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February 25, 2023 – HyreCar, Inc. (OTCMKTS: HYRE; “HyreCar“ or the “Debtor”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 23-10259 (Judge John T. Dorsey). The Debtor, who operates a “virtual car-sharing marketplace that allows individual and commercial car owners to rent their idle cars to ride-sharing service drivers ïs represented by Andrew J. Roth-Moore of Cole Schotz P.C. Further board-authorized engagements include: (i) Greenberg Glusker Fields Claman & Machtinger LLP as general bankruptcy counsel, (ii) Zukin Partners LLC. (“Zukin”) as investment bankers (replacing Northland Capital Markets whose engagement agreement the Debtor is looking to reject), (iii) Greenberg Glusker Fields Claman & Machtinger LLP as securities counsel and (iv) Donlin Recano & Company, Inc. as claims agent.
The Debtors’ lead petition notes between 100 and 200 creditors; estimated assets between $10.0mn and $50.0mn; and estimated liabilities between $10.0mn and $50.0mn (no funded debt; NB: unaudited financial statements have the Debtor's assets at $16,480,799 and liabilities at $18,407,037, respectively for year end 2022). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Aon Risk Insurance Services West, Inc ($1.9mn insuarance claim), (ii) Latham & Watkins LLP ($1.1mn professional services claim) and (iii) TTEC BV ($908k trade claim).
On February 21, 2023, the Debtor's Board of Directors terminated the employment of its President, Brian Allan, effective February 21, 2023.
Goals of the Chapter 11 Filings
The Inguez Declaration (defined below) provides that the Debtor will use the bankruptcy to pursue "a sale of substantially all its assets with proposed DIP financing to fund operations and administration of the case, including a 363 process."
Stalking Horse Bid and DIP Financing
The Inguez Declaration provides: …in "January 2023 I received a communication from William F. Holmes ('Holmes') that he had recently purchased approximately 6% of the Company’s stock (and that he had filed the necessary Schedule 13D) and that he was interested in purchasing the Company through his company Holmes Motor Group, LLC ('Holmes Group')….Holmes’ initial proposal contemplated an out-of-court public-to-private stock acquisition via merger. During those negotiations, the urgent liquidity needs of the Company coupled with the pending litigation and other claims against the Company became readily apparent, and thus, the negotiations quickly pivoted to the exploration of an asset sale through a chapter 11 process with a company affiliated with the Holmes Group, Holmes Motors, Inc. ('Holmes Motors' the 'DIP Lender' or the 'Stalking Horse Bidder') providing debtor-inpossession financing sufficient to fund operations through and a section 363 sale process.
After extensive negotiations with Holmes Motors and the Debtor’s advisors, the Debtor and the Stalking Horse Bidder agreed to the terms of DIP financing, discussed below, and the material terms of an asset purchase agreement, in the form of a Term Sheet [which is attached to the declaration at Exhibit A] (the 'Stalking Horse Bid'), subject to final documentation. The Term Sheet contemplates that Holmes Motors will provide a DIP loan of $5 million to be credited against the total cash consideration for the Stalking Horse Bid of $7.75 million, subject to higher or otherwise better offers."
Events Leading to the Chapter 11 Filing
In a declaration in support of first day filings (the “Inguez Declaration”) [Docket No. 15], Eduardo Iniguez the Debtor's Chief Executive Officer, provides: “the Company has experienced an unprecedented liquidity crisis on account of events largely outside the Company’s control, including: (a) a failed joint venture with AmeriDrive Holdings, Inc. intended to substantially increase the fleet of vehicles utilized on the Company’s platform; and (b) an $8 million debenture transaction that never closed; and (c) mounting legal fees from numerous lawsuits and investigations, including lawsuits/investigations relating to stock sales that occurred in 2021.
HyreCar’s path to profitability has never been a question of customer demand. In key markets there are more drivers than available vehicles. To address the deficiency in supply/vehicles, HyreCar has explored strategic relationships with fleet owners and other companies with access to a large number of vehicles to meet demand. HyreCar believed it found such a relationship with AmeriDrive Holdings, Inc. ('AmeriDrive') – a large fleet operator on the HyreCar platform with what was believed to be scalable infrastructure and technology.
In September 2022, HyreCar entered into a joint venture with AmeriDrive and formed HyreDrive, LLC ('HyreDrive'), established for the primary purpose of expanding the strategic relationship between HyreCar and AmeriDrive and creating a facility to purchase and hold a large fleet of cars to be used exclusively on the HyreCar platform. HyreCar holds a 1% membership interest in HyreDrive, and AmeriDrive holds the remaining 99%. HyreDrive is a special purpose entity, and, its assets, liabilities and results of operations are not consolidated with those of HyreCar. HyreDrive established a bankruptcy remote, wholly owned subsidiary of HyreDrive and a titling trust (the 'Vehicle Trust') to facilitate the acquisition and financing of vehicles.
As a part of the AmeriDrive agreement, Credit Suisse agreed to provide up to $70 million in an initial warehouse facility, Medalist Partners agreed to provide $20 million, and HyreCar agreed to put in $10 million for the purchase of vehicles through the joint venture. Each party agreed to provide its proportionate share of the borrowing base, resulting in HyreCar being required to put in $1 million for every $10 million borrowed against the line. In addition to the 10% contribution, HyreCar also agreed to pay a 2 percent transaction fee, hold 2 percent in reserves, and maintain an unrestricted cash balance of $6 million, among other requirements.
In connection with the joint venture, HyreCar executed a Performance Guaranty dated September 2, 2022 (the 'Performance Guaranty') in favor of the Vehicle Trust. Pursuant to the Performance Guaranty, the Company guaranteed to the lenders (Credit Suisse and Medalist Partners) the performance by AmeriDrive and HyreDrive in connection with their respective obligations identified in a Base Indenture with the Vehicle Trust.
The AmeriDrive joint venture quickly evolved into a failed investment due to AmeriDrive’s failure to perform. HyreCar received notice that Credit Suisse directed the trustee to exercise its rights and/or remedies under the Performance Guaranty due to, among other things, HyreDrive’s failure to purchase vehicles meeting certain contractual criteria. Thus, the trustee demanded that HyreCar, pursuant to the Performance Guaranty, pay for nonqualifying vehicles in an amount in excess of $3 million.
On February 1, 2023, in relation to the Company’s joint venture with AmeriDrive, the Company received confirmation that liquidation of vehicles purchased by the joint venture would proceed.
On February 13, 2023, HyreCar was further served notice that Credit Suisse had begun to liquidate the vehicles held in the Vehicle Trust due to HyreDrive’s failure to perform."
As of the Petition date, the Debtor held no secured debt obligations. The Debtor also has unsecured obligations to various other creditors, including (i) ordinary trade creditors, (ii) its landlord, (iii) former executives, (iv) pre-petition legal and other professional fees and (v) contingent and disputed litigation claimants. For the period ended September 30, 2022, the Debtor’s financial statement filed with its 10-Q Quarterly Report reflects total liabilities of $15,426,000.
Arctis Global LLC is the only corporate entity that directly or indirectly owns 10% or more of any class of HyreCar Inc.’s equity interests. As noted above, William F. Holmes, the stalking horse's principal, holds 6%.
About the Debtors
According to the Inguez Declaration adds: "HyreCar is a publicly traded emerging growth company formed in November 2014 in response to a need for a car-sharing platform for individuals who wanted to drive for ridesharing companies such as Uber Technologies Inc. and delivery companies such as DoorDash, Inc., but who either did not have access to their own vehicles or whose automobiles could not meet the standards imposed by the ride-sharing or food and package delivery service companies, such as excluding cars that were beyond a certain age.
The Company’s core business is the operation of a digital car-sharing marketplace that allows individual and commercial car owners to rent their cars to ride-sharing and delivery service drivers. The Company does not own or lease any of the cars utilized in the car-sharing marketplace. The Company further provides commercial automobile insurance coverage to both car owners and drivers through the marketplace, limited to periods when the driver is actively engaged in ridesharing or delivery of food or packages
HyreCar’s proprietary car-sharing marketplace has been developed to (i) onboard car owners and drivers, (ii) facilitate the matching of car owners and drivers and (iii) log rental activity for owners and drivers. All transactions related to the rental (including, but not limited to, identity verification, background checks, rentals, deposits and insurance costs) are run securely through the HyreCar platform. Drivers and owners access their rental or car dashboards through a unique login. Drivers can register, apply, initiate, terminate and extend a rental through the web platform or mobile application while owners can manage their car or fleet of cars through the owner web platform."
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