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IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION In re: TimeGate Studios, Inc., Debtor. Chapter 11 Case No. 13-32527 (JB)

DEBTORS EMERGENCY MOTION FOR ENTRY OF (I) AN ORDER (A) APPROVING BID PROCEDURES RELATING TO THE SALE OF ALL OR SUBSTANTIALLY ALL OF THE DEBTORS ASSETS, (B) SCHEDULING A HEARING TO CONSIDER THE PROPOSED SALE AND APPROVING THE FORM AND MANNER OF NOTICE THEREOF, AND (C) GRANTING CERTAIN RELATED RELIEF; AND (II) AN ORDER (A) APPROVING THE PROPOSED SALE AND (B) GRANTING CERTAIN RELATED RELIEF A HEARING WILL BE CONDUCTED ON THIS MATTER ON MAY 3, 2013 AT 3:30 P.M. (CENTRAL STANDARD TIME) IN COURTROOM 600, 515 RUSK AVENUE, HOUSTON, TEXAS. THIS MOTION SEEKS AN ORDER THAT MAY ADVERSELY AFFECT YOU. IF YOU OPPOSE THE MOTION, YOU SHOULD IMMEDIATELY CONTACT THE MOVING PARTY TO RESOLVE THE DISPUTE. IF YOU AND THE MOVING PARTY CANNOT AGREE, YOU MUST FILE A RESPONSE AND SEND A COPY TO THE MOVING PARTY. YOU MUST FILE AND SERVE YOUR RESPONSE WITHIN 21 DAYS OF THE DATE THIS WAS SERVED ON YOU. YOUR RESPONSE MUST STATE WHY THE MOTION SHOULD NOT BE GRANTED. IF YOU DO NOT FILE A TIMELY RESPONSE, THE RELIEF MAY BE GRANTED WITHOUT FURTHER NOTICE TO YOU. IF YOU OPPOSE THE MOTION AND HAVE NOT REACHED AN AGREEMENT, YOU MUST ATTEND THE HEARING. UNLESS THE PARTIES AGREE OTHERWISE, THE COURT MAY CONSIDER EVIDENCE AT THE HEARING AND MAY DECIDE THE MOTION AT THE HEARING. EMERGENCY RELIEF HAS BEEN REQUESTED. IF THE COURT CONSIDERS THE MOTION ON AN EMERGENCY BASIS, THEN YOU WILL HAVE LESS THAN 21 DAYS TO ANSWER. IF YOU OBJECT TO THE REQUESTED RELIEF OR IF YOU BELIEVE THAT THE EMERGENCY CONSIDERATION IS NOT WARRANTED, YOU SHOULD FILE AN IMMEDIATE RESPONSE. REPRESENTED PARTIES SHOULD ACT THROUGH THEIR ATTORNEY. TO THE HONORABLE UNITED STATES BANKRUPTCY JUDGE:

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TimeGate Studios, Inc. (the Debtor or TimeGate) files this Emergency Motion for Entry of (I) an Order (A) Approving Bid Procedures relating to the Sale of the All or Substantially All of the Debtors Assets, (B) Scheduling a Hearing to Consider the Proposed Sale and Approving the Form and Manner of Notice Thereof, and (C) Granting Certain Related Relief; and (II) an Order (A) Approving the Proposed Sale and (B) Granting Certain Related Relief (the Motion). In support of the Motion, the Debtor relies upon and incorporates by reference the Affidavit of John T. Young, Jr. in Support of the First Day Pleadings (the Young Affidavit), which was filed with the Court concurrently herewith. In further support of the Motion, the Debtor respectfully represents: Jurisdiction and Venue 1. This Court has jurisdiction to consider this matter pursuant to 28 U.S.C. 157

and 1334. This is a core proceeding pursuant to 28 U.S.C. 157(b). Venue is proper before this Court pursuant to 28 U.S.C. 1408 and 1409. Background 2. On May 1, 2013 (the Petition Date), the Debtor filed a voluntary petition for

relief under chapter 11 of title 11 of the United States Code (the Bankruptcy Code) in this Court (the Bankruptcy Case). The Debtor is a debtor in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. As of the date hereof, no official committee of unsecured creditors has been appointed. 3. The events leading up to the Petition Date and the facts and circumstances

supporting the relief requested herein are set forth in the Young Affidavit.

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Relief Requested 4. By this Motion, the Debtor requests the entry of two orders. First, the Debtor

requests entry of an order (i) approving the proposed bid procedures (the Bid Procedures,)1 a copy of which are attached hereto as Exhibit A, to be used for the sale of all or substantially all the Debtors assets except for the Retained Assets (as defined below) (Transferred Assets); and (ii) scheduling a hearing (the Sale Hearing) to approve such sale (the Sale), and approving the form and manner of notice thereof (a copy of which proposed order is attached hereto as Exhibit B). 5. Second, the Debtor moves the Court, pursuant to sections 105, 363 and 365 of

the Bankruptcy Code and Rules 2002, 6004, 6006 and 9014 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules), for entry of an order (the Sale Order) authorizing: (i) the sale of the Transferred Assets free and clear of liens, claims, interests and encumbrances; (ii) if the Proposed Purchaser (as herein defined) is a Prevailing Bidder (as herein defined), approval of the Asset Purchase Agreement (the APA; a copy of which is attached as Exhibit C) between the Debtor, as Seller, and Alan B. Chaveleh and Morteza Baharloo, or their designee, as Buyers (the Proposed Purchaser), as may be modified following the Auction, and the obligations incurred by the Debtor and the Proposed Purchaser thereunder, (iii) such other agreement as may be entered into by the Debtor and another Prevailing Bidder prior to the Sale Hearing (such a transaction, the Competing Transaction); (iv) authorizing the assumption and assignment of

Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in the APA, the Bid Procedures, or the Bid Procedures Order, as applicable.

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certain executory contracts related to the Transferred Assets to the Proposed Purchaser or another Prevailing Bidder; and (v) granting related relief (the Sale Relief).2 The Bid Procedures 6. After extensive arms length negotiations, the Debtor and the Proposed Purchaser

have executed the APA. The hearing to seek approval of the order approving the Bid Procedures is intended to, among other things, approve the Proposed Purchaser as the stalking horse bidder in connection with the Debtors solicitation of higher and better offers for the Transferred Assets, establish the form and manner of notice of the Sale and establish the Bid Procedures by which other parties may participate in the Auction (as herein defined). 7. The Bid Procedures are designed to maximize value for the Debtors estate, while

ensuring an orderly sale process consistent with the timeline available to the Debtor under the APA. Moreover, Court approval of the Bid Procedures is a condition to final funding of the Debtors postpetition financing under the DIP Credit Agreement (as defined in the Young Affidavit). The Bid Procedures describe, among other things, the manner in which bidders and bids become qualified, the coordination of any remaining diligence efforts among bidders, the receipt and negotiation of bids received, the conduct of any auction (the Auction), and the selection and approval of any ultimately successful bidder(s) (the Bidding Process). 8. Pursuant to the Bid Procedures, the Debtor requests that the Auction for the

Transferred Assets occur on Friday, May 31, 2013 at 10:00 a.m. in open court in the United States Bankruptcy Court for the Southern District of Texas, Houston Division, United States Courthouse, 515 Rusk Avenue, Courtroom 600, 6th Floor, Houston, TX 77002.

This Motion contains the Debtors request for approval of both the Bid Procedures and the Sale Relief. The Debtor will seek approval of the Bid Procedures at the initial hearing to be conducted on this Motion. The Sale Relief is requested to be considered at the Sale Hearing.

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9.

As set forth in the Young Affidavit, the Debtor believes that an immediate going

concern sale of the Transferred Assets is essential to maximize asset value and creditor recoveries. The Debtor further believes that the proposed timeline affords the Debtor a sufficient opportunity to complete the sale process while maximizing creditor recoveries. Terms of the APA 10. The APA is subject to court approval and the solicitation of higher or better

offers. The APA contemplates the sale of the Transferred Assets to the lenders (the Lenders) under the debtor in possession credit facility (the DIP Credit Facility). Because interested bidders may submit bids to purchase either all or only a portion of the Transferred Assets, the APA may be modified to the extent necessary following the Auction if the Proposed Purchaser is the Prevailing Bidder with respect to only a portion of the Transferred Assets. 11. The APA has the following key provisions:3 Transferred Assets: The APA contemplates the acquisition of all of the Debtors assets except for Retained Assets.4 Consideration: As consideration, the Proposed Purchaser is assuming the Specifically Assumed Liabilities5 and providing up to $500,000, but no less than $150,000, in cash consideration. The Proposed Bid and Auction Procedures 12. The proposed Bid Procedures are attached as Exhibit A. Certain of the key terms

of the Bid Procedures are highlighted as follows:

The provisions are intended to serve as a summary of key terms of the APA. To the extent the terms of the APA and this summary disagree, the terms of the APA shall control. 4 Retained Assets include, inter alia, the intellectual property rights and receivables related to the Debtors products known as Section 8 and Section 8: Prejudice, the Debtors cash on hand; the Avoidance Actions; the Excluded Contracts and Leases; the Excluded Section 8 Intellectual Property; and the Excluded Section 8 Contracts. A complete list of the Retained Assets is contained in Section 2.2 of the APA. The Retained Assets include $150,000 in cash as of closing. To the extent the Debtors cash position as of closing is less than $150,000, the Proposed Purchaser will fund the difference to the Debtor. 5 Specifically Assumed Liabilities include, inter alia, the Pre-Petition Revolver Obligations, the DIP Facility, and certain liabilities arising after the Effective Time. A complete list of the Specifically Assumed Liabilities is contained in Section 2.3 of the APA.

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Due Diligence. The Bid Procedures permit all prospective bidders an opportunity to participate in the diligence process upon execution of an acceptable confidentiality agreement. Participation Requirements. To ensure that only bidders with a serious interest in purchasing the Transferred Assets participate in the Bidding Process, the Bid Procedures provide for certain minimal requirements for a potential bidder to become a Qualified Bidder. These requirements include, among other things, delivery to the Debtor of (i) financial assurances as to such bidders ability to close a transaction; and (ii) a Competing Proposal (described below). Competing Proposal Deadline. The Debtor is requesting a deadline for submission of Competing Proposals of 5:00 p.m. (prevailing Central Time) on Tuesday, May 28, 2013. Prior to the commencement of the Auction, the Debtor shall share the Competing Proposals with all Qualified Bidders. Form of Competing Proposals. The Bid Procedures require that Competing Proposals, among other things: (i) be accompanied by a clean executed version of an asset purchase agreement, together with a blackline showing differences between the APA and the proposed agreement; (ii) propose acquisition of the Transferred Assets or some portion thereof; (iii) identify the portion of the consideration to be paid in cash and the value of any other consideration (if any); (iv) contain evidence of financial ability to consummate the transaction; (v) be accompanied by a cash deposit equal to 10% of the proposed consideration to be paid under such Competing Proposal;6 and (vi) result in the delivery of value to the Debtors estate that, in the Debtors reasonable judgment, after consultation with its financial and legal advisors, exceeds the Purchase Price by at least $150,000. For purposes of calculating the Initial Overbid (as defined below), the purchase price to be paid by the Proposed Purchaser shall be deemed to be $2,600,000 (the Purchase Price). The Purchase Price, for purposes of bidding, shall be allocated $2,000,000 to the Minimum game and $600,000 to the remaining Transferred Assets. Selection of Qualified Bidders. The Debtor shall make an initial determination as to which prospective bidders have qualified to become a Qualified Bidder by Thursday, May 30, 2013 and give prompt notice thereof to the Proposed Purchaser. The Proposed Purchaser is and shall be deemed to be a Qualified Bidder. The Debtor reserves the right (i) at any time to require any prospective bidder previously determined to be a Qualified Bidder to provide additional evidence of its ability to consummate the Proposed Transaction in order to remain a Qualified Bidder, and (ii) to exclude any prospective bidder from participating further in the Auction process as a result

Deposits shall be held by the Debtor in a segregated bank account.

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of its inability to satisfy such further requirements to become a Qualified Bidder. Time and Location of Auction. The Auction will take place on Friday, May 31, 2013, commencing at 10:00 a.m. (prevailing Central Time) in open court in the United States Bankruptcy Court for the Southern District of Texas, Houston Division, United States Courthouse, 515 Rusk Avenue, Courtroom 600, 6th Floor, Houston, TX 77002 Conduct of Auction. At the commencement of the Auction, the Debtor shall advise the Qualified Bidders participating in the Auction which Competing Proposal(s) they have determined to be the highest or otherwise best Competing Proposal(s). The Debtor shall then conduct an open Auction respecting Competing Proposals for the Transferred Assets on the record, calling for the initial overbid amount of $150,000 (the Initial Overbid) followed by incremental bids from the Qualified Bidders participating in the Auction, with overbid increments being in an amount not less than $100,000. Absent irregularities in the conduct of the Auction, or reasonable and material confusion during the bidding, the Court will not consider bids made after the Auction has been closed. Selection of Prevailing Bid(s) and Bidder(s). The selection of the Prevailing Bid(s) shall be based on, among other things: the amount and form of consideration, the liabilities to be assumed, the ability of the Qualified Bidder(s) to close the transaction on or before the Closing Date as set forth in the APA, and other contractual terms. Back-Up Bidder(s). In addition to identifying the Prevailing Bidder(s), the Debtor shall identify the next highest or otherwise best Competing Proposal(s) and the Qualified Bidder(s) who submitted such Competing Proposal(s). Notice of Prevailing Bid(s) and Back-Up Bid(s). Within three business days following the conclusion of the Auction, the Debtor shall file a Notice with the Court identifying the Prevailing Bid(s) and any Back-Up Bid(s). Sale Hearing. The Prevailing Bid will be subject to approval by this Court at the Sale Hearing. The Debtor requests that the Sale Hearing take place on or before Wednesday, June 19, 2013. The Prevailing Bidder shall appear at the Sale Hearing and be prepared to testify in support of the Prevailing Bid and the Prevailing Bidders ability to close in a timely manner and provide adequate assurance of its future performance under any and all contracts and leases to be assumed and/or assigned as part of the proposed Sale. Sale Proceeds. The proceeds from the sale of the Transferred Assets (the Sale Proceeds) will be placed in a segregated account to be used only (i) pursuant to court order during the case or (ii) distributed to creditors pursuant to a confirmed plan of reorganization.

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Deadline to File Sale Objections 13. The Debtor requests that any objections to the Sale of the Transferred Assets to

the Proposed Purchaser or other Prevailing Bidder(s) or to the APA must (i) be in writing, (ii) conform to the Bankruptcy Rules, and the Local Rules of the Bankruptcy Court for the Southern District of Texas, (iii) set forth the name of the objecting party, the nature and amount of any claims or interest held or asserted against the Debtors estate or property, the basis for the objection and the specific grounds therefor, and (iv) be served so as to be actually received by 5:00 p.m. (prevailing Central Time) on Wednesday, June 12, 2013, by (A) Debtor, c/o Conway MacKenzie, Inc., 1301 McKinney Street, Suite 2025, Houston, TX 77010, Attn: John T. Young, Jr.; (B) Debtors counsel, Haynes and Boone, LLP, 1221 McKinney, Suite 2100, Houston, Texas, 77010, Attn: Karl Burrer, karl.burrer@haynesboone.com; (C) counsel for the Prevailing Bidder (if any); and (D) counsel for the Lenders, Porter Hedges LLP, 1000 Main Street, 36th Floor, Houston, Texas 77002, Attn: Joshua W. Wolfshohl, jwolfshohl@porterhedges.com (collectively, the Objection Notice Parties). 14. The Debtor requests that any party failing to timely file and serve its objection on

the Objection Notice Parties shall be barred from asserting an objection to the Motion and the Sale to the Prevailing Bidder(s) (including, but not limited to, the objection of the Debtors ability to transfer the Transferred Assets free and clear of all liens, claims and encumbrances). Applicable Authority A. The Court Should Approve the Bid Procedures Because They are Reasonable, Fair, and in Accordance with the Debtors Business Judgment 15. Pursuant to Bankruptcy Rule 6004(f)(1), sales of property outside the ordinary

course of business may be by private sale or by public auction. As discussed in the Young Affidavit, the Debtor has been marketing its most significant asset Minimum since January of

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2012, and the Debtor has been marketing its other assets since mid-April of 2013. Given the advanced stage of pre-petition marketing and negotiations to date, the Debtor believes that the proposed Bid Procedures are most likely to maximize the realizable value of the Transferred Assets for the benefit of the Debtors estate, creditors, and other parties-in-interest. Further, the Proposed Purchaser has not conditioned its bid on formal bid protections generally associated with transactions such as those provided under the APA. Accordingly, the Debtor believes the Court should approve the time frame for the Bid Procedures. B. The Court Should Approve the Sale Relief Because the Sale of the Transferred Assets is in the Debtors Best Interests 16. The Debtor also requests that the Court approve the sale of the Transferred Assets

to the Proposed Purchaser or another Prevailing Bidder pursuant to sections 105 and 363 of the Bankruptcy Code at the Sale Hearing. In an exercise of the Debtors sound business judgment, the Debtor submits that the sale of the Transferred Assets to the Proposed Purchaser pursuant to the APA, or such agreement as the Debtor may reach with another Prevailing Bidder, is in the Debtors best interests and should be approved.7 17. Section 363(b)(1) of the Bankruptcy Code provides that [t]he trustee, after notice

and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate. 11 U.S.C. 363(b)(1); Official Comm. of Unsecured Creditors v. Cajun Elec. Power Coop., Inc. (In re Cajun Elec. Power Coop., Inc.), 119 F.3d 349, 354 (5th Cir. 1997). Courts look to various factors to determine whether to approve a motion under section 363(b) of the Bankruptcy Code, such as: (a) whether a sound business reason exists for the proposed transaction; (b) whether fair and reasonable consideration is provided; (c) whether the transaction has been proposed in good faith; and (d) whether adequate and reasonable notice is provided.
7

The Debtor reserves the right to file a supplemental memorandum of law in support of the Sale Relief at a later date.

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See, e.g., In re Condere Corp., 228 B.R. 615, 626 (Bankr. S.D. Miss. 1998); Comm. of Equity Security Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, 1071 (2d Cir. 1983); In re Abbotts Dairies of Pennsylvania, Inc., 788 F.2d 143, 147-49 (3d Cir. 1986). 18. A debtor must demonstrate sound business judgment for a sale of assets outside of

the ordinary course of business. Institutional Creditors of Contl Air Lines, Inc. v. Contl Air Lines, Inc. (In re Contl Air Lines, Inc.), 780 F.2d 1223, 1226 (5th Cir. 1986). The Debtor has sound business reasons for selling the Transferred Assets at this time. The Debtor has

determined that the Sale of the Transferred Assets is the best way to maximize the value of the Debtors estate for the benefit of all constituencies. The Transferred Assets are not part of any contemplated future operations of the Debtor. 19. The APA is the product of extensive, arms length negotiations. The APA is

advantageous to the Debtors estate in that it provides a floor bid that the Debtor will use to solicit higher and better offers. Based on the damage to the Debtors most valuable asset Minimum that would result from the continued delay of its release, the Debtors liquidity issues, and the preparations and diligence completed to date, the Debtor, in consultation with Conway MacKenzie, Inc. (Conway) and its other professionals, has concluded that: (a) a prompt and open sale of its assets in which all interested buyers are encouraged to participate is the best way to maximize value for the estate under the circumstances, and (b) the proposed Bidding Procedures described herein are the most effective method of obtaining the highest and best offer for the assets. Under these circumstances, sound business reasons exist that justify the sale of the assets outside of the ordinary course of business. 20. Based on its marketing efforts, the Debtor submits the consideration to be paid

under the APA is fair and reasonable. The Debtor is subjecting the proposed Sale of the

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Transferred Assets to the Proposed Purchaser to Competing Proposals at the Auction, thereby ensuring that the Debtor will receive the highest and/or otherwise best value for the Transferred Assets. Any issue as to the reasonableness of the consideration to be received by the Debtor ultimately will be tested and confirmed because the Sale is subject to an auction process. An auction is the best means of ensuring that a fair and reasonable price is being paid. If the price of the stalking horse bid is too low, a competing bidder will pay more. If the stalking horse bid represents the amount most anyone will pay in an arms length transaction, its reasonableness will be established. Consequently, the fairness and reasonableness of the consideration to be received by the Debtor will ultimately be demonstrated by a market check through an auction process, which the Debtor believes is the best means for establishing whether a fair and reasonable price is being paid for the assets. C. The Court Should Find that the Proposed Purchaser or any Prevailing Bidder Meets the Good Faith Requirement of Section 363(m) 21. Section 363(m) of the Bankruptcy Code provides that [t]he reversal or

modification on appeal of an authorization under subsection (b) or (c) of this section of a sale or lease of property does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith . . . . 11 U.S.C. 363(m) (emphasis added). While the Bankruptcy Code does not define good faith, the court in Sullivan Cent. Plaza I, Ltd. v. BancBoston Real Estate Capital Corp., 106 B.R. 934 (N.D. Tex. 1989), stated: [t]he type of conduct of a purchaser which would destroy its good faith status in 363(m) involves fraud, collusion between the purchaser and other bidders of the trustee, or an attempt to take grossly unfair advantage of other bidders. Id. at 938 (citing Matter of Bleaufontaine, Inc., 634 F.2d 1383, 1388 (5th Cir. 1981)).

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22.

The Debtor requests that the Court determine the Proposed Purchaser or any other

Prevailing Bidder to be acting in good faith and entitled to the protections of a good faith purchaser under section 363(m) of the Bankruptcy Code. The APA between the Debtor and the Proposed Purchaser is the result of good-faith, arms length negotiations conducted among the parties. In the event a purchaser other than the Proposed Purchaser is a Prevailing Bidder, the terms and conditions of the alternate agreement will be negotiated by the Debtor and the purchaser at arms length and in good faith. In the event such an alternate purchaser is the winning bidder at the Auction, the Debtor will present testimony as necessary at the Sale Hearing to demonstrate that such purchaser has acted in good faith and should be entitled to the protections of a good faith purchaser. D. The Debtor Should Be Authorized to Assume and Assign the Contracts 23. The Debtor should be authorized to assume and assign certain executory contracts

and unexpired leases related to the Transferred Assets (the Contracts). Section 365 of the Bankruptcy Code provides that a chapter 11 debtor, subject to Bankruptcy Court approval, may assume or reject executory contracts at any time prior to plan confirmation. 11 U.S.C. 365(a) and (d)(2). Section 365(b)(1) of the Bankruptcy Code, in turn, provides that if there has been a default on an executory contract or unexpired lease, the debtor may not assume such contract or lease unless, at the time of assumption, the debtor (a) cures, or provides adequate assurance that it will promptly cure, such default, (b) compensates, or provides adequate assurance that it will promptly compensate, the non-debtor party to the agreement for any pecuniary loss resulting from such default, and (c) provides adequate assurance of future performance under the agreement. 11 U.S.C. 365(b)(1).

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24.

The assignment of executory contracts and unexpired leases is governed by

section 365(f) of the Bankruptcy Code, which provides, in pertinent part, that: [t]he trustee may assign an executory contract or unexpired lease of the debtor only if (A) the trustee assumes such contract or lease in accordance with the provisions of this section; and adequate assurance of future performance by the assignee of such contract or lease is provided, whether or not there has been a default in such contract or lease.

(B)

11 U.S.C. 365(f)(2). 25. The standard governing bankruptcy court approval of a debtors decision to

assume or reject executory contracts or unexpired leases of nonresidential real property is whether the debtors reasonable business judgment supports assumption or rejection. See

Richmond Leasing Co. v. Capital Bank, N.A., 762 F.2d 1303 (5th Cir. 1985); In re Taylor, 913 F.2d 102, 107 (3d Cir. 1990); Sharon Steel Corp. v. Natl Fuel Gas Distrib. Corp., 872 F.2d 36, 39-40 (3d Cir. 1989); Orion Pictures Corp. v. Showtime Networks, Inc. (In re Orion Pictures Corp.), 4 F.3d 1095, 1099 (2d Cir. 1993). 26. In this case, the Debtor will demonstrate at the Sale Hearing that all the relevant

requirements of section 365 of the Bankruptcy Code are satisfied, and the Debtor should be authorized to assume and assign the Contracts to the successful Proposed Purchaser. The Debtor also requests approval of the notice of assumption and assignment procedures and cure amounts (the Notice of Assumption and Assignment) substantially in the form attached hereto as Exhibit D, to provide notice to all non-Debtor counter-parties to the Contracts.8 The Debtor proposes to serve the Notice of Assumption and Assignment on all parties to executory contracts

In order to facilitate an organized Auction and Sale Hearing, the Notice of Assumption and Assignment provides notice of assumption, assignment, cure amounts related thereto and a procedure for resolving any objections with respect to cure amounts and the assignability of the Contracts.

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and unexpired leases to be assumed and assigned to the Prevailing Bidder(s) (the Contract Notice Parties) within three business days following the conclusion of the Auction. The Debtor submits that such service will provide the Contract Notice Parties with adequate notice of the proposed assumption and assignment of their executory contracts and unexpired leases. E. Sale of the Transferred Assets Should be Granted Free and Clear of Liens, Claims, Interests and Encumbrances 27. Section 363(f) of the Bankruptcy Code provides that [t]he trustee may sell

property under subsection (b) or (c) of this section free and clear of any interest in such property of an entity other than the estate, only if: (1) applicable nonbankruptcy law permits sale of such property free and clear of such interest; such entity consents; such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on such property; such interest is in bona fide dispute; or such entity could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest.

(2) (3)

(4) (5)

11 U.S.C. 363 (f). 28. Section 363(f) is written in the disjunctive. See In re Collins, 180 B.R. 447, 450

(Bankr. E.D. Va. 1995) (Section 363(f) is phrased in the disjunctive, such that only one of the enumerated conditions must be met in order for the Court to approve the proposed sale.); In re P.K.R. Convalescent Ctrs., Inc., 189 B.R. 90, 94 (Bankr. E.D. Va. 1995) ([Section] 363 covers more situations than just sales involving liens . . . Section 363(f) addresses sales free and clear of any interest . . . .); In re Gen. Bearing Corp., 136 B.R. 361, 366 (Bankr. S.D.N.Y. 1992) (listing requirements). Accordingly, to approve a sale free and clear of all liens, claims, encumbrances,

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and other interests, the Debtor is required only to meet one of the five conditions listed in section 363(f). 29. The only liens against the Transferred Assets are held by the Lenders, who have

consented to the Sale of the Transferred Assets and are releasing their liens pursuant to their credit bid. Furthermore, to the extent the Sale of the Transferred Assets is to a party other than the Proposed Purchaser, the Lenders liens will attach to the net cash proceeds derived from the Sale of the Transferred Assets in the same validity, force and effect that such liens now has against the Transferred Assets, subject to the rights and defenses, if any, of the Debtor with respect thereto. Accordingly, the Sale of the Transferred Assets will satisfy section 363(f)(2). 30. The Sale of the Transferred Assets satisfies the statutory prerequisites of section

363(f) of the Bankruptcy Code. Accordingly, the Debtor requests that the Transferred Assets be transferred to the Proposed Purchaser or other Prevailing Bidder free and clear of all liens, claims, encumbrances, and interests, with any such liens, claims, encumbrances, and interests to attach to the net sale proceeds of the Transferred Assets. 31. The Sale Proceeds will be placed into a segregated account to be used only

(i) pursuant to court order during the case or (ii) distributed to creditors pursuant to a confirmed plan of reorganization. Notice of Bid Procedures and Sale Hearing 32. The Debtor has served all interested parties with notice of the Motion and Bid

Procedures as set forth in the Certificate of Service of First Day Matters. 33. In accordance with Bankruptcy Rule 6004(f)(1), sales of property outside of the

ordinary course of business may be by private or by public auction. See FED. R. BANKR. P. 6004(f)(l). Further, pursuant to Bankruptcy Rule 2002(a)(2), this Court may, for cause shown, shorten or direct another method of giving notice regarding the general 21 day by mail period for
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the proposed use, sale, or lease of property of the estate other than in the ordinary course of business. See FED. R. BANKR. P. 2002(a)(2). Subject to Bankruptcy Rule 6004, the notice of a proposed use, sale, or lease of property required under Bankruptcy Rule 2002(a)(2) must include the time and place of any public sale, the terms and conditions of any private sale, and the time fixed for filing objections. See FED. R. BANKR. P. 2002(c)(1). Moreover, the notice of a proposed use, sale, or lease of property is sufficient if it generally describes the property. Id. 34. Within three business days following the entry of the Bid Procedures Order, the

Debtor will serve a notice of the Sale, Auction, and Hearing (the Auction and Sale Hearing Notice) by first class mail, postage prepaid, to: (a) all potential purchasers previously identified or solicited by the Debtor and any additional parties who have previously expressed an interest in potentially acquiring the Transferred Assets at any time; (b) all other potentially interested parties identified by the Debtor or its advisors; (c) the Office of the United States Trustee; (d) counsel for the Proposed Purchaser; (e) counsel for the Official Committee of Unsecured Creditors (the Committee) (if one is appointed), (f) all parties who have filed a notice of appearance in the Bankruptcy Case; (g) all parties who are known to possess or assert a lien, claim, encumbrance or interest in or upon any of the Transferred Assets; all parties to the Debtors executory contracts or unexpired leases; (h) all applicable federal, state and local regulatory or taxing authorities or recording offices which have a reasonably known interest in the relief requested in the Motion, including the Internal Revenue Service; and (i) all other parties on the Debtors most current master service list filed in the Bankruptcy Case. Such Auction and Sale Hearing Notice shall be deemed to satisfy the notice requirements of Bankruptcy Rules 2002 and 6004 and section 363(b) of the Bankruptcy Code, and constitute good and sufficient notice such that no other or further notice is required.

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Conclusion The Debtor respectfully requests entry of two orders. First, the Bid Procedures Order (attached as Exhibit B): (i) approving the Bid Procedures to be used for the Sale of the Transferred Assets; (ii) scheduling an Auction Date; (iii) scheduling a Sale Hearing to approve the Sale, and approving the form and manner of notice thereof; and (iv) approving procedures to fix cure amounts related to assumption and assignment of the Contracts and approving notice thereof. Second, the Sale Order (i) approving the sale of the Transferred Assets free and clear of liens, claims, interests and encumbrances; (ii) if the Proposed Purchaser is the Prevailing Bidder, approving the APA, as may be modified, and the obligations incurred by each of the Debtor and the Proposed Purchaser thereunder; (iii) authorizing the assumption and assignment of the Contracts to the Proposed Purchaser or another Prevailing Bidder, and (iv) granting any other relief this Court deems just and proper. Dated: May 2, 2013 Respectfully submitted, HAYNES AND BOONE, LLP By:_/s/ Karl Burrer________ Charles A. Beckham, Jr. Texas Bar No. 02016600 Karl Burrer State Bar No. 24043584 Arsalan Muhammad State Bar No. 24074771 1221 McKinney, Suite 2100 Houston, Texas 77010 Telephone: 713.547.2000 Facsimile 713.236.2600 PROPOSED COUNSEL TO TIMEGATE STUDIOS, INC.

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CERTIFICATE OF EMERGENCY CONSIDERATION I hereby certify that the Motion is accurate and there is cause to have the Motion heard on an emergency basis. /s/ Karl Burrer Karl Burrer

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