Case CSS Doc 116 Filed 06/11/18 Page 1 of 13 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

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1 Case CSS Doc 116 Filed 06/11/18 Page 1 of 13 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: CCI LIQUIDATION, INC. f/d/b/a CANDI CONTROLS, INC. Debtor. Chapter 11 Case No (CSS) Objection Deadline: TBD Hearing Date: TBD APPLICATION AND REQUEST OF LONE STAR, LLC, dba CORPORATE FINANCE ASSOCIATES FOR ALLOWANCE AND PAYMENT OF AN ADMINISTRATIVE EXPENSE CLAIM UNDER 11 U.S.C. 503(b)(3)(D) FOR MAKING A SUBSTANTIAL CONTRIBUTION AND 503(b)(1)(A)(i) FOR EARNING A POST-PETITION COMMISSION Lone Star, LLC, dba Corporate Finance Associates ( CFA ) hereby submits this Application and Request of Lone Star, LCC, dba Corporate Finance Associates for Allowance and Payment of Claim Under 11 USC 503(b)(3)(D) for having made a Substantial Contribution to the Estate, and under 503(b)(1)(A)(i) for Commissions earned upon Sale closing post-petition (the Application ). The facts supporting this worthy Application arise from CFA s role as sell-side investment banker pursuant to an Exclusive Advisory Agreement with Candi Controls, Inc. (the Candi-CFA Exclusive Agreement ) 1, the predecessor-in-interest to the Debtor CCI Liquidation, Inc. (the Debtor ). The express terms of the Candi-CFA Exclusive Agreement entitle CFA to a minimum $100,000 upon the closing of a Sale Transaction regardless of the extent of Consultant s involvement in the Transaction. 1 The Candi-CFA Exclusive Agreement, dated December 18, 2016, is attached as Exhibit A to the supporting Declaration of Kenneth Lynch, CFA s Managing Director, attached hereto as Exhibit 1. An Addendum thereto, dated November 3, 2017, is attached as Exhibit B to Mr. Lynch s Declaration.

2 Case CSS Doc 116 Filed 06/11/18 Page 2 of 13 Following CFA s performance of the significant task of originating Altair Engineering, Inc. ( Altair ), as the buyer of substantially all of the Debtor s assets, as well as assisting (both pre-petition and post-petition) in structuring a Sec. 363 Sale Transaction, a Sale Transaction closed on April 27, By way of this Application, based on the $2,158, in total consideration received by the Debtor from Altair, CFA seeks the allowance and payment of a $100,000 Success Fee/Commission as a priority administrative expense. But for CFA s critical services, the Debtor would not have realized a Sale of its assets, the proceeds of which will be distributed to the creditors in this case. As such, CFA has made a substantial contribution for the benefit of the Estate, which is entitled to priority administrative expense payment. In support of CFA s Application, CFA submits as follows: JURISDICTION AND VENUE 1. This Court has jurisdiction to consider the Application pursuant to 28 U.S.C. 157 and This is a core proceeding pursuant to 28 U.S.C. 157(b). 2. Venue is proper before this Court pursuant to 28 U.S.C and Pursuant to Del. Bankr. L.R l (f), CFA consents to the entry of a final judgment or order with respect to this Application if it is determined that the Court would lack Article III jurisdiction to enter such final order or judgment absent consent of the parties. FACTUAL AND PROCEDURAL BACKGROUND 4. On December 18, 2016, Candi and CFA entered into the Candi-CFA Exclusive Agreement, to sell Candi. As provided for in the CFA-Candi Exclusive Agreement: - 2 -

3 Case CSS Doc 116 Filed 06/11/18 Page 3 of 13 Client engages Consultant on an exclusive basis to assist Client to accomplish the following: Sale, divestiture. merger, exchange Given the exclusive nature of this engagement, Client agrees that Client shall not engage another investment banker or finder during the term of this Agreement and pay the Success Fee (defined below) to Consultant regardless of the extent of Consultant s involvement in the Transaction. Success Fee. If Consideration received by Client upon consummation of a Transaction is at least $2,000,000, then, the total Success Fee paid to Consultant after the final closing shall not be less than $100, On or about August 22, 2017, CFA contacted Altair, based in Troy, Michigan, and presented the opportunity for Altair to acquire Candi On November 3, 2017, Candi and CFA entered into an Addendum to Candi - CFA Exclusive Advisory Agreement (the Addendum ). 7. In February 2018, with the assistance of CFA, Candi and Altair entered into a Term Sheet Regarding Proposed Acquisition of Assets of Candi Controls, Inc. and Related Transactions 3, which contemplated a Section 363 Sale, that would occur in a voluntary Chapter 11 to be filed in the U.S. Bankruptcy Court for the Northern District of California. 8. However, on March 23, 2018 (the Petition Date ), CGM Partners, LLC, Howard Elias, and Kelly Yang Living Trust (the Petitioning Creditors ) filed an involuntary Petition in this Court under Chapter 11 of the Bankruptcy Code. 9. The Court entered the Order for Relief on March 27, The Debtor continues to manage its remaining assets as a debtor-in-possession under sections 1107 and 1108 of the Bankruptcy Code. No official committee of unsecured creditors has been appointed. 2 8 Dec. of Kenneth Lynch, CFA Managing Director Dec. of Kenneth Lynch, CFA Managing Director, and Exhibit C, thereto

4 Case CSS Doc 116 Filed 06/11/18 Page 4 of On April 25, 2018, the Court entered an Order Authorizing the Sale of Substantially all of the Debtor s Assets Free and Clear of Liens; (b) Authorizing and Approving the Asset Purchase Agreement ( APA ) with Altair Engineering, Inc.; (c) Authorizing the Assumption and Assignment of Assumed Contracts and Assumed Leases (but not the Candi-CFA Exclusive Agreement); and (d) Granting Related Relief [Docket No. 91]. 11. On April 27, 2018 (the Closing Date ), the Debtor and Altair closed the Sale Transaction, whereby the Debtor transferring all of its assets to Altair in exchange for: (a) Altair paying $1,158, cash (the Initial Sale Proceeds ) deposited into the Debtor s bank account, and (b) Altair depositing an additional $1,000,000 into an escrow account maintained by Wilmington Trust Corp. to secure the Debtor s indemnification obligations to Altair under the APA, the balance of which will be released to the Debtor twelve (12) months after the Closing Date for distribution to creditors. 12. On May 23, 2018, the Debtor filed a Motion to Dismiss [Docket No. 106], scheduled for hearing on June 19, 2018, which seeks to dismiss the Debtor s bankruptcy case and establish a liquidation trust ( Creditor Trust ), pursuant to a Creditor Trust Agreement that will be funded with the Initial Sale Proceeds and the right to receive the escrowed funds in a year. 13. On June 6, 2018, CFA filed a Proof of Claim in the amount of $100,000, asserting priority entitlement under Sec. 507(a)(2) as an administrative expense under Sec. 503(b). 14. Also, on June 6, 2018, CFA filed Opposition to the Debtor s Motion to Dismiss on grounds that CFA s Proof of Claim needed to be adjudicated before the case could be dismissed. 15. In addition, on June 6, 2018, the U.S. Trustee filed Opposition to the Motion to Dismiss on grounds that Debtor s proposed Creditor Trust Agreement would not properly involve judicial oversight of either the claims administration process, nor the distribution of estate assets to creditors

5 Case CSS Doc 116 Filed 06/11/18 Page 5 of 13 RELIEF REQUESTED 16. By this Application, CFA seeks allowance and payment of an administrative expense claim in the amount of $100,000 pursuant to (1) section 503(b)(3)(D) for having originated the buyer Altair, and thereby making a substantial contribution to the Estate, and (2) section 503(b)(1)(A)(i) for investment banking commissions earned post-petition when the Sale closed. BASIS FOR RELIEF A. APPLICANT CFA SIGNIFICANTLY BENEFITED THE DEBTOR S ESTATE AND ALL CREDITORS BY ORIGINATING ALTAIR, THE BUYER OF THE DEBTOR S ASSETS, AND SUPPORTING THE SEC. 363 SALE 17. Bankruptcy Code section 503(b)(3)(D) grants administrative expense status to claims for the actual, necessary expenses incurred by a creditor in making a substantial contribution in a case under chapter 9 or 11 of this title. 18. The applicable test in determining whether there has been a substantial contribution is whether the efforts of the claimant resulted in an actual and demonstrable benefit to the debtor s estate and the creditors. Lebron v. Mechem Financial Inc., 27 F.3d 937, 944 (3rd Cir.1994). Services which substantially contribute to a case are those which foster and enhance... the progress of reorganization. Id. (quoting Matter of Consol. Bancshares, Inc., 785 F.2d 1249, 1253 (5th Cir.1986) The movant must also show a causal connection between the service and the contribution. In re Worldwide Direct, 334 B.R. at (quoting In re Granite Partners, L.P., 213 B.R. 440, 47 (Bankr. S.D.N.Y. 1997)). 19. Generally, courts consider several factors when determining whether a movant substantially contributed to the case, such as: (i) whether the services were rendered solely to benefit the client or to benefit all parties in the case, (ii) whether the services provided direct, - 5 -

6 Case CSS Doc 116 Filed 06/11/18 Page 6 of 13 significant, and demonstrable benefit to the estate, and (iii) whether the services were duplicative of services rendered by attorneys for the committee, the committees themselves, or the debtor and its attorneys. See In re Buckhead Am. Corp., 161 B.R. 11, 15 (Bankr. D. Del. 1993); see also In re Worldwide Direct, Inc., 334 B.R. 112, 122 (Bankr. D. Del. 2005). 20. The party that requests the allowance of fees and expenses as administrative claims has to show it is entitled to reimbursement under section 503(b) by a preponderance of the evidence. In re Columbia Gas Sys., Inc., 224 B.R. 540, 548 (Bankr. D. Del. 1998). 21. Here, the undisputed facts are: CFA originated the buyer Altair. See the supporting Declaration of Kenneth Lynch, CFA s Managing Director. Without Altair, the Debtor s assets would not have been sold, and there would be no distributions whatsoever to the creditors. The Asset Purchase Agreement between the Debtor and Altair, and Debtor s proposal for the establishment of a Creditor liquidation trust pursuant to a Creditor Trust Agreement, is entirely based on the significant value that CFA conferred upon the Estate by originating Altair as the buyer. None of attorneys for any of the parties performed this essential task of finding the other key party the singular Transaction. 22. Accordingly, based on CFA s substantial contribution to the Estate, that were necessary for the Debtor to accomplish the Transaction, pursuant to 11 U.S.C. 503(b)(3)(D), the Court should allow CFA to recover its $100,000 commission as an administrative expense. B. APPLICANT CFA IS ENTITLED TO A $100,000 COMMISSION, BASED ON THE TRANSACTION CLOSING, IRRESPECTIVE OF THE EXTENT OR TIMING OF CFA S INVOLVEMENT IN THE TRANSACTION 23. Bankruptcy Code, Section 503, provides that: (b) After notice and a hearing, there shall be allowed administrative expenses including (1) (A) the actual, necessary costs and expenses of preserving the estate including - 6 -

7 Case CSS Doc 116 Filed 06/11/18 Page 7 of 13 (i) wages, salaries, and commissions for services rendered after the commencement of the case The Candi-CFA Exclusive Agreement plainly provides that: Client engages Consultant on an exclusive basis to assist Client to accomplish the following: Sale, divestiture. merger, exchange Given the exclusive nature of this engagement, Client agrees that Client shall not engage another investment banker or finder during the term of this Agreement and pay the Success Fee (defined below) to Consultant regardless of the extent of Consultant s involvement in the Transaction. Success Fee. If Consideration received by Client upon consummation of a Transaction is at least $2,000,000, then, the total Success Fee paid to Consultant after the final closing shall not be less than $100, By this Application, CFA requests that the Court enforce the Candi-CFA Exclusive Agreement and require CFA s Proof of Claim for $100,000 to be paid. The Court should not be misled by: (1) the Debtor s miscategorization of CFA as an unsecured creditor; (2) CFA not seeking to be employed as a professional post-petition, or that CFA spent minimal time working post-petition; and (3) the fact that CFA did not previously object to the Debtor s Motion to Sell Substantially All of Its Assets to Altair. 26. Recognizing CFA s contractual rights to a Success Fee involves an understanding of the unique characteristics of investment banking agreements in general. [I]t is common that an investment banker retention includes a provision for payment of monthly fees as well as transaction fees. Investment bankers main compensation is through transaction fees. Those fees usually are contingent on the consummation of a transaction so that they are not paid if a transaction does not occur. But apart from that condition, they often have no other requirements. They often merely require that the transaction occur with no other conditions whatsoever. Usually, but not always, the transaction fees are independent of the amount of time it takes to complete the transaction, the involvement of other people, et cetera. They are just tied to the fact that a transaction occurred, although the parties are free to add other conditions and qualifications if they think it is appropriate and if they negotiate such terms

8 Case CSS Doc 116 Filed 06/11/18 Page 8 of 13 Transaction fees are not unique to bankruptcy. It has long been the practice of investment bankers to charge for their services in this exact same way outside of bankruptcy. There is also a long line of cases in which New York courts in particular have reviewed and upheld and enforced this transaction fee structure [citations]. These cases make clear that the transaction fee structure is common in the investment banking industry. Each of these decisions also confirmed that the banker only needed to comply with the terms of its retention agreement in order to be paid. Each case rejected efforts by parties to import other terms in the agreement; they rejected claims, for example, that a banker had not played a pivotal role in a transaction or had not identified the party with whom the final transaction actually was completed, unless those requirements explicitly appeared in the bankers retention agreement. In re Relativity Fashion LLC, 2016 Bankr. LEXIS 4339, *10 (Bankr. S.D.N.Y. Dec. 16, 2016) (Wiles, B.J.). 4 Courts that consider applications for the payment of transaction fees should not be confused by the labels that people apply and should instead look at exactly what compensation is sought and the terms under which it is being sought Here, CFA asks the Court to enforce the plain meaning of the Candi-CFA Exclusive Agreement, and to award CFA its investment banking commission as a priority administrative expense. As discussed below, arguments that (1) the Candi-CFA Exclusive Agreement is a non-executory contract; (2) that CFA s services were completed pre-petition; or (3) that CFA should have sought approval of its professional fees like attorneys are required to do, all miss the mark. 4 The Bench Decision in In re Relativity Fashion LLC, 2016 Bankr. LEXIS 4339, *10 (Bankr. S.D.N.Y. Dec. 16, 2016) (Wiles, B.J.) is attached hereto as Exhibit 2. 5 Judge Wiles in In re Relativity Fashion LLC, supra, also explain why an analysis of investment banking success fees based on hourly rates is also misplaced: I should also note that this same misunderstanding appears in some cases in which courts have attempted to calculate an investment banker s compensation based on inferred hourly rates. More particularly, some decisions have calculated an implied hourly rate for investment bankers, and they have done so using only the monthly fees, which then are divided by the number of hours actually worked. But that mathematical approach presumes that the monthly fees, standing by themselves, are expected to constitute full compensation for the underlying work and that the transaction fee, somehow, is just an extra bonus form of compensation. that is a false understanding of what the fees represent. If one really wanted to know what an investment banker s implicit hourly rate or expected hourly rate was, one would need to calculate the total expected fee, including the transaction fee, and divide that by the expected time required to accomplish the transaction. Looking only at the monthly fees results in a mathematically incorrect calculation. Id. p.9-8 -

9 Case CSS Doc 116 Filed 06/11/18 Page 9 of 13 C. THE CANDI-CFA EXCLUSIVE AGREEMENT IS AN ASSUMABLE, EXECUTORY CONTRACT 28. Apparently, the Debtor has viewed the Candi-CFA Exclusive Agreement as a nonexecutory contract, which could not be assumed. Indeed, Candi simply listed the CFA claim for $100,000 as #11 on its list of 21 Largest Unsecured Creditors, noting the claim was contingent, unliquidated, disputed. 29. However, CFA contends that the Candi-CFA Exclusive Agreement is an executory contract, the assumption of which would benefit the estate. Obligations arising from an executory contract assumed by the debtor are treated as administrative expenses. Indian River Homes, Inc. v. Sussex Trust Co., 108 B.R. 46 (D. Del. 1989), citing In re Coast Trading Co., 744 F.2d 686, 692 (9th Cir.1984). 30. While the Bankruptcy Code contains no definition of an executory contract, the legislative history states that the term: generally includes contracts on which performance remains due to some extent on both sides." S.Rep. No. 989, 95th Cong., 2d Sess. 58, reprinted in 1978 U.S.Code Cong. & Admin.News 5787, Many courts have adopted the definition of executory contracts set forth by Professor Countryman: "contract[s] under which the obligation of both the bankrupt and the other party to the contract are so far unperformed that the failure of either to complete performance would constitute a material breach excusing the performance of the other." Countryman, Executory Contracts in Bankruptcy: Part I, 57 Minn.L.Rev. 439, 460 (1973); see Sharon Steel Corp. v. National Fuel Gas Distribution Corp., 872 F.2d 36, 39 (3d Cir.1989); In re Munple, Ltd., 868 F.2d 1129, 1130 (9th Cir.1989). Indian River Homes, Inc. v. Sussex Trust Co., 108 B.R. 46 (D. Del. 1989) In Indian River Homes, Inc., supra, the Court cited: The general rule in Delaware is that a broker may recover a commission only when the broker is the procuring cause of a consummated transaction. B-H, Inc. v. Industrial America Inc., 253 A.2d 209, 213 (Del. 1969). One exception to this rule is that, if a duly authorized broker produces a prospect 6 Several courts have qualified the Countryman definition by holding that a contract in which a duty to perform remains only on one side may still be executory if assumption would benefit the estate and its creditors. Id., fn

10 Case CSS Doc 116 Filed 06/11/18 Page 10 of 13 ready, willing, and able to meet his principal's expressed terms, the commission has been earned whether or not the transaction is thereafter consummated. Id.; BDB Partnership v. Rehoboth Realty, Inc., 1988 WL (Del. Super. May 26, 1988). 32. These rules were applied to the following facts in Indian River Homes, Inc., supra, which are distinguishable in several material respects: By the time the bankruptcy petition was filed in this case, the agreement of Sale was already signed by both parties. The professionals had thus already earned their commissions by procuring a ready, willing and able buyer. The sole remaining obligation of the debtor to pay the commissions cannot be regarded as calling for any further performance on the part of the professionals such that the addendum could be considered executory. See In re Moskovic, 77 B.R. 421, 423 (Bankr. S.D.N.Y. 1987). The commissions addendum is therefore not an executory contract and is not assumable by the debtor-in-possession. See In re Munple, Ltd., 868 F.2d 1129, 1130 (9th Cir.1989); In re Moskovic, 77 B.R. 421, 423 (Bankr. S.D.N.Y.1987); In re Murtishi, 55 B.R. 564, 569 (Bankr. N.D. Ill. 1985) (exclusive listing agreement was not executory when petition was filed; [i]t is well established that where all the elements of performance have been accomplished leaving only an obligation to pay money, the contract is not executory within the meaning of the statute ); In re Gardinier, 50 B.R. 491, 494 (Bankr. M.D. Fla. 1985). 33. Here, in contrast, the facts are that: (1) the Asset Purchase Agreement was not signed or approved until after the involuntary Chapter 11 case was filed, and the Court approved the Debtor s Motion for a Sec. 363 Sale, and (2) the plain meaning of the Candi-CFA Exclusive Agreement, as pointed out, above, entitles CFA to a Success Fee regardless of the extent of CFA s continuing involvement in the Transaction when the closing contingency was satisfied. Thus, the reasoning, not the express holding, in Indian River Homes, Inc., supra, supports CFA argument. 34. Accordingly, any Debtor consideration that the Candi-CFA Exclusive Agreement is non-executory is incorrect. Rather, if necessary to reach a decision to pay CFA $100,000, the Court should find that the Candi-CFA Exclusive Agreement is executory, and assumable, and, therefore, entitled to treatment as a priority administrative expense

11 Case CSS Doc 116 Filed 06/11/18 Page 11 of 13 D. BASED ON THE DEBTOR S USE OF CFA S WORK PRODUCT, THE DEBTOR SHOULD BE ESTOPPED FROM ARGUING THAT CFA NEEDED TO BE APPROVED AS AN EMPLOYED PROFESSIONAL 35. CFA anticipates the Debtor or other creditors will argue that post-petition CFA should have sought to be employed as a professional, by filing an Application under Section 327(a) which authorizes the trustee to employ professional persons, to assist the trustee in carrying out the trustee s duties, or under Section 328(a), which authorizes payment on a contingent fee basis. (United Artists Theater Co. v. Walton, 315 F.3d. 217, 230, 234 (3d Cir. 2003) (Chapter 11 debtor s retention of financial adviser is reasonable and... permissible financial advisors are an essential part of reorganizations. ). 36. However, post-petition, the primary task of documenting the Transaction was being handled by counsel for Debtor, and counsel for Altair. Indeed, any Application by CFA to represent the Debtor in the negotiating the fine points of the Asset Purchase Agreement would probably have been viewed as duplicative of what the Debtor s two law firms were already doing, and not approved by the Court. 37. Nevertheless, as explained in the supporting Declaration of Kenneth Lynch, Managing Director for CFA, Steve Raschke, CEO of Candi, continued to set and hold conference calls post-petition, with Mr. Lynch and Jim Gerberman, also a Managing Director with CFA, to discuss the terms, timing and procedures involving the Asset Purchase Agreement between CCI and Altair In addition, post-petition, because Altair was being viewed either optimistically as the real buyer or merely a stalking horse, Mr. Raschke continued to utilize CFA s key workproduct, the CFA Excel Contact Status Report, to contact prospective buyers, other than Altair Dec. of Kenneth Lynch, CFA Managing Director

12 Case CSS Doc 116 Filed 06/11/18 Page 12 of 13 This way, the Debtor might be able to obtain a higher bid or would have a back-up buyer in the event that Altair did not perform in completing the Transaction. 39. The point is: when the Debtor post-petition (a) enlists the continued support of a professional working on a commission basis, or (b) acts in bad faith by using a professional s work product to benefit the Estate, the Debtor should be equitably estopped from arguing the professional should not be paid. Thus, CFA s decision to not seek and obtain post-petition professional employment approval, should not operate as bar to CFA being paid when the Transaction closed post-petition. CONCLUSION For all the foregoing reasons, Lone Star, LCC, dba Corporate Finance Associates, requests that the Court allow and pay CFA s $100,000 Success Fee as a priority administrative expense, pursuant to 11 USC 503(b)(3)(D) for having made a Substantial Contribution to the Estate, and/or under 503(b)(1)(A)(i) for Commissions earned post-petition. Dated: June 11, 2018 Wilmington, Delaware CHIPMAN BROWN CICERO & COLE, LLP /s/ Mark D. Olivere William E. Chipman, Jr. (No. 3818) Mark D. Olivere (No. 4291) Hercules Plaza 1313 North Market Street, Suite 5400 Wilmington, Delaware Telephone: (302) Facsimile: (302) chipman@chipmanbrown.com olivere@chipmanbrown.com and

13 Case CSS Doc 116 Filed 06/11/18 Page 13 of 13 Law Office of Brian Ballo Brian P. Ballo (Admitted Pro Hac Vice) 120 Vantis, Suite 300 Aliso Viejo, California Telephone: (949) Facsimile: (949) Attorneys for Lone Star, LLC dba Corporate Finance Associates