Item 1.01
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Entry into a Material Definitive Agreement.
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As previously reported in a Current Report on Form 8-K
filed by Wave Systems Corp. (the
Company
), on February 1, 2016, the Company commenced a bankruptcy case (the
Chapter 7 Case
) by filing a voluntary petition for relief under the provisions of Chapter 7 of
Title 11 of the United States Code, 11 U.S.C. §§ 101 et seq. (the
Bankruptcy Code
) in the United States Bankruptcy Court for the District of Delaware (the
Bankruptcy Court
). The Companys caption
and case number is In re: Wave Systems Corp., Case No. 16-10284 (KJC). David W. Carickhoff was appointed as Chapter 7 trustee (in such capacity, the
Chapter 7 Trustee
).
On April 11, 2016, pursuant to a Bankruptcy Court approved process, the Chapter 7 Trustee conducted a live auction (the
Auction
) for
the sale of certain of the Companys assets and/or for the right to be the sponsor of a plan of reorganization for the Company. Chime, Inc. (
Chime
) was the successful bidder for the Companys wave.com domain name and, on
April 14, 2016, the Bankruptcy Court entered an Order approving the sale of the Companys domain name to Chime free and clear of all liens, claims and encumbrances for a purchase price of $420,000. The sale to Chime closed on
April 29, 2016.
The foregoing description of the sale of the Companys wave.com domain name to Chime does not purport to be complete and is
qualified in its entirety by reference to the Asset Purchase Agreement attached as Exhibit 2.1 and incorporated herein by reference.
Conversion to
Chapter 11 and Post-Petition Financing
At the Auction, ESW Capital LLC (
ESW
) submitted a bid to provide capital for a restructuring
of the Company, to be effectuated in the form of a confirmed Chapter 11 plan of reorganization to be sponsored by ESW for 100% of the equity of the reorganized Company as set forth below (the
ESW Bid
). At the conclusion of the
Auction, the Chapter 7 Trustee determined that the ESW Bid was the highest and best offer for the Company. On April 29, 2016, the Bankruptcy Court entered an Order approving the ESW Bid as the highest and best offer for the Company (the
ESW Bid Approval Order
). The ESW Bid contemplates a Chapter 11 plan process pursuant to which ESW would make available for distribution under a plan of reorganization: (i) $3,800,000 (which amount the Chapter 11 Trustee (as
defined below) currently has on deposit); and (ii) an additional $3,075,000 payable on the plan effective date (together the
Cash Consideration
). In addition, in connection with the ESW Bid, ESW, in its capacity as
post-petition lender, agreed, subject to Bankruptcy Court approval, to provide up to $3,000,000 in post-petition financing (the
ESW Post-Petition Facility
) to cover operating and administrative expenses associated with preserving
the Companys operations and running a Chapter 11 process through a plan effective date. Pursuant to the ESW Bid, ESW, in its capacity as post-petition lender, has the right to convert a portion of amounts loaned under the ESW Post-Petition
Facility into equity of the reorganized Company pursuant to the Subscription Option (as defined in the Plan, defined below). If the Plan of Reorganization is confirmed, then upon the occurrence of the effective date of the Plan, it is contemplated
that on account of its contribution of the Cash Consideration and its exercise of the Subscription Option, ESW will own 100% of the equity of the reorganized Company, including substantially all of the assets of the Company with the exception of
certain excluded assets specified therein. The Plan provides the Plan sponsor the right to modify the Subscription Option, provided that (i) no such modification shall adversely impact the Plan treatment of other creditors and (ii) such
modification is approved by the post-petition lender.
The foregoing description of the ESW Bid Approval Order does not purport to be complete and is
qualified in its entirety by reference to the ESW Bid Approval Order attached hereto as Exhibit 99.1 and incorporated herein by reference.
2
The Bankruptcy Court entered an order (the
Conversion Approval Order
) on May 16, 2016
converting the Chapter 7 Case to a case under the provisions of Chapter 11 of Title 11 of the Bankruptcy Code (the
Chapter 11 Case
), and appointing a Chapter 11 Trustee in the Chapter 11 Case. On May 20, 2016, the Office of
the United States Trustee appointed the Chapter 7 Trustee as the Chapter 11 Trustee (in such capacity, the
Chapter 11 Trustee
). The Bankruptcy Court entered an interim order on May 25, 2016 (the
Interim Financing
Order
) authorizing the Chapter 11 Trustee to, among other things, borrow, on an interim basis, up to $1,000,000 under the ESW Post-Petition Facility. On June 13, 2016, the Bankruptcy Court entered a final order (the
Final
Financing Order
) pursuant to which it approved the ESW Post-Petition Facility and authorized the Chapter 11 Trustee to enter into and draw upon the remainder of the ESW Post-Petition Facility on a final basis. The Conversion Approval Order
is attached as Exhibit 99.2 and is incorporated herein by reference.
The ESW Post-Petition Facility is evidenced by a senior secured superpriority
promissory note (the
Post-Petition Note
) that is governed by the Final Financing Order.
Maturity Date
Pursuant to the terms of the ESW Bid and the Final Financing Order, the Company has no obligation to satisfy or repay amounts drawn upon the ESW Post-Petition
Facility unless one of following specific events of default occur: (1) the Chapter 11 Trustee files a plan of reorganization which is inconsistent with the ESW Bid, (2) the Chapter 11 Trustee files a motion to obtain financing from someone
other than ESW, or (3) the Bankruptcy Court confirms a competing plan to the plan of reorganization contemplated under the ESW Bid or approves a transaction for the sale or disposition of the Companys assets other than to ESW.
Interest and Security
Interest on the Post-Petition Note
accrues at a rate of 9.0% per annum. The Companys obligations are secured by a first priority security interest in substantially all of the assets of the Company. Upon the occurrence of an event of default, the interest rate on the
Post-Petition Note increases to 11.0% per annum.
Other Terms and Conditions
The Post-Petition Note contains certain covenants, including, without limitation, those related to the incurrence of additional debt or liens, the sale or
transfer of Company property, compliance with the approved budget, and certain bankruptcy-related covenants, in each case as set forth in the Post-Petition Note.
The foregoing description of the ESW Post-Petition Facility does not purport to be complete and is qualified in its entirety by reference to the Post-Petition
Note, the Interim Financing Order and the Final Financing Order attached as Exhibits 10.1, 99.3 and 99.4, respectively, and incorporated herein by reference.
Item 1.03
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Bankruptcy or Receivership.
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The information set forth in Item 1.01 regarding conversion of the
Chapter 7 Case to the Chapter 11 Case and appointment of the Chapter 11 Trustee is hereby incorporated by reference.
On June 17, 2016, the Chapter
11 Trustee filed a proposed Plan of Reorganization of Wave Systems Corp. (as amended, the
Plan
or
Plan of Reorganization
) and disclosure statement (as amended, the
3
Disclosure Statement
) with the Bankruptcy Court. An amended Disclosure Statement was filed on July 18, 2016. An amended Plan was filed on July 19, 2016. The Plan,
prepared in accordance with the ESW Bid, provides for, on the effective date of the Plan (the
Effective Date
), among other things, (1) the reorganization of the Company by retiring, cancelling, extinguishing and/or
discharging the Companys prepetition equity interests and issuing (A) up to 600 shares equal to 60% of the new equity in the reorganized Company (the
Reorganized Company
) to ESW, in its capacity as post-petition lender,
in exchange of amounts loaned under the Post-Petition Note via the Subscription Option , and (B) the remaining new equity to ESW, in its capacity as Plan sponsor, in exchange for the cash payments set forth in the paragraph below; and
(2) the distribution of cash and rights to certain litigation recoveries to the holders of allowed claims and, potentially, equity interests in accordance with the priority scheme established by the Bankruptcy Code.
The Reorganized Company will continue in operation after the Effective Date. On the Effective Date, all the previously outstanding common stock of the Company
and all rights to convert, exchange or receive Company common stock would be deemed automatically cancelled, released and extinguished, and all rights of ownership evidenced by the common stock terminated, and the Companys pre-reorganization
stockholders would not be entitled to receive or retain any cash, securities or other property on account of their cancelled, released, extinguished, and terminated common shares and rights, unless amounts remain in the bankruptcy estate following
satisfaction of all allowed claims of the Companys creditors.
The Plan is subject to satisfaction of numerous conditions, including receipt of
requisite acceptances to confirm the Plan and entry of a confirmation order by the Bankruptcy Court in form and substance acceptable to ESW in its reasonable discretion.
The foregoing description of the Plan of Reorganization does not purport to be complete and is qualified in its entirety by reference to the initial Plan of
Reorganization and the amended Plan of Reorganization, and the initial Disclosure Statement and amended Disclosure Statement, attached hereto as Exhibits 10.2, 10.3, 10.4 and 10.5 respectively, and incorporated herein by reference.
On July 19, 2016, the Bankruptcy Court entered an order (the
Disclosure Statement Approval Order
) approving the amended Disclosure
Statement and determining the dates, deadlines, solicitation procedures and forms applicable to the Plan approval process.