June 10, 2022 – The Court hearing the EYP Group Holdings cases has postponed the Debtors' scheduled June 13th auction until June 16th [Docket No. 255], with the delay coming after the Debtors' Official Committee of Unsecured Creditors (the “Committee”) succeeded in obtaining a Court order compelling the Debtors to treat the bid of Page Southerland Page, Inc (“Page”) as a qualified bid [Docket No. 245]. 

That Court order notes that "Page has agreed to increase its Bid to $5 million in excess of the value of the Stalking Horse Bid (the 'Increased Page Bid')."

On June 7, 2022, further to the Court’s May 11th bidding procedure order [Docket No. 81] and absent (the Debtors contended) the receipt of any other qualified bids, the Debtors cancelled the auction scheduled for June 8, 2022, and designated Ault Alliance, Inc.* (the “Stalking Horse Bidder,” $67.7mn bid) as the successful bidder [Docket No. 211]. The Stalking Horse Bidder's APA is attached to the bidding procedures order at Exhibit 1 and a sale hearing is scheduled for June 22nd.

In a June 9th requesting motion [Docket No. 226] the Committee argued, however, that the Debtors were obliged to qualify the Page bid (which comes with a $10.0mn deposit which Page would forfeit if it did not close on a sale); a decision "mandated by the Debtors’ fiduciary duties. Failure to do so, on the other hand, would be a clear breach." 

In addition to the $10.0mn forfeitable deposit, Page had also on June 9th provided "evidence of a $50 million revolving credit facility from Bank of America (the 'Proof of Financing')" with these financial bona fides undercutting, the Committee argued, the Debtors' arguments that the Page bid came with untenable deal risks (the Debtors also arguing that "Page’s bid might encourage the Stalking Horse to terminate its APA or call a DIP default").

Clearly, the Court was sympathetic with the Committee's view that this is "a calculated risk by which the estate stands to benefit significantly, and the downside of which the Committee is willing to take…"

The Committee Motion

The Commitee motion provides: “[t]he Committee requests entry of an Order on shortened notice compelling the Debtors to qualify Page’s Bid as Qualified Bid in accordance with the Bid Procedures Order, and proceed to Auction.

Page has: (a) increased its Deposit to $10 million—and that cash is actually sitting in the Debtors’ bank account (by comparison, the Stalking Horse has posted no deposit); (b) provided evidence that a major national bank is ready to fund a $50 million line of credit on the contemplated timeline and in regard to acquisition of the Debtors’ businesses; and (b) submitted a markup of the Stalking Horse Agreement which includes no financial contingency [see Motion to Extend at Exhibit A].

This means that if the Debtors qualify Page’s Bid as a Qualified Bid and Page fails to close the sale transaction, then Page forfeits the $10 million deposit. The Debtors have indicated concern that qualifying Page’s bid might encourage the Stalking Horse to terminate its APA or call a DIP default. But as stated on the record at the hearing on June 8, 2022, the Committee—as the fiduciary body representing the interests of the fulcrum security holders in this case—believes that to be a calculated risk by which the estate stands to benefit significantly, and the downside of which the Committee is willing to take. This is not only because the $10 million forfeited deposit would cover all outstanding DIP obligations, but also because the Committee—based upon its advisors’ analysis—believes that a traditional chapter 11 reorganization is not only feasible but perhaps preferable to the Stalking Horse APA. The Committee has shared significant concerns with the Debtors regarding the Stalking Horse APA and the related sale documents, and if the Stalking Horse is the successful bidder, will be filing a sale objection to that effect.^FN4

Moreover, the Debtors have the discretion they need to qualify Page’s Bid via the Debtors’ Judgment Qualifier, the Debtors’ Reservation of Rights and the Fiduciary Out contained in the Bid Procedures. The Stalking Horse agreed to the Bid Procedures, including those protections, and thus, the Committee contends would have no ground to terminate the Stalking Horse APA or the Bid Procedures for the Debtors’ exercise of rights pursuant to those negotiated provisions (though as set forth above, that is a risk the Committee thinks—after due deliberation—is worth taking).

For this reason, qualification of Page’s Bid is, in the Committee’s view, mandated by the Debtors’ fiduciary duties. Failure to do so, on the other hand, would be a clear breach. First, it would mean walking away from a $10 million non-refundable deposit solely to avoid the risk that the Stalking Horse may seek to terminate the Stalking Horse APA—a right the Committee submits the Stalking Horse lacks, and would be unlikely to exercise in any event.FN5 But even if the Stalking Horse were to exercise that remedy (and the Committee were to lose any challenge thereto), the Committee believes that the Stalking Horse APA, in its current form, may not be the best way to maximize value for the benefit of the estates, and is actually preventing pursuit of a value-maximizing plan path. The termination of the Stalking Horse APA is therefore too remote and too insignificant a risk to adequately support the Debtors’ refusal to qualify Page’s Bid.

Second, failure to qualify Page’s Bid would mean tethering the estate’s ability to realize value from these chapter 11 cases to the Stalking Horse’s ability to close the sale transaction—and without a deposit (the Stalking Horse has made none), the Committee is not at all certain that the Stalking Horse has the financial wherewithal to do so. The Court should thus find that acquittal of the Debtors’ fiduciary duties mandates qualification of Page’s Bid as a Qualified Bid, and the commencement of an Auction.”

^FN4: Page has confirmed that it possesses certain security clearances that the Stalking Horse currently lacks, which would likely moot many of the Committee’s concerns, which relate to the current form of the transition services agreement. In addition, while the Committee has not succeeded in resolving any of its sale-related issues in respect of the Stalking Horse APA, Page may very well facilitate resolution of a sufficient number of the Committee’s concerns such that the Committee determines that a sale (as opposed to a plan) path is indeed in the best interests of the estate.

Key Dates [Docket No. 255]:

• Auction: June 16, 2022
• Deadline for the Debtors to file a notice of Successful Bidder: No Later one (1) business day following the conclusion of the Auction
• Objection Deadline: June 20, 2022
• Sale Hearing: June 22, 2022

Background

On June 7, 2022, further to the Court’s May 11th bidding procedure order [Docket No. 81] and absent the receipt (the Debtors contended) of any other qualified bids, the Debtors cancelled the auction scheduled for June 8, 2022, and designated Ault Alliance, Inc.* (the “Stalking Horse Bidder,” $67.7mn bid) as the successful bidder [Docket No. 211]. The Stalking Horse Bidder's APA is attached to the bidding procedures order at Exhibit 1 and a sale hearing is scheduled for June 22nd.

*Ault (f/k/a DPW Financial Group, Inc.) is a global private equity firm wholly owned by BitNile Holdings, Inc. (f/k/a Ault Global Holdings, Inc.), a Delaware corporation and diversified holding company publicly traded on the New York Stock Exchange ("BitNile"), with particular investment and operational expertise in management-held businesses, will serve as the stalking horse bidder.

Under the terms of the Stalking Horse APA, Ault will purchase the assets of EYP for an aggregate enterprise value of $67.7 million, which includes a credit bid of an approximate amount of up to $11.6 million, consisting of the amount under the DIP Facility and the full amount of the obligations owed under the Debtors' Senior Secured Facility, with the remainder of the consideration consisting of cash and assumed liabilities subject to certain customary adjustments as provided in the Stalking Horse APA.

An 8-K filed by BitNile specifies, "Under the Asset Purchase Agreement, Ault Alliance or its designee(s), upon the closing of the transactions contemplated thereby, will purchase the Assets and assume certain of EYP’s obligations associated with the purchased Assets through a supervised sale under Section 363 of the Bankruptcy Code. Ault Alliance’s stalking horse bid is comprised of an aggregate consideration equal to approximately Sixty-Seven Million Seven Hundred Thousand Dollars ($67,700,000), which includes the purchase price for the Assets under the Asset Purchase Agreement of Sixty-Two Million Five Hundred Thousand Dollars ($62,500,000), as adjusted by a closing working capital adjustment (the 'Purchase Price'), plus Ault Alliance’s assumption of certain liabilities. The Purchase Price would be paid in cash, less the outstanding amount of the DIP Loans and the senior secured loans previously issued by Ault Alliance to EYP, in an approximate aggregate amount of Eleven Million Seven Hundred Fifty Thousand Dollars ($11,750,000), and less the amount of certain liabilities assumed by Ault Alliance."

About the Debtors

According to the Debtors: “Celebrating 50 years of being an interdisciplinary design firm specializing in higher education, government, healthcare, and science & technology." 

The Kefalari Declaration adds: "The firm’s integrated design teams offer planning and design, high-performance engineering, environmental graphics, preservation and modernization, interiors and workplace and sustainable landscapes to create memorable designs that enhance people’s lives and communities. This work has been recognized with more than 90 design awards in the past five years alone.

Founded in 1972 in Albany, New York, for the past 50 years, EYP has steadily grown through new clients, strategic mergers and acquisitions, expanding the firm’s expertise and geographic reach to serve clients better. Currently, EYP has interdisciplinary offices in 11 cities across the United States and projects in more than 100 countries. The Company has been consistently ranked on Architectural Record’s Top 300, Building Design & Construction’s Giants and both Engineering News Record’s Top Design Firms and Top Green Buildings Design Firms lists since 2015."

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