Case 8:10-bk TA Doc 662 Filed 12/22/11 Entered 12/22/11 16:11:05 Desc Main Document Page 1 of 60

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1 Main Document Page of 0 RON BENDER (SBN ) TODD M. ARNOLD (SBN ) JOHN-PATRICK M. FRITZ (SBN 0) LEVENE, NEALE, BENDER, YOO & BRILL L.L.P. 00 Constellation Boulevard, Suite 00 Los Angeles, California 00 Telephone: (0) -; Facsimile: (0) - rb@lnbyb.com; tma@lnbyb.com; jpf@lnbyb.com Attorneys for Chapter Debtors and Debtors in Possession UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA (SANTA ANA DIVISION) 0 0 In re: WESTCLIFF MEDICAL LABORATORIES, INC., Debtor. BIOLABS, INC., Debtor. Affects Both Debtors Affects WESTCLIFF MEDICAL LABORATORIES, INC. only Affects BIOLABS, INC. only Lead Case No. :0-bk--TA Jointly Administered with Case No. :0-bk- -TA Chapter Cases FIRST AMENDED CHAPTER LIQUIDATING PLAN OF REORGANIZATION Disclosure Statement Hearing: Date: November 0, 0 Time: 0:00 a.m. Plan Confirmation Hearing: Date: February, 0 Time: 0:00 a.m. Place: Courtroom B West Fourth Street Santa Ana, CA 0-

2 Main Document Page of TABLE OF CONTENTS I. INTRODUCTION... A. Purpose of this Document... B. Deadlines for Voting and Objecting; Date of Plan Confirmation Hearing.... Time and Place of the Confirmation Hearing.... Deadline For Voting For or Against the Plan.... Deadline for Objecting to the Confirmation of the Plan.... Identity of Persons to Contact for More Information Regarding the Plan... C. Disclaimer... II. BACKGROUND... A. Description and History of the Debtors Business and Events Leading to the Debtors Chapter Filings... B. The Present Status of the Debtors Chapter Cases...0 III. SUMMARY OF THE PLAN OF REORGANIZATION... A. What Creditors and Interest Holders Will Receive Under The Plan... B. Unclassified Claims.... Administrative Expenses.... Priority Tax Claims...0 C. Classified Claims and Interests.... Classes of Secured Claims.... Classes of Priority Unsecured Claims.... Classes of General Unsecured Claims.... Class of Interest Holders... D. Means of Effectuating the Plan and Implementation of the Plan.... Funding for the Plan.... Disbursing Agent and the Estate Representative...0. Objections to Claims...0. Investigation and Prosecution of Claims and Avoidance Actions... i

3 Main Document Page of Post-Confirmation Administration of these Chapter Estates And Payment of Professional Fees and Expenses Incurred after the Effective Date.... Post-Confirmation Committee.... Distributions to be Made Pursuant to the Plan.... Exculpations and Releases... E. Risk Factors... F. Other Provisions of the Plan.... Executory Contracts and Unexpired Leases... a) Assumptions... b) Rejections.... Changes in Rates Subject to Regulatory Commission Approval.... Retention of Jurisdiction... G. Tax Consequences of Plan... IV. CONFIRMATION REQUIREMENTS AND PROCEDURES...0 A. Who May Vote or Object...0. Who May Object to Confirmation of the Plan...0. Who May Vote to Accept/Reject the Plan...0 a) What Is an Allowed Claim/Interest...0 b) What Is an Impaired Claim/Interest.... Who Is Not Entitled to Vote.... Who Can Vote in More Than One Class.... Votes Necessary to Confirm the Plan.... Votes Necessary for a Class to Accept the Plan.... Treatment of Non-Accepting Classes.... Request for Confirmation Despite Nonacceptance by Impaired Class(es)... B. Liquidation Analysis... C. Feasibility... V. EFFECT OF CONFIRMATION OF PLAN... A. No Discharge... ii

4 Main Document Page of 0 B. Post-Confirmation Status Report... C. Post-Confirmation Conversion/Dismissal... D. Payment of United States Trustee Fees... E. Final Decree iii

5 Main Document Page of I. INTRODUCTION Westcliff Medical Laboratories, Inc. ( Westcliff ) and BioLabs, Inc. ( BioLabs ), (collectively, the Debtors ) commenced their bankruptcy cases by filing voluntary petitions for relief under Chapter of Title, United States Code, U.S.C. 0, et seq. (the Bankruptcy Code ) on May, 00 (the Petition Date ). Chapter allows the Debtors, and, under some circumstances, creditors and other parties in interest, to propose a plan of reorganization. A plan may provide for the Debtors to reorganize by continuing to operate, to liquidate by selling the assets of these estates, or a combination of both. The Debtors are the parties who are jointly proposing this First Amended Chapter Liquidating Plan of Reorganization (the Plan ). This Plan is a liquidating plan. In other words, the Debtors seek to accomplish payments to creditors under this Plan by liquidating all of the remaining assets of these estates, if any, and distributing the proceeds from the liquidation of those assets coupled with the remaining net proceeds from the prior sale of substantially all of the assets of these estates and collections from outstanding accounts receivable in accordance with the priorities set forth in the Bankruptcy Code. The effective date of this Plan (the Effective Date ) will be the first business day which is at least fifteen days following the date the Bankruptcy Court enters the order confirming this Plan (the Plan Confirmation Order ), unless there is a stay in effect, in which case the Effective Date will be the first business day after the stay is no longer in effect with respect to the Plan Confirmation Order. For purposes of this Plan, the two Debtors are being treated as one consolidated legal entity as there is no practical way to separately allocate the assets (comprised almost entirely of cash) of the two estates between them. As a result, the holder of an allowed claim of a specific priority and amount against one of the Debtors will

6 Main Document Page of receive the identical treatment under this Plan as the holder of an allowed claim with the same priority and amount against the other Debtor, and duplicative claims filed against both estates will automatically be treated as one single claim against the substantively consolidated Debtor. All defined terms which are not defined in this Plan but which are defined in the Disclosure Statement shall have the same meanings as such terms are provided in the Disclosure Statement. II. SUMMARY OF THIS PLAN OF REORGANIZATION A. What Creditors and Interest Holders Will Receive Under this Plan As required by the Bankruptcy Code, this Plan classifies claims and interests in various classes according to their right to priority. This Plan states whether each class of claims or interests is impaired or unimpaired. This Plan provides the treatment each class will receive. B. Unclassified Claims Certain types of claims are not placed into voting classes; instead they are unclassified. They are not considered impaired and they do not vote on this Plan because they are automatically entitled to specific treatment provided for them in the Bankruptcy Code. As such, the Debtors have not placed the following claims in a class.. Administrative Expenses Administrative expenses are claims for costs or expenses of administering the Debtors Chapter cases which are allowed under Bankruptcy Code Section 0(a)(). The Bankruptcy Code requires that all administrative claims be paid on the Effective Date, unless a For purposes of this Plan, the Debtors are treating the two Chapter Debtors and creditor claims against the two Chapter Debtors as if the two Chapter bankruptcy cases were substantively consolidated into one Chapter bankruptcy case because it appears to the Debtors that this is effectively the manner in which the Debtors operated.

7 Main Document Page of 0 0 particular claimant agrees to a different treatment. The administrative claims bar date in these cases other than for professional fees was October, 0. The following chart lists all of the known 0(a)() administrative claims in these cases and their treatment under this Plan. With respect to professionals, the amounts reflect all estimated post-petition professional fees which have been incurred and not paid or which are projected to be incurred prior to the Effective Date. Name Amount Owed Treatment Clerk's Office Fees $0 Paid in full on the Effective Date out of the Estates Funds OUST Fees $0 Paid in full on the Effective Date out of the Estates Funds Levene, Neale, Bender, Yoo & Brill L.L.P., bankruptcy counsel to the Debtors Kirkland & Ellis LLP, special corporate counsel to the Debtors $0,000 in excess of that which the firm has already been paid $0,000 in excess of that which the firm has already been paid Paid in full out of the Estates Funds on the later of the Effective Date and the date the Bankruptcy Court enters an order allowing such fees and expenses Paid in full out of the Estates Funds on the later of the Effective Date and the date the Bankruptcy Court enters an order allowing such fees and expenses 0 Garvey Schubert Barer, special healthcare counsel to the Debtors Callahan & Blaine, APLC, special litigation counsel to the Debtors MTS Health Partners L.P., investment banker and financial advisor to the Debtors FTI Consulting, Inc., which provided the CRO and various temporary employees to the Debtors $0 in excess of that which the firm has already been paid $, in excess of that which the firm has already been paid $0 as MTS Health Partners L.P. has already been paid in full $0 in excess of that which the firm has already been paid (as payments are made on an ongoing basis) Paid in full out of the Estates Funds on the later of the Effective Date and the date the Bankruptcy Court enters an order allowing such fees and expenses Paid in full out of the Estates Funds on the later of the Effective Date and the date the Bankruptcy Court enters an order allowing such fees and expenses Paid in full out of the Estates Funds on the later of the Effective Date and the date the Bankruptcy Court enters an order allowing such fees and expenses Paid in full out of the Estates Funds on the later of the Effective Date and the date the Bankruptcy Court enters an order allowing such fees and expenses Buchalter Nemer, A Professional Corporation, counsel to the Committee $00,000 in excess of that which the firm has already been paid Paid in full out of the Estates Funds on the later of the Effective Date and the date the Bankruptcy Court enters an

8 Main Document Page of Name Amount Owed Treatment Non-professional fees and expenses, comprised primarily or solely of reclamation claims. A list of all known administrative claims which are not for professional fees or expenses is set forth in the chart attached as Exhibit to the Disclosure Statement. TOTAL order allowing such fees and expenses $, Paid in full out of the Estates Funds on the later of the Effective Date and the date the Bankruptcy Court enters an order allowing such administrative claim in the event of any timely objection having been filed to any such administrative claim prior to the Effective Date $,,0 est. Bankruptcy Court Approval of Fees Required: The Bankruptcy Court must approve all professional fees and expenses before they may be paid, as well as approving any previously allowed fees and expenses sought by professionals pursuant to applicable provisions of the Bankruptcy Code, the Bankruptcy Rules and the Guidelines of the Office of the United States Trustee (the OUST ). For all fees except Clerk's Office fees and the fees owing to the OUST, the professional in question must file and serve a properly noticed fee application, and the Bankruptcy Court must rule on the application. Only the amount of fees and expenses allowed by the Bankruptcy Court will be required to be paid under this Plan. The administrative claim amounts set forth above simply represent the Debtors best estimate as to the amount of allowed administrative claims estimated to be incurred by professionals prior to the Effective Date and that will be paid on the Effective Date or as soon as they are allowed and to the extent allowed by the Bankruptcy Court. The actual administrative claims may be higher or lower. By voting to accept this Plan, creditors are not acknowledging the validity of, or consenting to the amount of, any of these administrative claims, and creditors are not waiving any of their rights to object to the allowance of any of these administrative claims. By voting to accept this Plan, creditors also understand that the

9 Main Document Page of final amount of allowed fees and expenses of the professionals employed in these cases may be higher or lower than the figures set forth above, which again are just estimates. Deadline to File Objections to Non-Professional Fees/Expenses Administrative Claims: Attached as Exhibit to the Disclosure Statement is a chart (the "Administrative Claims Chart") that shows all known remaining administrative claims (excluding professional fees and expenses) and an estimate of the allowed amount of such claims totaling $,. Any party in interest who desires to dispute any of these administrative claims must file their objection with the Bankruptcy Court prior to the Effective Date. If no such objection is timely filed, on the Effective Date all of the claims contained in exhibit to the Disclosure Statement shall be deemed to be allowed administrative claims and shall be paid in full out of the Estates Funds on the Effective Date (or as soon thereafter as is practical).. Priority Tax Claims Priority tax claims include certain unsecured income, employment and other taxes described by Section 0(a)() of the Bankruptcy Code. The Bankruptcy Code requires that each holder of such a Section 0(a)() priority tax claim receive the present value of such claim in deferred cash payments, over a period not exceeding five () years after the date of the order for relief under section 0, 0, or 0 of the Bankruptcy Code; or payments made in a manner not less favorable than the most favored non-priority unsecured claim provided for by this Plan. Attached as Exhibit to the Disclosure Statement is a chart (the "Priority Claims Notwithstanding any comments on claims in the Administrative Claims Chart, the Debtors reserve the right to object to any such claims within the deadline set forth herein.

10 Main Document Page 0 of Chart") that shows all priority claims, based on the Debtors bankruptcy schedules and the priority claims which have been asserted in timely filed proofs of claim. Priority tax claims are indicated with shaded boxes. As indicated in the Priority Claims Chart, the Debtors estimate that the total amount of allowed priority tax claims will be approximately $,. Any party in interest who desires to dispute any of these tax claims must file their objection with the Bankruptcy Court prior to the Effective Date. If no such objection is timely filed, on the Effective Date all of the tax claims contained in the Priority Claims Chart shall be deemed to be allowed priority tax claims and shall be paid in full out of the Estates Funds on the Effective Date (or as soon thereafter as is practical). In the event that a timely objection is filed to any such tax claims, then those disputed tax claims will be paid in full out of the Estates Funds on the later of the Effective Date and the date the Bankruptcy Court enters an order allowing any such disputed priority tax claims (or as soon thereafter as is practical). C. Classified Claims and Interests. Classes of Secured Claims Attached as Exhibit to the Disclosure Statement is a chart (the "Secured Claims Chart") that shows all known remaining secured claims, exclusive of any remaining secured claim of the Senior Lenders, which is addressed below. All such secured claims identified in the Secured Claims Chart will be deemed to be collectively included in class under this Plan. As indicated in the Secured Claims Chart, the Debtors estimate that the total amount of outstanding class secured claims that will be allowed is approximately $,0 Notwithstanding any comments on claims in the Priority Claims Chart, the Debtors reserve the right to object to any such claims within the deadline set forth herein. Notwithstanding any comments on claims in the Secured Claims Chart, the Debtors reserve the right to object to any such claims within the deadline set forth herein.

11 Main Document Page of (comprised entirely of secured tax claims). Any party in interest who desires to dispute any of these class secured claims must file their objection with the Bankruptcy Court prior to the Effective Date. If no such objection is timely filed, on the Effective Date all of the secured claims contained in the Secured Claims Chart shall be deemed to be allowed class secured claims and shall be paid in full out of the Estates Funds on the Effective Date (or as soon thereafter as is practical). In the event that a timely objection is filed to any such class secured claims, then those disputed class secured claims will be paid in full out of the Estates Funds on the later of the Effective Date and the date the Bankruptcy Court enters an order allowing any such disputed class secured claims (or as soon thereafter as is practical). All class secured claims will be considered to be not impaired under this Plan since they are being paid in full in cash on the Effective Date (or upon entry of a Bankruptcy Court order allowing such class secured claims if a timely objection is filed to them). In accordance with the terms of the Asset Allocation Agreement, the Senior Lenders shall continue to retain their lien and security interest in all General Litigation (as defined in the Asset Allocation Agreement as any litigation rights owned by the Debtors other than litigation constituting avoidance actions under the Bankruptcy Code and litigation to collect any of the Debtors accounts receivable. Also in accordance with the terms of the Asset Allocation Agreement, the Senior Lenders shall continue to retain their lien and security interest in any of their collateral still in existence on the Effective Date (recognizing that the Debtors do not believe that any such collateral still exists). This secured claim of the Senior Lenders shall constitute the class claim under this Plan. The Debtors do not have any pending General Litigation and do not currently intend to commence any General Litigation. As a result, the Debtors do not expect to receive any proceeds from any General Litigation.

12 Main Document Page of However, if the Debtors do receive any proceeds from any General Litigation, then in accordance with the terms of the Asset Allocation Agreement, 0% of such net proceeds (with net proceeds being defined as any gross proceeds less any litigation fees and expenses incurred by the Debtors from the pursuit of such General Litigation) shall be disbursed to the Senior Loan Agent for the benefit of the Senior Lenders, and 0% of such proceeds shall be retained by the Debtors (with the 0% portion being retained by the Debtors to be defined herein the Debtors General Litigation Recoveries ). The class claim will be considered to be not impaired under this Plan because this Plan leaves unaltered the legal, equitable and contractual rights of the Senior Lenders with respect to the class claim.. Classes of Priority Unsecured Claims Certain priority claims that are referred to in Bankruptcy Code Sections 0(a) (), (), (), (), and () are required to be placed in classes. These types of claims are entitled to priority treatment as follows: the Bankruptcy Code requires that each holder of such a claim receive cash on the Effective Date equal to the allowed amount of such claim. However, a class of unsecured priority claim holders may vote to accept deferred cash payments of a value, as of the Effective Date, equal to the allowed amount of such claim. Based upon the non-tax priority claims contained in the Debtors bankruptcy schedules and the non-tax priority claims which have been asserted in timely filed proofs of claim, as indicated in the Priority Claims Chart, the Debtors estimate that the total amount of allowed non-tax priority claims will be approximately $,00. Any party in interest who desires to dispute any of these non-tax priority claims must file their objection with the Bankruptcy Court prior to the Effective Date. If no such objection is timely filed, on the Effective Date all of the non-tax priority claims contained in the Priority Claims Chart shall be deemed to be allowed non-tax priority claims and shall be paid in full out of the Estates Funds on the Effective Date (or as soon thereafter as

13 Main Document Page of 0 0 is practical). In the event that a timely objection is filed to any such non-tax priority claims, then those disputed non-tax priority claims will be paid in full out of the Estates Funds on the later of the Effective Date and the date the Bankruptcy Court enters an order allowing any such disputed non-tax priority claims (or as soon thereafter as is practical). All non-tax priority claims will be deemed to be collectively included in class under this Plan and will be considered to be not impaired since they are being paid in full in cash on the Effective Date (or upon entry of a Bankruptcy Court order allowing such non-tax priority claims if a timely objection is filed to them).. Classes of General Unsecured Claims General unsecured claims are unsecured claims not entitled to priority under Bankruptcy Code Section 0(a). The following chart identifies this Plan's treatment of the classes containing all of the non-priority general unsecured claims (see Exhibit to the Disclosure Statement for detailed information about each class general unsecured claim): 0 CLASS DESCRIPTION # All general unsecured claims excluding the general unsecured deficiency claim of the Senior Lenders which is being separately classified in class in accordance with the terms of the Asset Allocation Agreement. The Debtors have filed objections to most of their disputed general unsecured claims. Based upon the outcome of these claims objections and the Debtors analysis of IMPAIRED (Y/N) Impaired; allowed claims in this class are entitled to vote on this Plan. TREATMENT All Estates Funds remaining after all allowed secured claims, all allowed administrative claims, all allowed priority tax claims, and all allowed priority (non-tax) claims have been paid in full and the Administrative Reserve Fund has been funded ( Net Estates Funds ) will be distributed to holders of class allowed claims on a pro rata basis based upon the allowed amount of their class claims until each holder of a class allowed claim has received payment equal to 0% of the amount of their class allowed claim. The Net Estates Funds remaining after each holder of a class allowed claim has received payment equal to 0% of the amount of their class allowed claim ( Remaining Net Estates Funds ) will be distributed to holders 0

14 Main Document Page of their books and records and claims asserted, the Debtors currently estimate that there will be a total of approximately $,0,0 of class allowed claims, inclusive of the class claims of any parties to rejected executory contracts and unexpired leases. All objections to any remaining disputed class claims must be filed prior to the Effective Date. of class allowed claims and to the Senior Lenders on account of their class allowed claim on a pro rata basis based upon the remaining allowed amounts of their respective class and class allowed claims after taking into account the 0% distribution received by holders of class allowed claims as described immediately above. The Debtors estimate that holders of class allowed claims will receive a total of approximately $,, of the Estates Funds under this Plan. This total represents the estimated portion of the Estates Funds for class as of the Effective Date, after funding of the Administrative Reserve Fund, and payment of all allowed secured, administrative and priority claims. With an estimated $,0,0 of class allowed claims, the Debtors estimate that holders of class allowed claims will receive a distribution equal to approximately.% of the amount of their class allowed claims before taking into account any Net Avoidance Action Recoveries (defined below) or the Debtors General Litigation Recoveries. The distribution to holders of class allowed claims of their portion of the Net Estates Funds will be made within thirty days following the entry of a Bankruptcy Court order resolving the final remaining disputed claim, unless the Estate Representative obtains an order of the Bankruptcy Court following notice and a hearing authorizing the Estate Representative to make an interim distribution to holders of class allowed claims because of the time delay that is expected to be incurred in resolving any outstanding disputed claims. The Debtors estimate that the initial distribution to holders of class allowed claims will be made by This figure is based on the following assumptions: (i) there will be total Estates Funds on the Effective Date of $,00,000; (ii) there will be a total of $,,0 of allowed administrative claims; (iii) there will be a total of $, of allowed priority tax claims; (iv) there will be a total of $,0 of allowed class secured claims; and (v) there will be a total of $,00 of allowed non-tax priority claims. If any of these assumptions proves to be incorrect, then the total amount of Estates Funds that will be available for distribution to holders of class allowed claims will be impacted (either up or down) accordingly.

15 Main Document Page of around March, 0. The estimated percentage distribution to holders of class allowed claims set forth above is just an estimate. The Debtors will not know the actual percentage distribution until the claims objection process has been completed and final applications for approval of the fees and expenses of the professionals employed in these cases have been ruled upon. By voting to accept this Plan, class claim holders are acknowledging that their actual percentage recovery may be higher or lower than as estimated above. The foregoing estimated figures do not include any Net Avoidance Action Recoveries or the Debtors General Litigation Recoveries. All Net Avoidance Action Recoveries will be distributed to holders of class allowed claims and to the Senior Lenders on account of their class allowed claim on a pro rata basis based upon the remaining allowed amounts of their respective class and class allowed claims after taking into account the 0% distribution received by holders of class allowed claims as described above. The Net Avoidance Action Recoveries will be disbursed by the Estate Representative to holders of class and class allowed claims once the pursuit of Avoidance Actions has been completed. The Estate Representative shall have the right at his discretion to make an interim distribution of Net Avoidance Action Recoveries to holders of class and class allowed claims if the Estate Representative concludes that the cost of doing so is reasonable compared to the amount of Net Avoidance Action Recoveries to be distributed. In accordance with the terms of the Asset Allocation Agreement, all of the Debtors General Litigation Recoveries will be distributed just to holders of class allowed claims on a pro rata basis based upon the allowed amounts of their respective class allowed claims. The Debtors do not believe

16 Main Document Page of 0 that there will be any Debtors General Litigation Recoveries. 0 0 CLASS DESCRIPTION # Class consists of the deficiency claim of the Senior Lenders which is being separately classified in class in accordance with the terms of the Asset Allocation Agreement. The Debtors believe that the class claim of the Senior Lenders is in the amount of $,,0., after taking into account all of the post-petition payments the Debtors have made to the Senior Lenders. IMPAIRED (Y/N) Impaired; allowed claim in this class is entitled to vote on this Plan. TREATMENT As indicated above, the Remaining Net Estates Funds (which consists of the Net Estates Funds remaining after each holder of a class allowed claim has received payment equal to 0% of the amount of their class allowed claim) will be distributed to holders of class allowed claims and to the Senior Lenders on account of their class allowed claim on a pro rata basis based upon the remaining allowed amounts of their respective class and class allowed claims after taking into account the 0% distribution received by holders of class allowed claims as described above. Since the Debtors estimate that there will be a total of approximately $,0,0 of class allowed claims, the Debtors estimate that there will be a total of approximately $,,0 of class allowed claims after each holder of a class allowed claim has received payment equal to 0% of the amount of their class allowed claim. The Debtors therefore estimate that approximately 0.% of the Remaining Net Estates Funds will be distributed to holders of class allowed claims and that approximately.% of the Remaining Net Estates Funds will be distributed to the Senior Lenders on account of their class allowed claim. The Debtors estimate that Senior Lenders will receive a total of approximately $,,0

17 Main Document Page of of the Remaining Net Estates Funds under this Plan. With a class allowed claim in the amount of $,,0., the Debtors estimate that the Senior Lenders will receive a distribution equal to approximately.% of the amount of their class allowed claim before taking into account any Net Avoidance Action Recoveries. The distribution to the Senior Lenders of their portion of the Remaining Net Estates Funds will be made within thirty days following the entry of a Bankruptcy Court order resolving the final remaining disputed claim, unless the Estate Representative obtains an order of the Bankruptcy Court following notice and a hearing authorizing the Estate Representative to make an interim distribution to the Senior Lenders on account of their class allowed claim because of the time delay that is expected to be incurred in resolving any outstanding disputed claims. The Debtors estimate that the initial distribution to the Senior Lenders on account of their class allowed claim will be made by around March, 0. The estimated percentage distribution to the Senior Lenders on account of their class allowed claim set forth above is just an estimate. The Debtors will not know the actual percentage distribution until the claims objection process has been completed and final applications for approval of the fees and expenses of the professionals employed in these cases have been ruled upon. By voting to accept this Plan, the Senior Lenders are acknowledging that their actual percentage recovery may be higher or lower than as estimated above. This figure is based on the following assumptions: (i) there will be total Estates Funds on the Effective Date of $,00,000; (ii) there will be a total of $,,0 of allowed administrative claims; (iii) there will be a total of $, of allowed priority tax claims; (iv) there will be a total of $,0 of allowed class secured claims; and (v) there will be a total of $,00 of allowed non-tax priority claims. If any of these assumptions proves to be incorrect, then the total amount of Remaining Net Estates Funds that will be available for distribution to the Senior Lenders on account of their class allowed claim will be impacted (either up or down) accordingly.

18 Main Document Page of Class of Interest Holders The foregoing estimated figures do not include any Net Avoidance Action Recoveries. All Net Avoidance Action Recoveries will be distributed to holders of class allowed claims and to the Senior Lenders on account of their class allowed claim on a pro rata basis based upon the remaining allowed amounts of their respective class and class allowed claims after taking into account the 0% distribution received by holders of class allowed claims as described above. The Net Avoidance Action Recoveries will be disbursed by the Estate Representative to holders of class and class allowed claims once the pursuit of Avoidance Actions has been completed. The Estate Representative shall have the right at his discretion to make an interim distribution of Net Avoidance Action Recoveries to holders of class and class allowed claims if the Estate Representative concludes that the cost of doing so is reasonable compared to the amount of Net Avoidance Action Recoveries to be distributed. Interest holders are the parties who hold an ownership interest (i.e., equity interest) in the Debtors. Since the Debtors are corporations, the interest holders are the owners of the stock of the Debtors. The following chart identifies this Plan s treatment of the Debtors interest holders: CLASS # DESCRIPTION IMPAIRED (Y/N) All equity interests in the Impaired; Debtors, including all holders of Class preferred stock, common interests are stock, stock options, not entitled to warrants, etc. vote on this Plan because they are deemed to have not accepted this Plan pursuant to TREATMENT Holders of class interests will not receive any property under this Plan or any portion of the Estates Funds. Holders of class interests will continue to own their equity interests in the Debtors following the Effective Date, but the Debtors will no longer own any assets of any

19 Main Document Page of 0 Section (g) of the Bankruptcy Code. value as all of the Debtors tangible assets have been sold or liquidated and none of the Estates Funds will be paid to the holders of class interests. 0 0 D. Means of Effectuating this Plan and Implementation of this Plan. Funding for this Plan This Plan will be funded entirely by the Estates Funds and the Net Avoidance Action Recoveries (on the assumption that there will not be any recoveries from the pursuit of any General Litigation, which the Debtors believe will be the case). The Debtors project that there will be a total of approximately $,00,000 of Estates Funds on the Effective Date available to fund this Plan. This figure is just an estimate the actual figure could be higher or lower.. Disbursing Agent and the Estate Representative Matthew Pakkala, the Debtors current CRO, will serve as the representative of the Debtors bankruptcy estates (the Estate Representative ) for purposes of administering this Plan. The Estate Representative will be compensated for serving as the Estate Representative at the hourly rate of $, which is the same hourly rate he currently receives for serving as the CRO, with his compensation to be paid solely out of the Administrative Reserve Fund. The Debtors anticipate that the Estate Representative will utilize the services of Laura Contreras, the Debtors current CFO, to assist him in this process. Ms. Contreras will be compensated for any services she provides at the hourly rate of $, which is the same hourly rate she currently receives for serving as the CFO, with her compensation to be paid solely out of the Administrative Reserve Fund. The Estate Representative will serve as the disbursing agent for purposes of making all distributions under this Plan and will do so without charging these

20 Main Document Page 0 of estates any disbursing agent fee.. Objections to Claims The pre-petition claims bar date in these cases was September, 00, except for the rejection damage claims of other parties to executory contracts and unexpired leases, whose claims bar date was 0 days after the date of the Debtors rejection of their respective executory contract or unexpired lease. The administrative claims bar except for professional fees and expenses was October, 0. The Debtors have filed objections to most of the disputed claims in these cases, and most of those claims objections have already been resolved. The Debtors anticipate that they will have filed objections to all remaining disputed claims prior to the Plan confirmation hearing, which is anticipated to occur by February, 0. Attached as Exhibit to the Disclosure Statement is a claims chart, which identifies all of the Debtors scheduled general claims and all proofs of claim which have been timely filed against the Debtors asserting general unsecured claims. The Debtors will file before the Plan confirmation hearing objections to all remaining claims which are inconsistent with the Debtors books and records if the Debtors conclude that the discrepancy is sufficiently large enough to justify incurring the fees associated with filing and prosecuting objections to those claims. As provided by Section 0(c) of the Bankruptcy Code, the Bankruptcy Court may, upon required notice and motion, estimate any contingent or unliquidated disputed claim for purposes of Plan confirmation. The Estate Representative will have the authority to file any objections to claims following the confirmation of this Plan. The Estate Representative will also have the authority to continue after confirmation of this Plan with the prosecution of claims objections commenced by the Debtors prior to the confirmation of this Plan but which are not resolved by the time of Plan confirmation. The Bankruptcy Court shall retain

21 Main Document Page of jurisdiction over the Debtors estates to resolve such claims objections following Plan confirmation and the Effective Date. Nothing contained in this Plan shall constitute a waiver or release by the Debtors or these estates of any rights of setoff or recoupment, or of any defense, the Debtors or these estates may have with respect to any claim. Under this Plan and pursuant to the Plan Confirmation Order, the Debtors are being treated as one consolidated legal entity. As a result of such substantive consolidation, to the extent any creditor filed similar claims against each of the Debtors, only one such claim will be allowed and used for distribution purposes under this Plan. Following the Effective Date, the Estate Representative is excused from any obligation, and not required, to object to any such duplicative claims.. Investigation and Prosecution of Avoidance Actions The Debtors are not aware of any fraudulent conveyances which should be pursued, and the Debtors are not aware of any other litigation claims which should be pursued other than preference lawsuits pursuant to Sections and 0 of the Bankruptcy Code. Attached as Exhibit to the Disclosure Statement is a chart which identifies all known payments the Debtors made on account of antecedent debt to non-insiders within the ninety-day preference period and all known payments the Debtors made on account of antecedent debt to insiders within the one-year preference period. The Debtors believe that the payments identified in Exhibit to the Disclosure Statement likely constitute the universe of potential preference payments which may possibly be recovered by the Debtors estates, recognizing that at least some of these payments may be subject to defenses which are identified in Section of the Bankruptcy Code or are prohibited, waived or released by prior Court order and/or agreement by the Debtors. The Estate Representative will serve as the representative of the Debtors estates for the purposes of pursuing preference lawsuits which are commenced after

22 Main Document Page of the Effective Date or which are commenced by the Debtors before the Effective Date but not completed by the time of the Effective Date. The Bankruptcy Court shall retain jurisdiction over these estates and all such preference lawsuits to enable all such preference lawsuits to be prosecuted before the Bankruptcy Court following the Effective Date. All preference lawsuits will be pursued by LNBYB, the Debtors bankruptcy counsel, solely on a contingency basis so that none of the Estates Funds will be used for this purpose and so that creditors of these estates do not incur any risk from the unsuccessful pursuit of any preference lawsuits. The compensation terms for LNBYB for the pursuit of preferences are set forth in Exhibit to the Disclosure Statement. Recoveries obtained from the pursuit of preference actions net of all contingency fees and expenses are referred to herein as Net Avoidance Action Recoveries. The Estate Representative will distribute all Net Avoidance Action Recoveries to holders of class allowed claims and to the Senior Lenders on account of their class allowed claim on a pro rata basis in the manner described above. The Estate Representative will be compensated for serving as the representative of the Debtors estates for the purposes of pursuing preference lawsuits which are commenced after the Effective Date or which are commenced by the Debtors before the Effective Date but not completed by the Effective Date at his same hourly rate of $, with his compensation to be paid solely out of the Administrative Reserve Fund.. Post-Confirmation Administration of these Chapter Estates and Payment of Professional Fees and Expenses Incurred after the Effective Date Following the Effective Date, the Estate Representative shall continue to serve as the representative of the Debtors estates for all purposes necessary to implement the terms of this Plan including, but not limited to, (i) maintaining and distributing the Estates Funds, (ii) commencing and prosecuting objections to claims which were not completed by the Effective

23 Main Document Page of Date, (iii) commencing and continuing with the prosecution of preference actions or lawsuits which were not completed by the Effective Date, (iv) maintaining and distributing the Net Avoidance Action Recoveries; (v) monitoring and implementing this Plan, and (vi) preparing and filing post-confirmation reports with the OUST and paying any post-confirmation fees owing to the OUST. On the Effective Date, the Debtors shall establish a reserve (the Administrative Reserve Fund ) of $0,000 out of the Estates Funds out of which the Estate Representative shall have the authority to pay his fees and expenses, the fees and expenses of any additional employees whom the Estate Representative determines are necessary and appropriate to enable him to carry out his duties, the fees and expenses of professionals incurred after the Effective Date which the Estate Representative determines are necessary and appropriate to enable him to continue with the administration of the Debtors estates and ultimately to close out the Debtors Chapter cases through the entry of final decrees. The Estate Representative shall have the authority to pay all such fees and expenses out of the Administrative Reserve Fund without any further order of the Bankruptcy Court. To the extent any funds remain in the Administrative Reserve Fund upon the entry of final decrees closing the Debtors Chapter cases, the Estate Representative will distribute those funds to holders of class allowed claims and to the Senior Lenders on account of their class allowed claim on a pro rata basis in the manner described above unless the amount is less than $0,000, in which case the Estate Representative will pay such funds to the Clerk of the Bankruptcy Court.. Post-Confirmation Committee Some or all of the members of the Committee shall have the right, but not the obligation, to form a post-confirmation committee (the Post-Confirmation Committee ) for purposes of monitoring the post-confirmation activities of the Estate Representative and these 0

24 Main Document Page of estates. The Post-Confirmation Committee will have the right to employ counsel to assist the Post-Confirmation Committee. The fees and expenses of any such counsel will be paid by the Estate Representative out of the Administrative Reserve Fund. If members of the Committee elect to form a Post-Confirmation Committee, then the settlement process involving pre-lawsuit preference demands and preference lawsuits will be accomplished in accordance with the Preference Settlement Protocol attached as Exhibit to the Disclosure Statement. If members of the Committee do not elect to form a Post-Confirmation Committee, then the settlement process involving pre-lawsuit preference demands and preference lawsuits will be accomplished in accordance with the Preference Settlement Protocol attached as Exhibit to the Disclosure Statement except that there will be no involvement by a Post-Confirmation Committee.. Distributions to be Made Pursuant to this Plan Except as otherwise agreed to by the Estate Representative in writing, distributions to be made to holders of allowed claims pursuant to this Plan may be delivered by regular mail, postage prepaid, to the address shown in the Debtors schedules, as they may from time to time be amended in accordance with Bankruptcy Rule 000, or, if a different address is stated in a proof of claim duly filed with the Bankruptcy Court, to such address. Checks issued to pay allowed claims shall be null and void if not negotiated within sixty (0) days after the date of issuance. The Estate Representative, at his discretion, has the authority to delay the distribution of funds to the holder of an allowed claim who is also the possible target of preference action, except to the extent that the distribution to which the claim holder is entitled is greater than the maximum preference exposure by the claim holder.. Exculpations and Releases

25 Main Document Page of To the maximum extent permitted by law, neither the Debtors nor the Committee, nor any of their representatives, officers, directors, employees or professionals retained by them to assist them in the administration of the Debtors Chapter cases shall have or incur any liability to any person or entity, including the Debtors estates, for any act taken or omission made in connection with or related to the administration of the Debtors Chapter estates, the formulation and implementation of this Plan, or a contract, instrument, release, or other agreement or document created in connection therewith, the solicitation of acceptances for or confirmation of this Plan, or the consummation and implementation of this Plan and the transactions contemplated herein. All creditors and other parties in interest shall be permanently enjoined from initiating or prosecuting any claim or cause of action against the Debtors or the Committee, or any of their representatives, officers, directors, employees or professionals retained by them to assist them in the administration of the Debtors Chapter cases for any actions described herein. E. Risk Factors The Debtors do not believe that there is any risk of non-performance of this Plan since this Plan consists of the distribution of the Estates Funds, and the Debtors are already in possession of the Estates Funds. While the Debtors have no way of knowing how much Net Avoidance Action Recoveries there will be, the Debtors do not believe that there is any risk to these estates from the pursuit of preference actions since that is all being done on a contingency basis, meaning that there is only upside to holders of class and class allowed claims from the pursuit of preference actions. F. Other Provisions of this Plan. Executory Contracts and Unexpired Leases

26 Main Document Page of a) Assumptions The Debtors will not be assuming any executory contracts or unexpired leases under this Plan. b) Rejections All of the Debtors executory contracts and unexpired leases which have not been previously rejected will be deemed rejected on the Effective Date. THE BAR DATE FOR FILING A PROOF OF CLAIM BASED ON A CLAIM ARISING FROM THE REJECTION OF AN UNEXPIRED LEASE OR EXECUTORY CONTRACT WHICH IS REJECTED ON THE EFFECTIVE DATE WILL BE THIRTY (0) DAYS AFTER THE DATE OF ENTRY OF THE PLAN CONFIRMATION ORDER. Any claim based on the rejection of an unexpired lease or executory contract must be timely filed and served on the Debtors or will otherwise be barred. To the extent any claims are filed based on the rejection of executory contracts or unexpired leases, such claims shall constitute and be treated as class claims. The Debtors believe that all of their executory contracts and unexpired leases have already been assumed or rejected so that no additional rejections will be occurring under this Plan.. Changes in Rates Subject to Regulatory Commission Approval. The Debtors do not believe that this provision is applicable to this Plan as the Debtors are not aware of governmental regulatory commission approval of rates which would be applicable to the Debtors as the Debtors no longer have any operating business.. Retention of Jurisdiction. After confirmation of this Plan and occurrence of the Effective Date, in addition to jurisdiction which exists in any other court, the Bankruptcy Court will retain such

27 Main Document Page of jurisdiction as is legally permissible, including for the following purposes: a. to resolve any and all disputes regarding the operation and interpretation of this Plan and the Plan Confirmation Order; b. to determine the allowability, classification, or priority of claims and interests upon objection by the Estate Representative or any other party in interest; c. to determine the extent, validity and priority of any lien asserted against property of these estates; d. to adjudicate any preference lawsuits and any collection efforts made by the Estate Representative resulting from judgments obtained by the Estate Representative from the pursuit of preference lawsuits; e. to construe and take any action to enforce this Plan, the Plan Confirmation Order, and any other Bankruptcy Court order, issue such orders as may be necessary for the implementation, execution, performance, and consummation of this Plan, the Plan Confirmation Order, and all matters referred to in this Plan and the Plan Confirmation Order, and to determine all matters that may be pending before the Bankruptcy Court; f. to determine any and all applications for allowance of compensation and reimbursement of expenses of professionals for the period on or before the Effective Date; g. to determine any request for payment of administrative expenses; h. to determine motions for the rejection, assumption or assignment of executory contracts or unexpired leases filed before the Effective Date and the allowance of any claims resulting therefrom; i. to determine all applications, motions, adversary proceedings, contested matters, and any other litigated matters instituted during the pendency of these cases whether