ON THE INFORMATION
CONTAINED IN THIS DISCLOSURE STATEMENT AND/OR THE PLAN IS
THEREFORE HIGHLY SPECULATIVE. THE DEBTORS RECOMMEND THAT
INTERESTED PARTIES CONSULT THEIR OWN LEGAL COUNSEL.
THIS DISCLOSURE STATEMENT DOES NOT CONSTITUTE, AND MAY NOT
BE CONSTRUED AS, AN ADMISSION OF FACT, LIABILITY, STIPULATION, OR
WAIVER. THE DEBTORS OR THE PLAN ADMINISTRATOR MAY SEEK TO
INVESTIGATE, FILE, AND PROSECUTE CLAIMS AND MAY OBJECT TO CLAIMS
AFTER
THE
CONFIRMATION
OR
EFFECTIVE
DATE
OF
THE
PLAN
IRRESPECTIVE OF WHETHER THIS DISCLOSURE STATEMENT IDENTIFIES
ANY SUCH CLAIMS OR OBJECTIONS TO CLAIMS.
THE DEBTORS ARE MAKING THE STATEMENTS AND PROVIDING THE
FINANCIAL INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT AS
OF THE DATE HEREOF, UNLESS OTHERWISE SPECIFICALLY NOTED.
ALTHOUGH THE DEBTORS MAY SUBSEQUENTLY UPDATE THE INFORMATION
Case 24-11217-BLS Doc 584 Filed 09/30/24 Page 6 of 91
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.
INFORMATION
CONTAINED
HEREIN
IS
SUBJECT
TO
COMPLETION, MODIFICATION, OR AMENDMENT. THE DEBTORS RESERVE
THE RIGHT TO FILE AN AMENDED OR MODIFIED PLAN AND RELATED
DISCLOSURE STATEMENT FROM TIME TO TIME, SUBJECT TO THE TERMS OF
THE PLAN.
THE DEBTORS HAVE NOT AUTHORIZED ANY ENTITY TO GIVE 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.
THE CONFIRMATION AND EFFECTIVENESS OF THE PLAN ARE SUBJECT
TO CERTAIN MATERIAL CONDITIONS PRECEDENT DESCRIBED HEREIN AND
SET FORTH IN ARTICLE IX OF THE PLAN. THERE IS NO ASSURANCE THAT
THE PLAN WILL BE CONFIRMED, OR IF CONFIRMED, THAT THE CONDITIONS
PRECEDENT TO BE SATISFIED FOR THE PLAN TO GO EFFECTIVE WILL BE
SATISFIED.
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 AND 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
THE
RESTRUCTURING
TRANSACTIONS
CONTEMPLATED
THEREBY.
YOU ARE ENCOURAGED TO READ THE PLAN AND THIS DISCLOSURE
STATEMENT IN ITS ENTIRETY, INCLUDING ARTICLE IX, ENTITLED “CERTAIN
RISK FACTORS TO BE CONSIDERED BEFORE VOTING,” BEFORE SUBMITTING
YOUR BALLOT TO VOTE ON THE PLAN.
THE BANKRUPTCY COURT’S APPROVAL OF THIS DISCLOSURE
STATEMENT DOES NOT CONSTITUTE A GUARANTEE BY THE BANKRUPTCY
COURT OF THE ACCURACY OR COMPLETENESS OF THE INFORMATION
CONTAINED HEREIN OR AN ENDORSEMENT BY THE BANKRUPTCY COURT OF
THE MERITS OF THE PLAN.
Case 24-11217-BLS Doc 584 Filed 09/30/24 Page 7 of 91
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE
WITH SECTION 1125 OF THE BANKRUPTCY CODE AND BANKRUPTCY
RULE 3016(B) AND IS NOT NECESSARILY PREPARED IN ACCORDANCE WITH
FEDERAL OR STATE SECURITIES LAWS OR OTHER SIMILAR LAWS.
THIS
DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE “SEC”)
OR ANY SIMILAR FEDERAL, STATE, LOCAL, OR FOREIGN REGULATORY
AGENCY, NOR HAS THE SEC OR ANY OTHER AGENCY PASSED UPON THE
ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED IN THIS
DISCLOSURE STATEMENT.
THE DEBTORS HAVE SOUGHT TO ENSURE THE ACCURACY OF THE
FINANCIAL INFORMATION PROVIDED IN THIS DISCLOSURE STATEMENT;
HOWEVER, THE FINANCIAL INFORMATION CONTAINED IN THIS DISCLOSURE
STATEMENT OR INCORPORATED HEREIN BY REFERENCE HAS NOT BEEN,
AND WILL NOT BE, AUDITED OR REVIEWED BY THE DEBTORS’ INDEPENDENT
AUDITORS UNLESS EXPLICITLY PROVIDED OTHERWISE.
STATEMENTS CONCERNING THESE AND OTHER MATTERS ARE NOT
GUARANTEES OF THE DEBTORS AND THE WIND-DOWN DEBTORS’ FUTURE
PERFORMANCE.
THERE
ARE
RISKS, UNCERTAINTIES, AND OTHER
IMPORTANT FACTORS THAT COULD CAUSE THE DEBTORS’ AND THE
WIND-DOWN DEBTORS’ ACTUAL PERFORMANCE OR ACHIEVEMENTS TO BE
DIFFERENT FROM THOSE THEY MAY PROJECT, AND THE DEBTORS
UNDERTAKE NO OBLIGATION TO UPDATE THE PROJECTIONS MADE HEREIN.
THESE
RISKS,
UNCERTAINTIES,
AND
FACTORS
MAY
INCLUDE
THE
FOLLOWING: THE DEBTORS’ ABILITY TO CONFIRM AND CONSUMMATE THE
PLAN; THE POTENTIAL THAT THE DEBTORS MAY NEED TO PURSUE AN
ALTERNATIVE TRANSACTION IF THE PLAN IS NOT CONFIRMED; THE
DEBTORS’ ABILITY TO REDUCE THEIR OVERALL FINANCIAL LEVERAGE;
THE POTENTIAL ADVERSE IMPACT OF THE CHAPTER 11 CASES ON THE
DEBTORS’ OPERATIONS, MANAGEMENT, AND EMPLOYEES; THE RISKS
ASSOCIATED WITH OPERATING THE DEBTORS’ BUSINESS DURING THE
CHAPTER 11 CASES; CUSTOMER RESPONSES TO THE CHAPTER 11 CASES; THE
DEBTORS’ INABILITY TO DISCHARGE OR SETTLE CLAIMS DURING THE
CHAPTER 11 CASES; GENERAL ECONOMIC, BUSINESS, AND MARKET
CONDITIONS; EXPOSURE TO LITIGATION; THE DEBTORS’ ABILITY TO
IMPLEMENT COST REDUCTION INITIATIVES IN A TIMELY MANNER; THE
DEBTORS’ ABILITY TO DIVEST EXISTING BUSINESSES; AND ADVERSE TAX
CHANGES.
THIS DISCLOSURE STATEMENT IS SUBJECT TO FURTHER REVISION
AND MAY BE AMENDED TO, AMONG OTHER THINGS, TAKE INTO ACCOUNT
FURTHER SPECIFICS OF ANY RESTRUCTURING TRANSACTION TO BE
CONSUMMATED PURSUANT TO THE PLAN, AND TO ACCOMMODATE
ADDITIONAL REQUESTS FOR DISCLOSURE.
Case 24-11217-BLS Doc 584 Filed 09/30/24 Page 8 of 91
TABLE OF CONTENTS
Page
I.
INTRODUCTION.
1
II.
PRELIMINARY STATEMENT.
1
III.
QUESTIONS AND ANSWERS REGARDING THIS DISCLOSURE STATEMENT AND
THE PLAN.
4
A.
What is chapter 11?
4
B.
Why are the Debtors sending me this Disclosure Statement?
45
C.
Am I entitled to vote on the Plan?
5
D.
What will I receive from the Debtors if the Plan is consummated?
6
E.
Are any regulatory approvals required to consummate the Plan?
78
F.
What happens to my recovery if the Plan is not confirmed or does not go effective?
8
G.
If the Plan provides that I get a distribution, do I get it upon Confirmation or when the
Plan goes effective, and what is meant by “Confirmation,” “Effective Date,” and
“Consummation”?
89
H.
What are the Sale Transactions?
89
I.
What are the sources of Cash and other consideration required to fund the Plan?
9
J.
Is there potential litigation related to the Plan?
910
K.
Will there be releases and exculpation granted to parties in interest as part of the Plan?
910
L.
What is the deadline to vote on the Plan?
1011
M.
How do I vote for or against the Plan?
1011
N.
Why is the Bankruptcy Court holding a Confirmation Hearing?
11
O.
When is the Confirmation Hearing set to occur?
1112
P.
What is the purpose of the Confirmation Hearing?
1112
Q.
What is the effect of the Plan on the Debtors’ ongoing business?
1112
R.
Whom do I contact if I have additional questions with respect to this Disclosure
Statement or the Plan?
12
S.
Who Supports the Plan?
1213
T.
Could subsequent events potentially affect recoveries under the Plan?
13
U.
Do the Debtors recommend voting in favor of the Plan?
13
IV.
SUMMARY OF THE PLAN.
1314
A.
Classification and Treatment of Claims and Interests.
1314
1.
Classification of Claims and Interests.
1314
2.
Special Provision Governing Unimpaired Claims.
14
3.
Confirmation Pursuant to Sections 1129(a)(10) and 1129(b) of the Bankruptcy
Code.
1415
4.
Subordinated Claims.
1415
5.
Elimination of Vacant Classes; Presumed Acceptance by Non-Voting Classes.
1415
6.
Intercompany Interests
1415
7.
Controversy Concerning Impairment.
15
B.
Means for Implementation of the Plan.
1516
1.
General Settlement of Claims and Interests.
15
21.
Restructuring Transactions.
1516
32.
Sources of Consideration for Plan Distributions.
16
43.
Wind-Down Debtors.
1617
54.
Liquidating Trust.
17
1.
Liquidating Trust Treatment.
1718
2.
Disputed Ownership Fund Treatment.
1819
65.
Plan Administrator.
19
76.
Exculpation, Indemnification, Insurance, and Liability Limitation.
1920
i
Case 24-11217-BLS Doc 584 Filed 09/30/24 Page 9 of 91
87.
Tax Returns.
20
98.
Dissolution of the Wind-Down Debtors.
20
109.
Statutory Committee and Cessation of Fee and Expense Payment.
2021
1110.
Cancellation of Securities and Agreements.
2021
1211.
Corporate Action.
21
1312.
Effectuating Documents; Further Transactions.
2122
1413.
Section 1146 Exemption.
2122
1514.
Director and Officer Liability Insurance; Other Insurance.
2223
1615.
Causes of Action.
23
1716.
Section 1145 Exemption.
23
C.
Treatment of Executory Contracts and Unexpired Leases.
2324
1.
Assumption and Rejection of Executory Contracts and Unexpired Leases.
2324
2.
Claims Based on Rejection of Executory Contracts or Unexpired Leases.
2425
3.
Cure of Defaults for Assumed Executory Contracts and Unexpired Leases.
2425
4.
Insurance Policies.
26
5.
Indemnification Obligations
2627
6.
Preexisting Obligations to the Debtors Under Executory Contracts and
Unexpired Leases.
2627
7.
Modifications, Amendments, Supplements, Restatements, or Other Agreements.
2627
8.
Reservation of Rights.
27
9.
Nonoccurrence of Effective Date.
2728
D.
Settlement, Release, Injunction, and Related Provisions.
2728
1.
Release of Liens.
2728
2.
Releases by the Debtors.
28
3.
Releases by Holders of Claims and Interests.
2930
4.
Exculpation.
3031
5.
Injunction.
3132
6.
Protection Against Discriminatory Treatment.
3233
7.
Document Retention.
3233
8.
Reimbursement or Contribution.
3233
9.
Term of Injunctions or Stays.
33
E.
Conditions Precedent to Confirmation and the Effective Date.
33
1.
Conditions Precedent to the Effective Date.
33
2.
Waiver of Conditions.
3435
3.
Effect of Failure of Conditions.
3435
V.
THE COMPANY’S CORPORATE HISTORY AND BUSINESS OVERVIEW.
3435
A.
Creation of Vyaire Medical.
3435
B.
Vyaire’s Product, Service, and Consumable Offerings.
3536
VI.
THE COMPANY’S PREPETITION CAPITAL STRUCTURE.
3637
B.
First Lien Notes.
3738
C.
Second Lien Facility.
3738
D.
Equity Interests.
38
VII.
EVENTS LEADING TO THESE CHAPTER 11 CASES.
3839
A.
Challenging Macroeconomic Conditions.
3839
B.
Internal Business Challenges.
3940
C.
Business Plan and Operational Pivot
40
ii
Case 24-11217-BLS Doc 584 Filed 09/30/24 Page 10 of 91
D.
Prepetition Efforts to Address the Company’s Balance Sheet.
4041
E.
The Prepetition Marketing and Sale Process and the RSA.
4142
F.
Corporate Governance Efforts.
42
VIII.
MATERIAL DEVELOPMENTS AND ANTICIPATED EVENTS OF THE CHAPTER 11
CASES.
4243
A.
First Day Relief.
4243
B.
Appointment of Official Committee of Unsecured Creditors
43
C.
Second Day Relief.
4344
D.
The Debtors’ Professionals’ Retention Applications.
4344
E.
Approval of Debtor in Possession Financing.
4445
F.
Schedules and Statements.
45
G.
Bar Date Motion.
4546
H.
Bidding Procedures and Marketing Process.
4546
I.
Litigation Matters.
4748
IX.
CERTAIN RISK FACTORS TO BE CONSIDERED BEFORE VOTING.
48
A.
Risks Related to the Confirmation and Consummation of the Plan.
4849
1.
Parties in Interest May Object to the Plan’s Classification of Claims and
Interests.
4849
2.
The Conditions Precedent to the Effective Date of the Plan May Not Occur.
4849
3.
The Debtors May Fail to Satisfy Vote Requirements.
4849
4.
The Debtors May Not Be Able to Secure Confirmation of the Plan.
4849
5.
Nonconsensual Confirmation.
4950
6.
The Debtors Could Lose Exclusivity.
4950
7.
These Chapter 11 Cases May Be Converted to Cases under Chapter 7 of the
Bankruptcy Code or One or More of the Chapter 11 Cases May be Dismissed.
50
8.
The Debtors May Object to the Amount or Classification of a Claim or Interest.
5051
9.
Risk of Non-Occurrence of the Effective Date.
5051
10.
Contingencies May Affect Votes of Impaired Classes to Accept or Reject the
Plan.
5051
11.
The Plan’s Release, Injunction, and Exculpation Provisions May Not Be
Approved.
5051
12.
The Total Amount of Allowed Administrative Claims and/or General Unsecured
Claims May Be Higher Than Anticipated by the Debtors.
5152
13.
Certain Tax Implications of the Plan.
5152
B.
Disclosure Statement Disclaimer.
5152
1.
The Financial Information Contained in this Disclosure Statement Has Not Been
Audited.
5152
2.
Information Contained in this Disclosure Statement is for Soliciting Votes.
5152
3.
This Disclosure Statement Was Not Approved by the United States Securities
and Exchange Commission.
5152
4.
No Legal or Tax Advice Is Provided to You by this Disclosure Statement.
5253
5.
This Disclosure Statement May Contain Forward Looking Statements.
5253
6.
No Admissions Made.
5253
7.
Failure to Identify Litigation Claims or Projected Objections.
5253
8.
No Waiver of Right to Object Claims or Interests.
5253
9.
Information Was Provided by the Debtors and Was Relied Upon by the Debtors’
Advisors.
5354
10.
Potential Exists for Inaccuracies, and the Debtors Have No Duty to Update.
5354
11.
No Representations Outside this Disclosure Statement Are Authorized.
5354
iii
Case 24-11217-BLS Doc 584 Filed 09/30/24 Page 11 of 91
X.
SOLICITATION AND VOTING PROCEDURES.
5354
A.
Holders of Claims Entitled to Vote on the Plan.
5455
B.
Voting Record Date.
5455
C.
Voting on the Plan.
55
D.
Ballots Not Counted.
5556
XI.
STATUTORY REQUIREMENTS FOR CONFIRMATION OF THE PLAN.
56
A.
Confirmation Hearing.
5657
B.
Confirmation Standards.
5657
1.
Requirements of Section 1129(a) of the Bankruptcy Code.
5657
2.
Best Interests of Creditors—Liquidation Analysis.
5657
3.
Feasibility.
5859
4.
Valuation
5859
C.
Acceptance by Impaired Classes.
5859
D.
Confirmation Without Acceptance by All Impaired Classes.
5960
1.
No Unfair Discrimination.
5960
2.
Fair and Equitable Test.
5960
XII.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
6061
A.
Certain U.S. Federal Income Tax Consequences of the Plan to the Debtors
6162
B.
Certain U.S. Federal Income Tax Consequences of the Plan to Holders of Allowed Class
4 First Lien Claims and Allowed Class 5 Second Lien Claims
6263
C.
Character of Gain or Loss
6263
D.
Market Discount
63
E.
Accrued Interest.
6364
F.
Limitation on Use of Capital Losses
6364
G.
Information Reporting and Backup Withholding
6465
H.
U.S. Federal Income Tax Treatment of the Liquidating Trust
6465
1.
Liquidating Trust
6465
2.
Reporting.
6667
3.
Valuation.
6667
4.
Tax Returns.
6768
5.
Attribution of Income.
6768
6.
Tax Identification Numbers.
6768
7.
Annual Statements.
6869
8.
Notices.
6869
9.
Expedited Determination
6869
10.
Withholding.
6869
XIII.
RECOMMENDATION.
6869
iv
Case 24-11217-BLS Doc 584 Filed 09/30/24 Page 12 of 91
EXHIBITS
EXHIBIT A
Chapter 11 Plan
EXHIBIT B
Liquidation Analysis
v
Case 24-11217-BLS Doc 584 Filed 09/30/24 Page 13 of 91
I.
INTRODUCTION.
Vyaire Medical, Inc. and its affiliated debtors, as debtors and debtors in possession (each,
a “Debtor” and, collectively, the “Debtors”), submit this disclosure statement (this “Disclosure
Statement”), pursuant to section 1125 of the Bankruptcy Code, to Holders of Claims against and
Interests in the Debtors in connection with the solicitation of votes for acceptance of the Joint
Chapter 11 Plan of Vyaire Medical, Inc. and Its Debtor Affiliates (as may be amended, modified,
or supplemented from time to time, the “Plan”).2 A copy of the Plan is attached hereto as
Exhibit A and incorporated herein by reference. The Plan constitutes a separate chapter 11 plan
for each of the Debtors. The rules of interpretation set forth in Article I.B of the Plan shall
govern the interpretation of this Disclosure Statement.
The Debtors will seek the Bankruptcy Court’s approval of the Plan and strongly urge all
Holders of Claims and Interests entitled to vote to accept the Plan by returning their ballots, so as
to be actually received by Omni Agent Solutions, Inc., the Debtors’ notice and claims agent
(the “Claims and Noticing Agent”), no later than November 4, 2024, at 4:00 p.m., prevailing
Eastern Time. The Debtors will seek the Bankruptcy Court’s approval of the Plan at the
Confirmation Hearing.
II.
PRELIMINARY STATEMENT.
The Debtors and their non-Debtor affiliates (collectively, “Vyaire” or the “Company”)
are a global company focused on supporting breathing through every stage of life. Specifically,
Vyaire designs, manufactures, and sells a broad range of products—and services—focused on
respiratory health, including respiratory diagnostics, ventilation, airway management, and
operative care consumables.
Vyaire operates two business segments: ventilation and respiratory diagnostics. The
Debtors’ ventilation business (“Ventilation”) focuses on helping patients breathe by offering
products, and related services, that mechanically pump air in-and-out of ailing lungs. The
Debtors’ respiratory diagnostics business (“Respiratory Diagnostics”) develops, manufactures,
and commercializes devices to diagnose pulmonary and cardiopulmonary diseases. The
Company historically operated a third segment, its consumables business (“Consumables”),
which provided leading airway management and operative care technology.
In May 2023, Vyaire completed the sale of its Consumables business to fund a
go-forward business plan. The COVID-19 pandemic significantly increased demand for the
Company’s products and services, but post-pandemic macroeconomic challenges, including
higher interest rates, inflationary pressure, and supply chain disruption forced the Company to
reposition itself for the long term. The Company sought to focus on the opportunities present in
Ventilation and Respiratory Diagnostics, right-size overhead costs, and drive the Company to
2
Capitalized terms used but not otherwise defined in this Disclosure Statement will have the meaning ascribed to
such terms in the Plan. The summary of the Plan provided herein is qualified in its entirety by reference to the
Plan. In the case of any inconsistency between this Disclosure Statement and the Plan, the Plan will govern.
Case 24-11217-BLS Doc 584 Filed 09/30/24 Page 14 of 91
cash-flow positive operations in a new-normal state after years of heightened demand during the
pandemic era.
Accordingly, the Company initiated a financial and operational turnaround focused on
product line innovation, footprint optimization, supply chain simplification, organizational cost
cutting, and liquidity enhancements. Beginning in the summer of 2023, the Company and its
advisors began discussions with certain key stakeholders on the terms of a comprehensive
balance sheet solution to support the Company’s operational initiatives and go-forward business
plan. Vigorous negotiations regarding a path forward continued between the Company and its
stakeholders for the duration of 2023 and into the early months of 2024. Unfortunately, during
the same period, the Company’s liquidity position continued to worsen. The Company faced
various macroeconomic and Company-specific challenges that complicated its go-forward
business plan.
Recognizing the need to act quickly, on April 2, 2024, the board of directors of Vyaire
Holding Company (the “Board”) formed a special committee comprising of disinterested
directors Paul Aronzon, Ron Labrum, and Bret Wise (the “Independent Directors” and, such
committee, the “Special Committee”) to pursue a potential recapitalization, reorganization, sale,
or restructuring transaction (each, a “Strategic Transaction”). David Barse, a new Independent
Director, was appointed to the Board and Special Committee on April 10, 2024. Under
advisement of the Special Committee, the Company and its advisors continued to work to
maximize the value of the Company for the benefit of all stakeholders, working to launch a sale
process and to negotiate the terms of a $45 million new-money debtor in possession financing
facility (the “DIP Facility” or “DIP Financing”) in order to support the Company’s marketing and
sale efforts.
Beginning in April and May 2024 and leading up to the Petition Date, the Company’s
advisors connected with many potentially interested parties, comprising both potential strategic
and financial partners. Company management and PJT prepared confidential information
memoranda separately for the Ventilation and Respiratory Diagnostics businesses and populated
virtual data sites containing significant diligence documentation. 55 parties executed
non-disclosure agreements and received confidential business information, 6 have discussed sale
efforts with Company management, and multiple submitted nonbinding indications of interest.
In conjunction with these efforts, and after extensive, arm’s length negotiations, the Debtors
entered into that certain Restructuring Support Agreement (the “Restructuring Support
Agreement” or “RSA”) with certain First Lien Term Lenders holding over 90% of the First Lien
Term Loan, Second Lien Lenders holding 100% of the Second Lien Term Loan, and Apax, the
controlling equity holder in Vyaire Intermediate HoldCo LP (together, the “RSA Parties”), to
support the sale process and ultimate resolution of the Debtors’ Chapter 11 Cases.
As contemplated by the Restructuring Support Agreement, on June 9, 2024 (the “Petition
Date”) the Debtors commenced these Chapter 11 Cases in the United States Bankruptcy Court
for the District of Delaware (the “Bankruptcy Court”) to execute value maximizing section 363
sales to sell all or substantially all of the Debtors’ assets free and clear of all Claims and
Interests, followed by a chapter 11 plan. On June 10, 2024, the Debtors filed a bidding
procedures motion requesting that the Court enter an order establishing bidding procedures for a
sale of all or substantially all of the Debtors’ assets pursuant to section 363 of the Bankruptcy
2
Case 24-11217-BLS Doc 584 Filed 09/30/24 Page 15 of 91
Code. The Court approved the bidding procedures on July 11, 2024 [Docket No. 249]
(the “Bidding Procedures Order”), through which the Debtors obtained approval for the manner
and notice of the auction and sale hearing procedures to govern an efficient and flexible auction
process to realize the full value of existing assets.
Following a robust marketing process that began prepetition and continued postpetition,
as well as a three-day auction conducted on August 12-14, 2024 for the Debtors’ ventilation
business unit, the Debtors obtained approval on August 30, 2024 for a sale of certain of the
assets of the Debtors’ Respiratory Diagnostics business (the “Respiratory Diagnostics Assets”) to
Trudell Medical Limited (“Trudell”) for a purchase price of $53.5 million in cash consideration,
and a sale of certain of the assets of the Debtors’ ventilation business (the “Ventilation Assets”)
to Zoll Medical Corporation (“Zoll”) for approximately $37 million (in each case, the
consideration received included the assumption of certain obligations and liabilities). The
Bankruptcy Court entered the Sale Orders approving each sale transaction on September 4, 2024.
See Docket Nos. 496 and 497.
Pursuant to the Zoll asset purchase agreement, Zoll is responsible for cure costs in an
amount not to exceed $5 million (the “Zoll Cure Cap”) and the Debtors being responsible for all
cure costs over and above the Zoll Cure Cap, which, at this time, are estimated to be
approximately $4.1 million. At present, there is no allocation in the Wind-Down Budget with
respect to any cure amounts in excess of the Zoll Cure Cap for which the Debtors may be
obligated. The Debtors have consistently advised all parties, including at the auction and on the
record at the sale hearing, that the Debtors do not intend to pay cure costs in excess of the Zoll
Cure Cap and the Debtors cannot assign contracts to Zoll to the extent cure costs are in excess of
$5 million.
Pursuant to the Order (I) Approving the Zoll Asset Purchase Agreement and Authorizing
the Sale of Certain of the Ventilation Assets of the Debtors Outside the Ordinary Course of
Business, (II) Authorizing the Sale of Assets Free and Clear of All Liens, Claims, Interests, and
Encumbrances, (III) Authorizing the Assumption and Assignment of Executory Contracts and
Unexpired Leases in Connection therewith, and (IV) Granting Related Relief [Docket No. 496]
(the “Zoll Sale Order”) and the Order (I) Approving the Trudell Asset Purchase Agreement and
Authorizing the Sale of Certain Respiratory Diagnostics Assets of the Debtors Outside the
Ordinary Course of Business, (II) Authorizing the Sale of Assets Free and Clear of All Liens,
Claims, Interests, and Encumbrances, (III) Authorizing the Assumption and Assignment of the
Executory Contracts and Unexpired Leases in Connection Therewith, and (IV) Granting Related
Relief (the “Trudell Sale Order” and together with the Zoll Sale Order, the “Sale Orders”), the
Court approved a holdback schedule (the “Holdback Schedule”). The Holdback Schedule sets
forth the terms of an agreement between the Debtors and the DIP Lenders (as set forth in the Sale
Orders and the Holdback Schedule attached thereto, the “Allocation Agreement”) to, among
other things, reduce the new money commitment under the DIP Facility by $5 million and
allocate $21.5 million of proceeds of the sales to Zoll and Trudell to fund the Debtors’
winddown. The Holdback Schedule also set forth the budget for the Debtors’ winddown. The
Committee was not involved in the negotiation of, nor did it consent to, the entry of the
Allocation Agreement between the Debtors and the DIP Lenders.
3
Case 24-11217-BLS Doc 584 Filed 09/30/24 Page 16 of 91
Subsequent to the consummation of the Sale Transactions, subject to Bankruptcy Court
approval, the Debtors propose to liquidate any remaining assets under chapter 11 of the
Bankruptcy Code. Under chapter 11, a debtor may reorganize or liquidate its business for the
benefit of its stakeholders. The consummation of going-concern sale transactions followed by an
orderly liquidation of any assets not sold is the principal objective of these Chapter 11 Cases.
The Debtors believe that the Plan maximizes the value of recoveries to all stakeholders
and generally distributes all property of the Debtors’ estates (after the sale closings) that is or
becomes available for distribution according to the priorities established by the Bankruptcy Code
and applicable law. The Plan provides the ability of the Debtors to satisfy administrative and
priority claims in full.
The primary objective of the Plan is to maximize value for all Holders of Allowed Claims
and Allowed Interests and generally to distribute all property of the Estates that is or becomes
available for distribution generally in accordance with the priorities established by the
Bankruptcy Code. The Debtors believe that the Plan accomplishes this objective and is in the
best interest of the Estates.
Generally speaking, the Plan:
provides the vesting of certain assets following the Sale Transactions in the
Wind-Down Debtors for the purpose of distribution to Holders of Claims;
designates a Plan Administrator to wind down the Debtors’ affairs, pay, and reconcile
Claims, and administer the Plan in an efficient manner; and
contemplates recoveries to Holders of Administrative Claims and Other Priority
Claims as is necessary to satisfy section 1129 of the Bankruptcy Code.
The Debtors believe that Confirmation of the Plan will avoid the lengthy delay and
significant cost of liquidation under chapter 7 of the Bankruptcy Code.
The Debtors believe that the Plan maximizes stakeholder recoveries in the Chapter 11
Cases as any alternative would materially reduce recoveries to Holders of Claims. Accordingly,
the Debtors urge all Holders of Claims entitled to vote to accept the Plan by returning their
ballots so that the Claims and Noticing Agent actually receives such ballots by November 4,
2024, at 4:00 p.m. prevailing Eastern Time (the “Voting Deadline”). Assuming the Plan
receives the requisite acceptances, the Debtors will seek the Bankruptcy Court’s approval of the
Plan at the Confirmation Hearing.
4
Case 24-11217-BLS Doc 584 Filed 09/30/24 Page 17 of 91
III.
QUESTIONS AND ANSWERS REGARDING THIS DISCLOSURE STATEMENT
AND THE PLAN.
A.
What is chapter 11?
Chapter 11 is the principal business chapter of the Bankruptcy Code. In addition to
permitting debtor rehabilitation, chapter 11 promotes equality of treatment for similarly situated
creditors and similarly situated equity interest holders, subject to the priority of distributions
prescribed by the Bankruptcy Code.
The commencement of a chapter 11 case creates an estate that comprises all of the legal
and equitable interests of the debtor as of the date the chapter 11 case is commenced. The
Bankruptcy Code provides that the debtor may continue to operate its business and remain in
possession of its property as a “debtor in possession.”
Consummating a chapter 11 plan is the principal objective of a chapter 11 case. A
bankruptcy court’s confirmation of a chapter 11 plan binds the debtor, any person acquiring
property under the plan, any creditor or equity interest holder of the debtor (whether or not such
creditor or equity interest holder voted to accept the plan), and any other entity as may be ordered
by the bankruptcy court. Subject to certain limited exceptions, the order issued by a bankruptcy
court confirming a plan provides for the treatment of the debtor’s liabilities in accordance with
the terms of the confirmed plan.
B.
Why are the Debtors sending me
this Disclosure Statement?
The Debtors are seeking to obtain Bankruptcy Court approval of the Plan. Before
soliciting acceptances of the Plan, section 1125 of the Bankruptcy Code requires the Debtors to
prepare a disclosure statement containing adequate information of a kind, and in sufficient detail,
to enable a hypothetical reasonable investor to make an informed judgment regarding acceptance
of the Plan and to share such disclosure statement with all holders of claims or interests whose
votes on the Plan are being solicited. This Disclosure Statement is being submitted in
accordance with these requirements.
The Plan contemplates the possibility of one or more asset sales of some or substantially
all of the Debtors’ assets as approved by the Bankruptcy Court pursuant to the
Bidding Procedures Order and a sale order entered by the Bankruptcy Court. Following any Sale
Transaction, the Plan provides for the efficient distribution of distributable cash (including the
proceeds of the Sale Transactions, if any, to Holders of Allowed Claims and Allowed Interests
and the orderly Wind-Down and dissolution of the Debtors’ Estates. This Disclosure Statement
is being submitted to provide information about the transactions contemplated under the Plan
and related information concerning the Debtors, all in accordance with the requirements of the
Bankruptcy Code.
5
Case 24-11217-BLS Doc 584 Filed 09/30/24 Page 18 of 91
6
Voting Rights
Second Lien Claims
Other Secured Claims
Impaired
Entitled to Vote
Unimpaired
6
Not Entitled to Vote (Presumed to Accept)
General Unsecured Claims
Class
Impaired
Not Entitled to Vote (Deemed to Reject)
1
3
7
Intercompany Claims
Other Priority Claims
Unimpaired / Impaired
Secured Tax Claims
Not Entitled to Vote (Presumed to Accept or Deemed
to Reject)
Unimpaired
Claim/Interest
8
Not Entitled to Vote (Presumed to Accept)
Intercompany Interests
Unimpaired
Unimpaired / Impaired
Not Entitled to Vote (Presumed to Accept or Deemed
to Reject)
C.
Am I entitled to vote on the Plan?
Your ability to vote on, and your distribution (if any) under, the Plan depends on what
type of Claim or Interest you hold and whether you held that Claim or Interest as of the Voting
Record Date. Each category of Holders of Claims or Interests, as set forth in Article III of the
Plan pursuant to section 1122(a) of the Bankruptcy Code, is referred to as a “Class.” Each
Class’s respective voting status is set forth below:
4
9
Not Entitled to Vote (Presumed to Accept)
Existing Equity Interests
First Lien Claims
Impaired
Status
Not Entitled to Vote (Deemed to Reject)
Impaired
10
Entitled to Vote
510(b) Claims
Impaired
Not Entitled to Vote (Deemed to Reject)
2
As set forth in Article III of the Plan and in accordance with sections 1122 and
1123(a)(1) of the Bankruptcy Code, all Claims and Interests (other than Administrative Claims,
Professional Fee Claims, DIP Claims, and Priority Tax Claims) are classified into Classes for all
purposes, including voting, Confirmation, and distributions. A Claim or Interest is classified in a
particular Class only to the extent that such Claim or Interest qualifies within the description of
that Class and is classified in other Classes to the extent that any portion of such Claim or
Interest qualifies within the description of such other Classes. A Claim or Interest is also
classified 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 has not been paid, released, or otherwise satisfied prior to the Effective Date.
The table above summarizes the classification and voting rights of all classified Claims
and Interests against each Debtor (as applicable) under the Plan. As set forth in more detail in
the Plan, the Plan shall apply as a separate Plan for each of the Debtors, and the classification of
Claims and Interests set forth in the Plan shall apply separately to each of the Debtors. All of the
potential Classes for the Debtors are set forth in the Plan. Certain of the Debtors may not have
Holders of Claims or Interests in a particular Class or Classes, and such Claims shall be treated
as set forth in Article III of the Plan.
5
Case 24-11217-BLS Doc 584 Filed 09/30/24 Page 19 of 91
7
1
Class
Secured Tax Claims
Except to the extent that a Holder of an Allowed Secured Tax Claim agrees to
less favorable treatment, in full and final satisfaction, compromise, settlement,
and release of and in exchange for such Secured Tax Claim, on or as soon as
reasonably practicable after the later to occur of (i) the Effective Date and (ii)
the date such Claim becomes Allowed (or as otherwise set forth in the Plan),
each Holder of a Secured Tax Claim shall receive, at the option of the Plan
Administrator: (i) payment in full in Cash of such Holder’s Allowed Secured
Tax Claim; or (ii) equal semi-annual Cash payments commencing as of the
Effective Date or as soon as reasonably practicable thereafter and continuing for
five years, in an aggregate amount equal to such Allowed Secured Tax Claim,
together with interest at the applicable non-default rate under non-bankruptcy
law, subject to the option of the Plan Administrator to prepay the entire amount
of such Allowed Secured Tax Claim during such time period.
Claim / Equity
Interest
D.
What will I receive from the
Debtors
if
the
Plan
is
consummated?
The following chart provides a summary of the anticipated recovery to Holders of Claims
or Interests under the Plan. Any estimates of Claims or Interests in this Disclosure Statement
may vary from the final amounts allowed by the Bankruptcy Court. Your ability to receive
distributions under the Plan depends on the ability of the Debtors to obtain Confirmation and
meet the conditions necessary to consummate the Plan.
Each Holder of an Allowed Claim or Allowed Interest, as applicable, shall receive under
the Plan the treatment described below in full and final satisfaction, compromise, settlement, and
release of, and in exchange for, such Holder’s Allowed Claim or Allowed Interest, except to the
extent different treatment is agreed to by the Debtors and the Holder of such Allowed Claim or
Allowed Interest, as applicable. Unless otherwise indicated, the Holder of an Allowed Claim or
Allowed Interest, as applicable, shall receive such treatment on the later of the Effective Date
and the date such Holder’s Claim or Interest becomes an Allowed Claim or Allowed Interest or
as soon as reasonably practicable thereafter.
THE PROJECTED RECOVERIES SET FORTH IN THE TABLE BELOW ARE
ESTIMATES ONLY AND THEREFORE ARE SUBJECT TO CHANGE. FOR A
COMPLETE
DESCRIPTION
OF
THE
DEBTORS’
CLASSIFICATION
AND
TREATMENT OF CLAIMS AND INTERESTS, REFERENCE SHOULD BE MADE TO
THE ENTIRE PLAN.
2
Treatment of Claim / Equity Interest
Other Secured
Claims
Except to the extent that a Holder of an Allowed Other Secured Claim agrees to
less favorable treatment, in full and final satisfaction, compromise, settlement,
and release of and in exchange for such Allowed Other Secured Claim, on or as
soon as reasonably practicable after the Effective Date, each Holder of an
Allowed Other Secured Claim shall receive, at the option of the applicable
Debtors or Wind-Down Debtors: (i) payment in full in Cash of such Holder’s
Allowed Other Secured Claim; (ii) the collateral securing such Holder’s
Allowed Other Secured Claim; (iii) Reinstatement of such Holder’s Allowed
Other Secured Claim pursuant to section 1124 of the Bankruptcy Code; or (iv)
such other treatment rendering such Holder’s Allowed Other Secured Claim
Unimpaired in accordance with section 1124 of the Bankruptcy Code.
Case 24-11217-BLS Doc 584 Filed 09/30/24 Page 20 of 91
8
General Unsecured
Claims
On the Effective Date, each General Unsecured Claim shall be discharged and
released, and each Holder of a General Unsecured Claim shall not receive or
retain any distribution, property, or other value on account of such General
Unsecured Claim.
Treatment of Claim / Equity Interest
4
7
Intercompany
Claims
First Lien Claims
Each Allowed Intercompany Claim, to the extent not assumed pursuant to the
terms of any Sale Order, shall, at the election of the Debtors or Wind-Down
Debtors, be (a) Reinstated, (b) converted to equity, (c) otherwise set off, settled,
distributed, contributed, cancelled, or released; or (d) otherwise addressed at the
option of the Debtors or Wind-Down Debtors without any distribution on
account of such Intercompany Claims.
Except to the extent that a Holder of an Allowed First Lien Claim agrees to less
favorable treatment, in full and final satisfaction, compromise, settlement, and
release of and in exchange for such Allowed First Lien Claim, on or as soon as
reasonably practicable after the Effective Date, each Holder of an Allowed First
Lien Claim shall receive solely its pro rata share of Distributable Value, if any,
after all Allowed DIP Claims have been satisfied in full in accordance with
Article II.C of the Plan; provided, however, that: (i) in no event shall any
Holder of a First Lien Claim receive, on account of such Claim, a recovery
greater than 100% of the Allowed amount of such Claim, and (ii)
notwithstanding anything herein to the contrary, the Prepetition First Lien RCF
Loan Paydown Amount and the First Lien Agent Adequate Protection Claims
shall have been paid in full in cash on or before the Effective Date.
8
Class
Intercompany
Interests
Allowed Intercompany Interests, to the extent not assumed pursuant to the terms
of any Sale Order, shall, at the election of the Debtors or Wind Down Debtors,
be (a) Reinstated or (b) set off, settled, addressed, distributed, contributed,
merged, cancelled, or released, or (c) otherwise addressed at the option of the
Wind Down Debtors or Debtors without any distribution on account of such
Intercompany Interests.
3
5
9
Existing Equity
Interests
Second Lien Claims
On the Effective Date, all Existing Equity Interests shall be cancelled, released,
and extinguished, and will be of no further force or effect. Holders of Interests
shall receive no recovery or distribution on account of their Interests.
Other Priority
Claims
Except to the extent that a Holder of an Allowed Second Lien Claim agrees to
less favorable treatment, in full and final satisfaction, compromise, settlement,
and release of and in exchange for such Allowed Second Lien Claim, on or as
soon as reasonably practicable after the Effective Date, each Holder of an
Allowed Second Lien Claim shall receive solely its pro rata share of
Distributable Value, if any, after all Allowed DIP Claims and all Allowed
Claims in Class 4 have been satisfied in full; provided, however, that in no
event shall any Holder of Second Lien Claim receive, on account of such Claim,
a recovery greater than 100% of the Allowed amount of such Claim.
10
Claim / Equity
Interest
Section 510(b)
Claims
On the Effective Date, all Section 510(b) Claims shall be cancelled, released,
and extinguished, and will be of no further force or effect. Holders of Section
510(b) Claims shall receive not recovery or distribution on account of such
Claims.
Except to the extent that a Holder of an Allowed Other Priority Claim agrees to
less favorable treatment, in full and final satisfaction, compromise, settlement,
and release of and in exchange for such Allowed Other Priority Claim, on or as
soon as reasonably practicable after the later to occur of (i) the Effective Date
and (ii) the date such Claim becomes Allowed (or as otherwise set forth in the
Plan), each Holder of an Allowed Administrative, Allowed Priority Tax Claim,
or Allowed Other Claims, will either be satisfied in full, in Cash, or otherwise
receive treatment consistent with the provisions of section 1129(a)(9) of the
Bankruptcy Code.
6
Case 24-11217-BLS Doc 584 Filed 09/30/24 Page 21 of 91
9
E.
Are any regulatory approvals
required to consummate the Plan?
The Company holds several types of state licenses and permits, including medical device
manufacturer, medical device distributorship, and durable medical equipment distributorship
licenses. Some of these states require notice prior to effecting a change of control at the
Company. To the extent any such regulatory approvals or other authorizations, consents, rulings,
or documents are necessary to implement and effectuate the Plan, it is a condition precedent to
the Effective Date that they be obtained.
F.
What happens to my recovery if the
Plan is not confirmed or does not
go effective?
In the event that the Plan is not confirmed or does not go effective, the Chapter 11 Cases
may be converted to cases under chapter 7 of the Bankruptcy Code, pursuant to which a trustee
would be elected or appointed to liquidate the assets of the Debtors for distribution in accordance
with the priorities established by the Bankruptcy Code, and in the alternative, the Chapter 11
Cases may be dismissed. Conversion to chapter 7 would require the Debtors to incur expenses
related to the chapter 7 trustee and additional retained professionals, and such expenses may
decrease recoveries for Holders of Allowed Claims in the Voting Classes. See, e.g., 11 U.S.C.
§§ 326(a); 503(b)(2). The conversion to chapter 7 would require entry of a new bar date, which
may increase the amount of Allowed Claims and thereby reduce Pro Rata recoveries. See Fed.
R. Bankr. P. 1019(2), 3002(c). Either alternative will bring additional risks and uncertainties.
G.
If the Plan provides that I get a distribution, do I get it upon Confirmation or when
the Plan goes effective, and what is meant by “Confirmation,” “Effective Date,”
and “Consummation”?
“Confirmation” of the Plan refers to the Bankruptcy Court’s entry of the Confirmation
Order on the docket of the Chapter 11 Cases approving the Plan. Confirmation of the Plan does
not guarantee that you will receive the distribution indicated under the Plan. After Confirmation
of the Plan by the Bankruptcy Court, there are conditions that must be satisfied or waived so that
the Plan can “go effective.” Distributions to Holders of Allowed Claims and Allowed Interests
will only be made on the date the Plan becomes effective—the “Effective Date”—or as soon as
reasonably practicable thereafter, as specified in the Plan. See Article IV.E of this Disclosure
Statement, entitled “Conditions Precedent to Confirmation and the Effective Date,” for a
discussion of the conditions precedent to consummation of the Plan. “Consummation” means
the occurrence of the Effective Date.
H.
What are the Sale Transactions?
The Sale Transactions include: (i) the sale of certain of the Debtors’ Respiratory
Diagnostics Assets, as explained in that certain asset purchase agreement between the Debtors
and Trudell,3 and (ii) the sale of certain of the Debtors’ Ventilation Assets, as explained in that
3
The asset purchase agreement for the sale of the Respiratory Diagnostics Assets is attached as Exhibit A to the
Notice of Successful Bidder for the Sale of Certain of the Debtors’ Respiratory Diagnostics Assets, (II)
Case 24-11217-BLS Doc 584 Filed 09/30/24 Page 22 of 91
10
certain asset purchase agreement between the Debtors and Zoll.4 On August 12-14, 2024, the
Debtors held an auction for certain of the Debtors’ Ventilation Assets. After three days of
competitive bidding that lasted over three days and ten rounds, the Debtors selected Zoll as the
Successful Bidder for the Ventilation Assets. While a number of parties expressed interest in the
Debtors’ Respiratory Diagnostics Assets, the Debtors received a single actionable proposal prior
to the Bid Deadline from Trudell. Following three weeks of continued negotiations with Trudell,
the Debtors selected Trudell as the Successful Bidder for the Debtors’ Respiratory Diagnostics
Assets.
I.
What are the sources of Cash and
other consideration required to
fund the Plan?
The Debtors shall fund or make distributions under the Plan, including the conveyance
and funding of the Wind-Down Debtor Account Amount, with: (i) the proceeds from the Sale
Transactions; (ii) the Debtors’ Cash on hand; and (iii) proceeds from the Wind Down, including
the Wind-Down Debtor Assets. The Allowed DIP Claims shall be satisfied in accordance with
Article II.C of the Plan.
J.
Is there potential litigation related
to the Plan?
Parties in interest may object to Confirmation of the Plan, which objections potentially
could give rise to litigation.
In the event that it becomes necessary to confirm the Plan over the rejection of certain
Classes, the Debtors may seek confirmation of the Plan notwithstanding the dissent of such
rejecting Classes. The Bankruptcy Court may confirm the Plan pursuant to the “cramdown”
provisions of the Bankruptcy Code, which allow the Bankruptcy Court to confirm a plan that has
been rejected by an impaired Class if it determines that the Plan satisfies section 1129(b) of the
Bankruptcy Code. See Article IX.A.4 of this Disclosure Statement, entitled “The Debtors May
Not Be Able to Secure Confirmation of the Plan.”
K.
Will there be releases and exculpation granted to parties in interest as part of the
Plan?
Yes, Article VIII of the Plan proposes to release the Released Parties and to exculpate the
Exculpated Parties. The Debtors’ releases, third-party releases, and exculpation provisions
included in the Plan are an integral part of the Debtors’ overall chapter 11 efforts and were an
Notice of Successful Bidder for the Sale of Certain of the Debtors’ Respiratory Diagnostics Assets, (II)
Proposed Purchase Agreement in Connection Therewith, and (III) Proposed Sale Order in Connection
Therewith [Docket No. 400].
4
The asset purchase agreement for the sale of the Ventilation Assets is attached as Exhibit A to the Notice of (I)
Successful Bidder for the Sale of Certain of the Debtors’ Ventilation Assets, (II) Proposed Purchase Agreement
in Connection Therewith, and (III) Proposed Sale Order in Connection Therewith [Docket No. 388].
Case 24-11217-BLS Doc 584 Filed 09/30/24 Page 23 of 91
essential element of the negotiations between the Debtors and their key constituencies in
obtaining their support for the Plan.
All of the Released Parties and the Exculpated Parties have made substantial and
valuable contributions to the Debtors’ restructuring through efforts to negotiate and implement
the Plan, which will maximize the assets distributable by the Debtors for the benefit of all parties
in interest. Accordingly, each of the Released Parties and the Exculpated Parties warrants the
benefit of the release and exculpation provisions.
The Releasing Parties are each of, and in each case in its capacity as such: (a) the
Debtors and the Wind-Down Debtors, as applicable; (b) the Plan Administrator; (c) each
Consenting Stakeholder; (d) the PurchasersCommittee and its members; (e) the Purchasers; (f)
the DIP Lenders; (fg) the Agents; (g) all Holders of Claims; (h) all Holders of Interests;
(i)Claims who opt in to granting the releases set forth in the Plan; (i) all Holders of Interests who
opt in the granting the releases set forth in the Plan; (j) each current and former Affiliate of each
Entity in clause (a) through the following clause (j); and (j) each Related Party of each Entity in
clause (a) through this clause (j), for which such Entity is legally entitled to bind such Related
Party to the releases contained in the Plan under applicable law; provided, however, that in each
case, an Entity shall not be a Releasing Party if it: (x) elects to opt out of the release contained in
the Plan; or (y) timely objects to the releases set forth in Article VIII.C of the Plan and such
objection is not withdrawn or otherwise resolved before the Confirmation Order is entered.
The Released Parties are each of, and in each case in its capacity as such: (a) the Debtors
and the Wind-Down Debtors, as applicable; (b) the Plan Administrator; (c) each Consenting
Stakeholder; (d) the PurchasersCommittee and its members; (e) the Purchasers; (f) the DIP
Lenders; (fg) the Agents; (g) all Holders of Claims; (h) all Holders of Interests; (iClaims who opt
in to granting the releases set forth in the Plan; (i) all Holders of Interests who opt in to granting
the releases set forth in the Plan; (j) each current and former Affiliate of each Entity in clause (a)
through the following clause (j); and (jk) each Related Party of each Entity in clause (a) through
this clause (jk), each in their capacity as such (unless any such Entity or Related Party has opted
out of the releases contained in Article VIII of the Plan, in which case such Entity or Related
Party, as applicable, shall not be a Released Party); provided that, in each case, an Entity shall
not be a Released Party if it: (x) elects to opt out of the releases set forth in Article VIII.C of the
Plan; or (y) timely objects to the releases set forth in Article VIII.C of the Plan and such
objection is not withdrawn or otherwise resolved before the Confirmation Order is entered.
The Exculpated Parties are: (a) each of the Debtors; (b) the Independent Directors; and
(c) the Committee and its members; and (d) with respect to the Debtors and the Committee, each
of their respective current and former directors, managers, officers, attorneys, financial advisors,
consultants, or other professionals or advisors, as applicable, that served in such capacity
between the Petition Date and Effective Date.
Based on the foregoing, the Debtors believe that the releases and exculpations in the Plan
are necessary and appropriate and meet the requisite legal standard promulgated by the United
States Court of Appeals for the Third Circuit. Moreover, the Debtors will present evidence at the
Confirmation Hearing to demonstrate the basis for and propriety of the release and exculpation
provisions. The release, exculpation, and injunction provisions that are contained in the Plan are
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copied in Article IV.D of this Disclosure Statement, entitled “Settlement, Release, Injunction,
and Related Provisions.”
As of the date hereof, the Committee does not support the releases or exculpations set
forth in Article VIII of the Plan (collectively, the “Plan Releases”), because the Committee
asserts that such Plan Releases are overly broad, covering a universe of unknown Affiliates and
Related Parties, who, among certain Released Parties, have provided no consideration in
exchange for receiving the Plan Releases, as required under prevailing Third Circuit law.
Further, notwithstanding the fact that the Plan provides that if Holders of Claims will be
deemed Released Parties and receive the Plan Releases to the extent such Holders of Claims
elect to opt into the releases set forth in Article VIII.C. of the Plan by submitting an Opt-In Form
pursuant to the Opt-In Procedures, such Holders of Claims will nonetheless remain potential
targets of Retained Causes of Action, including Avoidance Actions, as such Retained Causes of
Action are carved out of the claims and causes of action being released under the Plan.
L.
What is the deadline to vote on the
Plan?
The Voting Deadline is November 4, 2024, at 4:00 p.m., prevailing Eastern Time.
M.
How do I vote for or against the
Plan?
Detailed instructions regarding how to vote on the Plan are contained on the ballots
distributed to Holders of Claims and Interests that are entitled to vote on the Plan. For your vote
to be counted, you must submit your ballot in accordance with the instructions provided in
Article X
of
this
Disclosure
Statement.
BALLOTS
SENT
BY
FACSIMILE
TRANSMISSION ARE NOT PERMITTED AND WILL NOT BE COUNTED.
N.
Why is the Bankruptcy Court
holding a Confirmation Hearing?
Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court to hold a hearing
on confirmation of the Plan and recognizes that any party in interest may object to confirmation
of the Plan.
O.
When is the Confirmation Hearing
set to occur?
The Bankruptcy Court has scheduled the Confirmation Hearing for November 14, 2024,
at 10:00 a.m., prevailing Eastern Time. The Confirmation Hearing may be adjourned from
time to time without further notice. The Confirmation Hearing is being held on the same day as
the hearing to approve the adequacy of this Disclosure Statement. The Bankruptcy Court, in its
discretion and prior to the Confirmation Hearing, may put in place additional procedures
governing the Confirmation Hearing. Subject to section 1127 of the Bankruptcy Code, the Plan
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may be modified, if necessary, prior to, during, or as a result of the Confirmation Hearing,
without further notice to parties in interest.
The Debtors will publish the notice of the Confirmation Hearing, which will contain the
deadline for objecting to the Plan and the date and time of the Confirmation Hearing, in a
nationally recognized publication to provide notification to those persons who may not receive
notice by mail. The Debtors may also publish the notice of the Confirmation Hearing in such
trade or other publications as the Debtors may choose.
The deadline by which all objections to the Plan must be filed with the Bankruptcy Court
and served so as to be actually received by the appropriate notice parties is November 4, 2024,
at 4:00 p.m., prevailing Eastern Time, pursuant to the notice of the Confirmation Hearing that
accompanies this Disclosure Statement.
P.
What is the purpose of the
Confirmation Hearing?
The confirmation of a chapter 11 plan by a bankruptcy court binds the debtor, any person
acquiring property under a chapter 11 plan, any creditor or equity interest holder of a debtor, and
any other person or entity as may be ordered by the bankruptcy court in accordance with the
applicable provisions of the Bankruptcy Code. Subject to certain limited exceptions, the order
issued by the bankruptcy court confirming a chapter 11 plan discharges a debtor from any debt
that arose before the confirmation of such chapter 11 plan and provides for the treatment of such
debt in accordance with the terms of the confirmed chapter 11 plan.
Q.
What is the effect of the Plan on
the Debtors’ ongoing business?
The Debtors are liquidating under chapter 11 of the Bankruptcy Code. Following
Confirmation, the Plan will be consummated on the Effective Date, which is a date that is the
first Business Day after the Confirmation Date on which (i) no stay of the Confirmation Order is
in effect and (ii) all conditions precedent to the occurrence of the Effective Date set forth in
Article IX of the Plan have been satisfied or waived. On or after the Effective Date, and unless
otherwise provided in the Plan, the Plan Administrator will commence the wind down of the
Wind-Down Debtors in accordance with the terms of the Plan. Additionally, upon the Effective
Date, all actions contemplated by the Plan will be deemed authorized and approved.
R.
Whom do I contact if I have additional questions with respect to this Disclosure
Statement or the Plan?
If you have any questions regarding this Disclosure Statement or the Plan, please contact
the Debtors’ Claims and Noticing Agent, Omi Agent Solutions, Inc.:
By regular mail, hand delivery or overnight mail at:
Vyaire Medical, Inc. et al.
c/o Omni Agent Solutions, Inc.
5955 De Soto Avenue, Suite 100
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Woodland Hills, CA 91367
By electronic mail at:
Vyaireinquiries@omniagnt.com
Please reference “Vyaire Medical, Inc. – Solicitation Inquiry” in the subject line.
By telephone at:
(866) 956-2140 (Toll Free) or +1 (818) 666-3635 (International)
Copies of the Plan, this Disclosure Statement, and any other publicly filed documents in these
Chapter 11 Cases are available upon written request to the Debtors’ Claims and Noticing Agent
at the address above or by downloading the exhibits and documents from the website of the
Debtors’ Claims and Noticing Agent at https://omniagentsolutions.com/Vyaire (free of charge)
or the Bankruptcy Court’s website at https://deb.uscourts.gov (for a fee).
S.
Who Supports the Plan?
The Plan, which remains subject to further negotiation, is supported by the Debtors. The
Debtors are engaged in negotiations with, among other parties, the DIP Lenders, the Consenting
Stakeholders, and the Committee regarding the terms of the Plan. As of the date hereof, the Plan
and the Restructuring Transactions remain subject to further negotiation and finalization.
As of the date hereof, the Committee does not support the Plan, including the Releases
contained in Art. VIII of the Plan.
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T.
Could
subsequent
events
potentially affect recoveries under
the Plan?
Potentially, yes. Recoveries under the Plan are only guaranteed after the Plan is
confirmed and the Effective Date is reached. Any number of subsequent events may interfere
with Plan recoveries.
U.
Do the Debtors recommend voting
in favor of the Plan?
Yes. The Debtors believe the Plan provides for a greater distribution to the Debtors’
creditors than would otherwise result from any other available alternative. The Debtors believe
the Plan is in the best interests of all Holders of Claims and Interests, and that other alternatives
(to the extent they exist) fail to realize or recognize the value inherent under the Plan. As noted
above, at this time, the Committee does not support the Plan.
IV.
SUMMARY OF THE PLAN.
This section provides a summary of the structure and means for implementation of the
Plan and the classification and treatment of Claims and Interests under the Plan and is qualified
in its entirety by reference to the Plan (as well as the exhibits thereto and definitions therein).
The statements contained in this Disclosure Statement include summaries of the
provisions contained in the Plan and in the documents referred to therein. The statements
contained in this Disclosure Statement do not purport to be precise or complete statements of all
the terms and provisions of the Plan or documents referred to therein, and reference is made to
the Plan and to such documents for the full and complete statement of such terms and provisions
of the Plan or documents referred to therein.
The Plan controls the actual treatment of Claims against, and Interests in, the Debtors
under the Plan and will, upon the occurrence of the Effective Date, be binding upon all Holders
of Claims against and Interests in the Debtors, the Debtors’ Estates, the Wind-Down Debtors, all
parties receiving property under the Plan, and other parties in interest. In the event of any
conflict between this Disclosure Statement and the Plan or any other operative document, the
terms of the Plan and/or such other operative document shall control.
A.
Classification and Treatment of
Claims and Interests.
1.
Classification of Claims and Interests.
Except for the Claims addressed in Article II of the Plan, all Claims and Interests are
classified in the Classes set forth in Article III of the Plan for all purposes, including voting,
Confirmation, and distributions pursuant to the Plan and in accordance with sections 1122 and
1123(a)(1) of the Bankruptcy Code. The Plan deems a Claim or an Interest to be classified in a
particular Class only to the extent that such Claim or Interest qualifies within the description of
that Class and is classified in other Classes to the extent that any portion of such Claim or
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Interest qualifies within the description of such other Classes. A Claim or an Interest also is
classified in a particular Class for the purpose of receiving distributions under the Plan only to
the extent that such Claim or Interest is an Allowed Claim or Allowed Interest in that Class and
has not been paid, released, or otherwise satisfied prior to the Effective Date.
2.
Special Provision Governing Unimpaired Claims.
Except as otherwise provided in the Plan, nothing under the Plan shall affect the Debtors’
or the Wind-Down Debtors’ rights in respect of any Claims that are Unimpaired, including all
rights in respect of legal and equitable defenses to or setoffs or recoupments against any such
Claims that are Unimpaired. Unless otherwise Allowed, Claims that are Unimpaired shall
remain Disputed Claims under the Plan.
3.
Confirmation Pursuant to Sections 1129(a)(10) and 1129(b) of the
Bankruptcy Code.
Section 1129(a)(10) of the Bankruptcy Code is satisfied for purposes of Confirmation by
acceptance of the Plan by one or more of the Classes entitled to vote pursuant to Article III.B of
the Plan. 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 Article X 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.
4.
Subordinated Claims.
Except as expressly provided in the Plan, the allowance, classification, and treatment of
all Allowed Claims and Allowed 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 and the Wind-Down Debtors reserve the right to reclassify any Allowed
Claim or Interest in accordance with any contractual, legal, or equitable subordination relating
thereto.
5.
Elimination of Vacant Classes; Presumed Acceptance by Non-Voting
Classes.
Any Class of Claims or Interests that does not have a Holder of an Allowed Claim or
Allowed Interest or a Claim or Interest temporarily Allowed by the Bankruptcy Court in an
amount greater than zero as of the date of the Confirmation Hearing shall be considered vacant
and deemed eliminated from the Plan for purposes of voting to accept or reject the Plan and for
purposes of determining acceptance or rejection of the Plan by such Class pursuant to section
1129(a)(8) of the Bankruptcy Code.
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6.
Intercompany Interests
To the extent Reinstated under the Plan, distributions on account of Intercompany
Interests are not being received by Holders of such Intercompany Interests on account of their
Intercompany Interests but for the purposes of administrative convenience, for the ultimate
benefit of the Purchasers, and in exchange for the Debtors’ and/or the Wind-Down Debtors’
agreement under the Plan to provide management services to certain other Debtors and
Wind-Down Debtors pursuant to any transition services agreements entered into in connection
with the applicable Asset Purchase Agreement,solely to use certain funds and assets as set forth
in the Plan to make certain distributions and satisfy certain obligations of certain other Debtors
and Wind-Down Debtors, as applicable, to the Holders of certain Allowed Claims, all as set
forth in and otherwise for uses as are contemplated by the Plan, in each case, in accordance with
the terms of the applicable Asset Purchase Agreement and/or applicable Sale Order.
7.
Controversy Concerning Impairment.
If a controversy arises as to whether any Claims or Interests, or any Class of Claims or
Interests, are Impaired, the Bankruptcy Court shall, after notice and a hearing, determine such
controversy on or before the Confirmation Date.
B.
Means for Implementation of the
Plan.
1. General Settlement of Claims and Interests.
As discussed in detail in this Disclosure Statement and as otherwise provided in the Plan,
to the extent provided by the Bankruptcy Code, and in consideration for the classification,
distributions, releases, and other benefits provided under the Plan, upon the Effective Date, the
provisions of the Plan shall constitute a good faith compromise and settlement of all Claims,
Interests, Causes of Action, and controversies released, settled, compromised, or otherwise
resolved pursuant to the Plan. The Plan shall be deemed a motion to approve the good-faith
compromise and settlement of all such Claims, Interests, Causes of Action, and controversies,
and the entry of the Confirmation Order shall constitute the Bankruptcy Court’s approval of such
compromise and settlement under section 1123 of the Bankruptcy Code, as well as a finding by
the Bankruptcy Court that such settlement and compromise is fair, equitable, reasonable, and in
the best interests of the Debtors and their Estates. Subject to Article VI of the Plan, all
distributions made to Holders of Allowed Claims and Allowed Interests (as applicable) in any
Class are intended to be and shall be final.
1.
2. Restructuring Transactions.
On or before the Effective Date, the applicable Debtors or the Wind-Down Debtors shall
enter into any transaction and shall take any actions as may be necessary or appropriate to effect
the transactions described herein, including, as applicable, consummation of the Sale
Transactions pursuant to the Asset Purchase Agreements or any transactions set forth in the
Restructuring Transactions Memorandum, the issuance of all certificates and other documents
required to be issued pursuant to the Plan, one or more intercompany mergers, consolidations,
amalgamations,
arrangements,
continuances,
restructurings,
conversions,
dispositions,
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dissolutions, transfers, liquidations, spinoffs, intercompany sales, purchases, contributions,
distributions, novations, setoffs, or other corporate transactions (collectively, the “Restructuring
Transactions”). The actions to implement the Restructuring Transactions may include: (1) the
execution and delivery of appropriate agreements or other documents of merger, consolidation,
amalgamation, arrangement, continuance, restructuring, conversion, disposition, dissolution,
transfer, liquidation, spinoff, sale, or purchase containing terms that are consistent with the terms
of the Plan and Asset Purchase Agreements and that satisfy the applicable requirements of
applicable Law and any other terms to which the applicable Entities may agree; (2) 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 for which the applicable Entities agree; (3) the filing of appropriate
certificates or articles of incorporation, reincorporation, formation, merger, consolidation,
conversion, amalgamation, arrangement, continuance, or dissolution pursuant to applicable state
or provincial law; and (4) all other actions that the applicable Entities determine to be necessary
or appropriate, including making filings or recordings that may be required by applicable Law in
connection with the Plan. To the extent practicable and if applicable, the Restructuring
Transactions contemplated herein shall be structured so as to obtain the most beneficial tax
structure for the Debtors subject to the consent of the Required DIP Lenders and the applicable
Purchasers. The Confirmation Order shall, and shall be deemed to, pursuant to sections 363 and
1123 of the Bankruptcy Code, authorize, among other things, all actions as may be necessary or
appropriate to effectuate any transaction described in, contemplated by, or necessary to effectuate
the Plan.
2.
3. Sources of Consideration for Plan Distributions.
The Debtors shall fund or make distributions under the Plan, subject to the terms of the
Sale Orders and the Asset Purchase Agreements, as applicable, from: (i) the proceeds from the
Sale Transactions (after, for the avoidance of doubt, giving effect to the DIP Paydown Amount,
payment in full of the Prepetition First Lien RCF Loan Paydown Amount and funding the
Wind-Down Debtor Account in accordance with the Wind-Down Budget); (ii) the Debtors’ Cash
on hand; and (iii) in accordance with the Wind-Down Budget, proceeds from the Wind Down,
including the Wind-Down Debtor Assets. The Allowed DIP Claims shall be satisfied in
accordance with Article II.C of the Plan.
3.
4. Wind-Down Debtors.
The Debtors shall continue in existence after the Effective Date as the Wind-Down
Debtors solely for the purposes of (i) winding down the Debtors’ businesses and affairs as
expeditiously as reasonably possible, and liquidating all Wind-Down Debtor Assets, (ii)
performing any obligations under any transition services agreement entered into before, on, or
after the Effective Date, including pursuant to any of the Asset Purchase Agreements;
(iii) enforcing and prosecuting Claims, interests, rights, and privileges under the Retained Causes
of Action in an efficacious manner and only to the extent the benefits of such enforcement or
prosecution are reasonably believed to outweigh the costs associated therewith; (iv) resolving
any Disputed Claims, (v) paying or otherwise satisfying Allowed Claims, (vi) filing appropriate
tax returns (and, for the avoidance of doubt, may pursue any refunds, credits, or other tax
benefits to which the Debtors and/or the Wind-Down Debtor are entitled and file any tax returns
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or other filings as are required in connection therewith), (vii) complying with its continuing
obligations under the Asset Purchase Agreements, if any, (viii) otherwise administering the Plan
in an efficacious manner, and (ix) undertaking any restructuring transactions as are necessary or
advisable in connection with the foregoing. The Wind-Down Debtors shall be deemed to be
substituted as the party-in-lieu of the Debtors in all matters, including (x) motions, contested
matters, and adversary proceedings pending in the Bankruptcy Court and (y) all matters pending
in any courts, tribunals, forums, or administrative proceedings outside of the Bankruptcy Court,
in each case without the need or requirement for the Plan Administrator to File motions or
substitutions of parties or counsel in each such matter.
On the Effective Date, the Wind-Down Debtor Assets shall vest in the Wind-Down
Debtors for the primary purpose of liquidating the Wind-Down Debtor Assets and winding down
the Debtors’ Estates, with no objective to continue or engage in the conduct of a trade or
business, other than performance under any transition services agreement for the benefit of Zoll
Medical or Trudell for the conduct and continuation of the and the Ventilation business and the
Respiratory Diagnostics business. The Wind-Down Debtors will, in an expeditious but orderly
manner, subject to the requirements of any transition services agreements, liquidate and convert
to Cash the Wind-Down Debtor Assets, make timely distributions pursuant to the Plan and
Confirmation Order, and not unduly prolong its duration. The Wind-Down Debtor Assets shall
be held free and clear of all Liens, Claims, and interests of Holders of Claims and Interests,
except as otherwise provided in the Plan. The Wind-Down Debtors shall be deemed to be fully
bound by the terms of the Plan and the Confirmation Order.
4.
5. Liquidating Trust.
Notwithstanding anything to the contrary herein, the Plan Administrator, in his or her
discretion, may transfer all or any portion of the assets of the Wind-Down Debtors to the
Liquidating Trust, which shall be a “liquidating trust” as that term is used under section
301.7701-4(d) of the Treasury Regulations. For the avoidance of doubt, in the event of a
Permitted Transfer, the provisions set forth in Article IV.Q herein shall continue to govern all
matters associated with the prosecution, settlement, or collection upon any Retained Causes of
Action transferred to the Liquidating Trust. The Liquidating Trust shall be established for the
primary purpose of liquidating the Liquidating Trust’s assets, reconciling claims asserted against
the Wind-Down Debtors, and distributing the proceeds thereof in accordance with the Plan, with
no objective to continue or engage in the conduct of a trade or business, except to the extent
reasonably necessary to, and consistent with, the purpose of the Liquidating Trust. Upon the
transfer of the Wind-Down Debtors’ assets to the Liquidating Trust, the Wind-Down Debtors
will have no reversionary or further interest in or with respect to the assets of the Liquidating
Trust. To the extent beneficial interests in the Liquidating Trust are deemed to be “securities” as
defined in section 2(a)(1) of the Securities Act, section 101 of the Bankruptcy Code, and
applicable state securities laws, the Debtors intend that the exemption provisions of section 1145
of the Bankruptcy Code will apply to such beneficial interests. Prior to any Permitted Transfer,
the Plan Administrator may designate trustee(s) for the Liquidating Trust for the purposes of
administering the Liquidating Trust. The reasonable costs and expenses of the trustee(s) shall be
paid from the Liquidating Trust.
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1. Liquidating Trust Treatment.
Subject to definitive guidance from the IRS or a court of competent jurisdiction to the
contrary, the Debtors expect to treat the Liquidating Trust as a “liquidating trust” under section
301.7701-4(d) of the Treasury Regulations and a grantor trust under section 671 of the Tax
Code, and the trustee of any Liquidating Trust will take a position on the Liquidating Trust’s tax
return accordingly. For U.S. federal income tax purposes, the transfer of assets to the
Liquidating Trust will be deemed to occur as (a) a first-step transfer of the Liquidating Trust
Assets to the Holders of the applicable Claims, and (b) a second-step transfer by such Holders to
the Liquidating Trust.
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No request for a ruling from the IRS will be sought on the classification of the
Liquidating Trust. Accordingly, there can be no assurance that the IRS would not take a contrary
position to the classification of the Liquidating Trust. If the IRS were to successfully challenge
the classification of the Liquidating Trust as a grantor trust, the federal income tax consequences
to the Liquidating Trust and the Liquidating Trust beneficiaries could vary from those discussed
in the Plan (including the potential for an entity-level tax). For example, the IRS could
characterize the Liquidating Trust as a so-called “complex trust” subject to a separate entity-level
tax on its earnings, except to the extent that such earnings are distributed during the taxable year.
As soon as possible after the transfer of the Liquidating Trust Assets to the Liquidating
Trust, the trustee(s) of the Liquidating Trust shall make a good faith valuation of the Liquidating
Trust Assets. This valuation will be made available from time to time, as relevant for tax
reporting purposes. Each of the Debtors, the trustee(s) of the Liquidating Trust, and the holders
of Claims receiving interests in the Liquidating Trust shall take consistent positions with respect
to the valuation of the Liquidating Trust Assets, and such valuations shall be utilized for all U.S.
federal income tax purposes.
Allocations of taxable income of the Liquidating Trust among the Liquidating Trust
beneficiaries shall be determined by reference to the manner in which an amount of cash equal to
such taxable income would be distributed (were such cash permitted to be distributed at such
time) if, immediately prior to such deemed distribution, the Liquidating Trust had distributed all
its assets (valued at their tax book value) to the Liquidating Trust beneficiaries, adjusted for prior
taxable income and loss and taking into account all prior and concurrent distributions from the
Liquidating Trust. Similarly, taxable loss of the Liquidating Trust shall be allocated by reference
to the manner in which an economic loss would be borne immediately after a liquidating
distribution of the remaining Liquidating Trust Assets. The tax book value of the Liquidating
Trust Assets shall equal their fair market value on the date of the transfer of the Liquidating
Trust Assets to the Liquidating Trust, adjusted in accordance with tax accounting principles
prescribed by the Tax Code, applicable Treasury Regulations, and other applicable
administrative and judicial authorities and pronouncements.
The Liquidating Trust shall in no event be dissolved later than 5 years from the creation
of such Liquidating Trust unless the Bankruptcy Court, upon motion within the 6 month period
prior to the fifth anniversary (or within the 6 month period prior to the end of an extension
period), determines that a fixed period extension (not to exceed 5 years, together with any prior
extensions, without a favorable private letter ruling from the IRS or an opinion of counsel
satisfactory to the trustee(s) of the Liquidating Trust that any further extension would not
adversely affect the status of the trust as a liquidating trust for U.S. federal income tax purposes)
is necessary to facilitate or complete the recovery and liquidation of the Liquidating Trust Assets.
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The Liquidating Trust will file annual information tax returns with the IRS as a grantor
trust pursuant to section 1.671-4(a) of the Treasury Regulations that will include information
concerning certain items relating to the holding or disposition (or deemed disposition) of the
Liquidating Trust Assets (e.g., income, gain, loss, deduction and credit). Each Liquidating Trust
beneficiary holding a beneficial interest in the Liquidating Trust will receive a copy of the
information returns and must report on its federal income tax return its share of all such items.
The information provided by the Liquidating Trust will pertain to Liquidating Trust beneficiaries
who receive their interests in the Liquidating Trust in connection with the Plan.
2. Disputed Ownership Fund Treatment.
With respect to any of the assets of the Liquidating Trust that are subject to potential
disputed claims of ownership or uncertain distributions, or to the extent “liquidating trust”
treatment is otherwise unavailable or not elected to be applied with respect to the Liquidating
Trust, the Debtors intend that such assets will be subject to disputed ownership fund treatment
under section 1.468B-9 of the Treasury Regulations, that any appropriate elections with respect
thereto shall be made, and that such treatment will also be applied to the extent possible for state
and local tax purposes. Under such treatment, a separate federal income tax return shall be filed
with the IRS for any such account. Any taxes (including with respect to interest, if any, earned
in the account) imposed on such account shall be paid out of the assets of the respective account
(and reductions shall be made to amounts disbursed from the account to account for the need to
pay such taxes).
5.
6. Plan Administrator.
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On the Effective Date, the authority, power, and incumbency of the persons acting as
directors and officers of each of the Debtors shall be deemed to have been terminated and such
persons shall be deemed to have resigned, solely in their capacities as such, and the Plan
Administrator shall be appointed by each Debtor, with the consent of the Required DIP Lenders,
as the sole director and the sole officer of such Wind-Down Debtor and shall succeed to the
powers of such Debtor’s directors and officers. The Plan Administrator shall be the sole
representative of, and shall act for each Wind-Down Debtor in the same fiduciary capacity as
applicable to a board of managers and officers, subject to the provisions hereof (and all
Governance Documents are deemed amended by the Plan to permit and authorize the same). For
the avoidance of doubt, the Plan Administrator shall administer the Wind-Down and terms of the
Plan in accordance with the Wind-Down Budget and shall have the authority to authorize, make,
or cause to be made payments in accordance the Wind-Down Budget to satisfy certain claims
and liabilities of the Debtors’ non-Debtor Affiliates as deemed necessary in the Plan
Administrator’s reasonable judgment. The Plan Administrator shall use commercially
reasonable efforts to adhere to (or outperform) the Wind-Down Budget; provided that the Plan
Administrator shall have the authority to reallocate funding between line items within the
Wind-Down Budget without further order of the Court.
The Plan Administrator shall have the right to retain the services of attorneys,
accountants, and other professionals that, in the discretion of the Plan Administrator, are
necessary to assist the Plan Administrator in the performance of his or her duties. The
reasonable fees and expenses of such professionals shall be paid by the Wind-Down Debtors,
upon the monthly submission of statements to the Plan Administrator and in accordance with the
Wind-Down Budget. The payment of the reasonable fees and expenses of the Plan
Administrator’s retained professionals shall be made in the ordinary course of business and shall
not be subject to the approval of the Bankruptcy Court.
6.
7. Exculpation, Indemnification, Insurance, and Liability Limitation.
The Plan Administrator and all professionals retained by the Plan Administrator shall be
deemed exculpated and indemnified, except for fraud, willful misconduct, or gross negligence, in
all respects by each Wind-Down Debtor. The Plan Administrator may each obtain, at the
expense of the Wind-Down Debtors, commercially reasonable liability or other appropriate
insurance with respect to the indemnification obligations of the Wind-Down Debtors. The Plan
Administrator may rely upon written information previously generated by the Debtors.
7.
8. Tax Returns.
After the Effective Date, the Plan Administrator shall complete and file all final or
otherwise required federal, state, local, and non-U.S. tax returns for each of the Debtors and the
Wind-Down Debtor (including, as applicable, with respect to tax refunds or credits), and,
pursuant to section 505(b) of the Bankruptcy Code, may request an expedited determination of
any unpaid tax liability of such Debtor or its Estate for any tax incurred during the administration
of such Debtor’s Chapter 11 Case, as determined under applicable tax laws.
8.
9. Dissolution of the Wind-Down Debtors.
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Upon a certification to be filed with the Bankruptcy Court by the Plan Administrator of
all distributions having been made and completion of all its duties under the Plan and entry of a
final decree closing the last of the Chapter 11 Cases, each Wind-Down Debtor shall be deemed
to be dissolved without any further action by such Wind-Down Debtor, including the filing of
any documents with the secretary of state for the state in which each such Wind-Down Debtor is
formed or any other jurisdiction. The Plan Administrator, however, shall have authority to take
all necessary actions to dissolve each Wind-Down Debtor in and withdraw each Wind-Down
Debtor from applicable states.
9.
10. Statutory Committee and Cessation of Fee and Expense Payment.
On the Effective Date, any statutory committee appointed in the Chapter 11 Cases,
including the Committee, shall dissolve and members thereof shall be released and discharged
from all rights and duties from or related to the Chapter 11 Cases, except in connection with
applications for compensation and objections thereto. The Wind-Down Debtors shall no longer
be responsible for paying any fees or expenses incurred by any statutory committee, including
the Committee, after the Effective Date, except in connection with (a) applications for payment
of any fees or expenses for services rendered prior to the Effective Date that are Allowed by the
Bankruptcy Court; and (b) objections to applications for payment of fees and expenses rendered
prior to the Effective Date.
10.
11. Cancellation of Securities and Agreements.
On the Effective Date, except as otherwise specifically provided for in the Plan: (1) the
obligations of the Debtors under the Prepetition Loan Documents and any other certificate,
Security, share, note, bond, indenture, purchase right, option, warrant, or other instrument or
document directly or indirectly evidencing or creating any indebtedness or obligation of or
ownership interest in the Debtors giving rise to any Claim or Interest (except (i) such certificates,
notes, or other instruments or documents evidencing indebtedness or obligation of or ownership
interest in the Debtors that are Reinstated pursuant to the Plan and (ii) any indemnification
obligations set forth in Article V.E hereof) shall be cancelled solely as to the Debtors and their
Affiliates, and the Wind-Down Debtors shall not have any continuing obligations thereunder;
and (2) the obligations of the Debtors and their Debtor affiliates pursuant, relating, or pertaining
to any agreements, indentures, certificates of designation, bylaws, or certificate or articles of
incorporation or similar documents governing the shares, certificates, notes, bonds (but not
including any surety bonds issued on behalf of any of the Debtors), indentures, purchase rights,
options, warrants, or other instruments or documents evidencing or creating any indebtedness or
obligation of or ownership interest in the Debtors (except such agreements, certificates, notes, or
other instruments evidencing indebtedness or obligation of or ownership interest in the Debtors
that are specifically Reinstated pursuant to the Plan) shall be released and discharged.
Notwithstanding the foregoing, no executory contract or unexpired lease that has been, or will
be, assumed pursuant to section 365 of the Bankruptcy Code shall be terminated or cancelled on
the Effective Date.
11.
12. Corporate Action.
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Upon the Effective Date, all actions contemplated under the Plan, regardless of whether
taken before, on or after the Effective Date, shall be deemed authorized and approved in all
respects, including: (1) selection of the Plan Administrator; (2) implementation of the
Restructuring Transactions; (3) consummation of the Sale Transactions under the Asset Purchase
Agreements; (4) funding of all applicable escrows and accounts; and (5) all other actions
contemplated under the Plan (whether to occur before, on, or after the Effective Date). All
matters provided for in the Plan or deemed necessary or desirable by the Debtors before, on, or
after the Effective Date involving the corporate structure of the Debtors or the Wind-Down
Debtors, as applicable, and any corporate action required by the Debtors or the Wind-Down
Debtors, as applicable, in connection with the Plan or corporate structure of the Debtors or
Wind-Down Debtors, as applicable, shall be deemed to have occurred and shall be in effect on
the Effective Date, without any requirement of further action by the security holders, directors,
managers, or officers of the Debtors or the Wind-Down Debtors, as applicable. Before, on, or
after the Effective Date, the appropriate officers of the Debtors or the Wind-Down Debtors, as
applicable, shall be authorized to issue, execute, and deliver the agreements and documents,
securities, and instruments contemplated under the Plan (or necessary or desirable to effectuate
the transactions contemplated under the Plan) in the name of and on behalf of the Wind-Down
Debtors. The authorizations and approvals contemplated by Article IV.L of the Plan shall be
effective notwithstanding any requirements under non-bankruptcy law.
12.
13. Effectuating Documents; Further Transactions.
On and after the Effective Date the Plan Administrator and the Agents may issue,
execute, deliver, file, or record such contracts, Securities, instruments, releases, 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, the Confirmation Order
and the Restructuring Transactions, without the need for any approvals, authorization, or
consents except for those expressly required pursuant to the Plan or the Confirmation Order.
13.
14. Section 1146 Exemption.
To the fullest extent permitted by section 1146(a) of the Bankruptcy Code, any transfers
(whether from a Debtor to the Wind-Down Debtor or to any other Person or from any of the
Wind-Down Debtors to the Liquidating Trust or any other Person) of property under the Plan or
pursuant to: (1) the issuance, distribution, transfer, or exchange of any debt, equity security,
property, or other interest in the Debtors or the Wind-Down Debtors; (2) the Restructuring
Transactions; (3) any Sale Transaction; (4) the creation, modification, consolidation, termination,
refinancing, and/or recording of any mortgage, deed of trust, or other security interest, or the
securing of additional indebtedness by such or other means; (5) the making, assignment, or
recording of any lease or sublease; or (6) 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 instrument 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 or bulk transfer tax, mortgage recording tax, Uniform Commercial Code filing or
recording fee, regulatory filing or recording fee, or other similar tax or governmental assessment,
and upon entry of the Confirmation Order, the appropriate state or local governmental officials or
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agents shall forgo the 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, recordation fee, or governmental assessment. All filing or recording officers (or any
other Person with authority over any of the foregoing), wherever located and by whomever
appointed, shall comply with the requirements of section 1146(a) of the Bankruptcy Code, shall
forgo the collection of any such tax or governmental assessment, and shall accept for filing and
recordation any of the foregoing instruments or other documents without the payment of any
such tax or governmental assessment. No provision of the plan or of the Confirmation Order
shall be construed to broaden the tax exemption under section 1146(a) beyond what the statute
allows.
14.
15. Director and Officer Liability Insurance; Other Insurance.
Any directors and officers insurance policies shall be assumed by the Debtors on behalf
of the applicable Debtor and assigned to the Wind-Down Debtors effective as of the Effective
Date, pursuant to sections 365 and 1123 of the Bankruptcy Code, unless such insurance policy
previously was rejected by the Debtors or the Estates pursuant to a Final Order or is the subject
of a motion to reject pending on the Effective Date, and coverage for defense and indemnity
under any such policies shall remain available to all individuals within the definition of
“Insured” in any such policies.
In addition, on and after the Effective Date, all officers, directors, agents, or employees
who served in such capacity at any time before the Effective Date, shall be entitled to the full
benefits of any directors and officers insurance policy in effect or purchased as of the Effective
Date for the full term of such policy, regardless of whether such officers, directors, agents, and/or
employees remain in such positions on or after the Effective Date, in each case, to the extent set
forth in such policies.
Subject to the occurrence of the Effective Date, to the fullest extent permitted by
applicable law, the obligations of the Debtors as of the Effective Date to indemnify, defend,
reimburse, or limit the liability of the current and former directors, managers, officers,
employees, attorneys, other professionals and agents of the Debtors, and such current and former
directors’, managers’, and officers’ respective Affiliates, respectively, against any Claims or
Causes of Action under any indemnification provisions or applicable law, shall survive
Confirmation, shall be assumed by the Debtors on behalf of the applicable Debtor and assigned
to the Wind-Down Debtors or the Liquidating Trust, as applicable, which shall be deemed to
have assumed the obligation, and will remain in effect after the Effective Date if such
indemnification, defense, reimbursement, or limitation is owed in connection with an event
occurring before the Effective Date.
15.
16. Causes of Action.
Pursuant to the Sale Transactions Documentation, the Debtors assigned and transferred to
the Purchasers all of the Transferred Causes of Action pursuant to the Sale Transactions
Documentation in connection with the Sale Transactions and in accordance with the Sale Orders.
For the avoidance of doubt, the Debtors or the Plan Administrator, as applicable, will retain the
right to enforce the terms of the Sale Transactions Documentation. The Retained Causes of
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Action shall initially remain with the Debtors and shall immediately vest with the Wind-Down
Debtors as of the Effective Date.
16.
17. Section 1145 Exemption.
Pursuant to section 1145 of the Bankruptcy Code and, to the extent that section 1145 of
the Bankruptcy Code is inapplicable, section 4(a)(2) of the Securities Act, the issuance of any
Interests pursuant to the Plan is exempt from, among other things, the registration requirements
of section 5 of the Securities Act and any other applicable United States, state, or local law
requiring registration for offer or sale of a security or registration or licensing of an issuer of,
underwriter of, or broker or dealer in, a security. As long as the exemption to registration under
section 1145 of the Bankruptcy Code is applicable, Interests issued pursuant to the Plan are not
“restricted securities” (as defined in rule 144(a)(3) under the Securities Act) and are freely
tradable and transferable by any initial recipient thereof that (x) is not an “affiliate” of the
Wind-Down Debtors (as defined in rule 144(a)(1) under the Securities Act), (y) has not been
such an “affiliate” within 90 days of such transfer, and (z) is not an entity that is an
“underwriter” as defined in section 1145(b) of the Bankruptcy Code.
C.
Treatment of Executory Contracts
and Unexpired Leases.
1.
Assumption and Rejection of Executory Contracts and Unexpired Leases.
On the Effective Date, except as otherwise provided herein or in the Sale Orders, each
Executory Contract or Unexpired Lease not previously assumed, assumed and assigned, or
rejected shall be deemed automatically rejected, pursuant to sections 365 and 1123 of the
Bankruptcy Code, unless such Executory Contract or Unexpired Lease is: (1) identified on the
Schedule of Assumed Executory Contracts and Unexpired Leases; (2) the subject of a motion to
assume (or assume and assign) such Executory Contract that is pending on the Confirmation
Date; (3) a contract, instrument, release, indenture, or other agreement or document entered into
in connection with the Plan; (4) a D&O Liability Insurance Policy; (5) an Asset Purchase
Agreement; or (6) to be assumed by the Debtors and assigned to any Purchaser in connection
with any Sale Transaction and pursuant to any Sale Transaction Documentation.
Entry of the Confirmation Order by the Bankruptcy Court shall constitute a Final Order
approving the assumptions, assumptions and assignments, or rejections of the Executory
Contracts or Unexpired Leases pursuant to the Plan; provided that neither the Plan nor the
Confirmation Order is intended to or shall be construed as limiting the Debtors’ authority under
the Sale Orders to assume and assign Executory Contracts and Unexpired Leases to the
Purchasers pursuant to the Asset Purchase Agreements. Any motions to assume Executory
Contracts or Unexpired Leases pending on the Effective Date shall be subject to approval by the
Bankruptcy Court on or after the Effective Date by a Final Order but may be withdrawn, settled,
or otherwise prosecuted by the Wind-Down Debtors. Each Executory Contract and Unexpired
Lease assumed pursuant to Article V.A of the Plan or by any Final Order, including the
Confirmation Order, which has not been assigned to a Purchaser pursuant to the applicable Asset
Purchase Agreement or the applicable Sale Order, shall revest in and be fully enforceable by the
Wind-Down Debtors in accordance with its terms, except as such terms are modified by the
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provisions of the Plan or any order of the Bankruptcy Court authorizing and providing for its
assumption under applicable federal Law.
Notwithstanding anything to the contrary in the Plan or the Sale Transactions
Documentation, the Debtors, the Wind-Down Debtors, and the Plan Administrator, as applicable,
reserve the right to alter, amend, modify, or supplement the Schedule of Assumed Executory
Contracts and Unexpired Leases, the Schedule of Rejected Executory Contracts and Unexpired
Leases, and the Schedule of Retained Causes of ActonAction identified in Article V of the Plan
and in the Plan Supplement at any time through and including 90 days after the Effective Date.
The Debtors or the Wind-Down Debtors, as applicable, shall provide notice of any amendments
to the Schedule of Assumed Executory Contracts and Unexpired Leases or the Schedule of
Rejected Executory Contracts and Unexpired Leases to the parties to the Executory Contracts or
Unexpired Leases affected thereby. For the avoidance of doubt, Article V of the Plan relates to
Executory Contracts or Unexpired Leases other than such agreements assumed, assumed and
assigned, or rejected in accordance with the terms of any Sale Order.
2.
Claims Based on Rejection of Executory Contracts or Unexpired Leases.
Unless otherwise provided by a Final Order of the Bankruptcy Court, all Proofs of Claim
with respect to Claims arising from the rejection of Executory Contracts or Unexpired Leases,
pursuant to the Plan or the Confirmation Order, if any, must be Filed with the Bankruptcy Court
within 30 days after the later of (1) the date of entry of an order of the Bankruptcy Court
(including the Confirmation Order) approving such rejection, (2) the effective date of such
rejection, or (3) the Effective Date (the “Rejection Damages Claims Bar Date”). Any Claims
arising from the rejection of an Executory Contract or Unexpired Lease not Filed with the
Bankruptcy Court within such time will be automatically disallowed, forever barred from
assertion, and shall not be enforceable against the Debtors, the Wind-Down Debtors, the
Estates, the Liquidating Trust (if any), the Purchasers, or their respective property without
the need for any objection by the Wind-Down Debtors or further notice to, or action,
order, or approval of the Bankruptcy Court or any other Entity, and any Claim arising out
of the rejection of the Executory Contract or Unexpired Lease shall be deemed fully
satisfied, and released, and discharged, notwithstanding anything in a Proof of Claim to
the contrary, unless otherwise ordered by the Bankruptcy Court. All Allowed Claims
arising from the rejection of the Debtors’ Executory Contracts or Unexpired Leases shall be
classified as General Unsecured Claims and shall be treated in accordance with Article III of the
Plan or such other treatment as agreed to by the Wind-Down Debtors and the Holder of such
Claim.
3.
Cure of Defaults for Assumed Executory Contracts and Unexpired Leases.
Except as otherwise provided by a Final Order of the Bankruptcy Court (including, for
the avoidance of doubt, any Executory Contract or Unexpired Lease assumed or assumed and
assigned in connection with any Sale Transactions pursuant to a Sale Order), any monetary
defaults under an assumed Executory Contract or Unexpired Lease, as reflected on the Cure
Notice, shall be satisfied, pursuant to section 365(b)(1) of the Bankruptcy Code, by payment of
the Cure Claim 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 may otherwise
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agree. In the event of a dispute regarding (1) the amount of any payments to cure such a default,
(2) the ability of the Wind-Down Debtors or any assignee, as applicable, to provide “adequate
assurance of future performance” (within the meaning of section 365 of the Bankruptcy Code)
under the Executory Contract or Unexpired Lease to be assumed, or (3) any other matter
pertaining to assumption, the cure payments required by section 365(b)(1) of the Bankruptcy
Code shall be made following the entry of a Final Order resolving the dispute and approving the
assumption.
At least 14 days before the Confirmation Hearing, the Debtors shall distribute, or cause to
be distributed, Cure Notices of proposed assumption or assumption and assignment and
proposed amounts of Cure Claims to the applicable third parties. Any objection by a
counterparty to an Executory Contract or Unexpired Lease to a proposed assumption or
assumption and assignment or related cure amount must be Filed, served, and actually received
by the Debtors at least seven days before the Confirmation Hearing. Any counterparty to an
Executory Contract or Unexpired Lease that fails to timely object to the proposed assumption or
assumption and assignment or cure amount will be deemed to have assented to such assumption
or assumption and assignment and cure amount. Notwithstanding anything herein to the
contrary, in the event that any Executory Contract or Unexpired Lease is removed from the
Schedule of Rejected Executory Contracts and Unexpired Leases after such 14-day deadline, a
Cure Notice of proposed assumption or assumption and assignment and proposed amounts of
Cure Claims with respect to such Executory Contract or Unexpired Lease will be sent promptly
to the counterparty thereof and a noticed hearing set to consider whether such Executory
Contract or Unexpired Lease can be assumed or assumed and assigned; provided that such
hearing shall take place at the next scheduled omnibus hearing, which shall be set 14 days after
the Confirmation Hearing, subject to Bankruptcy Court availability, unless the Debtors or
Wind-Down Debtors, as applicable, and objecting party agree to a different time.
If the Bankruptcy Court determines that the Allowed Cure Claim with respect to any
Executory Contract or Unexpired Lease is greater than the amount set forth in the applicable
Cure Notice, the Debtors or Wind-Down Debtors, as applicable, may add such Executory
Contract or Unexpired Lease to the Schedule of Rejected Executory Contracts and Unexpired
Leases, in which case such Executory Contract or Unexpired Lease will be deemed rejected as
the Effective Date.
Subject to satisfaction in full of any applicable Cure Claim, the assumption of any
Executory Contract or Unexpired Lease pursuant to the Plan or otherwise shall result in the full
release and satisfaction of any Claims or defaults, whether monetary or nonmonetary (solely to
the extent agreed between the Debtors and the counterparty to an applicable Executory Contract
or Unexpired Lease), including defaults of provisions restricting the change in control or
ownership interest composition or other bankruptcy-related defaults, arising under any assumed
or assumed and assigned 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.
Following satisfaction in full of any applicable Cure Claims, 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. For the avoidance of doubt, Article V.C of the Plan does not
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apply to any Executory Contract or Unexpired Lease that was assumed or assumed and assigned
in connection with the Sale Transactions in accordance with the Sale Orders.
4.
Insurance Policies.
Each of the Debtors’ insurance policies and any agreements, documents, or instruments
relating thereto, are treated as Executory Contracts under the Plan. Unless otherwise provided in
the Plan, on the Effective Date, (a) the Debtors shall be deemed to have assumed all insurance
policies and any agreements, documents, and instruments relating to coverage of all insured
Claims and (b) such insurance policies and any agreements, documents, or instruments relating
thereto shall revest in the Wind-Down Debtors. For the avoidance of doubt, Article V.D of the
Plan does not apply to insurance policies or any agreements, documents, or instruments relating
thereto that were transferred to the Purchasers in the Sale Transactions.
5.
Indemnification Obligations
Subject to the occurrence of the Effective Date, to the fullest extent permitted by
applicable law, the obligations of the Debtors as of the Effective Date to indemnify, defend,
reimburse, or limit the liability of the current and former directors, managers, officers,
employees, attorneys, other professionals and agents of the Debtors, and such current and former
directors’, managers’, and officers’ respective Affiliates, respectively, against any Claims or
Causes of Action under any indemnification provisions or applicable law, shall survive
Confirmation, shall be assumed by the Debtors on behalf of the applicable Debtor and assigned
to the Wind-Down Debtors or their successors and assigns, which shall be deemed to have
assumed the obligation, and will remain in effect after the Effective Date if such indemnification,
defense, reimbursement, or limitation is owed in connection with an event occurring before the
Effective Date.
6.
Preexisting Obligations to the Debtors Under Executory Contracts and
Unexpired Leases.
Rejection of any Executory Contract or Unexpired Lease pursuant to the Plan or
otherwise shall not constitute a termination of preexisting obligations owed to the Debtors or the
Wind-Down Debtors, as applicable, under such Executory Contracts or Unexpired Leases. In
particular, notwithstanding any non-bankruptcy law to the contrary, the Wind-Down Debtors
expressly reserve and do not waive any right to receive, or any continuing obligation of a
counterparty to provide, warranties or continued maintenance obligations with respect to goods
previously purchased by the Debtors pursuant to rejected Executory Contracts or Unexpired
Leases.
7.
Modifications, Amendments, Supplements, Restatements, or Other
Agreements.
Unless otherwise provided for in the Plan, each Executory Contract or Unexpired Lease
that is assumed shall include all modifications, amendments, supplements, restatements, or other
agreements that in any manner affect such Executory Contract or Unexpired Lease, and
Executory Contracts and Unexpired Leases related thereto, if any, including easements, licenses,
permits, rights, privileges, immunities, options, rights of first refusal, and any other interests,
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unless any of the foregoing agreements has been previously rejected or repudiated or is rejected
or repudiated under the Plan.
Modifications, amendments, supplements, and restatements to prepetition Executory
Contracts and Unexpired Leases that have been executed by the Debtors during the Chapter 11
Cases shall not be deemed to alter the prepetition nature of the Executory Contract or Unexpired
Lease, or the validity, priority, or amount of any Claims that may arise in connection therewith.
8.
Reservation of Rights.
Neither the exclusion nor inclusion of any Executory Contract or Unexpired Lease on the
Schedule of Assumed Executory Contracts and Unexpired Leases, the Schedule of Rejected
Executory Contracts and Unexpired Leases, or any other exhibit, schedule or annex, nor anything
contained in the Plan or Plan Supplement, shall constitute an admission by the Debtors that any
such contract or lease is in fact an Executory Contract or Unexpired Lease or that the
Wind-Down Debtors have any liability thereunder. If there is a dispute regarding whether a
contract or lease is or was executory or unexpired at the time of assumption or rejection, the
Debtors or the Wind-Down Debtors, as applicable, shall have 30 days following entry of a Final
Order resolving such dispute to alter their treatment of such contract or lease under the Plan.
9.
Nonoccurrence of Effective Date.
In the event that the Effective Date does not occur, the Bankruptcy Court shall retain
jurisdiction with respect to any request to extend the deadline for assuming or rejecting
Unexpired Leases pursuant to section 365(d)(4) of the Bankruptcy Code.
D.
Settlement, Release, Injunction,
and Related Provisions.
1.
Release of Liens.
Except as otherwise provided in the Plan, the Plan Supplement, Confirmation
Order or any contract, instrument, release, or other agreement or document created
pursuant to the Plan or the Confirmation Order, immediately following the making of all
distributions to be made to an applicable Holder pursuant to the Plan, and, in the case of a
Secured Claim, in satisfaction in full of the portion of the Secured Claim that is Allowed as
of the Effective Date, all mortgages, deeds of trust, Liens, pledges, or other security
interests against any property of the Estates shall be fully released, settled, and
compromised, and discharged, and all of the right, title, and interest of any Holder of such
mortgages, deeds of trust, Liens, pledges, or other security interests shall revert
automatically to the applicable Debtor and its successors and assigns. Any Holder of such
Secured Claim (and the applicable agents for such Holder) shall be authorized and
directed to release any collateral or other property of any Debtor (including any Cash
Collateral and possessory collateral) held by such Holder (and the applicable agents for
such Holder), and to take such actions as may be reasonably requested by the Debtors or
the Wind-Down Debtors, as applicable, to evidence the release of such Lien and/or security
interest, including the execution, delivery, and filing or recording of such releases. The
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presentation or filing of the Confirmation Order to or with any federal, state, provincial,
or local agency, records office, or department shall constitute good and sufficient evidence
of, but shall not be required to effect, the termination of such Liens.
If any Holder of a Secured Claim that has been satisfied or discharged in full
pursuant to the Plan or the Confirmation Order, or any agent for such Holder, has filed or
recorded publicly any Liens and/or security interests to secure such Holder’s Secured
Claim, then as soon as reasonably practicable on or after the Effective Date, such Holder
(or the agent for such Holder) shall take any and all steps requested by the Debtors or the
Wind-Down Debtors that are necessary or desirable to record or effectuate the cancelation
and/or extinguishment of such Liens and/or security interests, including the making of any
applicable filings or recordings, and the Wind-Down Debtors shall be entitled to make any
such filings or recordings on such Holder’s behalf.
2.
Releases by the Debtors.
Except as otherwise specifically provided herein or the Confirmation Order,
pursuant to section 1123(b) of the Bankruptcy Code, for good and valuable consideration,
the adequacy of which is hereby confirmed, upon entry of the Confirmation Order, as of
the Effective Date, each Released Party is, and is deemed, hereby fully, conclusively,
absolutely, unconditionally, irrevocably, and forever released and discharged by each and
all of the Debtors, the Wind-Down Debtors, and their Estates, in each case on behalf of
themselves and their respective successors, assigns, and representatives from any and all
Claims, obligations, rights, suits, damages, and Causes of Action, remedies, and liabilities
whatsoever, whether known or unknown, including any derivative claims asserted or
assertable on behalf of any of the Debtors, the Wind Down Debtors, and their Estates, that
the Debtors, the Wind-Down Debtors, or their Estates would have been legally entitled to
assert in their own right (whether individually or collectively), or on behalf of the Holder
of any Claim against, or Interest in, a Debtor or other Entity, or that any Holder of any
Claim against or Interest in a Debtor or other Entity could have asserted on behalf of the
Debtors based on or relating to, or in any manner arising from, in whole or in part, the
Debtors (including the capital structure, management, ownership, or operation thereof or
otherwise), the subject matter of, or the transactions or events giving rise to, any Claim or
Interest that is treated in the Plan, the business or contractual arrangements between any
Debtor or the Wind Down Debtors and any Released Party, the Debtors’ in- or
out-of-court restructuring efforts, the purchase, sale, or rescission of any security of the
Debtors or the Wind Down Debtors, intercompany transactions between or among the
Debtors or between the Debtors and their non-Debtor Affiliates, the First Lien Credit
Agreement, the Second Lien Credit Agreement, the Note Purchase Agreement, the DIP
Facility, the DIP Facility Documents, the Disclosure Statement Order, the Confirmation
Order, the Sale Order, the First Day Pleadings, the Chapter 11 Cases, the formulation,
preparation, dissemination, solicitation, negotiation, entry into, or filing of the
Restructuring Support Agreement, the Disclosure Statement, the Plan, the Plan
Supplement, the Prepetition Loan Documents, any other Definitive Document, or any
Restructuring Transaction, contract, instrument, release, or other agreement or document
created or entered into in connection with the Restructuring Support Agreement, the
Disclosure Statement, the DIP Facility, the Plan, the Plan Supplement, the Sale
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Transactions, any other Definitive Document, any of the Restructuring Transactions, the
Chapter 11 Cases, the filing of the Chapter 11 Cases, the pursuit of Confirmation, the
pursuit of Consummation, the administration and implementation of the Plan, including
the issuance or distribution of securities pursuant to 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 any of the foregoing.
Notwithstanding anything to the contrary in the foregoing, the releases set forth
above do not release (i) any post-Effective Date obligations of any party or Entity under the
Plan, the Confirmation Order, any Restructuring Transaction, or any document,
instrument, or agreement (including those set forth in the Plan Supplement) executed to
implement the Plan or the Restructuring Transactions, (ii) any Causes of Action
specifically retained by the Debtors pursuant to the Schedule of Retained Causes of Action
to be attached as an exhibit to the Plan Supplement, or (iii) any Claims or Causes of Action
arising out of, or related to, any act or omission of a Released Party that is determined by a
Final Order of the Bankruptcy Court or any other court of competent jurisdiction to have
constituted actual fraud, gross negligence, or willful misconduct (it being agreed that any
Released Parties’ consideration, approval, or receipt of any distribution did not arise from
or relate to actual fraud, gross negligence, or willful misconduct).
Entry of the Confirmation Order shall constitute the Bankruptcy Court’s approval,
pursuant to Bankruptcy Rule 9019, of the releases set forth in Article VIII.B of the Plan,
which includes by reference each of the related provisions and definitions contained in the
Plan, and further, shall constitute the Bankruptcy Court’s finding that such release is: (1)
in exchange for the good and valuable consideration provided by the Released Parties,
including, the Released Parties’ contribution to facilitating the Restructuring Transactions
and implementing the Plan; (2) a good faith settlement and compromise of the Claims
released by the Debtor Release; (3) in the best interests of the Debtors and all Holders of
Claims and Interests; (4) fair, equitable, and reasonable; (5) given and made after due
notice and opportunity for a hearing; and (6) a bar to any of the Debtors, the Wind-Down
Debtors, or the Debtors’ Estates asserting any Claim or Cause of Action released pursuant
to the Debtor Release.
3.
Releases by Holders of Claims and Interests.
Except as otherwise specifically provided in the Plan or the Confirmation Order,
pursuant to section 1123(b) of the Bankruptcy Code, for good and valuable consideration,
the adequacy of which is hereby confirmed, upon entry of the Confirmation Order, as of
the Effective Date, each Releasing Party is, and is deemed to have, hereby fully,
conclusively, absolutely, unconditionally, irrevocably and forever released and discharged
each Debtor, Wind-Down Debtor, and Released Party from any and all Claims,
obligations, rights, suits, damages, and Causes of Action, remedies, and liabilities
whatsoever, whether known or unknown, including any derivative claims asserted or
assertable on behalf of the Debtors, the Wind-Down Debtors, and their Estates (as
applicable) that such Entity would have been legally entitled to assert in their own right
(whether individually or collectively), based on or relating to, or in any manner arising
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from, in whole or in part, the Debtors (including the capital structure, management,
ownership, or operation thereof or otherwise), the purchase, sale, or recission of any
security of the Debtors or the Wind Down Debtors, the subject matter of, or the
transactions or events giving rise to, any Claim or Interest that is treated in the Plan, the
business or contractual arrangements between any Debtor or the Wind Down Debtors and
any Released Party, the Debtors’ in- or out-of-court restructuring efforts, intercompany
transactions between or among the Debtors or between the Debtors and their non-Debtor
Affiliates, the First Lien Credit Agreement, the Second Lien Credit Agreement, the Note
Purchase Agreement, the DIP Facility, the DIP Facility Documents, the Disclosure
Statement Order, the Confirmation Order, the Sale Order, the First Day Pleadings, the
Chapter 11 Cases, the formulation, preparation, dissemination, solicitation, negotiation,
entry into, or filing of the Restructuring Support Agreement, the Disclosure Statement, the
Plan, the Plan Supplement, the Prepetition Loan Documents, any other Definitive
Document, or any Restructuring Transaction, contract, instrument, release, or other
agreement or document created or entered into in connection with the Restructuring
Support Agreement, the Disclosure Statement, the DIP Facility, the Plan, the Plan
Supplement, the Sale Transactions, any other Definitive Document, any of the
Restructuring Transactions, the Chapter 11 Cases, the filing of the Chapter 11 Cases, the
pursuit of Confirmation, the pursuit of Consummation, the administration and
implementation of the Plan, including the issuance or distribution of securities pursuant to
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 any of the foregoing.
Notwithstanding anything to the contrary in the foregoing, the releases set forth
above do not release (i) any post-Effective Date obligations of any party or Entity under the
Plan, any Restructuring Transaction, or any document, instrument, or agreement
(including those set forth in the Plan Supplement) executed to implement the Plan, (ii) any
Causes of Action specifically retained by the Debtors pursuant to the Schedule of Retained
Causes of Action to be attached as an exhibit to the Plan Supplement, or (iii) any Claims or
Causes of Action arising out of, or related to, any act or omission of a Released Party that
is determined by a Final Order of the Bankruptcy Court or any other court of competent
jurisdiction to have constituted actual fraud, gross negligence, or willful misconduct (it
being agreed that any Released Parties’ consideration, approval, or receipt of any
distribution did not arise from or relate to actual fraud, gross negligence, or willful
misconduct).
Entry of the Confirmation Order shall constitute the Bankruptcy Court’s approval,
pursuant to Bankruptcy Rule 9019, of the releases set forth in Article VIII.C of the Plan,
which includes by reference each of the related provisions and definitions contained in the
Plan, and further, shall constitute the Bankruptcy Court’s finding that such releases are:
(1) consensual; (2) essential to the Confirmation of the Plan; (3) given in exchange for the
good and valuable consideration provided by the Released Parties; (4) a good faith
settlement and compromise of the Claims released by the releases provided in Article
VIII.C of the Plan; (5) in the best interests of the Debtors and their Estates; (6) fair,
equitable, and reasonable; (7) given and made after due notice and opportunity for a
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hearing; and (8) a bar to any of the Releasing Parties asserting any Claim or Cause of
Action released pursuant to the releases provided in Article VIII.C of the Plan.
4.
Exculpation.
Except as otherwise expressly provided in the Plan or the Confirmation Order, to
the fullest extent permitted by applicable law and solely to the extent such acts or omissions
occurred between the Petition Date and the Effective Date, no Exculpated Party shall have
or incur any liability for, and each Exculpated Party is released and exculpated from any
Cause of Action for any claim related to any act or omission in connection with, relating to,
or arising out of, the Chapter 11 Cases, the formulation, preparation, dissemination,
negotiation, or filing of the Disclosure Statement, the Sale Transactions, the Plan, the Plan
Supplement, any other Definitive Document, or any Restructuring Transaction, or any
contract, instrument, release or other agreement or document created or entered into in
connection with the Disclosure Statement, the Plan, the Plan Supplement, the Sale
Transactions, any other Definitive Document, any of the Restructuring Transactions, the
filing of the Chapter 11 Cases, the participation in the DIP Facility, the pursuit of the Sale
Transactions, the pursuit of Confirmation, the pursuit of Consummation, the
administration and implementation of the Plan, including the issuance of securities
pursuant to the Plan, or the distribution of property under the Plan or any other related
agreement, except for claims related to any act or omission that is determined in a Final
Order to have constituted actual fraud, willful misconduct, or gross negligence, but in all
respects such Entities shall be entitled to reasonably rely upon the advice of counsel with
respect to their duties and responsibilities pursuant to the Plan. The Exculpated Parties
have, and upon Consummation shall be deemed to have, participated in good faith and in
compliance with the applicable laws with regard to the solicitation of votes 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.
5.
Injunction.
In accordance with Bankruptcy Code section 1141(d)(3), the Plan does not
discharge the Debtors. Bankruptcy Code section 1141(c) nevertheless provides, among
other things, that the property dealt with by the Plan is free and clear of all Claims and
Interests against the Debtors. Except as otherwise specifically provided in the Plan or for
obligations issued or required to be paid pursuant to the Plan or the Confirmation Order,
all Entities who have held, hold, or may hold Claims or Interests that have been released or
are subject to exculpation pursuant to the Plan are permanently enjoined, from and after
the Effective Date, from taking any of the following actions against, as applicable, the
Debtors, the Wind-Down Debtors, the Exculpated Parties, or the Released Parties, and any
successors, assigns or representatives of such Persons or Entities: (a) commencing or
continuing in any manner any action or other proceeding of any kind on account of or in
connection with or with respect to any such Claims or Interests; (b) enforcing, attaching,
collecting, or recovering by any manner or means any judgment, award, decree, or order
against such Entities on account of or in connection with or with respect to any such
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Claims or Interests; (c) creating, perfecting, or enforcing any encumbrance of any kind
against such Entities or the property or the estates of such Entities on account of or in
connection with or with respect to any such Claims or Interests; (d) asserting any right of
setoff, subrogation, or recoupment of any kind against any obligation due from such
Entities or against the property of such Entities on account of or in connection with or with
respect to any such Claims or Interests unless such Holder has Filed a motion requesting
the right to perform such setoff on or before the Effective Date,; and (e) commencing or
continuing in any manner any action or other proceeding of any kind on account of or in
connection with or with respect to any such Claims or Interests released or settled
pursuant to the Plan. Notwithstanding anything to the contrary in the foregoing, the
injunction set forth above does not enjoin the enforcement of any obligations arising on or
after the Effective Date of any Person or Entity under the Plan, any post Effective Date
transaction contemplated by the Restructuring Transactions, or any document,
instrument, or agreement (including those set forth in the Plan Supplement) executed to
implement the Plan.
Upon entry of the Confirmation Order, all Holders of Claims and Interests and
their respective current and former employees, agents, officers, directors, managers,
principals, and direct and indirect Affiliates, in their capacities as such, shall be enjoined
from taking any actions to interfere with the implementation or Consummation of the
Plan. Each Holder of an Allowed Claim or Allowed Interest, as applicable, by accepting,
or being eligible to accept, distributions under or Reinstatement of such Claim or Interest,
as applicable, pursuant to the Plan, shall be deemed to have consented to the injunction
provisions set forth in Article VIII.E of the Plan.
No Person or Entity may commence or pursue a Claim or Cause of Action of any
kind against the Debtors, the Wind-Down Debtors, the Exculpated Parties, or the Released
Parties that relates to or is reasonably likely to relate to any act or omission in connection
with, relating to, or arising out of a Claim or Cause of Action subject to Article VIII.E
hereof, without the Bankruptcy Court (i) first determining, after notice and a hearing, that
such Claim or Cause of Action represents a colorable Claim of any kind, and (ii)
specifically authorizing such Person or Entity to bring such Claim or Cause of Action
against any such Debtor, Wind-Down Debtor, Exculpated Party, or Released Party.
6.
Protection Against Discriminatory Treatment.
To the maximum extent provided by section 525 of the Bankruptcy Code and the
Supremacy Clause of the U.S. Constitution, all Entities, including Governmental Units, shall not
discriminate against the Debtors or deny, revoke, suspend, or refuse to renew a license, permit,
charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to
such a grant against, the Debtors, or another Entity with whom the Debtors have been associated,
solely because the Debtors have been debtors under chapter 11 of the Bankruptcy Code, may
have been insolvent before the commencement of the Chapter 11 Cases (or during the Chapter
11 Cases but before the Debtors are granted or denied a discharge), or have not paid a debt that is
dischargeable in the Chapter 11 Cases.
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7.
Document Retention.
On and after the Effective Date, the Wind-Down Debtors, or the Debtors, as applicable,
may maintain documents in accordance with their standard document retention policy, as may be
altered, amended, modified, or supplemented by the Debtors, subject to the applicable provisions
of the Plan Administrator Agreement.
8.
Reimbursement or Contribution.
If the Bankruptcy Court disallows a Claim for reimbursement or contribution of an Entity
pursuant to section 502(e)(1)(B) of the Bankruptcy Code, then to the extent that such Claim is
contingent as of the time of allowance or disallowance, such Claim shall be forever disallowed
and expunged notwithstanding section 502(j) of the Bankruptcy Code, unless prior to the
Confirmation Date: (i) such Claim has been adjudicated as non contingent; or (ii) the relevant
Holder of a Claim has Filed a non-contingent Proof of Claim on account of such Claim and a
Final Order has been entered prior to the Confirmation Date determining such Claim as no
longer contingent.
9.
Term of Injunctions or Stays.
Unless otherwise provided in the Plan or in the Confirmation Order, all injunctions or
stays in effect in the Chapter 11 Cases pursuant to sections 105 or 362 of the Bankruptcy Code or
any order of the Bankruptcy Court, and extant on the Confirmation Date (excluding any
injunctions or stays contained in the Plan or the Confirmation Order), shall remain in full force
and effect until the Effective Date. All injunctions or stays contained in the Plan or the
Confirmation Order shall remain in full force and effect in accordance with their terms.
E.
Conditions
Precedent
to
Confirmation and the Effective
Date.
1.
Conditions Precedent to the Effective Date.
It shall be a condition precedent to the Effective Date of the Plan that the following
conditions shall have been satisfied or waived pursuant to Article IX of the Plan:
a.
the Restructuring Transactions, including the Sale Transactions, shall have been
implemented and/or consummated, as applicable, in accordance with the
Restructuring Transactions Memorandum in all material respects;
b. the Bankruptcy Court shall have entered an order approving the Disclosure
Statement, in form and substance acceptable to the Required DIP Lenders;
c.
the Bankruptcy Court shall have entered the Confirmation Order, Filed in a manner
consistent in all material respects with the Plan, and acceptable to the Required DIP
Lenders and such order shall have become a Final Order;
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d. the DIP Facility shall be in full force and effect, and there shall be no defaults under
the DIP Facility Documents continuing unless waived by the Required DIP Lenders
in accordance with the terms and conditions of the DIP Facility Documents;
e.
the Plan Supplement, Definitive Documents, Plan, and all schedules, documents,
supplements, and exhibits thereto, as applicable, shall be acceptable to the Required
DIP Lenders and have become effective and shall be in full force and effect;
f.
the Debtors shall have obtained all authorizations, consents, regulatory approvals,
rulings, or documents that are necessary to implement and effectuate the Plan;
g. all professional fees and expenses of retained professionals required to be approved
by the Bankruptcy Court shall have been paid in full or amounts sufficient to pay
such fees and expenses after the Effective Date into the Professional Fee Escrow
Account pending approval of such fees and expenses by the Bankruptcy Court;
h. no court of competent jurisdiction or other competent governmental or regulatory
authority shall have issued a final and non-appealable order making illegal or
otherwise restricting, preventing or prohibiting the consummation of the Plan;
i.
the following documents shall be in full force and effect substantially
contemporaneous with the consummation of the Restructuring Transactions
(including shall not be stayed, modified, revised, or vacated, or subject to any
pending appeal), and shall not have been terminated prior to the Effective Date: (a)
any Sale Orders; (b) such other motions, orders, agreements, and documentation
necessary or desirable to consummate and document the transactions contemplated
by the Plan; (c) all other material customary documents delivered in connection
with transactions of this type (including any and all other documents implementing,
achieving, contemplated by or relating to the Restructuring Transactions); and
j.
the Debtors shall have implemented the Restructuring Transactions and all
transactions contemplated in the Plan, in a manner consistent in all respects with the
Plan, pursuant to documentation acceptable to the Debtors and the Required DIP
Lenders.
2.
Waiver of Conditions.
The conditions to Consummation set forth in Article IX of the Plan may be waived by the
Debtors, subject to the consent of the Required DIP Lenders, without notice, leave, or order of
the Bankruptcy Court or any formal action other than proceeding to confirm or consummate the
Plan.
3.
Effect of Failure of Conditions.
If the Consummation of the Plan does not occur, the Plan shall be null and void in all
respects, and nothing contained in the Plan or the Disclosure Statement shall: (i) constitute a
waiver or release of any Claims by the Debtors, any Holders, or any other Entity; (ii) prejudice in
any manner the rights of the Debtors, any Holders of Claims or Interests, or any other Entity; or
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(iii) constitute an admission, acknowledgment, offer, or undertaking by the Debtors, any Holders
of Claims or Interests, or any other Entity in any respect. Notwithstanding the foregoing, the
non-Consummation of the Plan shall not require or result in the voiding, rescission, reversal, or
unwinding of the Sale Transactions under the Asset Purchase Agreements or the revocation of
the Debtors’ authority under the Sale Orders to consummate such Sale Transaction.
V.
THE COMPANY’S CORPORATE HISTORY AND BUSINESS OVERVIEW.
A.
Creation of Vyaire Medical.
During World War II, Forrest Bird, an experienced Army pilot, carefully studied the
high-altitude respiratory problems experienced by his fellow pilots, developing modified plane
mechanics to enable pilots to breathe easier at higher altitudes than ever before. Over a decade
later, after retiring from the armed services, Bird leveraged his experience in pilot breathing to
address respiratory ailments on the ground. Ultimately, Bird invented the first mechanical
ventilator. Among Bird’s inventions was a small, portable ventilation device popularly known as
“Baby Bird,” which was profoundly successful in ameliorating pediatric respiratory illnesses.
Thus, Vyaire was born.
Over the coming decades, Vyaire grew into a comprehensive respiratory solutions
provider and, ultimately, a full-service breathing-focused division of Becton, Dickinson and
Company (“BD”). In October 2016, certain funds advised by Apax Partners LP (“Apax”)
acquired a 50.1% controlling interest in the Company from BD. By 2017, sustained organic
growth coupled with periodic merger activity had transformed Vyaire into a global enterprise
with approximately $800 million in annual revenue, and in 2018, Apax acquired BD’s remaining
ownership stake in Vyaire.
Ventilation Business. Ventilation is centered around its Palm Springs, California,
manufacturing and repair facility and its key research and development center in Irvine,
California; but its international third-party manufacturing facilities stretch from Mexico to
Malaysia. The Ventilation business is divided into product categories with associated
consumable and service offerings, and such product categories serve three marketplaces: acute,
non-acute, and neonatal. While the pandemic increased demand for Ventilation, its growth tailed
off as the pandemic waned, further challenging the Company’s overall business because of
COVID-19 related overinvestment in the sector and slowing sales. In addition to decreasing
Ventilation demand generally, Vyaire lost over 10% of its market share in the sub-acute
ventilation segment between 2021 and 2022, due in part to other vendors entering the space and
Vyaire’s business challenges, which influenced certain customers to favor Vyaire’s competitors.
Respiratory Diagnostics Business. Respiratory Diagnostics is built around its Hochberg,
Germany headquarters, where its primary manufacturing plant is also located. Vyaire continues
to experience success in its Respiratory Diagnostics business, as this unit has routinely achieved
year over year success and increased profitability. Respiratory Diagnostics offerings relate to
pulmonary function testing, cardiopulmonary testing, and spirometry (a subset of pulmonary
function testing). Respiratory Diagnostics is structured around device and software product
categories, with associated consumable and service offerings. Vyaire offers best-in-class
products and is currently a market share leader in this space. The overall respiratory diagnostics
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market continues to expand, growing at a high compound annual growth rate, providing further
tailwinds to Respiratory Diagnostics.
Sale of Consumables Business. In May 2023, following a 12-month marketing process,
Vyaire sold Consumables to SunMed Group Holdings, LLC (the “Consumables Sale”) for
approximately $310 million ($133.9 million in net cash after pay-down of its then-outstanding
and now-terminated revolving credit facility) in order to focus management time and effort on
Ventilation and Respiratory Diagnostics. While the Consumables Sale provided the Company
with critical liquidity to manage its balance sheet and for general corporate purposes, ultimately
the Company required a more comprehensive solution.
B.
Vyaire’s Product, Service, and
Consumable Offerings.
Ventilation. The Ventilation business is divided into discrete product lines, and the
Company also offers related consumables and services. Ventilation consumables generally
support one or more associated product lines, and the Company offers corresponding training,
education, and maintenance services. Ventilation product lines include the Bellavista, 3100,
SIPAP, LTV, Avea, Vela, ReVel, and Fabian business segments. Ventilation consumables
include circuits, flow sensors, and valves. Ventilation product lines serve one or more of the
acute, non-acute, or neonatal marketplaces, and certain product categories serve multiple
marketplaces (e.g., acute and neonatal). Ventilation’s Bellavista product category—with
cutting-edge technology, advanced software, and an intuitive user interface—is Vyaire’s
dominant device line serving the acute marketplace. The Company’s 3100 product category
serves countless neonatal intensive care units in the U.S., and together with certain Bellavista
and Fabian devices, serves the neonatal market. Vyaire’s LTV series and ReVel series, both
sophisticated portable ventilators with emergency transport capabilities, serve the non-acute
marketplace.
Respiratory Diagnostics. The Respiratory Diagnostics business is structured around
certain product and software offerings, and the Company also offers associated consumables and
services. Respiratory Diagnostics products are the gold standard for noninvasive pulmonary and
cardiopulmonary testing, lung volume measurement, and cardiopulmonary exercise testing. For
example, Vyaire’s state-of-the-art Vyntus devices test lung and heart function and measure
extensive respiratory data. SentrySuite is Respiratory Diagnostics’ proprietary operating
software platform that powers its Vyntus devices, and which offers remote viewing capabilities,
clinician coaching, and a multitude of detailed measurement applications. Respiratory
Diagnostics’ consumables assist the Vyntus device line, and include MicroGard Filters, which
are a single-use consumable filter protecting patients and clinicians from cross-contamination
during diagnostic testing.
Service offerings for Ventilation and Respiratory Diagnosis include equipment
maintenance and device support, clinician-led education and training programs, and other on-site
and off-site services. Vyaire has also developed a differentiated portfolio of valuable intellectual
property related to its product offerings consisting of, among other things, over 700 U.S. patents.
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41
First Lien Notes
Approximate
Outstanding Principal
Amount (in USD)
$78.6 million
Vyaire Holding Company is the parent entity of Vyaire and has 63 wholly owned, direct,
and indirect subsidiaries, 28 of which are Debtors in these Chapter 11 Cases.
VI.
THE COMPANY’S PREPETITION CAPITAL STRUCTURE.
As of the Petition Date, the Debtors had an aggregate principal amount of approximately
$533.6 million in aggregate outstanding principal of funded debt obligations.
Second Lien Term Loan
$115.7 million
First Lien Term Loan
Total Funded Debt Obligations
$339.3 million
$533.6 million
Funded Debt
A.
First Lien Facility.
On April 16, 2018, Vyaire Medical, Inc., Vyaire Company, and Vyaire Finance B.V., a
private limited liability company incorporated under the laws of the Netherlands and an indirect,
wholly owned subsidiary of Vyaire Holding Company, and certain other subsidiaries of the
Company (all such subsidiaries of Vyaire Holding Company, whether in the capacity of a
borrower, guarantor, obligor, or pledgor thereunder, the “Obligated Subsidiaries”), and the
lenders party thereto from time to time (the “First Lien Term Lenders”), entered into that certain
First Lien Credit Agreement (the “First Lien Credit Agreement,” as may be amended, restated,
amended and restated, supplemented or otherwise modified from time to time), which provides
for a “First Lien Term Loan” in an initial principal amount of $360,000,000, priced at SOFR +
4.75% for Eurocurrency rate loans and 3.75% for base rate loans, payable every one, three, or six
months (at the option of the Obligated Subsidiary) in arrears on each interest payment date.
The secured parties under the First Lien Credit Agreement have first-priority liens on all
or substantially all assets and property of Vyaire Medical, Inc. and all guarantors. The First Lien
Term Loan, unless amended, modified, or extended, will mature on April 16, 2025. At present,
interest on the First Lien Term Loan is SOFR + 4.75%, which, as of May 17, 2024, equated to
10.1%. Bank of America, N.A. acts as administrative agent and collateral agent.
B.
First Lien Notes.
On May 3, 2019, the Obligated Subsidiaries, as issuers, and the purchasers party thereto
from time to time (the “Notes Purchasers” and, together with the First Lien Term Lenders,
the “First Lien Lenders”) entered into that certain Note Purchase Agreement (as may be
amended, restated, amended and restated, supplemented or otherwise modified from time to
time, the “Note Purchase Agreement”) with Wilmington Trust, National Association acting as
notes agent and collateral agent. The Note Purchase Agreement provides for the purchase of a
Case 24-11217-BLS Doc 584 Filed 09/30/24 Page 54 of 91
bank note (the “First Lien Notes”) for approximately $60,000,000, at the fixed rate adjusted
EURIBOR rate of 5.75%, payable every one, three, or six months (at the option of the Obligated
Subsidiary) in arrears on each interest payment date. As a result of certain amendments to the
Note Purchase Agreement, the borrowing capacity increased by $20,000,000, and as of
September 30, 2023, the outstanding principal balance was approximately $76,262,000. At
present, interest on the First Lien Notes is EURIBOR + 4.75%, which, as of May 17, 2024,
equated to 8.5%. The First Lien Notes will mature on April 16, 2025, unless earlier converted,
redeemed, or repurchased. The secured parties under the Note Purchase Agreement have
first-priority liens on substantially the same assets and property as in the First Lien Credit
Agreement.
C.
Second Lien Facility.
On April 16, 2018, the Obligated Subsidiaries, and the lenders party thereto from time to
time (the “Second Lien Lenders”), entered into that certain Second Lien Credit Agreement (as
may be amended, restated, amended and restated, supplemented or otherwise modified from time
to time, the “Second Lien Credit Agreement” and, together with the First Lien Credit Agreement,
the “Credit Agreements”), which provides for a “Second Lien Term Loan” in an initial principal
amount of €75,000,000, initially priced at EURIBOR + 7.25%, payable every one, three, or six
months (at the option of the Obligated Subsidiary) in arrears on each interest payment date.
Wilmington Trust, National Association acts as administrative agent and collateral agent.
Between November 6, 2018, and May 31, 2023, certain amendments to the Second Lien
Credit Agreement were executed that allowed the Obligated Subsidiaries to make PIK interest
payments on the relevant interest payment date. At present, interest on the Second Lien Term
Loan is EURIBOR + 8.25%, which, as of May 17, 2024, equated to 12.08%.
The Second Lien Term Loan, unless amended, modified, or extended, will mature on
April 16, 2026.
The collateral priority and enforcement rights as between the First Lien Credit Agreement
and the Note Purchase Agreement are governed by a pari passu intercreditor agreement; and the
collateral priority and enforcement rights as between the First Lien Credit Agreement, Note
Purchase Agreement, and Second Lien Credit Agreement are governed by a first lien-second lien
intercreditor agreement.
D.
Equity Interests.
The equity of Vyaire Holding Company, the topco Debtor, is 100% owned by Vyaire
Intermediate HoldCo LP which, in turn, is 99.8% beneficially owned by Apax. Vyaire Holding
Company is authorized to issue 4,000,000 shares of preferred stock at $.01 par value, but no
shares are currently issued and outstanding.
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VII.
EVENTS LEADING TO THESE CHAPTER 11 CASES.
A.
Challenging
Macroeconomic
Conditions.
The pandemic and its lingering consequences complicated the Company’s go-forward
plans. The COVID-19 pandemic was simultaneously a headwind reversing Company fortunes
and a tailwind thrusting the Company forward. The COVID-19 virus acutely impacts the human
respiratory system and can notably cause shortness of breath and difficulty breathing, creating
heightened demand for Vyaire’s ventilators and related devices and services. The pandemic also
boosted Respiratory Diagnostics because of the increased need for diagnostic pulmonary testing,
an increased patient population with cardiopulmonary illness (e.g., chronic obstructive
pulmonary disease), and complications stemming from long-term COVID-19 after-effects that
necessitate ongoing patient monitoring and management. The pandemic also intensified the
Company’s product line rationalization efforts as Vyaire shifted away from outdated legacy
brands and focused on in-demand innovative devices to combat COVID-19. The confluence of
these factors improved Company performance. In fact, Respiratory Diagnostics revenue
increased from roughly $112 million in 2019 to a projected $139 million in 2024 and is
estimated to grow significantly over the next decade. Further, Ventilation generated $215
million in revenue in 2019, which nearly tripled to $620 million in 2020, in light of COVID-19
demand.
However, like many businesses around the world, the Company was not immune to the
negative residual effects borne by the COVID-19 pandemic. After the pandemic, Vyaire’s
healthcare customers rapidly shifted their approach to patient treatment away from ventilation
support to pharmaceutical options, and the Company pivoted toward an emphasis on
repair/maintenance services, which undercut the Company’s capital investment in further
manufacturing capacity. The Company had scaled its inventory to meet high sales forecasts and
unprecedent COVID-19 demand, but the market shifted dramatically, leaving the Company with
an inventory glut and little cash.
Further, interruptions in the production and supply of the Company’s products due to
supply chain disruptions and worldwide shortages in the availability of raw materials and labor,
alongside related inflation, led to higher production costs. The cost of medical grade resin, a
crucial product ingredient, increased eight-fold. The Company’s limited access to certain
materials and component parts negatively impacted its ability to fulfill customer demand.
Moreover, once the products were ultimately produced, the pandemic’s role in rising freight and
delivery costs caused Vyaire significant financial strain. Additionally, certain suppliers refused
to distribute or substantially delayed shipments to Vyaire because of the significant ongoing
stress on the global supply chain. Ultimately, following a banner year for Ventilation in 2020
touting $620 million in revenue, the business’ revenue plummeted to $163 million by 2023. And
while Respiratory Diagnostics’ demand continued to climb post-COVID-19, supply chain
constraints impacted Vyaire’s ability to fulfill order backlog.
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B.
Internal Business Challenges.
Vyaire has faced challenges as a standalone company. Operations have largely been cash
flow negative after factoring out the temporary demand spike from COVID-19. The
Consumables Sale provided some—but not enough—runway for the Company to solve its
enduring operational challenges. Several noteworthy challenges are highlighted below.
The Company has faced concerns related to corporate strategy, particularly in
Ventilation.
First, the Company’s business model only had limited synergies between its
now-divested Consumables business and its Respiratory Diagnostics and Ventilation businesses.
Second, while the Company sought to execute on a business plan centered on developing new
product lines and converting customers from outdated models (e.g., Vmax and MasterScreen) to
newer lines (e.g., Vyntus and Bellavista), executing on such a plan was capital-intensive due to
upfront research and development investments and long customer conversion timelines. The
Company’s liquidity profile and balance sheet simply could not support those efforts over a
longer time horizon. Third, SG&A expenditures needed to be right-sized to operations. While
the Company ultimately prioritized substantial cost-cutting initiatives to reduce overhead and
plummeting available capital, these austerity measures were not drastic or quick enough to
stabilize the Company’s operations. Fourth, the Company needed to solve for post-COVID-19
demand challenges for Ventilation offerings and certain overproduction and inventory glut
issues.
In response to increased COVID-19-related demand, the Company up-sized its
operations, particularly with respect to manufacturing, which caused its fixed costs to rise. As
performance dipped in the Ventilation business (especially overseas), the Company began to
move to adjust these heightened fixed costs, including by transitioning from a direct-sales
strategy to a distributor-sales strategy for select foreign markets. Further, the Company took
efforts to rationalize distributor contracts by signing more favorable deals with new distributors.
However, the increased reliance on a distributor model came with a downside as the model
proved to be unwieldy. Not only did the Company cede a certain amount of control over the
sales cycles, but it also was reliant on sales teams marketing and distributing several other
products. The Company became further removed from the sales process, which blunted its
ability to quickly and directly carry out changes to sales and marketing.
The Company also encountered regulatory challenges in important overseas markets
(e.g., China and India) that have caused major disruption in those markets and lost sales. The
Consumables Sale provided a one-time liquidity boost that was intended, among other things, to
provide breathing room for the Company’s efforts to address legacy SG&A and remedy certain
operational challenges, but these efforts did not fully address the Company’s issues, and the
prolonged challenges in Ventilation continued to hamper the Company’s balance sheet and
liquidity profile. In short, the Company’s performance has not allowed it to outlast a high
cash-burn rate long enough to make appropriate adjustments to, and investments in, the
Company’s underlying business model.
C.
Business Plan and Operational
Pivot
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In response to these various operational, business, and macroeconomic challenges,
Vyaire initiated a strategic realignment consisting of certain cost-reduction programs coupled
with a shift in focus to higher-margin, higher-growth opportunities among its Ventilation and
Respiratory Diagnostics divisions. For instance, the Company worked to: (a) convert its
installed customer base to innovative new products; (b) realign geographic priorities to account
for foreign-nation preferences (e.g., by shifting the manufacture of products for sale in China to
China to account for domestic-preference policies); (c) streamline manufacturing operations by
shifting European manufacturing operations to the U.S.; (d) invest in data analytics to reduce the
Company’s services and software spend; (e) roll out a global, margin-expansion strategy to
increase liquidity; and (f) pursue a radical cost-cutting initiative.
The business plan’s results were especially positive with respect to Respiratory
Diagnostics, resulting in improved sales year over year, and achieving double-digit growth with
increasing profitability in the U.S. in the several quarters preceding the Petition Date. However,
Ventilation performance has challenged the business plan. In the first half of 2024, Ventilation
revenue declined approximately 20%, while Respiratory Diagnostics revenue grew between 5%
and 10%. Overall, the Company’s liquidity could not sustain the Company through the
challenged turnaround efforts, and the Company pursued options to address its over-levered
balance sheet.
D.
Prepetition Efforts to Address the
Company’s Balance Sheet.
The Company began to negotiate with various stakeholders in mid-2023 to better align
the Company’s balance sheet to support its business plan. The Consumables Sale provided the
Company with the capital to allow for time to analyze, in detail, the contours and strategy of a
prospective balance sheet enhancing transaction.
Amend and Extend Efforts. In March 2024, after months of hard-fought, arm’s-length,
and intense negotiations, the Company and the 1L Ad Hoc Group neared final transaction terms
regarding the Amend and Extend. The Amend and Extend was designed to provide the
Company with breathing room while it engaged in an operational restructuring. The downturn in
Ventilation sales, however, contributed to the need for additional equity or a capital backstop to
maintain the minimum liquidity requirements of the proposed Amend and Extend. Despite over
a year of significant efforts, the Amend and Extend transaction was not actionable due to greater
than anticipated capital investment requirements, chiefly because of challenges related to the
Ventilation business, worsening operational challenges, and a stubbornly high cash-burn rate.
Accordingly, the Company and its stakeholders pivoted to considering a potential in-court
restructuring and authorized Advisors to engage with the 1L Ad Hoc Group and its other
stakeholders to pursue alternative transactions.
Forbearance Agreement. To facilitate further solution-oriented discussions between the
parties, on April 10, 2024, the Debtors and the 1L Ad Hoc Group entered into Amendment No. 9
to the First Lien Credit Agreement (the “Forbearance Agreement”), whereby the parties agreed to
forbear from the exercise of remedies with respect to any existing defaults or to declare that an
“event of default” had occurred with respect to the non-payment of interest under the First Lien
Credit Agreement, among other things. Further, the Forbearance Agreement set forth
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(a) enhanced reporting requirements, including the provision of substantial unaudited financial
statements to the 1L Ad Hoc Group; and (b) certain milestones related to the restructuring. The
1L Ad Hoc Group continued to provide forbearance relief by agreeing to extend deadlines and
waive other requirements repeatedly though the Petition Date, which enabled the parties to reach
agreement on a value-maximizing path and help the Company avoid a fire sale liquidation.
Bridge Financing Efforts. In April and May of 2024, the Company and its Advisors
worked extensively with the 1L Ad Hoc Group, trading numerous term sheets and drafting and
negotiating various ancillary and collateral deliverables, in order to agree to terms for a $30
million new-money, multi-draw term loan facility to bridge the Company’s immediate financing
needs, subject to certain milestones and covenants related to the Company’s marketing efforts to
effectuate a sale. The purpose of this bridge financing was to allow more time for the Company
to market a sale of the business in whole or in parts. The Company also received a bridge
financing proposal from the Second Lien Lenders, but it was not actionable given it required the
First Lien Lenders’ consent to be primed by the proposed bridge facility.
Ultimately, the parties were not able to finalize terms and close on the bridge financing.
However, the exercise in the bridge financing discussions, though unsuccessful, revealed that
there was considerable consensus among the Company and its stakeholders that the
value-maximizing path forward for the Company would be a fulsome marketing and sale process
for some, substantially all, or all of the Company’s assets, including the potential for sales
exclusively of the assets related to the Company’s Ventilation and Respiratory Diagnostics
business units, or for the Company as a whole (the “Marketing and Sale Process”).
E.
The Prepetition Marketing and
Sale Process and the RSA.
In April 2024, with the assistance of its Advisors, Vyaire commenced the Marketing and
Sale Process, which would continue through an in-court process, facilitated by an RSA.
Prepetition Marketing and Sale Process. This process has resulted in substantial
interest in the Company. In the weeks leading up to the Petition Date, Company management
and PJT prepared confidential information memoranda separately for the Ventilation and
Respiratory Diagnostics businesses and populated virtual data sites containing significant
diligence documentation. Prior to the Petition Date, the Company reached out to over 110
identified strategic and financial parties. The Company executed over 30 non-disclosure
agreements with access granted to virtual data rooms, financial models, and business segment
standalone models. Prior to the Petition Date, the Debtors already received multiple first-round
nonbinding indications of interest for various portions of the businesses.
Entry into the RSA. To best orchestrate the Marketing and Sale Process postpetition, the
Debtors and the RSA Parties reached an agreement to pursue and potentially effectuate certain
restructuring sale transactions in chapter 11 and executed the Restructuring Support Agreement
on June 9, 2024. Under the Restructuring Support Agreement, the RSA Parties agreed, subject
to the terms and conditions thereof, to support the sale process, consummation of any sale
transactions, and to wind down the remaining Company.
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F.
Corporate Governance Efforts.
To ensure that the entire restructuring and sale process is fair and efficient, the Debtors
have implemented strong governance protocols. In April 2024, the Board appointed the
Independent Directors to the Special Committee.
Most recently, David Barse joined the Board as an Independent Director in April 2024
and the Company retained Cole Schotz P.C. (“Cole Schotz”) to aid Mr. Barse in his
investigation. David Barse and Cole Schotz have been engaged in a review and evaluation of
potential claims or causes of action that the Debtors or certain of their stakeholders may possess
against third parties. No potential claims or causes of action were identified as a result of the
investigation, which has been completed. The results of the investigation have been shared with
the UCC, along with voluminous diligence information regarding the same.
The Committee is also conducting its own independent investigation into potential estate
Claims and Causes of Action, including potential Claims against the Debtors’ current and former
directors and officers and the Sponsor, who will receive releases if the Plan is confirmed. The
Committee is continuing to review documents and communications that have been produced by
the Debtors, but as of the date hereof, the Committee is not in a position to make a determination
as to whether it agrees with the sufficiency of the investigation or the conclusions reached by
Cole Schotz with respect to the Claims and Causes of Action that that will be released under the
Plan in its current form.
The decision to commence these Chapter 11 Cases was the culmination of months of
negotiations and strategic review, including regular meetings of the Debtors, Special Committee,
management, and advisors. Ultimately, the boards of each Debtor determined that chapter 11
was the only viable path forward for the Debtors and thus provided the best path to maximize
value for all stakeholders, preserve the Company’s operations, and give the Company an
opportunity for future growth.
VIII.
MATERIAL DEVELOPMENTS AND ANTICIPATED EVENTS OF THE
CHAPTER 11 CASES.
A.
First Day Relief.
On the Petition Date, along with their voluntary petitions for relief under chapter 11 of
the Bankruptcy Code (the “Petitions”), the Debtors filed several motions (the “First Day
Motions”) designed to facilitate the administration of the Debtors’ Chapter 11 Cases following
the commencement of the Chapter 11 Cases. A detailed description of the Debtors and their
business, including the facts and circumstances giving rise to the Debtors’ Chapter 11 Cases, is
set forth in the Declaration of John Bibb, Group Chief Executive Officer of Vyaire Medical, Inc.,
in Support of Chapter 11 Petitions and First Day Motions [Docket No. 15] (the “First Day
Declaration”).
The First Day Motions were heard and approved on an interim or final (as applicable)
basis at the June 11, 2024, hearing (the “First Day Hearing”), and all First Day Motions and
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orders for interim and final relief granted in the Chapter 11 Cases can be viewed free of charge at
https://omniagentsolutions.com/Vyaire.
B.
Appointment of Official Committee
of Unsecured Creditors
On June 26, 2024, the U.S. Trustee Filed the Notice of Appointment of Committee of
Unsecured Creditors [Docket No. 121], notifying parties in interest that the U.S. Trustee had
appointed an official committee of unsecured creditors (the “Committee”) in these Chapter 11
Cases. The Committee is currently comprised of: (a) Sunmed Group Holdings, LLC (d/b/a
AirLife); (b) Zensar Technologies Inc.; (c) Cognizant Worldwide Ltd.; (d) Presido; (e) Vizient,
Inc.; (f) David M. Lewis Company; and (g) Data Modul, Inc.
On June 30, 2024, the Committee Filed the Notice of Appearance and Request for
Service of All Documents and Notices [Docket No. 128], identifying their proposed counsel as
McDermott Will & Emery LLP. The Committee subsequently retained Berkeley Research
Group, LLC as its financial advisor. The Debtors held a meeting of creditors pursuant to section
341 of the Bankruptcy Code on July 17, 2024.
C.
Second Day Relief.
The Debtors also filed several other motions subsequent to the Petition Date to facilitate
the Debtors’ restructuring efforts and ease administrative burdens. Following a hearing held on
July 9, 2024, the Bankruptcy Court entered orders granting the following relief:
(i)
The Interim Compensation Order approving procedures for the compensation of
retained professionals in these Chapter 11 Cases [Docket No. 218];
(ii)
The Ordinary Course Professionals Order approving procedures for the
retention and compensation of certain professionals utilized by the Debtors in the
ordinary course operation of their businesses [Docket No. 225]; and
(iii)
The Contract Rejection Procedures Order approving procedures to reject
executory contracts and unexpired leases [Docket No. 250].
D.
The
Debtors’
Professionals’
Retention Applications.
To further facilitate the Debtors restructuring efforts and ease administrative burdens, the
Debtors filed applications to retain professionals postpetition pursuant to sections 327, 328, 105,
and 363 of the Bankruptcy Code, including:
(i)
Kirkland & Ellis LLP and Kirkland & Ellis International LLP as Attorneys for
the Debtors and Debtors in Possession [Docket No. 236];
(ii)
AlixPartners, LLP as Financial Advisor to the Debtors and Debtors in
Possession [Docket No. 241];
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(iii)
PJT Partners LP as Investment Banker to the Debtors and Debtors in
Possession [Docket No. 240];
(iv)
Omni Agent Solutions, Inc. as Administrative Advisor to the Debtors and
Debtors in Possession [Docket No. 237];
(v)
Cole Schotz P.C. as Delaware Counsel for the Debtors and Debtors in
Possession [Docket No. 239]; and
(vi)
BDO USA, P.C. as Tax Services Provider for the Debtors and Debtors in
Possession [Docket No. 238].
E.
Approval of Debtor in Possession
Financing.
On June 10, 2024, the Debtors Filed the Motion of Debtors for Entry of Interim and Final
Orders (I) Authorizing the Debtors to (A) Obtain Postpetition Financing and (B) Utilize Cash
Collateral, (II) Granting Liens and Superpriority Administrative Expense Claims, (III) Granting
Adequate Protection to Prepetition Secured Parties, (IV) Modifying the Automatic Stay,
(V) Scheduling a Final Hearing, and (VI) Granting Related Relief [Docket No. 12]
(the “DIP Motion”) and on July 7, 2024, the Bankruptcy Court entered a final order approving
the DIP Motion [Docket No. 248] (the “DIP Order”). Pursuant to the DIP Motion and DIP Order
and to provide the Debtors with the liquidity to commence a smooth landing into these
Chapter 11 Cases, certain prepetition First Lien Term Loan lenders holding over 90% of the First
Lien Term Loans (the “1L Ad Hoc Group”) agreed to provide the DIP Facility and continued
access to prepetition Cash Collateral. The DIP Order authorized the Debtors to receive senior
secured postpetition financing on a superpriority basis in the form of a senior secured, super
priority multiple draw term loan facility in an aggregate principal amount of $45 million and to
continue using the 1L Ad Hoc Group’s cash collateral to provide sufficient liquidity for their
operations during these Chapter 11 Cases.
The DIP Facility and access to Cash Collateral have given the Debtors the necessary
liquidity to facilitate their Marketing and Sale Process, to fund their business operations and
administrative expenses during these Chapter 11 Cases, and to fund a wind-down of any
remaining estate assets and liabilities in accordance with an agreed wind-down budget between
the Company and the Required Consenting Lenders. The DIP Facility has provided a $45
million new money commitment (the “New Money Commitment”), including $25 million
available to the Debtors on an interim basis and $20 million available on entry of a final order,
and the consensual use of Cash Collateral. The DIP Facility also features a $135 million roll-up
(the “Roll Up”) of the DIP Lenders’ prepetition first lien term loans (i.e., a 3:1 roll up of
prepetition secured first lien term loans relative to $45 million of New Money Commitment).
The Roll-Up is only granted to the DIP Lenders on account of their portion of the New Money
Commitment actually funded to the Debtors. The DIP Facility matures on October 7, 2024. In
consideration for the consensual use of cash collateral, the Debtors agreed to provide the 1L Ad
Hoc Group with adequate protection as set forth in the DIP Motion and the accompanying
proposed interim order. Importantly, in connection with the Debtors’ restructuring, the
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50
applicable DIP documents and Restructuring Support Agreement set forth a mechanism to limit
recovery of the DIP Claims to net sale proceeds from the Marketing and Sale Process.
The DIP Facility was the culmination of rigorous, arm’s-length negotiations between the
Debtors and the 1L Ad Hoc Group, was the best DIP financing proposal available to the Debtors
after concerted efforts undertaken by PJT to obtain superior DIP financing proposals, and
provided the Debtors with crucial liquidity at the outset of these Chapter 11 Cases, allowing the
Debtors and their Advisors to focus on exiting chapter 11 expeditiously.
F.
Schedules and Statements.
The Debtors filed their schedules of assets and liabilities, schedules of current income
and expenditures, schedules of executory contracts and unexpired leases, and statements of
financial affairs (collectively, the “Schedules and Statements”) on July 9, 2024.
G.
Bar Date Motion.
On June 25, 2024, the Debtors filed the Motion of Debtors Seeking Entry of an Order
(I) Setting Bar Dates for Filing Proofs of Claim, Including Under Section 503(b)(9),
(II) Establishing Amended Schedules Bar Date and Rejection Damages Bar Date,
(III) Approving the Form of and Manner for Filing Proofs of Claim, Including Section 503(b)(9)
Requests, and (IV) Approving Form and Manner of Notice Thereof [Docket No. 116] (the “Bar
Date Motion”). On July 9, 2024, the Bankruptcy Court entered an order granting the relief set
forth in the Bar Date Motion [Docket No. 227] (the “Bar Date Order”), which established
procedures and deadlines for filing Proofs of Claim against the Debtors and approval of the form
and manner of the bar date notice (the “Bar Date Notice”). Pursuant to the Bar Date Notice, the
last date for certain persons and entities to file Proofs of Claim in these Chapter 11 Cases was
August 2, 2024, at 11:59 p.m. Eastern Time (the “General Bar Date”) and the last date for
governmental units to file Proofs of Claim in the Debtors’ Chapter 11 Cases is December 9,
2024, at 11:59 p.m. Eastern Time. On July 11, 2024, the Bar Date Notice was published in The
New York Times (national edition).
H.
Bidding Procedures and Marketing
Process.5
As described above, the Debtors conducted a marketing process for all or substantially all
of their assets. The marketing process was an extensive, far reaching, and months-long process
in which the Debtors and their advisors sought strategic and financial investors to effectuate a
value maximizing transaction. PJT, with the assistance of the Debtors, identified more than 100
parties, including strategic and financial partners, as potential bidders for the Debtors’ assets. In
the period leading up to the Petition Date, PJT worked to prepare for a robust postpetition
5
Capitalized terms used but not otherwise defined in this section have the meaning given to them in the Bidding
Procedures.
Case 24-11217-BLS Doc 584 Filed 09/30/24 Page 63 of 91
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July 24, 2024 (or as soon as reasonably
practicable)
Deadline to File Successful Bidder Notice
July 22, 2024, at 4:00 p.m. (prevailing Eastern
Time)
Item
July 25, 2024, at 4:00 p.m. (prevailing Eastern
Time)
Sale Transaction Objection Deadline
Post-Auction Objection Deadline
marketing process on an expedited basis that aligned with the milestones provided in the RSA
and the Bidding Procedures Order, including:
July 26, 2024, at 4:00 p.m. (prevailing Eastern
Time)
Sale Transaction Reply Deadline
July 22, 2024, at 5:00 p.m. (prevailing Eastern
Time)
July 29, 2024, at 4:00 p.m. (prevailing Eastern
Time)
Bid Deadline
Adequate Assurance Objection Deadline
July 11, 2024
July 31, 2024, at 2:00 p.m. (prevailing Eastern
Time) (subject to the Court’s availability)
Sale Hearing
July 24, 2024, at 10:00 a.m. (prevailing
Eastern Time)
Stalking Horse Bidder Designation
August 19, 2024
Auction Date (if any)
Deadline to consummate Sale Transaction
Deadline
To allow more time to receive and evaluate bids, and contemplate the designation of a
stalking horse bidder, the Debtors filed the Notice of Extension of Certain Key Dates and
Deadlines [Docket No. 263] on July 17, 2024, Second Notice of Extension of Certain Key Dates
and Deadlines [Docket No. 311] on July 24, 2024, Third Notice of Extension of Certain Key
Dates and Deadlines [Docket No. 353] on August 7, 2024, and Fourth Notice of Extension of
Certain Key Dates and Deadlines [Docket No. 394] on August 16, 2024, extending the Stalking
Horse Bidder Designation deadline to July 22, 2024, the Bid Deadline to August 5, 2024, the
Auction Date to August 8, 2024, and the Sale Hearing to August 15, 2024. The Debtors
explored the possibility of designating a Stalking Horse Bidder based on indications of interest
received by the IOI Deadline, but ultimately did not designate a Stalking Horse Bidder. Instead,
the Debtors determined that the best path forward was to allow parties to continue to develop
their diligence and submit fulsome bids in advance of the Bid Deadline.
While the Auction was scheduled for August 8, 2024, to evaluate the bids in hand and
provide Qualified Bidders with the opportunity to consider increasing their bids, the Debtors
adjourned the Auction until August 12, 2024.6 The Auction was associated with the Debtors’
Ventilation Assets and was competitive and involved hard-fought, arms-length negotiations with
each participating bidder. At the conclusion of the three-day Auction, the Debtors determined
that Zoll’s bid represented the highest and otherwise best bid for a value-maximizing transaction
of the Debtors’ business. Accordingly, the Debtors designated Zoll as the Successful Bidder
6
See Third Notice of Extension of Certain Key Dates and Deadlines [Docket No. 353].
Case 24-11217-BLS Doc 584 Filed 09/30/24 Page 64 of 91
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On August 20, 2024, the Debtors filed a notice identifying Trudell as the Successful
Bidder with respect to the Debtors’ Respiratory Diagnostics Assets.8 Trudell’s bid includes,
among other things, a base purchase price of $53.5 million in cash consideration, plus additional
non-cash consideration including the assumption of certain liabilities, subject to certain terms
and conditions.
On August 27, 2024, the Debtors sought Court approval to execute asset purchase
agreements with Trudell and Zoll to consummate the Sale Transactions pursuant to the Notice of
Debtors’ Revised Proposed Order (I) Approving the Trudell Asset Purchase Agreement and
Authorizing the Sale of Certain Respiratory Diagnostics Assets of the Debtors Outside the
Ordinary Course of Business, (II) Authorizing the Sale of Assets Free and clear of All Liens,
Claims, Interests, and Encumbrances, (III) Authorizing the Assumption and Assignment of
Executory Contracts and Unexpired Leases in Connection Therewith, and (IV) Granting Related
Relief [Docket No. 471] (the “Proposed Respiratory Diagnostics Sale Order”), and the Notice of
Debtors’ Revised Proposed Order (I) Approving the Zoll Asset Purchase Agreement and
Authorizing the Sale of Certain Ventilation Assets of the Debtors Outside the Ordinary Course of
Business, (II) Authorizing the Sale of Assets Free and clear of All Liens, Claims, Interests, and
Encumbrances, (III) Authorizing the Assumption and Assignment of Executory Contracts and
Unexpired Leases in Connection Therewith, and (IV) Granting Related Relief [Docket No. 470]
(the “Proposed Ventilation Sale Order,” and, together with the Proposed Respiratory Diagnostics
Sale Order, the “Sale Orders”). After a hearing on August 30, 2024, to consider the Sale
Transactions, the Court approved the Sale Orders authorizing the Sale Transactions, which were
entered on September 4, 2024. See Docket Nos. 496 and 497.
Pursuant to the Sale Orders, the Court approved the Allocation Agreement reached by the
Debtors and the DIP Lenders, which, among other things, reduced the new money commitment
of the DIP Lenders under the DIP Facility by $5 million and allocated $25.1 million of the
proceeds of the sale transactions with Zoll and Trudell to fund the Wind-Down Budget. The
Wind-Down Budget will take effect on October 18, 2024, at which point the Debtors will have
$25.1 million (contingent up the sale to Trudell closing) to confirm the Plan, satisfy the debts of
the Non-Debtor Affiliates, administer these Chapter 11 Cases, satisfy Administrative Claims and
Professional Fee Claims, and wind down the Debtors and the Non-Debtor Foreign Affiliates. As
noted above, there are no amounts allocated under the Wind-Down Budget to satisfy the
Debtors’ obligations with respect to cure amounts in excess of the Zoll Cure Cap.
with respect to the Debtors’ Ventilation Assets.7 Zoll’s bid includes, among other things, a base
purchase price of $37 million in cash consideration, plus additional non-cash consideration
including the assumption of certain liabilities, subject to certain terms and conditions.
7
See Notice of (I) Successful Bidder for the Sale of Certain of the Debtors’ Ventilation Assets, (II) Proposed
Purchase Agreement in Connection Therewith, and (III) Proposed Sale Order in Connection Therewith
[Docket No. 388].
8
See Notice of (I) Successful Bidder for the Sale of Certain of the Debtors’ Respiratory Diagnostics Assets,
(II) Proposed Purchase Agreement in Connection Therewith, and (III) Proposed Sale Order in Connection
Therewith [Docket No. 400].
Case 24-11217-BLS Doc 584 Filed 09/30/24 Page 65 of 91
I.
Litigation Matters.
In the ordinary course of business, the Debtors are parties to certain lawsuits, legal
proceedings, collection proceedings, and claims arising out of their business operations. The
Debtors cannot predict with certainty the outcome of these lawsuits, legal proceedings, and
claims. With certain exceptions, the filing of the Chapter 11 Cases operates as a stay with
respect to the commencement or continuation of litigation against the Debtors that was or could
have been commenced before the commencement of the Chapter 11 Cases. In addition, the
Debtors’ liability with respect to litigation stayed by the commencement of the Chapter 11 Cases
generally is subject to discharge, settlement, and release upon confirmation of a plan under
chapter 11, with certain exceptions. Therefore, certain litigation Claims against the Debtors may
be subject to discharge in connection with the Chapter 11 Cases.
IX.
CERTAIN RISK FACTORS TO BE CONSIDERED BEFORE VOTING.
Holders of Claims and Interests entitled to vote should read and carefully consider the
risk factors set forth below, as well as the other information set forth in this Disclosure Statement
and the documents delivered together with this Disclosure Statement, referred to or incorporated
by reference in this Disclosure Statement, before voting to accept or reject the Plan. These
factors should not be regarded as constituting the only risks present in connection with the
Debtors’ business or the Plan and its implementation.
A.
Risks Related to the Confirmation
and Consummation of the Plan.
1.
Parties in Interest May Object to the Plan’s Classification of Claims and
Interests.
Section 1122 of the Bankruptcy Code provides that a plan may place a claim or an equity
interest in a particular class only if such claim or equity interest is substantially similar to the
other claims or equity interests in such class. The Debtors believe that the classification of the
Claims and Interests under the Plan complies with the requirements set forth in the Bankruptcy
Code because the Debtors created Classes of Claims and Interests each encompassing Claims or
Interests, as applicable, that are substantially similar to the other Claims or Interests, as
applicable, in each such Class. Nevertheless, there can be no assurance that the Bankruptcy
Court will reach the same conclusion.
2.
The Conditions Precedent to the Effective Date of the Plan May Not
Occur.
As more fully set forth in Article IX of the Plan, the Effective Date of the Plan is subject
to a number of conditions precedent. If such conditions precedent are waived or not met, the
Effective Date will not take place.
3.
The Debtors May Fail to Satisfy Vote Requirements.
If votes are received in number and amount sufficient to enable the Bankruptcy Court to
confirm the Plan, the Debtors intend to seek, as promptly as practicable thereafter, Confirmation
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of the Plan. In the event that sufficient votes are not received, the Debtors may seek to pursue
another strategy to Wind-Down the Estates, such as confirm an alternative chapter 11 plan, a
dismissal of the Chapter 11 Cases and an out-of-court dissolution, an assignment for the benefit
of creditors, a conversion to a chapter 7 case, or other strategies. There can be no assurance that
the terms of any such alternative strategies would be similar or as favorable to the Holders of
Interests and Allowed Claims as those proposed in the Plan.
4.
The Debtors May Not Be Able to Secure Confirmation of the Plan.
Section 1129 of the Bankruptcy Code sets forth the requirements for confirmation of a
chapter 11 plan, and requires, among other things, a finding by the Bankruptcy Court that:
(a) such plan “does not unfairly discriminate” and is “fair and equitable” with respect to any
non-accepting classes; (b) confirmation of such plan is not likely to be followed by a liquidation
or a need for further financial reorganization unless such liquidation or reorganization is
contemplated by the plan; and (c) the value of distributions to non-accepting holders of claims or
equity interests within a particular class under such plan will not be less than the value of
distributions such holders would receive if the debtors were liquidated under chapter 7 of the
Bankruptcy Code.
There can be no assurance that the requisite acceptances to confirm the Plan will be
received. Even if the requisite acceptances are received, there can be no assurance that the
Bankruptcy Court will confirm the Plan. A non-accepting Holder of an Allowed Claim might
challenge either the adequacy of this Disclosure Statement or whether the balloting procedures
and the voting results satisfy the requirements of the Bankruptcy Code or Bankruptcy Rules.
Even if the Bankruptcy Court determines that this Disclosure Statement, the balloting
procedures, and voting results are appropriate, the Bankruptcy Court could still decline to
confirm the Plan if it finds that any of the statutory requirements for Confirmation are not met. If
the Plan is not confirmed by the Bankruptcy Court, it is unclear what distributions, if any,
Holders of Allowed Claims and Allowed Interests will receive with respect to their Allowed
Claims and Allowed Interests. The Bankruptcy Court, as a court of equity, may exercise
substantial discretion.
The Debtors reserve the right to modify the terms and conditions of the Plan as necessary
for Confirmation. Any such modifications may result in a less favorable treatment of any Class
than the treatment currently provided in the Plan. Such a less favorable treatment may include a
distribution of property to the Class affected by the modification of a lesser value than currently
provided in the Plan or no distribution of property whatsoever under the Plan.
5.
Nonconsensual Confirmation.
In the event that any impaired class of claims or interests does not accept a chapter 11
plan, a bankruptcy court may nevertheless confirm a plan at the proponents’ request if at least
one impaired class (as defined under section 1124 of the Bankruptcy Code) 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 class(es). The Debtors believe that the Plan satisfies these
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requirements, and the Debtors may request such nonconsensual Confirmation in accordance with
subsection 1129(b) of the Bankruptcy Code. Nevertheless, there can be no assurance that the
Bankruptcy Court will reach this conclusion. In addition, the pursuit of nonconsensual
Confirmation or Consummation of the Plan may result in, among other things, increased
expenses relating to professional compensation.
6.
The Debtors Could Lose Exclusivity.
In addition, at the outset of these Chapter 11 Cases, the Bankruptcy Code provides the
Debtors with the exclusive right to propose the Plan and prohibits creditors and others from
proposing a plan. The Debtors obtained the exclusive right to propose the Plan upon filing their
petitions. If the Bankruptcy Court terminates that right, however, or the exclusivity period
expires, there could be a material adverse effect on the Debtors’ ability to achieve confirmation
of the Plan to achieve the Debtors’ stated goals.
7.
These Chapter 11 Cases May Be Converted to Cases under Chapter 7 of
the Bankruptcy Code or One or More of the Chapter 11 Cases May be
Dismissed.
If a bankruptcy court finds that it would be in the best interest of creditors and/or the
debtor in a chapter 11 case, the bankruptcy court may convert a chapter 11 bankruptcy case to a
case under chapter 7 of the Bankruptcy Code. In such event, a chapter 7 trustee would be
appointed or elected to liquidate the debtor’s assets for distribution in accordance with the
priorities established by the Bankruptcy Code. The Debtors believe that liquidation under
chapter 7 would result in significantly smaller distributions being made to creditors than those
provided for in a chapter 11 plan because of the additional expenses the Debtors would
necessarily incur related to the chapter 7 trustee and additional retained professionals. Such
expenses may decrease recoveries for Holders of Allowed Claims in the Voting Classes. See,
e.g., 11 U.S.C. §§ 326(a), 503(b)(2). The conversion to chapter 7 would require entry of a new
bar date, which may increase the amount of Allowed Claims and thereby reduce Pro Rata
recoveries. See Fed. R. Bankr. P. 1019(2), 3002(c).
8.
The Debtors May Object to the Amount or Classification of a Claim or
Interest.
Except as otherwise provided in the Plan, the Debtors reserve the right to object to the
amount or classification of any Claim under the Plan. The estimates set forth in this Disclosure
Statement cannot be relied upon by any Holder of a Claim where such Claim is subject to an
objection. Any Holder of a Claim that is subject to an objection thus may not receive its
expected share of the estimated distributions described in this Disclosure Statement.
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9.
Risk of Non-Occurrence of the Effective Date.
Although the Debtors believe that the Effective Date may occur quickly after the
Confirmation Date, there can be no assurance as to such timing or as to whether the Effective
Date will, in fact, occur.
10.
Contingencies May Affect Votes of Impaired Classes to Accept or Reject
the Plan.
The estimated Claims and creditor recoveries set forth in this Disclosure Statement are
based on various assumptions, and the actual Allowed amounts of Claims may significantly
differ from the estimates. Should one or more of the underlying assumptions ultimately prove to
be incorrect, the actual Allowed amounts of Claims may vary from the estimated Claims
contained in this Disclosure Statement. Moreover, the Debtors cannot determine with any
certainty at this time, the number or amount of Claims that will ultimately be Allowed. Such
differences may materially and adversely affect, among other things, the percentage recoveries to
Holders of Allowed Claims under the Plan.
11.
The Plan’s Release, Injunction, and Exculpation Provisions May Not Be
Approved.
Article VIII of the Plan provides for certain releases, injunctions, and exculpations,
including a release of liens and third-party releases that may otherwise be asserted against the
Debtors, Wind-Down Debtor, or 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 are not approved, certain Released Parties may withdraw their support
for the Plan.
As noted above, the Committee opposes the Plan Releases. As of the date hereof this
Disclosure Statement, the Committee does not support the Plan, including, without limitation,
the proposed Plan Releases thereunder. For this, among other reasons, the Committee may
object to confirmation of the Plan on the grounds that the Plan does not satisfy some or all of the
confirmation requirements under section 1129 of the Bankruptcy Code. There are no assurances
that the Bankruptcy Court will agree that the Plan complies with the requirements necessary for
confirmation.
12.
The Total Amount of Allowed Administrative Claims and/or General
Unsecured Claims May Be Higher Than Anticipated by the Debtors.
With respect to Holders of Allowed Administrative Claims and/or General Unsecured
Claims, the Claims Filed against the Debtors’ Estates may be materially higher than the Debtors
have estimated.
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13.
Certain Tax Implications of the Plan.
Holders of Allowed Claims should carefully review Article XII of this Disclosure
Statement, entitled “Material United States Federal Income Tax Consequences,” to determine
how the tax implications of the Plan and the Chapter 11 Cases may adversely affect the
Wind-Down Debtor, Liquidating Trust, and Holders of Claims.
B.
Disclosure Statement Disclaimer.
1.
The Financial Information Contained in this Disclosure Statement Has Not
Been Audited.
In preparing this Disclosure Statement, the Debtors and their advisors relied on financial
data derived from their books and records that was available at the time of such preparation.
Although the Debtors have used their reasonable business judgment to ensure the accuracy of the
financial information, and any conclusions or estimates drawn from such financial information,
provided in this Disclosure Statement, and while the Debtors believe that such financial
information fairly reflects the financial condition of the Debtors, the Debtors are unable to
warrant that the financial information contained herein, or any such conclusions or estimates
drawn therefrom, is without inaccuracies.
2.
Information Contained in this Disclosure Statement is for Soliciting Votes.
The information contained in this Disclosure Statement is for the purposes of soliciting
acceptances of the Plan and may not be relied upon for any other purpose.
3.
This Disclosure Statement Was Not Approved by the United States
Securities and Exchange Commission.
This Disclosure Statement was not filed with the United States Securities and Exchange
Commission under the Securities Act or applicable state securities laws. Neither the United
States Securities and Exchange Commission nor any state regulatory authority has passed upon
the accuracy or adequacy of this Disclosure Statement, or the exhibit or the statements contained
in this Disclosure Statement.
4.
No Legal or Tax Advice Is Provided to You by this Disclosure Statement.
This Disclosure Statement does not constitute legal advice to you. The contents of
this Disclosure Statement should not be construed as legal, business, or tax advice. Each Holder
of a Claim or an Interest should consult his or her own legal counsel, accountant, or other
applicable advisor with regard to any legal, tax, and other matters concerning his or her Claim or
Interest. 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.
5.
This Disclosure Statement May Contain Forward Looking Statements.
This Disclosure Statement may contain “forward looking statements” within the meaning
of the Private Securities Litigation Reform Act of 1995. Such statements consist of any
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statement other than a recitation of historical fact and can be identified by the use of forward
looking terminology such as “may,” “will,” “might,” “expect,” “believe,” “anticipate,” “could,”
“would,” “estimate,” “continue,” “pursue,” or the negative thereof or comparable terminology.
All forward looking statements are necessarily speculative, and there are certain risks and
uncertainties that could cause actual events or results to differ materially from those referred to
in such forward looking statements. The information contained herein is an estimate only, based
upon information currently available to the Debtors.
6.
No Admissions Made.
The information and statements contained in this Disclosure Statement will neither
(a) constitute an admission of any fact or liability by any entity (including, without limitation, the
Debtors) nor (b) be deemed evidence of the tax or other legal effects of the Plan on the Debtors,
Holders of Allowed Claims or Allowed Interests, or any other parties in interest.
7.
Failure to Identify Litigation Claims or Projected Objections.
No reliance should be placed on the fact that a particular litigation claim or projected
objection to a particular Claim or Interest is, or is not, identified in this Disclosure Statement.
The Debtors or the Plan Administrator may seek to investigate, File, and prosecute Claims and
Interests and may object to Claims or Interests after the Confirmation or Effective Date of the
Plan irrespective of whether this Disclosure Statement identifies such Claims or Interests or
objections to such Claims or Interests.
8.
No Waiver of Right to Object Claims or Interests.
The vote by a Holder of a Claim or Interest for or against the Plan does not constitute a
waiver or release of any claims, causes of action, or rights of the Debtors (or any entity, as the
case may be) to object to that Holder’s Claim or Interest, regardless of whether any claims or
causes of action of the Debtors or their respective Estates are specifically or generally identified
in this Disclosure Statement.
9.
Information Was Provided by the Debtors and Was Relied Upon by the
Debtors’ Advisors.
The Debtors’ advisors have relied upon information provided by the Debtors in
connection with the preparation of this Disclosure Statement. Although the Debtors’ advisors
have performed certain limited due diligence in connection with the preparation of this
Disclosure Statement, they have not independently verified the information contained in this
Disclosure Statement.
10.
Potential Exists for Inaccuracies, and the Debtors Have No Duty to
Update.
The statements contained in this Disclosure Statement are made by the Debtors as of the
date of this Disclosure Statement, unless otherwise specified in this Disclosure Statement, and
the delivery of this Disclosure Statement after the date of this Disclosure Statement does not
imply that there has not been a change in the information set forth in this Disclosure Statement
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since that date. While the Debtors have used their reasonable business judgment to ensure the
accuracy of all of the information provided in this Disclosure Statement and in the Plan, the
Debtors nonetheless cannot, and do not, confirm the current accuracy of all statements appearing
in this Disclosure Statement. Further, although the Debtors may subsequently update the
information in this Disclosure Statement, the Debtors have no affirmative duty to do so unless
ordered to do so by the Bankruptcy Court.
11.
No Representations Outside this Disclosure Statement Are Authorized.
No representations concerning or relating 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 as contained in, or included with, this Disclosure
Statement, should not be relied upon by you in arriving at your decision. You should promptly
report unauthorized representations or inducements to the counsel to the Debtors and the U.S.
Trustee.
X.
SOLICITATION AND VOTING PROCEDURES.
This Disclosure Statement is being distributed to the Holders of Claims and Interests in
those Classes that are entitled to vote or reject the Plan. The procedures and instructions for
voting and related deadlines are set forth in the exhibits annexed to the Disclosure Statement
Order.
THE DISCLOSURE STATEMENT ORDER IS INCORPORATED HEREIN BY
REFERENCE AND SHOULD BE READ IN CONJUNCTION WITH THIS DISCLOSURE
STATEMENT AND IN FORMULATING A DECISION TO VOTE TO ACCEPT OR REJECT
THE PLAN.
THE DISCUSSION OF THE SOLICITATION AND VOTING PROCESS SET FORTH
IN THIS DISCLOSURE STATEMENT IS ONLY A SUMMARY.
PLEASE REFER TO THE DISCLOSURE STATEMENT ORDER FOR A MORE
COMPREHENSIVE DESCRIPTION OF THE SOLICITATION AND VOTING PROCESS.
A.
Holders of Claims Entitled to Vote
on the Plan.
Under the provisions of the Bankruptcy Code, not all Holders of Claims and Interests
against a Debtor are entitled to vote on a chapter 11 plan. The table in Article III.C of this
Disclosure Statement provides a summary of the status and voting rights of each Class (and,
therefore, of each Holder within such Class absent an objection to the Holder’s Claim or Interest)
under the Plan.
As shown in the table, the Debtors are soliciting votes to accept or reject the Plan only
from Holders of Claims and Interests in Class 4 and Class 5 (the “Voting Classes”). The Holders
of Claims and Interests in the Voting Classes are Impaired under the Plan and may, in certain
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circumstances, receive a distribution under the Plan. Accordingly, Holders of Claims and
Interests in the Voting Classes have the right to vote to accept or reject the Plan.
The Debtors are not soliciting votes from Holders of Claims and Interests in Classes 1, 2,
3, 6, 7, 8, 9 or 10. Additionally, the Disclosure Statement Order provides that certain Holders of
Claims and Interests in the Voting Classes, such as those Holders whose Claims have been
disallowed or are subject to a pending objection, are not entitled to vote to accept or reject the
Plan.
B.
Voting Record Date.
The Voting Record Date is October 2, 2024. The Voting Record Date (as defined in
the Disclosure Statement Order) is the date on which it will be determined which Holders of
Claims and Interests in the Voting Classes are entitled to vote to accept or reject the Plan and
whether Claims or Interests have been properly assigned or transferred under Bankruptcy Rule
3001(e) such that an assignee or transferee, as applicable, can vote to accept or reject the Plan as
the Holder of a Claim or Interest.
C.
Voting on the Plan.
The Voting Deadline is November 4, 2024, at 4:00 p.m., prevailing Eastern Time. In
order to be counted as votes to accept or reject the Plan, all ballots must be properly executed,
completed, and delivered in accordance with the instructions on your ballot so that the ballots are
actually received by the Debtors’ Claims and Noticing Agent on or before the Voting Deadline:
DELIVERY OF BALLOTS
Vyaire Medical, Inc. et al.
c/o Omni Agent Solutions, Inc.
5955 De Soto Avenue, Suite 100
Woodland Hills, CA 91367
and/or
To submit your ballot to the Claims and Noticing Agent via electronic mail:
Vyaireinquiries@omniagnt.com
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D.
Ballots Not Counted.
No ballot will be counted toward Confirmation if, among other things: (i) it is
illegible or contains insufficient information to permit the identification of the Holder of such
Claim or Interest; (ii) it was transmitted by means other than as specifically set forth in the
ballots; (iii) it was cast by an entity that is not entitled to vote on the Plan; (iv) it was cast for a
Claim listed in the Debtors’ schedules as contingent, unliquidated, or disputed for which the
applicable bar date has passed and no proof of claim was filed; (v) it was cast for a Claim that is
subject to an objection pending as of the Voting Record Date (unless temporarily allowed in
accordance with the Disclosure Statement Order); (vi) it was sent to the Debtors, the Debtors’
agents/representatives (other than the Claims and Noticing Agent), or the Debtors’ financial or
legal advisors instead of the Claims and Noticing Agent; (vii) it is unsigned; or (viii) it is not
clearly marked to either accept or reject the Plan or is marked both to accept and reject the Plan.
Please refer to the Disclosure Statement Order for additional requirements with respect to
voting to accept or reject the Plan.
IF YOU HAVE ANY QUESTIONS ABOUT THE SOLICITATION OR VOTING
PROCESS, PLEASE CONTACT THE CLAIMS AND NOTICING AGENT AT
(866) 956-2140 (Toll Free) or +1 (818) 666-3635 (International)
ANY BALLOT RECEIVED AFTER THE VOTING DEADLINE OR
OTHERWISE
NOT IN COMPLIANCE WITH THE SOLICITATION ORDER WILL NOT BE
COUNTED.
XI.
STATUTORY REQUIREMENTS FOR CONFIRMATION OF THE PLAN.
The following is a brief summary of the confirmation process. Holders of Claims and
Interests are encouraged to review the relevant provisions of the Bankruptcy Code and to consult
their own advisors with respect to the summary provided in the Disclosure Statement.
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A.
Confirmation Hearing.
Section 1128(a) of the Bankruptcy Code requires a bankruptcy court, after notice, to
conduct a hearing to consider confirmation of a chapter 11 plan. Section 1128(b) of the
Bankruptcy Code provides that any party in interest may object to confirmation of the Plan. The
Bankruptcy Court has scheduled the Confirmation Hearing for November 14, at 10:00
a.m., prevailing Eastern Time. The Confirmation Hearing may be adjourned from time to time
by the Debtors or Bankruptcy Court without further notice except for an announcement of the
adjourned date made at the Confirmation Hearing or the filing of a notice of such adjournment
served in accordance with the order approving the Disclosure Statement and solicitation
procedures. Any objection to the Plan must: (1) be in writing; (2) conform to the Bankruptcy
Rules and the Local Rules for the United States Bankruptcy Court for the District of Delaware;
(3) state the name, address, phone number, and e-mail address of the objecting party and the
amount and nature of the Claim or Interest of such entity, if any; (4) state with particularity the
basis and nature of any objection to the Plan and, if practicable, a proposed modification to the
Plan that would resolve such objection; and (5) be filed, contemporaneously with a proof of
service, with the Bankruptcy Court and served so that it is actually received by the notice parties
no later than the Confirmation Objection Deadline. Unless an objection to the Plan is timely
served and filed, it may not be considered by the Bankruptcy Court.
B.
Confirmation Standards.
1.
Requirements of Section 1129(a) of the Bankruptcy Code.
Among the requirements for Confirmation of the Plan pursuant to section 1129 of the
Bankruptcy Code are: (1) the Plan is accepted by all Impaired Classes of Claims or Interests, or
if rejected by an Impaired Class, the Plan “does not discriminate unfairly” and is “fair and
equitable” as to the rejecting Impaired Class; (2) the Plan is feasible; and (3) the Plan is in the
“best interests” of Holders of Claims or Interests.
At the Confirmation Hearing, the Bankruptcy Court will determine whether the Plan
satisfies all of the requirements of section 1129 of the Bankruptcy Code. The Debtors believe
that: (1) the Plan satisfies, or will satisfy, all of the necessary statutory requirements of chapter
11 for plan confirmation; (2) the Debtors have complied, or will have complied, with all of the
necessary requirements of chapter 11 for plan confirmation; and (3) the Plan has been proposed
in good faith.
2.
Best Interests of Creditors—Liquidation Analysis.
Often called the “best interests” test, section 1129(a)(7) of the Bankruptcy Code requires
that a bankruptcy court find, as a condition to confirmation, that a chapter 11 plan provides, with
respect to each impaired class, that each Holder of a claim or an equity interest in such impaired
class either (1) has accepted the plan or (2) will receive or retain under the plan property of a
value that is not less than the amount that the non accepting holder would receive or retain if the
debtors liquidated under chapter 7.
Attached hereto as Exhibit B and incorporated herein by reference is a liquidation
analysis (the “Liquidation Analysis”) prepared by the Debtors with the assistance of the Debtors’
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Advisors. As reflected in the Liquidation Analysis, the Debtors believe that liquidation of the
Debtors’ businesses under chapter 7 of the Bankruptcy Code would result in substantial
diminution in the value to be realized by holders of Claims or Interests as compared to
distributions contemplated under the Plan. Consequently, the Debtors and their management
believe that Confirmation of the Plan will provide the same or a substantially greater return to
holders of Claims or Interests than would a liquidation under chapter 7 of the Bankruptcy Code.
In a typical chapter 7 case, a trustee is elected or appointed to liquidate a debtor’s assets
and to make distributions to creditors in accordance with the priorities established in the
Bankruptcy Code. Generally, secured creditors are paid first from the proceeds of sales of their
collateral. If any assets remain in the bankruptcy estate after satisfaction of secured creditors’
claims from their collateral, administrative expenses are next to be paid. Unsecured creditors are
paid from any remaining sale proceeds, according to their respective priorities. Unsecured
creditors with the same priority share in proportion to the amount of their allowed claims in
relationship to the total amount of allowed claims held by all unsecured creditors with the same
priority. Finally, interest holders receive the balance that remains, if any, after all creditors are
paid.
All or substantially all of the assets of the Debtors’ business will have been liquidated
through the Sale Transaction and the Plan effects a wind down of the Debtors’ remaining assets
not otherwise acquired in the Sale Transaction. Although a chapter 7 liquidation would achieve
the same goal, the Debtors believe that the Plan provides a greater recovery to Holders of
Allowed Claims than would a chapter 7 liquidation.
Liquidating the Debtors’ Estates under the Plan likely provides Holders of Allowed
Claims with a larger, more timely recovery in part because of the increased expenses that would
be incurred in a chapter 7 liquidation, with the appointment of the chapter 7 trustee. The delay of
the chapter 7 trustee becoming familiar with the assets could easily cause bids already obtained
to be lost, and the chapter 7 trustee will not have the technical expertise and knowledge of the
Debtors’ business that the Debtors had when they proposed to sell their assets pursuant to the
Plan. Moreover, the distributable proceeds under a chapter 7 liquidation will be lower because
of the chapter 7 trustee’s fees and expenses. Therefore, the appointment of a chapter 7 trustee
would potentially delay distributions to creditors and reduce the present value of any recover for
Holders. See, e.g., 11 U.S.C. § 326(a) (providing for compensation of a chapter 7 trustee); 11
U.S.C. 503(b)(2) (providing administrative expense status for compensation and expenses of a
chapter 7 trustee and such trustee’s professionals). Additionally, the Debtors’ Estates would
continue to be obligated to pay all unpaid expenses incurred by the Debtors during the Chapter
11 Cases (such as compensation for Professionals), which may constitute Allowed Claims in any
chapter 11 case.
The conversion to chapter 7 would also require entry of a new bar date. See Fed. R.
Bankr. P. 1019(2); 3002(c). Thus, the amount of Claims ultimately filed and Allowed against
the Debtors could materially increase, thereby further reducing creditor recoveries versus those
available under the Plan.
In light of the foregoing, the Debtors submit that a chapter 7 liquidation would result in
reduced sale proceeds and recoveries, increased expenses, delayed distributions, and the prospect
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of additional claims that were not asserted in the Chapter 11 Cases. Accordingly, the Debtors
believe that the Plan provides an opportunity to bring the highest return for creditors.
3.
Feasibility.
Section 1129(a)(11) of the Bankruptcy Code requires that confirmation of a chapter 11
plan is not likely to be followed by the liquidation, or the need for further financial
reorganization of the debtor, or any successor to the debtor (unless such liquidation or
reorganization is proposed in such plan of reorganization).
The Plan provides for the liquidation and distribution of the Debtors’ assets.
Accordingly, the Debtors believe that all Plan obligations will be satisfied without the need for
further reorganization of the Debtors.
4.
Valuation
As described above, the Debtors engaged in marketing their assets for sale and soliciting
bids in connection therewith pursuant to the Bidding Procedures Order. The Debtors believe that
this process provided the best method of valuing their enterprise, as it allows the market to speak
as to that value. The Debtors’ marketing and sale process was a comprehensive and arm’s length
processes with the goal of identifying counterparties for one or more potential value-maximizing
sale transactions, including an extensive prepetition process that began in April 2024. To ensure
that the integrity of the marketing and sale process is preserved, and value is maximized, this
Disclosure Statement does not include a valuation analysis (which the Debtors at this time do not
anticipate filing).
See 11 U.S.C. § 1125(b) (“The court may approve a disclosure statement
without a valuation of the debtor or an appraisal of the debtor’s assets.”); In re LBI Media, Inc.,
Case No. 18-12655 (CSS) (Bankr. D. Del. Jan. 22, 2019) (ECF No. 360) (order approving
disclosure statement without a valuation analysis and approving the filing of a valuation analysis
at a later date, if necessary); In re Gastar Exploration Inc., Case No. 18-36057 (MI) (Bankr. S.D.
Tex. Dec. 21, 2018) (ECF No. 282) (order approving disclosure statement that conducted
valuation analysis through a comprehensive marketing process).
C.
Acceptance by Impaired Classes.
The Bankruptcy Code requires, as a condition to confirmation, except as described in the
following section, that each class of claims or equity interests impaired under a plan, accept the
plan. A class that is not “impaired” under a plan is deemed to have accepted the plan and,
therefore, solicitation of acceptances with respect to such a class is not required.
Section 1126(c) of the Bankruptcy Code defines acceptance of a plan by a class of
impaired claims as acceptance by holders of at least two-thirds in dollar amount and more than
one-half in a number of allowed claims in that class, counting only those claims that have
actually voted to accept or to reject the plan. Thus, a class of Claims will have voted to accept
the Plan only if two-thirds in amount and a majority in number of the Allowed Claims in such
class that vote on the Plan actually cast their ballots in favor of acceptance.
Section 1126(d) of the Bankruptcy Code defines acceptance of a plan by a class of
impaired equity interests as acceptance by holders of at least two-thirds in amount of allowed
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interests in that class, counting only those interests that have actually voted to accept or to reject
the plan. Thus, a Class of Interests will have voted to accept the Plan only if two-thirds in
amount of the Allowed Interests in such class that vote on the Plan actually cast their ballots in
favor of acceptance.
D.
Confirmation Without Acceptance
by All Impaired Classes.
Section 1129(b) of the Bankruptcy Code allows a bankruptcy court to confirm a plan
even if all impaired classes have not accepted it; provided, that the plan has been accepted by at
least one impaired class. Pursuant to section 1129(b) of the Bankruptcy Code, notwithstanding
an impaired class’s rejection or deemed rejection of the plan, the plan will be confirmed, at the
plan proponent’s request, in a procedure commonly known as a “cramdown” so long as the plan
does not “discriminate unfairly” and is “fair and equitable” with respect to each class of claims
or equity interests that is impaired under, and has not accepted, the plan.
If any Impaired Class rejects the Plan, the Debtors reserve the right to seek to confirm the
Plan utilizing the “cramdown” provision of section 1129(b) of the Bankruptcy Code. To the
extent that any Impaired Class rejects the Plan or is deemed to have rejected the Plan, the
Debtors may request Confirmation of the Plan, as it may be modified from time to time, under
section 1129(b) of the Bankruptcy Code. The Debtors reserve the right to alter, amend, modify,
revoke, or withdraw the Plan or any Plan Supplement document, including the right to amend or
modify the Plan or any Plan Supplement document to satisfy the requirements of section 1129(b)
of the Bankruptcy Code.
1.
No Unfair Discrimination.
The “unfair discrimination” test applies to classes of claims or interests that are of equal
priority and are receiving different treatment under a plan. The test does not require that the
treatment be the same or equivalent, but that treatment be “fair.” In general, bankruptcy courts
consider whether a plan discriminates unfairly in its treatment of classes of claims or interests of
equal rank (e.g., classes of the same legal character). Bankruptcy courts will take into account a
number of factors in determining whether a plan discriminates unfairly. A plan could treat two
classes of unsecured creditors differently without unfairly discriminating against either class.
2.
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 percent of the amount of the allowed claims in the class. As to the dissenting
class, the test sets different standards depending upon the type of claims or equity interests in the
class.
The Debtors submit that if the Debtors “cramdown” the Plan pursuant to
section 1129(b) of the Bankruptcy Code, the Plan is structured so that it does not “discriminate
unfairly” and satisfies the “fair and equitable” requirement. With respect to the unfair
discrimination requirement, all Classes under the Plan are provided treatment that is substantially
equivalent to the treatment that is provided to other classes that have equal rank. With respect to
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the fair and equitable requirement, no Class under the Plan will receive more than 100 percent of
the amount of Allowed Claims or Interests in that Class. The Debtors believe that the Plan and
the treatment of all Classes of Claims or Interests under the Plan satisfy the foregoing
requirements for nonconsensual Confirmation of the Plan.
XII.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain United States (“U.S.”) federal income tax
consequences of the implementation of the Plan to the Debtors and beneficial owners of Claims
(each, a “Holder”). This summary is based on the Internal Revenue Code of 1986, as amended
(the “Tax Code”), the U.S. Treasury Regulations promulgated thereunder (the “Treasury
Regulations”), judicial decisions and published administrative rules, and pronouncements of the
Internal Revenue Service (the “IRS”), all as in effect on the date hereof (collectively,
“Applicable Tax Law”). Changes in Applicable Tax Law may have retroactive effect and could
significantly affect the U.S. federal income tax consequences described below. The Debtors
have not requested, and will not request, any ruling or determination from the IRS or any other
taxing authority with respect to the tax consequences discussed herein, 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.
Except as specifically set forth below, this summary does not apply to Holders that are
not U.S. Persons (as such term is defined in the Tax Code) and does not address foreign, state, or
local 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 its 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, broker-dealers, banks, mutual funds, insurance companies,
financial institutions, small business investment companies, regulated investment companies, tax
exempt organizations, governmental authorities or agencies, pass-through entities, beneficial
owners of pass-through entities, subchapter S corporations, employees or persons who received
their Claims pursuant to the exercise of an employee stock option or otherwise as compensation,
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, and Holders of Claims who
are themselves in bankruptcy), unless otherwise specifically stated herein. Furthermore, this
summary assumes that a Holder holds only Claims in a single Class and holds a Claim only as a
“capital asset” (within the meaning of section 1221 of the Tax Code). This summary also
assumes that the various debt and other arrangements to which any of the Debtors are a party will
be respected for U.S. federal income tax purposes in accordance with their form, and that the
Claims constitute interests in the Debtors “solely as a creditor” for purposes of section 897 of the
Tax Code. This summary does not discuss differences in tax consequences to a Holder that acts
or receives consideration in a capacity other than as a Holder of a Claim of the same Class, and
the tax consequences for such Holders may differ materially from that described below. This
summary does not address the U.S. federal income tax consequences to Holders of Claims
(a) whose Claims are Unimpaired or otherwise entitled to payment in full in Cash under the Plan,
(b) that are deemed to reject the Plan, or (c) that are otherwise not entitled to vote to accept or
reject the Plan.
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For purposes of this discussion, a “U.S. Holder” is a holder of a Claim that is: (1) an
individual citizen or resident of the United States for U.S. federal income tax purposes; (2) a
corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created
or organized under the laws of the United States, any state thereof or the District of Columbia;
(3) an estate the income of which is subject to U.S. federal income taxation regardless of the
source of such income; or (4) a trust (A) if a court within the United States is able to exercise
primary jurisdiction over the trust’s administration and one or more United States persons have
authority to control all substantial decisions of the trust or (B) that has a valid election in effect
under applicable Treasury Regulations to be treated as a United States person. For purposes of
this discussion, a “non-U.S. Holder” is any Holder of a Claim that is not a U.S. Holder other than
any partnership (or other entity treated as a partnership or other pass-through entity for U.S.
federal income tax purposes).
If a partnership (or other entity treated as a partnership or other pass-through entity for
U.S. federal income tax purposes) is a Holder, the tax treatment of a partner (or other beneficial
owner) generally will depend upon the status of the partner (or other beneficial owner) and the
activities of the entity. Partners (or other beneficial owners) of partnerships (or other
pass-through entities) that are Holders should consult their respective tax advisors regarding the
U.S. federal income tax consequences of the Plan.
ACCORDINGLY, THE FOLLOWING SUMMARY OF CERTAIN U.S. FEDERAL
INCOME TAX CONSEQUENCES IS FOR INFORMATIONAL PURPOSES ONLY AND
IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING AND ADVICE BASED
UPON THE INDIVIDUAL CIRCUMSTANCES PERTAINING TO A HOLDER OF A
CLAIM OR INTEREST. ALL HOLDERS OF CLAIMS OR INTERESTS ARE URGED
TO CONSULT THEIR OWN TAX ADVISORS FOR THE FEDERAL, STATE, LOCAL,
AND NON-U.S. TAX CONSEQUENCES OF THE PLAN.
A.
Certain U.S. Federal Income Tax Consequences of the Plan to the Debtors
The Sale Transactions and the liquidation of any remaining assets of the Debtors are
generally expected to be treated as one or more taxable sales of assets and/or equity interests of
the Debtors, with the Debtors recognizing gain or loss equal to the difference between the value
of the consideration received by the Debtors (including, for this purpose, assumption of
liabilities) and the Debtors’ tax basis in such assets.
In general, absent an exception, a taxpayer will realize and recognize cancellation of
indebtedness income (“COD Income”) upon satisfaction of its outstanding indebtedness for total
consideration less than the amount of such indebtedness. The amount of COD Income, in
general, is the excess of (1) the adjusted issue price of the indebtedness satisfied, over (2) the fair
market value of any consideration given in satisfaction of such indebtedness at the time of the
exchange.
Under section 108 of the Tax Code, a taxpayer is not required to include COD Income in
gross income (a) if the taxpayer is under the jurisdiction of a court in a case under chapter 11 of
the Bankruptcy Code and the discharge of debt occurs pursuant to that case (the “Bankruptcy
Exception”), or (b) to the extent that the taxpayer is insolvent immediately before the discharge
(the “Insolvency Exception”). Instead, as a consequence of such exclusion, a taxpayer-debtor
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must reduce its tax attributes by the amount of COD Income that it excluded from gross income.
In general, tax attributes will be reduced in the following order: (a) net operating losses
(“NOLs”); (b) most tax credits; (c) capital loss carryovers; (d) tax basis in assets (but not below
the amount of liabilities to which the debtor remains subject); (e) passive activity loss and credit
carryovers; and (f) foreign tax credits. Alternatively, the taxpayer can elect first to reduce the
basis of its depreciable assets pursuant to section 108(b)(5) of the Tax Code. Such reduction in
tax attributes occurs only after the tax for the year of the debt discharge has been determined.
The Debtors expect to realize significant COD Income as a result of the consummation of
the Plan. The exact amount of any COD Income that will be realized by the Debtors will not be
determinable until the consummation of the Plan.
B.
Certain U.S. Federal Income Tax Consequences of the Plan to Holders of
Allowed Class 4 First Lien Claims and Allowed Class 5 Second Lien Claims
Pursuant to the Plan, in exchange for full and final satisfaction, settlement, release and
discharge of the Allowed Class 4 First Lien Claims and Allowed Class 5 Second Lien Claims,
each Holder thereof will receive its Pro Rata share of the Additional Value pursuant to the
waterfall recovery described in the Plan.
Each such Holder will be treated as exchanging their Claim in a taxable exchange under
section 1001 of the Tax Code for the Additional Value. Accordingly, subject to the rules
regarding accrued but untaxed interest, each Holder of such Claim should recognize gain or loss
equal to the difference between (1) the amount of Additional Value received, as applicable, in
exchange for such Claim, and (2) such Holder’s adjusted basis, if any, in such Claim.
C.
Character of Gain or Loss
Where gain or loss is recognized by a Holder of a Claim upon the exchange of its
Allowed Claim, the character of such gain or loss as long-term or short-term capital gain or loss
or as ordinary income or loss will be determined by a number of factors, including, among
others, the tax status of the Holder, whether the Allowed Claim constitutes a capital asset in the
hands of the Holder and how long it has been held, whether the Allowed Claim was acquired at a
market discount (discussed below), whether and to what extent the Holder previously had
claimed a bad debt deduction, and the nature and tax treatment of any fees, costs or expense
reimbursements to which consideration is allocated. Each Holder of an Allowed Claim is urged
to consult its tax advisor to determine the character of any gain or loss recognized with respect to
the satisfaction of its Allowed Claim.
Holders of Allowed Claims who recognize capital losses as a result of the distributions
under the Plan will be subject to limits on their use of capital losses. For corporate Holders,
losses from the sale or exchange of capital assets may only be used to offset capital gains.
Corporate Holders who have more capital losses than can be used in a tax year may be allowed
to carry over unused capital losses for the five taxable years following the capital loss year and
may be allowed to carry back unused capital losses to the three taxable years that precede the
capital loss year.
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D.
Market Discount
Under the “market discount” provisions of sections 1276 through 1278 of the Tax Code,
some or all of any gain realized by a Holder exchanging the debt instruments constituting its
Allowed Claim may be treated as ordinary income (instead of capital gain), to the extent of the
amount of “market discount” on the debt constituting the surrendered Allowed Claim.
In general, a debt instrument is considered to have been acquired with “market discount”
if its Holder’s adjusted tax basis in the debt instrument is less than (i) the sum of all remaining
payments to be made on the debt instrument, excluding “qualified stated interest” or, (ii) in the
case of a debt instrument issued with “original issue discount” (“OID”), its adjusted issue price,
by at least a de minimis amount (equal to 0.25 percent of the sum of all remaining payments to
be made on the debt instrument, excluding qualified stated interest, multiplied by the number of
remaining whole years to maturity).
Any gain recognized by a Holder on the exchange of debt constituting its Allowed Claim
that was acquired with market discount should be treated as ordinary income to the extent of the
market discount that accrued thereon while such debts were considered to be held by the Holder
(unless the Holder elected to include market discount in income as it accrued).
E.
Accrued Interest.
To the extent that any amount received by a Holder of a surrendered Allowed Claim
under the Plan is attributable to accrued but unpaid interest and such amount has not previously
been included in the Holder’s gross income, such amount should be taxable to the Holder as
ordinary interest income. Conversely, a Holder of a surrendered Allowed Claim may be able to
recognize a deductible loss (or, possibly, a write-off against a reserve for worthless debts) to the
extent that any accrued interest on the debt instruments constituting such claim was previously
included in the Holder’s gross income but was not paid in full by the Debtors. Such loss may be
ordinary; however, the tax law is unclear on this point.
The extent to which the consideration received by a Holder of a surrendered Allowed
Claim will be attributable to accrued interest on the debts constituting the surrendered Allowed
Claim is unclear. Certain Treasury Regulations generally treat a payment under a debt
instrument first as a payment of accrued and untaxed interest and then as a payment of principal.
Application of this rule to a final payment on a debt instrument being discharged at a discount in
bankruptcy is unclear. Pursuant to the terms of the Plan, distributions in respect of Allowed
Claims are allocated first to the principal amount of such claims (as determined for U.S. federal
income tax purposes) and then, to the extent the consideration exceeds the principal amount of
the claims, to any portion of such claims for accrued but unpaid interest. However, the
provisions of the Plan are not binding on the IRS nor a court with respect to the appropriate tax
treatment for Holders.
F.
Limitation on Use of Capital
Losses
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A Holder of a Claim who recognizes capital losses as a result of the transactions
undertaken pursuant to the Plan will be subject to limits on the use of such capital losses. For a
non-corporate Holder, capital losses may be used to offset any capital gains recognized (without
regard to holding periods), and also ordinary income recognized to the extent of the lesser of
(a) $3,000 ($1,500 for married individuals filing separate returns) or (b) the excess of such
capital losses over such capital gains. A non-corporate Holder may carry over unused capital
losses recognized and apply them against future capital gains recognized and a portion of their
ordinary income recognized for an unlimited number of years. For corporate Holders, capital
losses recognized may only be used to offset capital gains recognized. A corporate Holder that
recognizes more capital losses than may be used in a tax year may carry back unused capital
losses to the three years preceding the capital loss year or may carry over unused capital losses
for the five years following the capital loss year.
G.
Information Reporting and Backup
Withholding
The Debtors will withhold all amounts required by law to be withheld from distributions
or payments. The Debtors will comply with all applicable reporting requirements of the Tax
Code. In general, information reporting requirements may apply to distributions or payments
made to a Holder of a Claim under the Plan. In addition, backup withholding of taxes (currently
at a 24% rate) will generally apply to payments in respect of an Allowed Claim under the Plan
unless, in the case of a U.S. Holder, such U.S. Holder provides a properly executed IRS Form
W-9 and, in the case of non-U.S. Holder, such non-U.S. Holder provides a properly executed
applicable IRS Form W-8 (or otherwise establishes such non-U.S. Holder’s eligibility for an
exemption).
Backup withholding is not an additional tax. Amounts withheld under the backup
withholding rules may be credited against a Holder’s U.S. federal income tax liability, and a
Holder may obtain a refund of any excess amounts withheld under the backup withholding rules
by filing an appropriate claim for refund with the IRS (generally, a federal income tax return).
In addition, from an information reporting perspective, the Treasury Regulations
generally require disclosure by a taxpayer on its U.S. federal income tax return of certain types of
transactions in which the taxpayer participated, including, among other types of transactions,
certain transactions that result in the taxpayer’s claiming a loss in excess of specified thresholds.
Holders are urged to consult their tax advisors regarding these regulations and whether the
transactions contemplated by the Plan would be subject to these regulations and require
disclosure on the Holders’ tax returns.
THE FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN ARE COMPLEX.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL
INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER IN
LIGHT OF SUCH HOLDER’S CIRCUMSTANCES AND INCOME TAX SITUATION.
ALL HOLDERS OF CLAIMS SHOULD CONSULT WITH THEIR TAX ADVISORS AS
TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE TRANSACTIONS
CONTEMPLATED BY THE PLAN, INCLUDING THE APPLICABILITY AND
EFFECT OF ANY STATE, LOCAL OR NON-U.S. TAX LAWS, AND OF ANY CHANGE
IN APPLICABLE TAX LAWS.
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H.
U.S. Federal Income Tax Treatment of the Liquidating Trust
1.
Liquidating Trust
It is intended that any Liquidating Trust will qualify as a “liquidating trust” under
Treasury Regulation section 301.7701-4(d). Accordingly, it is intended that any Liquidating
Trust will be treated as a grantor trust for U.S. federal income tax purposes, and that the
beneficiaries will be treated as grantors of such trust.
In general, a grantor trust is not a separate taxable entity. The IRS, in Revenue
Procedure 94-45, sets forth the general criteria for obtaining an advance ruling as to the grantor
trust status of a liquidating trust under a chapter 11 plan. Consistent with the requirements of
Revenue Procedure 94-45, the Liquidating Trust agreement will require all relevant parties to
treat the transfer of the Liquidating Trust Assets for U.S. federal income tax purposes as (i) a
transfer of the Liquidating Trust Assets directly to the beneficiaries in satisfaction of the Claims
against the Debtors (to the extent of the value of the beneficiaries’ respective interests in the
applicable Liquidating Trust Assets) followed by (ii) the transfer by such beneficiaries to the
Liquidating Trust of the Liquidating Trust Assets in exchange for beneficial interests in the
Liquidating Trust (to the extent of the value of the beneficiaries’ respective interests in the
applicable Liquidating Trust Assets), provided, however, that the Liquidating Trust Assets will
be subject to any post-Effective Date liabilities or obligations incurred by the Liquidating Trust
relating to the pursuit of Liquidating Trust Assets.
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Accordingly, the beneficiaries should be treated for U.S. federal income tax purposes as
the grantors and owners of their respective share of the Liquidating Trust Assets. The foregoing
treatment should also apply, to the extent permitted by applicable law, for state and local income
tax purposes.
As a grantor trust, the Liquidating Trust agreement will require all items of income, gain,
loss, deduction and credit to be included in the income of the beneficiaries, and reported on such
beneficiaries’ U.S. federal income tax returns as if such items had been recognized directly by
the beneficiaries in the proportions in which they own beneficial interests in the Liquidating
Trust.
Subject to definitive guidance from the IRS or a court of competent jurisdiction to the
contrary (including the receipt of an IRS private letter ruling if the trustee of any Liquidating
Trust so requests one, or the receipt of an adverse determination by the IRS upon audit if not
contested by the trustee of any Liquidating Trust), the trustee of any Liquidating Trust may (i)
timely elect to treat any portion or all of the Liquidating Trust or any Liquidating Trust Assets as
a “disputed ownership fund” within the meaning of Treasury Regulation Section 1.468B-9 for
federal income tax purposes (the “Disputed Ownership Fund”) and (ii) to the extent permitted by
applicable law, report consistently with the foregoing for state and local income tax purposes.
Accordingly, any Disputed Ownership Fund will be subject to tax annually on a separate entity
basis on any net income earned with respect to any Liquidating Trust Assets held in any such
Disputed Ownership Fund, and all distributions from such reserves will be treated as received by
holders in respect of their Claims as if distributed by the Debtors.
No ruling is currently being requested from the IRS concerning the tax status of the
Liquidating Trust as a liquidating trust. As such, there can be no assurance that the IRS would
not take a contrary position to the classification of the Liquidating Trust as a liquidating trust. If
the IRS were to successfully challenge the liquidating trust classification, the U.S. federal
income tax consequences to the Liquidating Trust and the Holders of Claims could vary from
those discussed herein (including the potential for an entity level tax to be imposed on all income
of the Liquidating Trust). Certain U.S. federal income tax consequences of the Liquidating Trust
or portions thereof relating to Disputed Claims and being treated as a Disputed Ownership Fund
are also discussed below.
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2.
Reporting.
Any Liquidating Trust shall comply with all tax reporting requirements, including,
without limitation, filing returns for the Liquidating Trust as a grantor trust pursuant to Treasury
Regulation section 1.671-4(a) and, in connection therewith, the Liquidating Trustee may require
the beneficiaries to provide certain tax information as a condition to receipt of distributions.
The trustee of any Liquidating Trust shall also send to each beneficiary a separate statement
setting forth such beneficiary’s share of items of Liquidating Trust income, gain, loss, deduction,
or credit. Each such beneficiary will be required to report such items on its U.S. federal income
tax return; provided, however, that any reporting under this section is subject to the discretion of
the trustee of any Liquidating Trust to elect to treat the Liquidating Trust or any Liquidating
Trust Assets (in whole or in part) as a Disputed Ownership Fund, which election may alter the
requirement in accordance with federal tax laws and regulations.
All taxable income and loss of the Liquidating Trust will be allocated among, and treated
as directly earned and incurred by, the beneficiaries with respect to such beneficiary’s interest in
the assets of the Liquidating Trust (and not as income or loss with respect to its prior Claims),
with the possible exception of any taxable income and loss allocable to any assets allocable to, or
retained on account of, Disputed Claims. The character of any income or gain and the character
and ability to use any loss or loss will depend on the particular situation of the beneficiary.
The U.S. federal income tax obligations of a beneficiary with respect to its beneficial
interest in the Liquidating Trust are not dependent on the Liquidating Trust distributing any Cash
or other proceeds, subject to any portion(s) of the Liquidating Trust allocable to Disputed
Claims. Thus, a beneficiary may incur U.S. federal income tax liability with respect to its
allocable share of the Liquidating Trust’s income even if the Liquidating Trust does not make a
concurrent distribution to the U.S. Holder.
In general, other than in respect of amounts retained on account of Disputed Claims, a
distribution of Cash by the Liquidating Trust will not be separately taxable to a beneficiary of the
Liquidating Trust, since the beneficiary is already regarded for U.S. federal income tax purposes
as owning the underlying assets (and will be taxed at the time the Cash was earned or received
by the Liquidating Trust). Holders are urged to consult their tax advisors regarding the
appropriate U.S. federal income tax treatment of any subsequent distributions of Cash originally
retained by the Liquidating Trust on account of Disputed Claims.
3.
Valuation.
After the Effective Date, the Liquidating Trustee shall (i) determine the fair market value
of the Liquidating Trust Assets as of the Effective Date, based on the Liquidating Trustee’s good
faith determination (in conjunction with guidance provided by trust professionals if any); and
(ii) establish appropriate means to apprise the beneficiaries of such valuation; provided,
however, that no such valuation will be required if the trustee of any Liquidating Trust elects to
treat the Liquidating Trust or the Liquidating Trust Assets (in whole or in part) as a Disputed
Ownership Fund. The valuation, if established pursuant to the terms of the Liquidating Trust
agreement, shall be used consistently by all Parties (including, without limitation, the Debtors,
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the Liquidating Trust, the trustee of any Liquidating Trust, and the beneficiaries) for all U.S.
federal income tax purposes.
4.
Tax Returns.
In accordance with the provisions of section 6012(b)(3) of the Tax Code (and any
comparable provision of state or local tax law), the trustee of any Liquidating Trust shall cause
to be prepared, at the cost and expense of the Liquidating Trust, the income tax returns (federal,
state and local) that the Debtors are required to file (to the extent such returns have not already
been filed by the Effective Date). The trustee of any Liquidating Trust shall also cause to be
prepared, at the cost and expense of the Liquidating Trust, the income tax returns (federal, and if
applicable, state and local) required to be filed on behalf of the Liquidating Trust, and such
returns filed on behalf of the Liquidating Trust shall be consistent with the treatment of the
Liquidating Trust as a liquidating trust within the meaning of Treasury Regulations
Section 301.7701-4(d) that is a grantor trust pursuant to Treasury Regulations Section 1.671-4(a)
(other than with respect to any election by the trustee of any Liquidating Trust to treat the
Liquidating Trust or any of the Liquidating Trust Assets (in either case, in whole or in part) as a
Disputed Ownership Fund), and to the extent permitted by applicable law, report consistently
with the foregoing for state and local income tax purposes. The trustee of any Liquidating Trust
shall timely file each such tax return with the appropriate taxing authority and shall pay out of
the assets of the Liquidating Trust all taxes due with respect to the period covered by each such
tax return.
5.
Attribution of Income.
Subject to definitive guidance from the IRS or a court of competent jurisdiction to the
contrary (including the issuance of applicable Treasury Regulations, the receipt by the trustee of
any Liquidating Trust of a private letter ruling if the trustee of such Liquidating Trust so
requests one, or the receipt of an adverse determination by the IRS upon audit if not contested by
the trustee of such Liquidating Trust), taxable income, gain, loss or deduction in respect of the
Liquidating Trust Assets shall be attributed to the beneficiaries in proportion to their beneficial
interests in the Liquidating Trust Assets. Notwithstanding anything in the Plan or Disclosure
Statement, the timing of distributions shall comply with the requirements of Revenue Procedure
94-45, as determined by the Liquidating Trustee in its reasonable discretion.
6.
Tax Identification Numbers.
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The trustee of any Liquidating Trust may require any beneficiary to furnish to the trustee
of such Liquidating Trust its employer or taxpayer identification number as assigned by the IRS
(e.g., via signed W-9 or for any non-U.S. Beneficiary a W-8) or otherwise certify in writing to
the satisfaction of the trustee of such Liquidating Trust that distributions from the Liquidating
Trust to the beneficiary are exempt from backup withholding. The trustee of any Liquidating
Trust may condition any distribution to any beneficiary upon receipt of such identification
number or exemption certification. If after reasonable inquiry and reasonable time constraints
for responding (in each case, as determined by the trustee of any Liquidating Trust in its sole
discretion), any beneficiary fails to provide such identification number, then distributions to such
beneficiary shall become undeliverable property to be made available for distribution to the
remaining beneficiaries, in accordance with the terms of the Plan and the Liquidating Trust
agreement.
7.
Annual Statements.
The trustee of any Liquidating Trust shall annually (for tax years in which distributions
from the Liquidating Trust are made) send to each beneficiary a separate statement setting forth
the beneficiary’s share of items of income, gain, loss, deduction or credit, and all such
beneficiaries shall report such items on their federal income tax returns; provided, however, that
any such reporting obligation under this subsection is subject to the discretion trustee of such
Liquidating Trust to elect to treat the Liquidating Trust or any of the Liquidating Trust Assets (in
either case, in whole or in part) as a Disputed Ownership Fund, which may impact the
requirement of such annual statements pursuant to federal tax regulations and applicable laws.
8.
Notices.
The trustee of any Liquidating Trust shall distribute such notices to the beneficiaries as
the trustee of such Liquidating Trust determines are necessary or desirable.
9.
Expedited Determination
The trustee of any Liquidating Trust may request an expedited determination of taxes of
the Debtors or of the Liquidating Trust under Bankruptcy Code section 505(b) for all tax returns
filed for, or on behalf of, the Debtors and the Liquidating Trust for all taxable periods through
the dissolution of the Liquidating Trust.
10.
Withholding.
The trustee of any Liquidating Trust will comply with all applicable governmental
withholding requirements.
XIII.
RECOMMENDATION.
In the opinion of the Debtors, the Plan is preferable to all other available alternatives and
provides for a larger distribution to the Debtors’ creditors than would otherwise result in any
other scenario. Accordingly, the Debtors recommend that holders of Claims entitled to vote on
the Plan vote to accept the Plan and support Confirmation of the Plan.
75
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76
VYAIRE MEDICAL, INC.
on behalf of itself and all other Debtors
/s/ Charles N. Braley
Charles N. Braley
Chief Restructuring Officer
Dated: September 1130, 2024
Case 24-11217-BLS Doc 584 Filed 09/30/24 Page 89 of 91
EXHIBIT A
Chapter 11 Plan
[Filed Separately]
A-1
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EXHIBIT B
Liquidation Analysis
[To Be Filed at Docket No. 532]
B-1
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