Case Doc 6 Filed 08/02/17 Page 1 of 47 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

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1 Case Doc 6 Filed 08/02/17 Page 1 of 47 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE ) In re: ) ) TERRAVIA HOLDINGS, INC., et al., 1 ) ) Debtors. ) ) ) Chapter 11 Case No. 17- ( ) Joint Administration Requested MOTION OF DEBTORS FOR ENTRY OF INTERIM AND FINAL ORDERS AUTHORIZING (I) THE DEBTORS TO (A) PAY PREPETITION EMPLOYEE OBLIGATIONS AND (B) MAINTAIN EMPLOYEE BENEFITS PROGRAMS AND PAY RELATED ADMINISTRATIVE OBLIGATIONS, (II) CURRENT AND FORMER EMPLOYEES TO PROCEED WITH OUTSTANDING WORKERS COMPENSATION CLAIMS AND (III) FINANCIAL INSTITUTIONS TO HONOR AND PROCESS RELATED CHECKS AND TRANSFERS TerraVia Holdings, Inc. (formerly known as Solazyme, Inc.) ( TerraVia ) and certain of its subsidiaries that are debtors and debtors in possession (collectively, the Debtors ) in the above-captioned chapter 11 cases (the Chapter 11 Cases ) hereby file this Motion of Debtors for Entry of Interim and Final Orders Authorizing (i) the Debtors To (a) Pay Prepetition Employee Obligations and (b) Maintain Employee Benefits Programs and Pay Related Administrative Obligations, (ii) Current and Former Employees To Proceed with Outstanding Workers Compensation Claims and (iii) Financial Institutions To Honor and Process Related Checks and Transfers (this Motion ). This Motion is supported by (i) the Declaration of Tyler W. Painter in Support of Debtors Chapter 11 Proceedings and First Day Pleadings 1 The debtors and debtors in possession in these chapter 11 cases, along with the last four digits of their respective Employer Identification Numbers, are as follows: TerraVia Holdings, Inc. (7078), Solazyme Brazil LLC (2839) and Solazyme Manufacturing 1, LLC (4172). The debtors mailing address is 225 Gateway Boulevard, South San Francisco, CA

2 Case Doc 6 Filed 08/02/17 Page 2 of 47 (the Painter Declaration ) filed contemporaneously herewith and (ii) the entire record of the Chapter 11 Cases. In further support of this Motion, the Debtors respectfully state as follows: Relief Requested 1. By this Motion, and pursuant to sections 105(a), 362(d), 363(b), 363(c), 507(a)(4), 507(a)(5) and 541 of title 11 of the United States Code (the Bankruptcy Code ) and Rule 6003 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules ), the Debtors seek entry of interim and final orders (the Proposed Orders ) (a) authorizing, but not requiring, the Debtors to (i) pay or cause to be paid, in their sole discretion, all of the prepetition amounts owing (and associated costs) under or related to Wages, Sales Commissions, the Withholding Obligations, the Reimbursement Obligations, the Relocation Obligations, the Health and Welfare Plan Obligations, the Disability Benefits, the COBRA obligations, the PTO and Sick Leave Obligations, the Workers Compensation Obligations, the Contingent Workers Obligations, the Severance Obligations, the Retention Payments, the Non-Insider EIP Obligations, the Cash Bonus Program Obligations and the Other Benefits Programs (each as individually defined below and, collectively, the Prepetition Employee Obligations ), (ii) maintain, pay and honor, in their sole discretion, their plans, practices, programs and policies for their current and former Employees (as defined below) (collectively, the Employee Programs ), as applicable, as those Employee Programs were in effect as of the Petition Date and as may be modified, terminated, amended or supplemented from time to time by the Debtors, in their sole discretion and (iii) make post-petition payments pursuant to the Employee Programs in the ordinary course of business, as well as to pay related administrative obligations, (b) permitting current and former Employees holding outstanding claims under the Workers Compensation Program (as defined below) to proceed with such claims in the appropriate judicial or administrative fora and (c) authorizing and directing all applicable banks -2-

3 Case Doc 6 Filed 08/02/17 Page 3 of 47 and other financial institutions to receive, process, honor and pay any and all checks drawn on the Debtors general disbursement account and other transfers to the extent that those checks or transfers relate to any of the foregoing. 2. By seeking the authorization requested herein, it should not be presumed that the Debtors have determined, as of this time, which of the Prepetition Employee Obligations they will pay or honor, nor should any party rely on this Motion as to any specific claim or benefit. Without limiting the foregoing, the Debtors intend to pay all Employees (and, where applicable, former Employees) any validly earned Prepetition Employee Obligations that the Debtors would be required to pay in the ordinary course of business. Jurisdiction and Venue 3. The United States Bankruptcy Court for the District of Delaware (the Court ) has jurisdiction over this Motion pursuant to 28 U.S.C. 157 and 1334 and the Amended Standing Order of Reference from the United States District Court for the District of Delaware, dated February 29, This matter is a core proceeding within the meaning of 28 U.S.C. 157(b)(2) and, pursuant to Rule (f) of the Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the District of Delaware (the Local Rules ), the Debtors consent to the entry of a final order by the Court in connection with this Motion to the extent that it is later determined that the Court, absent consent of the parties, cannot enter final orders or judgments consistent with Article III of the United States Constitution. 5. Venue of the Chapter 11 Cases and related proceedings is proper in this district pursuant to 28 U.S.C and

4 Case Doc 6 Filed 08/02/17 Page 4 of 47 Background 6. On August 2, 2017 (the Petition Date ), each of the Debtors filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code. The Debtors have continued in possession of their property and have continued to operate and manage their businesses as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. 7. No request has been made for the appointment of a trustee or examiner, and no statutory committee has been appointed in the Chapter 11 Cases. 8. Additional information about the Debtors businesses and affairs, capital structure and prepetition indebtedness, and the events leading up to the Petition Date, can be found in the Painter Declaration, which is incorporated herein by reference. Prepetition Employee Obligations 9. The Debtors are a public company engaged in the development, production and commercialization of algae-derived food, nutrition and specialty ingredients and products. Specifically, the Debtors combine innovative biotechnology with established fermentation techniques to produce a wide range of algae-based food ingredients, consumer food products (such as Thrive Culinary Algae Oil) and animal nutritional products, such as AlgaPrime DHA, which is sold commercially by Solazyme Bunge Produtos Renováveis Ltda., the joint venture TerraVia formed with Bunge Global Innovation, LLC in Crucial to the development and production of this unique suite of products, the Debtors employ a talented and dedicated workforce of approximately 77 employees, who have enabled the Debtors to continue to achieve their high standards of quality and sustainability for their products and the processes that produce them. 10. The Debtors workforce includes a multi-disciplinary team of experts, such as chemists, biologists, engineers, research scientists, process technicians and laboratory specialists, -4-

5 Case Doc 6 Filed 08/02/17 Page 5 of 47 many of whom have decades of experience in the biotechnology industry. In addition to their scientific staff, the Debtors also employ a diverse group of managers and business and administrative professionals with extensive experience and expertise in all aspects of a technology, research and production business. The majority of the Debtors employees lives and works in California, where the Debtors headquarters are located. Continuing to properly compensate, reward and incentivize this workforce is critical to stabilizing the Debtors businesses and preserving the value of the Debtors estates for the benefit of all of their constituencies. 11. As of the Petition Date, the Debtors employ approximately 77 people in active status working in both full-time and part-time 2 positions, 3 including executives, engineers, researchers, lawyers, plant technicians, business managers, scientists, human resource professionals, finance professionals, sales and marketing agents, information technology specialists, administrative support staff and other personnel (together with current members of the Debtors Boards of Directors or similar governing bodies and scientific and nutrition advisory boards, Employees ). None of the Debtors current Employees are represented by a union. 2 One of the Debtors Employees is working for the Debtors on a part-time basis. Such Employee is eligible to receive the same benefits offered to full-time Employees, subject to the requirement that such Employee works at least 20 hours per week. 3 One of the Debtors Employees is on medical short-term disability leave. -5-

6 Case Doc 6 Filed 08/02/17 Page 6 of 47 Wages, Salaries and Other Compensation 12. The Debtors generally pay the Employees bi-weekly, on Friday. The Debtors generally fund payroll to ADP, the Debtors payroll administrator, on the Wednesday or Thursday immediately prior to the Friday when the Employees are paid. 4 The most recent payroll was paid to the Employees on July 28, The Debtors average gross payroll per payroll period is approximately $625,000. The Debtors estimate that, as of the Petition Date, they owe approximately $195,000 in wages and salaries to Employees ( Wages ) In addition to Wages, the Debtors pay a three percent commission on net revenue earned during a fiscal quarter (subject to certain adjustments) to certain Employees who generate sales of the Debtors and their affiliates food, nutrition and specialty ingredient products to third parties that are not distributors or affiliates (the Sales Commissions ). The Debtors pay the Sales Commissions quarterly following the quarter in which they are earned. For sales generated in 2016, the Debtors paid Sales Commissions in the approximate amount of $62,000. The Debtors estimate that, as of the Petition Date, they may owe Sales Commissions to certain Employees. 14. The Debtors believe that, as of the Petition Date, no Employee is owed Wages or Sales Commissions, in the aggregate, in excess of the $12,850 statutory cap under section 507(a)(4) of the Bankruptcy Code. 6 4 Although payroll is generally funded to ADP on the Wednesday or Thursday prior to the Friday when the Employees are paid, payroll tax amounts are generally not funded to ADP until the Thursday prior to the Friday when the Employees are paid. 5 Employees who are paid on an hourly basis are paid one week in arrears. The Debtors believe that approximately one week of payroll for such Employees will be owing as of the Petition Date. In addition, the estimated amount of Wages the Debtors owe as of the Petition Date reflects the amount of wages and salaries for non-hourly Employees that have accrued after the most recent payroll period. 6 As described in further detail below, certain Employees have accrued PTO during the 180-day period prior to the Petition Date valued in excess of $12,850. In the event that such Employees are terminated after the -6-

7 Case Doc 6 Filed 08/02/17 Page 7 of 47 Withholding Obligations 15. The Debtors routinely withhold from Employees Wages certain amounts that the Debtors are required to transmit to third parties, such as Social Security, Medicare, federal and state income taxes, the Health and Welfare Plans, the 401(k) Plan, contributions and payroll deduction payment programs for various insurance programs, garnishment, child support, reimbursement for personal credit card charges, employee benefit plans and other similar withholdings (collectively, the Withholding Obligations ). The Debtors respectfully submit that the Withholding Obligations, to the extent that they were in the Debtors possession as of the Petition Date and remain in the Debtors possession, are not property of the Debtors bankruptcy estates under section 541 of the Bankruptcy Code. Business Expense Reimbursement 16. The Debtors customarily reimburse Employees who incur business expenses in the ordinary course of performing their business duties on behalf of the Debtors. These reimbursement obligations include, among other things, travel (e.g., airfare, hotel, car rental, gas, cab, business parking and mileage), business meals, subscriptions, software licenses, membership and dues, trade show fees and office expenses (collectively, the Reimbursement Obligations ). 17. Reimbursement is made directly to the Employee for business expenses paid by such Employee after such Employee submits an expense report. Payment of Reimbursement Obligations occurs by check or direct deposit. From January 1, 2017 through June 30, 2017, the Reimbursement Obligations averaged approximately $16,900 per month. Although it is difficult Petition Date, the Debtors would be obligated to pay the value of such PTO to such Employees upon such Employee s termination. For the avoidance of doubt, and as set forth below, the Debtors seek, by this Motion, to honor and pay the PTO Obligations in the ordinary course of business. -7-

8 Case Doc 6 Filed 08/02/17 Page 8 of 47 for the Debtors to determine the exact amount of the Reimbursement Obligations outstanding at any particular time, due to the generally unpredictable and irregular nature of Employees seeking payment pursuant to the Reimbursement Obligations, the Debtors estimate that they owe approximately $15,000 related to Reimbursement Obligations as of the Petition Date. Relocation Benefits 18. In the ordinary course of business and on a case-by-case basis, the Debtors pay or reimburse Employees for relocation expenses incurred at the Debtors request or for the Debtors benefit (collectively, the Relocation Obligations ). The Debtors do not have a formal policy governing the payment of the Relocation Obligations; however, Relocation Obligations generally include amounts incurred for property rental assistance, temporary lodging and housing, moving expenses, travel expenses for housing services and visits, storage, lease termination and sales and marketing assistance. As of the Petition Date, the Debtors believe that they have accrued approximately $275,000 in Relocation Obligations. Health and Welfare Benefits 19. The Debtors offer several health and welfare benefit plans (collectively, the Health and Welfare Plans ) to Employees (and, in some cases, former Employees), including, among others, coverage for medical, dental, vision, flexible spending accounts, health savings accounts, basic and supplemental life insurance, basic accidental death and dismemberment, short-term and long-term disability, business travel and accident insurance and certain other insurance, employee assistance and benefit programs (collectively, the Health and Welfare Plan Obligations ). 20. The Debtors medical plans (collectively, the Medical Plans ) require the Debtors to pay for the costs arising under such plans, including claim payments and associated administrative costs. Claims in respect of the Medical Plans are funded on a periodic basis -8-

9 Case Doc 6 Filed 08/02/17 Page 9 of 47 pursuant to monthly invoices received from providers. From January 1, 2017 through June 30, 2017, claims on account of the Medical Plans for current Employees have averaged approximately $130,000 per month. The Medical Plans are insured by and administered through Kaiser Foundation Health Plan and Blue Shield of California. 21. From January 1, 2017 through June 30, 2017, the Debtors incurred expenses in the approximate amounts of (a) $780,000 for payments under the Medical Plans, (b) $9,100 for contributions to health savings accounts, (c) $93,000 for payments under the dental and vision plans, (d) $30,000 for payments under the life and accidental death and dismemberment insurance plans and (e) $60,000 for payments under the other Health and Welfare Plans. 22. The Debtors offer short-term and long-term disability benefits to their Employees. In the event that an Employee becomes eligible for short-term disability benefits, the benefits are provided for up to 90 days, after which period certain eligible Employees may receive additional long-term disability benefits (the Disability Benefits ). From January 1, 2017 through June 30, 2017, the Debtors incurred expenses in the approximate amount of $4,000 on account of the obligations related to Disability Benefits and estimate paying approximately the same amount during the remainder of calendar year The Debtors also incurred approximately $2,700 of expenses from January 1, 2017 through June 30, 2017 in connection with a third-party administrator s management, reporting and processing of certain obligations to former Employees under the Consolidated Omnibus Budget Reconciliation Act of 1985 ( COBRA ). All Employees have the right under COBRA to elect to receive COBRA coverage, which extends medical, dental and vision benefits to which an Employee was entitled immediately prior to termination for a specified posttermination period of 36 months. Employees who elect to receive COBRA coverage are -9-

10 Case Doc 6 Filed 08/02/17 Page 10 of 47 generally required to pay most or all of the elected premiums. As of the Petition Date, approximately 20 former Employees have elected to receive COBRA coverage. COBRA coverage is administered through Discovery Benefits, Inc. 24. All other Health and Welfare Plans are insured by and administered through thirdparty insurance providers, including Kaiser Foundation Health Plan (Medical Plans), Blue Shield of California (Medical Plans), MetLife (dental plans), VSP (vision plan), Mutual of Omaha Insurance Company (long-term disability insurance, basic and supplemental life insurance and accidental death and dismemberment), Discovery Benefits, Inc. (flexible spending accounts, COBRA, dependent care and commuter benefits), Health Equity (health savings accounts) and ACE (business travel and accident). 25. Because of the manner in which expenses are incurred and claims are processed under the Health and Welfare Plans, it is difficult for the Debtors to determine at any particular time the extent of their outstanding obligations under the Health and Welfare Plans. Based on historical experience and expected future trends, the Debtors estimate that the cost of the Health and Welfare Plan Obligations (including payments to administrators) is approximately $175,000 per month. Paid Time Off, Holidays and Sick Leave 26. Pursuant to the Debtors employee handbook, all full-time and part-time Employees who work 20 or more hours per week are eligible for paid time off ( PTO ) benefits. 7 Employees accrue PTO based on their regularly scheduled workweek and continuous length of service, measured from their date of hire. Annual PTO accrual ranges from 20 to 30 7 Employees may take PTO for any reason, including, among other things, vacation, personal illness, medical and dental appointments, emergencies, family care and medical leave and personal commitments. -10-

11 Case Doc 6 Filed 08/02/17 Page 11 of 47 days and, if available PTO is not used by the end of a calendar year, accrued and unused PTO will carry over to the following calendar year (subject to a maximum accrual of between 30 and 45 days depending on an Employee s length of service). If an Employee s employment is terminated, any unused PTO time that has accrued through the last day of active employment is paid at such Employee s base rate of pay. Employees who work at least 20 hours per week also have paid time off for a set list of ten (10) holidays. The Debtors estimate that they have accrued prepetition PTO obligations for their Employees (collectively, the PTO Obligations ), which they intend to honor in the ordinary course of business. 27. The Debtors also provide sick leave to Employees working fewer than twenty hours per week or who are not eligible for PTO and who have worked for the Debtors for thirty days or more within a year from their commencement of employment (collectively, the Sick Leave Obligations and, together with the PTO Obligations, the PTO and Sick Leave Obligations ). Employees may receive paid sick leave of one hour for every thirty hours worked and may accrue up to six days of sick leave each year. 8 Employees may use up to three days of sick leave per year and any accrued but unused sick leave days during a calendar year carry over to the following calendar year. Unlike PTO Obligations, sick leave days are not paid out upon termination of employment. The Debtors estimate that, as of June 30, 2017 the PTO and Sick Leave Obligations total approximately $1.4 million. 401(k) Plan 28. The Debtors maintain a single-employer, 401(k) retirement plan managed by Fidelity Investments (the 401(k) Plan ). The 401(k) Plan is a qualified defined contribution 8 Sick leave may be taken for personal illness, medical emergency or disability, illness of family members and to attend medical and dental appointments for the Employee or the Employee s family members. -11-

12 Case Doc 6 Filed 08/02/17 Page 12 of 47 savings plan. The Debtors do not match an Employee s voluntary contributions. As of July 31, 2017, 142 of the Debtors current and former Employees were participating in the 401(k) Plan. Workers Compensation Program 29. Under applicable law, the Debtors are required to maintain a workers compensation insurance program to cover Employees workers compensation claims arising from or related to their employment with the Debtors (the Workers Compensation Program ) and to satisfy the Debtors obligations arising under or related to the Workers Compensation Program (collectively, the Workers Compensation Obligations ). 30. For each claim under the Workers Compensation Program, the Debtors file an injury report with a third-party administrator, either Chubb/Pacific Indemnity or Chubb Insurance Company, who performs an independent investigation of whether the claim is eligible for coverage. The third-party administrator manages and pays out eligible claims and then invoices the Debtors for reimbursement. 31. As of the Petition Date, the Debtors have outstanding Workers Compensation Obligations that they believe to be de minimis in amount. Likewise, the average monthly cost of Workers Compensation Obligations paid by the Debtors is de minimis given the Debtors generally low level of workers compensation claims. Contingent Workers 32. From time to time, the Debtors use the personal services of individuals employed by, and provided through, staffing agencies and of individuals providing personal services directly as independent contractors (collectively, the Contingent Workers ). Such services are necessary to the operation of the Debtors businesses. The Contingent Workers include, but are not limited to, consultants, technicians, interns, receptionists and managers. Payments to the Contingent Workers (collectively, the Contingent Workers Obligations ) vary according to -12-

13 Case Doc 6 Filed 08/02/17 Page 13 of 47 the terms of the Contingent Workers individual contracts with the Debtors or according to the terms of the Debtors contracts with the appropriate staffing agencies. It is difficult for the Debtors to determine the total accrued and unpaid prepetition obligations owed to the Contingent Workers due to the generally unpredictable and irregular nature of such obligations. From January 1, 2017 through June 30, 2017, the Debtors paid approximately $1,061,000 on account of Contingent Workers Obligations and believe that the total accrued and unpaid Contingent Workers Obligations as of the Petition Date do not exceed this amount. Severance Obligations 33. The Debtors have certain severance obligations (collectively, the Restructuring Severance Obligations ) related to layoffs that occurred beginning in January As part of an overall effort to downsize and restructure, the Debtors terminated the employment of approximately 31 Employees, none of whom, when they were employed by the Debtors, would have been considered insiders of the Debtors (as that term is defined in section 101(31) of the Bankruptcy Code) (collectively, together with current Employees of the Debtors who are not insiders, the Non-Insider Employees ). The Restructuring Severance Obligations with respect to each Non-Insider Employee are calculated based on such Non-Insider Employee s base salary and the number of service days between such Non-Insider Employee s date of hire through the date of termination. From January 1, 2017 through July 21, 2017, the Debtors paid approximately $655,000 on account of Restructuring Severance Obligations and anticipate paying approximately $50,000 of Restructuring Severance Obligations in the future. 34. Additionally, in May 2017, the Debtors adopted a non-insider severance program (the Non-Insider Severance Program ) for its Non-Insider Employees (collectively, the Severance Program Participants ), which provides for, subject to certain conditions, a lump sum payment (together with the Restructuring Severance Obligations, the -13-

14 Case Doc 6 Filed 08/02/17 Page 14 of 47 Severance Obligations ) for such Non-Insider Employees that are terminated without cause prior to December 31, The amount of the lump sum payments to each Severance Program Participant is equal to such Severance Program Participant s weekly base salary multiplied by the sum of two plus the number of years that such Severance Program Participant has been a fulltime Employee of the Debtors (rounded up or down to the nearest whole number), calculated as of such Severance Program Participant s termination date. 35. Importantly, prior to adopting the Non-Insider Severance Program, the Debtors consulted with and provided information regarding the Non-Insider Severance Program to the advisors to and members of an ad hoc consortium of holders of approximately 73% of the outstanding principal amount of TerraVia s 5.00% convertible senior subordinated notes due 2019 and 6.00% convertible senior subordinated notes due 2018 (the Consortium ). The advisors to and members of the Consortium reviewed the Non-Insider Severance Program and did not object to its adoption by the Debtors Non-Insider Employees are Severance Program Participants, and the Debtors estimate that the aggregate amount of all payments that could be made to Severance Program Participants under the Non-Insider Severance Program is approximately $1.7 million. The Debtors believe that having the authority, in their sole discretion, to pay the Severance Obligations to Non-Insider Employees is essential to their businesses in order to retain, and provide security to, Non-Insider Employees. 9 In July 2017, the Debtors expanded the Non-Insider Severance Program to include additional Employees of the Debtors, some of whom may be considered Insiders. For the avoidance of doubt, the Debtors are not, by this Motion, seeking authority to make any payments under the Non-Insider Severance Plan with respect to Employees who are Insiders. -14-

15 Case Doc 6 Filed 08/02/17 Page 15 of In 2011, the Debtors adopted the Executive Severance and Change of Control Plan (the Severance Plan ), which provides for the payment of severance benefits to certain eligible officers of the Debtors, some of whom may be considered insiders of the Debtors (as that term is defined in section 101(31) of the Bankruptcy Code) (collectively, Insiders ). For the avoidance of doubt, the Debtors are not presently seeking authority to make any payments under the Severance Plan with respect to Employees who are Insiders. 10 Non-Insider Retention Program 38. In May 2017, the Debtors adopted a non-insider retention bonus program (the Non-Insider Retention Program ) for a core group of 26 Non-Insider Employees (collectively, the May Retention Program Participants ). 11 In July 2017, the Non-Insider Retention Program was expanded to include four additional Non-Insider Employees (the July Retention Program Participants and, together with the May Retention Program Participants, the Retention Program Participants ). Like the Non-Insider Severance Program, prior to adopting the Non-Insider Retention Program, the Debtors consulted with and provided information regarding the Non-Insider Retention Program to the advisors to and members of the Consortium, who reviewed the Non-Insider Severance Program and did not object to its adoption by the Debtors. 39. The Non-Insider Retention Program provides for (a) three retention payments to each May Retention Program Participant made within ten business days following June 30, September 30 and December 31 of 2017 and (b) two retention payments to each July Retention 10 The Debtors reserve the right to seek, through another motion, approval of a severance program with respect to Insiders that is consistent with section 503(c) of the Bankruptcy Code. Furthermore, the Debtors reserve all of their rights to contest any claim by an Employee to payment under the Severance Plan. 11 After the adoption of the Non-Insider Retention Program, one of the May Retention Program Participants resigned as an Employee and is no longer eligible to participate in the Non-Insider Retention Program. -15-

16 Case Doc 6 Filed 08/02/17 Page 16 of 47 Program Participant made within ten business days following September 30 and December 31 of 2017 (collectively, the Retention Payments ). Participation in the Non-Insider Retention Program is in lieu of participation in the Debtors Cash Bonus Program (as defined below), which, from the perspective of each Retention Program Participant, simply results in his or her receiving, in advance in a series of two or three payments, as applicable, the target amount of the single payment that he or she would otherwise be eligible to receive under the Cash Bonus Program. In order to receive a Retention Payment, each Retention Program Participant generally must remain employed with the Debtors through the date such Retention Payment vests. However, if a Retention Program Participant s employment is terminated by the Debtors without cause prior to December 31, 2017, then subject to such Retention Program Participant s execution and non-revocation of a general release of claims in favor of the Debtors, such Retention Program Participant will receive the next scheduled Retention Payment within ten business days following the effective date of such release. 40. For the avoidance of doubt, the Debtors are not seeking authority by this Motion to make any Retention Payments to Employees that are Insiders. 12 The Debtors believe that having the authority, in their sole discretion, to maintain the Non-Insider Retention Program for the Retention Program Participants is essential to their businesses in order to retain, and provide security to, the Retention Program Participants. As of the Petition Date, the Debtors have no accrued and unpaid Retention Payments due, and the Debtors anticipate that the total cost of the remaining Retention Payments will be approximately $660, The Debtors reserve the right to seek, through another motion, approval of a retention program with respect to Insiders that is consistent with section 503(c) of the Bankruptcy Code. -16-

17 Case Doc 6 Filed 08/02/17 Page 17 of 47 Non-Insider Incentive Plans 41. The Debtors maintain incentive plans for the Employees. The incentive plans are carefully calibrated to ensure that eligible Employees are rewarded for their efforts toward the Debtors financial performance and productivity. Pursuant to this Motion, the Debtors seek authority to continue certain of these incentive plans with respect to Non-Insider Employees, as detailed below (collectively, the Non-Insider Incentive Plans ). For the avoidance of doubt, this Motion does not seek to continue any incentive plans with respect to Insiders, which may be addressed in a subsequent motion filed with the Court In the ordinary course of business, the Debtors grant awards under an Equity Incentive Plan (the EIP ) to eligible Employees (approximately 74 Non-Insider Employees as of the Petition Date) at the discretion of the Compensation Committee of TerraVia s Board of Directors. The EIP authorizes the grant of a variety of equity-based incentive awards (collectively, Awards ), including the following: (a) an option to purchase shares of the common stock of the Debtors ( Shares ); (b) a stock appreciation right whereby the grantee, upon exercise, receives Shares, cash or a combination thereof having a value equal to the excess of the fair market value of the number of Shares covered by the right as of the exercise date over the exercise price of the right; (c) restricted Shares; (d) a restricted stock unit that represents a right to receive the value of one Share in Shares, cash or a combination thereof; (e) performance awards denominated in cash, Shares or a combination thereof that may be earned upon the achievement of performance conditions; and (f) other stock-based awards, which may be valued in whole or in part by reference to Shares or factors that may influence the value of Shares. By 13 The Debtors reserve the right to seek, through another motion, approval of incentive plans with respect to Insiders that are consistent with section 503(c) of the Bankruptcy Code. -17-

18 Case Doc 6 Filed 08/02/17 Page 18 of 47 this Motion, the Debtors are not seeking to make any future Awards to any Insider Employees at this time and, instead, are seeking authority to make Awards, in their sole discretion, under the existing EIP only to Non-Insider Employees (the Non-Insider EIP Obligations ). 14 Awards granted to Non-Insider Employees thus far in 2017 by the Debtors consist of approximately 863,500 options and 427,950 restricted stock units. 43. The Debtors also maintain an annual cash bonus program (the Cash Bonus Program ), designed to reward all Employees for performance, whether within or outside the scope of such Employees responsibility, that improves the Debtors businesses. Target bonus payments under the Cash Bonus Program (collectively, the Cash Bonus Program Obligations ) are calculated based on a percentage of base salary. In 2017, the Debtors made payments under the Cash Bonus Program (for performance in 2016) in an amount equal to approximately 51% of the Employees target bonuses. For the avoidance of doubt, the Debtors are not seeking authority to make any payments under the Cash Bonus Program to Employees who are Insiders, nor are the Debtors seeking authority by this Motion to make any payments under the Cash Bonus Program for performance in 2017 to Retention Program Participants. 44. In 2017, the Debtors paid approximately $856,333 on account of the Cash Bonus Program (for performance in 2016) to approximately 109 Non-Insider Employees and estimate that they would have paid approximately $300,000 on account of the Cash Bonus Program in 2018 (for performance in 2017) to approximately 39 Non-Insider Employees. As of the Petition Date, the Debtors estimate that no Cash Bonus Program Obligations remain outstanding. 14 By this Motion, the Debtors request authority to pay out grants, if any, made to Insiders prior to the Petition Date that become payable during the Chapter 11 Cases. -18-

19 Case Doc 6 Filed 08/02/17 Page 19 of 47 Other Benefit Programs 45. In addition to the foregoing, the Debtors have in place various programs that are offered to Employees, including gym membership reimbursement up to a fixed amount, commuter benefits and other benefits (collectively, the Other Benefits Programs ). The Debtors believe that failing to honor expected benefits under the Other Benefits Programs would have an adverse effect on employee morale and, as a result, be detrimental to the Debtors businesses and estates. The Debtors estimate that the total annual amount of payments under the Other Benefits Programs is approximately $120,000. Basis for Relief Cause Exists To Authorize the Debtors To Pay Prepetition Employee Obligations, Maintain Employee Programs and Pay Related Administrative Obligations 46. Pursuant to sections 507(a)(4) and 507(a)(5) of the Bankruptcy Code, an individual s claims for wages, salaries, or commissions, including vacation, severance, and sick leave pay earned within 180 days before the Petition Date, and claims against the Debtors for contributions to employee benefit plans arising from services rendered within 180 days before the Petition Date, are each afforded unsecured priority status for amounts up to $12,850 per employee. Furthermore, section 363(b)(1) of the Bankruptcy Code provides that [t]he trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate. Section 105(a) of the Bankruptcy Code further provides, in relevant part, that [t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of [the Bankruptcy Code]. 47. The Debtors believe that many of their Prepetition Employee Obligations constitute priority claims under sections 507(a)(4) and 507(a)(5) of the Bankruptcy Code. To the extent such Prepetition Employee Obligations constitute priority claims, the Debtors will be -19-

20 Case Doc 6 Filed 08/02/17 Page 20 of 47 required to pay such claims in full to confirm a chapter 11 plan. See 11 U.S.C. 1129(a)(9)(B). Thus, granting the relief sought herein would only cause such Employee claims to be paid in the initial stages of the Chapter 11 Cases, rather than at the plan confirmation stage. 48. Section 363(b)(1) of the Bankruptcy Code empowers the Court to allow a debtor to use, sell, or lease, other than in the ordinary course of business, property of the estate. 11 U.S.C. 363(b)(1). Debtors decisions to use, sell or lease assets outside the ordinary course of business must be based upon the sound business judgment of the debtor. See, e.g., In re Martin (Myers v. Martin), 91 F.3d 389, 395 (3d Cir. 1996) (citing In re Schipper (Fulton State Bank v. Schipper), 933 F.2d 513, 515 (7th Cir. 1991)); Comm. of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, 1070 (2d Cir. 1983); In re Abbotts Dairies of Pa., Inc., 788 F.2d 143 (3d Cir. 1986) (implicitly adopting the sound business purpose test of Lionel Corp. and requiring good faith); In re Montgomery Ward Holding Corp., 242 B.R. 147, 153 (D. Del. 1999); In re Del. & Hudson Ry. Co., 124 B.R. 169, 176 (D. Del. 1991) (concluding that the Third Circuit adopted the sound business purpose test in the Abbotts Dairies decision); see In re Chateaugay Corp., 973 F.2d 141, 143 (2d Cir. 1992) (holding that a judge determining a section 363(b) application must find from the evidence presented before him or her a good business reason to grant such application); Allen v. Absher (In re Allen), 607 Fed. Appx. 840, 843 (10th Cir. 2015) (applying the business judgment test to determine whether a 363(b) sale should be approved) (citing In re Castre, Inc., 312 B.R. 426, 428 (Bankr. D. Colo. 2004)); In re Global Crossing Ltd., 295 B.R. 726, 743 (Bankr. S.D.N.Y. 2003); In re Ionosphere Clubs, Inc., 100 B.R. 670, 674 (Bankr. S.D.N.Y. 1989) (noting the standard for determining a section 363(b) motion is a good business reason ). -20-

21 Case Doc 6 Filed 08/02/17 Page 21 of The Debtors further submit that payment of the Prepetition Employee Obligations, maintaining the Employee Programs and paying related administrative expenses is necessary and appropriate and is authorized under section 105(a) of the Bankruptcy Code pursuant to the necessity of payment doctrine, which recognizes the existence of the judicial power to authorize a debtor in a reorganization case to pay prepetition claims where such payment is essential to the continued operation of the debtor. In re Ionosphere Clubs, Inc., 98 B.R. 174, 176 (Bankr. S.D.N.Y. 1989). 50. Under section 105(a) of the Bankruptcy Code, the Court has expansive equitable powers to fashion any order or decree that is in the interest of preserving or protecting the value of the Debtors estates. See In re Combustion Eng g, Inc., 391 F.3d 190, 236 (3d Cir. 2004) (noting that section 105 of the Bankruptcy Code has been construed to give a bankruptcy court broad authority to provide equitable relief appropriate to assure the orderly conduct of reorganization proceedings ); In re Nixon, 404 F. App x 575, 578 (3d Cir. 2010) ( It is well settled that the court s power under 105(a) is broad ); In re Nortel Networks, Inc., 532 B.R. 494, 554 (Bankr. D. Del. 2015) ( The Third Circuit has construed [section 105 of the Bankruptcy Code] to give bankruptcy courts broad authority to provide appropriate equitable relief to assure the orderly conduct of reorganization proceedings, and to craft flexible remedies that, while not expressly authorized by the Code, effect the result the Code was designed to obtain. ) (citations omitted). 51. The Court s power to utilize the doctrine of necessity in the Chapter 11 Cases is derived from the Court s inherent equity powers and its statutory authority to issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. 11 U.S.C. 105(a). The United States Supreme Court first articulated the doctrine of necessity -21-

22 Case Doc 6 Filed 08/02/17 Page 22 of 47 more than a century ago, in Miltenberger v. Logansport Ry. Co., 106 U.S. 286 (1882), in affirming the authorization by the lower court of the use of receivership funds to pay prereceivership debts owed to employees, vendors and suppliers, among others, when such payments were necessary to preserve the receivership property and the integrity of the business in receivership. See id. at 309. The modern application of the doctrine of necessity is largely unchanged from the Supreme Court s reasoning in Miltenberger. See In re Lehigh & New Eng. Ry. Co., 657 F.2d 570, (3d Cir. 1981) ( [I]n order to justify payment under the necessity of payment rule, a real and immediate threat must exist that failure to pay will place the continued operation of the [debtor] in serious jeopardy. ); Friedman s Inc. v. Roth Staffing Cos., L.P. (In re Friedman s Inc.), Case No (CSS), 2011 Bankr. LEXIS 4500, at *7-8 (Bankr. D. Del. Nov. 30, 2011) ( The doctrine of necessity stands for the proposition that a bankruptcy court may allow payment outside of a plan of reorganization on account of a prepetition obligation where such payment is critical to the reorganization process. ) (citing In re Enron Corp., No (AJG), 2003 WL , at *20 (Bankr. S.D.N.Y. Mar. 21, 2003)); In re Just For Feet, Inc., 242 B.R. 821, (D. Del. 1999). 52. The doctrine of necessity recognizes the existence of the judicial power to authorize a debtor in a reorganization case to pay prepetition claims where such payment is essential to the continued operation of the debtor. In re Ionosphere Clubs, Inc., 98 B.R. at 176; see also In re Just For Feet, Inc., 242 B.R. at 826 (stating that where the debtor cannot survive absent payment of certain prepetition claims, the doctrine of necessity should be invoked to permit such payment); In re Columbia Gas Sys., Inc., 171 B.R. 189, (Bankr. D. Del. 1994) (finding that the debtor is entitled to pay certain prepetition creditors upon showing that the payment is essential to the continued operation of the business ); In re Sharon Steel Corp., -22-

23 Case Doc 6 Filed 08/02/17 Page 23 of B.R. 730, 736 (Bankr. W.D. Pa. 1993) (noting that courts grant debtors the authority to pay certain prepetition claims where the payment is necessary to permit the effectuation of the rehabilitative purposes of the Bankruptcy Code ). 53. The doctrine of necessity is an accepted component of modern bankruptcy jurisprudence. See In re Ionosphere Clubs, Inc., 98 B.R. at 175 (holding that the ability of a Bankruptcy Court to authorize the payment of pre-petition debt when such payment is needed to facilitate the rehabilitation of the debtor is not a novel concept ); In re Just For Feet, Inc., 242 B.R. at 826 (approving payment of key inventory suppliers prepetition claims when such suppliers could destroy debtor s business by refusing to deliver new inventory on eve of debtor s key sales season); Official Comm. of Unsecured Creditors of Motor Coach Indus. Int l v. Motor Coach Indus. Int l (In re Motor Coach Indus. Int l), Case No SLR, 2009 U.S. Dist. LEXIS 10024, at *7 n.5 (D. Del. Feb. 10, 2009); In re Columbia Gas Sys., Inc., 171 B.R. 189, (Bankr. D. Del. 1994). 54. Federal courts have consistently permitted the post-petition payment of prepetition obligations where necessary to preserve or enhance the value of a debtor s estate for the benefit of all stakeholders. See, e.g., Miltenberger v. Logansport Ry. Co., 106 U.S. 286 (1882) (payment of pre-receivership claim prior to reorganization permitted to prevent stoppage of [crucial] business relations ); Van Schaick v. McCarthy, 116 F.2d 987, 993 (10th Cir. 1941); In re Lehigh & N.E. Ry. Co., 657 F.2d 570, 581 (3d Cir. 1981) (finding that a payment of a prepetition debt to prevent a creditor from withholding critical services or materials is in the interest of all parties); In re Just For Feet, Inc., 242 B.R. 821, 825 (D. Del. 1999) (holding that courts are authorized under section 105(a) of the Bankruptcy Code to allow immediate payment of prepetition claims of vendors found to be critical to the debtor s reorganization (citing In re -23-

24 Case Doc 6 Filed 08/02/17 Page 24 of 47 Penn Cent. Transp. Co., 467 F.2d 100, 102 n.1 (3d Cir. 1972))). The court in In re StructureLite Plastics Corp. indicated its accord with the principle that a bankruptcy court may exercise its equity powers under section 105(a) to authorize payment of prepetition claims where such payment is necessary to permit the greatest likelihood of survival of the debtor and payment of creditors in full or at least proportionately. In re StructureLite Plastics Corp., 86 B.R. 922, 931 (Bankr. S.D. Ohio 1988). The court stated that a per se rule proscribing the payment of prepetition indebtedness may well be too inflexible to permit the effectuation of the rehabilitative purposes of the Code. Id. at 932. Accordingly, pursuant to section 105(a) of the Bankruptcy Code, the Court is empowered to grant the relief requested herein. 55. In addition, the Court may authorize the Debtors to fulfill the Prepetition Employee Obligations pursuant to section 363(b)(1) of the Bankruptcy Code, which empowers the Court to allow a debtor to use, sell, or lease, other than in the ordinary course of business, property of the estate. 11 U.S.C. 363(b)(1). Debtors decisions to use, sell or lease assets outside the ordinary course of business must be based upon the sound business judgment of the debtor. See, e.g., In re Martin (Myers v. Martin), 91 F.3d 389, 395 (3d Cir. 1996) (citing In re Schipper (Fulton State Bank v. Schipper), 933 F.2d 513, 515 (7th Cir. 1991)); Comm. of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, 1070 (2d Cir. 1983); In re Abbotts Dairies of Pa., Inc., 788 F.2d 143 (3d Cir. 1986) (implicitly adopting the sound business purpose test of Lionel Corp. and requiring good faith); In re Montgomery Ward Holding Corp., 242 B.R. 147, 153 (D. Del. 1999); In re Del. & Hudson Ry. Co., 124 B.R. 169, 176 (D. Del. 1991) (concluding that the Third Circuit adopted the sound business purpose test in the Abbotts Dairies decision); see In re Chateaugay Corp., 973 F.2d 141, 143 (2d Cir. 1992) (holding that a judge determining a section 363(b) application must find from the evidence -24-

25 Case Doc 6 Filed 08/02/17 Page 25 of 47 presented before him or her a good business reason to grant such application); Allen v. Absher (In re Allen), 607 Fed. Appx. 840, 843 (10th Cir. 2015) (applying the business judgment test to determine whether a 363(b) sale should be approved) (citing In re Castre, Inc., 312 B.R. 426, 428 (Bankr. D. Colo. 2004)); In re Global Crossing Ltd., 295 B.R. 726, 743 (Bankr. S.D.N.Y. 2003); In re Ionosphere Clubs, Inc., 100 B.R. 670, 674 (Bankr. S.D.N.Y. 1989) (noting the standard for determining a section 363(b) motion is a good business reason ). 56. In evaluating whether a sound business purpose exists, courts employ the business judgment test. See In re Culp, 550 B.R. 683, 697 (D. Del. 2015); In re Montgomery Ward Holding Corp., 242 B.R. 147, (D. Del. 1999). This test is not an onerous standard and may be satisfied as long as the proposed action appears to enhance the debtor s estate. Crystalin, LLC v. Selma Props. Inc. (In re Crystalin, LLC), 293 B.R. 455, (B.A.P. 8th Cir. 2003) (quoting Four B. Corp. v. Food Barn Stores, Inc. (In re Food Barn Stores, Inc.), 107 F.3d 558, 566 n.16 (8th Cir. 1997) (emphasis in original, internal alterations and quotations omitted)). Courts require only that the debtors show that a sound business purpose justifies such actions. In re Montgomery Ward Holding Corp., 242 B.R. 147, 153 (D. Del. 1999) (internal citations omitted); see also In re Phx. Steel Corp., 82 B.R. 334, (Bankr. D. Del. 1987); In re Aldephia Commc ns Corp., Case No , 2003 WL , at *31 (Bankr. S.D.N.Y. Mar. 4, 2003); In re Lionel Corp., 722 F.2d 1063, 1071 (2d Cir. 1983). 57. Moreover, [w]here the debtor articulates a reasonable basis for its business decisions (as distinct from a decision made arbitrarily or capriciously), courts will generally not entertain objections to the debtor s conduct. In re Johns-Manville Corp., 60 B.R. 612, 616 (Bankr. S.D.N.Y. 1986) (citation omitted); see also In re AbitibiBowater, 418 B.R. 815, 831 (Bankr. D. Del. 2009) (finding that the business judgment standard is not a difficult standard to -25-