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November 29, 2018 – The Debtors’ Committee of Unsecured Creditors (the “Committee”) objected to the Debtors’ proposed bidding procedures [Docket No. 37], citing concerns over sale price transparency and inappropriate bid protections. The objection states, “First, the Bidding Procedures are devoid of a clear explanation of the Purchase Price and the net realizable cash consideration to the estates from the sale of the Purchased Assets under the Stalking Horse APA (the ‘Net Realizable Value’). The Debtors should be required to share the Net Realizable Value with prospective bidders sufficiently in advance of the Bid Deadline and any bidding at an auction should be based on the Net Realizable Value as a financial benchmark. As currently contemplated, the Net Realizable Value is unclear and can change substantially based on a number of factors.
Second, the Bid Protections requested in the Stalking Horse APA are inconsistent with precedent established by the United States Court of Appeals for the Third Circuit. The Third Circuit has consistently held that bid protections are only appropriate where they are necessary to preserve the value of a debtor’s estate as required pursuant to section 503 of the Bankruptcy Code….Even if this Court finds that bid protections are appropriate in these cases, the currently contemplated Bid Protections are excessive. The Stalking Horse APA contemplates a Breakup Fee of three percent (3.0%) of the Base Cash Amount ($84,150,000) and an Expense Reimbursement Fee of $2,000,000. Even if 3.0% is reasonable as a breakup fee, this percentage should be applied to the Net Realizable Value, rather than the Base Cash Amount. The Motion recognizes that the Base Cash Amount is subject to certain adjustments resulting in a Purchase Price of $77.5 million, which includes an $8.1 million subordinated Seller Note payable over 4.5 years that is not guaranteed by a credit-worthy entity. The Purchase Price must be further reduced to account for the potentially millions of dollars of Debtor Obligations under the Stalking Horse APA….The proposed overbid increments are also excessive. The Stalking Horse APA currently contemplates an initial overbid of $1,000,000 plus the Bid Protections and subsequent overbid increments of $2,500,000. These numbers are too high for a transaction of this size and will have a chilling effect on bidding. The initial overbid should be reduced to $500,000 plus Bid Protections (as reduced to be a percentage of the Net Realizable Value not to exceed 4.0%) and the subsequent overbid increments should be no more than $1,000,000.”
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