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October 1, 2019 – Further to it's September 11th bidding procedures order [Docket No. 147], and absent any qualified bids other than that of stalking horse Loot Crate Acquisition, Inc. (the “Stalking Horse,” an affiliate of debtor-in-possession (“DIP”) lender Money Chest, LLC), the Court hearing the Loot Crate cases approved the $30.0mn sale of the Debtors’ assets to the credit bidding Stalking Horse [Docket No. 254]. The executed version of the asset purchase agreement (the "APA") amongst the Debtors and the Stalking Horse is attached to the order as Exhibit A.
The APA is signed by Cathy Hershcopf of Cooley LLP on behalf of the Stalking Horse. Ms Hershcopf had previously represented Joel Weinshanker (listed in Nevada state records as an officer of Money Chest) in the acquisition of 85 percent of Elvis Presley's Graceland. More importantly for the Debtors, Mr Weinshanker is the President and CEO of National Entertainment Collectibles Association ("NECA"), a manufacturer of collectibles licensed from films, video-games, sports, music, and television.
On August 9, 2019, ie shortly before the Debtors' August 12th Chapter 11 filings, Money Chest, LLC purchased amounts outstanding under the Debtors’ Prepetition Credit Facility ($31.6mn) and Prepetition Second Liens ($2.5mn).
The Stalking Horse APA states: “In addition to the assumption of the Assumed Liabilities and the Cure Costs, the aggregate consideration (the ‘Purchase Price’) for the sale, transfer and delivery of the Purchased Assets, at the Closing, shall be an amount equal to (i) thirty million dollars ($30,000,000) payable in the form of credit bid rights under Section 363(k) of the Bankruptcy Code consisting of the surrender and release by Purchaser of a portion of the Liabilities arising under, or otherwise relating to, the DIP Loan Agreement and First Lien Loan Agreement in an aggregate amount equal to thirty million dollars ($30,000,000) (the ‘Credit Bid and Release’) (provided that the Credit Bid and Release shall be reduced dollar for dollar to the extent that Purchaser assumes (in its sole discretion) any portion of the indebtedness under the DIP Loan Agreement or First Lien Loan Agreement), plus (ii) the amount of cash payable by Purchaser in respect of the Budgeted Reserve, plus (iii) the aggregate amounts payable by Purchaser pursuant to Section 8.5 in respect of Sellers’ Sales Taxes, including those expenses advanced or reimbursed in connection with the negotiation and settlement of certain Sales Tax obligations of Sellers."
Pre-Petition Marketing Efforts
The Debtors' bidding procedures motion [Docket No. 27] stated: “… in February of 2019, the Debtors, with support from their prior lender (Midtown Madison Management, LLC ('Midtown'), an affiliate of Atalaya Capital Management), engaged FocalPoint Securities, LLC ('FocalPoint') as their investment banker to provide various services, including consideration of all alternatives that might be available to help the Debtors continue their mission.
FocalPoint developed a broad list of over 100 potential buyers and investors, which FocalPoint and management believed might have an interest and the financial wherewithal to consummate a transaction with the Debtors.
Unfortunately, the complexity of the transaction, the uncertainty surrounding eCommerce subscription companies, the amount of the Debtors’ funded, trade, and tax debt, and the recent challenges of the Debtors’ operations due to liquidity shortfalls, made it difficult to entice investors.
On the eve of potential closure [the Debtors do not specify a particular party, if any], the Debtors were spending substantial time with another potential buyer, Loot Crate Acquisition LLC ('LCA'), an affiliate of Money Chest, LLC, a current noteholder of the Debtors. LCA and Money Chest are also affiliated with an investment group that includes one of the largest and best-run collectible manufacturers and distributors in the world.
Over the last two weeks before filing these Cases, LCA and its professionals engaged in round-the-clock diligence, culminating in a deal that began to be documented on Friday, August 9, 2019. On that date, Money Chest purchased the secured debt owed by the Debtors, known as the ‘Midtown Loan.’ As part of that transaction, Midtown advanced several hundred thousand dollars to the Debtors which had been in suspense in the Debtors’ controlled bank account, used for critical payments, including final payments to approximately fifty employees that were terminated on August 9 between California and Pennsylvania. This reduction in force was necessary for the Debtors’ survival, as it cannot sustain a full-bodied workforce in light of challenging sales and collections –even with the DIP financing Money Chest is providing.
As the Debtors’ are finalizing an asset purchase agreement with LCA, the Debtors will also file an application to retain FocalPoint to seek other bids or investors.
The Debtors file this Motion requesting that the Court approve bid procedures for the sale of the Debtors’ assets. The Bid Procedures are designed to generate the greatest level of interest and the highest or otherwise best offer for the Debtors’ assets, including, without limitation, the Debtors’ inventory, accounts receivable, deposits, fixtures, furniture and equipment, customer lists, intellectual property, interests in unexpired contracts and leases (the ‘Executory Contracts’) and any other available assets (collectively, the ‘Assets’).”
About the Debtors
Founded in 2012, Loot Crate, Inc. is an eCommerce subscription company that specializes in providing its customers with curated boxes (or “crates”) of “geek and gamer products” each month. These products consist of exclusive figurines, shirts, gear, and gadgets, as well as limited edition collectibles. Loot Crate partners with industry leaders in entertainment, gaming, sports, and pop culture to deliver monthly themed crates, produce interactive experiences and digital content, and films original video productions. Since 2012, Loot Crate has delivered more than 32 million crates to fans in 35 territories across the globe.
Loot Crate is headquartered in Los Angeles, California.
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