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November 9, 2020 – In a two page order without comment, the Court hearing the Suitable Technologies case has extended (for a second time) the periods during which the Debtors have an exclusive right to file a Plan and solicit acceptances thereof, through and including January 21, 2021 and March 22, 2021, respectively [Docket No. 296]. Absent the requested relief, the Plan filing and solicitation dates expire on October 23, 2020, and December 22, 2020, respectively.
In the motion requesting this second extension (as was the case with the first extension motion), the Debtor makes a lot of its “robust marketing and Sale Process,” but that process ended in August with closings in respect of two tiny sales (one of which was a $100k sale to the Debtor's founder Scott Hassan) and now more time is apparently necessary to "negotiate and implement an appropriate exit mechanism for the completion of this Chapter 11 Case.” Perhaps a beam?
The extension motion [Docket No. 283] explains, “The Debtor has been in chapter 11 for approximately eight (8) months. During this time, the Debtor has worked diligently to ensure the Debtor’s smooth transition into chapter 11 and to maximize the value of the Debtor’s estate for the benefit of all stakeholders through a robust marketing and sale process….
Though this Chapter 11 Case might not be characterized as large and complex, the Debtor has nevertheless been required to devote a significant amount of time, energy and resources to tasks other than formulating a chapter 11 plan and related disclosure statement. Throughout the Chapter 11 Case, the Debtor’s Chief Restructuring Officer and professionals were focused on conducting a robust marketing and sale process for the Debtor’s assets. The Debtor devoted significant time and attention to this Sale Process, which began prior to the Petition Date and continued in accordance with the Bidding Procedures Order on a post-petition basis. These efforts resulted in the Debtor’s obtaining approval for and closing the Sales. Given the foregoing progress, the Debtor submits that the complexity and relatively short duration of this Chapter 11 Case warrant the extension of the Exclusive Periods, so that the Debtor can negotiate and implement an appropriate exit mechanism for the completion of this Chapter 11 Case.”
Postpetition Marketing Efforts
The Debtor's bidding procedures motion provides: "On March 18, 2020, Stout commenced the formal post-petition marketing process for the Debtor’s assets by circulating a 'teaser' to nearly 150 prospective strategic, financial and hybrid buyers, across numerous diverse industries. The teaser included a brief description of the Debtor’s assets and the Sale Process, and was accompanied by a form non-disclosure agreement (an ‘NDA’). In addition, prior to filing this Motion, consistent with the DIP Financing Milestones, Stout finalized a confidential information memorandum for the Debtor’s assets, and populated an electronic data room with related diligence information. Although the marketing process has only recently begun, Stout has received strong interest to date, as a number of parties have executed or are negotiating an NDA and had informational calls with Stout."
Prepetition Marketing Efforts
The Debtors' prepetition marketing efforts give a bit more flavor in respect of what is an unusual bankruptcy filing, combining elements of what may be the first ever "vanity Chapter 11" filing (the Debtors' founder, billionaire Scott Hassan who has also provided DIP financing, apparently most interested in finding a way to make sure that the purchasers/licensors of his Beam products are not left without support and his reputation as a "technology visionary" damaged) and a divorce trial.
The motion continues: "Prior to the Petition Date, after experiencing financial difficulties, the Debtor determined to wind down its operations and find a third party buyer. In doing so, between December 2018 and May 2019, the Debtor initiated numerous discussions with over a dozen prospective purchasers that the Debtor believed maintained the capacity and industry wherewithal to, among other things, sustain the Beam servers. In August 2019, at the conclusion of those efforts, the Debtor entered into an asset purchase agreement (the ‘Prepetition APA’) with a distributor interested in maintaining its customer relationships (and thus certain of the Debtor’s relationships) in the telepresence market, for the sale of substantially all of the Debtor’s assets (the ‘Prepetition Sale’).
Although the Prepetition APA, in the Debtor’s business judgment, presented the only viable offer for its assets under the circumstances, in November 2019, the spouse of the Debtor’s controlling shareholder, in her alleged capacity as a minority shareholder (as a result of certain community property shares), commenced a civil action in the Court of Chancery of the State of Delaware, seeking, among other things, a preliminary injunction to enjoin the Prepetition Sale. On December 13, 2019, the Court of Chancery denied the preliminary injunction request.
Although the Prepetition APA constituted an arms-length, third-party transaction, the Prepetition Sale ultimately did not close."
The motion provides: "Since the Debtor’s formation in 2011, the Debtor’s founder, Scott Hassan, has been the Debtor’s sole source of funding. Since that time, Mr. Hassan, through certain entities owned and controlled by him, including the Lender, has provided almost $92 million pursuant to documented promissory notes. Of this amount, $5.93 million was through secured notes with the Lender (i.e., the Prepetition Secured Promissory Notes), $8 million was through an unsecured note with the Lender, and the remainder was through unsecured notes (i.e., the Prepetition Unsecured Promissory Notes) with Greenheart Investments, LLC ('Greenheart'), an entity affiliated with Mr. Hassan.
The most recent secured note — the Prepetition Secured 2020 Promissory Note — was executed on January 20, 2020 and was put in place as a 'pre-DIP Loan' to provide the Debtor with the financing needed to prepare for this chapter 11 filing. As of the date hereof, the principal balance of the Prepetition Secured 2020 Promissory Note is approximately $1.655mn and is secured by substantially all of the Debtor’s assets, as provided for in the Prepetition Security Agreement.
Aside from these obligations, the Debtor has no bank debt, less than $1 million in unsecured (liquidated) trade debt, and contingent liabilities arising from subscription service, warranty and repair obligations tied to its products."
About the Debtors
The Debtors' declaration in support of first day motions provides:
"The Debtor, founded in 2011 by Scott Hassan, is a privately held Delaware corporation headquartered in Palo Alto, California, which historically focused on the development, manufacturing, and sale of a telepresence system and technology platforms in both domestic and international markets. The Debtor also maintains an intellectual property portfolio, which includes a number of different patents associated with, among other things, wireless connectivity, as well as trademarks in the United States and other foreign jurisdictions. Prior to resigning as a director of the Debtor on February 13, 2020, and as an officer of the Debtor on February 18, 2020, Mr. Hassan was the Company’s Chief Executive Officer, as well as the sole member of its Board of Directors (the 'Board'). In connection with Mr. Hassan resigning from the Board, Ronald Barliant, a former United States Bankruptcy Judge for the Northern District of Illinois, was appointed as the Company’s sole (independent) director.
The Debtor’s primary product is called 'Beam', a telepresence device designed to promote remote collaboration, provide individuals with the ability to communicate remotely with others on both a visual and audio basis, and move freely through a workplace using the Company’s manufactured devices and companion software. The “Beam” has two product lines: (a) the Beam for the consumer market; and (b) the BeamPro for the enterprise market. Prior to terminating its direct sales operations in December 2018, which is discussed below, the Debtor sold or leased over 7,000 Beams to customers directly and through its authorized distributors. The Debtor generally sold and leased its Beams using a subscription service model, with customers registering for a one- or three-year subscription service, and in connection with their purchase, customers also received a limited warranty. The Debtor also maintains servers that support the Beam’s operation. As of the Petition Date, although the Debtor is continuing to wind down its operations and affairs, it continues to maintain the servers."
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