Xybernaut Files Ch 11 Reorganization Plan
Dow Jones Newswires - September 14, 2006 2:44 PM ET
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By Carol McCleary
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--A U.S. trustee's efforts to convert Xybernaut Corp.'s (XYBRQ) Chapter 11 bankruptcy to a Chapter 7 liquidation, or dismiss the case entirely, have prompted the company to at last file a reorganization plan.
The plan, outlined in a disclosure statement filed Monday in the U.S. Bankruptcy Court in Alexandria, Va., would allow East River Capital LLC to exchange $952,748 of its $4 million debtor-in-possession, or DIP, funding claim for a 100% of the reorganized company's stock. The balance of the lender's claim would be paid over time by the reorganized company from any litigation awards.
As part of the deal, East River would provide $850,000 of new funding for the company's business operations, distributions to general unsecured creditors, professional fees incurred since May 15, and other administrative claims.
The plan, however, leaves the door open for alternative funding proposals.
Under bidding rules proposed by the company, competing bids for the new equity must be at least $1 million, and provide about $5.21 million in funding to make payments under the plan, including repaying the DIP claim in full.
Xybernaut, a maker of wearable computing and communications devices, wants the court to allow it to hold an auction - if one or more alternative bids are received - two business days before a confirmation hearing on the plan.
The court will at an Oct. 10 hearing consider approval of the bidding rules, as well as the company's disclosure statement.
Bankruptcy laws require that a debtor company file a disclosure statement outlining how creditors will be paid and providing other information relevant to creditors in their decision to vote for or against the company's proposed plan.
Once the court signs off on the disclosure statement, the company will be able to send the plan out to creditors for their vote.
General unsecured creditors, with about $2 million in claims, would share in a distribution fund composed of: $175,000 funded by East River's new loan; a portion of any litigation awards; and a $1 million, five-year subordinated note.
The reorganized company would pick up where Xybernaut left off in its failed attempt to find a buyer for its intellectual property assets.
In light of the plan, the court continued to Oct. 10 the hearing that was set for this past Tuesday on the U.S. trustee's bid to either convert the case to Chapter 7 or dismiss it entirely.
As reported, Trustee W. Clarkson McDow Jr. said that the company's continuing operating losses and failure to file a Chapter 11 plan warranted conversion or dismissal of the case.
The company reported a year-to-date net loss of about $7.27 million in its June monthly operating report.
Xybernaut, of Fairfax, Va., filed for Chapter 11 protection on July 29, 2005.
-By Carol McCleary, Dow Jones Newswires; 202-862-7100; carol.mccleary@dowjones.com
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09-14-06 1444ET
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