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Full title: Objection OBJECTION AND RESERVATION OF RIGHTS OF THE UNITED STATES TRUSTEE TO CONFIRMATION OF JOINT PLAN OF REORGANIZATION (RE: related document(s)1063 Amended Chapter 11 Plan). Filed by U.S. Trustee Office of the U.S. Trustee / SJ (Blumberg, Jason) (Entered: 01/25/2021)

Document posted on Jan 24, 2021 in the bankruptcy, 21 pages and 0 tables.

Bankrupt11 Summary (Automatically Generated)

Seventh, the Plan would authorize the Debtors to litigate objections to claims 18 against Debtors whose cases have been closed in the open cases of other Debtors. [t]he Reorganized Debtors shall, promptly after the full administration of 2 the Chapter 11 Cases, file with the Bankruptcy Court all documents 3 required by Bankruptcy Rule 3022 and any applicable order of the Bankruptcy Court to close the Chapter 11 Cases, provided, as of the 4 Effective Date, the Reorganized Debtors may submit separate orders to the Bankruptcy Court under certification of counsel previously provided 5 to the U.S. Trustee closing certain individual Chapter 11 Cases and 6 changing the caption of the Chapter 11 Cases accordingly, provided further that matters concerning Claims may be heard and adjudicated in 7 one of the Debtors’ Chapter 11 Cases that remains open regardless of whether the applicable Claim is against a Debtor in a Chapter 11 Case 8 that is closed.The Debtors have not demonstrated that the 18 Court would have post-confirmation jurisdiction over objections to claims filed against Debtors 19 whose cases have been closed.As a 16 result, prosecution of objections to claims against Debtors with closed cases would not appear to 17 have a close nexus to the plans of the Debtors with open cases. In re Sanders, 2013 WL 26 27 9 Further, res judicata may bar the Debtors from bringing objections to claims asserted 28 against debtors with closed cases in the open cases of different debtors.

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1 MARTA E. VILLACORTA (NY SBN 4918280) Assistant United States Trustee 2 JASON BLUMBERG (CA SBN 330150) Trial Attorney 3 United States Department of Justice Office of the U.S. Trustee 4 280 South First Street, Ste. 268 San Jose, California 95113 5 Telephone: (408) 535-5525 Facsimile: (408) 535-5532 6 Email: jason.blumberg@usdoj.gov 7 Attorneys for James L. Snyder, Acting United States Trustee for Region 121 8 UNITED STATES BANKRUPTCY COURT 9 NORTHERN DISTRICT OF CALIFORNIA 10 SAN JOSE DIVISION 11 In re: Bankruptcy Case No. 20-50682 MEH 12 13 WAVE COMPUTING, INC., et al., Chapter 11 (Lead Case) 14 Debtors.2 Date: February 10, 2021 15 Time: 10:15 a.m. 16 Judge: Honorable M. Elaine Hammond Via Zoom 17 18 OBJECTION AND RESERVATION OF RIGHTS OF THE UNITED STATES TRUSTEE TO CONFIRMATION OF 19 JOINT PLAN OF REORGANIZATION (ECF NO. 1063) 20 21 22 23 24 25 26 1 James L. Snyder, Acting United States Trustee for Region 12, is acting in this appointment 27 for Tracy Hope Davis, United States Trustee for Region 17, who has recused herself. 28 2 The Debtors in these chapter 11 cases are Wave Computing, Inc., MIPS Tech, Inc., Hellosoft, Inc., Wave Computing (UK) Limited, Imagination Technologies, Inc., Caustic Graphics, Inc.,

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TABLE OF CONTENTS 1 I. INTRODUCTION…………………………………………………………………………….1 2 II. STATEMENT OF FACTS……………………………………………………..……………..3 3 A. General Case Background………………………………………………..…………...3 4 5 B. The Plan…………………………………………………………………………….…3 6 C. The Restructuring Option under the Plan……………………………………………..4 7 D. The Liquidating Trust ……………….…………………………………….………….5 8 E. Post-Effective Date Management of the Debtors ….…………………………………6 9 F. Releases, Exculpation, and Injunction under the Plan ………………………..….……7 10 11 G. Quarterly Fees and Case Closure under the Plan ………….………………………….8 12 III. OBJECTION………………………………………………………………………………….9 13 A. The Third-Party Release is Overbroad……………………………………………...…9 14 B. The Plan Exculpation is Overbroad ……………...……………………………….…10 15 C. The Court Should Not Approve the Exculpation and Limitation of Liability 16 in the Liquidating Trust Agreement ………………………………………………....11 17 D. The Debtors Must Disclose the Identity and Affiliations of the 18 New Board ……………………………………………..…………..………………..11 19 E. The Debtors Should Disclose the Compensation of the Liquidating Trust Manager ……………..…… …………………..…………………12 20 21 F. The Court Should Not Approve a Signing Bonus for the Debtors’ CEO ……………13 22 G. The Debtors Have Not Demonstrated that the Court Would Have Post- Confirmation Jurisdiction over Objections to Claims Filed against Debtors whose 23 Cases Have Been Closed…………………………….………………..………….….13 24 H. The Liquidating Trust Should be Required to Pay Quarterly Fees and 25 File Post-Confirmation Quarterly Reports…………………………….…………….15 26 IV. RESERVATION OF RIGHTS……………………………………………………………...17 27 V. CONCLUSION…………………………………………………………………………….…17 28

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TABLE OF AUTHORITIES 1 CASES 2 3 In re Affordable Med Scrubs, LLC, 2016 WL 3693978 (Bankr. N.D. Ohio July 5, 2016)…..…..12 4 In re American Hardwoods, Inc., 885 F.2d 621 (9th Cir. 1989)………………………..…..1, 9-10 5 In re AMR Corp., 497 B.R. 690 (Bankr. S.D.N.Y. 2013)………………………………….……13 6 In re Beyond.com Corp., 289 B.R. 138 (Bank. N.D. Cal. 2003)………………………………...11 7 Blixseth v. Credit Suisse, 961 F.3d 1074 (9th Cir. 2020)……..………………………………..…9 8 In re Celebrity Home Entm't, Inc., 210 F.3d 995 (9th Cir. 2000)………………………………..16 9 In re Danny’s Markets, Inc., 266 F.3d 523 (6th Cir. 2001)………………………………….…..16 10 11 In re Elder, 325 B.R. 292 (N.D. Cal. 2005)……………………………….………..……………12 12 In re Fong, 2005 WL 3964429 (Bankr. D. Haw. Nov. 18, 2005)…………………………..…..14 13 In re Fraser’s Boiler Serv., Inc., 593 B.R. 636 (Bankr. W.D. Wash. 2018)……………..…..10-11 14 In re Genesis Health Ventures, Inc., 402 F.3d 416 (3d Cir. 2005)………………………………16 15 In re Go-Go’s Greek Grille, LLC, 617 B.R. 394 (Bankr. M.D. Fla. 2020)…………………..11-12 16 In re Jamko, Inc., 240 F.3d 1312 (11th Cir. 2001)…………………………………..…………..16 17 In re Lowenschuss, 67 F.3d 1394 (9th Cir. 1995)………………………………………………1, 9 18 McNutt v. GM Acceptance Corp., 298 U.S. 178 (1936)……………………………..………..…13 19 20 In re Menk, 241 B.R. 896 (B.A.P. 9th Cir. 1999)………………………………………………..14 21 In re Pegasus Gold Corp., 394 F.3d 1189 (9th Cir. 2005)……………………..……………13-15 22 In re PG & E Corp., 617 B.R. 671 (Bankr. N.D. Cal. 2020)……………………………………..9 23 In re Roger, 2015 WL 7566647 (C.D. Cal. Nov. 24, 2015)………………….…………….……14 24 In re Sanders, 2013 WL 1490971 (B.A.P. 9th Cir. Apr. 11, 2013)……….…………….……15-16 25 In re Schultz, 69 B.R. 629 (D.S.D. 1987)………………………………….………………….…12 26 In re Siegel, 143 F.3d 525 (9th Cir. 1998)……….……………………………………………15-27 16 28

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In re Sihabouth, 2014 WL 2978550 (B.A.P. 9th Cir. July 2, 2014)………………………….….15 1 St. Angelo v. Victoria Farms, Inc., 38 F.3d 1525 (9th Cir. 1994)………………………………..16 2 3 In re Thorpe Insulation Co., 671 F.3d 1011 (9th Cir. 2012)………………………………….…14 4 In re Washington Mut., Inc., 442 B.R. 314 (Bankr. D. Del. 2011)……………………………....10 5 In re Wilshire Courtyard, 729 F.3d 1279 (9th Cir. 2013)……………….………………….……13 6 In re Yellowstone Mountain Club, LLC, 460 B.R. 254 (Bankr. D. Mont. 2011)………..……….10 7 STATUTES 8 9 11 U.S.C. § 503(c)……………………………………………………………………….……2, 13 10 11 U.S.C. § 524(e)……………………………………………………………………………...…9 11 11 U.S.C. § 1106(a)(7)...…………………………………………………………………………17 11 U.S.C. § 1107……………………………………………….………………………………….3 12 11 U.S.C. § 1108……………………………………………….………………………………….3 13 11 U.S.C. § 1129(a)(4)………………………………………….………………………………..12 14 11 U.S.C. § 1129(a)(5)……………………………………………………………….2, 6-7, 11-12 15 11 U.S.C. § 1141(b)………………………………………………………………….…………..15 16 28 U.S.C. § 1334….………………………………………………………………………….13-15 17 28 U.S.C. § 1930(a)(6)….………………………………………………………………2, 8, 15-16 18 RULES 19 Fed. R. Bankr. P. 2015(a)(5)…………………………………………………………………….17 20 21 22 23 24 25 26 27 28

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James L. Snyder, Acting United States Trustee for Region 12 (the “UST”), by and 1 through his undersigned counsel, hereby files this objection (the “Objection”) and reservation of 2 3 rights with respect to confirmation of the fifth amended joint plan of reorganization filed on 4 January 15, 2021 (ECF No. 1063) (the “Plan”). In support of his Objection, the UST respectfully 5 represents as follows: 6 I. INTRODUCTION 7 1. The UST opposes confirmation of the Plan for the following reasons. First, the 8 9 Plan’s third-party release is overbroad. For the most part, only creditors and interest holders who 10 affirmatively vote to accept the Plan or execute an opt-in form will be bound by the release. 11 However, the definition of Releasing Parties3 is broad enough to cover parties tangentially 12 related to consenting creditors and interest holders (e.g., their current and former affiliates, 13 officers, directors, professionals and agents). 14 15 2. The third-party release should not apply to these related parties unless they also 16 affirmatively voted to accept the Plan or executed an opt-in form. Similarly, the Plan’s 17 injunction provision should expressly provide that it does not apply to claims against non-18 Debtors that are asserted by creditors and interest holders who did not vote to accept the Plan or 19 execute an opt-in form. See In re Lowenschuss, 67 F.3d 1394 (9th Cir. 1995); In re American 20 21 Hardwoods, Inc., 885 F.2d 621 (9th Cir. 1989). 22 3. Second, the Plan’s exculpation provision is also overbroad. The exculpation is 23 not expressly limited to actions taken between the petition date and the Effective Date of the 24 Plan. 25 26 27 3 Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Plan. 28

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4. Third, the Liquidating Trust Agreement includes a broad exculpation and 1 limitation of liability for the Liquidating Trust Manager (among others). This provision would 2 3 shield the Liquidating Trust Manager for liability for its own negligence and all personal 4 liability. As the Liquidating Trust Manager won’t exist in that capacity until after confirmation, 5 it has done nothing to warrant an exculpation or a release. 6 5. Fourth, the Debtors have not yet disclosed the identity and affiliations of the New 7 Board. See 11 U.S.C. § 1129(a)(5). 8 9 6. Fifth, the Debtors have not disclosed the compensation terms for the Liquidating 10 Trust Manager. Although the Plan stated that these terms would be disclosed in the Plan 11 Supplement, the filed Plan Supplement states that the compensation terms “shall remain 12 confidential.” 13 7. Sixth, a condition precedent to the Plan’s Effective Date is an agreement between 14 15 the Debtors and their CEO for a new employment contract with a signing bonus. The Debtors 16 have not demonstrated that this condition complies with 11 U.S.C. § 503(c). 17 8. Seventh, the Plan would authorize the Debtors to litigate objections to claims 18 against Debtors whose cases have been closed in the open cases of other Debtors. The Debtors 19 have not demonstrated that the Court would have subject matter jurisdiction over these matters. 20 21 9. Finally, the Liquidating Trust Manager will make distributions to general 22 unsecured creditors. Thus, the Liquidating Trust should be included among the parties in the 23 Plan that are required to pay quarterly fees under 28 U.S.C. § 1930(a)(6). Similarly, the 24 Liquidating Trust should be required to file post-confirmation reports of its disbursements. 25 26 27 28

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II. STATEMENT OF FACTS 1 A. General Case Background 2 3 10. On April 27, 2020 (the “Petition Date”), Wave Computing, Inc. (“Wave 4 Computing”) and its above-referenced direct and indirect subsidiaries (collectively, the “Debtors”) 5 commenced voluntary cases under Chapter 11 of the United States Bankruptcy Code. See ECF 6 No. 1. The Debtors are currently debtors-in-possession under sections 1107 and 1108 of the 7 Bankruptcy Code. 8 9 11. On May 1, 2020, the Court entered an Order directing the joint administration of 10 these cases for procedural purposes only. See ECF No. 50. 11 12. On May 18, 2020, the UST appointed an official committee of unsecured creditors 12 (the “Committee”) for Debtor Wave Computing. See ECF No. 114; see also ECF No. 593. 13 13. On December 3, 2020, the Court entered an Order approving the adequacy of the 14 15 Debtors’ fifth amended disclosure statement (ECF No. 848) (the “Disclosure Statement”). See 16 ECF No. 859. 17 B. The Plan 18 14. The Debtors, the Committee, and Tallwood Technology Partners LLC (“Tallwood”) 19 are co-proponents of the Plan. See Disclosure Statement, at p. 11 of 140; Plan, at p. 6 of 91. 20 21 Tallwood is the Debtors’ pre-petition lender, the DIP Lender, and a holder of interests in Wave 22 Computing. See Plan, at p. 24 of 91 (§ I.A.170). 23 15. Although “proposed jointly for administrative purposes,” the Plan is a “separate 24 Plan” for each Debtor. See Plan, at p. 6 of 91 (emphasis added). 25 16. As set forth in the Disclosure Statement, the Plan contemplates a restructuring of 26 27 “approximately $56,908,138 in principal amount of funded and general unsecured debt and 28

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creditor claims, as well as a committed exit financing up to $5,110,000.” See Disclosure 1 Statement, at p. 18 of 140. 2 3 17. The Plan has a “toggle” feature that would allow the Debtors to instead proceed 4 with an asset sale if the Debtors receive “one or more qualified bids in an amount in excess of 5 $52,500,000.” See Disclosure Statement, at p. 18 of 140. 6 18. Consistent with this dual-track strategy, the Debtors commenced an auction 7 pursuant to Court-approved bidding procedures on December 21, 2020. At the conclusion of the 8 9 auction, the Debtors selected Tallwood as the successful bidder. Tallwood’s winning bid reflected 10 certain improvements to the value of the Restructuring option of the Plan. See ECF No. 1064, at p. 11 2 of 3; see also ECF No. 940 (bid procedures Order).4 12 C. The Restructuring Option under the Plan 13 19. In the event of a Restructuring: 14 15 a. Tallwood would fund an Exit Facility in the maximum amount of $5,110,000. The Exit Facility would be secured by a first priority lien on the Debtors’ 16 Collateral. See Plan, at pp. 13, 45-46 of 91 (§§ I.A.65, I.A.67, IV.E.2). 17 b. With respect to its DIP Claims, Tallwood would (i) receive 37.66% of the new common stock of the reorganized Wave Computing, and (ii) become the 18 beneficiary of the Senior Secured Note in an amount equal to that portion of 19 the DIP Claims that exceed $4 million. The Senior Secured Note would have a first priority lien on the Debtors’ Collateral. See Plan, at pp. 23-24, 29 of 91 20 (§§ I.A.167, II.B). 21 c. With respect to its non-rolled-up pre-petition claim, Tallwood would (i) receive 62.34% of the new common stock of the reorganized Wave 22 Computing, (ii) a right to recovery under the Liquidating Trust, and (iii) 23 become the beneficiary of the Secured Subordinated Note in the amount of $4,000,0000. The Secured Subordinated Note would have a second priority 24 25 26 4 On January 15, 2021, the Debtors filed a motion for an Order conditionally authorizing the sale of their assets to the back-up bidder at the auction for $57.5 million, in the event that there is a 27 material risk that the Effective Date of the Plan will not occur on or prior to March 1, 2021. See ECF No. 1055, at pp. 2, 11-12 of 33. The hearing on the sale motion is February 18, 2021. Id., at p. 2 of 33. 28

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lien on the Debtors’ Collateral. See Plan, at pp. 22-23, 33 of 91 (§§ I.A.164; 1 III.B.3). 2 d. Holders of Class 5 general unsecured claims would receive a right to recovery under the Liquidating Trust. See Plan, at pp. 34-35 of 91 (§ III.B.5). 3 e. All existing equity interests in Wave Computing would be cancelled. See 4 Plan, at pp. 35-40 of 91 (§§ III.B.7, III.B.9, III.B.11 to III.B.15). 5 20. On the Effective Date and except as otherwise provided in the Plan or related 6 documents, “all property in each Estate and any property acquired by any of the Debtors pursuant 7 to this Plan shall vest in each respective Reorganized Debtor, free and clear of all Liens, Claims, 8 9 charges, or other encumbrances.” See Plan, at pp. 47-48 of 91 (§ IV.E.4) (emphasis added). 10 D. The Liquidating Trust 11 21. On the Effective Date, a Liquidating Trust will be created for the primary benefit 12 of holders of Class 5 General Unsecured Claims. See Plan, at pp. 55, 59-60 of 91 (§§ IV.G.1, 13 IV.G.7). In the event of a Restructuring, the Liquidating Trust’s assets would include: (i) the 14 15 GUC Loan in the amount of $36 million;5 (ii) the GUC Accounts Receivable Proceeds in the 16 amount of $7.2 million; and (iii) the estate’s causes of action (to the extent not released under the 17 Plan). Id. at pp. 14-15, 55 of 91 (§§ I.A.79, I.A.83, and IV.G.2). 18 22. As set forth in the Plan, the Plan Supplement will disclose, among other things, 19 “the identity of the Liquidating Trust Manager and the compensation of the Liquidating Trust 20 21 Manager.” See Plan, at pp. 18-19 of 91 (§ I.A.123). The earlier version of the Plan that was 22 attached to the Disclosure Statement similarly stated that the Plan Supplement would disclose 23 24 25 26 5 The GUC Loan would be an obligation of the Reorganized Debtors - payable in quarterly 27 installments over 3 years and followed by a balloon payment. The GUC Loan would have a second priority lien on the Debtors’ Collateral. See Plan, pp. 14-15 (§ I.A.83). 28

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“the identity of the Liquidating Trustee and the compensation of the Liquidating Trustee.” See 1 ECF No. 848-1 (Fourth Amended Plan, § I.A.111).6 2 3 23. According to the Plan Supplement, the initial Liquidating Trust Manager will be 4 Robert Kors. See ECF No. 1035-6 (Exhibit F to Plan Supplement). However, the Plan 5 Supplement states that the Liquidating Trust Manager’s compensation “shall remain confidential 6 pursuant to § 5.6 of the Liquidating Trust Agreement, but shall be paid out of the Trust 7 Administration Reserve or from any proceeds of Transferred Causes of Action.” Id. (emphasis 8 9 added). 10 24. Section 10.1 of the Liquidating Trust Agreement contains an exculpation and 11 limitation of liability for the benefit of the Liquidating Trust Manager, the Delaware Trustee and 12 the Liquidating Trust Advisory Board members. See ECF No. 1068, at pp. 50-51 of 64. Among 13 other things, the Liquidating Trust Manager will (i) not be liable for damages related to the 14 15 operation of the Liquidating Trust (except for gross negligence, willful misconduct or bad faith), 16 (ii) not be liable for punitive, exemplary, consequential or special damages, and (iii) not be 17 subject to any “personal liability whatsoever.” Id. 18 E. Post-Effective Date Management of the Debtors 19 25. With respect to the post-effective date management of the reorganized Wave 20 21 Computing, the Plan provides in relevant part that: 22 [a]s of the Effective Date, the term of the current members of the board of directors of Wave shall expire, and all of the directors for the initial 23 term of the New Board shall be appointed in accordance with the terms 24 herein and the terms to be provided in the Plan Supplement…. For the avoidance of doubt, the New Board shall be appointed in compliance 25 with section 1129(a)(5) of the Bankruptcy Code. The identity of the 26 27 6 By Order entered on December 30, 2020, the Debtors’ deadline to file the Plan Supplement was extended to January 11, 2021, while the voting and plan objection deadlines were 28 extended to January 25, 2021. See ECF No. 981.

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members of the New Board will be disclosed in the Plan Supplement or 1 prior to Confirmation, consistent with section 1129(a)(5) of the Bankruptcy Code. 2 3 See Plan, at p. 49 of 91 (§ IV.E.8) (emphasis added). 4 26. The Plan Supplement does not appear to identify the members of the New Board. 5 See, e.g., ECF No. 1035-2 (Exhibit B-1 to Plan Supplement; Amended and Restated Bylaws for 6 Wave Computing, Inc.). 7 27. In the event of a Restructuring, it is a condition precedent to the Plan’s Effective 8 9 Date that the New Board and the Debtors’ CEO (Sanjai Kohli) will have agreed on the “terms of 10 an employment agreement … including for payment of a signing bonus ….” See Plan, at p. 83 of 11 91 (§ X.A.10) (emphasis added). 12 F. Releases, Exculpation, and Injunction under the Plan 13 28. Section IX.9.D the Plan provides for a release by certain creditors and interest 14 15 holders. See Plan, pp. 78-79 of 91 (§ IX.9.D) (the “Third-Party Release”).7 Specifically, the 16 definition of “Releasing Parties” includes creditors and interest holders who affirmatively vote to 17 accept the Plan or who make an opt-in election on the applicable ballot or form. See id., at pp. 21 18 of 91 (§ I.A.147) (emphasis added). 19 29. The definition of “Releasing Parties” also includes “current and former Affiliates 20 21 and subsidiaries, and such Entities’ and their current and former Affiliates’ and subsidiaries’ 22 current and former directors, managers, officers, principals, members, employees, agents, advisors, 23 advisory board members, financial advisors, attorneys, accountants, investment bankers, 24 25 26 7 The beneficiaries of the Third-Party Release are the “Released Parties,” which includes the 27 Debtors, the Committee, Tallwood, Tallwood Management Company (as DIP Agent), Desi Banatao, Dado Banatao, and Rey Banaatao. See Plan, at pp. 20-21, 25, 16 of 77 (§§ I.A.146, I.A.172, and I.A.173). 28

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consultants, professionals and other representatives, equity holders … predecessors, and successors 1 and assigns, each in its capacity as such ….” See Plan, at p. 21 of 91 (§ I.A.147(vi)). 2 3 30. Section IX.9.E of the Plan is an exculpation provision. This provision provides, in 4 relevant part, that: 5 no Exculpated Party shall have or incur, and each Exculpated Party is 6 released and exculpated from any Cause of Action for any claim related to any act or omission in connection with, relating to, or arising out of, these 7 Chapter 11 Cases, the formulation, preparation, dissemination, negotiation, or Filing of the DIP Facility, the Exit Facility, the Disclosure 8 Statement, this Plan … or the administration and implementation of this 9 Plan, including the issuance of securities pursuant to this Plan, or the distribution of property under this Plan or any other related agreement, 10 except for claims related to any act or omission that is determined in a Final Order to have constituted actual fraud, gross negligence or willful 11 misconduct …. 12 See Plan, at pp. 79-80 of 91 (§ IX.9.E) (the “Exculpation”) (emphasis added). 13 31. Section § IX.9.F of the Plan would permanently enjoin creditors and interest 14 holders from taking actions relating to released, discharged or exculpated claims and interests. 15 16 See Plan, at pp. 80-81 of 91 (§ IX.9.F) (the “Injunction”). 17 G. Quarterly Fees and Case Closure under the Plan 18 32. The Plan provides for the payment of post-confirmation statutory fees to the UST 19 under 28 U.S.C. § 1930(a)(6) (“Quarterly Fees”) as follows: 20 [f]ollowing confirmation, the Debtors, the Reorganized Debtors, or the 21 Wind-Down Debtors (as applicable) shall pay quarterly fees to the U.S. 22 Trustee to the extent, and in the amounts, required by 28 U.S.C. § 1930(a)(6) (including interest under 31 U.S.C. § 3717). For the avoidance 23 of doubt, quarterly fees shall be payable for any case that is reopened. So long as the Debtors, the Reorganized Debtors and the Wind-Down 24 Debtors are required to make these payments, the Debtors, the 25 Reorganized Debtors and the Wind-Down Debtors shall file with the Court quarterly reports in the form specified by the U.S. Trustee for that 26 purpose. 27 See Plan, at pp. 87 of 91 (§ XIII.C). 28

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33. With respect to case closure, the Plan provides in relevant part that: 1 [t]he Reorganized Debtors shall, promptly after the full administration of 2 the Chapter 11 Cases, file with the Bankruptcy Court all documents 3 required by Bankruptcy Rule 3022 and any applicable order of the Bankruptcy Court to close the Chapter 11 Cases, provided, as of the 4 Effective Date, the Reorganized Debtors may submit separate orders to the Bankruptcy Court under certification of counsel previously provided 5 to the U.S. Trustee closing certain individual Chapter 11 Cases and 6 changing the caption of the Chapter 11 Cases accordingly, provided further that matters concerning Claims may be heard and adjudicated in 7 one of the Debtors’ Chapter 11 Cases that remains open regardless of whether the applicable Claim is against a Debtor in a Chapter 11 Case 8 that is closed. 9 See Plan, at pp. 50, 54 of 91 (§ IV.E.12 and IV.F.11) (emphasis added). 10 III. OBJECTION 11 12 A. The Third-Party Release is Overbroad. 13 34. Bankruptcy Code Section 524(e) precludes bankruptcy courts from discharging the 14 liabilities of non-debtors. See In re Lowenschuss, 67 F.3d 1394, 1401-02 (9th Cir. 1995) (holding 15 that global release provision in plan was “contrary to § 524(e)”); In re American Hardwoods, Inc., 16 885 F.2d 621, 626 (9th Cir. 1989) (permanent injunction that protected a non-debtor violated § 17 18 524(e)); see also Blixseth v. Credit Suisse, 961 F.3d 1074, 1082 (9th Cir. 2020) (“We have 19 interpreted [Section 524(e)] generally to prohibit a bankruptcy court from discharging the debt of 20 a non-debtor.”); In re PG & E Corp., 617 B.R. 671, 683 (Bankr. N.D. Cal. 2020) (“Consensual 21 third-party releases do not run afoul of section 524(e) or governing Ninth Circuit law ….”). 22 35. Here, for the most part, only creditors and interest holders who affirmatively vote 23 24 to accept the Plan or execute an opt-in form will be bound by the Third-Party Release. However, 25 the definition of Releasing Parties is broad enough to cover parties tangentially related to 26 consenting creditors and interest holders (e.g., current and former affiliates, officers, directors, 27 professionals and agents). 28

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36. The Third-Party Release should not apply to these related parties unless they 1 affirmatively voted to accept the Plan or executed an opt-in form. See In re Washington Mut., 2 3 Inc., 442 B.R. 314, 354 (Bankr. D. Del. 2011) (“The Court agrees with the Exchanges that the 4 third party releases should not extend to any affiliates of the creditors, who have no relationship to 5 this case.”). 6 37. Moreover, the Plan’s Injunction should expressly provide that it does not apply to 7 claims against non-Debtors that are asserted by creditors and interest holders who did not vote to 8 9 accept the Plan or execute an opt-in form. See In re American Hardwoods, Inc., 885 F.2d at 626. 10 B. The Plan Exculpation is Overbroad. 11 38. Plans should generally only exculpate those actions taken in connection with a 12 bankruptcy case between the petition date and the effective date of the plan. See, e.g., In re 13 14 Fraser’s Boiler Serv., Inc., 593 B.R. 636, 639-40 (Bankr. W.D. Wash. 2018); In re Yellowstone 15 Mountain Club, LLC, 460 B.R. 254, 271 (Bankr. D. Mont. 2011) (reading the exculpation clause 16 to protect only those acts that occurred between the petition date and effective date.). 17 39. Here, the list of acts covered under the Plan’s Exculpation may exceed the 18 temporal limits of the bankruptcy case. The provision includes “the administration and 19 implementation of this Plan, including the issuance of securities pursuant to this Plan, or the 20 21 distribution of property under this Plan or any other related agreement.” See Plan, at pp. 79-80 of 22 91 (§ IX.9.E). 23 40. For the avoidance of doubt, the confirmation order should clarify that any 24 exculpations apply only to the time period between the Petition Date and the Effective Date of the 25 Plan. See, e.g., In re Fraser’s Boiler Serv., Inc., 593 B.R. at 640-41 (Bankr. W.D. Wash. 2018) 26 27 28

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(“[T]he Court will only confirm a plan containing Paragraph 9.5 if the Debtor adds language to 1 further clarify that Paragraph 9.5 does not exculpate post-Effective Date acts.”). 2 3 C. The Court Should Not Approve the Exculpation and Limitation of Liability in the Liquidating Trust Agreement. 4 41. Section 10.1 of the Liquidating Trust Agreement includes a broad exculpation and 5 6 limitation of liability for the benefit of the Liquidating Trust Manager (among others). See ECF 7 No. 1068, at pp. 50-51 of 64. 8 42. As the Liquidating Trust Manager will not occupy that position until after 9 confirmation of the Plan, the exculpation and limitation of liability provision should be 10 disapproved. See In re Fraser’s Boiler Serv., Inc., 593 B.R. at 642 (sustaining objection to 11 12 exculpation in liquidating trust agreement, where trustee would not exist until after plan is 13 confirmed and had “not done anything yet that warrants exculpation or release”). 14 D. The Debtors Must Disclose the Identity and Affiliations of the New Board. 15 43. The proponent of a plan must disclose the identity and affiliations of “any 16 individual proposed to serve, after confirmation of the plan, as a director, officer, or voting trustee 17 18 of the debtor, an affiliate of the debtor participating in a joint plan with the debtor, or a successor 19 to the debtor under the plan.” See 11 U.S.C. § 1129(a)(5)(A)(1); In re Go-Go’s Greek Grille, 20 LLC, 617 B.R. 394, 396 (Bankr. M.D. Fla. 2020). 21 44. Section 1129(a)(5) contains a “blend of disclosure and substantive requirements.” 22 See In re Beyond.com Corp., 289 B.R. 138, 144 (Bankr. N.D. Cal. 2003). Once disclosed, the 23 24 court makes a “substantive determination under § 1129(a)(5)(A)(ii) whether post-confirmation 25 management serves the interests of creditors and equity security holders and is consistent with 26 public policy.” Id., at 145. 27 28

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45. Here, neither the Plan nor the Plan Supplement disclose the identity of the New 1 Board members. This information must be disclosed prior to confirmation. See 11 U.S.C. § 2 3 1129(a)(5)(A); In re Go-Go’s Greek Grille, LLC, 617 B.R. at 396. 4 E. The Debtors Should Disclose the Compensation of the Liquidating Trust Manager. 5 46. Both the current version of the Plan and the earlier version attached to the 6 Disclosure Statement (ECF No. 848-1) stated that the Plan Supplement would disclose the 7 compensation of the Liquidating Trust Manager (or the Liquidating Trustee in the case of the 8 9 earlier version of the Plan). As filed, though, the Plan Supplement states that the Liquidating 10 Trust Manager’s compensation “shall remain confidential.” See ECF No. 1035-6 (Exhibit F to 11 Plan Supplement). 12 47. The compensation of the Liquidating Trust Manager is highly relevant to creditors’ 13 assessment of the Plan and should be disclosed. Cf. In re Affordable Med Scrubs, LLC, 2016 WL 14 15 3693978, at *2 (Bankr. N.D. Ohio July 5, 2016) (“As the proposed Liquidating Trustee will be 16 paid a flat fee … his compensation should be established so that creditors may more accurately 17 determine the benefit of the Plan versus a Chapter 7 liquidation in deciding how to vote on the 18 Plan.”); In re Elder, 325 B.R. 292, 301 (N.D. Cal. 2005) (“Though not specifically named in the 19 bankruptcy code, ‘a liquidation agent, named by the plan proponent, with duties and manner of 20 21 compensation set out in the plan, is an appropriate party to effectuate a liquidation plan.’”) 22 (emphasis added); In re Schultz, 69 B.R. 629, 631 (D.S.D. 1987) (“The conduct and compensation 23 of [a liquidating agent] should be regulated by the terms of the plan.”) (citing 11 U.S.C. § 24 1129(a)(4)). 25 26 /// 27 /// 28

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F. The Court Should Not Approve a Signing Bonus for the Debtors’ CEO. 1 48. In the event of a Restructuring, a condition precedent to the Effective Date of the 2 3 Plan is that the Debtors and their CEO have agreed on a new employment contract with a signing 4 bonus. See Plan, at p. 83 of 91 (§ X.A.10). 5 49. This provision should not be approved by the Court unless the Debtors demonstrate 6 compliance with 11 U.S.C. § 503(c). Cf. In re AMR Corp., 497 B.R. 690, 699 (Bankr. S.D.N.Y. 7 2013) (severance payment could not be approved as part of plan confirmation process without 8 9 “comply[ing] with applicable law”). 10 G. The Debtors Have Not Demonstrated that the Court Would Have Post-Confirmation Jurisdiction over Objections to Claims Filed against Debtors whose Cases Have Been 11 Closed. 12 50. The Plan contemplates that “matters concerning Claims may be heard and 13 adjudicated in one of the Debtors’ Chapter 11 Cases that remains open regardless of whether the 14 15 applicable Claim is against a Debtor in a Chapter 11 Case that is closed.” See Plan, at pp. 50, 54 16 of 91 (§ IV.E.12 and IV.F.11) (emphasis added). 17 51. This provision should not be approved. The Debtors have not demonstrated that the 18 Court would have post-confirmation jurisdiction over objections to claims filed against Debtors 19 whose cases have been closed. See In re Wilshire Courtyard, 729 F.3d 1279, 1284 (9th Cir. 2013) 20 21 (“The burden of establishing subject matter jurisdiction rests on the party asserting that the court 22 has jurisdiction.”) (citing McNutt v. GM Acceptance Corp., 298 U.S. 178, 182-83 (1936)). 23 52. A bankruptcy court has subject matter jurisdiction over “all civil proceedings 24 arising under title 11, or arising in or related to cases under title 11.” See 28 U.S.C. § 1334(b) 25 (emphasis added); In re Pegasus Gold Corp., 394 F.3d 1189, 1193 (9th Cir. 2005). 26 27 53. “Arising under” jurisdiction refers to causes of action created by the Bankruptcy 28 Code; “arising in” jurisdiction refers to proceedings that, while not created by a specific

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Bankruptcy Code provision, would have no existence outside bankruptcy; and “related to” 1 jurisdiction refers to proceedings that could conceivably have an effect on the estate being 2 3 administered in bankruptcy. See In re Menk, 241 B.R. 896, 908-09 (B.A.P. 9th Cir. 1999). Post-4 confirmation “related to” jurisdiction is limited to matters that have a “close nexus” to the debtor’s 5 plan. See In re Pegasus Gold Corp., 394 F.3d at 1194 (“‘the interpretation, implementation, 6 consummation, execution, or administration of the confirmed plan will typically have the requisite 7 close nexus.’”). 8 9 54. In Menk, the Ninth Circuit Bankruptcy Appellate Panel held that an open 10 bankruptcy case is unnecessary for a bankruptcy court to exercise “arising under” jurisdiction over 11 a non-dischargeability complaint. 241 B.R. at 912-13. The Panel reasoned that such proceedings 12 have no impact on the administration of the estate. Thus, the Panel emphasized both the limited 13 nature of its holding and that “[o]ther categories of actions may require reopening.” Id.8 14 15 55. By contrast, a claim objection does have a significant impact on the administration 16 of the underlying case. See In re Thorpe Insulation Co., 671 F.3d 1011, 1021 (9th Cir. 2012) 17 (“[R]esolution of that claim directly impacted the administration of the bankruptcy estate.”); In re 18 Roger, 2015 WL 7566647, at *11 (C.D. Cal. Nov. 24, 2015) (“While the Claim Objection does 19 require determining whether the claim will be allowed or disallowed, the determination of which 20 21 would significantly affect the administration of the Roger Estate ….”). Accordingly, pendency of 22 23 24 25 8 Unlike “arising under” jurisdiction, the portion of the statutory sentence addressing 26 “arising in” and “related to” jurisdiction refers to bankruptcy cases. See 28 U.S.C. § 1334(b). Thus, the Menk Panel recognized that an open case may be required for an exercise of “arising in” or “related to” 27 jurisdiction. 241 B.R. at 907. To the extent based on non-bankruptcy law, the jurisdictional basis for a claim objection is likely “arising in” jurisdiction. See In re Fong, 2005 WL 3964429, at *2 (Bankr. D. 28 Haw. Nov. 18, 2005).

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the underlying case appears to be a pre-requisite to the exercise of subject matter jurisdiction over 1 a claim objection. 2 3 56. Moreover, the Plan provides that property of the estate will re-vest in the Debtors. 4 See Plan, at pp. 47-48 (§ IV.E.4); see also 11 U.S.C. § 1141(b). In other words, post-confirmation 5 claim objections will not involve property of the estate. It therefore follows that post-confirmation 6 claim objections will not involve rights created by the Bankruptcy Code or that arise only in a 7 bankruptcy case. See In re Sihabouth, 2014 WL 2978550, at *6 (B.A.P. 9th Cir. July 2, 8 9 2014), aff'd, 667 F. App'x 639 (9th Cir. 2016) (“Because debtors elected to have the property 10 revest, BONY's claim was not against the bankruptcy estate, and thus the claim-objection 11 adversary proceeding did not involve a right created by bankruptcy law or arising only in 12 bankruptcy.”); see also 28 U.S.C. § 1334(e). 13 57. Reliance on “related to” jurisdiction stemming from a case that remains open is 14 15 equally suspect. The Plan is actually separate plans for each Debtor. See Plan, at p. 6 of 91. As a 16 result, prosecution of objections to claims against Debtors with closed cases would not appear to 17 have a close nexus to the plans of the Debtors with open cases. Cf. In re Pegasus Gold Corp., 394 18 F.3d at 1194 n.1 (“[I]n reaching this decision, we are not persuaded by the Appellees' argument 19 that jurisdiction lies because the action could conceivably increase the recovery to the creditors…. 20 21 [S]uch a rationale could endlessly stretch a bankruptcy court's jurisdiction.”).9 22 H. The Liquidating Trust Should be Required to Pay Quarterly Fees and File Post- Confirmation Quarterly Reports. 23 24 58. The UST is authorized by law to collect Quarterly Fees from every debtor who 25 files a chapter 11 bankruptcy case. See 28 U.S.C. § 1930(a)(6); In re Sanders, 2013 WL 26 27 9 Further, res judicata may bar the Debtors from bringing objections to claims asserted 28 against debtors with closed cases in the open cases of different debtors. See In re Siegel, 143 F.3d 525,

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1490971, at *10 (B.A.P. 9th Cir. Apr. 11, 2013) (citing In re Celebrity Home Entm't, Inc., 210 1 F.3d 995, 998 (9th Cir. 2000)). The amount of the fee is calculated based on the amount of 2 3 disbursements made by a debtor during each quarter that the case is pending. See 28 U.S.C. § 4 1930(a)(6). 5 59. The term “disbursements” in 28 U.S.C. § 1930(a)(6) is read broadly. See, e.g., In 6 re Genesis Health Ventures, Inc., 402 F.3d 416, 421 (3d Cir. 2005) (even “indirect payment of a 7 debtor’s expenses—i.e., payments made by an unrelated third party to secured creditors of the 8 9 debtor—are disbursements”); St. Angelo v. Victoria Farms, Inc., 38 F.3d 1525, 1533-34 (9th Cir. 10 1994) (holding “a plain language reading of the statute shows that Congress clearly intended 11 ‘disbursements’ to include all payments from the bankruptcy estate”); In re Danny’s Markets, 12 Inc., 266 F.3d 523, 526 (6th Cir. 2001) (holding that “Congress contemplated that disbursements 13 will encompass all payments to third parties directly attributable to the existence of the 14 15 bankruptcy proceeding” regardless of “the technical source of the payments”); In re Jamko, Inc., 16 240 F.3d 1312, 1316 (11th Cir. 2001) (holding “disbursements” includes ordinary operating 17 expenses during bankruptcy). 18 60. In connection with the Plan, the Liquidating Trust Manager will make distributions 19 to general unsecured creditors. See Plan, at pp. 59-60 (§ IV.G.7). Thus, the Liquidating Trust 20 21 should be included among the parties in the Plan that are required to pay Quarterly Fees. Similarly, 22 23 24 25 26 27 530-31 (9th Cir. 1998) (deemed allowance of lender’s claim following discharge and closure of chapter 7 case precluded debtor’s state court suit - later removed to federal court - against lender). 28

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the Liquidating Trust should be required to file post-confirmation reports of its disbursements. See 1 11 U.S.C. § 1106(a)(7); Fed. R. Bankr. P. 2015(a)(5).10 2 3 IV. RESERVATION OF RIGHTS 4 61. The UST reserves his right to supplement this Objection in the event that the 5 6 Debtors modify or otherwise supplement the Plan prior to confirmation. 7 V. CONCLUSION 8 62. Based on the foregoing, the UST respectfully requests that the Court (i) sustain the 9 Objection and (ii) deny confirmation of the Plan, unless modified to address the concerns set forth 10 in this Objection. 11 12 Dated: January 25, 2021 13 14 Respectfully submitted, 15 James L. Snyder Acting United States Trustee, Region 12 16 17 By: /s/ Jason Blumberg____________ JASON BLUMBERG 18 Trial Attorney for the United States Trustee 19 20 21 22 23 10 Section XIII.C of the Plan (p. 87 of 91) incorporates the UST’s comments with respect to 24 Quarterly Fees and post-confirmation reporting. The comments were provided in connection with the first version of the Debtors’ Plan (ECF No. 600), which contemplated a “Litigation Trust” as opposed to a 25 Liquidating Trust. Since then, as the Plan has evolved, it has become clearer that the Liquidating Trust Manager will make distributions directly to creditors. Compare ECF No. 600, at p.56 of 77 (“All 26 distributions … to the Holders of the applicable Allowed Claims … shall be made by the Disbursing Agent ….”) with the Plan, at p. 69 of 91 (§ VI. E) (“All distributions … to the Holders of the applicable 27 Allowed Claims … shall be made by the Disbursing Agent … provided that any distributions of Cash to the Liquidating Trust Beneficiaries shall be made by the Liquidating Trust Manager in accordance with 28 the terms of the Liquidating Trust.”) (emphasis added).